Trademarks in Business Transactions
By Lanning G. Bryer ∗
I.
Introduction
A company’s intellectual property rights are valuable assets that can help the
company enhance its business. In the course of operating or expanding a
business, trademark rights routinely present themselves in various types of
business transactions. More specifically, acquisitions, divestitures, mergers,
licensing and co-branding, due diligence reviews, and valuation are some of the
major transactions in which trademark issues can arise. Given this expansive
reach, a trademark administrator or paralegal (“Administrator”) will undoubtedly
encounter many opportunities to contribute to and participate in business
transactions involving trademarks.
II.
Evaluating a Trademark Portfolio
A.
Management and Ownership Structure
Evaluating a company’s trademark portfolio is an important task that can
represent an important part of an Administrator’s responsibilities. A trademark
portfolio requires diligent record keeping and overall management. Through
portfolio evaluation, the Administrator is better able to determine the degree and
∗
Lanning G. Bryer is a Partner in the New York office of Ladas & Parry LLP and is Director of
the firm’s Mergers, Acquisitions, and Licensing Group. The author gratefully acknowledges
the outstanding drafting, researching, and editing of this chapter by Angela Lam, a recent
graduate of Brooklyn Law School and an associate in the New York office of Ladas & Parry
LLP, and Stacy Wu, a recent graduate of Benjamin N. Cardozo School of Law and a prior
associate in the New York office of Ladas & Parry LLP.
Copyright © 2014 International Trademark Association
655 Third Avenue, 10th Floor, New York, NY 10017-5646 USA
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scope of record keeping, the capacity of record-keeping systems, and the extent of
his or her responsibility for intellectual property management. Evaluating the
portfolio can also help the Administrator determine who should be delegated
certain tasks or on whom to rely in making decisions that could affect part or all
of the portfolio. 1
While an Administrator’s full understanding of an owner’s intellectual property
portfolio is important, management of the business’s intellectual property rights
generally will be successful and effective only if there is an operational
management structure in place. Trademark rights are fragile intellectual property
assets that require care and attention. Therefore, proper management of these
rights can be critical. For intellectual property management to be effective,
strategies must be accompanied by effective management structures and
implementation tools.
There are two types of management structures: centralized and decentralized.
Choosing the right structure will depend on such things as the company’s
personal agenda for its intellectual property rights; the resources available to
implement one structure as opposed to the other; and the composition of the
company’s departments and related entities. While Administrators may not have
control over the decision-making process in selecting and implementing the
management structure, they do effectively have a role as decision makers within
either structure.
Under a centralized management structure, top-level executives make decisions
regarding trademark rights, which are then executed by designated personnel.
Depending on his or her level of expertise and authority, it is not unexpected for
an Administrator to be among the principal decision makers regarding
trademark-related matters. An important advantage of a centralized structure is
that it eliminates waste and duplication of efforts in maintaining the company’s
trademarks. On the other hand, it has been argued that a centralized system is
1
For a brief synopsis of what portfolio management entails, see INTA Fact Sheet, Trademark
Portfolio Management Strategies.
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Trademarks in Business Transactions
inherently inefficient because “no central planner can possibly have all of the
necessary local and national information to make the right decisions.” 2
Under a decentralized management structure, each department has its own
decision maker. Consequently, many different people can make decisions
regarding trademark issues. A decentralized structure allows different people
with varying degrees of experience to efficiently address trademark issues as they
arise within their department. Thus, each department may have a person in an
Administrator-type role. This may result in greater employee understanding of
and contribution to the value of the company’s intellectual property rights. On
the other hand, a decentralized management structure may not be useful for the
company unless “there is no strong need to leverage know-how across the
business units and the IP issues encountered by the business units are not
complex.” 3
Increasingly, businesses have created intellectual property holding companies
(IPHCs), which are wholly owned subsidiaries created solely for the purpose of
maintaining and managing the intellectual property. Title to the intellectual
property is transferred from the parent company to the IPHC, which then
licenses the IP rights back to the parent company. This vehicle may provide
advantages, such as tax benefits and independent control of the company’s IP
assets. However, an IPHC must not be incorporated solely to allow the company
to avail itself of tax benefits; the company must be able to justify substantial
business activities separate from the tax benefits. 4
2
Lanning G. Bryer & Deepica Capoor Warikoo, “Corporate Strategies, Structures, and
Ownership of Intellectual Property Rights,” in Lanning G. Bryer, Scott J. Lebson & Matthew
D. Asbell, Intellectual Property Strategies for the 21st Century Corporation 1–36 (Wiley
2011).
3
Id.
4
See Sherwin-Williams Co. v. Commissioner of Revenue, 438 Mass. 71 (2002).
For a further explanation of IPHCs, see Lanning Bryer & Matthew Asbell, “Combining
Trademarks in a Jointly Owned IP Holding Company,” The Trademark Reporter, Vol. 98
No. 3, 834–72 (May-June 2008).
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Trademark Administration
B.
Assessing the Portfolio
When the overall value of a company is assessed, it is not surprising to find that
the company’s trademark rights may be among its most valuable assets. As a
consequence, it is important that the company extract the most value from its
trademark portfolio. It is also important for the company to maintain and
continue to develop that portfolio by (1) understanding the existing portfolio, (2)
developing new trademarks, (3) acquiring new trademarks, and (4) periodically
assessing the overall portfolio.
Assessing Marks. The greater an Administrator’s understanding of how and
why a company’s trademarks were acquired or adopted, the more he or she can
contribute to the future development of the trademark portfolio. Each trademark
that a company owns either domestically or internationally, through registration
or common-law right, must be prioritized by its value to the company. Here are
suggested questions one should ask when assessing the company’s existing
portfolio:
Assessing Existing Portfolio Checklist
 What trademark rights does this company own?
 What is the nature of the ownership of each mark? What rights are
included with each mark?
 Does the trademark portfolio support the business strategy of the
company?
 What do competitors’ trademark portfolios look like?
 Are there gaps in the company’s portfolio where trademarks may
provide value? (An Administrator may wish to have a discussion with
business personnel to determine whether any gaps in trademark
protection should be filled.)
 How can the gaps in the company’s portfolio be filled?
 What are the rights claimed in each country?
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Trademarks in Business Transactions
Once a clear framework of the portfolio is understood, an Administrator can
identify key areas that can profit from greater attention and effort. 5
C.
Reevaluating Current Marks
Large corporations with substantial trademark portfolios may have rights in
marks that they are unaware of or have forgotten about. Such marks could result
in value upon reevaluation of the marketing plans, or even in third-party
disputes. Accordingly, it is important to manage one’s trademark portfolio in
order to fully utilize these property rights. Sometimes a trademark may no longer
be necessary to a company, and therefore maintaining the mark would be a waste
of resources. This may come about because the mark has
Practice Tip
never been used by the company and it has no connection
with current business strategies. Also, a mark also may be
If the Administrator’s
budget is limited to begin
registered in a particular jurisdiction in which the
with, see Allan S. Pilson
company has no intention of conducting business or
et al., “Tips on
Acquisition and
ceased conducting business years ago. Finally, some
Enforcement of
trademark owners have acquired marks through the
Trademark Rights on a
settlement of third-party disputes or have obtained them
Tight Budget,” Ladas &
Parry Bulletin, March 17,
for defensive purposes to protect themselves against
2010.
competitors. At this point, an owner may decide that the
best approach would be to abandon the mark or not renew it.
Reevaluation of a trademark portfolio is a key task for an Administrator that can
lead to overall cost savings and efficient management. Administrators can reduce
their record keeping by eliminating unnecessary marks. Moreover, reevaluation
can help the Administrator keep an up-to-date portfolio, which is necessary for
any efficient business transactions involving the company’s trademarks. An
outdated portfolio can diminish the value of a company’s overall IP rights,
especially if other tangible rights are tied to the trademark.
5
To further understand the IP value chain, see Ron Carson, “Get Your Assets in Gear: Aligning
IP Strategy and Business Strategy,” in Building and Enforcing Intellectual Property Value
2008 31–36 (World Intellectual Property Organization 2008).
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Trademark Administration
D.
Creating New Marks
Typically, a company creates a new trademark when its business launches a new
or updated product, a new marketing campaign, or an
updated version of a previously existing mark. Whether or
Practice Tip
not the company finds value in the initial creation,
registering the mark is an important step in protecting the Before a new mark can
be used in commerce, it
company’s potential future profits from the sale of the
is highly advisable that
the mark undergo a
goods or services associated with the mark. When a mark
comparative risk
is registered, the registration puts the world on notice of
assessment (i.e., a
search) so as to avoid
the existence of the owner’s trademark rights.
In the United States, although common-law rights are
created through use of a trademark in commerce,
registration of the mark provides prima facie evidence of
exclusivity in the mark and offers greater protection and
enforcement options to the owner. Furthermore, in
certain countries, registration may even be a formal
requirement for enforcement of trademark rights.
infringing a third party’s
intellectual property
rights. A mark may turn
out to be undesirable
after review. For more
information, see Section
IX.D, Due Diligence—
Searches, below.
Updated Marks. Frequently, a company decides to update or modify its brand
to meet new marketing plans or business expectations, not realizing that the
legally protected component of its brand, the trademark, may be adversely
affected. An Administrator may be called upon to monitor and determine
whether an updated trademark requires a new registration. Administrators
should be aware that the inconsistent presentation of a mark can devalue its
worth. In addition, what a layperson considers to be an insignificant change to
the mark may be legally significant and may result in the loss of trademark
protection for the updated mark (and abandonment of the original mark). Take,
for example, a mark that consists of a silver circle with a black design in the
middle and that is used for beauty products. Five years after registration of the
mark, the company decides to release a line of beauty products solely for
nighttime use, and it chooses to reverse the colors of the trademark—that is, a
black circle with a silver design in the middle—to suggest nighttime. If the
original trademark registration specifies the colors in its description of the mark,
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Trademarks in Business Transactions
protection of the mark as registered is limited to those colors; therefore, the
company will have to obtain a new registration for the updated mark.
E.
