United States: Planned Community Names: Do You Own Them or Does The Community?

Article by David M. Kelly and Todd A. Anthony*

Originally published in The Real Estate Finance Journal, Spring 2004

Developing a planned community or resort isn’t exactly a walk in the park. As a developer, you spend a great deal of time, energy, and money on locating and purchasing the right property, obtaining all the governmental approvals, lining up financing, and designing and planning the community.

But other important issues demand your attention: What’s the name of your new community (which we’ll call NewTown)? Can you protect NewTown as an enforceable trademark? Should you federally register NewTown as a trademark?

One cardinal rule should guide your efforts when selecting a name for NewTown: All trademarks are not created equal. The more distinctive a mark, the stronger and more protectable it will be. Trademarks are generally classified into four categories of distinctiveness: fanciful, arbitrary, suggestive, and descriptive.

The most distinctive marks are fanciful marks—words or terms invented or coined solely to serve as a trademark. Examples include EXXON and KODAK. They are extremely strong marks and are entitled to the widest scope of protection available.

Arbitrary marks are likewise extremely strong. They consist of words or terms in common linguistic use but do not describe or suggest any characteristics of the products or services they identify. Examples include CAMEL cigarettes and APPLE computers.

Suggestive marks require consumers to exercise some thought or imagination to determine the nature or characteristics of the product or service they identify, but do not immediately describe a characteristic or feature of the product or service. Examples include COPPERTONE sun tan lotion and LONDON FOG outerwear. Although suggestive marks are immediately protectable and registrable like fanciful and arbitrary marks, they are not as strong.

At the bottom of the distinctiveness spectrum, descriptive marks immediately describe some ingredient, feature, intended result, or other characteristic of the product or service they identify. Examples include VISION CENTER optical clinic and TRIM fingernail clippers. Geographical designations that are descriptive of the geographic location or origin of products or services also fall in this category (e.g., WALTHAM for watches made in Waltham, Massachusetts).

Unlike arbitrary, fanciful, and suggestive marks, descriptive marks are not immediately protectable or registrable as trademarks. Instead, they are not protectable until the trademark owner can show it has acquired distinctiveness in the mark. This acquired distinctiveness, also called "secondary meaning," occurs when a descriptive term takes on a second meaning, i.e., a trademark meaning in which the descriptive term identifies a single source of a product or service. Secondary meaning can be difficult and expensive to establish. It usually requires extensive advertising, significant commercial success, and at least several years of substantially exclusive use of the mark. More importantly, until secondary meaning is established, others are free to use the descriptive term, which could prevent the descriptive term from acquiring secondary meaning.

Before deciding on a name for NewTown, a developer should consider conducting a "trademark search" to determine whether a particular name is available for use, or whether it might violate another's existing rights. Before contacting an attorney, a develper can do some initial screening on his or her own. For example, a develper can look at local phone directories for similar business names, particularly real-estate related names. Develpers could also conduct Internet research for similar names. And developers should check to see if NewTown is available to register as a domain name in any relevant domains (e.g., .com, .net, .org., .biz, .info, .us).

If initial screening efforts do not reveal any obstacles to use of NewTown, developers should consider having an attorney conduct a more comprehensive search that encompasses the records of the United States Patent and Trademark Office or "PTO," state trademark registrations, trademarks and business names in use but not registered, and domain names. The extent of the search will depend on the scope of the development, whether NewTown will be marketed locally or on a broader scale, and whether NewTown may be later used in another geographic area. In any event, it’s usually better to do some searching before spending large sums on a name that could set a developer up for later for substantial legal woes and costs.

It is not necessary to federally register a trademark to establish exclusive rights to use the mark.¹ Trademark rights can be developed without registration simply by using the mark, but these "common law" rights are usually limited to the geographic areas where the mark is used and advertised.² As long as a developer is the first to use the mark for products or services, and no other person has prior rights based on an earlier-filed application or an earlier-issued registration, common-law rights provide the developer with the exclusive right to use a mark in the developer's market area. But others may adopt in good faith the same or confusingly similar mark in a geographically remote area.

