Trademark in the context of a company sale
How it affects company valuation and what to look out for during a transfer
During due diligence, the buyer of a company will ask who owns the brand. If a trademark is registered in the name of the managing director instead of the company, or was not transferred after registration, it can reduce the company's value and delay the sale. Lawyers from the Prague-based ARROWS law firm will verify the status of trademarks before the sale and set up the transfer so that the buyer gets what they are paying for, ensuring the sale is not delayed by registrations or licensing.
Key takeaways
Are you selling your company and addressing trademark protection?
Why the buyer asks about the brand and what they are looking for
For a company selling under its own name, the brand is often its most valuable intangible asset. The buyer pays for it, but must be sure they will actually acquire it. During due diligence, they will therefore compare three things: who owns the trademark according to the registry, how long and how the company has been using it, and whether it is encumbered by third-party rights, such as a license or a pledge.
The difference between "the company uses the brand" and "the company owns the brand" is precisely what the buyer is looking for. A company can use a brand for years without owning it because the application was filed in the name of the founder, a shareholder, or a former managing director. The buyer sees this situation in the registry of the Industrial Property Office and immediately asks how the brand will be transferred to the company. The answer affects both the price and the transaction timeline.
The impact on the price is usually direct. The buyer may demand a price reduction, a specific indemnity, or the fulfillment of a condition precedent, i.e., the transfer of the trademark to the company. All three options cost the seller time and money. It is also important that a buyer who finds no issues will not demand guarantees, and the sale will proceed smoothly. Having your brands in order is therefore an investment, not an expense.
The broader process of selling a company, from intent to post-closing settlement, is discussed in the article on how to sell a company step by step. It shows that reviewing intellectual property belongs in the preparation phase of the sale, not when the buyer starts due diligence.
Trademark transfer: form, effects, and registration
A trademark may be transferred independently of the transfer of a business enterprise, for all or only some of the goods or services for which it is registered, and the transfer must be made by a written agreement (Section 15 of the Trademark Act under Czech legislation). The transfer can be limited to a part of the goods or services, which may result in rights to the same sign belonging to different owners for different ranges of goods or services.
A contractual transfer only takes effect upon registration in the registry. Until the registration is completed, the current owner remains the owner of the trademark, even if the agreement is signed; either party to the agreement may apply for registration (Section 15(3)). The Office will carry it out within one month from the date it receives all documents necessary for the transaction (Section 15(5)), so any defects in the application will extend this period. The buyer therefore requires that the registration be completed, or that the seller undertakes to secure it.
The application for registration of the transfer contains details of the current owner and the transferee, and indicates whether the trademark is being transferred for all or only some of the goods or services, along with the class number, and is accompanied by the transfer document or an extract thereof. Good preparation for the sale therefore includes preparing this document so that it can be submitted immediately after signing.
When selling a company, one of three paths is chosen. In a share transfer, the trademark remains with the company and the buyer acquires it indirectly, it just needs to be registered in the company's name. In an asset sale, the trademark is transferred by a separate written agreement with registration. By purchasing the business enterprise, the buyer acquires everything that belongs to the enterprise as a whole, so the trademark transfers with the enterprise unless the parties exclude it (Section 2175 of the Civil Code under Czech legislation); even so, the change of owner must be registered in the registry.
What the buyer finds: four typical findings
The first and most common finding is a trademark registered in the name of a managing director or shareholder instead of the company. The founder filed the application in their own name because the company did not exist at the time or no one addressed it. Today, the company uses the brand, but the owner is an individual. This may not be an error in itself, but the problem arises when ownership does not correspond to the intended structure and the relationship between the owner and the company is not contractually regulated. Rectification requires the cooperation of this individual, which can be difficult if the company parted ways with them on bad terms.
The second finding is a missing transfer after registration. The company bought the trademark from a previous owner, but the transfer was not registered in the registry, so under the law, it did not take effect. It is different in the case of a transition of rights, typically during a merger, where the assets of the dissolving company transfer to the successor: the trademark transfers, but the transfer is only effective against third parties upon registration (Section 15(4)). In both cases, the buyer therefore requires registration before signing, or a specific commitment from the seller.
