Starting and growing a beauty brand requires founders to weigh options and make urgent business decisions every day. The sheer weight of that responsibility can be overwhelming and those topics that are more theoretical and less immediately business critical often get pushed to the side or added to the “I’ll Get to It Later” list. However, when the time comes to court investment or eventually sell the company, it’s the “I’ll Get to It Later” list that often rears its ugly head. Trademark and brand protection strategy tends to land on that list more often than not. In my experience working on numerous transactions in the beauty space, these three brand protection issues are responsible for most of the due diligence headaches.
Trademark Ownership
Most founders recognize that obtaining a trademark registration early on for the company name and perhaps a flagship product in the company’s home jurisdiction makes sense. Often the brand’s name is the subject of a trademark application well before a formal corporate entity is set up. However, once the formal entity exists, trademark rights should be assigned to the that entity as soon as possible. In some jurisdictions, namely the US, there can be limitations to the types and terms of assignments that can be done at various stages. This subject is complex enough that it could make up the substance of another full article, but for purposes of this one, founders should take note of the ownership of the their trademarks and consult counsel to make sure that the brand is a recorded asset of the company and not its individual founders or a predecessor entity. If an assignment is not possible, a license agreement between the owner and the company actually using the trademarks is essential. Having this conversation before the issue is raised in due diligence makes for a healthier trademark portfolio, a smoother transaction and in some cases a higher valuation.
A Portfolio Worth Buying
At the dawn of your brand, it makes sense to start local where trademarks are concerned. Most companies don’t launch with immediate international expansion plans. However, when the time comes for outside investment, investors typically want to see that a path has been cleared for international sales. While investors rarely expect young companies to have expansive trademark portfolios, they do expect to see that some thought has been put into international markets and that the company owns trademark rights in the most relevant product categories and the most desirable locations for expansion. What those locations are can vary depending on the type of product and its target customers. For example, if a product appeals most to a specific skin or hair type, then a company will want to make sure their trademark protection reaches into the locations where most of the likely international customers live. That said, most companies can position themselves well for investment by targeting 4 or 5 key jurisdictions most commonly of interest for beauty brands. When investors see that the company has registered their trademarks in those key jurisdictions, investors have comfort that the brand has what it needs to take the next steps.
Don’t Be An Ostrich
Not all trademark and brand protection efforts are always smooth sailing. Navigating issues like trademark squatters, grey market sellers and counterfeiters is a common headache in the beauty world. It is normal for a brand to find out that some nefarious character has beat them to the trademark office in an important foreign jurisdiction. This type of problem can be complex and require plans of attack that can take many steps and many years. While investors don’t expect trademark portfolios to be problem free, surprises are not ideal. When investor counsel identifies a roadblock in a certain jurisdiction that the brand doesn’t already know about, it can be an uncomfortable conversation at best. Companies should get into the habit of keeping tabs on international trademark activity and solving as many issues as they can when they arise. Ignorance can only be bliss for so long. When the time comes to disclose these issues during diligence, a company that has an easily articulated plan of attack is viewed more positively than a company who is caught with their head in the sand.
Conclusion
No amount of advance planning can avoid all trademark pitfalls but delaying the development of a brand protection strategy can be a dangerous game. Getting out in front trademark ownership issues, international expansion strategy and enforcement may take up resources a company doesn’t think it has. However, putting off these issues until interested investors are at the door can result in unintended negative consequences. Business minded legal counsel can design company specific strategies for all of the above without breaking the bank.
