Today's big financial news comes straight from the Lone Star State, where financial powerhouse McGraw-Hill (NYSE:MHP) has sicced its legal eagles on . an upstart coffeehouse, of all things. Last week, McGraw-Hill subsidiary Standard & Poor's (S&P) filed a lawsuit in federal court against "Standard & Pours Coffee & Stocks," a Dallas purveyor of java, free copies of TheWall Street Journal, and live CNBC video.
In the suit, S&P alleges that Standard & Pours appropriated for itself a name just a bit too close to S&P's own, causing customers to mistake the Texas coffeehouse for a long-lost subsidiary of the real S&P (shades of the 1998 case of Federal Express (NYSE:FDX) v. Federal Espresso). For infringing on its trademark, S&P demands the maximum compensation permitted by the U.S. Trademark Act: three times Standard & Pours' profits, and three times any revenue S&P lost when customers sauntered into Standard & Pours, and accidentally bought a cup of coffee when what they really wanted was a credit report. (Doh!)
So is this just a case of a Wall Street titan shaking down a small business for some quick cash? Hardly. After all, we're talking about a coffeehouse here, people. And with the exception of success stories like Starbucks (NASDAQ:SBUX) CEO Howard Schultz, few people get rich in the coffee business. Even with treble damages, S&P looks likely to win something approximating the figure of "three times zero equals zero" in this dispute.
What's more, S&P probably won't even win by arguing "infringement" of its trademark. (For that, S&P would need to prove confusion with the coffeehouse -- not an easy argument to make with a straight face.) Still, S&P does need to sue Standard & Pours, and here's why:
Standard & Pours didn't choose its name by accident. It chose its homonymic moniker precisely because it brought instant name recognition. Accountants call such name recognition "goodwill." And although not as tangible as an office building or a printing press, goodwill does have value. In fact, goodwill makes up 28% of S&P's parent company's assets -- $1.65 billion worth.
Standard & Pours has appropriated for itself a small slice of that $1.65 billion. Under U.S. law, this is called "trademark dilution" -- the act of eroding a famous trademark's distinctiveness, by using it for purposes that the owner did not authorize. Every time S&P permits another company to use its name, or "homo-name," with impunity, the value of S&P's trademark to that name loses value.
So yes, I'm with S&P on this one. It needs to nip this dilution in the bud, before any other "entrepreneurs" try stealing more bits of its intellectual property. Just imagine the "Standards & More" flag store, the "Standard & Poor" thrift store -- or the "Standard & Pours alehouse." Come to think of it, when that case rolls around, S&P might even have a co-plaintiff.
Learn more about intellectual property, and what it's worth to a business, in:
Then check out some high-profile examples of why trademarks are so valuable:
- Google (NASDAQ:GOOG) fumbles the ball on Gmail.
- Anheuser-Busch (NYSE:BUD) fights to retain its throne.
- Coca-Cola (NYSE:KO) boasts the world's most valuable trademark.
- Pfizer (NYSE:PFE) takes a hard line on Vaegra.
FedEx and Starbucks are Motley Fool Stock Advisor picks, while Pfizer, Anheuser-Busch, and Coca-Cola made the list at Motley Fool Inside Value . Whatever your investing style, the Fool has a newsletter for you, and a 30-day free trial to match.
Fool contributor Rich Smith does not own shares of any company named above.
