It may be desirable or indeed necessary to retain existing ownership structures for brands acquired as part of a merger or acquisition (M&A). However, if the newly merged business has been rebranded, the conflict between the registered legacy brands and the new brand will need to be resolved.
As we wrote in ‘IP in M&A: Fusing two businesses’, a common approach to launch a merged businesses is to ‘fuse’ the two previous brand names. While this enables the newly formed business to retain the brand reputation of its previous entities, it does pose a number of IP hurdles that need to be overcome. This includes the management of trademark registrations protecting legacy brand names.
Pros and cons of retaining legacy IP ownerships
It may be necessary to retain existing ownership structures for brands acquired as part of M&A activity. For example, if the pre-merger businesses continue to trade under their existing names, or if they plan to form brand-based operating divisions or product lines within the merged company.
Retaining existing ownerships also has the added bonus of negating the need to execute assignment documents and record changes of ownership on trademark and other registers. On the other hand, if the merged business is to operate under a newly created brand name, there will be a conflict between the registered legacy brand names and the business's new name.
Avoiding potential pitfalls
As with most IP-related processes and strategies, overcoming such hurdles is all in the planning. At the very basic level, in-house legal and IP heads should treat the new company brand in the same way as they would the launch of a new brand. That includes, for example, carrying out all of the normal investigations, risk assessments and planning that you would carry out for any other major product launch. Existing consent and coexistence agreements will also need to be reviewed and possibly revised or renegotiated.
IP heads would also be well advised to flag potential issues early in order to ensure that they are involved in planning from the outset. This is likely to include:
- Registration pitfalls: Registering the company's new brand name may be hampered or prevented altogether by the existence of earlier rights owned by the pre-merger entities.
- Potential conflicts: Conflicts may exist between existing registrations and applications to register the new brand. The solution will require consent or a change of ownership in some or all of the legacy brands in order to secure robust registered rights in the new brand.
- Enforcement issues: Enforcement of old or new registered rights may be compromised by the differing ownership of registered and unregistered rights. This will increase the complexity and cost of enforcement and materially reduce the chances of success.
While such issues are not insurmountable, they can increase costs, cause inconvenience and, in extreme situations, affect a company’s ability to enforce its rights. Careful thought and planning are required in order to ensure that these rights do not get lost in the wash.
Prioritising due diligence
As part of the pre-merger due diligence, there should ideally have been an audit of existing IP rights (For additional guidance here, see our article ‘Time to get it right: IP in mergers and acquisitions’). The results of such an audit will inform and guide the planning in relation to the adoption of a new brand post-merger. In particular, where an audit has taken place, it should have revealed all the issues with existing brands (eg, infringement, conflicts and up-to-date chains of title), thereby also revealing many of the potential issues with the new merged or fused brand.
The same applies if in the case of partial merger or planned spin-off; for example, if the separated product line or company opts to extend its scope of operations to a conflicting line of business. These situations can be managed, but require careful thought and planning, as well as the execution of suitable agreements and partial assignments.
A good example is that of Kraft Foods Group and the spin-off of its confectionery business, which resulted in the creation of new corporate brand Mondelez. Here, the spin-off solved the potential problem of conflicting corporate branding by inventing a new brand for the confectionery business. While such an approach involves cost and risk, it is an established path for brand-oriented businesses – the hurdles and pitfalls are well known and thus more easily avoided.
The value of accurate data
It is often the case, of course, that IP due diligence doesn’t quite take place at the level required for such advance planning or at least not to the level that IP heads would like. The challenge then is in playing catch-up; in particular, to make sure that the ownership of IP rights is updated to the necessary timeframes.
In our experience, the extent to which companies are diligent in registering and maintaining IP and IP records varies. If the vendor has followed best practice – either as a matter of ongoing routine or to prepare for an asset sale – then this inevitably makes the recordal process easier to execute. The ideal is IP rights which are in force and which have a sensible ownership structure and up-to-date ownership details recorded.
However, rights are not alway kept up to date in this way, putting them at risk in terms of validity and enforceability. If this is the case, it may result in more complicated requirements for the post-completion recordals (as well as potentially affecting the merger or sale process itself ). The workload and timescales are also more demanding where a business has been acquired at short notice (eg, as a result of a hostile takeover).
The focus of the next article in our 'IP in M&A' series will be on structuring the take-over process for IP assets in such situations. In the meantime, if you have any questions or would like any specific advice on the topics covered in this article, please speak to your Novagraaf attorney or contact us below.
For general advice on managing the safe transfer of an IP portfolio following M&A, please read our article 'IP in M&A: 5 steps to manage the recordal process'.