On the Cusp of an IPO, FreeAgent.com Faces Being Stripped of Its Name

A trademark dispute with the <I>San Jose Mercury News</I> couldn't come at a worse time for the Web site's owners.
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SAN FRANCISCO -- The good news for

Opus360

, the company that runs the

FreeAgent.com

Web site, is that it's the first company linking independent workers and companies online to file to go public. The bad news is that the company has become entangled in a trademark dispute with the

San Jose Mercury News

over the term "Free Agent."

According to its S-1 filed with the

Securities and Exchange Commission

on Dec. 20, FreeAgent.com in July received a letter from the

Mercury News

alleging that its use of "Free Agent" and the domain name www.freeagent.com infringed on the newspaper's trademark of the Free Agent name of its online classifieds service. The letter requested that FreeAgent.com cease all use of the trademark for online classifieds and relinquish its domain name to the

Mercury News

.

The paper's counsel Ed Davis declined to comment. FreeAgent.com also declined to comment, citing an SEC-mandated quiet period. But in its filings, the company says it has "valid defenses to the claims."

The controversy underscores the growing importance -- and uncertainty -- of intellectual property rights on the Internet. If left unresolved, the dispute may hang over the company like a black cloud, scaring away investors and making it harder for Opus360 to go public. Or, in the worst case scenario, if the company loses the dispute, it could suffer considerable legal expenses and damages and be stripped of its ability to use its brand name.

Chasing Free Agents

FreeAgent.com is one of a number of companies chasing after the growing pool of indie professionals and long-term temp workers that comprises a large segment of the Internet economy's labor force. White collar freelancers are also working more in other industries such as marketing, computer software, financial services and publishing. Freeagent.com already faces competition from start-ups like

Guru.com

,

Niku

(which filed to go public on Dec. 22) and

Monster.com

as well as traditional recruiting, search and placement firms such as headhunters.

Firms underwriting the IPO include

Robertson Stephens

,

Bear Stearns

and

J.P. Morgan

. For the nine months ended September 30, 1999, FreeAgent.com lost $12.5 million on $241,000 in revenue. Niku, by contrast, lost $13.5 million on $3 million in revenue during the same period.

According to the

Gartner Group

, by 2004 60% of enterprises will use freelance workers to fulfill more than 50% of their information technology needs. A recent study by the

Economic Policy Institute

determined that self-employed and temporary workers now make up 30% of the American workforce. And FreeAgent.com estimates that there are more than 24 million free agents in the U.S.

Branding Time Bomb?

All of these companies face great challenges in building their business, but FreeAgent.com is the only player that faces the possibility of losing its brand. If the Mercury News brings an infringement claim against FreeAgent.com and it loses, the company "could be liable for substantial damages." In October, a federal district-court jury in Los Angeles ordered

Pfizer

(PFE) - Get Report

to pay $143 million -- the largest judgement in the history of U.S. trademark law -- for infringing on the trademark of

Trovan

, a British maker of electronic-identification devices. Worse, FreeAgent.com could be forced to cease use of the Free Agent trademark and transfer its domain name to the Mercury News, throwing away all the money spent on building its identity, and spending more money building a new brand.

Sally Abel, a partner with San Francisco law firm

Fenwick & West

, who also heads up its trademark group, says if the dispute goes to court, the key question is whether FreeAgent.com's use of the trademark is likely to cause consumer confusion. "If courts find they have created confusion then there is cause for infringement," says Abel.

Either way, until the situation is resolved, it's like a time bomb ticking away. For investors, the question is whether it's going to explode or be defused.