Buyer Beware: Acquiring a Product Line May Put Trademark at Risk

Spinning off an existing product line as a separate on-going business poses risks to trademark rights if the buyer and seller will use the same mark on related goods after the spin-off. The trademark cannot be sold outright with the spun-off product line because the mark would no longer identify a single source of the trademarked goods and could be deemed abandoned. The buyer, however, will pay a premium only if it acquires the perpetual right to use the mark in its new business. A frequently-used means of balancing these interests is an exclusive, royalty-free, perpetual license, which allows ownership of the mark to remain unified (protecting the seller's interests) while permitting the buyer to use the mark. Such a license typically requires the licensee/buyer to submit to the licensor/seller's quality-control standards, with the licensor having the right to terminate the license if those standards are violated...