By: Evan Sauer
If you are starting an Amazon business, or any business for that matter, it can be scary, overwhelming, and costly. The biggest mistake I see is not setting up your business properly from the start. In the Amazon private seller and Merch by Amazon industries, there are two important factors to consider from the start: (1) using the correct entity; and (2) protecting your brand.
It is crucial to form an entity for your Amazon business prior to selling. Let me repeat this, form an entity up front. Besides the tax and other advantages of using an entity like a limited liability company or corporation, when selling products or apparel, the liability is extremely high. Take for example an Amazon seller running his/her account in his/her individual name. He/she sells a scooter or alarm clock and the purchaser gets injured on the scooter or electrocuted by the clock or a he/she sells a t-shirt with a logo trademarked by someone else. What happens when the Amazon seller is sued? Ultimately, the purchaser or owner of the trademark could take everything (house, car, money, etc.). If that Amazon seller was an LLC or corporation, for example, and its only assets were the money in the bank account and inventory, the purchaser would likely be only able to come after those assets.
If your entity is structured correctly, you can avoid personal liability. In a time when everyone believes that everything is DIY, Amazon start-ups are skipping this crucial step in starting a successful business when deciding to take on the legal work themselves. It amazes me how many businesses do not have a business lawyer. When asked why, many business owners had the same response: money. Of course, this makes sense if you are a start-up you are strapped for cash and why not save money by doing some of the work yourself.
The answer is simple. If you spend a little more up front for the right advice, you will end up saving much more down the line. If your business is not structured correctly up front, it will cost you much more in the future, during a time when your business should be taking off. Also, keep in mind, although Amazon will only allow you to have one account (maybe two), that does not mean you should only use one entity. If you are selling large amounts of separate products, consider starting an entity for each product line.
Here are some initial considerations in deciding which entity(ies) is suited best for your Amazon company(ies).
In deciding what entity to set-up, the name and logo will also be a very important factor. This is your brand, and this is how you grow your business. You ultimately want to ensure that you not only have the right to use that name and logo, but that if you decide to trademark it, you will have the ability to do so. A “trademark” is a word, name, symbol, or device used to identify goods and distinguish them from others. 15 U.S.C. Section 1127.
In deciding what name to use for your company or product line, you want to make sure you’re your mark is capable of being protected. To ensure you have the strongest chance of being protected and registered with the USPTO, consider the hierarchy of trademark classifications below (weakest to strongest):
1. Generic. A generic trademark is really not a trademark at all. Using the term “banana” to describe a “banana” is not subject to trademark protection. Thus, when choosing a trademark, it is improper to choose a word that is defined in a dictionary to mean the type of product on which the trademark is being used.
2. Descriptive. Descriptive marks are also poor candidates for strong trademark protection. A mark is descriptive if it describes what the product is. For example, if the product is a drawer that goes in a desk, the trademark “desk drawer” would be considered descriptive since it merely describes what is being sold.
3. Suggestive. Suggestive marks are stronger trademarks, especially if they hint at the type of the product without actually revealing what the product is. For example, the trademark “Chicken of the Sea” which suggests an image of the type of product but does not indicate what the product is that is actually being offered.
4. Arbitrary. Arbitrary trademarks are the best choice from a legal protection viewpoint. These are words that have absolutely no meaning prior to their adoption. These marks instantly become identified with the particular brand, and the exclusive right to use the mark is easily asserted against potential infringers. An example of an arbitrary or fanciful trademark is the trademark “Nike®”.
The next step in protecting a mark is to find out whether any other company has registered or is using that same term for similar products or services. Most applicants will search the USPTO website to determine if their mark is being used. However, this should not be the end of your search, you must be thorough and search other websites, Google, etc. Someone may be using your mark that has not been registered. Keep in mind that once you start using your mark in interstate commerce, you are entitled to common law trademark rights assuming no other person has prior rights to that mark. However, one of the advantages of registering your trademark is that you are presumed to have the best rights to that trademark, and anyone opposing it will have to prove otherwise.
Also, just because your mark may not appear in the USPTO database or in another online search, does not mean it will be approved for registration. The USPTO can refuse to register your mark if it is “confusingly similar” to another mark. I would highly recommend retaining someone experienced in trademark searching to avoid any chance of rejection and unnecessary expenses.
The bottom line is that setting up your company and brand correctly up front will set you on the right path to building a successful business.
Evan Sauer is a business attorney at Reda & Des Jardins, LLC a forward-thinking, technologically savvy law firm providing top-notch legal services to clients ranging from startups to large companies in a variety of industries. R&D's practice includes business,real estate, litigation, and estate planning.