Registering a trademark at the PTO, however, provides many substantive advantages. For example, a federal registration serves as evidence of the validity of the mark. Ownership of a federal registration for a community name can go a long way to defeating a challenge by an alleged infringer asserting a defense that the mark is geographically descriptive. Similarly, registrations may eventually become "incontestable," which cuts off the defense that the registered mark is descriptive. And a registrant is entitled to a nationwide priority date as of the application filing date. This latter benefit is critical for real-estate developers because they often adopt community names years before the community is created. Filing a trademark application for a community name based on an intent to use the mark in the future will protect the developer against others who later use or file an intent-to-use application for the same name or a confusingly similar name, as long as the developer eventually uses the name and obtains a registration.

A trademark must be protected against infringement by others. If an improper or unauthorized use goes unchecked, it may weaken a mark's strength. Widespread unauthorized uses may cause the mark to lose its trademark significance altogether and fall into the public domain. These issues are of particular concern with community names because of the danger that they can be transformed from proprietary trademarks to a public domain geographical term free for all to use. Enforcement efforts involving community names typically involve unauthorized uses by competing communities, by real-estate brokers located in or near the community, and by other businesses in or near the community. A review of actual legal cases shows how problems arise and provides guidance on how to avoid problems.

The first case addressing the protectability of a community name as a trademark was Prestwick, Inc. v. Don Kelly Building Co.³ Prestwick developed TANTALLON, an exclusive community in Maryland. Prestwick federally registered TANTALLON as a service mark. Later, Don Kelly Building Co. advertised moderately priced homes in a subdivision named TANTALLON SQUARE, located very close to Prestwick's TANTALLON community. Prestwick sued Kelly for trademark infringement.

Kelly argued that the TANTALLON mark was not entitled to trademark protection because it was geographically descriptive. Kelly asserted that: (1) it used the name TANTALLON SQUARE because that name appeared on the plat of the subdivision as recorded in the county’s land records, (2) a farm in a neighboring county had been using the TANTALLON name for decades, and (3) the Post Office serving the TANTALLON community, the Oxon Hill Post Office, might deliver mail addressed to "TANTALLON" even though no town or city existed by that name.

According to the court, however, Kelly failed to prove that TANTALLON had a general geographic meaning because: (1) before Prestwick’s development, the area had no general geographic name, (2) the farmer’s use of the name in a "nonbusiness context" did not prove general geographic significance, (3) the possibility that the Postal Service might deliver a letter misaddressed to "TANTALLON" to the intended recipient was not evidence of geographic meaning, but rather evidence of the public’s recognition of Prestwick’s services, and (4) although it was unclear who named Kelly’s plot TANTALLON SQUARE, it was renamed without Prestwick’s knowledge or consent.

In short, the court held that Prestwick’s success in becoming recognized as TANTALLON by the general public should not deprive it of its trademark rights. Even assuming the TANTALLON name had a general geographic significance, the court held that Prestwick's extensive use of the mark had created secondary meaning. Any geographical significance that the term TANTALLON may have acquired was minor in comparison with the public’s association of TANTALLON with Prestwick’s services. Accordingly, Kelly's use of the name TANTALLON SQUARE infringed Prestwick’s trademark rights.

In Resorts of Pinehurst, Inc. v. Pinehurst National Corp.,⁴ plaintiff Resorts of Pinehurst ("Resorts") owned several famous golf courses and neighboring communities in North Carolina. In the 1890s, James Walker Tufts had developed a golf resort and neighboring village community and named this area "Tuftstown." He changed the name to Pinehurst in 1895. Pinehurst later incorporated as a town. Resorts owned federal trademark registrations for the mark PINEHURST for resort and golf services.

Defendant Pinehurst National Corp. ("National") developed the Pinehurst National Golf Club and Pinehurst Plantation golf courses within the Pinehurst city limits. These courses opened in 1988 and 1993. Between 1990 and 1994, Resorts and National discussed the possibility of Resorts purchasing or managing National. But National eventually sold Pinehurst Plantation to another party.

