It Doesn’t End at Registration: Goodwill and Your Trademark (A Lesson from the Failed Netflix Experiment)

By August 25, 2014Trademark

So, you’ve done it.  You’ve created this thing, this good, perhaps something the average American consumer isn’t aware she needs yet, but once she sees it, oh, she’ll need it.  Or perhaps you’ve started a business through which you offer a unique service — the product of hours of research and development.  You’ve spoken to your trusted attorneys, who’ve advised you that the more distinctive and unique your mark, the stronger and more valuable.

A strong mark is instantly recognized by consumers to represent the source of a particular good or service.  The stronger your mark, the greater protection the law will afford it.  You’ve put much thought into your new brand, and you’ve successfully registered it.  After all, this mark is the single word, phrase or logo with which the masses will associate your quality goods or services.  Your product could be the next iPod® or Crayola® crayon, your service the next Etsy® or Google®.

But, if you’re not careful, you could be the next Netflix®.  Lately, tales of customer service gone awry have been splashed across the digital headlines.  First, in July 2011, came Netflix’s 59% price increase.  Then, the backlash that followed a rather unapologetic apology from the company’s CEO, in which he announced that Netflix would go from one streamlined service to two separate services under two separate brand names.  Finally, the same CEO made another announcement, to the tune of “since we lost one million customers over it, we’re no longer splitting the services.”  Angering and toying with your core customers is generally bad for business, as evidenced by Netflix’s stock dropping almost 40% after the initial announcement of its intention to split.  But more than lessons in business management and customer relations, this company’s follies serve as an important lesson in managing your trademark and remembering to protect your “goodwill.”

Your “good” what?  United States trademark law recognizes something called “goodwill.”  Goodwill is essentially the reputation associated with your trademark or service mark.  It is that which attracts people to your good or service and is the result of years of creating a particular product or performing a particular service, and doing it well.  It is a simple concept — the more consumers recognize your mark as an indicator for specific goods or services, the more goodwill you build up in the mark.  The more goodwill your mark has, the more valuable it is.  You cannot separate a mark from its goodwill.

Now, back to Netflix, and its mark, and its goodwill.  A surprise increase in pricing is a sure way to leave a bad taste in consumers’ mouths.  The bad association many people now have with Netflix is certain to affect the goodwill associated with the mark (just look at headlines such as Is Netflix losing its soul?, Are Netflix’s Best Days Behind It?, and Netflix Moves Fast, but at What Price?). In September 2011, Netflix announced that it would be splitting its services in two: Netflix would offer Internet streaming services only under its original brand, and the company would offer its original, flat-fee, DVD-by-mail service, the service it has offered in connection with the Netflix mark since early 2000, under a new brand name: Qwikster.  A mark with eleven years’ worth of goodwill was poised to separate itself from the service that was essential to that mark’s growth and recognition.  Those little red envelopes that used to bear the NETFLIX logo would bear a strange and new QWIKSTER logo.   People would have had to stop themselves from saying “Netflix” when they really should have said “Qwikster,” and vice versa (and I’m guessing they wouldn’t have bothered to correct themselves).  There is no goodwill associated with the Qwikster brand — it would have had to start at ground zero and build itself up. This failed experiment illuminates the invisible concept that is “goodwill,” the association consumers have between the mark and the services. Netflix’s decision to can the Qwikster idea preserved the (albeit somewhat damaged) goodwill of an established brand.

Growth and expansion are common goals for many businesses, and, no doubt, signs of success.  Just remember, while expanding, stay true to your core consumers and guard your goodwill.  Exercise quality control in each good you offer under your carefully selected logo, each service you offer in connection with your carefully selected mark, and don’t stray too far from the foundation you established from the start.  This will protect and promote the value and goodwill in the brand that you have worked so hard to develop.