Acquiring Existing Marks
In addition to creating its own marks, a company may seek to acquire trademarks
owned by another individual or entity. This allows the company to seek out
marks that would quickly diversify or expand the company’s portfolio.
Oftentimes, business transactions involving trademarks arise because of perfect
timing. Company A is willing to buy a mark that company B is willing to sell.
Administrators will want to reevaluate their company’s trademark portfolio on a
regular basis to ensure that any acquisitions or divestitures the company decides
to make will not be delayed or hindered by an outdated portfolio. Moreover, the
Administrator would also benefit by evaluating the mark being acquired and/or
the target company’s overall portfolio in order to understand how the target
company has profited from the mark that is being acquired. In doing so, the
Administrator can determine whether the mark would also produce value for the
Administrator’s own company. (See also Section III.A, Business Expansion, and
Section IX, Due Diligence, below.)
A company may seek to obtain or use another individual or company’s mark
through an acquisition or a merger or by license. The business’s strategic plan
may dictate which type of ownership would be most beneficial. By acquisition, a
company would typically receive complete right, title, and interest in the mark by
assignment from the mark’s owner. Under a merger, a company would receive
complete ownership of the mark by operation of the law. All rights and liabilities
of the mark attach to the new owner. Under a license agreement, a company may
receive a right to use (rather than own) the mark under certain terms and
conditions set out by the mark owner (also known as the licensor).
In assessing a company’s trademark portfolio, the Administrator may wish to
take into consideration the following questions for each trademark:
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Trademark Administration
Trademark Portfolio Assessment Checklist
 What is the registration or application number of the trademark?
 What goods or services are protected by the trademark?
 What is the date of the trademark registration or application?
 What is the chain of title (recordal of the prior owners) for the
trademark?
 Are there any encumbrances on the trademark?
 In which countries is the trademark registered? In which countries is
the trademark used? To which countries do the trademark rights
extend?
III.
Acquiring or Divesting Marks
A.
Business Expansion
1.
Practice Tip
Identifying Trademark Targets
When dealing with a potential target (i.e., a company to
be acquired or merged with), a company should
thoroughly research the target’s assets to understand the
extent of the trademark rights involved. This process
would involve a review of the target’s past and current
activities. Some suggested areas to investigate for
information are the target’s marketing, operations and
management, and legal departments. Even if an
Administrator is not called upon to undertake this review,
it is in his or her best interest to familiarize himself or
herself with the target’s assets. By doing so, the
Administrator may be able to help determine whether the
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Although this publication is
focused on trademark
rights, an assessment of
the target’s trademark
rights cannot be conducted
within a vacuum. A
thorough review process
would involve two
additional aspects. The
first is the manner in which
the trademarks interact
with the target’s
complementary assets,
such as trade dress,
slogans, and marketing
campaigns. The second is
the manner in which the
trademarks and the
complementary assets may
associate with other IP
assets in the target
company.
Trademarks in Business Transactions
assets are compatible with the company’s existing marks and overall business
goals. 6
2.
Mergers; Stocks and Asset Purchases
A transfer of trademark rights is sometimes part of a much larger business
transaction, such as a merger, acquisition, asset purchase, or stock purchase.
How IP assets are acquired or transferred can affect the nature of the documents
that Administrators may need to maintain or produce. In addition,
Administrators may be called upon to consider the alternative methods of
transferring trademark rights.
With any merger or acquisition, the acquiring company’s first responsibility is to
determine whether trademark rights are also being acquired. Sometimes the
transfer of trademark rights is incidental to the merger or acquisition, while at
other times the transfer of trademark rights is the driving force behind it. An
Administrator can be a great resource for the company in helping to make the
determinations discussed below. The acquiring company must determine the
impact that the trademark rights will have on business models or goals of the new
entity. The company should also determine how the trademark rights might
affect or interact with the company’s current goods or services. This may be
determined by looking at the trademarks’ cash flow or their reputation in the
marketplace. When the merger or acquisition is between international
companies, the businesses need to consider which country’s trademark laws will
control the transfer of the trademark rights.
Post-merger. When a merger has taken placed, an Administrator should be
mindful of the following question: Which entity will ultimately own and use the
newly obtained trademark rights? The decision is best made before the closing of
the business transaction. The acquiring company may find no value in the
trademarks for its specific business. Put another way, the marks may lose their
value because they were associated only with the acquired company. If the marks
6
For an in-depth discussion of this subject, see David Drews, “Properly Evaluating a Target
with Intellectual Property Rights,” in Lanning G. Bryer, Scott J. Lebson & Matthew D. Asbell,
Intellectual Property Strategies for the 21st Century Corporation 37–46 (Wiley 2011).
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Trademark Administration
have not retained value for the acquiring business, the company may find it
beneficial to either license, sell, or abandon them. Conversely, the surviving
company may see a significant commercial benefit in retaining and using the
trademarks of the acquired company. In that case, it is the surviving company’s
responsibility to record the merger and all existing trademark registrations and
applications to make certain that title in the marks is owned by an active business
entity. In some jurisdictions, failure to record the merger may prevent or
complicate the transfer of the trademarks at a later time.
Definitions
An asset purchase is a transaction in which a business’s assets and
certain liabilities are acquired and folded into an existing company or
transferred to a new company.
A stock purchase is a transaction based on an agreement between a
closely held or private firm and its shareholders regulating the sale and
transfer of the firm’s shares.
Another common method utilized in expanding a business is the acquisition of
another company’s stock or assets. In an asset purchase, all or a portion of the
target’s assets, which usually include trademark rights, is acquired by the
purchasing company. In a stock purchase, all or a portion of the target shares of
stock is acquired by the purchasing company. However, trademark rights often
remain with the acquired company absent a separate provision or agreement to
the stock purchase. 7 This is because assets are not exchanged in the stock
purchase; only the shares of the stocks are acquired. The buyer should ensure
that the seller discloses which trademark rights the selling company owns and
which trademark rights are merely licensed for its use. 8
7
See Lanning G. Bryer & Scott J. Lebson, “Transfer of Intellectual Property Upon Merger or
Acquisition,” in Lanning Bryer & Melvin Simensky, eds., Intellectual Property Assets in
Mergers and Acquisitions 16.1–16.26 (Wiley 2001).
8
See Glenn A. Gundersen, “Intellectual Property Aspects of Acquisitions,” in id. at 6.1–6.17.
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Ultimately, either an asset purchase or a stock purchase transaction between
companies requires a significant level of due diligence to account for whether the
purchases include specific trademark rights. 9
B.
Assignments
An assignment of trademark rights occurs when a company transfers its complete
ownership of a mark or several marks to another individual or company. There
are certain procedural rules that the parties must meticulously follow; otherwise,
the assignee could be vulnerable to losing its rights. Since trademark laws are
territorial and practice can vary widely, it is important to seek a reputable local
counsel who understands the requirements for filing in each country in which the
mark is registered or pending.
An Administrator may be called upon to act as liaison with local counsel for the
recordal or to instruct the recordal of the assignments. Administrators may also
need to oversee and correct inaccurate assignments made by others. After all,
data verification and integrity are critical to any trademark portfolio.
Assignments can affect the Administrator’s decisions on IP management and
timely performance of the necessary tasks.
1.
U.S. Trademark Assignment Requirements
The checklist below sets out the key requirements for a trademark assignment in
the United States. The USPTO’s requirements for recordal of an assignment are
available at http://www.uspto.gov/trademarks/process/assign.jsp.
9
See generally Sheldon Burshtein, “Intellectual Property and Technology Due Diligence in
Business Transactions,” in id. at 8.1–8.66. See also Section IX, Due Diligence, below.
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Trademark Administration
U.S. Trademark Assignment Requirements Checklist
 Writing: The assignment of a federal registration or application to
another must be in writing. A written assignment is also recommended
for the assignment of a common-law trademark.
 Signature: The assignor, the person who is assigning the rights to
another, must sign the written assignment.
 Notarization: There is no witness or notarization requirement for the
assignment of a federal application or registration. However, a notarized
written assignment creates a legal presumption that the assignor
executed the assignment.
 Recordal: It is highly recommended that an assignment be recorded
with the U.S. Patent and Trademark Office (USPTO). Recording an
assignment safeguards an assignee from a subsequent assignee for
value who did not have notice of the original assignee’s rights. The
recordal of the assignment can be submitted to the USPTO either
online or by mail.
 Timing: An assignment should be recorded within three months of its
execution. Such recordal will ensure the assignee has priority over any
subsequent bona fide purchaser for value who did not record its
assignment. Moreover, a subsequent bona fide purchaser for value
without notice will have priority over a prior assignee who fails to
record. (More information on timing is provided in Section 10 of the
Lanham Act (U.S. Trademark Act), 15 U.S.C. § 1060.)
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2.
Assignment of U.S. Pending Applications
The assignment of a pending application may be more
complex. A pending U.S. trademark application based on
commercial use must be transferred together with its
goodwill. Under the Lanham Act, a trademark is
accompanied by the goodwill it symbolizes. 10 Attempts to
transfer trademarks without the associated goodwill of the
business have been characterized as “assignments in
gross” and have been declared invalid. 11 Also, an intent-touse application can be validly assigned only in two
situations: (a) if the entire business associated with the
mark is sold or (b) if there is commercial use of the mark
documented with the USPTO. 12 Note also that this means
an intent-to-use application cannot be assigned as
collateral for a security interest. 13
Practice Tip
When filing a recordal of
an assignment with the
USPTO by mail, use the
Recordation Form Cover
Sheet (Form PTO-TM1594). The recordal may
also be filed online
through the Electronic
Trademark Assignment
System (ETAS).
Queries regarding
trademarks should be
submitted to the
USPTO’s Assignments on
the Web page.
The following checklists set out a few key assignment tasks for which an
Administrator may be responsible, with regard to both the assignor and the
assignee.
10
“A…mark…shall be assignable with the good will of the business in which the mark is used, or
with that part of the good will of the business connected with the use of and symbolized by the
mark.” 15 U.S.C. § 1060(a)(1).
11
Berni v. International Gourmet Restaurants, Inc., 838 F.2d 642 (2d Cir. 1988).
