In a complex merger or acquisition, there are many moving parts. Due diligence of trademark registrations can get lost in the shuffle. But thorough review of brand assets can help avoid pitfalls and maximize the investment.
Here are some considerations to make sure no stone is left unturned:
Review the portfolio
The first document you will likely see is a docket of trademark applications and registrations that includes basic information like application and registration numbers, filing date, registration date, goods and services, and country.
Review this carefully. If possible, verify the information with each country’s trademark database. For U.S. applications and registrations, the U.S. Patent and Trademark Office not only has a database of key registration information, it also provides copies of most documents in the record for the mark.
The government-run intellectual property offices of many other countries also have robust searchable databases. One helpful resource is the TMView database of the European Union Intellectual Property Office. TMView allows users to search trademark information not just in the EU, but in many other countries.
However, not all of the same information is available online for every country. If possible, get the contact information for the local law firms that handled the registrations in each country for additional documentation.
Double check the information in the trademark portfolio and address any discrepancies. Pay close attention to any upcoming deadlines to maintain registrations and make sure everyone involved understands which companies and law firms will be responsible for deadlines during the transition. It can be easy for filing deadlines to fall through the cracks during this time.
Status of pending applications
If any marks in the portfolio aren’t yet registered, ascertain the status of the pending applications. As with the registered marks, make sure no filing deadlines are missed. If there are pending office actions—formal inquiries from the local intellectual property office—review these. Some issues are easily addressed, like requests for clarification of the nature of the goods covered by the application. Others, like citations to existing registrations that may block registration of the subject application, are greater cause for concern. Consider how to overcome any refusals.
One of the easiest questions to ask is also one of the biggest potential pitfalls: Who owns the trademarks?
The nightmare scenario is that a company goes through the entire M&A process only to find out there are parts of the brand that aren’t owned by the acquired company. With the existence of intellectual property holding companies and various forms of related companies, this is a possibility. Likewise, a start-up may obtain early registrations in the individual owner’s name and forget, until an acquisition, that they never assigned the marks to the business. In addition, it is relatively common for international distributors to apply for trademark registration in the name of the distributor rather than the brand owner.
Ownership and transfer of IP assets also can have tax consequences that should be discussed with an attorney who is an expert in tax law.
If any application or registration is owned by a different entity, make sure to understand the relationship. Also check whether the chain of title to the correct entity is clear.
In addition, a separate trademark database search for the marks involved can reveal other applications or registrations that are owned by another company.
Armed with this information, an acquiring company can understand whether additional transactions may be necessary to make sure it owns all trademarks in the end.
How are the marks used?
In many countries, a trademark registration may be vulnerable to cancellation for non-use if the mark is not used for the goods and services covered by the registration for a certain period of time, often three or five years.
Research not only whether the mark is used for all the goods and services covered by the registrations but also how the mark is used. For example, if a mark is registered in blue, but the current use displays the mark in yellow, the ability to maintain or enforce the registration may be affected by this change.
Agreements affecting rights
A related consideration is whether the company that owns trademarks has any agreements that might affect its rights in the marks. Common agreements are licenses and coexistence agreements.
If the company has licensed another company to use its trademarks, review the licensee’s use of the marks as well as the trademark owner’s efforts to control the quality of the licensee’s goods and services. A trademark acts as a promise to the public of the quality of goods and services people can expect under the mark. If the trademark owner does not control the quality of goods or services, it can lose its rights in the mark.
Another common type of agreement affecting trademarks is a coexistence agreement. Coexistence agreements, often to settle disputes over trademark rights, delineate the parties’ ability to use and expand upon trademarks. This could include geographic limitations, restrictions on the type of goods and services for which the mark can be used, and requirements for use of a mark in a certain format.
For any agreement, check restrictions on assignment for a mark. For example, if the trademark owner must seek advance authorization to assign its rights in an agreement, this should be taken care of prior to closing.
Registrations and applications aren’t the only assets to consider in trademark transactions. Often, online accounts like domain names and social media are registered in the name of an individual such as IT or marketing personnel. Make sure that accounts like these can be transferred.
Potential infringers and enforcement
You will also want to ensure that the seller entity has enforced its marks, as a trademark owner must enforce its trademark rights or it risks losing them. A seller should maintain a list of all enforcement letters, cease and desists, notices, and (of course) lawsuits involving its trademarks. Additionally, many sellers maintain “watch lists” or lists of suspected infringers. Likewise, many trademark owners use third parties to watch for trademark filings that may be confusingly similar to the owner’s brands. A close review of a seller’s enforcement efforts is important both to value the marks transferred and also to ensure the buyer can seamlessly continue enforcement efforts.
Setting up a seamless transaction
Closing a transaction is hectic; no one involved wants more paperwork. But it is crucial that all documents for transfer of trademark rights are lined up for closing. This is especially important in a transaction in which the company conveying trademark rights will be dissolved after the transaction.
Begin to lay the groundwork for completing all of the required documents as soon as possible. For example, in some countries, a trademark assignment must be signed by both the assignor and assignee and notarized. In the U.S., assignment of a trademark application filed on the basis of intent to use the mark—as opposed to actual current use—requires the assignment to convey all rights in the portion of the business to which the mark pertains and that the business is ongoing.
Early and consistent review and coordination among the parties and their trademark attorneys around the world can help avoid pitfalls in mergers and acquisitions and ensure a smooth process.