Could a shopping center owner earn 5 percent to 35 percent of a firm's profits for a term of years without investing any money? Call it a gold mine - or call it licensing of trademarks and service marks.
Trademarks are known, valuable assets of major brand companies. The COKE trademark is valued at more than $25 billion. The MARLBORO trademark is valued at $20 billion. Disney derives billions of dollars of value from Mickey Mouse, Minnie, Goofy and Pluto.
Yet, shopping center developers and asset managers have been slow to capitalize on the trademarks they own.
Take, for example, the-area Woodfield Shopping Center, developed in 1971 by Homart Development Co. The trademark WOODFIELD was a coined expression of Homart and was, at the time the project was developed, completely controlled by the company.
Now, more than 40 businesses capitalize on the fame of Woodfield without paying for the privilege. Hardly mom-and-pop stores, users of the trademark WOODFIELD include four car dealerships (Ford, Lexus, Subaru and Volkswagen) and a Hilton. If it had licensed "Woodfield," Homart could have generated significant royalty income each year with little out-of-pocket cost.
As in other industries, a shopping center trademark can be licensed for use by third parties. Character licensing is well-known, as in the case of Disney, which licenses its creations for everything from cups to sheets. Less well-known is licensing by housewares makers. Farberware makes pots but licenses its name for cutlery. Levi Strauss makes jeans but licenses its mark for Jeeps. Chrysler makes vehicles but licenses JEEP for toys.
Geography lessons Particular to real estate is the role a mark can play as a landmark. A third party might adopt a mark to tell its customers by shorthand its location relative to a nearby center. In Woodfield's case, most of the businesses that adopted the mark were motivated by location identification.
Many centers choose geographic terms as their marks, but over time the marks become more well-known than the places they identify. Tyson's Corner is a geographic location, but most Americans know it for the mall bearing that name.
Prior to enactment of the Trademark Act of 1946, registration of a geographic location was impossible. The U.S. Patent and Trademark Office (USPTO) would look up a proposed mark in an atlas, and, if it found such a name, the application was rejected. The name "Avon" for perfume was rejected because of the river in the United Kingdom. The word "Antarctica" for soft drinks was rejected because of the polar continent.
The 1991 USPTO decision regarding Pebble Beach Co. was a watershed for registration of geographic locations. Pebble Beach Co. sought to register the mark 17-MILE DRIVE (a stretch of road near Monterey, Calif.) for "T-shirts and sweatshirts, paper napkins, ceramic mugs, canvas tote bags and recreational services, namely providing facilities for picnicking and sightsee ing."
The USPTO's Trademark Trial and Appeal Board wrote: "... the mere fact that a term may be the name of a place that has a physical location does not necessarily make that term primarily geographically descriptive." The mark was registered.
How money is made A trademark license grants the right to use a mark for a particular purpose in a particular area and for a particular time span. For that right, the licensee typically pays the licensor a royalty for all goods or services to which the licensed mark is applied. Royalty rates vary across product categories from 1 percent to 20 percent of net sales. Licensors are usually paid quarterly.
The first step toward licensing is to register the name with the USPTO. A trademark registration is prima facie evidence of a registrant's right to use a mark for the goods or services identified in the registration. With registration, all persons engaged in commerce in the United States are given constructive notice of the registrant's adoption of the mark.
Until 1989, an applicant had to be using a name in order to register it. But now, the Intent to Use (ITU) amendment to the Trademark Act enables firms to prosecute applications nearly to full registration based on intent to use the mark. An applicant still must use the mark before registration is awarded, but he can get priority over other applicants without using the mark for a particular sort of goods. Priority in hand, he can go find a licensee to use the mark.
Through the ITU amendment, an applicant can lock up a trademark for up to three years. If the applicant runs out of time, in most instances he need only file another application to get another three years.
An applicant can get registration by going into business selling typically licensed goods. A shopping center owner can have a kiosk or other inexpensive outlet for selling cups, shirts or umbrellas bearing the mark of the center. The owner can still make non-exclusive licenses of the mark to other parties, but does not have to worry about ITU time limits.
