Brand Protection for Companies Considering Succession

There comes a time.  Maybe you’ve simply grown tired of the grind.  Or possibly you realize your company may never be worth more than it is now.  Regardless, you’ve decided to consider selling your business.

There are many professionals who can assist businesses that want to be acquired.  I typically hear them say that it takes about 3-5 years to get a company ready for sale.  I totally agree with this timeline from the perspective of brand protection.

How Buyers Value a Brand

There are several ways to look at how brand protection impacts you in the sale of a business.  The first is to ask why someone would buy your business versus starting a competing company.  Much of what you do can be duplicated; it is often the intellectual property aspects of your business which set you apart.  In the world of brand protection, the brand recognition and loyalty are key aspects which make your specific business desirable.  It would take years for another company to reach a similar level of brand awareness, if it could ever do it.

Another way to view your business is to consider the due diligence a potential buyer would perform when evaluating your business.  How do you look on paper?  Are the rights that are shown on paper as valuable as they initially appear?  This vantage point considers the thorough review that buyers will implement and makes sure you are ready to meet this level of scrutiny.

No matter how you view your brand protection, the bottom line is that the buyer wants to know that it is buying something of value.  To this extent, it wants certainty that you have rights in your brands, and the rights are secured in a way that the buyer can use the brand in the way they want to use it.

Brand Rights as Property Rights

Before I go much further, let’s imagine property rights connected with a different type of sale—the sale of a house.  Let’s assume you own a house sitting on 2 acres.  The front acre contains the house, lawn, driveway and other normal improvements.  The back acre is totally overgrown.  You have chosen not to use the back acre, but a buyer may want to put in a tennis court, pool or other items back there.  They would want to make sure that you actually owned that back acre and that such improvements were allowed according to local zoning laws, covenants, etc.  Their title search would likely confirm this and have a major impact as to whether or not they bought your property.

The same is true for rights in a brand.  Maybe you only use your brand as the name of a restaurant in one part of the country.  The buyer may want to expand nationwide and sell frozen foods under that name in grocery stores.  What will this buyer look for?

First, the buyer would want to see that you have registrations in place for the name of the restaurant.  They would probably want to see a variety of registrations.  One for the name; one for the logo; one for the unique shape of the restaurant; one for the stylized version of your name; et cetera.  They would also look to see what items these registrations cover.  They expect to see that you’ve covered “restaurant services.”  Given their interests, they’d also like to see that you’ve covered a variety of food items too.  Bonus points if you’ve already gotten registrations covering frozen foods.

Next, the buyer wants to know that these registrations have been policed and enforced.  It’s one thing to say that your registration has not expired—that’s simply a comment on how much time has passed.  Have you looked to be sure no one is using similar brands?  Have you contacted any companies that have used similar brands to be sure that you have maintained your brand rights?  The answers to these questions turn a registration into a property right.

Case Study: Acquiring an Unenforced Brand

Several years ago a company approached me because it had received a demand letter from a large company.  The sender was claiming that it held exclusive rights to a brand that was similar to the name my new client had been using for years.  The sender even sent a copy of a registration supporting these rights.  Upon examination, I noticed that the large company had acquired the registration a year earlier.  The prior owner had done little to enforce its rights.  There were several registrations for similar brands in this industry, and these other companies also used this name on their products.  My message to the large company?  Sorry, I don’t care if there is a new sheriff in town.  The company you purchased the registration from did not enforce its rights.  The rights you’ve acquired are not worth much.  Your demands are hollow.  My client will not change its brand.

If your buyer has any interest in your brand, it will scrutinize your rights, which includes your enforcement of those rights.  You better act fast if you’ve not registered these rights.  If you have registered your rights, now is the time to carefully review the marketplace to be sure there are no similar brands existing which could cause you concerns.