Trade marks are valuable intellectual property rights and can be exploited in various different ways. One way to extract value from a business is to sell a trade mark, either as part of a wider sale of the business or through sale of the trade mark alone. In this article, our trade mark lawyers look at the process involved in transferring a trade mark from one owner or another and the important points to consider before, during and after the sale.
Contents:
- Can I sell my trade mark?
- Why might I want to sell my trade mark?
- How do I value my trade mark?
- Do I need a lawyer to sell a trade mark?
- Selling a trade mark – What is the process?
- What are the costs involved in selling a trade mark in the UK?
- How long does it take to sell a trade mark in the UK?
- Can I sell a trade mark to a buyer who is based outside of the UK?
- Can I sell a trade mark if I have licensed it to someone else?
- Alternatives to selling a trade mark
- Summary
Can I sell my trade mark?
A trade mark is a proprietary right and so can be bought and sold. An unregistered trade mark is based on the goodwill of the business conducted under the mark and so can be transferred by a sale of the goodwill. You will need to establish that you own the goodwill in the business and have evidence of this to demonstrate to the buyer. The Trade Marks Register constitutes proof of ownership of a registered mark but a buyer may ask you to provide warranties as to the mark’s ownership and validity. Situations when you may not be free to sell your trade mark could occur if you have granted a charge over the mark to a bank or other organisation or have a contract in place with a third party that prohibits transfer or allows it only subject to certain conditions. You should conduct due diligence to check that you are free to sell your trade mark, as a first step.
Why might I want to sell my trade mark?
You may be selling your business or company or decide to retire. You may also want to separate a product line or are no longer be able to use the mark in your own business.
How do I value my trade mark?
All that is necessary for a valid contract of sale is that a nominal purchase price is paid (usually £1). However, there is often significant goodwill associated with the mark, which is to be transferred along with it. There are various methods for valuing goodwill and intellectual property rights and the advice of an accountant is often required to achieve a fair and accurate price. For example, the “cost method” bases the price on the costs incurred in creating the goodwill so far but does not take into account the market value of the product or service in question. Alternatively, the “market value method” looks at other comparable transactions in respect of similar goods or services and the “income” or “economic benefit method” takes into account the potential of the mark for generating revenue in the future. Ultimately, it is for the buyer and seller to agree on the most appropriate valuation method for the mark(s) in question and this may depend on factors such as amount of time in business, the nature of the market and industry and the relative bargaining position of the parties.
Do I need a lawyer to sell a trade mark?
A registered trade mark must be assigned in writing and signed by the seller or on their behalf by a legally appointed representative.
This can be a simple one page contract but it is far better to have a comprehensive legal assignment document drawn up by lawyers to reduce any risks and potential liability in the future and to achieve a seamless transfer of your rights. Trade mark lawyers are best placed to assist with negotiating any contentious terms of the assignment agreement and resolving any disputes that may arise in the process.
Selling a trade mark – What is the process?
Finding a buyer for your trade mark
Sometimes you may want to offer your sell your trade mark in the event of an ownership dispute with a third party as part of a settlement arrangement. In this case the buyer may have approached you in the first place threatening to take action. It may be the case that they buy the trade mark and then agree to license its ongoing use to you, subject to certain conditions and obligations.
However, if you simply wish to sell your trade mark and do not have a buyer lined up, you will need to find an appropriate buyer.
To start with you could look close-by and make enquiries of any licensees or business partners, who are already familiar with the trade mark and business. You could also approach a competitor to see if they want to widen their business, especially if the trade mark has lots of goodwill associated with it, that you will also be transferring. The Company Names Register at Companies House could also assist as there may be a company with a similar name that may want to acquire a trade mark. If no-one is interested, there are various websites and private companies that specialise in advertising or auctioning off trade marks for a fee. Potential customers can browse the list of marks and contact you via the website if they are interested. Accountancy firms or the Chamber of Commerce may also be able to find buyers or advertise the mark for you.
Negotiate a purchase price
The purchase price for your trade mark will depend on various factors. For example, you may be selling it as part of the business as an ongoing concern or a company takeover or merger. So the price may be wrapped up in the sale of the business as a whole and may include items such as customer lists and domain names.
If the trade mark is unregistered, you will be selling the goodwill associated with the mark and so will need to have this valued as described above. Similarly, a registered trade mark may carry with it significant goodwill that you will want to obtain payment for. If the mark is registered and hasn’t been used, you could transfer it for a nominal fee or the cost of the original registration fee or a greater amount if it is a highly sought after name. If no consideration is paid, the document must be signed as a deed in the presence of witnesses.
