Start-ups often find themselves in a David vs Goliath situation after an initial taste of success. Corporate giants often seize every opportunity to maximise and secure their competitive advantage and market monopoly or power. The years of legal dispute between Telstra Corporation Limited (“Telstra”) and Phone Directories Company Pty Ltd (“Phone Directories”, now Local Directories Pty Ltd), demonstrate how relentless corporate giants can be. Start-ups need to be prepared to respond in kind.
The yellow wars
In July 2003 to strengthen its claim and defeat competitors Telstra (and its subsidiary Sensis Pty Ltd (“Sensis”)) applied for a trade mark registration for the word YELLOW for telephone directories .
In February 2006 expanding the scope of its claim Telstra filed another application, this time seeking the monopoly right to use the colour yellow in connection with telephone directories.
These claims were a clear challenge for other smaller competitors (including Phone Directories) in the telephone directories market. Phone Directories and others filed trade mark oppositions before IP Australia. After they failed they then commenced court action opposing Telstra’s trade mark applications.
And so we reached May 2014, when to Telstra’s dismay, the Federal Court disallowed the trade mark registrations for the YELLOW word and colour. Evidently, however, Telstra (Sensis) is not ready to give up and has appealed. Are you counting the cost of all this legal action?
There's more. Applying for trade mark registrations for YELLOW and the colour yellow was not Telstra’s only attempts to fend off Phone Directories and other competitors.
In 2006, Telstra threatened Phone Directories with copyright infringement litigation.
In 2010, Telstra commenced copyright infringement actions against Phone Directories – Telstra lost.
In 2014, Telstra sued Phone Directories for misleading and deceptive conduct under passing off law – Telstra contended that Phone Directories tried to misrepresent to consumers that its telephone directories are related to Telstra’s YellowPages by using the colour yellow on the covers.
What we have in this line of legal action is claims by Telstra to legal rights under variuous laws – trade mark law, copyright law, trade practices law and passing off law. Each legal ground draws in the need for lawyers to gather relevant facts and facts in response, relevant legal arguments and arguments in response, expenditure of legal fees to maintain the legal strategy, and expenses in return to defend against counter-attacks or counter-claims.
Legal survival guide
Despite the constraints of their small budgets, the Davids of the business world need to prepare their legal slings and other tools ready for any necessary legal attack or defence.
Phone Directories has put in place an operational factory of slings by obtaining legal advice. It did this years ago as it experienced business growth.
Legal adivce on its own is rarely enough. Both Goliaths and Davids are best advised to integrate legal advice with advice and know-how from entrepreneurship and other areas of management. This is a more effective way to deal with the complexities of law, the marketplace and the fast-changing business environment, especially amid the fog of legal wars.
A business with the following areas covered appropriately is more likely to survive the long and costly consequences of litigation.
Relying on legal principles alone is rarely a sufficient diet for survival in David vs Goliath battles. The retelling of the Biblical sling shot story focuses on the sling when what was no doubt equally important is David’s strategy, approach and preparedness for the battle.
Business operations management – this involves seeking cash flow and profit based on proper control over such matters as workflows, business functions and customers relations.
Business structuring – ensuring the business has carefully selected its structure ready for any battle. This means not adopting a company, partnership, joint venture, trust or other structure focusing just on a desire for tax minimisation or other silo considerations.
Intellectual property registration – using the available intellectual property systems to make claims to monopoly rights which can be useful for both offensive and defensive purposes, eg patent, design and trade mark registrations.
Intellectual property management – ensuring there is what we call “legal design” in the use and application of intellectual property. Too often businesses obtain trade mark registrations, for example, which are not for the trade mark which is most important or even not for the trade mark which is in fact used. A myriad of small, low-cost but important decisions can be made to strengthen intellectual property claims. They include use of proper IP notices (eg TM, ®, ©), consistent use of brand elements, recording all intellectual property relevant to a business in an intellectual property register, and ensuring there are in place key contracts such as intellectual property assignments and licences.
Human resources management – people are a common cause for asset leaks. Contracts with individuals and entities should carefully consider use of confidentiality law, non-competition law and other clauses which can be useful if legal action is required.
Ideally, seek legal advice at the business start-up or planning stage. Minimise potential vulnerabilities. Good legal advice and implementing such advice build armour for a start-up ready for potential Goliath claims or attacks.