Trademark due diligence in M&A: The steps everyone overlooks

Nicholas D. Wells

05.21.2015

Lists of assets are a key part of merger and acquisition transactions. When those assets include patents, the transaction documents typically include listings with U.S. and foreign patent numbers and titles. However, when it comes to trademarks, it’s not uncommon to see references to “All brand assets” and an exhibit with a few logos pasted in. The validity, value or liability associated with these trademark assets is sometimes an afterthought.

Given the value of most companies’ brands, a higher level of review and documentation is appropriate. Here are 13 pointers to guide your due diligence in relation to trademarks.

1. Document the trademark registration numbers and pending applications, including the goods and services listed in each one. Do this for all countries where the subject is operating or manufacturing.
2. Start with data provided by the target company or its law firm, but then research yourself in national trademark databases using both the name or names of the target company (including, as appropriate, foreign subsidiaries or related entities), and by searching for specific trademarks that appear in your initial list or that you are aware of the company using.
3. Document the next deadline for each registration and application. Maintenance and response deadlines are most likely to be missed when one party thinks that trademarks are being sold but the receiving party has not yet been charged with taking over a portfolio. Once you have a list of trademark assets, define a transition date or trigger, after which both sides’ legal teams know that responsibility will transition.
4. Research the chain of title to each trademark. Was it filed in the name of the proper owner? Were any assignments made before use was alleged? Examine any documents found in the assignment database at the U.S. Patent and Trademark Office to see if they call into question the chain of title.
5. Look in state UCC filings and at the U.S. Patent and Trademark Office assignment division for security interest filing. Ensure that transaction documents require that these be removed and specify who will bear the costs of that effort.
6. Research the actual use of the trademarks on your list. Does the actual use correspond with the applications and registrations? For example, if a U.S. registration includes six classes of goods but you can only identify actual use in two classes, recognize that four classes of the registration will be canceled at the next maintenance filing. If a European registration exists but products have not been sold there for seven years, the registration is subject to cancellation by any third party that raises the non-use issue.
7. Identify unregistered trademarks or potential trademarks that the target company is using. Evaluate whether these might be the subject of additional registrations to add value to a trademark portfolio and secure market position. Evaluate whether these could lead to liability or conflict with trademarks owned by third parties, which could require that the target company stop using these marks.
8. Research the Trademark Trial and Appeal Board and courts for pending disputes that involve the trademarks. Do this for all countries where you have documented trademark rights or use.
9. Determine if the target company uses a trademark watch service. If so, are there potential conflicts that have not been acted upon? If not, what is the level of risk to the company’s trademarks because they have not been policed to maintain their value? Consider whether extensive searching for conflicting marks is warranted to judge the continuing validity of the trademark portfolio.
10. Create a list of licenses that have been granted to the target company’s trademarks. Determine if these have been recorded at the USPTO. Analyze whether the licenses are at risk of being invalid for failure to monitor the quality of licensed products, and whether the license permits or prohibits transfer as part of the contemplated transaction.
11. Determine which products and services of the target company are offered under a trademark license granted by a third party and whether the license can be transferred as part of the contemplated transaction.
12. Identify a timeline and assign responsibility to file formal assignments of trademarks after the transaction has closed. Identify who will docket and maintain the trademarks after ownership has changed hands.
13. Take similar steps with trademark-related assets, including social media handles and domain name portfolios.

By using the above checklist, you can evaluate, document and preserve the value of trademark assets during corporate transactions.