Business acquisitions and trade marks – did you get what you paid for?
Trade marks are often the most valuable asset of a target company in any M&A - it’s critical to fully understand the key IP assets in the target so they are properly accounted for in the transaction.
An IP audit covering off on all key IP areas will help ensure that all valuable IP assets are included in the purchase are transferred to the purchaser.
The brand related assets, such as registered trade marks, of a company can often account for a large proportion of the enterprise value. So, when buying a business, it’s essential to ensure you know what trade marks and other IP assets you are buying and that the legal transfer of these assets is explicitly covered in the transaction documentation.
Perhaps one of the more memorable trade mark due diligence “failures” was Volkswagen purchase of the Rolls Royce company. After the deal was finalised it became apparent that VW did not buy the Rolls-Royce trade mark as it was not owned by the target company. The Rolls Royce trade mark rights were later purchased by BMW from the true owner of the trade mark.
Regardless of the importance and value of trade marks, I still encounter many situations where a purchaser of a company has either not identified all the valuable IP in the target company and/or has failed to ensure that this IP is legally transferred to the purchaser as part of the transaction.
The following is a summary of few common activities and issues relating to trade marks (and related assets) connected with a company acquisition.
An audit allows a purchaser to confirm that the value placed on the target company is supported by the degree to which the target company can clearly demonstrate that it owns (or has the right to use) all of the trade marks and other IP rights that are critical to the business.
The seller needs to have prepared, for the acquirer’s review, an extensive list of all of the trade marks (and related assets) that are material to the seller’s business, including (but not limited to):
Trade marks – registered and unregistered
For registered trade marks:
- the trade mark covered by each registration;
- registration number;
- current status and next renewal deadline;
- country/region in which they are registered;
- goods and/or services covered in the registration(s); and
- registered owner, as recorded on the official register(s);
For unregistered trade marks:
- the unregistered trade mark(s);
- history of the use of each trade mark including date of first use in each country and the goods and services upon which use has occurred.
Some items in the above list may appear self-evident but, for example, it not uncommon for a registered trade mark to become “out of sync” with the operations of a business. This can occur when a business expands their product range or makes alterations to the actual form of the trade mark they use in the market but does review and update their registered trademark(s) portfolio. In such situations, whilst a registered trade mark may accurately reflect business operations when it is first filed, changes to business over time can result in the business activities moving outside of the scope of the (original) registered trade mark(s). Any mismatch between registered trade marks and the operations of the target company represent a risk to the purchaser.
It is also not uncommon, to find that a registered trade mark lists a different company (other than the target company e.g. another company in a corporate structure) as the registered owner of a trade mark. Any such uncertainties around ownership of (or the right to use) a trademark must be assessed and accounted for.
- Other items (related assets)
- Business and/or company name registrations – often these registrations include the trademark(s) and are of interest to the purchaser;
- Details of licences or other agreements concerning the trademarks – if there are any such agreements in place, account must be taken of any ongoing obligations to licensees;
- Domain names – these often include trademark(s) and can be valuable assets to include in the transaction - sometimes the target company is not listed as owner of all relevant domain names; and
- Social media accounts (Twitter, Facebook, LinkedIn, etc.) – these also often include trade mark(s) and will need to be included in any purchase agreement - sometimes the target company is not listed as owner of all relevant social media accounts.
The above list is not exhaustive and will typically be included in a schedule or annexure that accompanies the purchase agreement. The target company should provide supporting documentation to the purchaser so the purchaser can complete their due diligence and ensure they properly acquire all relevant IP.
Author: Martin O’Sullivan FIPTA | MBA | BSc (Hons)