Ladas & Parry - Closing the Deal - V. POST-CLOSING ISSUES

IP As Property / IP Rights Transfers / Closing the Deal

V. POST-CLOSING ISSUES:

A. IMMEDIATE DOCKETING OF TRADEMARKS/ACTION DATES:
B. HANDLING ACTIONS (OFFICIAL ACTIONS/RENEWALS/PAYMENTS)
C. REVIEW OF FILES TO RE-ASSESS VALUE OF TRADEMARKS/MAJOR MARKETS:
D. FILING AND RECORDAL OF CONFIRMATORY ASSIGNMENT DOCUMENTS IN EACH JURISDICTION WHERE TRADEMARK RIGHTS EXIST
E. FILING AND RECORDAL OF CONFIRMATORY DOCUMENTS TO RECORD A MERGER AND/OR CHANGE OF NAME
F. SECURITY INTERESTS

A. IMMEDIATE DOCKETING OF TRADEMARKS/ACTION DATES:

It is critical that upon possession of the transferred files, an immediate review to determine when renewal dates, terms, responses to official actions and other “action” dates are due. In addition to the particulars of the trademark (mark, registration number, registration date, etc.), these “action” dates should be immediately uploaded into a computer database in order to alert counsel to any impending actions.

B. HANDLING ACTIONS (OFFICIAL ACTIONS/RENEWALS/PAYMENTS)

Any and all trademark applications and registrations requiring immediate action should be brought to the new owner’s attention in order to prevent the loss of such rights. Very often, the new owner will conduct a complete review of which trademarks it is interested in maintaining, however, this process can very often be quite lengthy. Therefore, it is critical that the new owner be advised of immediate action dates in order that their instructions may be timely received. This obligation on the Seller should be a condition of the sale and include a post-Closing undertaking by Seller to assist Buyer in taking any and all steps necessary to preserve and protect the trademark rights.

C. REVIEW OF FILES TO RE-ASSESS VALUE OF TRADEMARKS/MAJOR MARKETS:

Buyer may wish to eliminate any unwanted registrations or applications subsequent to the acquisition. They can abandon them at the time of renewal and just not record assignments against them.

D. FILING AND RECORDAL OF CONFIRMATORY ASSIGNMENT DOCUMENTS IN EACH JURISDICTION WHERE TRADEMARK RIGHTS EXIST

(1) Filing expenses: Expenses associated with the filing and recordal

of confirmatory assignment documents to record the Buyer as the official “owner of record” can, especially in transactions where worldwide trademark portfolios are being assigned, be quite expensive. There are several costs associated with the filing and recordal of the documentation, including:

i. government fees: often assessed on a per trademark basis;
ii. local counsel fees: in connection with filing the assignment recordal application
iii. taxes; depending upon the jurisdiction in the form of ad valorem, value added or stamp duties;
iv. translation fees: upon filing or in connection with the official publication of the assignment (if required);
v. publication fees: in connection with local advertising or publication of the transfer in a local newspaper or periodical (if required);
vi. foreign consular legalization or authentication charges;
vii. charges for obtaining duplicate or replacement Certificates of Registration: if required; and
viii. recordation of any change of address: if required.

(2) Consideration: Several jurisdictions require that a specific monetary consideration be recited in the Deed of Assignment for recordal purposes. If the trademarks are assigned as part of a transaction involving the transfer of other assets, the consideration for the transfer is some portion of the consideration for the entire transaction. Prior to filing, trademark counsel should consult with the new owner of the trademarks to determine an appropriate consideration to be recited in each Deed of Assignment for those jurisdictions where it is mandatory to recite same. Trademark counsel should be familiar with the possible local tax requirements when advising the new owner so as not to trigger any unanticipated local tax assessments upon the transfer. Additionally, where tax assessments cannot be avoided upon the transfer, trademark counsel and Buyer should evaluate and determine the specific amount to be paid to the local tax authorities well in advance of filing so that the Buyer can factor this amount into its budget.

(3 Legalization/Authentications: In several jurisdictions, prior to filing the confirmatory assignment documentation, it will be necessary to arrange for the consular legalization and/or authentication of the confirmatory assignment documentation. While some embassies undertake the process of legalization in an expedient fashion, many embassies, especially from less sophisticated jurisdictions, have a slow turnaround time. Additionally, it is often necessary to have documents which require legalization to be sent to a County Clerks’ office to certify that the notary is, in fact, a notary public in good standing in that country and/or to have the documents sent to the Department of State as well.

(4) Filing Process: When the confirmatory assignment documents have been executed, notarized and legalized (where necessary) and after a careful review to determine that no information or signatures are missing, the documents are ready to be filed at the respective trademark offices. Trademark counsel should consider the following issues when forwarding the assignment documentation to local counsel for filing:

(a) pending trademark applications: in order to not interfere with the prosecution of the application, trademark counsel should consider using the same agent for purposes of recording the assignment. If trademark counsel would prefer to use a different agent than the one prosecuting the application, counsel should coordinate its effort with the agent of record and its preferred agent so as not to interfere with the prosecution.

