Trade marks are a type of intellectual property used by businesses to protect their name and branding. Once registered, the longevity of trade mark protection is unique; provided the registration is renewed, it lasts indefinitely.
Whilst intangible, trade marks can be commercialised in the same way as tangible property, including bought and sold. There are several reasons why a business might wish to purchase an existing trade mark rather than, or in addition to, creating their own.
In this article, our trade mark solicitors explore the benefits of buying a trade mark from an existing brand, the research you should carry out beforehand and the process involved.
Contents:
The benefits of purchasing a trade mark from an existing business
Brand recognition
Trade marks are often referred to as a ‘badge of origin’, meaning they indicate where the goods or services originate from. Well-known brands inspire trust, confidence and consumer loyalty, so buying a well-established trade mark can often increases sales and, in turn, boosts profitability.
Goodwill
Goodwill is an intangible but powerful business asset. It has been referred to as the ‘attractive force that brings in custom’, and ‘the benefit of the good name, reputation and connection of a business’. Goodwill is intrinsically linked to a business’s trade marks, which protect the business’s name and branding. By purchasing a recognisable trade mark, you benefit from the goodwill attached to the brand.
Investment purposes
When a once successful business fails, purchasing its trade marks can present an excellent buying opportunity. It will often already have a loyal customer base, and the popularity of its offerings will have been market tested, so you will have an appreciation of what has been popular and what has not. The fact that the business has enjoyed past success indicates that, unless the decline was due to a shift in consumer trends or the like, there is an opportunity for you to return it to its former profitability.
Settle infringement proceedings
Sometimes, purchasing a trade mark can be a useful tool in settling infringement proceedings. If the trade mark owner no longer needs the mark and you wish to continue with your use, you may be able to negotiate a sale as part of an overall settlement. However, since your bargaining position will be compromised, you will likely be forced to pay more for the trade mark in these circumstances than you otherwise might.
Conducting Preliminary Research
Whilst there are compelling reasons for buying an existing trade mark if doing so aligns with your business goals, the process is not without risk. You should, therefore, satisfy yourself that it is the right course of action for your business. Whilst every situation is different, the following matters will generally always be relevant:
Establish your need for the trade mark
The benefits of purchasing an existing trade mark will only bear fruit if they are capitalised on. You should have a clear intention to use the mark in connection with the goods or services for which it is registered before you seek to purchase it. If you don’t, you may end up spending time and money on acquiring a mark that you subsequently do not need.
Explore existing trademarks in the desired industry
Reviewing other trade marks registered by those operating within the relevant industry can help you decide whether the mark is suitable for your purposes. Businesses spend vast amounts of time and money researching and developing ’on point’ branding, so by seeing what else is out there, you can get a feel for how the mark you have in your sights fits in.
The UK Intellectual Property office (IPO) keeps a register of all UK registered trade marks. There are several ways to search the database, including by owner, number and word. It can help to employ the help of a trade mark solicitor, to ensure the searches are focussed and relevant. Where your proposed mark is a logo or other pictorial depiction, the services of an trade mark solicitor are even more useful since they will have the know-how and software required to undertake the searches effectively.
Competitor analysis
Understanding your target market and the nature of your competition is crucial to success. Matters you should consider include:
- Who are your competitors?
- How are their offerings similar to, or different from, yours?
- Is the marketplace crowded, or is there room for you to flourish?
- What type of branding do the most successful businesses within the industry use?
- Does the trade mark you wish to buy align with the ‘feel’ of that successful branding, or is it starkly different?
Evaluating the market value of a trade mark
The intangible nature of trade marks makes them inherently difficult to value. Their worth often increases over time but can fluctuate with consumer trends, so much will depend on the parties’ bargaining power.
Numerous methods are used to value a trade mark, and the one suitable in any given case will depend on various matters, including how long the mark has been registered for and its current use.
The following three methods are commonly used in trade mark valuations:
The cost approach
In this approach, the valuation is based on the costs of creating the trade mark, having regard to the relevant prices at the date of valuation. The costs to be taken into account include those spent on researching and developing the mark, labour costs and registration fees.
The market approach
As the name suggests, this method bases a trade mark’s value on its recent track record in the market. It often includes benchmarking against sales of comparable marks.
