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Business & Employment Law

Are You Purchasing an Asset or an Overpriced Snack?

The Right Trademark Is Worth More Than a $5000 Twinkie

buying-trademarks-requires-due-dilligenceOne of the most interesting stories of the past couple months is the way the public reacted to Hostess entering into bankruptcy. Once it was announced that Hostess would be closing its doors people began ransacking grocery store shelves for their tasty products, turning them into valuable collector’s items. A quick search on eBay will show Hostess products going for thousands of dollars. That’s right. There are some people who think Twinkies are as valuable that gold.

As evidenced by the public’s behavior, Hostess’s most valuable assets are its iconic trademarks; including Hostess Twinkies, Ring Dings, and Wonder Bread. In bankruptcy, these trademarks and other assets will be up for auction.

Look Before You Leap and Think Before You Buy

fine-printIn any brand-driven transaction, trademark due diligence is critical to identifying issues or risks that may materially affect the value of the trademark assets. “Due diligence” simply means you should do your homework before you purchase an asset. For instance, having the correct chain-of-title records to show the current owner is essential to a purchase of trademark. After all, you don’t want to buy a trademark only to discover the person you bought it from doesn’t have the ability to give you everything you purchased. Due diligence could also uncover serious issues which could result in you negotiating a lower purchase price or abandoning the sale altogether.

Although the scope of trademark due diligence varies depending on the particular transaction, some key considerations include evaluating:

  • The ownership, scope, validity and enforceability of the trademarks. For example, if a trademark is not used properly, rights in the mark may be weakened or ultimately lost if the trademark becomes generic or otherwise loses its trademark significance.
  • The risk of infringement or other legal challenge posed by use or registration of the trademarks. For example, successful trademark litigation may result in injunctive relief, requiring products to be removed from the market, and money damages.
  • The ability to expand use and registration of the trademarks. From a buyer’s perspective, the ability to expand use of the trademarks to additional goods or services, territories and new trade channels may be a critical consideration. However, expansion could be blocked if third parties have greater rights.

Before purchasing a trademark asset, some of the key materials to review include:

  • The USPTO’s and the seller’s records concerning the relevant trademark registrations and applications for registration.
  • The seller’s websites, annual reports, SEC filings, and advertising and promotional materials featuring the trademarks.
  • The seller’s agreements involving the trademarks, including any:
    • assignment agreements
    • license agreements
    • coexistence or consent agreements and settlement agreements
  • Any trademark search reports and clearance and availability opinions concerning the trademarks.

Want to make sure you’re purchasing a trademark asset instead of a $5000 Twinkie? Dodge Legal Group, PC can help you. We have a licensed USPTO attorney dedicated solely for your intellectual property needs. Not only is he skilled, but he is an amazing and friendly guy too–How many people can say that about their IP lawyer? Contact Us to discuss your IP needs and find out if purchasing a trademark is right for you.