(b) pending renewal applications: where a renewal application is pending in the name of the new owner, the assignment documentation must be filed with the same agent in order that the agent can prove that the entity renewing the registration is, in fact, the new owner.

(c) deadlines: certain jurisdictions require the filing of the assignment documentation within a certain period of time from the date of execution. For example, some British law countries still operating under the 1938 Trade Marks Act require assignments made without goodwill to be filed within six months of the date of execution for advertising purposes. Other countries which impose a deadline upon filing of assignment documents include:

(d) official actions: It is practically inevitable that when arranging for the
recordal of an assignment against hundreds or even thousands of trademarks on a worldwide basis, objections and official actions will issue by the Trademarks Office. Among the types of official actions to be anticipated are:

(i) owner of record: the Trademark Registry does not reflect the Seller (assignor) as the official “owner of record”. For whatever reason, the Seller never undertook to record itself as the new owner against the trademark rights in a particular jurisdiction. Accordingly, the Registrar will require that documentation evidencing the assignment from the previous owner to the Seller be submitted together with the new assignment documentation.

(ii) “association” requirements: the trademark laws of several jurisdictions have a requirement in place known as the “association” requirement. Under the association requirement, if an application for assignment is filed only against some, but not all, trademarks owned by an assignor which it has registered at a particular trademark office, the Examiner may issue an official action claiming that the assignment cannot proceed due to the existence of “associated” trademarks. In most instances, the Examiner determines that a mark is associated when there is a common element or word contained in the marks. In order to overcome this objection, there are normally three options available:

• Prepare new assignment documentation for execution by the parties against the associated trademarks which were not subject to the assignment.

• File a petition with the trademark office in an effort to “break the association” between the trademarks, arguing that the trademarks should not be “associated” and recordal should proceed uninhibited.

• Commence cancellation proceedings against the associated trademarks.

(iii) change in local practice: the requirements of local trademark practice shift on a fairly regular basis which may result in requests for additional forms, Powers of Attorney, Affidavits or other documents to be submitted with the assignment documents. In some instances, new assignment documents are required altogether.

(iv) missing/lost documents: It is not uncommon for Trademark Offices to temporarily misplace or lose entirely a complete set of assignment documents, especially in less sophisticated jurisdictions. Regardless of fault, a new set of assignment documents can be executed by the parties and submitted to the Trademark Office or in certain cases, certified copies will be accepted.

(v)change of address: the address of the Seller as reflected on the official registry differs from that contained in the assignment document. Accordingly, a Declaration of Change of Address must be filed in order to overcome this objection and allow the recordal of the assignment to proceed.

(vi) license recordal or registered user entry in name of Seller: when the Seller is recorded as a licensor/licensee or registered user, the Examiner may require evidence of the novation of the license or registered user agreement to reflect that the Seller is no longer the licensor or licensee of the mark.

Regardless of the type of official action which may issue, one dominant theme is clear. Officers (or former officers) of both the Buyer and the Seller should be available to execute whatever additional documentation is requested by the local Trademark Office to complete the transfer of “record title” to the Buyer.

(e) Proof of recordal: In most jurisdictions, proof of recordal of an assignment, merger or change of name is issued within six months to one year. In other jurisdictions such as India or Italy, proof of recordal may not be issued for approximately 4-5 years. In any event, when the proof of recordal is received, this document should be carefully reviewed to determine the following:

the name and address of the new owner is correctly reflected on the certificate;

the date of the recordal is stated;

the correct application and/or registration numbers are recited on the certificate.

E. FILING AND RECORDAL OF CONFIRMATORY DOCUMENTS TO RECORD A MERGER AND/OR CHANGE OF NAME

Although many of the issues discussed above pertaining to recordal of

confirmatory assignment documents remain true for the recordal of a merger and/or change of name, such as the assessment of government fees on a per trademark basis, as a general rule, fewer documents need to be prepared and executed by the parties for recordal purposes. In many jurisdictions, recordal of a change of name and/or merger can be accomplished with the following documents:

(a) Power of Attorney: usually executed by the Buyer only;

(b) Certificate of Merger/Change of Name: issued by the appropriate Secretary of State’s office (if a U.S. corporation) or similar governmental authority outside the U.S.

Unlike an assignment, however, all assets of the combined companies pass to the new entity by operation of law and therefore, recordal of a merger/change of name must be recorded against all active trademark applications and registrations which stand in the name of the Seller at a particular Trademark Registry.

F. SECURITY INTERESTS

Increasingly, security interests in intellectual property and, in particular, trademarks, are becoming more and more common. Towards that end, perfection of security interests in trademarks worldwide is becoming more common. Recordal of security interests in trademarks is a well-established practice in only the most sophisticated jurisdictions and even there, similar to the United States, the law in this area is not well settled. However, for those jurisdictions outside the United States where security interests have been recorded at the Trademarks Registry, it may be necessary to seek the opinion of local counsel in order to determine whether release documentation prepared for recordal at, for instance, the USPTO, will be sufficient to release the security interest under local law.