12
15 U.S.C. § 1060.
13
Clorox Co. v. Chemical Bank, 40 U.S.P.Q.2d 1098 (T.T.A.B. 1996).
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Assignor Checklist
 Fully understand what specific rights will accompany the assignment.
 Check to make sure that the assignor does not need to retain rights in
the mark.
 Does the assignor need a temporary or permanent license from the
assignee back to the assignor?
 Ensure that the assignor has ownership or a security interest until the
assignor is paid in full.
 Has payment in exchange for the assignment been fully transferred and
received?
Assignee Checklist
 Is the mark valid? Is the application pending or is the registration still
in force?
 Check the chain of title to ensure that the title is free and clear of any
prior encumbrances (more specifically, check for any prior
assignments, licenses, or security interests).
 Has the assignor adequately represented its ownership of the validity
and enforceability of the mark and its ability to transfer the mark?
 Check to ensure that there are no infringements or other third-party
claims known to the assignor.
 Fully understand and confirm that the rights included with the
assignment are reduced to writing. Rights can include goodwill, the
right to sue for past infringements, etc.
 Is the assignment notarized?
 Ensure that the assignment is recorded within three months of
execution.
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3.
International Trademark Assignment Requirements
It is important to note that trademark laws and practice vary widely throughout the
world. For example, in contrast with the United States, certain jurisdictions permit
assignments without the goodwill of the business associated
Practice Tip
with the mark or only with the partial goodwill of the
business. Furthermore, the procedures for Madrid Protocol
INTA’s Country Guides:
Full Report Search
applications and registrations with the World Intellectual
provides an overview of
Property Organization (WIPO) (see
trademark practice in
http://www.wipo.int/madrid/en/) may also differ.
more than 100
Assignments of International Registrations may be recorded jurisdictions. This
resource is helpful in
with WIPO or with a national trademark office, which will
determining procedures
for recordal of
then notify WIPO and other designated countries/
assignments in other
jurisdictions. If the International Registration is properly
countries.
recorded with WIPO and protection extends to the United
States, the USPTO will be notified to update its database accordingly pursuant to
Section 501.07 of the Trademark Manual of Examining Procedure (TMEP).
Please see the assignment forms on the following pages for examples of
assignments with goodwill, with partial goodwill, without goodwill, and not
mentioning goodwill.
Checklist
 Writing: The assignment of an international trademark registration or
application requires a written instrument (sometimes an original or
certified copy, but simple photocopies are acceptable as well).
 Signatures: Signatures of both parties are required in many
international jurisdictions.
 Notarization/authentication: Certain jurisdictions require the
assignment to be notarized or authenticated with apostille/consular
legalization.
 Recordal: A number of jurisdictions have deadlines for the filing of
assignments from the date of execution, after which penalties for late
filing either are assessed or may be rejected.
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Trademark Administration
Assignment with Goodwill
Source: Susan Barbieri Montgomery & Richard J. Taylor, eds., Worldwide Trademark
Transfers: Law and Practice (INTA, rev. 1998).
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Assignment with Partial Goodwill
Source: Susan Barbieri Montgomery & Richard J. Taylor, eds., Worldwide Trademark
Transfers: Law and Practice (INTA, rev. 1998).
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Trademark Administration
Assignment Without Goodwill
Source: Susan Barbieri Montgomery & Richard J. Taylor, eds., Worldwide Trademark
Transfers: Law and Practice (INTA, rev. 1998).
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Trademarks in Business Transactions
Assignment Not Mentioning Goodwill
Source: Susan Barbieri Montgomery & Richard J. Taylor, eds., Worldwide Trademark
Transfers: Law and Practice (INTA, rev. 1998).
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4.
Due Diligence
When seeking to acquire a trademark, a company would
be well advised to undertake appropriate due diligence.
Practice Tip
Due diligence includes
A company should also be wary of the fact that in certain
reviewing the chain of
jurisdictions, a bona fide purchaser of an asset for value
title to ensure that the
assignor has true
who has not recorded his or her assignment may still
ownership rights to the
have a claim to ownership. A chain of title search will
trademark and to reveal
any third party’s rightful
also help the assignee determine whether the trademark
claim to title of the
rights that the assignor has promised to convey are
trademark.
exactly what the assignee is acquiring. Through the due
diligence process, an assignee will understand the full extent and limitations of
the trademark rights it is about to receive. For example, an assignee may
discover that the assignor had limited the ability to use the mark with regard to
certain potential goods or services or in certain territories. These findings are
important to the assignee company because it receives not only the benefits of
the trademark rights but also any liabilities and limitations relating to the
trademark rights.
The following checklist sets out a few key assignment-related due diligence tasks
for which an Administrator may be responsible. 14
Assignment Due Diligence Checklist
 Search the chain of title and determine current owner of record.
 Review any affiliated agreements. (May also require attorney review.)
 Consider the marketplace and consumers.
 Determine the available resources to support the transfer or acquisition
of the trademark.
14
For more information on determining what tasks due diligence incorporates, see Robert W.
Smith, “Diligence in Acquiring Trademarks: What’s Due?” INTA Bulletin, Vol. 60 No. 11
(June 15, 2005).
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Trademarks in Business Transactions
Assignment Due Diligence Checklist
 Consider the impact on and from third-party interests (including
obligations, exclusivity, territory, liabilities, representations and
warranties, etc.). (May also require attorney review.)
 Determine the responsibility for pre- and post-closing activities.
 Determine whether assignor companies are in existence and officers are
able to execute documents.
 Determine whether unregistered rights exist requiring common-law
assignment. (May also require attorney review.)
 Determine whether domain name rights exist based on acquired
trademark rights. (May also require attorney review.)
 Where appropriate, determine the manner and geographic use of
acquired trademarks.
The following is an in-depth comprehensive checklist that Administrators may
wish to consult as a guide when handling an assignment of trademark rights.
Divestiture Project Checklist
Pre-Closing Actions
Task
Status
Determine Basics of Transaction
 Who are the parties?
 Obtain contact info for
assignee
 What is the purpose of the
underlying transaction?
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Notes
Complete
Trademark Administration
Task
Status
 What are the trademarks
involved? Are any unregistered
marks a part of the deal?
 When is closing?
 Level of confidentiality
 Will a phase-out license be
needed for existing inventory?
 Who will be responsible for
recordal of the assignment?
Review Portfolio to Identify:
 Registrations/applications to
be assigned
 Domain names to be assigned
 Owner issues:
o Affiliate owners
o Chain of title issues
o Unrecorded changes of address
 Associated marks:
o Dissociation possible?
o License to assignee?
o Voluntarily cancel?
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Notes
Complete
Trademarks in Business Transactions
Task
Status
 Registrations/applications in
sensitive countries:
o Does assignee want them? If so,
license and docket for periodic
review, or cancel so assignee can
refile?
o If no interest to assignee,
consider canceling
 Agreements affecting the
marks:
o Third-party licenses—
transferable? Identify
termination requirements
o Affiliate licenses—automatic
termination provision? Identify
termination requirements
o Settlement agreements
o Consents
o Prior rights agreements
o Prior assignments
 Conflicts:
o Active conflicts
o Prior decisions affecting the
marks
 Deadlines, including renewals:
o Actions to complete prior to
closing
o Actions due up to one year after
closing, to provide to assignee
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Notes
Complete
Trademark Administration
Task
Status
Notes
Complete
Consult with Tax Department to Identify Tax Consequences of
Transfer
Write Local Counsel in Each Country to Ask:
 Are registration details
accurate?
 Are there any affiliate-owned
registrations for this mark of
which you are unaware?
 Any associations that would
prevent assignment? (In case
your records on this are
incomplete)
 Any license or registered user
recordals that must be
terminated? What is required?
Request forms.
Provide Assignee Lists of:
 Registrations and applications
to be assigned
 Any trademarks that cannot be
assigned (associated marks,
sensitive countries)
 Domain names to be assigned
 Agreements affecting the marks
 Active conflicts
 Prior decisions affecting the
marks
 Issues that may be impediments
or complications to assignment
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Trademarks in Business Transactions
Task
Status
 Renewals and other deadlines
due within first year after
projected closing date
Pre-Closing Housekeeping
 Resolve any incomplete owner
name or address changes
 Retrieve original registration
certificates and agreements, or
copies if originals are
unavailable
 Retrieve copies of decisions
affecting the marks
 Review prosecution files;
remove confidential and
proprietary information for
production of redacted files to
assignee, according to practice
and records retention policy
 Review conflict files; remove
confidential and proprietary
information for production of
redacted files to assignee,
according to practice and
records retention policy
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Notes
Complete
Trademark Administration
Task
Status
Notes
Complete
Status
Notes
Complete
Prepare Draft Documents
 Assignment for each owner,
including any unregistered
marks
 Phase-out license for existing
inventory, if needed
 Licenses for marks not
assignable
 License terminations
Post-Closing Actions
Task
Send Following Items/Information to Assignee:
 Original registration
certificates, or copies if
originals are unavailable
 Original third-party
agreements, or copies if
originals are unavailable
 Renewal documentation for
pending renewals
 Updated report of deadlines
due within next year
 Redacted files, according to
practice and retention policy
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Trademarks in Business Transactions
Task
Status
 Digital file of portfolio data, for
entry into assignee’s
trademark database
 As license and registered user
recordals are terminated,
advise assignee so its
assignment recordal process is
not impeded
Terminate Affiliate Licenses
 Immediately after closing, have
license terminations signed by
assignor and send them to
affiliates for countersignature
 Send completed terminations
to local counsel for recordal
where necessary
Write Local Counsel in Each Country
 Notify of assignment
 Provide assignee contact
information and instruct that
all future correspondence be
directed to assignee; cc
assignee
 Cancel registered user and
license recordals; record
license terminations where
necessary
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Notes
Complete
Trademark Administration
Task
Status
Notes
Complete
Post-Closing Housekeeping
 Assist assignee with obtaining
signatures on confirmatory
assignments and power of
attorney forms (assignee should
prepare all documentation if it
is responsible for recordal of
assignment)
 Update computer records,
remove deadlines from docket
 Remove mark(s) from Watch
Service
IV.
