All Questions in Trademark Ownership >> Trademark selling or licensing:  what to do?

Trademark selling or licensing:  what to do?

Posted by . updated on 11/11/2009
I'm hoping one of you may have been in a similar situation.  I am in touch with an attorney, but I'm looking for more of a business perspective rather than a legal one.

Say you have a trademark and website, the trademark being common law because you've been using it solely for the past 3 years.  Now say that someone not only tries to register your trademark (which they can't...I know that much), but they launch a site with similar services under the same name.

Now say that you really haven't been using this business much, it never made a whole lot of money, and don't care much about it and would really rather just sell it or license it.  The competitor seems to be much more hungry for success, has more backing capital than you ever did, and seems to be poised for at least temporary success.

BUT, also say that you've kinda got them on the ropes because all of their search traffic and whatnot comes right to you because of your lengthy established time on the web.  Do you sell everything outright for a flat fee?  Do you sell the domain name and license them the trademark?  Do you license both so you maintain ownership in case their site blows up much bigger than you think and you can get paid indefinitely?

It's tricky because I could either make a decent one-time chunk of change and be done with it, or gamble on their success and the assurance of long-term income.  Personally, I don't like the looks of their odds (very niche market, I know from experience) so I'm more inclined to just take the money and run.

Has anyone been in this situation and could give me their thoughts or what other things to consider?  Any help is truly appreciated!!!
Answers (17)
 
bcapehart
RHCP -

Just a few thoughts.

I've been involved with many different transactions involving licensing and the sale of IP rights.  Based on these experiences, most of my clients base their answer to the question of sell or license, in large part, on how involved do they want to be after the transaction is complete.

A sale involving a single payout is great, in that once it is over, its over.  But, the downside is if the business "takes off" you don't get the financial benefit. 

If however, you establish a license between you and the other party, you may see higher dollars if it grows, (less if not) but you will always be attached to them for the lift of the agreement irrespective of how the business is going.  As a licensee, you have obligations regarding monitoring their use of the mark.  If you do not monitor or otherwise exercise control over the mark, you may forfeit your rights.

Some clients are ready to sell as they do not want anything else to do with the business.  Some clients do not want to be invovled as they will have a tendency to want to be a part of the business but cannot do so.  Still, others don't mind have another person running the business.

If you sell, you can always seek to have a buy-back provision in the event of certain events, such as bankruptcy or the closing of the website.  You can also see to have installment payments based on performance over a period of time.  With a sale, there are always various ways to make a deal.  Just remember, for everything you want, they will also want something in return, i.e typically a reduction in price.

I don't know know if this is the type of information you were looking for.  I hope it helps in any event.
Brent
 
 
rhcp11
Brent, thank you very much for that information, it's exactly what I was looking for.  I spoke with a law school friend earlier today and he was similarly convincing me that while I may not get as much up front, it may be smart to opt for a long-term arrangement to secure a steady stream of income.  What exactly do you mean about being required to have a say in the business or risk forfeiting my stake?
If I were to license this particular trademark, I'd probably release any influence on the day to day operations and just expect a percentage check.  I'd also add a buyback option in case they tank, and would it be smart to add a one-time payout option if their company were to be sold/acquired by a larger company?
Does anyone have recommendations on what's a typical agreement for a small/medium web-service business, i.e. something like:
5% of gross revenue, 20% cut of any sale of the company, and what would be reasonable for a buy-back amount?

My friend recommended the above, but I really have no idea what to ask for.   Huh
 
 
bcapehart
RHCP -

When licensing a tm, the licensor needs to exert some level of quality control over the licensee's use of the tm.  If not, the license may be viewed as being a naked license.  Generally, a trademark indicates the origin of a product. Consumers rely upon trademarks as assurances of the quality of goods sold bearing a certain mark.  For example, you know what type of quality of product to expect when you buy a hamburger at a restaurant having the "golden arches."  It doesn't mean good quality or bad quality, just an expected level of quality.

A trademark licensing agreement is a contract that grants one party the right to use the other party's trademark and should contain language requiring the licensee to meet certain standards regarding the quality of the goods.  Without such language, the licensing agreement would be considered a "naked license."  This is a problem in that the courts have held that such an agreement is inherently deceptive (no control of quality by owner of mark causes deception of the public) and constitutes abandonment of any rights the tm owner may have had in the mark.

