There’s no denying avoiding the recent boom in mergers and acquisitions, with various ‘megamerger’ deals being discussed in business news headlines the world over. But no matter the size or scale of the deal, they all come about through a desire from organisations to increase the scale of their operations and increase overall efficiency, all while bringing in more revenue.
Of course, it makes sense that the first thing any business looks at during the due diligence process of a merger or acquisition is the financial value of the other party. But something that can be delayed or deprioritized— and could be seen as equally important as financial value — is intellectual property. When merging companies weigh up their assets, this will often account for a significant portion of the overall value, and so both parties must exercise extreme caution when weighing up any intellectual property — including valuable trademarks.
Trademarks have always been important assets for any business, but in today’s saturated and highly competitive landscape they’re more vital than ever. Not only do they help to strengthen brand recognition, but they also help to protect against the potential consequences of any fraudulent or counterfeit activity. However, trademarks are only effective if they’ve been properly registered and maintained, which is why they should be an essential focus during the due diligence process of any merger or acquisition.
This process is otherwise known as ‘trademark validation’, and if ignored during any due diligence process, it could lead to undesirable revelations that could have a significant impact on the overall deal.
For example, take the recent case of a major global car manufacturer, which outbid another company to purchase two luxury car manufacturers for almost a billion dollars. However, a twist in the acquisition meant that one of the luxury manufacturers was able to sell the rights to its trademark to the company that was outbid, meaning that although the purchasing company had manufacturing rights, it could not use the trademarked names. Eventually a deal was made to rectify the situation, but the purchasing company spent a lot more money than would’ve originally been necessary.
Although in this case the parties involved settled the situation amicably, the consequences of not carrying out trademark validation can be extremely serious. Businesses are often forced to re-evaluate, re-price or re-structure the deal, and in worst case scenarios the deal might have to be abandoned entirely.
With this in mind, trademark validation should be considered an essential process that holds benefits for both parties involved.
For companies looking to purchase, the transparency of trademark validation allows them to gain all the necessary information regarding the legitimacy and scope of the other party’s trademark assets. This in turn helps them to make a more informed judgement and better assess the overall value of the deal. It also helps the company to better assess strategic brand issues, including the validity of the business categories in which the trademarks are registered, the global markets that the trademarks can be used in and the expiration dates of each one.
For companies looking to sell up, trademark validation essentially guarantees a much smoother deal without any nasty surprises (providing the company in question is not hiding anything). Plus, with a much more informed information regarding its intellectual property assets, it can ensure a more accurate overall valuation.
If both parties involved in a merger or acquisition want to get the most value out of trademark validation, there are numerous steps to consider.
To begin, both parties must work together to identify all assets in the seller’s portfolio. The seller must be able to declare ownership of all these trademarks, and the buyer should check the chain of title for each mark to make sure each is filed in the correct owner’s name. This isn’t just a case of glancing over each trademark, either: every single one needs to be thoroughly investigated to verify legitimacy.
Secondly, the jurisdiction of each trademark needs to be determined. This is so that both parties are clear on which jurisdictions are ‘first-to-use’ and which are ‘first-to-file’. Some countries might recognise common law trademark rights based on the use of a mark, while others might give priority to the first party that files a trademark application, regardless of use.
Finally — and perhaps most importantly — the buyer should make sure the goods and services classifications of each trademark covers their intended use. Domain names should also be treated with equal importance, as it’s important to know which names are owned by the seller and which are owned by licensees or other entities.
Trademarks are an increasingly vital asset for any business, regardless of its size or sector, and so trademark validation should be regarded as an essential process within any merger or acquisition. Not only does it guarantee a much smoother deal for both parties, but it also prevents any unexpected surprises that might reveal themselves before it’s too late.