Licensing
A.
Generally
Licensing can provide both the licensor and the licensee major benefits to their
trademark portfolio. It can save the licensee the time and expense of achieving
the name recognition necessary for a profitable brand. These expenses can
involve marketing and advertising costs, building brand familiarity among
consumers, and costs involved with creating a new mark. In the United States, a
valid license will absolve the licensee from a potential claim of infringement if the
licensee uses the mark as authorized. 15 This does not leave the licensor without
protection. The trademark licensee has an implied good-faith obligation not to
engage in actions that would impair or destroy the value of the trademark rights
15
See Segal v. Geisha NYC LLC, 517 F.3d 501 (7th Cir. 2008).
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Trademarks in Business Transactions
granted to the licensee. 16 Licensors benefit from the expansion of the market
through the licensee’s use of the mark on products that may be outside of the
licensor’s resources or capability.
License agreements can be simple or complex depending on jurisdictional
requirements and the type of conditions that both parties require. While there are
a number of standard license agreements available, an Administrator should not
undertake the drafting or execution of a license agreement without consulting a
trademark attorney. In practice, a trademark Administrator will likely be
involved in monitoring the activities of its company to ensure that business
activities are in line with conditions in a license agreement. This process can
entail anything from updating a company database to implementing quality
controls over the company’s use of the mark. (See INTA Fact Sheet, Trademark
Licensing. See also INTA Fact Sheet, Assignments, Licenses and Valuation of
Trademarks.)
1.
Types of Licenses
A standard “express” trademark license is not the only option available to a
company. Depending on the business goals of both companies, another type of
license may better fit the business transaction. Moreover, a trademark
Administrator should be familiar with the different types of licenses in order to
properly examine the trademark rights acquired or transferred.
16
•
Exclusive license: Confers the exclusive right to use a mark. This
includes all rights and liabilities connected to the mark. An exclusive
license precludes the licensor from both granting additional licenses to
third parties and using the mark itself.
•
Non-exclusive license: Grants the licensee a limited use of the
trademark right. A non-exclusive licensee cannot preclude the licensor
from granting additional licenses or using the mark itself.
See Weight Watchers of Quebec Ltd. v. Weight Watchers International, Inc., 398 F. Supp.
1047 (E.D.N.Y. 1975).
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Trademark Administration
17
•
Sole license: Not the same as an exclusive license. The sole licensee is
granted the right to use the trademark, but the licensor is not
precluded from using the mark. However, the grant of additional thirdparty licenses is not permitted.
•
Cross-license: The companies grant each other a license in their
respective trademark rights.
•
Sublicense: The grant of trademark rights to a
third party (the sublicensee) by the licensee of
the original agreement. Generally, the licensee
is not authorized to sublicense the trademark
rights absent an express agreement from the
trademark owner/licensor.
Practice Tip
A good standard
agreement would include
provisions that address
whether the licensee
may sublicense the
trademark rights.
Moreover, when
reviewing a license
agreement, consider
whether a termination of
the primary license
agreement will result in
termination of the
sublicense.
•
Extension license: Allows the licensee to
extend the trademark to new goods or services
other than those provided for by the licensor.
The closer the goods or services between the
licensor and licensee are commercially related,
the more benefit the extension license will
provide through consumer recognition and
association of the original mark. This right is useful when the licensor
is limited in resources or know-how to be able to successfully extend its
goods or services into other markets. (See also Section IV.A.2, CoBranding, below.)
•
Franchise: Involves an agreement where the franchisee makes a
payment to receive the right to operate a business associated with the
franchisor’s trademark and that business is under the franchisor’s
quality control. The primary advantage of a franchise agreement is it
allows the franchisor to reap the benefit of many channels of commerce
without having to invest any of its own money. 17 Most states provide
See 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §§ 18:64–
18:65 (Thomson 4th ed. 2014). Most states provide laws that govern the disclosure and
registration of franchises. See INTA, U.S. State Trademark and Unfair Competition Law
(January 2014).
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Trademarks in Business Transactions
laws that govern the disclosure and registration of franchises.
Furthermore, the Uniform Franchise Offering Circular and certain
Federal Trade Commission rules and regulations also impose
additional obligations to prevent deception and encourage disclosure
with franchises involving trademark rights.
o “Franchise means any continuing commercial relationship or
arrangement, whatever it may be called, in which the terms of the
offer or contract specify, or the franchise seller promises or
represents, orally or in writing, that: (1) [t]he franchisee will obtain
the right to operate a business that is identified or associated with
the franchisor’s trademark, or to offer, sell, or distribute goods,
services, or commodities that are identified or associated with the
franchisor’s trademark; (2) [t]he franchisor will exert or has
authority to exert a significant degree of control over the
franchisee’s method of operation, or provide significant assistance
in the franchisee’s method of operation; and (3) [a]s a condition of
obtaining or commencing operation of the franchise, the franchisee
makes a required payment or commits to make a required payment
to the franchisor or its affiliate.” 16 C.F.R. § 436.1.
•
Distribution license: Typically gives the distributee the right to take
possession of branded goods for resale in a certain territory. Unlike a
licensee, a mere distributor of trademarked goods usually does not
need a trademark license. 18
•
Hybrid license: A license that involves at least two different types of
intellectual property.
The following checklist sets out a few key licensing-related due diligence tasks for
which an Administrator may be responsible.
18
For more information on distribution licenses, see McCarthy, supra note 17, § 18:42.
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Trademark Administration
Licensing Due Diligence Checklist
 Manage or oversee active licenses with regard to trademark rights and
use, royalties, renewals, and quality control.
 Determine the scope, duration, and geographical location in which the
mark can be exploited.
 Input recent details/features of all licenses in database (including any
expiration or renewal dates of the marks and/or agreement).
 Establish and maintain quality control protocol.
 Monitor royalty payments and fees owed the company.
RESOURCE: For more information on quality control, see Kevin Collette &
Michael Lisi, INTA Practitioners’ Checklists, Licensor’s Quality Control
Checklist.
2.
Co-Branding
Taking licensing a step further, some companies may find that their trademarks
would work well with another company’s trademark as a co-brand. Increasingly,
businesses have entered into joint ventures. In these joint ventures a party is
granted the authority either to partition its mark for the other party’s use or to
combine marks from each company for one or both parties to use. Co-branding
has the potential of changing the ways in which trademarks are owned, used, and
maintained. (See Deena Crawley & Steve McKee, “Twenty Co-Branding
Examples,” Bloomberg Businessweek (July 10, 2009).)
As with any partnership arrangement, co-branding can come with risks. As a
protective move, the interested companies enter into a licensing agreement. As
part of that licensing agreement, the companies may elect to place the combined
trademark rights into a mutual trademark holding company (MTHC). An MTHC
is similar to an IPHC, except that the subsidiary is jointly owned and formed by
unrelated parent companies. The MTHC usually requires the assignment of rights
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Trademarks in Business Transactions
from both parties, whereas the IPHC involves no transfer of ownership and no
registration of the mark because no entity owns the combined mark. Each
company’s IPHC owns its portion of the mark independent from the other, but an
agreement is reached to co-brand the marks. 19 (See also Section II.A,
Management and Ownership Structure, above.)
Association Issues. An Administrator should emphasize the importance of due
diligence, particularly by considering the marketplace and consumers, when it
comes to agreements because co-branding may easily lead to consumer confusion
or even the dilution of the mark. For example, Company A manufactures tables
made of the finest oak and Company B manufactures cabinets made of the finest
oak. Both parties enter into a joint agreement to use Company A’s mark
STRONGWOOD. Two years later, Company B realizes that it can make similar
cabinets more cheaply by using imported oak. Unfortunately, the imported wood
warps during humid weather. Accordingly, customers begin to associate the poor
quality of the cabinets with the mark STRONGWOOD. When the quality is not
maintained for all of the goods that the mark is being used on by both parties, the
mark is vulnerable to becoming diluted or losing its distinctiveness. Trademark
markings may help trademark owners who co-brand to reduce the risk of a new
unitary, legal association’s being formed in the minds of consumers. 20
19
For a detailed discussion of MTHCs and IPHCs, see Saul Lefkowitz, “Double Trademarking—
We’ve Come a Long Way,” The Trademark Reporter, Vol. 73 No. 1, 11–27 (January-February
1983).
20
For more information on association issues, see Lanning Bryer & Matthew Asbell,
“Combining Trademarks in a Jointly Owned IP Holding Company,” The Trademark
Reporter, Vol. 98 No. 3, 834–72 (May-June 2008). See also Section IX, Due Diligence, below.
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Trademark Administration
Definition
Dilution is the lessening of the capacity of a famous mark to identify and
distinguish goods or services, regardless of the presence or absence of
competition between the owner of the famous mark and other parties, or
of likelihood of confusion. Typically it occurs as the result of blurring or
tarnishment of the famous mark.
Tarnishment. Dilution by tarnishment is the weakening of the distinctiveness
of a famous mark, usually through inappropriate or unflattering associations.
Most countries recognize some form of trademark dilution and a need for
businesses to have some recourse to thwart that activity but that recourse, the
definition or elements of dilution, the tribunals determining dilution and the
resulting penalties or forms of compensation imposed upon a trademark diluter
vary across jurisdictions. (See INTA Fact Sheet, Trademark Dilution.)
3.
U.S. License Requirements
In the United States, license agreements are governed by the general rules of
contract law. In some instances, a license agreement does not need to be in
writing to be enforceable; oral agreements may be acceptable. 21 A licensee can be
held liable for trademark infringement and breach of contract if the licensee
violates the agreement’s provisions. The Lanham Act does not provide general
guidelines for trademark license agreements, although it does require the
trademark owner to control the quality of the licensee’s goods and services. 22
21
Basic, Inc. v. Rex, 167 U.S.P.Q. 696 (T.T.A.B. 1970).
22
15 U.S.C. §§ 1055, 1127.
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Trademarks in Business Transactions
4.
International License Requirements
Similar to trademark assignments, it is mandatory in
some international jurisdictions for license agreements to
be recorded at the national trademark office. Some
countries may even require a license to be re-recorded
each time the trademark registration is renewed.