So, if you were to license the mark, you would need to provide some amount of quality control over the licensor's use of the mark, i.e. stay involved (not necessary a lot, but some) with the licensee to some extent, for the life of the agreement.  If not, you run the risk of losing whatever rights you had in the mark.

I hope this clarifies things for you.
Brent
 
 
rhcp11
Thanks Brent, that helps quite a bit.  I'll hopefully be having my first unofficial negotiation this afternoon, so I'll keep these words close to heart.  I should hopefully know the scope of the legal involvement I'll need after todays conversation.
 
 
rhcp11
Contact was made and of course, since the other guy didn't do due diligence to find out if his newly launched business was infringing, he's not exactly happy about me popping out of the woodwork.  But, I told him that I have no intent to shut him down or keep him from doing business, I just want a fair share of what I created and spent blood, sweat, and tears in building.  I know he fundamentally understands, but I'm hoping he'll be reasonable.

It's safe to say he doesn't have enough money to buy me out completely, so I'll probably work with him to concoct a long-term deal.  I just have to figure out what that would be, negotiate it with him, and then get it drafted by a lawyer.  What's a fair estimate on lawyers fees for this type of thing?  If I'm only making $50/month from this but it costs me $5000 to get a contract drafted, I don't really see the point.

 
 
JSonnabend
Well, the economics of the situation aren't too good, to say the least.  The legal fees you might encounter depend in large part on who you select to handle the matter for you. 

By way of example, I am on the (very) low end of NYC attorneys with my experience level.  With me, you'd face about $500 of fees for drafting the agreement and then hourly fees of $205/hr. for any negotiations (which might not amount to much). 

Of course, since the other party is an infringer, if I understand correctly, you might seek to shift this cost to him.

- Jeff
 
 
rhcp11
I was getting some advice from a 3rd year lawschool buddy in NYC, as a matter of fact, but since he doesn't specialize in IP, he was deferring some questions to an associate and the answers were getting watered down through the "telephone game".
As it turns out, I have an acquaintance that specializes in entertainment and IP law so he's willing to draft the licensing agreement for a fair price, like in the range you mentioned.  It's a friendly deep discount since he's a VERY good lawyer.

He also confirmed that I have every right to my trademark but should follow some basic steps, such as filing it immediately with my state, in order to fully protect myself against the other guy.  Time is of the essence.

As for the lease/license, he says that these things vary so widely from case to case that it's really up to me and the other party to decide what's fair for our situation.  Of course, I'll include some features like buyback and forfeit (if there's a high enough payout) clauses.  Stuff like that.

Now, I'm just hoping the other guy cooperates and plays nice in the sandbox.  Neither of us has the resources (i.e. lawyers fees) to take this to litigation!!!!
 
 
JSonnabend
Quote from: rhcp11 on 02-27-08 at 08:43 am
It's a friendly deep discount since he's a VERY good lawyer.
Well, it might be a "deep" discount because he's an expensive lawyer.  I've worked at some of the largest firms in NYC with some of the most expensive attorneys.  Price is not a reliable measure of skill level, unfortunately (not to suggest that your acquaintance isn't top notch, but only to make the more general point).

In any event, I'm glad to hear you've found someone to help you out.  As a matter to address with him, you might want to ask why he's suggesting state filing of your mark as opposed to federal.

- Jeff
 
 
rhcp11
heh, because it'll cost $500 for him to file a federal app for me, whereas I can file the state one myself for $50.  Either way, it gets my claim to the mark "on paper" and beyond the realm of common law.

The other guy filed federally and it will be up for contention in March.  I'm advised that having filed an app in my state will help if I have to contend his mark application.  I've already been berated for not filing years ago, but the price always daunted me.  It was expensive enough (to me) to establish as an LLC and I wasn't making much $ from the business at the time.

And yes, he's both expensive AND good!  Smiley
 
 
JSonnabend
I'm not sure I'm following any of this.  First, there's nothing stopping you from filing a federal application yourself.  Second, the state registration, filed after the filing date of the other party's federal application, is likely to have little effect in your opposition.  Finally, having a state registration doesn't take the mark "beyond the realm of common law" in any meaningful way unless all the relevant TM use for both parties is solely in NY, which is clearly not the case based on the other party's federal application.

Make sure you understand your attorney's advice correctly, including the pros and cons of your various options, before proceeding.

- Jeff
 

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