The income approach
The income approach looks at the potential future income the trade mark could generate, together with the costs of achieving that income. Whilst this approach can be helpful in cases where detailed financial projections have been drawn up, it carries inherent uncertainty since there is no way to accurately predict how a trade mark will perform in future.
How to buy a trade mark
Generally speaking, the process of buying an existing trade mark is as follows:
Carry out due diligence
It is crucial that you carry out proper due diligence before purchasing a trade mark. The matters you should consider will vary but will usually include:
- Is the trade mark validly registered, and does the registration cover the relevant goods or services?
- Has its current owner used the trade mark as security for an outstanding loan?
- Has the trade mark been licensed to any third parties in the UK or abroad? If so, how will the terms of the licence affect your ability to use the mark?
Assess potential risks and liabilities
It would be disastrous to purchase a trade mark that turns out to be worthless or, worse still, be the subject of a legal dispute. Matters that you should consider when assessing a trade mark’s potential risks and liabilities include:
- Is the trade mark the subject of an ongoing legal dispute, either because a third party is using it without permission or because it is too similar to another?
- Is there a risk of a legal dispute in future? Whilst it is impossible to rule out the possibility of future issues arising entirely, you can mitigate the risk by checking whether any marks exist that could become problematic.
- How strong is the trade mark? Trade marks must be protected to be effective. If the previous owner has neglected to monitor the market and other businesses have started using similar names or branding, the essential function of a trade mark as a ‘badge of origin’ may have been diminished.
Identify the trade mark owner
To buy a trade mark, you must approach the current owner and negotiate a deal with them.
Negotiate terms
The document through which a trade mark is bought and sold is called an ‘Assignment’. Certain legal requirements must be fulfilled to make an Assignment binding – for example, it must be in writing and be signed by the seller. The parties are largely free to agree on whatever terms they wish in terms of price, payment, jurisdiction and the like, but the Assignment must be clear and unequivocal to avoid future disputes.
Update the trade mark register
You must inform the IPO that you have purchased the trade mark by completing the relevant form and lodging it, together with a fee.
The process of buying an existing trade mark can be complex and is littered with pitfalls for the unwary. You should, therefore, enlist the help of a trade mark solicitor experienced in transactions of this type. They will be ideally placed to assess the validity of the mark and any potential risks and secure a purchase on the best possible terms.
How to protect your newly purchased trade mark
Once you are registered as the new owner of the trade mark, you must take steps to protect it.
The easiest and most cost-effective way of protecting your trade mark is through trade mark monitoring, which involves proactively monitoring any third-party applications that may impact your rights. Few businesses have the resources to carry out consistent monitoring themselves, so most outsource it to trade mark solicitors. For a small fee, your trade mark solicitor will monitor activity at the IPO and alert you of any third-party applications that might affect your trade mark. You can then consider whether the proposed mark is of concern and, if so, instruct your solicitor to oppose the application.
If a third party uses your trade mark, or something similar, without permission, they may be liable for infringement. You must take steps to address any infringement; if you don’t, it may cause confusion in the marketplace and dilute your mark. Our trade mark solicitors have vast experience in infringement actions and will advise on the merits of your position and the best way forward.
Alternatives to buying a trade mark
Licensing
You may wish to use an existing trade mark for a short period or in connection with a one-off project, as opposed to permanently. Sometimes, the existing owner may be amenable to you using the trade mark but wish to retain ownership. In these situations, it might be more fitting to license intellectual property rather than seeking to buy it outright.
Trade mark licences can take many forms. For example, they can be exclusive or non-exclusive and can relate to the trade mark in its entirety or to specific goods or services. Our trade mark solicitors will advise on the most suitable form of licence in your case and negotiate the best terms with the other party.
Registering your own trade mark
If the benefits that come with buying an existing trade mark are not critical to your commercial goals, it may be more beneficial to design and register your own. In doing so, you can choose a name and branding that aligns entirely with your business ethos, creates the impression you desire and strikes a chord with your target audience.
Summary
Buying a trade mark from an existing brand has distinct advantages in the appropriate circumstances. It offers a convenient means through which to expand or diversify your commercial operations, or benefit from existing goodwill. However, the process is not without risk. You should, therefore, seek assistance from an trade mark solicitor who will advise on the benefits and disadvantages of your proposed purchase and guide you through the process.
