Failing to ensure that ownership of a property’s name conveys along with the property can result in serious consequences for buyers and sellers alike.
TRADEMARK LAW is far from most people’s minds when they are feverishly negotiating a contract to buy or sell a commercial building. However, the name associated with the building carries with it the goodwill the seller has developed during ownership. Unless ownership of the name is addressed in the purchase and sale contract, expressly assigned to the purchaser at closing and properly documented with the relevant state or federal agency, the purchaser could find itself the proud owner of a newly acquired mall, office building or luxury high-rise condominium without the right to use its distinctive name to promote the property.
Such an unintended outcome can typically be avoided by following a few simple steps. Failing to address trademarks at closing, however, can lead to significant headaches down the road for both parties.
Most purchase and sale agreements don’t address trademarks at all. If they are addressed, trademarks typically only get a passing mention in the description of the property being conveyed. Such general language may be insufficient to transfer a registered trademark to the purchaser. Much like a car’s owner is registered with a state department of motor vehicles, the owners of federally registered trademarks are registered with the U.S. Patent and Trademark Office (USPTO). Ensuring that USPTO records accurately reflect the chain of title protects the mark’s value, and makes future transfers of the mark easier.
In order to transfer the trademark to the purchaser, the purchase and sale contract should obligate the parties to mutually execute and deliver a separate assignment of any trademarks at closing. An intellectual property attorney can work with the purchaser to ensure that this assignment properly identifies the mark being assigned, complies with applicable law and includes customary representations and warranties by the seller regarding the trademark. Upon closing, the purchase and sale contract should further require the seller to cooperate with the recordation of all necessary documents to effect a conveyance of the mark. Typically, the purchaser records the assignment and no documentation outside of the trademark assignment is necessary. However, to the extent that additional documentation is necessary, the seller should cooperate.
A purchaser who fails to obtain a proper assignment of a registered trademark associated with a property faces several negative consequences. First, the purchaser is exposed to potential claims of trademark infringement without the benefit of the seller’s prior use. Trademark rights are often defined by priority of use of a mark within a geographical area. Without a proper assignment, the buyer may not be able to establish a link to the seller’s first use of the mark, which significantly increases the buyer’s exposure to trademark infringement claims.
Second, the purchaser may lose the benefits of any registration through the doctrine of waiver or laches, that is, the intentional surrender of rights or unreasonable delays in asserting them. Third, and perhaps most common, the next party who wishes to acquire the property from the purchaser may insist that the purchaser go back and correct the assignment as a condition to closing, to ensure that the acquiring party will have rights to the trademark. This could be a very difficult process if the seller cannot be located or no longer exists as an entity.
While the purchaser bears the bulk of the economic consequences of an improper assignment, it is also important for sellers to ensure that trademarks are handled properly. Aside from the obvious administrative headache of trying to properly document a trademark transfer months or years after the fact, sellers also face the risk of being dragged into future disputes related to the property and trademark due to the seller’s listing as the owner of the trademark in the governmental registry. For the seller, the cost and time involved in assigning the trademark at closing is a small price to pay to avoid these annoyances.
In addition, a purchaser should confirm whether the seller registered any marks at the state level to ensure that any such marks are properly transferred to the purchaser. A trademark registration is valuable because it establishes three things:
1) The validity of the trademark.
2) The registrant’s ownership of the trademark.
3) The registrant’s exclusive right to use the trademark in connection with the goods and services specified in the registration.
Following these simple steps requires minimal time and cost. It will save all parties to a real estate transaction substantial time down the road and will ensure that the purchaser obtains all of the property for which it has bargained. A well-maintained intellectual property portfolio is integral to the success of any business. Purchasers and sellers are cautioned not to overlook properly documenting the transfer of intangible, as well as tangible, assets.