Scene Magazine Columns – Page 3 – The Business of Creativity

Scene Magazine – January 2007

Here’s the January 2007 Scene Magazine column.
What’s in a Name?
© Kevin E. Houchin, Esq.

Naming is one of the most important pieces of launching a new business, band, or product – yet most people really don’t know how to weigh the different factors involved in the decision. Making the wrong choice can cost you dearly. I just had a client who had to change her business name, after spending a considerable amount of money and time building her brand, because her business name infringed on the trademark rights of a similar company of the same name in California.

How do you avoid that type of circumstance and still come up with a great name for your venture? Follow this process:

Brainstorm a bunch of cool, distinctive, and suggestive names.

Make sure the domain name is available.

Check synonyms of the name and other spelling via Google for organizations offering similar services.

Search the United States Patent and Trademark database at www.uspto.gov for possible conflicts.

Register your intent to use the name in commerce with the USPTO.

Brainstorming names is the most challenging and fun part of the process.

The challenge comes from trying to come up with a unique name that still suggests something about your product or service. Trademark rights are more powerful as you become more abstract, so if you’re completely making up a new word, be prepared to spend a lot of time and money answering the question “what he heck is that?” New drugs are the perfect example, would any of us know what “Lunesta,” “Viagra,” “Pepsid,” or “Zantac” were without hundreds of thousands of dollars spent in advertising and public relations? Spending that kind of money connecting your name to your product isn’t an option for most new ventures, so I recommend that people think up names that are more than interesting than something that is merely descriptive of their product or service, but less arbitrary or abstract than a completely new word. The perfect balance is something like “Crocs” for shoes that have some bite, or “Wooden Pencil” for a creative services firm. Whatever you do, don’t just slap together a bunch of those magnetic refrigerator magnet letters and words.

Once you have a list of possibilities, start hitting the Internet. Before the Web, it was easier to name a product or service – especially products and services with limited availability. Now you are national or international as soon as you post a Web site, and you can’t get away without having a Web site, so your domain name has to be perfect. Search for domain names that match your exact business name. Odds are, someone’s using it. Move down your list until you find something that’s available. If you exhaust the list, then start checking what kinds of products and services are being offered by the owners of the matching domains. If someone is using your target domain for the same services, then your out of luck – move to the next name. If someone is using your target domain for a completely different type of service or product, then you MIGHT be able to make something work. The trick at that point is to work out some variation of the domain that would not confuse consumers regarding the source of your products and the other company’s products. Because consumer confusion is what drives trademark law, check sound-alike domains too. Your goal is to own the appropriate name in your category of goods and services.

Domain names are the toughest to figure out, and 99 times out of 100, if you can find an open domain name you’ll be clear relative to trademarks. But, just to be safe, you should search the USPTO database to make sure there is nobody out there with a registered use of the name that hasn’t figured out they need a Web site. Yes, it’s rare, but you can still find someone who hasn’t figured out the power of the internet.

Finally, once you’ve grabbed the perfect domain name for your product or service, register your intent to use that name with the USPTO so that other people who come along are officially on notice that you intend to connect that brand with your products. It takes a lot of work to build a brand, don’t let it go to waste by leaving it unprotected.
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Kevin E. Houchin is a copyright, trademark, arts & entertainment, and business development attorney located in Fort Collins, Colorado working with creative people and businesses all across the United States. To contact Kevin Houchin, call 970-214-6808 or email him at kevin.houchin@houchinlaw.com.

December 06 Scene Magazine Column

Mechanical Money

Where’s the real money in music? It’s not in playing cover tunes in bars – sure that’s fun, but you don’t make much money at it. The real money is in writing the songs. When you write the songs, you have multiple avenues of potential bucks including performance rights, mechanical royalties, synchronization licenses, instrumentals/karaoke, lyric reprints in books and magazines, corporate videos, computer games, sheet music, even those damn singing fish and cell phone ring tones.

So how does all this work? First, write the song. Second, spend the $45 to register the copyright in the song. Third, get to work marketing the piece. Let’s look at the three primary moneymakers: performance rights, mechanical royalties, and licensing.

Performance fees are based on feature performances such as visual vocal or instrumental on television or getting big airtime on the radio. These are collected and distributed through complex math by ASCAP, BMI, and SESAC. To get a check, you have to be registered as an artist with one of these three organizations. The money you receive is variable based on which group you join because they all use different formulas to estimate the number and types of performances you song is enjoying.

