When companies do not own their trademarks

Published onJune 2013

If you look at trademark registries in France or in other countries, you may observe that trademarks are not always owned by the companies that use them, but by their CEOs, managers, founding partners, etc.

There can be many reasons why such decisions are made. It could be for practical or legal motives when the company is not registered yet. It could result from a strategy aiming at keeping control over the main assets of one’s company, among which intellectual and industrial property rights. Sometimes family explanations are involved, for example when the selected trademark matches the family name of the CEO or founding partner. There could also be financial, accounting or fiscal reasons.

But whatever the reasons, they should be legally examined and studied together with the appropriate counsels, such as Trademark Attorneys or tax specialists. In case they are not, the decisions to file trademarks in the name of physical persons instead of the companies using them could have undesirable consequences.

Without listing all potential difficulties, we shall focus on two main financial concerns for companies and individuals.

Brand and company valuation

The value of a trademark can be measured with different methods involving many legal, accounting and financial standards. But whatever the methods, one thing remains certain: the value of a trademark depends mainly on both the quality and the amount of its utilization.

When the trademark is not the property of the company that uses it, its value is necessarily low because, from a strict legal standpoint, the owner of the trademark does not benefit directly from the use of the trademark (except in certain cases).

Above all, such a situation reduces the value of the company itself, either for potential buyers or investors or for potential partners or associates.

Potential investors may not be interested in a company that does not own the intellectual assets it relies on or uses. Potential buyers may even be scared to realize that the trademarks used by the company they intend to buy are not part of their holdings.

In the same manner, potential partners such as banks or financial institutions would be reassured that a company owns the trademark it uses for it reinforces its credit. It also strengthens the credibility of a company vis-à-vis third parties that could be interested in joining a distributing network or a franchise.

Trademark infringement lawsuits

In case of a trademark infringement lawsuit, financial or criminal negative consequences may be significant for individuals owning the trademarks, even they are used by companies.

First the French Intellectual Property Code provides that the trademark infringement lawsuit is filed, before any other person, by the owner of the trademark.

This means that the lawsuit must be filed by the individual owning the trademark and not by the company using it without a proper title. However it is obvious that the company is the one suffering commercially, industrially and financially from the infringing wrongdoings. It is the company’s revenues and profits that are harmed. Yet, without a proper title, the company could not claim any damages whereas the individual owning the trademark would not be able to demonstrate that he suffers a tangible or significant damage (except in special circumstances).

Second, the owner of the trademark is responsible for infringing acts having their sources in the using of the trademark. Therefore the individual owning the trademark could be prosecuted for trademark infringement even though the infringing wrongdoings are committed by a company. And not only could he be condemned to repair the damage suffered by the plaintiff but he could also be sentenced to criminal penalties such as prison terms.

Suggested remedies

There are two main solutions to avoid above-mentioned damaging consequences.

Trademark assignment

It is a transfer of all trademark property rights from the individual owning the trademark in favor of the company that really uses it. This is the easiest one-time solution that would truly strengthen the company’s assets and facilitate its operations.

Trademark license

In such case the transfer of property rights is only partial and temporary.

The license can be exclusive or non-exclusive; it can be in connection with all the goods and services covered by the trademark or only with regard to a part of them; it can be more or less geographically limited; it can have a short or long duration; it can provide for very different types of license fees, etc. There are multiple options.

How to proceed

The choice between the assignment and the license would possibly depend on many reasons such as the ones that make people file their trademarks in their own names rather than in the names of companies that use them. And of course, the legal, financial or fiscal motives may vary from one country to another.

The best way to proceed is consequently to examine each specific situation together with the appropriate counsels, such as Trademark Attorneys or tax specialists, and to have them prepare and draft the best suitable agreements.

Eventually, one must not forget to have such agreements registered before the relevant trademark offices so that they are opposable to third parties.

© INSCRIPTA