5.
Practice Tip
INTA’s Country Guides:
Single Topic Report
allows you to view the
licensing requirements of
any jurisdiction.
Quality Control
Once a license agreement has been signed, the licensor risks losing control of
the trademark. A licensor is obligated to maintain the quality of the products
associated with the trademark by ensuring that the mark is being used on
goods or services that meet its expectations and standards. Quality control
serves the purpose of protecting consumers from receiving goods or services
from the licensee that are not of the same quality as those provided by the
licensor.
Definition
Quality control, also known as quality assurance, is the obligation to
ensure that the goods and services sold under one’s mark conform to
consistent standards of quality. It is vital in a trademark license
because unfettered use of a mark by a licensee can cause loss of
trademark rights.
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Trademark Administration
In a trademark license, the licensor must demonstrate
actual quality control, not just the mere right of control.
“The owner of a trademark has a duty to ensure the
consistency of the trademarked good or service. If he does
not fulfill this duty, he forfeits the trademark.” 23 By
implementing adequate inspection procedures and
supervising the quality of goods, the licensor will show
actual control over the mark and avoid the allegation of
abandonment. A licensed trademark for which use is
uncontrolled is known as a naked license.
Naked licensing can be described as a situation where “the
presence of the mark on the licensee’s goods or services
misrepresents their connection with the trademark owner
[and] no longer identifies goods and services that are
under the control of the owner of the mark.” 24 Depending
on the degree of the severity of the lack of quality control,
the trademark could be considered abandoned.
Practice Tip
It is important for the
trademark owner to keep
up-to-date quality control
records. A licensor
should implement
adequate inspection
procedures and
supervise the quality of
goods.
Practice Tip
Although it may appear
that only the licensor can
exercise quality control,
this is not the case. The
licensor is allowed to
delegate the
responsibility to a third
party to inspect and
evaluate the licensee’s
goods and services for
compliance with the
licensor’s standards.
The licensor should also be cautioned against
overreaching quality control measures, especially with
regard to franchises. In order to minimize the risk of
violating U.S. federal antitrust laws, 25 franchise
agreements should incorporate a list of approved vendors rather than requiring
one specific vendor, or impose a uniform quality standard requirement for all
potential vendors. 26 The key is to avoid becoming an imposing force on the
licensee’s business.
23
Gorenstein Enterprises, Inc. v. Quality Care-USA, Inc., 874 F.2d 431 (7th Cir. 1989).
24
Restatement (Third) of Unfair Competition § 33 cmt. b (1995).
25
See Sherman Act, 15 U.S.C. § 1.
26
McCarthy, supra note 17, § 18:62.
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Trademarks in Business Transactions
Policing Issues. The licensor should include in the
license agreement provisions ensuring that a licensee will
maintain the level of quality of the goods and services that
would meet the licensor’s standards. It is recommended,
moreover, that the Administrator for the licensor company
engage in routine documented inspections. Often it may be
unclear who determines whether a certain level of quality
has been reached. Administrators take note: “[T]he
consuming public must be the judge of whether the quality
control efforts have been ineffective.” 27 Ultimately, the
consumer’s perception will determine whether quality
control has been successful. The standard to be maintained
is not one of the highest quality of goods or services; rather,
it is the consistent quality of goods or services. 28
A best efforts clause in a contract “imposes an obligation
to act in good faith in light of one’s own capabilities.” 29
6.
Royalties
Practice Tip
There are distinctive
quality control risks that
arise in certain
jurisdictions outside the
United States where
licensors are precluded
from using the
trademark right in the
jurisdiction of the
licensee (e.g., exclusive
license agreement). In
such a situation, the
licensor is vulnerable to
any lack of policing or
quality control by the
licensee. One way to
overcome the risk is to
include express
provisions (e.g., a best
efforts clause) in the
license agreement that
hold the licensee
responsible for engaging
in quality control.
A trademark license can be royalty-bearing or royalty-free.
Royalty-bearing licenses can be based on the gross income (the amount earned
before deductions for overhead expenses and taxes) or the net income (the
amount earned after deductions) of the licensee.
27
Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 387 (5th Cir.
1977).
28
Eva’s Bridal, Ltd. v. Halanick Enterprises, Inc., 98 U.S.P.Q.2d 1662 (7th Cir. 2011).
29
Ashokan Water Services, Inc. v. New Start, LLC, 11 Misc. 3d 686, 692 (N.Y. Civ. Ct. 2006).
See generally Theodore C. Max, “Available Remedies for Dispute Resolution in International
and Domestic Trademark Licenses,” in 2 Melvin Simensky, Lanning Bryer & Neil J. Wilkof,
eds., Intellectual Property in the Global Marketplace 27.1–27.35 (Wiley, 2d ed. 1999).
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Trademark Administration
Definition
A royalty is a payment made by a licensee in return for permission to
use another’s mark.
Because unspecified royalties can lead to misunderstandings, the licensee and
licensor should, at the onset of negotiations, clearly specify and define in the
agreement what deductions are to be included. Other issues to be aware of
include: (1) whether the royalty is based on direct or indirect income; 30 (2) the
currency in which the royalty payments are to be paid; and (3) whether the
royalty includes the overall amount of invoiced goods or if it is limited to money
actually received by the licensee for its goods. 31
To determine whether a royalty is “fair,” a company can look toward any similar
prior transactions it has consummated or to industry standards. It is difficult to
project the revenue that a licensee company may earn from another company’s
trademark rights, but a royalty clause can allow for adjustments under certain
conditions. Either licensor or licensee may desire this type of provision, to
accommodate expectations of fairness. 32 In attempting to establish an
appropriate royalty provision, the parties may seek to engage in a thorough
valuation of the trademark rights. (See Section VIII, Valuation, below.)
30
Direct income includes monies directly earned from business dealings (e.g., salaries), while
indirect income means monies received from non-business activities (e.g., investments).
31
See Erik Verbraeken, “Drafting Royalty Clauses: 30 Ways to Head for Windfall or Pitfall,” Les
Nouvelles: Journal of the Licensing Executives Society International, Vol. 46 No. 3, 166–92
(September 2011).
32
See also Damien Salauze, “A Simple Method for Calculating a ‘Fair’ Royalty Rate,” Les
Nouvelles: Journal of the Licensing Executives Society International, Vol. 46 No. 3, 210–15
(September 2011).
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Trademarks in Business Transactions
V.
Using a Portfolio as Collateral—Secured Transactions
In the course of obtaining a loan or entering into certain business transactions,
trademark owners frequently offer trademark rights as collateral. There are a
number of issues that must be considered to correctly pledge these trademark
rights. In order to avoid unnecessary complications, trademark owners and
lenders should resist treating a grant for collateral purposes as an all-purpose
assignment. Unlike an assignment, a security interest does not involve the
transfer of title to the trademark. Instead, the “secured” party has only a possible
future interest in the trademark rights. 33 (See INTA Presentation, Security
Interests in Trademarks: United States Perspective.)
In the United States, security interests in property generally are governed by
Article 9 of each state’s Uniform Commercial Code (UCC).
Definition
A security interest is an interest in property obtained pursuant to an
agreement whereby the property serves as collateral for a loan.
Trademarks and trademark registrations can be used in this manner. 34
Put another way, a security interest in trademark rights is a type of ownership
that arises when a debtor, to guarantee the repayment of a debt, uses the
intangible asset as collateral. To achieve this result, typically the lender
(sometimes known as the secured party or the creditor) and the debtor (i.e., the
trademark owner) negotiate and execute a security agreement.
33
See generally Scott J. Lebson, ”Creating, Perfecting, and Enforcing Security Interests in
Intellectual Property,” in Lanning G. Bryer, Scott J. Lebson & Matthew D. Asbell, Intellectual
Property Operations and Implementation in the 21st Century Corporation 103–20 (Wiley
2011).
34
See U.C.C. § 9-102 and official cmt.
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Trademark Administration
The secured party receives title only upon the debtor’s defaulting on the
obligations of the security agreement. Under the UCC, the creditor has the right
to seize (i.e., to take title to) and sell (in an auction) the trademark rights to
satisfy the debt obligation. 35
Recording. To be “perfected,” a security interest must be recorded in the
relevant state office, such as the Department of State. Perfecting a security
interest is the way in which a party provides notice to the world of its interest in
the trademark right. The secured party has priority to claim the trademark right
as collateral over other types of creditors. Typically, the instrument filed is a
financing statement, with the debtor’s and creditor’s contact information, that
adequately identifies the collateral used for the security interest. Although
perfection of a trademark interest is governed by Article 9 of the UCC and not by
the Lanham Act, it is suggested that a federal filing with the USPTO be made for
the security interest to serve as constructive notice to third parties. This financing
statement plus cover sheet may be filed online with the USPTO. 36 Filing of the
security agreement itself is optional.
Enforcement/Release. If the debtor defaults on the loan, the creditor is
entitled to take possession of the trademark right used as collateral. The creditor
can engage in any judicial proceeding available to enforce the security interest,
including, but not limited to, obtaining from the court a writ of replevin (an
order for the attachment of property to be held in the custody of a designated
official) or a writ of execution (a process issued by the court directing the U.S.
Marshal to enforce and satisfy a judgment for payment of money). 37 However, the
parties may prefer to resolve the issue without resorting to any judicial
intervention: the debtor may agree to assign the trademark rights to the creditor.
As a preventive measure, a secured creditor may have a power of attorney
35
See U.C.C. § 9-602.
36
See TMEP § 503.02. See also Melvin Simensky & Howard A. Gootkin, “Liberating Untapped
Millions for Investment Collateral: The Arrival of Security Interests in Intangible Assets,” in 2
Melvin Simensky, Lanning Bryer & Neil J. Wilkof, eds., Intellectual Property in the Global
Marketplace 29.1–29.29 (Wiley, 2d ed. 1999).
37
See U.C.C. § 9-602.