Resorts brought suit alleging that the names Pinehurst National Gold Club and Pinehurst Plantation infringed its PINEHURST mark. The district court granted a judgment in Resorts' favor on the validity of the PINEHURST mark and its infringement claim. The appellate court affirmed, holding that Resorts had a protectable interest in the PINEHURST mark and that defendants infringed those rights. It rejected defendant’s argument that PINEHURST was geographically descriptive of a village in North Carolina, finding that PINEHURST had been historically attached to Tufts’s golf courses and had acquired secondary meaning among relevant consumers.

The first case addressing a real-estate broker's ability to use a community name in its business name was Tortoise Island Homeowners Ass’n, Inc. v. Tortoise Island Realty, Inc.⁵ Tortoise Island Homeowners Association ("Homeowners") maintained the common property and amenities of the TORTOISE ISLAND community, a residential subdivision in Florida. The developer chose the name TORTOISE ISLAND because several species of local tortoise inhabited the area. It used the TORTOISE ISLAND name, along with a tortoise logo, to advertise and sell lots in the community since the 1970s. Defendant Tortoise Island Realty, Inc. ("Realty") was formed in 1994 by a resident of the community to offer real-estate services both inside and outside the TORTOISE ISLAND community. Realty’s office was initially located some distance from TORTOISE ISLAND, but it moved its office in 1998 to a location just outside the main gate of the community. Realty also used a tortoise logo.

Homeowners sued Realty for trademark infringement and dilution. The trial court ruled in Realty's favor, holding that: (1) the name TORTOISE ISLAND was geographic in nature, and both parties failed to establish secondary meaning, (2) there was no likelihood of confusion or dilution as Realty’s tortoise logo was similar, but not identical, to Homeowners’ logo.

But the appellate court reversed the trial court’s decision. It held that TORTOISE ISLAND was, at the time coined, an arbitrary name that did not require a showing of secondary meaning to be protectable. Had the name been used by others in the area, so that what was once an arbitrary name had become, in the public mind, a geographic place, it would not have been protectable. But the evidence in this case did not support such a finding.

As to Homeowners’ infringement claim, the appeals court held that Realty’s use of the name and tortoise logo suggested that it was sponsored by or affiliated in some way with the Tortoise Island community. Indeed, many consumers believed that Realty was the community’s exclusive selling agent, and there were numerous instances of misaddressed mail and misdirected telephone calls and visitors. The court also determined that Realty's use of TORTOISE ISLAND diluted the distinctiveness of Homeowners’ mark.

A similar result was reached in Horseshoe Bay Resort Sales Co. v. Lake Lyndon B. Johnson Improvement Corp.⁶ Lake Lyndon B. Johnson Improvement Corp. ("Lake LBJ") used the name HORSESHOE BAY to identify both its real-estate services and the HORSESHOE BAY residential community and golf resort development. Many years later, Resort Sales Co. ("Resort") registered and began using the domain name "horseshoebay.com" to promote its real-estate brokerage business in the same geographic area as the HORSESHOE BAY community. Lake LBJ sued for trademark infringement and dilution. The trial court held that HORSESHOE BAY was a valid mark, that Resort's actions infringed and diluted Lake LBJ’s mark, and ordered Resort to transfer the domain name to Lake LBJ and awarded attorney’s fees of almost $40,000.

Resort appealed but the court of appeals affirmed the district court’s judgment in its entirety. The appeals court rejected Resort’s argument that the name HORSESHOE BAY was not entitled to trademark protection because it was geographically descriptive. It distinguished situations where one coins an arbitrary name for a geographic locale from those who use the name of an already-existing geographic locale in their mark. Arbitrary names coined for a geographic locale were entitled to protection absent a showing of secondary meaning. Here, HORSESHOE BAY was an arbitrary name coined by Lake LBJ and thus was not geographically descriptive. Before Lake LBJ’s development project, the land was known as "Lupton Ranch." Nor did the success of the community and resort cause the mark to take on primary geographic significance. The court rejected the idea "that residential community developers could be the victims of their own success, forced to trade protection of their mark for success in the market."

