Lawyer Nguyen Duc Hieu – Vuong Thanh Thuy
One of the factors enterprises lay stress on in M&A transactions is the asset value of intellectual property (“IP”) which belongs to the enterprises subject to “M&A” transactions. In Vietnam, the most common IP asset enterprises are currently holding largely takes the form of trademark(s). It is an unconventional type of property which is hard for ones to evaluate, but usually has a significant value, and even serves as a decisive factor of M&A deals. Contracting parties to M&A deals always pay attention to trademarks, before they sign off the deals, partly because they have proprietary nature, and partly because in some sense, they function as a signpost pointing to development of the parties’ post-M&A business. However, in some instances, the matter of how to deal with this type of asset in the post-M&A period has not yet caught sufficient and proper attention by the enterprises, nor has been well tackled in advance, resulting in unexpected losses to these enterprises.
In this article, we will examine typical options of trademarks in the post-M&A period, analyse the advantages and disadvantages of each option, as well as suggest some ideas for enterprises in their trademark-related M&A deals.
What are options available for enterprises to elect or replace trademarks?
After M&A transactions are completed, in addition to the matter of workforce, organizational restructure and business schemes, enterprises’ selection of trademark(s) is crucial to the success, or even failure of their post-M&A business. There are three typical models through which post-M&A enterprises select a trademark: (1) sustaining the original trademark portfolio of trademarks; (2) replacing all the trademarks of the original trademark portfolio with new ones; and (3) combining the trademark portfolios of the enterprises engaging in the M&A.
What is the option of sustaining the original trademark portfolio?
Maintaining the original trademark portfolio is an option applicable to those enterprises, as a party to M&A transactions, have built up reputation for their trademark(s) in the marketplace where post-M&A enterprises will operate. Let’s take the case of”Pho 24″ as an example where this trademark remains the same after”Highland Coffee” acquired the whole chain of “Pho 24” restaurants, or the case of SCB, TinNghiaand De Nhat Banks where “SCB” has been sustained after the three banks merged together. Rarely has this option been elected if all the parties participating in theM&A transactions have had renowned trademarks for the same products(or services) in the same market because they, being as rivals, they have to choose to abandon trademarks of either of the contracting parties.
Taking advantage of the reputation of a trademark which one party has built up in the market to leverage market expansion by the other party is a wise way to invest. However, retaining an old trademark portfolio for post-M&A enterprises would also expose them to challenges. Different enterprises have different business philosophies, so it is inevitable that, when entering into M&A transactions, the parties will have to “compromise” with each other to shape a new business philosophy adaptable to the post-M&A-enterprise as well as the trademark(s) being sustained. If the new business philosophy is workable, it will gather momentum of enhancing the reputation of the retained trademark(s); otherwise, it will blur the strength of the retained trademark(s) in consumers’ mind. Parties to an M&A transaction can learn from earlier cases that they should not turn a blind eye to or overlook the matter of how they compromise in terms of business philosophy.
What is the option of replacing the entire trademark portfolio with a new one?
In contrast to the above option, if a to-be-acquired enterprise is just a start-up one, or the parties to an M&A transaction have not yet had any strong trademark, the parties often create a new trademark in connection with which the post-M&A enterprise will run the business, without using any existing trademarks. The compelling reason for the parties to enter into an M&A transaction in this case is that they aim to have their skilled workforce, technologies and business systems combined to produce a new line of product (or service) or heighten the level of quality of their existing products (or services), rather than take advantage of any reputation or strength of their existing trademark(s). In other words, on the basis of the current human resources and technological capabilities of the parties to an M&A transaction, they are keen to build from scratch a new image of the post-M&A enterprise in customers’ eye. The case of “Ciba-Geigy” pharmaceutical corporation and “Sandoz Laboratories” is an interesting example where they created and built up a new trademark “Novatis” upon completion of the M&A transaction – the trademark has now become one of the world’s leading trademarks for pharmaceutical products. The strong point of this option is that the parties can avail themselves of resources to build (or may create a leap) for the new trademark. Obviously, with a new trademark, the enterprise will have room to work out a roadmap and build up from scratch the identity of the trademark. However, the worse drawback of this option is that the post-M&A-enterprise must bear a large amount of expenses for promoting the new trademark, not to mention other unforeseeable risk associated with the process
What is the option of combination the trademark portfolios?
An option of combining the trademark portfolios of the parties to an M&A transaction is preferably selected when the parties want to exploit or enhance the reputation of the existing trademarks. The parties often choose this option because they want to develop a new product line (or product having new properties), resting on the expertise, the experience and other resources available in each party. Let’s look at the case of the trademark “Sony Ericson” as an example where the mark “Sony Ericson” is the combination of the separate constituent trademarks “Sony” and “Ericson”.
The prevailing advantage of this option is that the trademark, consisting of the separate trademarks, has a solid foundation of the prestigiousness and reputation of the constituent trademarks to promote in a speedy way. Moreover, consumers can easily recognize this combined trademark because they have known and given trust to the constituent trademarks. But, on the other hand, this option also poses some challenges to the enterprises joining the M&A transaction. Firstly, like the option of “replacement of trademark portfolio”, this option also gives rise to the parties’ need to “compromise” with each other on the business philosophy adaptable to the combined trademarks. Despite this, the process of reaching a “compromise” between the parties can even go tougher because each party is inclined to stick to their own business philosophy for their own trademark – i.e. the constituent trademarks of the combined trademark – which they will use concurrently. Secondly, the post-M&A-enterprise must be cautious about PR programs for the combined trademark because the PR programs, on the one hand, need to convey customers a message to the effect that the combined trademark is meant to refer the constituent trademark(s) they have known (or preferred), and on the other hand, the PR programs should not give any bad impact to the constituent trademark each party is still using. The ups and downs of the trademark “Sony Ericson” for mobile phones in Vietnam, depicted as an example, have shown how hard the parties run the process of “compromise” in terms of business philosophy.
What needs to do?
To ensure the success of M&A transaction, enterprises need to thoroughly consider a number of factors, not only the matter of gain and loss (or the price of the to-be-acquired enterprise), but also the long-term and sustainable development of the business associated with a given trademark. In particular, enterprises should keep in mind the following in choosing a trademark for the post-M&A enterprise:
- ConductingaccurateandreasonableassessmentofIPasset, as opposed to the other assets of the enterprise. The outcomes are not only significant for assessment of the total value of the M&A transaction, but also critical for the parties to select a trademark for the post-M&A-enterprise. In other words, if they underestimate the existing trademarks, and consequently take away strong trademark(s), or even overestimate weak trademark(s), they would eventually come to make improper and unreasonable choice of the trademark(s) for the post-M&A enterprise.
- Defining the objective when joining theM&A transaction and consistently pursuing the objective as set out in the post-M&A period. In light of priority order, i.e.profit-making- objective, image-heightening objective, or the objective of attaining a significant market share etc…. the parties will choose a proper trademark for the new enterprise.
Thoroughly working out a reasonable way to select and use trademarks which will promote both the position of the post-M&A enterprise and the image of the enterprises joining the M&A transaction. Positioning the image and the trademark for the post-M&A enterprise also should be done in the pre-M&A period, and should not be regarded as something secondary.
“Naming a brand in the post-M&A period”, DNA Branding, www.dna.com.vn.