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Trademarks in Business Transactions
accompany the security interest in the event of a
defaulting debtor. The power of attorney enables the
creditor to receive an assignment of the mark more
smoothly. The creditor may wish to sell the trademark
rights in an auction and apply the sale proceeds to the
debt. In such case, the sale must be “commercially
reasonable” and the debtor must receive reasonable notice
regarding the auction. 38 Conversely, when the loan is
satisfied, the parties should execute a release of security
agreement.
While each security interest transaction is unique and will
range in complexity, the following checklist may provide
general guidance when filing trademark rights as
collateral. 39
Practice Tip
Security interests or
pledges are also
recognized in many
jurisdictions worldwide
under their applicable
commercial laws. The
use and filing of
trademark rights as
collateral for security
interests may vary from
one jurisdiction to
another. Frequently, the
location of the parties
(particularly the debtor)
and the location of the
secured trademark rights
will dictate the laws that
apply. Therefore, it is
imperative that an
Administrator be familiar
with the trademark laws
of the appropriate
jurisdiction when dealing
with a security interest
transaction.
38
See U.C.C. § 9-610.
39
See generally Melvin Simensky, Lanning Bryer & Neil J. Wilkof, eds., Intellectual Property in
the Global Marketplace (Wiley, 2d ed. 1999); Susan Montgomery, “Security Interests in
Intellectual Property,” ALI-ABA Business Law Course Materials Journal, Vol. 25 No. 1, 23–
27 (February 2001).
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Trademark Administration
Security Interest Checklist
 Prepare schedules and check trademark cases for current data in order
to collateralize trademark rights.
 Perform searches to verify ownership, status, and validity.
 Record security interest agreements at U.S. and/or international
trademark offices.
 Engage and interact with outside counsel regarding relevant
commercial and IP issues, to properly create a security interest in U.S.
and international trademark rights.
VI.
Coexistence Agreements
Coexistence agreements are commonly used when two or more persons use “the
same or a similar trademark with respect to the same or similar goods in different
parts of the world.” 40 They are in some characteristics comparable to licenses and
assignments, since they involve the claims by multiple parties of rights over the
same or a similar trademark. However, unlike the situation with a license, the
parties to a coexistence agreement typically do not have an obligation of quality
control, nor are they entitled to royalties. Unlike the situation with an
assignment, the two parties do not transfer title to the trademark rights.
40
See “IP and Business: Trademark Coexistence,” WIPO Magazine, No. 6/2006 (November
2006).
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Trademarks in Business Transactions
Definition
A coexistence agreement is an agreement by two or more persons that
similar marks can coexist without any likelihood of confusion; it allows
the parties to set rules by which the marks can peacefully coexist. Both
parties are permitted to use the same mark in connection with the same
or similar goods or services. Usually the agreement is limited by
geographic boundaries.
Under such an agreement, the respective trademark
owners agree to abide by certain limitations of use of their
respective trademark rights as defined in the agreement.
Sometimes this situation arises when two companies are
operating in different territories or channels of trade with
the same mark.
Practice Tip
The Administrator may
be called upon to assist
the attorney who is
drafting the coexistence
agreement, consent
letter, or concurrent use
agreement. The
Administrator should not
be expected to use a
general “one size fits all”
template, because each
case involves a different
set of circumstances.
Generally, a coexistence agreement is used in one of three
types of situations: (a) both marks are unregistered; (b)
one mark is registered and the other mark is unregistered;
or (c) both marks are unregistered but one has an intentto-use application. An example of a situation where a
coexistence agreement would be useful is when two
parties are in dispute over their use of a similar trademark. The disputing parties
may realize that they do not want to incur the additional expense of a trademark
opposition, cancellation of a registration, or litigation in court. Therefore, a
coexistence agreement will allow them to coexist peacefully in the marketplace.
Be aware, however, that it is possible that a party may demand a fee in exchange
for its consent or outright refuse to agree to a coexistence arrangement.
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Consent Letter. Consumer confusion 41 can be the basis for a claim by one party
against an applicant’s attempt to register a trademark. Where the applicant and
the owner of the cited mark agree that no confusion is likely to occur, provision
should be made for evidence, in the form of a written consent by the owner, that
illustrates that, in spite of a fair evaluation of the confusion factors on the basis of
evidence available to the trademark office examiner, the applicant's mark should
be registered.
Definition
A letter of consent is a letter issued by the owner of a mark, consenting
to the use and/or registration of a similar or identical mark by a third
party. It may include conditions imposed by the owner under which the
consent is given.
The Trademark Office may decide, if local legislation permits, to accept a
straightforward letter of consent for registration of a claimed mark from the
owner of a cited mark. Such consent may include the following factors, where
applicable:
41
•
that a significant period of concurrent use has passed with no evidence
of actual confusion among the relevant purchasing public;
•
that the applicant’s goods/services are distinct from the goods/services
of the cited marks;
•
that the trade channels and/or the purchaser groups are different;
•
that the applicant and the owner of the cited mark agree not to use the
mark of the other on their own goods/services, and agree not to use
their own mark on the goods/services of the other;
See U.K. Intellectual Property Office, Coexistence Agreement: Fact Sheet (Dec. 2, 2008);
Tamara Nanayakkara, Independent Existence or Coexistence of Identical or Similar
Trademarks.
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Trademarks in Business Transactions
•
that if confusion should occur, the owners of the respective marks will
work together and take reasonable action(s) to promptly obviate such
confusion;
•
any other relevant factors illustrating that, in this specific case,
confusion is not likely to occur.
(See INTA, Guidelines for Trademark Examination sec. 10.1.3 (rev. 2007).)
Concurrent Use Agreements. When dealing with the same (and not just a
similar) mark, concurrent use agreements may be useful to allow simultaneous
use and registration. Indeed, certain jurisdictions may require a concurrent use
agreement to be filed for the same mark to be registered by two or more different
parties.
Definition
A concurrent use agreement is an agreement by two or more persons to
use the same mark in connection with the same or similar goods or
services. Usually it is limited by geographic boundaries.
In jurisdictions having provision for opposition proceedings, the owners/users
having earlier rights than the applicant’s will have an opportunity to object to
additional registrations.
In jurisdictions where no search of the trademarks register is conducted during
examination and no opposition is allowed, it is recommended that notice of the
mark to be approved for registration be forwarded by the applicant or local
authority to the earlier owner(s), or made available publicly by the applicant or
local authority, prior to approval for registration. Earlier owners would thereby
have notice of a potentially confusing mark, which could be objected to according
to the provisions within the jurisdiction, or could later be the subject of a suit for
injunctive relief in a court proceeding. (See INTA, Guidelines for Trademark
Examination sec. 8.2.5 (rev. 2007).)
In the United States, concurrent use registration is allowed under Section 2(d) of
the Lanham Act, 15 U.S.C. § 1052(d).
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For a general discussion of these topics, see Lawrence W. Greene, “The Ties That
Bind? Considerations in Drafting and Maintaining U.S. Trademark Consent and
Coexistence Agreements,” INTA Bulletin, Vol. 67 No. 6 (March 15, 2012); U.K.
Intellectual Property Office, What Is a Coexistence Agreement?; TMEP
§ 1207.04.
VII. Tax Considerations
A.
Accounting for Intangible Assets
Tax issues can play a part in owning, selling, or buying trademarks. While
Administrators are unlikely to make legal or policy decisions regarding relevant
tax consequences, they should have a basic familiarity with the instances in which
tax issues may be relevant and consultation with a tax professional might be
warranted. Accounting for intangible assets depends on how the asset was
acquired. Trademark rights acquired through an external business transaction
will differ from trademark rights acquired through internal development. 42
Trademark rights are assets that are subject to amortization because such
intangible assets have a finite useful life. The goodwill of a company, however, is
an example of an asset that would not be subject to amortization because such
intangible assets tend to have an indefinite useful life if maintained. In the United
States, the main authority on accounting for trademark rights can be found under
the Accounting Standards Codification established by the Financial Accounting
Standards Board (FASB). Under the guidelines, trademark rights should be
recognized and recorded based on their fair market value. Moreover, the costs of
“developing, maintaining, or restoring [trademark rights] should be expensed
when incurred.” 43
42
See Howard Fine & Andrew P. Ross, “Accounting and Tax Policies as They Relate to
Intellectual Property,” in Lanning G. Bryer, Scott J. Lebson & Matthew D. Asbell, Intellectual
Property IP Strategies for the 21st Century Corporation 275–85 (Wiley 2011).
43
Id. at 277.
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Trademarks in Business Transactions
With regard to trademark rights (and other intangible assets), the Internal
Revenue Service (IRS) has established mandatory capitalization for money put into
(a) acquiring or creating trademark rights; or (b) facilitating the acquisition or
creation of trademark rights, including the acquisition of assets through a business
transaction or ownership interest in the taxpayer. 44 This rule governs regardless of
whether the trademark rights were internally created or acquired externally. 45 A
business that disposes of intangible assets may face tax consequences as well;
however, the amount may depend on the length of the holding period. 46
On the global scale, the International Accounting Standards Board (IASB) is the
standard-setting body of the independent nonprofit organization that develops
and publishes international financial reporting standards (IFRSs).
B.
Minimizing Taxation
Saving or reducing taxes is an obvious motivation for most trademark owners.
The tax differences in jurisdictions outside the United States can be a favorable
option that companies may wish to explore. There are two types of tax
jurisdictions. The first, which is known as a pure tax haven, does not require that
income taxes be paid. 47 The second type is a tax-free status jurisdiction, which
varies from one jurisdiction to another and offers tax-free status to qualifying
international persons or corporations. 48 Placing trademark rights in an offshore
entity can allow the corporation to effectively manage and exploit the trademark
rights; however, it may end up costly or time-consuming. A company should take
into consideration the overhead and management costs involved in setting up an
offshore entity, as well as any approval that is required.
44
Id. at 279. See also Internal Revenue Code § 197.
45
Fine & Ross, supra note 42, at 279.
46
Internal Revenue Code §§ 197, 1231.
47
See Tira Green & Michael J. Ward, “Offshore Corporations,” in Lanning Bryer & Melvin
Simensky, eds., Intellectual Property Assets in Mergers and Acquisitions 14.1–14.9 (Wiley
2002).