The third finding is an uncovered scope of goods, services, or territory. The company sells software and consulting, but the trademark is registered only for software, or only in the Czech Republic, while the company also operates abroad. The list of specific goods and services in the registration is decisive; classes are merely an administrative classification. The buyer only values what is protected and will demand that the uncovered part be registered or reflected in the price. It is therefore advisable to check the coverage in time.
The fourth finding is an unused trademark. If, within five years of registration, the owner has not put the trademark to genuine use for the goods or services for which it is registered, or if such use has been suspended for an uninterrupted period of at least five years, legal consequences apply unless there are proper reasons for non-use (Section 13 of the Trademark Act under Czech legislation). A third party can then apply for revocation of the trademark, and to the extent it can be revoked, the owner cannot rely on it in court against third-party use.
Most of these findings can be corrected if they are discovered in time. A transfer to the company, registration of the transfer, or a supplementary application takes weeks or months, not years, and costs a fraction of the price the buyer would demand as a discount. If the findings only emerge during due diligence, the seller's negotiating position weakens because the buyer knows that time is working against them.
Licenses and pledges: third-party rights to the trademark
The right to use a trademark may be granted under a license agreement for all or some of the goods or services, as exclusive or non-exclusive, and the license is effective against third parties upon registration in the registry (Section 18 of the Trademark Act under Czech legislation). The buyer therefore examines existing licenses and, in particular, whether they are registered and thus effective also against the person who acquires the trademark.
A license without a written agreement is a classic finding in due diligence. The law only requires a written form for an exclusive license and for a license to be registered in the registry (Section 2358 of the Civil Code under Czech legislation); a non-exclusive license can therefore also arise from an oral agreement. However, the buyer will ask whether the use can continue, under what conditions, and for how long. Without a written agreement, it is impossible to prove the scope, duration, or quality control, and the seller loses negotiating leverage.
A trademark can also be the subject of a pledge, which arises upon registration in the registry. It can also be encumbered by another right in rem or enforcement of a decision, and it can be included in the bankruptcy estate (Section 17 of the Trademark Act under Czech legislation). If the trademark is pledged to a bank, the buyer usually requires the release of the pledge; otherwise, they would buy a brand encumbered by a third-party right. According to the pledge and loan documentation, the consent of the pledgee may also be required for the transfer; the Trademark Act itself does not stipulate such a condition.
In corporate groups, it is common for the trademark to be owned by the parent or holding company and used by other members under a license. Such a structure is fine as long as the relationship is contractually regulated. To withstand the sale of a part of the group, the license should be in writing and registered. How to set up brand ownership and licensing in a holding company is discussed in a separate article, which also includes recommendations on how to avoid errors that buyers find during due diligence.
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How to prepare for the sale: seven steps
The first step is to request an extract from the trademark registry for all the company's brands and compare the owner in the registry with the actual state. Discrepancies are more common than expected: a change in the company name, a merger, a transfer between group members, or an application filed in the founder's name. Every discrepancy needs to be corrected by registration or transfer.
The second step is to check the coverage. The seller determines for which specific goods and services and for which territories the trademark is registered, and whether this corresponds to what the company does and where it plans to grow. Missing coverage can be supplemented with a new application, but an older filing date cannot be obtained retroactively. It is better to make this decision before the sale rather than after due diligence has begun.
The third step is to verify use. The company proves that it uses each registered trademark for the goods or services for which it is registered, and that use has not been suspended for more than five years. Use with the consent of the trademark owner is also considered use (Section 13(3)), which helps in cases where the brand is used by a subsidiary. Proof of use should be archived.
The fourth step is to organize licenses: convert oral agreements into written contracts and register the licenses in the registry. The fifth step is to resolve pledges. The sixth step is to prepare the transfer documentation, i.e., the transfer document and the application for registration, so they can be submitted immediately after signing. The seventh step is to incorporate the status of the brands into the purchase agreement: representations and warranties, conditions precedent, and indemnities.
The basic questions of how to register a brand in the first place, i.e., how to choose the sign, classes, and the application process, are summarized in the article on how to register a trademark. A company that is just establishing a brand can prevent most of the findings described above right at the registration stage.
