In an M&A asset purchase, trademark rights transfer to the buyer through a written assignment, usually a short trademark assignment signed at closing alongside the asset purchase agreement. To be valid, the assignment must transfer the goodwill of the business associated with the mark, and the buyer should record it with the U.S. Patent and Trademark Office (USPTO). Intent-to-use applications are subject to special limits on assignment before use is established.
For many startups, brand value is a significant part of what a buyer is paying for. Unlike a stock purchase or merger, where the target entity continues to own its trademarks, an asset purchase requires each asset to be transferred individually. That makes it important to know exactly what marks exist, who owns them and whether they can be assigned. Below is an overview of the process.
1. Conduct Trademark Due Diligence
Before signing, the buyer should review the target’s trademark portfolio to:
- Identify all of the target’s marks, including federal and state registrations, pending applications and unregistered (common-law) marks
- Confirm that the target, and not a founder, affiliate or design agency, is the record and actual owner of each mark
- Check the status, scope, validity and maintenance deadlines of registrations
- Investigate infringement risks, oppositions, cancellation proceedings, demand letters and coexistence agreements
- Review licenses, liens and security interests, and determine whether any third-party consent is needed to transfer a mark
The buyer should also confirm ownership of copyright in logos and design elements. If an outside designer created the logo without a written assignment, the target may not own the copyright in the artwork even if it owns the trademark rights from using it.
2. Identify the Trademark Assets Being Transferred
The asset purchase agreement and the trademark assignment should list every registered mark and pending application being transferred, by registration or serial number, and should also cover unregistered marks, logos, slogans, trade dress, domain names and social media accounts associated with the brand. Domain names and social media handles are not trademarks, but they are usually essential to the brand and require their own transfer steps with the registrar or platform.
3. Understand the Limits on Assignment
Two rules frequently trip up buyers and sellers:
- Goodwill must go with the mark. Under federal law, a trademark is assignable with the goodwill of the business in which it is used. An “assignment in gross,” meaning a transfer of the mark without any of the associated goodwill, risks being invalid and can jeopardize the buyer’s rights. In a typical asset purchase where the buyer acquires the whole business, this requirement is easily satisfied, but the assignment should say so expressly.
- Intent-to-use applications. An application filed on an intent-to-use basis generally cannot be assigned before the applicant files an amendment to allege use or a statement of use, unless the assignment is to a successor to the applicant’s business, or the portion of the business to which the mark pertains, if that business is ongoing and existing. An asset purchase of the whole business usually fits within that exception, but the documents should be drafted so the transfer clearly qualifies. A non-compliant assignment can render the application, and any resulting registration, void.
4. Draft and Sign the Trademark Assignment
In addition to the asset purchase agreement, the parties typically sign a standalone trademark assignment as a closing deliverable. A short-form assignment is convenient because it can be recorded publicly without disclosing the deal’s confidential economic terms. It should:
- Identify the assignor, the assignee and each mark, registration and application
- Transfer all right, title and interest in the marks together with the associated goodwill
- Include the right to sue for past, present and future infringement
- Require the seller to sign further documents needed to perfect the transfer, including in foreign jurisdictions
The assignment is typically effective at closing, when both the asset purchase agreement and the assignment have been signed and delivered. For more on drafting deal documents, see our page on contract negotiation.
5. Record the Assignment With the USPTO
Recording is not required for the assignment to be valid between the parties, but it is strongly recommended. Recording with the USPTO’s Assignment Recordation Branch, which is done online, provides public notice of the buyer’s ownership. Under the Lanham Act, an assignment is void against a later purchaser for value who had no notice of it unless the assignment is recorded within three months after its date or before that later purchase. Recording also makes it easier for the buyer to file maintenance documents, respond to office actions and enforce the marks in its own name.
State trademark registrations and foreign registrations require separate recordals with the relevant state or foreign trademark office.
6. Post-Closing Steps
After closing, the buyer should:
- Confirm that USPTO records show the buyer as owner, and correct any errors
- Calendar maintenance deadlines, including Section 8 declarations and renewals
- Transfer domain names and social media accounts
- Set up watch services to monitor for confusingly similar marks
- Enforce the marks consistently against infringers
Our article Trademarks 101 covers registration and maintenance basics.
The Takeaway
Trademarks do not transfer automatically in an asset purchase. A careful diligence review, an assignment that conveys goodwill and respects intent-to-use limits, and prompt recordation with the USPTO help the buyer actually receive the brand it paid for.
Frequently Asked Questions
Do I have to record a trademark assignment with the USPTO?
Recording is not required for the assignment to be valid between buyer and seller. However, recording provides public notice of ownership and protects the buyer against a later purchaser who had no notice of the assignment, provided it is recorded within three months or before the later purchase.
Can an intent-to-use trademark application be assigned?
Generally not until an amendment to allege use or a statement of use is filed. The main exception is an assignment to a successor to the applicant’s business, or the part of the business to which the mark pertains, if that business is ongoing and existing. An improper assignment can void the application.
What is an assignment in gross?
An assignment in gross is a transfer of a trademark without the goodwill of the business associated with it. Because a trademark identifies the source of goods or services, a transfer without goodwill may be invalid and can put the buyer’s rights at risk.
Do trademarks transfer automatically in a stock purchase or merger?
In a stock purchase, the target company continues to own its trademarks, so no assignment is needed. In a merger, ownership generally passes by operation of law to the surviving entity, but the buyer should still record the change with the USPTO so the records are accurate.
How Sutter Law Can Help
Sutter Law advises buyers and sellers on mergers and acquisitions and on intellectual property issues, including trademark diligence and assignments. Contact us for a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
