Buyer beware! In-house and private practice counsel suggest that they keep this adage in mind when examining target companies on best trademark practice during acquisitions.
They tell Managing IP that trademark lawyers should pay attention during due diligence to better understand how an acquired company’s trademark rights could affect the terms of a deal. They should also look at what their client must do to integrate a target’s trademark strategy into its own.
Some of the trademark issues businesses should consider are the same as those that apply when they launch brands, including which jurisdictions they need to register in and where the business is headed as part of its long-term strategy.
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But others are quite different. Allison Strickland Ricketts, partner with Fross Zelnick in New York City, points out that existing brands may have already made decisions that could limit the scope of their rights.
For example, some lawyers say that a smaller company may have registered its marks in only a handful of markets or may not have registered in first-to-file jurisdictions that see a lot of copycats and trademark squatters.
Ricketts says: “If you’re starting from scratch with your own mark, you have the opportunity to make those decisions yourself.”
She notes that existing brands may also have previously established consumer goodwill, which could be reflected in the price a buyer pays for the acquisition.
Sources add that companies should also consider the role of foreign counsel in overseeing the target company’s trademarks. And finally, they say, buyers should be aware of which trademark watch services that acquired businesses have used.
Do your due diligence
There are several important reasons why companies should address trademark issues during due diligence, rather than after the acquisition has finished.
Andrew Price, partner with Venable in Washington DC, says a company may find that a mark’s coverage is so bad that it devalues the target’s portfolio in some way.
Alyssa Kaplun, senior corporate counsel at online media company Ziff Davis in New York City, says one benefit of conducting this research is ensuring that the target company has the IP her client needs to operate the business post-acquisition.
Ricketts at Fross Zelnick agrees that companies should review trademark issues during due diligence because the findings could affect the terms of the deal.
“But the best-case scenario may not always be available,” she adds. “Sometimes business people make a deal and the IP lawyers just find out about it afterwards.”
Reviewing targets
Brands say they also review target companies for ongoing disputes.
Deborah Pirolina, IP senior counsel at chocolate company Ferrero in Luxembourg, says her company examines pending litigations where the target business is involved. Ferrero also looks at settlement and co-existence agreements that relate to IP issues.
Her team also works to find out which countries the previous trademark owners were interested in, and how they used the brands in those jurisdictions.
Kaplun at Ziff Davis adds that during an acquisition, her company wants to understand the scope of registered and unregistered marks, the status of any opposition, cancellation or domain name proceedings and to get a general sense of how the target brand enforces its IP.
Ziff Davis likes to examine a target company’s inbound and outbound licensing arrangements too, and to look for any potential red flags in the portfolio.
Sources advise that once a company has agreed to an acquisition, it may want to consider whether to let the purchased business keep its foreign counsel or switch over to the preferred international lawyers of the buyer.
Kaplun says Ziff Davis typically prefers to keep one outside counsel per jurisdiction for maintenance and enforcement matters because the company is large and has several different brands that it needs to manage.
If a target company is involved in an active opposition or enforcement proceeding, Ziff Davis may retain the lawyers who are handling that matter until it is over. Kaplun adds that her company may also retain private practice lawyers who have a long history of working with a target brand and are familiar with its portfolio and enforcement strategy.
She notes that employees at purchased companies don’t always have experience working with in-house counsel. Her team will sometimes train these staff members on how to work with in-house lawyers on brand enforcement and protection matters.
Expanding watch services
A buyer may want to set up a trademark watch service for a brand it acquires if the target business doesn’t have one.
Ricketts at Fross Zelnick point out that if a target company already uses a watch service, a buyer might want to update that service to cover all the areas a particular brand has expanded into. Buyers may then need to review and expand a watch service strategy to make sure it’s comprehensive, she says.
Kaplun at Ziff Davis says her company also likes to examine what a target business does well in its trademark strategy. The target may use an effective third-party monitoring service that Ziff Davis doesn’t use, for example.
“We definitely like to glean ways that we can improve our own strategies from our acquisitions,” she says.
Updating records
Companies should also make sure trademark records are up to date, say sources.
Ricketts at Fross Zelnick says companies should update the USPTO and foreign trademark offices on changes of trademark ownership by recording the assignments. She says companies can do this all at once or over several years, depending on the requirements of each country.
Price at Venable says companies should record trademark assignments as soon as possible in any key countries.
But, he adds, the company might want to consider the size and cost of that task. Updating 10 or 20 records might not be very expensive, he says, but changing thousands of records could be quite costly.
Buyers should make sure that during due diligence they have a clear understanding of which of the target company’s trademark rights they care about, he says. They should also conduct a thorough audit once the acquisition ends to evaluate the cost and benefits of recording assignments and maintaining registrations.
During an acquisition, buyers should pay attention to a target business’s trademark rights to ensure they can lay out the best terms for the deal. Those that consider a target company’s trademark portfolio, outside counsel, trademark monitoring services and pending litigations should be better prepared when it comes to integrating trademark strategies.
