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Trademark Due Diligence
Practical Law Legal Update 7-522-6359 (Approx. 4 pages)
Trademark Due Diligence
by PLC Intellectual Property & Technology
| Published on 27 Nov 2012 • USA (National/Federal) |
A discussion of key trademark due diligence considerations. This Legal Update includes links to relevant resources that examine these issues.
Last week, a bankruptcy judge approved plans for Hostess Brands to liquidate its business. This latest development came after Hostess and the bakery workers' union failed to reach a deal on a new labor agreement. This means that Hostess's most valuable assets, its iconic trademarks for baked goods, which include Hostess, Twinkies, Ring Dings and Wonder Bread, will be up for auction.
In any brand-driven transaction, trademark due diligence is critical to identify issues or risks that may materially affect the value of the trademark assets. Issues identified by due diligence sometimes can be resolved quickly before finalizing the transaction, for example, filing releases of outstanding security interests to correct the chain-of-title records in the USPTO. However, a serious issue can result in a prospective buyer deciding to reduce the purchase price or abandon the transaction altogether.
Although the scope of trademark due diligence varies depending on the particular transaction, key considerations include evaluating:
- The ownership, scope, validity and enforceability of the trademarks. For example, if a trademark is not used properly, rights in the mark may be weakened or ultimately lost if the trademark becomes generic or otherwise loses its trademark significance. For more on the ways trademark rights may be lost, see Practice Note, Loss of Trademark Rights.
- The risk of infringement or other legal challenge posed by use or registration of the trademarks. A successful trademark litigation may result in injunctive relief, requiring products to be removed from the market, and money damages. For more on trademark infringement and dilution, see Practice Note, Trademark Infringement and Dilution Claims, Remedies and Defenses.
- The ability to expand use and registration of the trademarks. From a buyer's perspective, the ability to expand use of the trademarks to additional goods or services, territories and new trade channels may be a critical consideration. However, expansion could be blocked if third parties have senior rights.
Key materials to review include:
- The USPTO's and the seller's records concerning the relevant trademark registrations and applications for registration.
- The seller's websites, annual reports, SEC filings, and advertising and promotional materials featuring the trademarks.
- The seller's agreements involving the trademarks, including any:
- assignment agreements;
- license agreements;
- coexistence or consent agreements; and
- settlement agreements.
- Any trademark search reports, and clearance and availability opinions concerning the trademarks.
For more trademark due diligence considerations, see Practice Note, Trademark Due Diligence in Mergers and Acquisitions and Trademark Due Diligence in Mergers and Acquisitions Checklist.