News / Resources

Baker Hostetler New York partner Robert B.G. Horowitz authored the article, “Under the Hammer: Are Trademark Auctions Bane or Boon?,” which appeared in the April/May 2011 issue of World Trademark Review, a U.K.–based publication of international renown.

According to Horowitz, “Whether through bankruptcy proceedings due to recent economic conditions or companies identifying new business models, trademark auctions are more visible now than ever before. Yet there is much to consider before raising your hand to reserve those desirable trademarks.”

Horowitz asks the question, “What do the trademarks CIRCUIT CITY\KB TOYS, SHEARSON, MEISTER BRAU and HANDI–WRAP have in common? He notes that all were recently offered at trademark auctions—the first two marks were offered as part of liquidations in bankruptcy and the others were offered in an auction of marks for which no prior use was made by the seller. In the article, Horowitz cites U.S. trademark law and the warning of caveat emptor (buyer beware) and how it is applicable in both settings. He also explains the preventive measures that a prospective purchaser can take in order to attempt a safer purchase.

According to Horowitz, “There are essentially two types of trademark auctions. The more traditional is from a bankruptcy estate. A trademark that is not personal in nature (i.e., an individual's name) is part of the bankruptcy estate that may be offered for sale by a trustee in bankruptcy. Trademark offerings in bankruptcy proceedings are based on marks that have been used in the past.” In the article, Horowitz also examines a new trend in the United States, pioneered by Brands USA Holdings and its auctioning of previously used trademarks that have been abandoned and are now the subject of new applications filed with the US Patent and Trademark Office (USPTO) based on an intention to use and for which no current use exists.

Horowitz offers the following cautionary steps and best practices for buyers of trademarks at auction:

• Conduct a trademark search to determine whether the mark under consideration is available for the goods/services of interest and whether use of the mark might infringe on the rights of others.
• Be sure to check the prosecution history of the mark to be acquired.
• If conducting a valuation of a mark in a bankruptcy estate, understand that the results may be inaccurate.
• Try to obtain representations and warranties regarding the seller's ownership of the mark (and domain names, if applicable), the validity of the mark, the lack of prior assignments, existing licenses or other encumbrances on the mark, the lack of threats of infringement against the mark and non-infringement of the mark by others.
• Try to obtain some physical assets associated with a mark that has been used, so that there is physical evidence of goodwill of the mark being transferred.
• If acquiring an intent-to-use application:
  • research the applicant to see whether the mark and goods/services for which registration of the mark is sought fall within its business activities so that a reasoned determination can be made as to whether the applicant has a bona fide intention to use the mark;
  • determine whether the applicant has a written business plan or other written indicia of a bona fide intention to use the mark;
  • if taking a license before assignment, carefully draft the license with the applicant to ensure that quality control is provided for and to have the applicant exercise quality control;
  • obtain an undated assignment for subsequent recordation with the USPTO; and
  • file a trademark application for the mark acquired for the goods/services of interest to the purchaser, so that if the seller's underlying application is attacked, the purchaser has a fallback position.