Like Woodfield, many centers fail to protect their rights. The law does little for those that fail to do so, but there is some recourse.
One approach is for the center to buy and license back the outstanding trademark rights. The center would then take control of the mark and be able to license its mark down the line.
Also, a center could evolve its trademark into a new, more defensible mark over time. For example, Nissan cars were sold under the mark DATSUN until the mid-1970s, when the company changed the mark to NISSAN so that all its cars were sold under the same mark worldwide. Rather than abruptly change names and risk losing goodwill and brand equity associated with DATSUN, the company changed the mark first to DATSUN NISSAN and later to NISSAN.
Likewise, a shopping center could evolve its current, generic name into one that could be registered.
Trademark law differentiates between strong and weak trademarks. The pecking order for trademarks begins with "arbitrary and fanciful" marks, which are deemed strong - for example, EXXON, a coined expression to identify the well-known oil company.
Next come "suggestive" and "descriptive" marks. An example of a "suggestive" mark is SPARKLE for glass cleaner. GENERAL MOTORS is a classic example of a descriptive mark. Descriptive marks may be registered only if an applicant demonstrates that the mark has secondary meaning in the marketplace.
Finally, there are "generic" marks, which are not registerable and cannot be protected.
A valuable mark distinctly and efficiently embodies an image that drives a consumer to consume. Nike, for instance, has masterfully built its image from an athletic-shoe manufacturer to the maker of sports heroes by licensing the images and personas of superstar athletes.
Having established its image, Nike has become a property to be licensed. The more the NIKE mark is seen, the better it is known and the more powerful it becomes. Exposure and expansion come to feed each other.
The same can be true in real estate. "Woodfield" becomes better known every time another business picks up the name and promotes it.
Protecting the mark Awareness of a trademark is related to the number of times a consumer sees a mark. Common sense dictates that the shortcut to awareness is consistent use of the mark.
To make sure the mark is used consistently across licensees, the licensor should have an Identity Manual. The Identity Manual sets forth the presentation guidelines for the trademarks including type styles, inks, stationary and signage.
A trademark owner is required to police his mark to make sure that it continues to function as a trademark. Famous marks such as ELEVATOR and ESCALATOR (owned by Otis Elevator Co.) lost their trademark significance because their owners failed to police third-party users of their marks. Coca-Cola Co. and Kimberly-Clark fight the battle every day to maintain the trademark significance of their marks, COKE and KLEENEX, respectively.
In fact, most major licensing programs do not spring from hunger for license royalties but rather from the desire to prevent mark encroachment. Before President Clinton signed the U.S. Anti-Dilution Act in 1996, it was difficult to stop someone from using a valuable mark on a non-competing good or service.
For example, Coca-Cola Co. could not easily have prevented the sale of shoes bearing the trademark COKE before the Anti-Dilution Act. While well-known for beverages, COKE had not been applied to footwear, and the new use probably would not have constituted an infringement.
But under the Anti-Dilution Act, a trademark owner may get an injunction to stop someone from using its famous mark even on a non-competing good or service.
To maintain control of their marks, Coca-Cola and other companies started to market an array of goods and register their marks for those goods. What began as an exercise to protect the brand name has become a valuable new line extension and profit center for companies.
Shopping centers, too, can reap benefits by first registering, then licensing their trademarks.
The Mall of America logo was registered in August 1992, and the actual MALL OF AMERICA mark was registered in September 1994. The mark was registered not only for the shopping center but also for merchandise.
The mark is licensed to a third party, which sells merchandise at five locations within the Bloomington, Minn., mall. The goods to which the MALL OF AMERICA mark has been applied range from $1.95 key chains to $500 leather jackets.
"In the three years I've been here, our sales of licensed goods have increased by over 200 percent," says Jeff Hoke, the mall's director of retail marketing.
Mall of America intends to roll out the concept nationally but has not decided on a precise strategy.