Money matters

While trademark registration and litigation are troublesome, the financing aspect of the two is even more so. Lawyers tell Johnny Chan what kind of monetary issues brand owners face when devising IP strategies.

Protecting your intellectual property is essential to protecting and growing your business. But it comes at a cost – and some IP owners view it exactly that way. Lawyers across the region stress that while there is an expense involved in protecting your IP, it’s also an essential part of maintaining your brand and shouldn’t be overlooked, even in the depths of a global pandemic.

“In terms of changes due to the pandemic, IP budgets for Korean corporations have remained at the similar level to last year or even [a bit higher],” says Yung Joon Kwon, managing partner at Kwon & Kim Patent & Trademark Attorneys in Seoul. “The Korean Intellectual Property Office reports actually show filing numbers are higher than before Covid-19 started.”

During hard economic times, client budgets can often drop – and, sometimes, very quickly. “The financial departments of many major brand owners in luxury and fashion goods often see the IP enforcement budgets as a cost rather than as an essential part of maintaining the brand integrity and exclusivity,” says John Eastwood, a partner at Eiger in Taipei. “For law firms, it’s important to be creative to find solutions. For example, we had a European luxury group whose enforcement team lost half their budget during an economic downturn. We worked with them to find cheaper ways to get more value.”

Christina Cavallaro, special counsel at Eakin McCaffery Cox in Sydney, says that if a client is seeking to commence proceedings in relation to the alleged infringement of a trademark, then first and foremost, trademark practitioners need to manage client expectations regarding the envisaged litigation, including:

● Legal costs of litigation must be weighed against the potential benefits, risks and commerciality of pursing enforcement proceedings;

● The differences, in procedure, remedy and cost, between litigation for registered and unregistered trademarks; and

● If the mark operates internationally, the choice of proper and/or best forum for proceedings.

Litigation may attract publicity which, if negative, could affect an entity’s bottom line while the litigation is on foot, says Cavallaro.

Ultimately, the economic value that the ownership of a trademark brings to an organization needs to be evaluated when developing a trademark strategy or considering litigation, she says.

“It can be much more expensive to enforce rights in respect of an unregistered trademark than it is for a registered trademark. Enforcement or defence litigation is much harder if a trademark is not registered, given the amount of evidence required to prove reputation,” she adds. “That is not so much the issue for a registered trademark – unless the litigation is, for instance, about expungement for non-use.”

An alleged infringer may make an application seeking security for costs against the trademark owner to ensure that their legal costs can be recovered if the action is successfully defended, she says.

“In Australia, this may require the trademark owner to provide a sum for security, which is usually in the form of a bank guarantee. If the court does make an order that security for costs be provided, then the trademark owner will not be permitted to proceed with the litigation until adequate security has been arranged.”

Another common issue for trademark owners at an operational level is whether they can afford the cost and expense of registering in multiple jurisdictions in which their trademark is used, she adds.

Key financial concepts for trademark practitioners

It is important to help clients avoid “going down the rabbit hole” with their trademark filings. “Clients will get excited and want to register in way too many classes or marks. I suppose it goes against a trademark practitioner’s financial interests to tell them to file for less but it can often be the only ethical thing to do,” Eastwood says. “For our licensing clients, we’re always of course looking at things from a financial mindset – return on investment and the time value of money. For companies centred on their patents and trade secrets, these can be considered a capital asset.”

How do lawyers “talk the talk” with those who hold a company’s purse strings to build the right team and IP programme for their clients and how do they use numbers to tell the best stories?

“We don’t use buzzwords, but when we talk with clients we make sure that we respect their priorities and their long- and short-term needs,” says Eastwood. 

The pandemic impact

According to lawyers, Covid-19 has changed many practices and decision-making processes regarding trademark financing. More importantly, a lot of the changes are expected to be long-lasting.

Some of Eastwood’s clients have found a tighter discipline on issues that they had allowed to linger in the pre-coronavirus days. “Many of our clients are simply not willing to tolerate unpaid invoices from their customers and use all the leverage they have to pry money out of counterparts that have misbehaved,” he says.

“Indeed, the pandemic caused a global recession, and we did change our financial strategies right away to fit the new norm in Taiwan,” says Benjamin Lai, managing partner at Giant Group Law Firm in Taipei. “First of all, cost saving is imperative and mandatory for us as well as for our clients, so we changed our regular monthly lectures into online events twice a month. Not only did the enrollment dramatically increase, but it also retrenched our expenditures. Online lectures bring more convenience to people’s schedules and they will be more willing to participate. The effect of it is beyond what we expected.”

Covid-19 has made a significant change in financial decisions of enterprises involving trademarks in particular and IP in general, says Duc Nguyen Xuan, managing partner at Ageless IP Attorneys and Consultants in Hanoi. “There are decisions that are temporary and also decisions that are permanent to fit into the new context.

