It means number 2. For example "Doland legal services" would be descriptive (and suggetive) of what I do.
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A mark can be registered only if it is distinctive--not arbitrary. A suggestive mark is kind of midway between descriptive -- not acceptable -- and fanciful -- which is acceptable. It is "weaker" than fanciful mark, and thus more amenable to being ignored in the face of assertions of infringement, especially when the claimed infringer is in a bit different line of work or geographically remote.
Now, you probably had a reason other than academic for posing your question. Let me say that DIY branding is a good way to get a brand that cannot be registered as trademark. Better is to involve a TM attorney while you are picking a brand, not later just to try to ram it through the process.
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Another example: Coppertone® for sunscreen is suggestive of the product. It is not descriptive or arbitrary.
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I would be reluctant to go into more details, but this the issue you are referring to usually comes into question when the distinctiveness of a mark is under attack. A mark is suggestive, if imagination, thought or perception is required to reach a conclusion on the nature of the goods or services. Therefore, such mark is registrable on the Principle Register without a showing of acquired distinctiveness.
In the words of the USPTO:
Arbitrary marks: "Comprise words that are in common linguistic use but, when used to identify particular goods or services, do not suggest or describe a significant ingredient, quality or characteristic of the goods or services (e.g., APPLE for computers; OLD CROW for whiskey)."
Descriptive mark: "A mark is considered merely descriptive if it describes an ingredient, quality, characteristic, function, feature, purpose or use of the specified goods or services. If a mark is merely descriptive or deceptively misdescriptive of the goods or services to which it relates, the mark will be refused registration on the Principal Register under §2(e)(1) of the Trademark Act, 15 U.S.C. §1052(e)(1). Examples of descriptive marks include: MEDICAL GUIDE for website services featuring medical guides, DENIM for jeans, and SPICY SAUCE for salsa."
Suggestive mark: "A mark that, when applied to the goods or services at issue, requires imagination, thought or perception to reach a conclusion as to the nature of those goods or services." As indicated by one of my colleagues, Coppertone® is a suggestive mark because it doesn't explain what the product is (i.e., a tanning lotion and sun screen), but, after seeing an ad, the consumer can easily perceive what the product does.
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