“Mechanical” royalties are those fees you get whenever someone else uses your song in a CD, Record, Tape, etc. It can get complicated, but to simplify a bit, the artist recording your song must pay 9.1 cents total per copy as a mechanical royalty to the writer and publisher of the song. So, if you write a song that becomes a hit for Beyoncé and sells 10 million copies you’ll split $900K with your publisher. Not bad. Now just imagine you wrote the entire album of 10 songs and you’ll start understanding why Rob Thomas is smiling. It’s important to remember that if you’re recording your own original music as the performer, your record label is going to negotiate a reduced mechanical royalty payment for these “controlled” compositions. If you’re about to cut a CD that includes any cover tunes, be sure to pay those mechanical license fees before duplication or you could be facing some hefty copyright infringement damages.

Getting your song used as part of a TV show, movie, or commercial is what we call a “synchronization license” or “synch.” Think of the theme song for “Friends,” “CSI,” or theme songs to James Bond movies. Publishers can get from about $15K-60K for a movie theme song, and the record company can get about the same for use of the masters. The artist’s cut of that is outlined in their contract, which is why those contracts can get long and complicated. Of course the exposure generated by the show or movie will pump record sales. Product advertising licensing for TV commercials can be a huge source of income for the songwriter: $75K – $750K per year for successful songs. Bob Seger and John Mellenkamp are raking it in for their recent pick-up truck commercial work.

The thing to remember in all this is that almost every license is negotiable, but those negotiations take time and attention. Most musicians I’ve met would rather write and play than read contracts. I can’t blame them, if I had the talent to write hits, I wouldn’t be practicing law!

Granted, there are many songwriters out there and most never make it big. It takes work and it takes luck, but hard workers are always more lucky. If you’re playing cover tunes, start writing and performing original material, sure some people get rich and famous performing other people’s music, but most start by making a name for themselves with their own work.

A great song is your property for 70 years after you die, so leveraging your creativity correctly can provide not only the nest-egg for your own retirement, but the college tuition for your grandkids.

The Google Adword TM Trap

Here’s November’s Scene Magazine Article:

The Google Adword TM Trap

By now almost everyone has conducted an Internet key word search using the Google engine. You’ve noticed those “sponsored links” at the top of the results page. If you’re in business and a savvy marketer, you’ve probably thought, “heck, I should probably buy those spots for all my goods and services.” The next step in that logic is to think, “heck, I should probably buy those spots for all my competitors’ goods and services!” “BRILLIANT,” you exclaim as you tally up the keywords in your AdWord buy. What could go wrong?

I wouldn’t be writing a column on the topic if nothing could go wrong – I guess I’m getting predictable. In just the last three weeks I’ve gotten involved in three cases of at least arguable trademark infringement cases involving Company A purchasing the brand name of Company B’s leading product as a key word in Company A’s Google Adword buy. In two of the cases, I’ve been hired by Company B to smack Company A. In the other case, Company A hired me to help them respond to the smack from Company B.

Tough to follow? How about a hypothetical example?

Say I’m our neighbor down the road, Crocs. Say you’re the new guy on the block trying to get a little of that action. You call your product “Snakes” because they make you feel like you’re gliding right down the sidewalk and yet have a nice bite for traction. You decide to get tricky and buy a sponsored link on the search term “crocs.” Are you in trouble?

Not yet, it’s a bit more complicated. First you need to understand that the federal trademark laws are in place to prevent consumers from being confused as to the source of a good or service and by preventing consumer confusion, protect the investment of brand owners in their company’s reputation, goodwill, and marketing dollars. There’s a concept in trademark law called “initial interest confusion” which is when one company unfairly diverts the potential consumer’s attention away from the brand they were looking for over to the competing product at the moment of initial interest, even if there is no confusion at the point of actual purchase. One of my clients said it more understandably, “I feel like he’s fishing off of my hook!”

Now, back to our example; has Snakes violated trademark law by purchasing the Google Adword for “crocs?” Answer: not yet.

The current, but evolving, opinion in the different Federal District Courts around the country is that the simple purchase of the AdWord is legal. To be more precise, the courts have really been addressing the issue of whether or not the SALE of the trademark term is an infringement. The cases have focused on Google (think VERY deep pockets) for contributing to trademark infringement by even allowing competitors to make AdWord buys using trademark terms.