 

● First of all, enterprises must tighten their spending policies. Expenditures should be reviewed more carefully and priority should be given to the fixed items such as salary and maintenance.

● Covid-19 could also be viewed as an opportunity for restructuring and optimizing business activities of enterprises to suit the market. A number of measures have been effectively applied by many enterprises such as:

   ○ Focusing on internal training, improving quality and knowledge for human resources, improving processes, redefining business plans and creating new visions;

   ○ Applying software and technology applications to work remotely with customers and competent state agencies while still ensuring effective and continuous interaction;   

   ○ ​Switching to working from home instead of going directly to the office, especially during the period of social distancing; and

   ○ ​Enhancing security measures to ensure that all services and data transfer while working remotely are not compromised.

 

Managing development, protection and enforcement of brands with budget pressure

“Being adaptable to changed circumstances is essential,” says Eastwood.

When developing a brand and creating a trademark, an organization may consider isolating the IP so that it is owned by a different entity to the one which is conducting the business, in order to achieve adequate asset protection, says Gregory Ross, a partner at Eakin McCaffery Cox.

“A common strategy for taxation and asset protection purposes is for the IP to be held in a standalone company, which then licenses the use of the IP for an appropriate license fee to the trading entity,” Ross says. “Provided that the licensing agreement has been properly documented with relevant termination clauses, then if the trading entity suffers financial difficulties, the licence agreement for the IP can be terminated while the separate standalone entity retains ownership of the IP.”

If an entity is looking to develop a brand on an international level, then consideration needs to be given in taking steps to register the IP in all jurisdictions where it could potentially be applied, he says.

That includes whether trademark owners can afford the cost and expense of registering and maintaining registration in multiple jurisdictions in which their trademark is used in connection with the goods and/or services covered by a trademark, he adds.

If there are budget pressures, then a proper business strategy needs to be formulated to realistically identify the jurisdictions where the IP may be applied, as opposed to simply obtaining (and paying for) legal advice and registering the IP in as many countries as possible, he says.

 

 

 

 

 At a practical and cost-containment level, IP owners should have a standard cease and desist letter available, whether in house or through a law firm sufficiently familiar with the IP owner’s business, he adds.

 

“In saying that, an entity needs to ensure that it has sufficiently achieved adequate protection on an international level as, whilst not registering in anticipated jurisdictions may be more cost effective in the short term, it may end up being more costly for an entity in the long term if it is required to challenge a registrant, a squatter or competitor trying to use the same or similar trademark in a foreign jurisdiction,” he says.

 

At a practical level, an IP owner is well-served by setting up and maintaining a formal register of its IP assets and, from time to time, doing a bit of a check in the market place to see if there is anything in the marketplace too similar its IP being sold, particularly in context of trademarks and trade names, he adds.

 

As far as how to determine trademark values for tax or financial reporting purposes and how to reconcile those values relative to other assets and total company values, Eastwood says trademarks are notoriously hard to value, and that his clients struggle with that a lot.

 

 

 

 

The best practices for negotiating licensing or other deal terms

Most licensors tolerate a certain amount of fudging of figures, but licensees who try to lie blatantly will likely lose badly in the future, Eastwood says. “For example, we’ve had cases in Taiwan where fairly large companies have attempted to pretend not to know about their subsidiary that happened to share the same CEO and the same address. One licensee’s counsel once told me that he ‘would try’ to reach somebody at the subsidiary, so I told him that should be simple because he could go down the hallway to his boss.”

 

According to Xuan, the assignment of a trademark from company A to company B is not merely the assignment of that trademark but one also needs to consider the following aspects:

 

● ​The assigned trademark must not be identical or similar to the remaining trademarks of the assignor. If so, it is necessary to assign all identical/similar trademarks to avoid the possibility of confusing consumers about the origin of the branded goods/services.

● ​The assigned trademark must not be identical or similar to the trade name of the assignor to avoid the possibility of confusing consumers about the origin of the branded goods/services. In this case, the trademark assignment is only acceptable if it falls into one of the following situations:

   ○ The assignor transfers to the assignee all the business establishments and activities under that trade name; or

   ○ The assignor eliminates the business sectors related to the branded goods/services and such elimination must be recorded in the business registration certificate; or

   ○ ​The assignor has dissolved, ceases to exist after signing the trademark assignment contract; or

   ○ ​In fact, the National Office of Intellectual Property of Vietnam may accept the assignment of trademark that is similar to the trade name of the assignor if it is able to provide documents proving that the transferor is the parent company/capital contractor (accounting for more than 50 percent of the capital contribution) to the assignee.

● In addition, when assigning the trademark, it is necessary to negotiate to transfer all other means/forms of the trademark such as domain names, the system of branded stores, etc.

● When negotiating trademark assignment, it is also necessary to note whether or not the assignment fee includes taxes payable to the government such as value-added tax or income tax.

 

Source: https://www.asiaiplaw.com/article/money-matters​

 

 

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