Companies are bought and sold all the time. We hear about it when the companies are well-known, but smaller transactions happen every day. So what happens to a company’s trademarks when the company is sold?
Need a refresher on trademarks? Start with my podcast episode “What Is a Trademark?”
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OK, on to this post…
Goodwill
Last year, I wrote a post about “Naked Licensing.” In that post, I stated:
Trademarks don’t operate like other types of property. A trademark is inseparable from the goodwill embodied in the mark. Coca-Cola can’t sell its brand name or logo to another company without also selling the reputation of the product itself.
A business can sell its equipment, contracts, customer list, you name it. But they can’t just sell their trademarks on their own. This is why a Trademark Assignment Agreement must include language along the lines of the following:
Transferor hereby irrevocably conveys, transfers and assigns to Transferee, and Transferee hereby accepts, all of Transferor’s right, title and interest in and to the following (the “Assigned Trademarks”), together with the goodwill of the business connected with the use of, and symbolized by, the Assigned Trademarks…
Lock, Stock, and Barrel
Of course, when Company X buys Company Y, Company Y’s trademarks should go along with the sale.
Typically, the purchase of a business really means either:
- The purchase of all of the equity (such as stock) in the business; or
- The purchase of all of that business’s assets.
In the first case, it’s as though the business hasn’t changed at all, and the trademarks remain in place. Imagine the trademarks are the windows in your house. If you sell the house, the owners have changed, but the windows stay where they are.
In the second case – an asset purchase – the documents will need to make it clear that the purchased assets include the trademarks and the goodwill related to them. For the rest of this post, I’m going to refer to the second case – an asset purchase, not a stock purchase.
If Company Y’s trademarks are registered (for example, with the United States Patent and Trademark Office), the purchaser will need to file a document “assigning” the rights in the marks from the old owner to the new one. Here’s a link to the USPTO’s online assignment system.
Use It or Lose It
My regular readers will recognize this as one of the cardinal rules of trademarks: Use It or Lose It.
Company X can buy Company Y, and own Company Y’s trademarks – but if Company X doesn’t actually use those trademarks in commerce, those rights won’t last too long.
For example, recently it was announced that Pandora is buying the assets of the online music service Rdio. Remember – this is a sale of Rdio’s assets, not of Rdio’s stock. Rdio is filing for bankruptcy.
It’s not clear from the initial reports whether Pandora intends to continue using Rdio’s trademarks, including the Rdio brand name itself. If they don’t, those rights will be “abandoned” and may become Zombie Trademarks.
Zombie Trademarks
Yes, that’s a real thing. A few years ago, I wrote a blog post about the potential sale of the Twinkies trademark (remember that?). In that post, I wrote:
Marks that are not used in commerce for several years (three years is the generally-accepted rule of thumb) are considered abandoned. When a mark retains some level of fame, but no individual entity has rights in it due to abandonment, it can become a “Zombie Trademark” – kept alive in the public’s imagination but not in the marketplace. In theory, another party (or parties, which is where it gets confusing and potentially litigious) could come along and lay claim to it.
For more on Zombie Trademarks, check out my 2013 post “Buffy the Zombie Trademark Slayer.” (Writing a blog is fun, folks!)
Recap
So, to recap: Company X (the purchasing company) can acquire the trademarks of Company Y, but they must also acquire the goodwill associated with those marks. And they had better plan to use the trademarks in commerce, or their exclusive rights will be lost.
Trademarks don’t operate like other types of property…but if companies follow a few simple rules, they can buy and sell trademarks as much as they like.
