Selling Your Business? Get Your IP in Shape
January 12, 2023
In transactions involving mergers, acquisitions, and investments, time to complete needed steps for the transaction can feel tight and compressed. Any business owners considering a transaction should consider getting their business in shape. Preparation, even before signing a letter of intent, can increase chances of a deal closing and secure your business’ value. This article focuses on steps you can take to ensure your intellectual property is in shape for a sale of your business.
Intellectual property falls in four primary categories: (1) trademarks; (2) trade secrets; (3) patents; and (4) copyrights. A trademark is any phrase that defines a product or service and sets it apart from competitors. It can also be a combination of such elements. The name of your business, its logos, its slogans, and the names of its products or services are typically the main trademarks that make up a brand identity. Even your product’s colors or packaging may serve as trademarks.
Because trademarks have the potential to grant perpetual rights in a brand’s identity, registering important elements of your company's identity with the U.S. Patent and Trademark Office (USPTO) is a crucial first step. Trademarks play a critical role in protecting the value and public perception of your brand. And failing to register any trademarks may devalue your business in the eyes of investors.
To fully maximize your brand’s value, you also need to enforce your trademark rights. Investors want confirmation that there is no ongoing infringement of a mark by copycats or dilution of brand significance by too many coexisting similar brands. Having a commercial watch service in place is a simple step that most restaurants overlook but would benefit from incorporating into their overall intellectual property strategy.
Depending on the business, there may be important assets in other intellectual property categories. For example, your business may possess proprietary inventions or confidential operations protected as trade secrets, mobile applications, websites, or other publications protected by copyright, or patented inventions. An investor in or buyer will want confirmation – typically in the form of representations and warranties in binding agreements – that they are buying an exclusive right to any critical intellectual property tied to your business. If you do not own or clearly possess the right to use critical intellectual property, the value of the business will be at risk, and your potential sale may fall through unless the situation can be corrected.
Take these steps to get your business prepared for a transaction:
- Promptly evaluate your intellectual property and register trademarks. The U.S. government currently takes about one year to 18 months to register a trademark, but you can obtain them on an intent-to-use basis even before a mark is ever used.
- Engage trademark counsel to audit your trademark portfolio. You can contact me at firstname.lastname@example.org. This can help identify strengths, weaknesses, and additional steps that may be necessary to protect your brand identity.
- Work with trademark legal counsel like our firm to make sure your most important trademarks are federally registered. Typically, this means at least the name and logo of the business, but it can also mean securing rights to slogans or the commercial look and feel of products. Some trademarks may not be registered (e.g., because they conflict with one or more existing marks, they’re descriptiveness, etc.). A customized approach can work through these issues.
- Even if your key trademarks are federally registered, consider obtaining a trademark search in advance of a transaction so that you are aware of similar marks. This will come up in due diligence discussions. You should be prepared to resolve and speak intelligently about such issues during the diligence process.
- Consider a trademark watch program that alerts you when third parties seek to register confusingly similar marks.
- Audit your agreements with third parties creating intellectual property for your business.. If you used independent contractors to help create intellectual property (e.g., logos, design work, trade dress, etc.), catalog and confirm that any agreements with such contractors included work for hire provisions that vest ownership of all intellectual property in the business.
Joshua A. Claybourn is a Member serving as the Firm’s intellectual property and licensing practice group leader. He provides counsel on trademarks, copyrights, trade secrets, and licensing. He ensures valuable brands and IP assets remain intact and commercially viable. He has been recognized as a trademark “Leader” by the World IP Review (WIPR), a comprehensive guide to the top intellectual property lawyers across the globe.