Part 1 – Trade Marks and brands
The short answer is “securing enforceable rights over valuable, non-tangible assets of the business.”
The issue often arises when the business is sold. Ideally, every business owner would like to be able to hand over a portfolio of secured and enforceable intellectual property rights to a buyer. This would make the business a more attractive proposition, and reduce potential for disputes later on.
However, the reality is more complicated. IP is a broad term comprising many different types of non-tangible property or quasi property rights, including trade marks, patents, designs, copyright, confidential information and trade secrets. Different forms of IP are given different forms of protection, and different enforceable rights.
Some IP is easy to capture and some isn’t. Timing can also be very important – leaving it too late can lead to an irretrievable loss of rights, or dilution of rights.
In this series of articles, I briefly look at the advantages and issues involved in capturing various types of IP.
Trade marks and brands
Trade marks are a fundamental and universal species of IP. They are used to protect brands.
Key points:
- Trade mark registration is a very powerful and effective means of protecting IP in brands;
- Trade marks should be registered by the seller prior to sale, if possible;
- The buyer should consider registering any important unregistered trade marks as soon as possible after purchase of the business;
- The buyer should obtain and retain all documentation and information the seller can provide relating to the use of trade marks of the business; and
- Timely advice from an IP professional can help to maximise value from a business sale transaction.
Every business will have at least one trade mark – its primary brand. Many businesses will also have secondary brands, including names for different product or service lines, slogans, taglines or sometimes even colours, three dimensional shapes or aspects of packaging.
A trade mark is generally the simplest form of IP to capture.
A trade mark can be registered, and registration gives strong enforceable and defensive rights. A trade mark can also be renewed every ten years, meaning rights potentially can exist in perpetuity.
Unfortunately, many businesses have never registered their trade marks. This can cause complications when selling the business, because the buyer’s due diligence may reveal that a trade mark may be similar to other registered trade marks (and therefore pose an infringement risk) or other traders may have innocently commenced using similar trade marks (leading to dilution of rights).
An unregistered trade mark can therefore make a business less attractive to the buyer, especially if the buyer needs finance and the bank asks whether the key asset of the business is secure.
Once sold, it can also be difficult for a buyer to register trade marks of the business. For instance, if there are obstacles to registration (e.g. prior registered trade marks or the trade mark is considered non-distinctive) it is often necessary to file evidence of use.
Evidence of use includes a detailed history of the mark together with examples of use. Often, financial information (revenue and promotional expenditure relating to activities under the trade mark) is crucial. A buyer may find it difficult to obtain this information from the seller after the transaction is complete, particularly if several years have passed.
Ideally, the trade marks of a business should be registered by the original owner before the business is sold. The original owner is in the best position to provide evidence of use supporting registration.
Alternatively, if a business has been purchased without registered trade marks, the buyer should consider seeking registration of key trade marks as soon as possible. This will reduce the risk of intervening trade marks posing a problem, and lessen the chance that the seller will be uncooperative or uncontactable if the buyer needs to file evidence of use.
Buyers should also obtain from the seller all information and materials that the seller retains that show use of a trade mark, even if the trade mark is already registered.
Dated documents (particularly invoices, social media accounts and page histories, old brochures, manuals, emails, marketing materials, domain name registration receipts, trade show receipts and photographs, invoices from advertisers, signwriters etc) are extremely useful forms of evidence and may be crucial in registering a trade mark. Even if the trade mark is already registered, this material can also be very helpful in the event of a dispute with a third party.
The seller should also provide the purchaser with a detailed and chronological history of use of the trade mark, and financials including revenue and promotional expenditure relating to the trade mark going back as far as possible.
Before any purchase or sale of a business, an IP professional should be consulted about the IP implications of the transaction, including the capacity to capture rights in trade marks by registration. A modest level of due diligence can avoid significant pain later down the track.