Many new entrepreneurs have a great idea for a business and jump right into it before setting up a business entity like a limited liability company or a corporation. This may include entering into some initial contracts, making deals, and even applying to register a trademark. In fact, in 2017, 19% of all trademark applications filed with the USPTO were filed by individuals.
However, many of those same entrepreneurs decide to take advantage of legal and tax benefits of an LLC or a corporation and form a formal business entity.
|Year||TM Apps Filed by Individuals||TM Filed Total||% filed by Individuals|
If you registered your trademark in your name personally (example: Sawyer, Tom INDIVIDUAL) and you intend for your new business to own the trademark, then you need to transfer the trademark and the trademark registration through a formal Assignment of Rights.
The single biggest mistake made by new entrepreneurs in transferring their trademarks is this:
A trademark assignment is not the same as a standard asset transfer.
A trademark is not treated the same as, say, a lease in an office building. You are not merely transferring the right to use a name when you transfer a trademark, but you are transferring the underlying goodwill that the trademark represents to a business. If you do not transfer this underlying goodwill the new owner will not be able to take advantage of your past use of the name and claim it as its own. This is known as a break in the “chain of title” and can be catastrophic for a brand.
Let’s say that Homer Simpson owns a trademark and trademark registration for Homes by Homer®. He originally filed in his name, personally because he wasn’t sure if his contracting work was going to be his main income.
This trademark registration entry on the USPTO database might look like this:
Owner (REGISTRANT) Simpson, Homer INDIVIDUAL 742 Evergreen Terrace, Springfield, Oregon UNITED STATES
Now, Homer speaks with a business attorney who tells him that he would be personally liable for any mishaps that occurred while he was working on a house and recommends that he form a limited liability company and have that company own all of his business assets.
Homer starts HOMES BY HOMER LLC by filing with the state of Oregon and executes an asset transfer to transfer the lease to his work truck and all of his large tools to the LLC.
But what about his trademark registration for HOMES BY HOMER?
A normal asset transfer is typically not enough to properly transfer the trademark registration. Trademark transfers, or Assignments, usually contain certain language so that anyone in the future reviewing the “chain of title” will clearly be able to show that the trademark and registration were assigned from Homer Simpson, personally, to Homes By Homer, LLC.
While this may sound simple, an incorrect transfer can be grounds for cancellation of a trademark registration.
Common mistakes when transferring trademark rights – timing, ownership & ‘what could go wrong’
Trademark assignment issues are typically not a problem until a party is relying on its federal and common law trademark rights to stop a competitor from infringing on its trademark or defending against a claim of infringement.
A savvy entrepreneur (and his or her experienced trademark attorney) can help identify these issues before they are a problem and before they are no longer correctable or fixable through re-filing.
One of the common issues with trademark assignments is timing – a standard trademark assignment reflects that a transfer will occur when the assignment is signed. But what if the transfer already occurred? Sometimes even years prior? There are mechanisms for remedying this exact situation, but there are many potential issues, for example:
- Did you inform investors/banks/anyone else that one company owned the trademark, when you actually owned it?
- Did you sign any contract in which the ownership of a trademark or a trademark registration was a part of the term of the contract?
- Did you claim income brought in through use of the trademark personally, or through an LLC?
- Did you sign an asset agreement that mentioned “Intellectual Property,” or “trademarks”?
These are all complicated questions and the answer to these would determine what method you would need to use to properly maintain your “chain of title.”
In some cases, it may be through a nunc pro tunc assignment, which is an assignment that memorializes, in writing, a verbal or implied assignment that occurred. In some cases, that may mean refiling the trademark in the name of the correct party.
In some cases, an ownership issue is correctable with the USPTO. However, as we’ve written about in the past, in some cases, ownership issues are fatal to a trademark application and its resulting trademark registration.
There is no one size fits all solution and you should immediately consult with an attorney to see which method would be proper for your business.
The main take-away from this article should be this: Don’t assume that your trademark and trademark registration will ultimately change ownership when you create a new business.
If and when you create a new business, discuss the situation with an experienced attorney before signing contracts, using the trademarks in business deals, or signing anything with the USPTO related to the trademark.