Draft a trade mark assignment agreement
The assignment agreement is very important and should be drawn up by an experienced lawyer. It must identify the seller(s) and buyer(s), the mark(s) to be transferred, the date of the transfer and the amount to be paid in consideration. If the goodwill is to be transferred along with the trade mark, this must be specified in the agreement. The agreement must be signed by the parties or their representatives. Usually an assignment agreement will specify whether the trade mark is being transferred with full title guarantee or limited title guarantee. The former means that it is being transferred free of adverse encumbrances such as trusts, covenants or other third party rights, as far as the seller is reasonably aware. A buyer may insist on this so you should conduct your own due diligence to ensure that you do not become liable under the agreement in the future if any such encumbrances materialise. Limited title guarantee only assures the buyer that no encumbrances have been entered into whilst the seller owned the mark. The buyer may also insist on warranties being included in the agreement, for example that the mark is registered and all registration, renewal and other fees relating to the mark and its registration has been paid, no-one else has any rights to the trade mark, the mark and its registration are valid and not subject to or likely to be subject to any action, claim or infringement, that the seller has not allowed the mark to be used in any unauthorised manner and that the seller will not continue to use the mark after the sale. There may also be an indemnity clause requiring payment to the buyer if there is a breach of the warranties. These clauses will be subject to negotiation and depend on the relative bargaining positions of the seller and buyer. It is also possible to sell part of a registered trade mark, for example some of the classes, or even specific goods/services, rather than the entire mark. The assignment will therefore need to make clear precisely what is included in the transfer.
File the necessary paperwork with the relevant authorities
In the UK, the assignment of a registered trade mark and the details of the new owner(s) must be recorded on the Trade Marks Register. This is done by filing a Form TM16 and paying a recordal fee of £50 per form to the Intellectual Property Office (“IPO”). One form and fee can cover several trade marks, provided the parties to the agreement are the same and the marks are all covered by the same assignment. The buyer will normally bear the cost and responsibility for recording the assignment. A copy of the assignment agreement is normally submitted to the IPO along with the form but this is not necessary if both parties, or their representatives, sign the form.
You can assign the registered trade mark in full or for only some of the goods and services covered. If the latter there is a form TM16P for a partial assignment. The fee is still £50.
Until the assignment has been recorded at the IPO, it will not be effective against a third party acquiring an interest in the trade mark in ignorance of the assignment. So, the seller could theoretically sell the same mark to someone else. Also, any licensee of the new owner will not gain the benefit of sections 30 and 31 of the Trade Marks Act relating to infringement proceedings, until the assignment has been registered at the IPO.
What are the costs involved in selling a trade mark in the UK?
For the seller, the costs involved will mainly be accountant’s fees for evaluation of the value of any goodwill connected with the trade mark and lawyers’ fees for any due diligence and the preparation and execution of the assignment agreement. There is also a registration fee of £50 to record the change of ownership at the UK IPO, although this is usually borne by the buyer.
How long does it take to sell a trade mark in the UK?
You can transfer a trade mark relatively quickly in the UK, once the agreement has been prepared. It is then simply a question of having it executed by the parties and the buyer transferring any purchase price to the seller. For a registered trade mark, the transfer will be effective against third parties once it has been recorded at the UK IPO. This normally takes a few weeks’ from submission of the form and fee. Following the sale you will need to ensure that you immediately cease all use of the trade mark, if you are continuing in business or the buyer may take action for breach of warranty and/or infringement.
Can I sell a trade mark to a buyer who is based outside of the UK?
A trade mark can be transferred to a business based abroad. Indeed a partial transfer to a foreign business may be profitable if the mark cannot be fully exploited in the UK. It will be important to ensure that the assignment agreement complies with both the laws of the UK and the laws of the transferee country and expert advice from lawyers in each jurisdiction is recommended.
Can I sell a trade mark if I have licensed it to someone else?
This will depend on the terms of the intellectual property licence agreement. If you retain the right to transfer ownership, this will usually be subject to prior written notice being given to the licensee and a proviso that the buyer enters into the same obligations as the original licensor under the licence agreement.
Alternatives to selling a trade mark
If you are not selling your business or company as a whole but perhaps cannot use the trade mark yourself in business any more or want to expand its use and extract more value from it, then you may wish to license its use to a third party instead of selling it to them. You could license the mark to several different businesses and obtain a license fee from each of them. You could also consider franchising your business and licensing use of the trade mark to the franchisees in return for a fee.
You could also consider granting joint ownership of the trade mark to another business for example if you are entering into a joint business venture or merger. The transaction is effectively a transfer of the trade mark from your business to your business and the other business jointly, and will be registered in the same way as a normal assignment. The default position in UK law is that each joint owner will have an equal, undivided share in the trade mark registration as tenants in common. Each co-owner of a trade mark may use it but cannot charge, assign or license its use without the consent of the other co-owners. Entering into a joint ownership agreement to set out the rights and obligations of the joint owners is highly recommended to ensure that the mark is used effectively and safely without being vulnerable to cancellation or infringement.
Another way of extracting value from your trade mark without selling it is to use it as collateral for a loan. A charge over a registered trade mark must be registered at the IPO on the Trade Marks Register by filing a Form TM24. There is a £50 fee for applying to record or remove a security interest from the Register. You will need to specify whether it is a fixed or floating charge or both. In the event of default on the charge, the charge can usually take ownership of the trade mark.
Summary
Selling a trade mark is a relatively straightforward process. However, without qualified advice from a trade mark lawyer there are several pitfalls that could result in you losing out or even becoming liable for a lot more than you expected to gain. You must look after your trade marks as any other valuable business asset so that when it comes to selling up, you can profit from all your hard work in building up a strong reputation and brand that others will want to acquire.
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