Companies often spend a good deal of time and money building a portfolio of trademark registrations in countries in which they do business. However, when a company goes through a reorganization or its assets are purchased, foreign registrations are sometimes given short shrift.

“The new owner often puts off recording the transfer of the foreign registration until it is time to renew the registration,” says Colleen Flynn Goss, counsel at Fay Sharpe LLP.  “This typically doesn’t end well.”

Companies risk losing their registrations and it is not always a given that a new registration will be granted.

Smart Business spoke with Goss about what companies need to keep in mind regarding trademarks in foreign countries during the transfer of assets.

How do companies run into trouble maintaining title to foreign trademark registrations during an asset transfer?

While a company’s trademarks and associated registrations are generally properly listed in sale or transfer documents, transactional counsel often doesn’t understand the regulatory requirements of different jurisdictions when it comes to formalizing the transfer of title. A common error we come across is that the transfer language simply says that the company  transfers 'all worldwide right, title, and interest in the ABC trademark and to any and all registrations and applications throughout the world.' This simply will not suffice in many countries.

Although title to trademarks is transferred in a bill of sale or assignment document executed at closing, you still need to record the title change in the required format with the proper trademark registries around the world.  This can be expensive when there are registrations in multiple countries.

Why wouldn’t one record the assignments as soon as the transaction is completed?

Because recording assignments can be quite expensive, companies are reluctant to incur the expense of recordation, particularly with a large portfolio registered in several countries. Often, the new owner will decide that it will wait until the particular registrations are due for renewal. The thinking is that if the mark is no longer of value in the particular country of interest, the registration will just be allowed to lapse and the cost of recording has been saved.  That’s fine – if the mark is no longer valuable and the registration will be allowed to lapse.  The problem with this approach is that in most countries a trademark registration is valid for 10 years.  What happens if a mark remains important and a problem arises with the transfer documents several years after the transaction is completed?

Why shouldn’t a company wait to register the transfer of a trademark?

Many countries require the use of specific forms that have to be filled out in a very particular way in order to register a transfer. For example, the process might necessitate that you have documents signed both by the new and original owner, or you may need the original documents and not certified copies or legalizations by particular consulates. Or, you may have the situation described above where all of the particulars of the foreign registrations are not listed.

Consider this scenario - Widget Company acquires the assets of TT Inc., including the trademark registrations for house brand TOPSY TURVY in 15 countries in Europe, Asia and South America.  The registration for TOPSY TURVY in Russia is due for renewal eight years later and, lo and behold, the yellowing photocopies copies of the trademark assignment that counsel forwards to its associate in Russia for recordation are refused because they do not conform to the requirements for transfer in Russia. This is easy enough to fix with a confirmatory assignment document. However, if there are no longer any officers from TT Inc. available, it can be difficult to finalize a simple confirmatory assignment.

While you may have thought that you were saving money by waiting to file the transfer documents at the time of closing, you may have just walked into greater expense. Additional documents with certifications and legalizations to correct title may be available but have added to the cost. More important, it may not be possible to record the documents at all. Now the company is faced with filing a new application. This is more expensive and is certainly more time consuming than recording title. And here is the unfortunate part – just because you had a registration does not mean that you will be able to obtain a new registration for the same mark. The end result may be that Widget loses its house mark in an important market.

Why not simply file the new application?

Just because you had a registration does not necessarily mean that you will be able to obtain a new registration for the same mark. When one files a trademark application, there is generally a mechanism that allows a third party to object to registration of a particular mark.

There may be entities with similar trademarks that did not contest your application when it was originally filed 20 years ago but might now be in a more financially and market secure position to do so. This could prevent the registration of your mark, even if it has been established in that country for many years.

In addition, the market growth of some countries, such as China, has been significant. Because such countries now have more trademarks on their registry with which to compare new filings, there is a greater chance of conflict with an existing trademark. If your registration is refused you may be prohibited from doing business in that country under your mark, face infringement claims by third parties, or encounter customs issues.

How can companies ensure they have done what is necessary to maintain their trademark rights?

When you are acquiring or reorganizing a company, involve intellectual property counsel for specific guidance on trademark transfer. Make sure that the transfer language and schedules completely and accurately list all of the trademarks and associated registrations and that the conveyance clause includes a specific reference to the transfer of the goodwill associated with the marks. Conduct due diligence to ensure that title to these registrations in various jurisdictions is correctly in the name of the seller. Take the time to contact foreign trademark counsel and obtain and execute the country specific transfer documents. You may still be able to avoid some of the immediate costs of recording transfer documents by postponing recordation of the executed transfer documents until the renewal is due. This way, you have short-circuited the problems that could occur eight years down the road when you need those signatures or papers to complete the transfer and the requisite documents or people are no longer available.

However, the best practice is to bite the bullet and file at the time that the acquisition or reorganization occurs because there is less chance of encountering problems. For companies operating in the international marketplace, trademark registration and protection of your trademark in other countries is just as important as protecting your trademark in the U.S.

Colleen Flynn Goss is Counsel at Fay Sharpe LLP. Reach her at (216) 363-9132 or cfgoss@faysharpe.com.

Insights Legal Affairs is brought to you by Fay Sharpe LLP.

Published in Cleveland