Drafting an Inventory Trademark License

When purchasing the assets of an operating subsidiary or division of another firm, the purchaser may acquire an inventory of finished products. If the transferred assets do not include the trademarks and trade names used in connection with the finished products, the purchaser will need to enter into an inventory trademark license with the seller that provides the purchaser, as the licensee, with the necessary rights to promote, market and sell the products and thus realize some revenues with respect to those products. The trademarks and trade names covered by the license will depend on the circumstances; however, they will typically be limited to those marks and names that are strongly identified with the seller and which the seller may wish to continue using in other parts of its business. An example would be marks that actually identify the corporate name of the seller as opposed to marks that are unique to the products.

While most of the terms and conditions included in this type of license would be similar to any other form of trademark license, there are some material differences based on the context of the transaction. First, since the seller-licensor has presumably been paid for the products under the terms of the asset-purchase agreement, the license itself would be fully paid and the licensor would not be entitled to any additional royalties. Second, the license should normally be exclusive and restrict the seller-licensor from directly or indirectly competing with the efforts of the licensee to promote and sell the products. Third, the license should be for a limited term and should terminate once all of the products have been sold. Since the license is being granted for the limited purpose of facilitating the sale of a finite volume of products, the licensee should not have any right to transfer or assign its rights. In addition, of course, the licensee should assume the customary obligations to protect the licensed trademarks and refrain from taking any action that would damage the goodwill associated with the marks.

The content in this post has been adapted from material that appeared in Business Counsel Update (October 2006) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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