48
Id.
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Trademark Administration
In the alternative, a company may wish to assign the trademark rights to a
national entity merely to hold the trademark rights until
they are ready to be exploited. Incorporating an IPHC in
Practice Tip
tax-friendly states (e.g., Delaware does not recognize
The owner of a
taxation on royalties) can be cost-effective. Note, however, trademark right that is
owned abroad, but that
that a holding company that does not function as a
is licensed to a U.S.
business is less likely to survive tax examination than a
licensee and exploited in
holding company that does have a proper business
the United States, may
receive a tax deduction
49
purpose, such as actively managing a trademark
for royalty payments that
portfolio or simply maintaining corporate records. 50
may be considered a
business expense.
C.
Transfer Pricing
In trademark licensing arrangements, companies must establish an actual or
imputed (in agreements that are royalty-free) royalty for tax purposes. When a
company transfers its trademark rights, it has an option to impose a royalty on
the recipient of the trademark rights. The IRS looks toward the benefit incurred
by the recipient and determines whether the royalties paid pass scrutiny. In other
words, has a fair royalty (which is subject to taxation) been established? If not,
the IRS may adjust the pricing for transfers to reflect
Practice Tip
arm’s-length income levels. Internal Revenue Code
Section 482 provides in part that “the income with respect Due diligence and
valuation can provide
to such transfer or license [of trademark rights] shall be
evidence to overcome
commensurate with the income attributable to the
some adjustments by the
IRS.
intangible.” This provision has become known as the
super royalty provision. Companies should not wait until the IRS conducts an
audit to establish documentation supporting the royalty amount.
49
See Susan Barbieri Montgomery & Leonard Schneidman, “Intellectual Property Transfers—
Holding Companies,” in Lanning Bryer & Melvin Simensky, eds., Intellectual Property Assets
in Mergers and Acquisitions 13.1–13.11 (Wiley 2002).
50
See Del. Code § 1902(b)(8); Lanning Bryer & Matthew Asbell, “Combining Trademarks in a
Jointly Owned IP Holding Company,” The Trademark Reporter, Vol. 98 No. 3, 834–72 (MayJune 2008).
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The Administrator may be called upon to assist in accounting, minimizing
taxation, and transfer pricing issues in order to maintain a viable and fully
developed trademark portfolio. The following checklist may provide further
guidance on these important taxation issues.
Tax Considerations Checklist
 Report trademark transaction to relevant tax counsel or authorities.
 Seek tax counsel regarding the licensing in or out of trademark rights
and possible tax liability created.
 Pay value added, ad valorem, stamp, or other taxes assessed by relevant
country’s trademark office or tax authorities in connection with
trademark transaction.
 Take into account the amount of consideration or value that needs to be
cited in relevant trademark documents.
VIII. Valuation
The need for a valuation may arise in many business transactions involving
trademark rights. (See INTA Fact Sheet, Brand Valuation.)
Definition
Brand valuation is an economic analysis that determines the value of a
trademark. The term refers to the process of ascertaining the amount of
money another party is prepared to pay for the brand. Sometimes this is
readily ascertainable after a company purchases a brand and the
associated goodwill without any other assets; however, in many situations,
determining a value for a brand can be significantly more complicated.
Another readily identified value of a brand, or brands, is the difference
between the amount paid to buy a company and the value of the fixed
assets of that company.
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Trademark Administration
For example, whether a business is considering expansion or is restructuring
(e.g., due to bankruptcy), valuation may be an important step. A valuation can
provide a better understanding of the trademark’s worth from local to global
markets, or from competitors to investors. Forbes magazine’s 2011 list of the top
ten most valuable trademarks should not come as a shock: GOOGLE,
MICROSOFT, WALMART, IBM, VODAFONE, BANK OF AMERICA, GE, APPLE,
WELLS FARGO, and AT&T. 51 Without valuation of a company’s trademark
rights, important aspects of a transaction can be frustrated. 52 A framework of the
valuation’s business purpose can help the analyst choose the most effective
valuation method.
The most important reason for valuation is for strategic
use in a business transaction. The valuation can be used to
identify adjunct opportunities that may not have been
revealed initially, such as licensing or joint ventures of the
trademark rights. Moreover, because the valuation process
can unearth important information and provide a more
thorough assessment of the actual value of the trademark
rights, it can offer leverage in negotiations for licensing or
joint ventures. In making such determinations, the
Administrator has a key role in shaping certain business
dealings.
Practice Tip
Sometimes a company
may prefer to hire an
outside valuation analyst
instead of relying on its
general financial advisor.
In that case, the
Administrator may be
responsible for
overseeing or checking
the valuation report.
Consistent valuation
reports may become a
priceless asset when the
threat of litigation is
looming on the horizon,
whether they are used in
dispute resolution to
avoid litigation or as
evidentiary support in
court to prove the
economic damages
incurred.
Additional reasons for valuation include calculating
royalty amounts; monitoring licenses and whether the
mark has been diminished by the licensee’s use;
determining the marks’ value as collateral for loans;
planning the formation of an IPHC; pricing the expansion
of trademark rights on a global scale; and assessing the
exchange value in a co-branding or cross-licensing transaction.
51
Sean Stonefield, “The 10 Most Valuable Trademarks,” Forbes, June 15, 2011, 2–7.
52
See generally Robert F. Reilly, “Intellectual Property Valuation Approaches and Methods,”
Les Nouvelles: Journal of the Licensing Executives Society International, Vol. 46 No. 3, 198–
209 (September 2011).
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Trademarks in Business Transactions
The following checklist sets out key steps that may be taken by Administrators
who are assisting others in conducting a valuation.
Valuation Checklist
 Assemble information necessary for auditors to conduct valuation,
including sales revenue; details regarding commercial use of the
trademark; and details regarding registration, protection, or
enforcement of the trademark or brand.
 Maintain a log of information for an extended period of time.
 Identify trademarks similar to the one being valued.
A.
Methodologies
Typically, a valuation of trademark rights is conducted through one or a
combination of the following methods:
•
Market Approach: Under a market approach, a “fair market value” is
assigned to the trademark. The fair market value of a trademark is based
on comparisons with other, similar transactions of comparable assets. 53
In general, a fair-market-value analysis would require looking into
market conditions, the nature of the assets, and the goods and services
covered by the marks. Similar to the real estate market, where one would
compare the sale prices of comparable homes in comparable
neighborhoods, the market approach compares comparable marks in
comparable companies and for comparable goods and services. 54
However, sometimes a market approach is difficult to apply, because
there may not be similar transactions to serve as a basis for comparison.
53
Michael J. Lasinski, “Valuation Approaches: Market, Cost, and Income,” in Lanning Bryer &
Melvin Simensky, eds., Intellectual Property Assets in Mergers and Acquisitions 4.1–4.19
(Wiley 2001).
54
See Michael Freno, “Trademark Valuation: Preserving Brand Equity,” The Trademark
Reporter, Vol. 97 No. 5, 1055–72 (September-October 2007).
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Trademark Administration
•
Income Approach: The income approach takes into consideration
the projected future profit stream of the trademark asset. This analysis
requires three elements: (1) the future income from the trademark, (2)
the income stream risks, and (3) the duration of the income stream. 55
The potential downside of this method is that there are a number of
risks. Inflation rates, corporate restructuring, and other unforeseeable
events could alter the equation in varying degrees.
•
Cost Approach: The cost approach is premised on the idea that a
company would not be willing to pay for a trademark license if it would
cost more than the amount it would take for the company to develop its
own alternative trademark. There are four components to a cost
approach to valuation: (1) direct costs (materials, labor, overhead costs,
etc.); (2) indirect costs; (3) the trademark developer’s profit; and (4) the
opportunity cost. The total cost of developing an alternative asset with
the same functionality and utility is called the replacement cost new. 56
The cost approach method can be an awkward fit for valuing trademark
rights because the analysis requires an “assumption that an alternative
[mark] could be developed.” 57 Furthermore, the cost approach
assessment can be rather limiting, in the sense that no consideration is
given to possible future economic risks, market climate, or future profits.
A general financial advisor will not necessarily be able to provide a company with
a proper assessment of its trademark value. To increase its chances for an
accurate valuation assessment, the company should turn to a competent
appraiser that specializes in intangible assets. For a detailed discussion of
assessments, see Daryl Martin & David Drews, Intellectual Property Valuation
Techniques (IPmetrics LLC 2010).
55
Lasinski, supra note 53, at 4.11.
56
See Robert F. Reilly, “Intellectual Property Valuation Approaches and Methods,” Les
Nouvelles: Journal of the Licensing Executives Society International, Vol. 46 No. 3, 198–209
(September 2011).
57
Lasinski, supra note 53, at 4.10.
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The Administrator should make sure to perform at least the tasks listed in the
following checklist when a valuation is being conducted.
Methodologies Checklist
 Assist in valuation of trademark rights and furnish information
regarding use, sales, active license agreements, etc.
 Review valuation opinion for trademark references and verify validity
or accuracy.
 Interact with valuator who is assessing damages in a trademark
infringement case.
IX.
Due Diligence
A.
Global Scale
With businesses growing in the global marketplace, it is important to conduct due
diligence on a global scale, especially with highly valued trademarks. In this
context, due diligence refers to the investigation and analysis of a target
company’s business dealings and legal affairs with regard to its trademark rights.
The neglect of a company in maintaining its trademarks in jurisdictions where
the mark is used or has rights can diminish the trademark’s value. A company
must strategically monitor its own trademark rights and, depending on the
corporate structure, the marks owned by its subsidiaries. A trademark owner
must engage in the due diligence process seriously, otherwise, after the
acquisition, the marks will be vulnerable to many risks, including infringement or
dilution. Furthermore, a company’s history of mismanaging its trademark rights
may have a significant adverse effect on its own ability to do business on an
international level, not to mention the ability of the acquiring company. However,
the responsibility of conducting due diligence does not necessarily rest upon only
one party. All parties in a business transaction involving trademark rights should
engage in the due diligence process. Therefore, the performance of due diligence
should involve at least the tasks listed in the following checklist.
