HOW CAN START-UPS PROTECT THEIR TRADEMARK DURING MERGERS OR ACQUISITIONS?

Introduction

In today’s knowledge-driven economy, intangible assets such as intellectual property often outweigh tangible ones in determining a company’s value. Trademarks are among the most important forms of intellectual property as they help in distinguishing goods or services, encourage consumer loyalty and provide credibility to brands.

Mergers and acquisitions are strategic tools for market expansion and innovation. Although such transaction enable business growth, but there are often IP infringement risks associated with them. One of such risks is that of trademark dilution or even elimination of trademark rights.

During a merger or acquisition, the ownership of a trademark can be transferred either through assignment, licensing or merger. Assignment refers to complete transfer of ownership of trademark from one party to another. Licensing on the other hand, includes granting permission to use a trademark by the trademark proprietor to the licensee company. Merger as the name suggests refers to the combination of two companies to form a new legal entity.

In the above mentioned scenarios, it is really important to ensure that the transfer of the trademark is appropriately documented and registered with the relevant authorities to ensure legal protection.

In this essay I have tried to suggest some strategies which can protect start-ups from any kind of trademark infringement during M&A transactions.

Evaluating the Risks to Trademarks in M&A

Start-ups invest huge amount of capital in developing a brand identity, which becomes their trademark. These trademarks allow consumers to identify and trust the goods or services provided by the start-ups. Start-ups being new to the market often go for M&A. But during these M&A transactions their trademarks can face several potential risks.

During the initial stages, start-ups may ignore formal registration or proper documentation, leading to unclear ownership during negotiations. Another risk is that of geographic limitations. As trademarks or any kind of intellectual property is territorial in nature, trademarks registered in one jurisdiction may not be enforceable in another after a merger. In cases where two merging entities have similar marks, confusion or dilution might occur. Without formal protection and clear records, trademarks may be undervalued during acquisitions.

Strategies for Protecting Trademarks during M&A

The most important significant step towards protecting a trademark during an M&A transaction is to conduct due diligence. Due diligence is a process which is aimed at uncovering all the aspects of a company’s IP portfolio. This includes identifying and verifying IP assets, evaluating trademark scope and validity, reviewing any Trademark related disputes and litigation and compliance with Indian laws. The main goals of conducting trademark due diligence is to verify its clear ownership, ensure that it is enforceable in the relevant jurisdictions and identifying any third party claims or infringement disputes.

For streamlining the due diligence procedure various Artificial Intelligence models can be used by start-up companies for carrying out functions such as recording keeping and generating reports.

Start-ups should always their trademark’s valuation accurately and professionally in order to assess the genuine worth of their mark.

Another strategy that can be adopted by start-ups is reviewing the contracts pertaining to Mergers and Acquisitions. They can also add non-compete and non-disclosure clauses to their agreements

Clauses relating to ownership, royalty, termination etc. and other contracts like licensing agreements must be thoroughly reviewed.

M&A transactions must explicitly address trademark rights including non-compete and non-disclosure clauses, indemnity clauses, clear ownership, valid registration etc.

Even after the Mergers and Acquisitions transactions have concluded, certain steps can be taken for the protection of trademarks. This includes assignment and transfer of trademarks, compliance with domestic IP frameworks and notifications to the concerned entities.

Added to this, start-ups should seek guidance from legal experts such as Intellectual Property Attorneys.

Tata Motors and Jaguar Land Rover (JLR)

When Tata Motors acquired JLR from Ford in 2008, the transaction included hundreds of trademarks across dozens of countries. In places like China, delays in re-registering trademarks allowed opportunists to claim similar brand names as China follows the “first to register” rule.

Tata was forced to take a costly legal recourse to reclaim brand rights and protect its market presence. This situation exposed the company to unnecessary risk—something that could have been avoided by adopting the aforementioned strategies mentioned.

Conclusion

As start-ups evolve, it becomes very crucial for them to review the trademark portfolios. They can protect their trademarks by conducting due diligence, seeking professional guidance from legal experts, conducting regular audits and so on. Trademarks are not just mere symbols of identification but carry with themselves years of hard-work, innovation and consumer trust. Trademark protection is not a one-time exercise but an ongoing responsibility that transforms a start-up into a successful and long term asset.