It is a big, exciting, and dangerous risk to start a new business. There were approximately 400,000 in 2014 (continuing a recent downward trend, according to Gallup). Most entrepreneurs know that the odds are stacked against them, as about 50% of new companies fail during their first five years (dig deeper into the numbers here.).

There are countless reasons why new businesses fail and so many are out of the owner’s control. However, a business’s name and trademarks are within its control. Unfortunately many new businesses don’t learn of the risks associated with trademarks until it is too late. A recent lawsuit against Sol Kitchen juice bar and café provides some cautionary lessons for new businesses.

Sol Kitchen opened just the second week of April in 2016.  The company has already been sued. The plaintiff is Baja Management, owner of the Sol Cocina Mexican restaurant chain. Baja Management has locations in California, Arizona, and recently announced last January that it would be opening a location in Denver, Colorado. Reportedly, Baja Management sent a cease-and-desist letter to Sol Kitchen in January, but the discussions stalled when Baja Management would not agree to pay Sol Kitchen for it to change its name. Sol Kitchen had already invested at least $10,000 into its website, logos, and other items.

Understandably, many new businesses are shocked when they receive a cease-and-desist letter. The owners of Sol Kitchen noted that state or federal officials did not object to their name. Recipients of cease-and-desist letters often feel like they are being “bullied” or unfairly singled out. While these reactions are normal, the reactions reflect a misunderstanding of U.S. trademark law (which, admittedly, doesn’t always align with common sense).

Here are three common misunderstandings regarding trademark disputes that may help your business avoid a similar situation:

  1. Registering your entity name does not provide protection for your trademark. When you incorporate your business or obtain a federal tax number, the state and federal officials do not evaluate the availability of your name as a trademark. Most states will examine only whether there is an identical business name (meaning, you could probably register Starbux Coffee House, Inc., but it doesn’t mean you can legally use the name). If you want legal advice regarding the availability of a trademark, you need to consult with a trademark attorney.
  2. Just because another company is not in your city or state, its rights are not necessarily limited. If a company obtains a federal trademark registration, that company has the right to use that trademark nationwide, except against third-parties who have established valid common law rights prior to the filing date of the trademark application.
  3. The fact that other companies are using the same word in their business doesn’t always justify another third-party use. The issue is whether there are so many third-parties using a particular term in U.S. commerce in connection with the same or related goods or services such that the trademark should be entitled to a narrow scope of protection. This is a fact intensive, legally complicated, and ultimately very subjective analysis. If you’re relying primarily on third-party use as a defense, you’re facing an expensive legal battle, and one that you may end up losing.

Avoiding these three misunderstandings can help reduce the risk that your business finds itself on the receiving end of a cease and desist letter. Ultimately though, every business should consult with a trademark attorney before crossing the line to where it would be cost-prohibitive to change the name of a business or product.

A preliminary clearance search of the records of the U.S. Patent and Trademark Office (or a “knock-out” search) can quickly and relatively inexpensively identify clear problems with a new trademark or name. A trademark attorney can also equip you with some knowledge in how to select a new or modified name that carries less risk.

While a search cannot identify every potential problem, it can significantly reduce the risk of being the target of an infringement lawsuit. Such a search can help avoid legal fees and rebranding costs and, perhaps more importantly, provide you with a little peace of mind. With all of the other unknown challenges facing small businesses, evaluating the risk of a possible trademark dispute, while there is still time to change course, is an opportunity that every new business should use.