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Trademark Administration
Due Diligence Checklist
 Verify trademark data for accuracy.
 Conduct searches.
 Aid in the process of deciding whether to engage in the business
transaction at all.
 Provide evidentiary material to be used in negotiations.
 Assess the legal or business risks that may exist in engaging in a
particular business transaction.
 Plan the integration of the trademark rights after the assets have been
acquired or transferred.
 Provide evidence that justifies the proposed purchase price of the
trademark right.
 Determine how to structure and document the transactions. 58
B.
Audits
“The audit identifies all intellectual property rights being used by the business,
ensuring that they are properly owned, registered, and licensed by the business,
and that they are being used and protected properly.” 59 Because it can help
determine what rights can be used or licensed, sold, or abandoned, an audit may
58
For further information on due diligence in general, see Alan Blum & Patricia McGovern,
INTA Practitioners’ Checklists, Trademark Due Diligence; Frank Fletcher & Keith E.
Gottfried, “Due Diligence and Your M&A Success Story,” ACC Docket, Vol. 29 No. 7, 34–46
(September 1, 2011).
59
R. Scott Jolliffe & Andrew Kelly Gill, “The Acquisition and Disposition of Intellectual Property
in Commercial Transactions: The Canadian Perspective,” in 2 Melvin Simensky, Lanning
Bryer & Neil J. Wilkof, eds., Intellectual Property in the Global Marketplace 23.6 (Wiley, 2d
ed. 1999).
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Trademarks in Business Transactions
be an important part of the due diligence process. 60 It can help properly evaluate
how best to use a company’s brands to match the company’s business goals. The
audit can assist a company in maintaining a lean portfolio that aligns with its
business strategies.
The audit can be conducted either internally or externally,
but it definitely should be done by someone familiar with
trademark law and practice. There is no statutorily
required time to conduct an audit; however, certain events
may render an audit essential. For example, a business
transferring its assets or shares will have to identify the
trademark rights being sold and make the information
available to the acquiring company for due diligence
purposes. (See Section III.A.2, Mergers; Stock & Asset
Purchases, above.) Another example is when companies
engage in a licensing deal. Audit clauses often are
standard language in a license agreement. Audits
conducted specifically to assess royalty rates by evaluating
oversight procedures and analyzing revenue data are also
common practice.
The person who conducts the trademark audit does not
need to be certified or qualified in any particular area.
However, be wary of the fact that a trademark audit may
not always identify all rights and uses of the mark in
different jurisdictions outside the United States. Certain
issues that the audit should uncover include the following:
60
•
Registered rights
•
Ownership recordals
•
Unregistered rights
•
Licenses
Practice Tip
Because royalty
calculations are prone to
human error, routine
audits will help alleviate
such risks. However,
these must also be
balanced with
unnecessary audits that
licensees may find to be
harassing. Each party
may wish to appoint an
auditor with which it is
comfortable. Another
option is for the licensor
to bear the audit costs.
As with any contractual
provision, one should
always give the audit
clause careful
consideration and not
dismiss it as a standard
provision. An audit may
disclose sensitive
information that a party
would not particularly
want to have disclosed.
See generally Susan M. Natland, “The Importance of Trademark Audits,” INTA Bulletin, Vol.
63 No. 5 (March 1, 2008); Jolliffe & Gill, supra note 59.
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Trademark Administration
•
Potential infringement by the mark’s owner or third parties
The information an audit can provide will allow companies to engage in business
transactions more confidently in the markets that are important to their strategic
plan. In summary, audits are relevant to Administrators who may be asked to
manage portfolios and control costs; determine whether trademark coverage is
sufficient or insufficient for business activities; and find out whether certain
marks are available for registration or use (i.e., clearance).
C.
Searches
Searches can reveal important information about a particular trademark right or
use thereof. Section 8.1 of INTA’s Guidelines for Trademark Examination
contains details on how to assess the information disclosed by searches. The
Administrator may be asked to manage and conduct trademark searches, secure
opinions of trademark availability, act as liaison with outside search firms, crosscheck the results obtained from outside search firms, and provide investigative
support to legal and business personnel on search results. (For general
information on searching, see INTA Fact Sheet, Trademark Searching.)
A few common searches that an Administrator should be
Practice Tip
familiar with are an index search, a registrability search,
and an opposition search. The index search reveals any
Although searches can
provide useful
trademark applications and registrations that have been
information, they should
filed or registered by the USPTO under a particular
not be the sole source
relied on in determining
company’s name. A registrability search includes trade
trademark rights and
names and common-law uses and is useful to determine
use, since they may not
always be totally
whether there are any risks in eventually applying for a
accurate.
new mark. The search will expose pending applications
and registrations that may be similar or substantially similar to the mark in
question. An opposition search is used to reveal oppositions that a company may
have pending against third-party applications.
In addition to conducting searches, a company that does not have in-house
intellectual property counsel sometimes may wish to obtain an opinion letter
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Trademarks in Business Transactions
from outside counsel. The main reason for requesting an opinion letter is to
assess the availability of trademarks for registration, use, or acquisition.
An opinion letter can also provide an extra layer of protection in establishing a
company’s due diligence. Take note, however, that opinion letters may not
provide definitive conclusions regarding the validity of or the infringing nature of
a trademark.
For more information on selecting a trademark, see generally INTA Fact Sheet,
Considerations in Selecting a Trademark.
Glossary of Terms
Assignment: A transfer of ownership of a trademark application or trademark
registration from one entity to another. An assignment involves the transfer by a
party of its entire or partial right, title, and interest in a registered mark or a mark
for which an application to register has been filed.
Asset purchase: A transaction where a business’s assets and certain liabilities
are acquired and folded into an existing company or transferred to a new
company.
Chain of title: Recordal of the prior owners of the trademark and how the rights
were conveyed.
Co-branding: A joint venture that allows both parties to partition a brand for
the other party’s use or to allow the combination of trademark rights.
Coexistence agreement: An agreement by two or more persons that similar
marks can coexist without any likelihood of confusion. It allows the parties to set
rules by which the marks can peacefully coexist. To use the same mark in
connection with the same or similar goods or services, the agreement usually is
limited by geographic boundaries.
Collateral: Property that is pledged as security for the satisfaction of a debt. It
includes accounts, contract rights, and chattel paper that have been sold.
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Trademark Administration
Concurrent use agreement: An agreement by two or more persons to use the
same mark in connection with the same or similar goods or services; usually
limited by geographic boundaries.
Creditor: A type of lender.
Debtor: Typically, the trademark owner, in a secured transaction.
Dilution: The lessening of the capacity of a famous mark to identify and
distinguish goods or services, regardless of the presence or absence of
competition between the owner of the famous mark and other parties, or of
likelihood of confusion. Typically occurs as the result of blurring or tarnishment
of the famous mark.
Due diligence: The level of prudence, activity, or care properly to be expected
from a reasonable and prudent person under particular circumstances, not
measured by an absolute standard but determined under the facts of the
situation. When a new mark is being adopted, the purpose of carrying out a due
diligence exercise is to avoid infringing the rights of others.
Goodwill: An intangible asset of a company that provides added value to a
company’s worth (such as a recognizable brand). Protection of goodwill is one of
the main purposes of trademark law.
Intangible asset: Such values as accrue to a going business as goodwill,
trademarks, copyrights, franchises, or the like. It is a nonphysical, noncurrent
asset that exists only in connection with something else, as the goodwill of a
business. Intangible assets include reputation, name recognition, and intellectual
property such as knowledge and know-how.
Intellectual property holding company (IPHC): A wholly owned
subsidiary created solely to maintain and manage the intellectual property.
Lender: A party sometimes known as the “secured party” or the “creditor.”
License: A grant to a third party, by the trademark owner, of permission to use a
trademark or service mark for a fee, usually called a royalty. The license is the
means by which the proprietor of a mark (the “licensor”) gives permission to
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Trademarks in Business Transactions
another party (the “licensee”) to carry out an action, such as to use its trademark
under specified conditions, that would otherwise constitute infringement.
Madrid Protocol: International treaty, administered by the World Intellectual
Property Organization, that allows the international registration of marks.
Perfection: Legally required steps that give a secured party an interest in
subject property against the debtor’s creditors. In most cases the secured party
may obtain perfection either by filing (i.e., with the Secretary of State) or by
taking possession of the collateral.
Quality control (quality assurance): Obligation to ensure that goods and
services sold under one’s mark conform to consistent standards of quality. Vital
in a trademark license because unfettered use of a mark by a licensee can cause
loss of trademark rights.
Royalty: Payment made by a licensee in return for permission to use another’s
mark.
Search: Review of existing trademarks owned by others (registered or not) to
determine whether adoption and use of a mark might pose a risk of infringement
liability and whether the mark may be registrable. Can be either preliminary
(“screening” or “knockout” search) or comprehensive (“full” search).
Secured party: Lender, obligee, or seller who holds a security interest or lien
against a pledged asset.
Secured transaction: Transaction used to guarantee repayment of a debt.
Security interest: Interest in property obtained pursuant to an agreement
whereby the property serves as collateral for a loan. Registered and unregistered
trademarks can be used in this manner.
Stock purchase agreement: Agreement between a closely held or private firm
and its shareholders for regulating the sale and transfer of the firm’s shares.
Target: A company that has been chosen as attractive for takeover by a potential
acquirer.
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Tarnishment: Weakening the distinctiveness of a famous mark, usually
through inappropriate or unflattering associations; one form of dilution.
Trade name: The name used by a company in its business activities. Also
known as “commercial name.” A company’s trade name may also be its corporate
name.
Uniform Commercial Code (UCC): A standardized set of model business
laws adopted, with some variations, by every state in the United States.
Valuation: An economic analysis that determines the value of trademarks.
Brand valuation refers to the process of ascertaining the amount of money that
another party is prepared to pay for the brand. Sometimes this is readily
ascertainable after a company purchases a brand and the associated goodwill
without any other assets; however, in many situations, determining a value for a
brand can be significantly more complicated. Another readily identified value of a
brand, or brands, is the difference between the amount paid to buy a company
and the value of the fixed assets of that company.
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