Trouble also occurs when other businesses use the name of a community in their business names. In Dominion Federal Savings and Loan Ass’n v. Ridge Development Corp.,⁷ Ridge Development Corporation ("Ridge") developed a residential planned community in 1969 named Lake Ridge in Virginia. Earlier, the land was not known as or associated with the name Lake Ridge. Ridge federally registered the mark LAKE RIDGE in 1983 for "planning and laying out residential communities." Numerous businesses and other entities located inside the community used LAKE RIDGE in their names (e.g., Lake Ridge Auto Parts, Lake Ridge Florist, Lake Ridge Elementary School).

Dominion Federal Savings ("Dominion") opened a LAKE RIDGE branch office right outside the Lake Ridge community. Dominion filed suit seeking a declaration that its use of LAKE RIDGE constituted a permissible geographic use of the name and that it did not infringe Ridge’s trademark rights.

The court ruled in favor of Dominion because there was no likelihood of confusion. It distinguished the Prestwick case because it involved competing businesses. Here, however, the parties offered completely distinct services. Nor was there any evidence of actual confusion. And Dominion did not try to trade on the goodwill of Ridge. Rather, "[Dominion's] intention in using the term Lake Ridge [was] to identify the location of its branch office." The court did not address, however, the possibility that consumers might believe that Dominion needed Ridge’s permission to use the LAKE RIDGE name, which likely would have been sufficient to establish the infringement claim.

A different result was reached in Sea Watch Stores Ltd. Liab. Co. v. Council of Unit Owners of Sea Watch Condominium.⁸ There, the Council of Unit Owners of Sea Watch Condominium ("the Council") administered community regulations and maintained the common areas in the Sea Watch Condominium complex in Maryland. The Sea Watch Stores Limited Liability Company ("Stores"), operated eight stores in the complex under the name "The Sea Watch Stores" and "The Club at Sea Watch." The Council sued to enjoin Stores from using the SEA WATCH mark. The district court held that SEA WATCH was a protectable trademark that Stores misappropriated by using it in its corporate names and businesses and enjoined Stores from using the SEA WATCH mark in the future. The appellate court affirmed this decision, holding that SEA WATCH was sufficiently unique to meet the requirements for trademark protection and was not geographically descriptive.

From the above cases, we can discern a few principles that should guide a developer's decision on a name for NewTown. Avoid descriptive names. Instead, get instant trademark protection by choosing a fanciful, arbitrary, or suggestive name. All these names are entitled to immediate trademark protection, the strongest being the fanciful and arbitrary ones.

Once a developer decides on a name, the developer should conduct a trademark search to make sure that someone else hasn’t already thought of the name or one very close to it. If the name is available, then the developer needs to consider the significant advantages of federally registering the name with the PTO. Also, the developer should immediately register your mark as a domain name.

Then, as the above cases show, once the developer has valuable trademark rights, the developer must carefully protect them by enforcing them. For non-competitive businesses located within the community, the developer may want to consider licensing them to use NewTown in their business names. All use of NewTown by licensees will inure to your benefit and could actually strengthen and expand the developer's rights in NewTown. If the developer does not enforce his or her rights, the strength of your trademark will diminish and the developer might end up owning nothing of any value.⁹

*David Kelly chairs the Trademark Practice with the intellectual property law firm of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP (Washington, D.C., Atlanta, Palo Alto, Cambridge, Reston, Brussels, and Tokyo). Todd Anthony is a former law clerk with the firm and is now General Counsel at Marmara Corporation.

Copyright © 2004 West, a Thomson business. Appeared in the Spring 2004 issue of Real Estate Finance Journal. For more information on that publication, please visit http://west.thomson.com. Reprinted with permission

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