© The Author (2008). Published by Oxford University Press. All rights reserved
Practice Point |
Trade mark warranties in M & A transactions
Legal context: As the credit crisis wanes and corporate liquidity becomes more available, deal making is sure to return to past levels of activity. Ask any of these dealmakers why they made their acquisitions and inevitably they will return to the ‘brand's equity’. Trade mark assets, however, are very unusual types of property which require finely tuned warranties in merger and acquisition (M & A) transactions in order to prevent costly set-backs and even litigation.
Key points: • Both buyers and sellers in an M & A transaction have a mutual interest in accurately defining the trade mark assets included in a deal, but their interests may diverge when it comes to negotiating certain warranties.
• Buyers should seek wide ranging assurances of trade marks' validity while sellers should try to resist giving general warranties beyond their knowledge.
• Prudent negotiators should also consider the duration of warranties and negotiate limitations on breach of warranty claim amounts.
Practical significance: Many corporate deals are agreed upon in haste and neglect key trade mark issues that can cause serious problems and costly surprises years after a deal has closed. Through proper due diligence and clearly worded warranties, this risk can be reduced.
Key Words: From a buyer's perspective, an accurate definition of trade mark assets is essential in order to negotiate warranties. • There are various types of warranties concerning a mark's validity, limitations on right to use, and geographic scope. • Trade mark registrations can be subject to attack and other problems can lie unnoticed by a seller, which can be unearthed only through meticulous due diligence.
* David Ehrlich, a member of the law firm of Fross Zelnick Lehrman and Zissu, P.C., New York, NY, USA, focuses on trade mark work for major companies in many industries, including due diligence and counselling in M & A transactions. Email: dehrlich{at}frosszelnick.com