Trademarks in Merger and Acquisition: What Really Happens to Brand Rights?
Introduction
In this era of 21st century consolidation is an inevitable and unavoidable part of the business ventures. Whether it is a proposal of a megamerger within the media industry or small scale acquisition in different sectors, it is something that we’re seeing with each passing day. This concept of merger and acquisition has boomed to achieve greater operational scale and increased efficiency all while putting more profit.
Trademarks are closely associated with the trade of a person or entity. Trademark is a differentiable mark which helps to differentiate the goods and services from each other. The proprietor (owner) of the goods displays the trademark to ease the customers and not get them confused between their brands and similar brands. It helps the proprietor to gain business as the customers come in search of the brand specifically.
Nowadays the ideology of merger and acquisitions are in trend and are very much in occurrence with the increase in market share. The trademarks are such assets that are used to protect the brand image, and during their transfer requires careful consideration to ensure that the concerned trademarks do not lose their value. But during the process of merger and acquisition the most essential part is to understand how a trademark and its application can be assigned.
The trademarks are very essential and valuable assets which are useful as they protect a company’s brand identity, value and worth, and their transfer requires very careful consideration to ensure that the value of the trademark is not diluted or lost in the process. The demarcation of trademark and evaluation of its value is very essential.
What is a Trademark?
A trademark may be identified as a unique symbol, word or phrase that identifies and distinguishes a company’s goods or services from those of its competitors.[1] It is protected by law and is used to prevent others from using similar marks that could cause deception among customers.[2] It acts as a legal identifier which indicates the source, quality and reputation of a good or service to customers, preventing deception or market confusion.[3]
Trademark can be of seven distinct types: Product marks (identifying goods), Service marks (identifying services), Collective marks (used by members of a group), Certification marks (certifying origin, quality, or material), Shape marks (protecting product or packaging shape), Pattern marks, and Sound marks (distinctive audio identifiers).
What Happens To Trademark During Merger And Acquisition?
In merger and acquisition, the ownership of a trademark can be transferred in various multiple ways. The most commonly used practices are Assignment, Licensing and Merger.
Assignment: Assignment includes the transfer of proprietorship of the trademark from one party to another.[4] In this scenario, the acquiring company becomes the new master of the trademark and assumes all rights and responsibilities associated with it.
Licensing: This involves the granting of consent to use a trademark by the owner to the acquiring company. The acquiring company would be allowed to use the trademark in accordance with the licensing agreement, but ownership would remain with the original trademark owner.
Merger: It involves the combination of two enterprises to form a new legal entity. In this case, the trademarks owned by the merged entities would be accumulated into a new entity, and ownership of the trademarks would transfer to the new company.
Process of M&A Transaction:
- Conducting Due Diligence:
Before proceeding M&A transaction, the prior most step is to conduct a thorough background check and due diligence on the target company’s IP portfolio which includes its trademarks.
It helps the acquiring party as:
- to identify the target’s trademarks’ assets; confirm the ownership, scope, validity and enforceability of such assets as well as their conveyability.
- Identify the threat of infringement and claims by any third party regarding the targets’ trademark assets.
- Make sure that no approval is required by any other party for the assignment of such trademark assets.
The process of such conduct of due diligence may require reviewing trademark registrations and applications and to cross check and cross reference any existing licenses or agreements related to trademarks.[5]
- Identifying Trademark Assets:
During the process of due diligence, the most essential to identify the specific trademarks assets that will be included in the asset purchase agreement, these could be either registered trademarks (state or federal), pending trademark applications or unregistered trademarks (common law rights in trademarks) of the target company. Moreover, any related intellectual property rights, that can include logos, tagline, catchphrase or its overall visual identity, should also be identified and considered. The acquiring party needs to make sure that if the trademarks include logos or designs, the target company acquires all rights to such intellectual properties. It must be kept in mind that all trademarks cannot be assigned, certain trademark applications, such as intent to use applications, cannot be assigned before the mark is fully registered.
- Drafting and signing the trademark assignment agreement:
In a capital buy transaction, besides such agreement, the parties also need to allocate the trademark assignment agreement as an ancillary document. The agreement should specifically state which registered trademark and trademark applications are being assigned to the accumulative party. It should also include certain provisions regarding the transfer of title and interest in the trademark assets. The assignment is considered completed when both the asset purchase agreement and the trademark assignment have been finalized and executed.
- Recordation of the assignment:
Under United States law, a trademark assignment agreement, once executed, may be recorded with the United States Patent and Trademark Office (USPTO).[6] Although such recordation is not compulsory, it is strongly advisable. Recording the assignment safeguards the purchaser’s interests by establishing a public record of ownership, imparting constructive notice to third parties regarding the transfer, and securing priority over any subsequent bona fide purchasers who may acquire rights in the trademark without prior knowledge of the assignment.[7]
- Post-Acquisition considerations:
Upon completion of a merger or acquisition and the transfer of trademark rights, the acquiring entity should implement a comprehensive post-acquisition strategy to safeguard its trademark portfolio. Such a strategy should include ensuring timely maintenance and renewal of registrations, actively monitoring for similar or potentially infringing marks or applications, and taking appropriate enforcement action against any unauthorized use or infringement.
- Consider International Trademark Protection:
If the merger and acquisition involves companies/entities with an international presence, it may be necessary to consider international trademark protection. This may include registering trademarks in foreign countries or taking steps to protect trademarks under international treaties and agreements.
Conclusion
After a trademark as part of an M&A asset purchase transaction is a complex process that requires careful consideration and legal expertise. Trademarks are valuable assets that require careful consideration to ensure they are properly protected. Conducting due diligence, identifying trademark assets, drafting a comprehensive asset purchase agreement and a trademark assignment agreement, and properly executing those agreements are critical steps to ensure a successful transfer of ownership. Companies going through a merger or acquisition should conduct a trademark audit, determine ownership, identify potential conflicts, and consider international trademark protection to protect their brand identity and prevent legal disputes. By following these steps and implementing a post-acquisition trademark strategy, the acquiring party can protect and leverage the acquired trademarks to enhance its brand presence and business objectives. The companies are ensured a smooth transfer of their intellectual property rights and protect their valuable trademarks.
Author:–Ayush Kumar Arihant, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
[1] Trade Marks Act, 1999, s. 2(1)(zb).
[2] World Intellectual Property Organization, What is a Trademark?
[3] McCarthy on Trademarks and Unfair Competition
[4] Trade Marks Act, 1999, ss. 37–45.
[5] Madrid Protocol.
[6] Lanham Act, 15 U.S.C. § 1060
[7] United States Patent and Trademark Office
