Over the last several months, a number of companies that have had no history of pursuing blockchain technology or incorporating it into their commercial offerings have rebranded to add BLOCKCHAIN or other crypto-centric terms to their tradenames. Not surprisingly, these rebrands have led to a new perceived potential in these companies — and with that, a sudden rise in participation in their related initial coin offerings (or, in the case of public companies, in their market caps). Rebranding to a blockchain or crypto-related name and then immediately offering securities — potentially without adequate disclosures about those business changes and the risks involved — has caused the U.S. Securities and Exchange Commission to issue warnings around this practice and the potential SEC scrutiny, investigations and enforcement actions that could follow.
As background, cryptocurrency and blockchain technology have had an increasingly meaningful impact on the way the world thinks about how value can be transferred. With the remarkable rise (and fall) in the price of bitcoin and other cryptocurrencies over the last year, and the resulting hype surrounding the industry, more than just tech and financially savvy individuals have become captivated by cryptocurrency and blockchain technology. Accordingly, what has always been an important and disruptive technology has evolved into a public infatuation, attracting a multitude of everyday, Main Street investors. That in turn has galvanized some companies to try to take advantage of the phenomenon.
This impact on individual Main Street investors — many of whom approach these investments as if they are purchasing products like an everyday consumer — is one of the primary reasons the government and its regulatory agencies (including the CFTC and FTC, in addition to the SEC) have become more concerned about the hype surrounding blockchain and cryptocurrencies. In the current climate, an existing company changing its name to include BLOCKCHAIN can, on its own, be enough to convince someone to buy shares in an already public company or participate in an initial coin offering without knowing much more.
Regulatory agencies’ concerns about rebrands are intrinsically tied to deceptiveness issues and brand promotion in trademark/unfair competition law. Under Lanham Act § 43(a)(1)(B) (codified at 15 U.S.C. § 1125), anyone who uses trademarks in commercial advertising or promotion in a way that misrepresents the nature, characteristics or qualities of products, services or commercial activities can be liable in a civil action by anyone who believes they are likely to be damaged by that. Further, deceptive marks and deceptively misdescriptive marks are not even registrable as trademarks under Lanham Act §§ 2(a) and 2(e)(1) (codified at 15 U.S.C. § 1052) (with one exception to the latter of these two sections).
Accordingly, the most important lesson learned from the recent mistakes made by some companies rebranding to BLOCKCHAIN or CRYPTO-inclusive names is that the branding and rebranding process in the field of blockchain or cryptocurrency implicates trademark laws, securities laws and various consumer protection regulations, together with the warnings or guidelines provided by relevant regulatory agencies.
In light of this, here are some key things to remember when a company wants to use or rebrand to blockchain or crypto-related names:
- A name that includes BLOCKCHAIN, CRYPTO and other related terms — even the term “EXCHANGE” (when used for a digital currency exchange not registered with the SEC) — can easily lead to negative public relations issues, investigations into potential consumer deception, investigations into appropriate SEC disclosures (or exemptions) and, at worst, enforcement actions by the SEC, CFTC or FTC or other consumer or third-party complaints.
- Private companies are not off the hook: Securities laws apply to both public and private companies, although differently.
- If a company plans to immediately accept investments or advertise/promote offers like initial coin offerings, or ICOs, or if the company is already publicly held, it must make appropriate disclosures involved before doing so, and before announcing a rebrand.
- USPTO examining attorneys have a basic knowledge of blockchain technology and may increasingly request further information about an applicant’s plans if a mark contains blockchain or crypto terms, to confirm the mark is not deceptively misdescriptive.
- U.S. trademark applications related to these rebrands could be more vulnerable to challenges, particularly based on a lack of bona fide intent to use the mark for blockchain technology or cryptocurrencies. Many companies that have run into trouble by rebranding have not done much more than decide to shift business models or reach out to a blockchain technology company for a potential acquisition before actually offering securities. This type of information could potentially be used to challenge an applicant’s bona fide intent to use a mark for blockchain or cryptocurrency products at the time the trademark application was filed.
- The U.S. Trademark Trial and Appeal Board has not had to substantively address blockchain or crypto issues in any ex parte or inter partes proceedings, but there are 160+ active applications for BLOCKCHAIN-inclusive marks pending with the USPTO. As competition in this market grows, companies will inevitably take advantage of potential vulnerabilities in applications when they encounter competitors using similar names that they want to challenge.