Where businesses merge with or acquire other businesses, it’s not always as simple as ensuring a transfer of the associated IP rights. There’s also the question of combined and/or conflicting brands to consider. Novagraaf’s Tom Farrand sets out the process.
In our previous studies of the IP transaction and assignment process, we set out best practice advice and procedures for smoothing the transition from sales agreement to completion, for recording the change of ownership of registered IP rights, and for managing the transfer of unregistered IP rights and other forms of intangible assets. This time, we look at the creation of hybrid, merged and/or conflicting trademark rights.
Creation of hybrid trademarks
In some situations, a purchasing company will be acquiring the whole of a business including the entire registered company/legal entity. The purchaser may opt to retain the ownership of IP rights with the legacy legal entity rather than undertake a large scale project to record change of ownership. Occasionally this can cause problems when part of what is effectively a merger and the newly merged business creates a new corporate brand. If the new brand is a hybrid of the two businesses’ brands, then the ability to register the new corporate brand may be adversely affected by the pre-existence of the legacy trademark registrations standing in the name of the (old owner) vendor company.
- Company A trades under corporate brand A
- Company B trades under corporate brand B
- Company A acquires/merges with company B
- Newly merged company trades under new corporate brand AB
- Company AB leaves ownership of legacy brands A and B where they are
- Applications to register AB as a trademark held up by prior legacy registrations of A and B in the old company names
- A real life example of this was merged company GlaxoSmithKline.
Such issues are not insurmountable, but can increase cost, are inconvenient and, in extreme situations, can affect a company’s ability to enforce rights. A more appropriate way to solve this is for there to be a target entity for ownership of IP rights in the newly formed business and for legacy rights to be assigned to that entity.
Creation of conflicting trademarks
There are situations where only part of a branded business is sold off. This can create a situation where there is a new owner of a trademark relating to part of the business for which it is registered, and where the existing owner retains the right to the remaining business.
For example, the owner of a brand used for cleaning products might sell off the industrial cleaning products division. The vendor may choose to retain the domestic cleaning products division of the business. In commercial terms, this may be logical and may not create a commercial conflict. However, it will create a challenging legal situation where a solution will need to be found. If there is a single trademark registration covering ‘cleaning products’, who will own it? It will be a challenge to find a solution that allows ownership of different entities of identical trademarks registered by different entities for potentially identical goods. With cross consent, the registration might be divided into ‘industrial cleaning products’ and ‘domestic cleaning products’. In many jurisdictions, this situation is not permitted, and the only practical solution may be single ownership and a licensing arrangement.
Similar considerations may arise in relation to patented products, ingredients, methods or components.
The compelling commercial benefit of a transaction may override these IP-specific obstacles, but it is helpful to have some forward thinking about potential solutions and agreement to cooperate to execute them post-completion.