Insolvency and Trade Marks
Written by Thomas Mould on 19 August 2015« Return to Reading Room
Trade Marks – Assets in Liquidation.
A trade mark as we are all aware is an intangible asset which is imperative to a company’s brand but what happens if the brand goes in to liquidation?
The Trade Marks Act 1994 s2 (1), 22 and 27(1) establish that a trade mark and trade mark application is an item of personal property and therefore are included as assets of a company in liquidation.
Where the registered trade mark has vested in the liquidation estate the trade mark may be sold with the assignment being signed by the liquidator as assignor and the relevant form being lodged with the Intellectual Property office that the trade mark is registered with.
Selling the trade mark
Potential Problems where trade mark portfolios are split
A seller or purchaser of marks should pay heed to company names and domain names which incorporate marks they are buying or selling, as if these are similar/identical and are split between purchasers, therefore being owned by different entities, such a situation may give rise to passing off and trade mark infringement claims.
Charges as securities
Insolvency practitioners should be aware that registered trade marks can be, and often are, used as security for loans by way of a charge or other mortgage (TMA 1994 s.24 (5)). Before any registered marks are sold or transferred to third parties, there should first be checks to see if there are any other interested parties who may have a charge against the mark. Enquiries should be made to establish whether there are any licensees or mortgages of the mark in order that they can be informed of the making of the insolvency order and asked to note the official receiver’s interest.
The mark may also have licences attached to it which would give rise to an obligation for royalties to be paid to the owner of a mark by a third party in return for the use and utilisation of that mark (TMA 1994 s.28). In order to maximise a bankrupt’s estate where a winding-up order or bankruptcy order is made against the mark’s owner, the official receiver should make contact with any third party who may be liable to pay royalties, inform them of the company’s position and ensure that they pay any future royalties due directly to the liquidator or trustee. A licence of a trade mark may also be sold and any assignment should be in writing and signed by the parties.
If it is the case that the company in liquidation is in receipt of payments under a condition of the sale of a registered trade mark, rather than because they have licensed the mark, the payments cannot be claimed as an asset as the trade mark will not actually vest in the estate of that company. In this instance the payments should be treated as income and can be claimed under an income payments agreement or an income payments order.
In absence of a express provision in a licence agreement which terminates the licence, a licensor will often be keen to ensure that its relationship with an insolvent company is brought to end as quickly as possible for a number of reasons including: the prospect of tarnishing or damage to the brand as a result of association with the insolvent company; the ability to attract a new licensees who will be able to exploit the mark more effectively; and the risk of the licence being sold to an unknown third party by the liquidator, particularly damaging if the licence is sold to a competitor brand.
However, it is usually the licensee who will face the greatest losses. If the licensor becomes insolvent the licensee could be at risk of losing the trade mark that is essential to the operation of their business, thus giving rise to a substantial commercial impact. This is because the liquidator can set aside an IP licence as onerous property, say because the licence obliges the licensor to protect the brand; or it may decide not to honour its commitments under that licence. In practical terms this may not be as damaging an impact when considering the licence of a trade mark compared to, let’s say, database rights or crucial commercial know-how, but it can still have a lasting and substantial impact. This is something that should be considered from the outset of any negotiations regarding contracts outlining the rights of parties who are licensed to, or are licensing, their marks or other IP rights.
If a sale and/or purchase of a mark is successful, or any person becomes entitled to a trade mark by virtue of the making of a court order (including winding-up and bankruptcy orders) that person must to inform the UK IPO of his interest in the mark (TMA 1994 sections 25(1) and 25(2)(e)). Where an insolvent owns a registered trade mark, it is prudent for the official receiver dealing with that estate to inform the UK IPO of the winding up order or bankruptcy order and ask it to note the official receiver's interest in that mark.
The key to a successful acquisition and sale of a registered trade mark starts with due diligence, including knowing where to look and keeping the UK IPO informed of all changes along the way.
What happens if no buyer is found?
If no buyer can be found then the trade mark will pass to the crown under the legal concept of Bona Vacantia (ownerless goods). Intellectual Property owned by the crown is dealt with by the Bona Vacantia Division (BVD). The BVD can sell intellectual property as its open market rate, allowing companies and individuals to buy intellectual property back from the crown.
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