Trademark Due Diligence

• Author: Edward Klaris
• Pages: 61-141

61

I. Introduction

Comprehensive due diligence requires a determination of the tar-

get’s trademarks. Trademarks have a direct bearing on a target’s

reputation and goodwill, making them one of the target’s most

valuable assets. By conducting thorough trademark due dili-

gence, you will be in a position to maximize the ever-increasing

value of the target’s intellectual property (IP).

The goal of this chapter is to identify the things counsel should

ask for and do in the process of undertaking IP due diligence for

trademarks. Trademark law is a highly specialized area. Section II

therefore begins by explaining a basic, but key, concept: ownership.

It explains how to determine ownership of a trademark and the two

ways in which such ownership can be transferred (assignment and

licenses). It also supplies a glossary of provisions to consider when

drafting new licenses and to pay attention to in existing ones.

Chapter

Trademark Due Diligence

By Edward Klaris*

4

* I would like to thank Cindy Hong, Luke Budiardjo, and Emily Borich for their

remarkable, diligent, and intelligent contributions to the copyright, trademark, and

technology chapters of this book. In particular, Cindy Hong led the writing and re-

searching team, staying on schedule, and drafting and redrafting where appropriate,

all while holding down a rigorous federal clerkship. I am forever grateful to Cindy,

Luke, and Emily for their contributions.

62 CHAPTER 4

Once ownership of a trademark is established, the second

inquiry is whether the trademark is valid; this is the focus of

Section III. Although trademark protection can be established in

the United States through the legitimate use of a mark, federal

registration is benecial because it establishes a presumption of

trademark validity. This section explains the registration process,

as well as the term of such registration. It goes on to set out in

detail what kinds of marks are entitled to protection and those

that are designated unprotectable and proscribed by the Lan-

ham Act.1 Once a mark is deemed protectable and is registered,

it must be maintained to avoid losing its protection. Section III

thus concludes by explaining the concepts of abandonment and

genericization.

Trademark holders must closely monitor the exploitation

of their trademarks to make sure others are not infringing on

the trademark and, conversely, that the trademark does not

infringe on others’ rights. Section IV explains how getting a

freedom-to-operate (FTO) opinion and performing a rights

clearance search are the rst steps to help you monitor the

target’s trademarks effectively. Section V further details moni-

toring methods, both for trademarks and the licenses relating

to those trademarks.

Section VI is focused on marketing. The business the target is

currently or might be involved in is highly relevant to trademark

registration. When registering a trademark, you should think

not only about the services the target currently provides but also

about future uses and the corresponding trademarks that may be

needed in the course of exploiting such uses.

Though not necessarily thought of intuitively as trademarks,

Internet domain names do overlap with trademarks and are reg-

istered in a similar way. Section VII explains the basic terminol-

ogy in this area and discusses registration of domain names, due

diligence on domain names, and the interaction between trade-

marks and domain names.

1. 15 U.S.C. § 1051 et seq. (15 U.S.C. ch. 22).

Introduction 63

Section VIII sets out the special considerations regarding

trademark infringement procedure, which will come in handy if,

during the course of conducting due diligence, you discover pend-

ing litigation involving the target’s trademarks. It explains how

to bring an action for trademark infringement as well as an action

for trademark dilution and the remedies available in the event of

a successful claim.

Finally, Section IX attempts to unpack the complicated inter-

national framework for the registration and protection of trade-

mark assets, which will be useful for anyone performing due

diligence for a global company.

Figure 4.1 shows a template that can be used as a general

guide for trademark license review.

Parties

Term & Renewal [Effective date, end date, renewal terms, and

deadlines]

Exclusivity [Exclusive][Nonexclusive]

Territory

Products [Products covered by agreement]

Sublicensing [Ability to sublicense: Does licensor have to

approve sublicense? Does owner have right to

inspect sublicensee’s use of mark?]

Product Design [Procedure for designing and approving new

designs]

Packaging/Labeling [Procedure, cost responsibilities]

Manufacturing [Licensee manufacturing, ability to subcontract to

manufacturer]

Royalty [Payment structure]

Advertising/Promotion [Process, responsibilities]

Quality Control [Quality control process]

Ownership [Ownership of current and future trademarks and

copyrights in packaging, advertising, promotional

materials]

Infringement [Procedure and responsibilities for infringement by

third parties and counterfeit products]

Termination

Figure 4.1: Trademark License Review Template