Logically then, it comes down to the advertisement you create on the response page for the key word search you purchased. Google allows a headline of up to 25 characters, two 35 character description or body copy lines, one display Web address of up to 35 characters that is linked to the destination Web page. So, in our example you could place the following text ad.

Headline: Get your Crocs Here
Body Copy: We’re your best source for Crocs
Display URL: www.crocs-r-us.com

The ad would be linked to your “snakes.com” Web site in such a way that the person searching the keyword “crocs” doesn’t know you’re not the real Crocs until they end up on your site. Does that seam fair? Do you think it would cause “consumer confusion as to the source of the good or service?” I sure do, and I’m betting a judge or jury would too. This seems like a clear-cut example of how using the “crocs” name as your keyword buy on Google AdWords would get you into deep trademark trouble.

On the other hand, if you purchase the keyword “crocs” but set up the response ad in a way that clearly does not confuse consumers, then you are arguably using the “crocs” term fairly, at least under current case law. For example, the following ad would be far less likely to confuse consumers.

Headline: Like Crocs? Try Snakes!
Body Copy: Snakes are the best things since Crocs!
Different company, great shoes.
Display URL: www.snakes.com

As I said before, this is evolving law and as such will probably not be settled for a while. Before using a competitor’s brand name in your Google AdWord purchase, be sure to discuss the details of your specific situation with a trademark lawyer familiar with these issues.

Scene Magazine – October 2006

Here’s my October Scene Magazine column. Yes, you’ve seen the title before if you’ve visited this site, and yes, the content is much the same, although I included a bit more about submittion of groups of works under a single registration and single registration fee.

If you’re concerned that you can’t afford the $45 per registration, then check out the page for group registrations for visual arts at the Copyright Office Web site HERE. You can also do group registrations for other types of creative works.
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$45 Creative Insurance Policy
© 2006 Kevin E. Houchin

I got a call the other day from a young woman who was pissed. She had been hired by a magazine to write an article for $1,000.00 – $500 up front and $500 on approval. She received the first check for $500 and sent the magazine editor a draft. Much to her dismay, the editor didn’t like her draft and canceled the contract. She, per the agreement, kept the $500 and the both went on their merry ways.

I’m sure you know where this is going – I did.

A couple of months after the rejection, her article turns up in the magazine with minimal (at least according to her) edits. She’d been ripped off! Righteous indignation flowed from her voice. I then asked the big question: “Did you register the article with the U.S. Copyright Office when you submitted the draft, or when they rejected your work?”

“No,” she replied.

I sighed, and then started sharing the bad news. In the U.S., copyright protection vests in the tangible expression of your creativity, at the moment the expression becomes tangible. You have legal rights without needing to register the work. However, without registration before the infringement, those rights are basically limited to “actual damages” which can be hard to prove in most cases. In the current example, actual damages are easy to prove because they would simply be the unpaid portion of the contract, $500. The kicker in this situation is that each party has to pay their own attorney fees. So, while my pissed-off author had a legitimate case, there was no economic justification to spend more in legal fees trying to win the case than she had hope of ever recovering in court, not to mention the time it would take out of her schedule.

“So, what should I do next time?” she asked.

“Pay the $45 copyright registration fee on any work that has a reasonable possibility of getting used without your permission.” I responded.

One of the best business deals on the face of the planet is our federal copyright registration system. For a relatively minor fee of $45 you can move from probably having no economic justification for enforcing your rights, to possessing very powerful incentives to motivate compensation for the use of your work.

Here’s how it works. If you’ve created something original, by yourself or as part of a team, such as a song, article, book, painting, drawing, graphic design, sculpture, photograph, movie, dance, even a floor plan or an architectural elevation – practically anything “creative” – all it takes is $45 and the completion of a simple two-page form (available at www.copyright.gov) to protect your work.

Registration is easily worth the money because if you register before the infringement occurs two big things change. First, instead of having to prove actual damages, the judge can simply pick a number she thinks is fair somewhere between $750 and $150,000 per infringement. Second, attorney fees are on the table. Now there’s an economic justification for going after the infringer, even over just $500. If my author in the example had spent the $45 and registered her draft, I could have written the magazine on her behalf demanding the $500, plus a few hundred dollars extra to cover the willful infringement and my attorney fees. Knowing that they would probably only lose MORE if this goes to court would have been a strong incentive for the magazine to pay up.

