Trademark Due Diligence

AuthorEdward Klaris
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.
Trademark Due Diligence
By Edward Klaris*
* 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.
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
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.
Term & Renewal [Effective date, end date, renewal terms, and
Exclusivity [Exclusive][Nonexclusive]
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
Packaging/Labeling [Procedure, cost responsibilities]
Manufacturing [Licensee manufacturing, ability to subcontract to
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
Infringement [Procedure and responsibilities for infringement by
third parties and counterfeit products]
Figure 4.1: Trademark License Review Template

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