In today’s troubled economic times, companies that fall may want to declare bankruptcy. Companies with registered trademarks may want to continue to use the trademarks and not lose any value in the brands. However, protecting the trademark from the beginning is paramount – not just registration, but understanding that it is an asset that other contracts may affect and that it must be treated like any other asset in bankruptcy.

The consequence is that there may be a loss of registered trademarks otherwise. This is especially true in a scenario in which 1) a registered trademark is not listed on the asset sheet, 2) the registered trademarks are assigned to a third party not involved in the bankruptcy, and 3) there is an agreement for a creditor to have a security interest in the trademarks.

Here is a lightly-edited transcript of the video:

Several years ago, I had a client who did something that you shouldn’t do once the company went into bankruptcy.

Number one, the trademark was not actually listed on these set of assets that the company had .  All registered trademarks should be on this set of assets once a company goes into bankruptcy, whatever chapter is being filed.

Number two, once that company went into bankruptcy, the trademarks were “transferred” to the wives of the business owners.  We call that a fraudulent transfer because the wives aren’t actually running the business.

Number three, there was an agreement.  One of the creditors of the company had the ability to take the assets of any particular part of the company and, of course, sell it in order to get money back. So therefore at the end of the bankruptcy, none of the debt was discharged.

I’m coming from the other end looking at it as well, what can, what can happen if somebody senior to that particular company comes around in trademark use and calls it trademark infringement, which is exactly what happened.

In today’s tough times for economic activity, we need to keep this in mind.

Trademarks aren’t specifically mentioned in the bankruptcy code and therefore there are some special, they do work differently than other parts types of intellectual property, but we do need to still remember their assets of a company, so registered trademarks need to be listed on the asset sheet when a company files bankruptcy and, two, if those trademarks are subject to any other agreement that the company has, they’re going to be treated with the same type of property rights that any creditor would have for any other piece of property in that particular business.

Trademarks are treated specially when there’s a license agreement and you know that that’s a topic for another time. Apart from that, they’re assets of the business treat them like they’re the assets of the business and therefore if your company goes into bankruptcy during this particularly tough time, they can be adjudicated properly just like every other asset of the business.

I’m Anthony Verna, managing partner of Verna Law where we focused on IP and advertising law, but chances are you already knew that by clicking on this video. Thanks very much, and I’ll speak to you soon.