Navigating trade marks in business sales and purchases

Business sales and purchases (Transactions) are complex processes that involve a range of financial, legal and strategic considerations. One critical component that often gets overlooked in the whirlwind of high-stake Transactions, are the trade marks.

Trade marks, which serve as the cornerstone of a brand’s identity and consumer recognition, can significantly influence the value of a business. Understanding how to navigate trade marks during and after a Transaction is essential for protecting both the short-term and long-term value of the Transaction.

Trade mark due diligence

Trade mark due diligence is one of the most critical tasks in a Transaction. Before finalising a Transaction, the buyer should thoroughly assess the seller’s trade mark portfolio. This process involves several steps, including:

• Identification: Identifying all trade marks connected with the Transaction. This should cover registered marks, unregistered/common law marks and any pending applications. Early identification allows the buyer to assess the value of these assets and understand how they will fit within the Transaction.
• Ownership verification: Confirm that the seller is the legal and beneficial owner of the trade marks. This requires reviewing the chain of title, including any assignments, and ensuring ownership is accurately recorded with the relevant trade mark.
• Scope of protection: Assess the extent of protection provided by the trade marks. This includes examining the jurisdictions in which they are registered and determining whether those align with the buyer’s current or future markets. It is equally important to review the classes of goods and/or services covered to confirm they are consistent with the buyer’s business strategy.
• Existence of conflicts or infringements: Determine whether the trade marks are subject to disputes such as litigation, opposition or cancellation proceedings. Any ongoing or unresolved conflicts may diminish the value of the rights or, in some cases, result in their loss.
• Trade mark maintenance: Verify that the trade marks have been properly maintained. This involves checking that renewals and other required filings have been completed on time, as lapses in maintenance can cause rights to lapse in key jurisdictions.

Transferring trade mark rights

During a Transaction, the ownership of trade marks will typically need to be transferred to the buyer. This process can be complex as trade mark rights are generally territorial and subject to specific legal requirements for transfer. Several key factors must be considered:

• Assignment agreements: To effect a legal transfer of trade marks, the parties must enter into a formal assignment agreement. A carefully drafted assignment agreement ensures that the buyer obtains full ownership of the trade marks, together with the rights and protections that attach to them.
• Jurisdiction-specific requirements: Requirements for transferring trade marks vary across jurisdictions. In some countries, transfers must be formally recorded with the local intellectual property office to ensure the buyer’s rights are publicly recognised. If this step is not taken, ownership may be unclear and could give rise to future disputes and/or challenges.
• Licence and sub-licences: If the seller has existing trade mark licensing or sub-licensing agreements, these will also need to be addressed. The licences or sub-licences may be exclusive or non-exclusive, and their transferability must be considered. It is also essential to clarify whether these arrangements will be terminated, renegotiated, or transferred as part of the Transaction.

Buyer protections

In Transactions, the buyer should seek appropriate protections, including warranties and indemnities, to safeguard their interests in relation to the trade marks involved.

• Warranties: Warranties provide assurances that the trade marks being acquired are valid, properly maintained and free from any potential legal issues. The warranties sought by the buyer in a Transaction often largely depend on the findings during the due diligence process. If any issues or red flags are identified during this stage, the buyer should seek additional or more specific warranties to protect against those risks.
• Indemnities: Indemnities complement warranties by giving the buyer a contractual right to be compensated for losses arising from breaches of warranties or specific events, such as third-party claims of trade mark infringement. They are particularly useful for addressing risks identified during due diligence that may not be fully covered by warranties alone.

Post-Transaction considerations

After completion of a Transaction, effective management of the acquired trade mark rights becomes a vital part of the integration process. The buyer should implement a strategy to ensure that the trade marks are properly maintained, actively used, and that any associated licensing arrangements are appropriately managed.

Ongoing monitoring is equally important. The buyer should monitor for potential misuse or infringement of the trade marks, and be prepared to take timely action where necessary. Failure to enforce trade mark rights can diminish their legal strength and undermine the long-term value of the brand.

To navigate the complexities of trade marks in Transactions, it is important to work with intellectual property experts who can guide you through the process. If you need assistance navigating trade marks during or after a Transaction, please get in touch with Wynn Williams’ experienced intellectual property team.

Danita Ferreira, Senior Associate – General Business & SMEs team

Roxana Cvasniuc, Associate – General Business & SMEs team