Whenever I tell this story to artists, musicians, and photographers the next question is always, “Does that mean I have to register EVERY work I create?! That would really add up and I don’t sell that much or at a high enough price to justify the $45.” Of course I can understand their positions. Registering a copyright is like buying an insurance policy; you have to find a balance that fits your risk tolerance. My rule is to register things that I feel are likely to have enough exposure that someone might want to use them – with or without my permission. If you’re a photographer, then register the works that are published in magazines or make it into juried shows. No matter what your media, you should register published works. Many times, you can register several published works as a set under one $45 registration fee.

If you have a bunch of unpublished work, you can register all of those as a set under a single registration fee. Depending on your level of output, you might do this monthly, quarterly, or whenever you get a bunch of work together. The effort in this situation is organizing the submission of a bunch of work all at once, because it’s time consuming to catalog 200 photos into one submission it’s harder to get over the inertia of organizing the single large filing for $45 than it is to pay more filing fees and do smaller sets as you go along through the year. It really comes down to how you want to spend your time versus how you want to spend your money.

The bottom line is to register as much of your work as you can afford and try to protect the rest through your contracts. I’ll write more on those contracts in a later column.

Scene Magazine – September 2006

I’ll be writing a monthly column on legal issues in Scene Magazine. Here’s the first installment…

You’ve been writing some songs. You and a few friends can play. You get a gig. It’s going to pay a few hundred bucks and maybe some beers. Hey, you’re getting paid to play and party. What could go wrong?

Plenty. You’ve just formed a business – a “general partnership” to be exact. “Big deal” you say, “no worries, we’ll just split the cash and maybe report some of it on our taxes.” Of course you will. As a lawyer, that’s not my worry. My worry is what happens with your buddy Tommy drives home from the gig (maybe with a couple too many beers in him) and gets in a car accident that hurts someone.

Yup, Tommy is in big trouble. The thing is, so are you. As a “general partner” in your band, you’re liable for all the activity of the partners (or agents, or employees) while engaged in the business of the partnership. In this case, driving home from the gig would be considered being engaged in the business of the partnership.

Tommy’s accident just put your house, car, amp, guitar, drums, IRA, and everything else you own on the line. You could lose everything for the split of the $500 that came in at the door for that one gig.

So, what do you do about it? First, don’t let your band mates drive after drinking – always have a designated driver. Avoid the risk. Second, form an LLC. It only costs $25 to form an LLC in Colorado. Just go to www.sos.state.co.us, log into the business center and fill out the online form. Easy. (If you have any questions, email or call me!)

The LLC will limit liability (that’s why it’s called a “Limited Liability Company” in the first place) to the assets that are actually IN the company. If it’s YOU that has the car accident, or gets in a fight, or does something else that’s generally considered stupid and exposes you and the group to a lawsuit, your house is still on the line. But, if it’s Tommy that screws up, HE might lose everything, but you only lose the assets you’ve put into the company.

Of course, now you have a “legitimate” business. That business has to keep financial records and file an “informational” tax return. So, after you finish filling out the paperwork on the Secreatary of State Web site, you need to apply for an Employee Identification Number (EIN) – basically a social security number for your new company. You get this by filling out IRS form SS-4, which you can get right from the home page of www.irs.gov. Check the box as a partnership and have your company end its fiscal year in December. You can even complete this task over the phone.

Take your organization number (from the Secretary of State) and your EIN (from the IRS) to the bank and start a checking account. Start running all the income and expenses through that checking account. At the end of the year, you file a tax return for the business that informs the IRS how much each “member” (owner) of the band needs to report on their individual tax return. The IRS computers watch for these numbers to match up – if they don’t you’ll be at much higher risk of an audit.

You’ll want to discuss who can write checks with the rest of the band. It’s a good idea to say that any check for more than $500 or so requires two signatures. If the band is generating some real income, or, if one or more members tends to do more work, then you should really talk with an attorney and create an “Operating Agreement” that lets everyone know and documents the way money gets slit. If you are writing new material, then you need to figure out the copyright ownership issues (subject of a later column) sort out. The operating agreement should also lay out how someone leaves or joins the band, what is expected of the owners, and your general intentions relative to working together or solo.

Music is a business, granted, it can be more fun than accounting, but it’s still a business and needs to be treated as such. It doesn’t take a lot of time or money to shield yourself from the real potential liabilities that come with any business. Do yourself a favor and invest a little effort to make sure your band remains a fun, rewarding activity and not something you’ll regret while watching all of your assets disappear because your buddy screwed up.

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