What having brands in order looks like and when a buyer becomes alert
For established companies, having brands in order is common: all trademarks are registered in the company's name, each has a record of use, licenses are in writing and registered, and the purchase agreement contains a representation on the status of the trademarks. A seller who has this in order reduces the number of warranties they will have to provide and shortens the due diligence period.
A warning sign is a company whose brand exists only in the visual form of a logo and no one knows its protection status. The second signal is an application filed by an agency or a website provider in their own name. The third signal is rebranding without a new application, meaning the old trademark does not cover the new design. The fourth is a dispute over a similar brand that has not been resolved by agreement. This situation is analyzed in the article on trademark protection and unfair competition.
For companies without their brands in order, the buyer often secures stronger contractual instruments: part of the price is held in escrow until the trademarks are transferred, or the seller's liability for deficiencies is increased. This puts the seller in a weaker position, and every week of delay costs money. Therefore, it pays to ensure everything is in order in time, ideally a year before the planned sale.
The value of a brand is also affected by how long and to what extent it has been protected. A long-registered, used trademark reflected in the price is a certainty for the buyer, whereas a fresh application that is still pending is a risk. The seller should be able to document the history of the trademark: filing date, registration, use, and any disputes.
It also helps to designate one person responsible for brands, whether it is a lawyer or a marketing manager. Such a person monitors deadlines, registrations, and use, and can answer the buyer's questions during the sale without lengthy searches. Companies that do not have such a person often discover a problem only when it is too late for a cheap solution.
Four seller mistakes that the buyer will reward with a discount
The first mistake is postponing the trademark transfer to "after the sale". The seller assumes that the buyer will arrange the transfer themselves. However, the buyer requires that the trademark belongs to the company already at signing, and otherwise may reduce the price or withdraw from the transaction. The cost is delay and negotiation that could have been avoided.
The second mistake is relying on the brand being "in the logo". The company has a logo, but the protection applies to the word mark or vice versa. During rebranding, they then find out that the new design is not protected. The buyer asks what exactly is registered, and the company has no answer. Good preparation includes an inventory of registered marks and a comparison with what the company actually uses.
The third mistake is leaving a license oral. A subsidiary or partner uses the brand without an agreement, and during the sale, it turns out that no one knows under what conditions. The fourth mistake is overlooking a pledge: a bank has a pledge on the trademark, and the seller does not alert the buyer to it until the buyer finds it in the registry themselves. The Prague-based legal team at the ARROWS law firm will therefore review the status of the brands before the sale begins and prepare corrections so that the buyer finds nothing to complain about.
Trademark risks when selling a company
Where the seller fails | How ARROWS protects them |
The trademark is registered in the name of a managing director or shareholder. The buyer requires transfer before signing. | We will prepare the transfer agreement and the application for registration. We will secure the cooperation of the original owner. |
The transfer after registration was not registered. The original owner is still in the registry. | We will file the application for registration of the transfer and verify the registration. We will document the history of transfers. |
There is a lack of coverage for goods, services, or territory. The buyer only values the protected part. | We will check the coverage and propose supplementary applications. We will reflect the coverage in the purchase agreement. |
The license is only oral. The scope and conditions cannot be proven. | We will draft license agreements and register the licenses. We will set up quality control. |
The trademark is pledged or unused. The buyer requires release or may reduce the price. | We will negotiate the release of the pledge and document the use. We will prepare representations and warranties. |
Final summary
A trademark is often the most valuable intangible asset when selling a company, but only if the company actually owns it. The article showed that a trademark transfer requires a written agreement and registration in the registry, that licenses and pledges should be documented in writing and registered in the transaction, and that the buyer's most common finding is a trademark whose owner does not correspond to the intended structure.
For company management, this implies a clear procedure: one year before the sale, request extracts from the registry, correct owners and coverage, organize licenses and pledges, and prepare transfer documentation. Postponing these steps leads to the buyer finding the problem themselves, and the seller having to resolve it under pressure and at a higher cost.
The Prague-based legal team at the ARROWS law firm reviews the status of trademarks before a sale, prepares transfers and licenses, conducts negotiations with the buyer, and incorporates the status of the brands into the purchase agreement. Write to us at consultation@arws.cz or explore our service for company sales and transaction advisory.