Welcome to our very first Quick Tip Session on The Deal Room Podcast. Our quick tip sessions are all about giving you high-level areas of information that you need to know in relation to a particular area in the shortest possible time. Now today’s episode is all about brand protection issues prior to a business sale. In order to talk informatively about this, we brought back our resident trademarks expert Grace Yi of Aspect Legal.
- Brand protection issues prior to a sale
- Secure your brand now!
- It’s a costly mistake to make
- Final takeaway
Brand protection issues prior to a sale
Buyers are looking to capitalise on the value of the assets of the business that they’re buying or the shares of the company they’re purchasing. A failure to have the brand protected means that the value in that asset is likewise not protected therefore, there is risk for a buyer coming in.
For a seller, the real risk is that if brand is a valuable part of the assets of their business, then a buyer coming in realising that there’s no protection might insist on a lower purchase price or worse, cause the deal to fall over completely.
Even if the new owner decides to do it themselves after the sale is completed, it can be a lot harder for them than for the older owner because the knowledge that the seller has (if they’re the ones that have been using the mark since the beginning of the business) is extremely valuable when we go to apply for the trademark and we’re in a situation where we need to provide IP Australia with proof of the way that the mark has been used over the course of its lifetime.
Obviously, you need to have some contractual obligations there for the seller after the completion date of the business sale to help you provide that evidence because you might not have access to it otherwise.
Secure your brand now!
The trademark registration process takes a minimum of 7.5 months. Clients always get startled when they hear that because business names and company name registrations are so quick. But this process has to take a minimum of 7.5 months and of course, if you start this at the time that the business contracts are being looked at, it might be a case of the business changing hands before the trademarks have gotten through.
This is absolutely one of those areas where it’s just really important to get in early. We say again and again that businesses need to prepare well in advance for a sale if they want to really maximise the sale price and the ease of the process.
Intellectual property and trademark registrations are really simple to tick off if you get in early enough. But you really need to be thinking about it at least a year before sale and probably even earlier than that, because the longer a business has been using a mark the more difficulty we often find getting in on the trademarks register just because other people have quite often gotten in first.
Imagine the situation where you’re looking to sell your business and then you find out that your brand is actually infringing on somebody else’s brand. That would be a nightmare!
It’s a costly mistake to make
We’ve seen this a few times in the past. I remember this case we had years ago where an organisation had used their brand for 40 years. But when it came to the point of selling the business, the business owner was told by the prospective buyers (and I say prospective buyers because they actually fell out of the process once this was identified) that another business only one year ago had registered that trademark.
The relevance now for this business is that they would have to spend hundreds of thousands of dollars in getting that other mark off the register, even though they used that mark 40 years earlier. They can’t sell a business with monopoly rights over great names anymore.
It’s heartbreaking because if you have been in business for 40 years, you’re looking to sell your business and maybe put your feet up and you don’t have the resources at that point to really fight this sort of battle.
It was a case of lack of understanding that the trademark register really is first in best dressed. It’s also a lack of understanding about the critical importance of trademark registration. This is actually one of the cheapest types of IP protections you can get for your business. We call it the cheapest insurance you can get for your business. Getting in early enough is really key.
If you are a business that’s looking to build itself for sale or if indeed you advise businesses in this area, look out for the IP issues like brand protection well in advance of putting a business on the market. And of course, if you’re buying a business, then make sure intellectual property is part of the key areas of due diligence if indeed IP is part of the value that you’re expecting to get in the purchase.
If people want to speak to Grace, you can get in touch with her and our other specialist legal eagles from Aspect Legal via our podcast page at thedealroompodcast.com or go straight to our website at aspectlegal.com.au and there you can book yourself in a time to have a quick free no obligation discussion with Grace or any of our other very talented team there.
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