April 21, 2014
Companies in virtually all industries rely on trademarks, service marks and trade names to distinguish their goods and/or services from those of competitors. The top global brand in 2013 exceeded a brand value of $98 billion. Brand value is often an important component of a transaction’s overall value.
Although your company’s trademark, service mark or trade name may not be valued in the millions of dollars, there are few companies who can afford to poorly manage their brand rights. This is even more important for companies seeking investors. Investors will want to know that the target company’s brand is well-managed. An internal audit of a company’s name(s) and its significant marks in use or intended for future use, and their proper protection, is therefore essential for ongoing businesses—and particularly for those seeking investors. Investor due diligence into the trademarks of any company being considered for investments—whether by licensing, asset or stock purchase–is essential in valuing the transaction as a whole.
What are the goals of a trademark audit/due diligence?
A trademark audit/due diligence will help enable a company to ensure that the desired marks are strongly protected, that they have been properly exploited, and that they will be available for continued (and if desired, expanded) use without risk of infringing third party rights. As mentioned above, conducting a trademark audit/due diligence will also help establish value.
What should be included in a trademark audit/due diligence?
In order to conduct a thorough trademark audit/due diligence, a detailed checklist of items must be carefully reviewed and fulfilled. For a limited time a sample comprehensive trademark due diligence checklist (excerpted from the master intellectual property due diligence checklist contained in Intellectual Property Due Diligence in Corporate Transactions by this author) can be downloaded for free here.
What are the benefits of trademark audits/due diligence?
A trademark audit/due diligence will enable both the target company and the potential investor to assess the value and costs/risks associated with the target company’s brands. It can help avoid unexpected costs of devising a commercially-acceptable mark that is available for use in connection with a company’s goods/services in all of its geographic and product and/or service markets, and thus avoid potential expenditure of tens of thousands of dollars or more in creating new brands. These estimates do not include a number of other factors often involved in the replacement of a company name or mark. Further, in some cases, a name change will be necessitated by a settlement or judgment to cease use of the mark–which often requires payment of a large settlement or damage award.
Add to these amounts the additional costs of clearing the new mark for use and registration, obtaining registrations for the mark in all relevant markets, educating the public on the new mark, and replacing reams of packaging materials, letterheads, business cards, product packaging/labels and other materials that depicted the previous mark, and it becomes clear that even if a mark does not have significant recognition and economic asset worth, loss of a mark can present a major liability.
Conducting a trademark audit/due diligence, based on the comprehensive checklist, is important for ongoing businesses, as well as for facilitating sellers/offerors in organizing the sale of their trademark assets is also essential for investors to perform prior to investments.