(i) Perfection of security interests in trademarks in the United States: With respect to U.S. common law and U.S. State trademark registrations, Article 9 of the UCC would apply and the appropriate UCC-1 forms should be filed and perfected at the relevant County Clerk’s Office and/or Secretary of States office. With respect to federally registered rights, the landscape concerning perfection of security interests still remains unclear. While the Lanham Act makes no direct reference to recordation of security interests, the USPTO will accept and it is now common practice to record security interests in trademarks at the assignment division. At the very least, recordation at the USPTO provides constructive notice to subsequent purchasers for value.

(ii) What countries recognize perfection of security interests: As the value

of intellectual property rights are more widely recognized now than ever before, more and more companies are placing a premium on the protection of these rights, including trademarks. Companies with substantial worldwide portfolios are increasingly offering not only their domestic trademark rights as security to finance a transaction, but increasingly, their international rights as well. Towards that end, secured parties would be well advised to seek perfection of these security interests at the trademark offices in several, if not all, of the jurisdictions in which the trademark security interest has been granted. However, at this time, only the most sophisticated jurisdictions recognize the creation of security interests in trademarks and offer a mechanism for perfection of same at the Trademark Office.

(iii) Will the security documents suffice to create and perfect the security interest in the relevant jurisdictions? – Subsequent to identifying those jurisdictions which offer a mechanism for perfecting a security interest in trademarks, it is critical to determine whether the General Trademark Security Agreement or other trademark security documents will be accepted for recordal. While some jurisdictions will accept a standard security agreement, it may be necessary to effect certain amendments to the Agreement in order to create a valid security interest under local law. A common example of this would be changing the “governing law” provisions to that of the jurisdiction under which perfection is sought. In many instances, it may be necessary for the parties to execute several new trademark security agreements tailored specifically for creating and perfecting trademark rights in certain jurisdictions. Towards that end, it may be necessary to engage local counsel early to determine whether the Trademark Security Agreement will suffice for purposes of creating and perfecting a valid security interest in trademarks under local law.

(iv) Supplemental documentation to the Trademark Security Agreement : In addition to amendment or possibly creating a new Trademark Security Agreement in compliance with local law, it is often the case that additional documents will need to be executed by the parties and submitted together with the Trademark Security Agreement. Such documents can include:

(1) Application forms;
(2) Powers of Attorney;
(3) Short-Form Security Agreements;
(4) Commercial Security Agreements for filing at the municipal level (if necessary); and
(5) Various other forms required under local trademark and/or commercial practice.

(v) Obtaining opinion letters from local counsel : In order to make certain

that the secured party is not blindly undertaking the ministerial act of perfecting the security interest, it may be worthwhile to obtain a formal opinion letter of local counsel discussing some or all of the following points:

(1) whether any prior liens or encumbrances have been recorded against the trademark;
(2) whether a valid security interest is created by the Trademark Security Agreement under local law;
(3) whether the security interest is capable of being perfected at the local Trademark Office; and
(3) subsequent to perfection at the Trademark Office, whether the security interest is capable of being enforced against third parties;

In what countries should perfection take place/cost assessment: Simply

determining which jurisdictions recognize perfection of security interests in trademarks and identifying what supplemental documentation would be needed is not enough. A thorough cost-assessment of the value of the trademarks subject to the security interest may be worthwhile. In the end, it may not be worthwhile to proceed in a jurisdiction where notoriety or sales in the trademarks do not exist. Factors to consider in this determination are:

(1) The number of trademarks subject to the security interest;
(2) The government fees in perfecting the security interest;
(3) Local counsel fees in preparing an amended or new Trademark Security Agreement, supplemental documentation, opinion letters and handling the perfection of the security interests;
(4) The value of the trademarks as determined by notoriety and/or sales in the products bearing the trademarks;
(5) The sophistication of the jurisprudence in a particular jurisdiction; and
(6) Other standard valuation benchmarks in determining the value of trademark rights.

(vii) time considerations: In addition to cost considerations, time is also a factor when considering perfection of security interests abroad. While certain jurisdictions can typically record the security interest at the Trademark Office within 3-6 months, there are still many jurisdictions which typically require several years before recordal is officially reflected on the register. Furthermore, expedited recordal procedures are generally not in place. Therefore, in terms of obtaining the benefits of perfection by providing notice to third parties, proceeding in some of these jurisdictions may not be worthwhile.

(viii) events of default/enforcement procedures: In the event of a default, trademark counsel should be aware of what steps must be taken in order to enforce the security interest and foreclose on the trademark assets. If the defaulting party is unwilling to assign rights in the trademark back to the secured party, the secured party may need to bring a court action under local commercial or trademark law.

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