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Transitional Trademark License
Clauses (Pro-buyer)
Daniel Glazer, Fried, Frank, Harris, Shriver & Jacobson LLP and PLC Intellectual
Property & Technology
Form clauses for a buyer's transitional use of a seller's trademarks after a corporate
transaction, drafted with terms favorable to the buyer. These clauses can be used in
connection with an asset purchase, stock purchase, merger or auction where the buyer
is obtaining the seller's assets, entities or business but is not obtaining long-term
rights to one or more of the seller's trademarks after closing. These Standard Clauses
have integrated drafting notes with important drafting and negotiation tips.
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Read This Before Using Document
Scope of Standard Clauses
In a corporate transaction, the target company or acquired business may use certain trademarks
the seller intends to retain after the transaction. In this case, the buyer may need the right to
continue using these trademarks for a temporary period after the closing while it transitions away
from their use. This issue is common in a carve-out or divestiture transaction (see Practice Note,
Carve-out Transactions (http://us.practicallaw.com/7-504-1544)).
These Standard Clauses are for use in a purchase or merger agreement. They allow a target
company or acquired business to make limited use of certain of the seller's trademarks that were
used in the seller's or target company's business before the closing for a relatively brief wind-down
period (typically 120 days or less).
These clauses are drafted in favor of the buyer and therefore include a broader license for the
buyer and its afliates to use the seller's marks during the transition period in a manner consistent
with the use of the marks before the transaction.
If the buyer requires use of the seller's marks for a longer transition period (typically more than 120
days), it is customary for the parties to enter into a long-form transitional trademark license agreement.
This is so the agreement may include provisions covering situations, such as inspection rights and
infringement claims, that may arise at a later date, and are therefore more appropriately dealt with in
a separate document. If possible, a long-form license agreement is negotiated before signing and is
attached as an exhibit to the purchase or merger agreement. Alternately, the parties may include a
covenant to negotiate a long-form license agreement between signing and closing of the transaction.
For model transitional trademark license clauses drafted in favor of a seller, see Standard Clauses,
Transitional Trademark License Clauses (Pro-seller) (http://us.practicallaw.com/1-517-8785).
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2 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
Transitional Trademark License Clauses (Pro-buyer)
1. Seller Marks.
(a) Retained Ownership. Buyer acknowledges that (i) as between Seller and Buyer, Seller owns all
trademarks, service marks, trade dress, trade names, and domain names (collectively, "Trademarks")
consisting of or incorporating [IDENTIFY MARKS] (collectively, the "Seller Marks"), and (ii) Buyer has no
rights, and is not acquiring any rights, to use the Seller Marks after the Closing Date, except as stated in
this Section [SECTION NUMBER].
For more on trademark and other intellectual property issues in corporate transactions, see
Practice Notes, Intellectual Property: Stock Purchases and Mergers (http://us.practicallaw.com/6-
506-9152) and Intellectual Property: Asset Purchases (http://us.practicallaw.com/4-509-4845).
For an overview on conducting trademark due diligence, see Practice Note, Trademark Due
Diligence in Mergers and Acquisitions (http://us.practicallaw.com/1-508-3551).
Assumptions
These clauses assume that the seller owns all of the seller marks to be used during the transition
period. If an afliate or afliates of the seller own any applicable marks, these clauses should be
modied accordingly.
Similarly, the clauses include bracketed language that should be modied based on the
transaction structure and whether the buyer is acquiring a specic target company or the seller's
business (for example, in an asset sale), referred to respectively as the "Company" and "Business"
in these Standard Clauses. If the buyer is acquiring multiple seller entities, this language should be
revised to refer to the companies, rather than a single acquired entity.
Dened Terms
Certain terms are capitalized but not dened here because they typically are dened elsewhere
in the purchase or merger agreement (for example, Business, Buyer, Seller, Closing Date and
Law). These Standard Clauses (including the dened terms) should be modied according to the
particular purchase or merger agreement into which they are incorporated.
Retained Ownership
This clause identies the seller marks that have been used by the target company or acquired business
before the transaction and which the buyer must generally cease using after the closing date.
If these provisions cover several different marks, a disclosure schedule can be used to identify the
relevant marks.
Buyer
During due diligence, the buyer should identify all marks owned by the seller and used by the
target company or acquired business. It should ensure that the marks covered by these transitional
trademark clauses are not overbroad and that any marks important to the target company or
acquired business are transferred to the buyer or covered by a long-term license.
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3 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
(b) Transitional Trademark License. Effective as of the Closing Date, Seller hereby grants to Buyer and its
Afliates[, including the Company] (collectively, the "Licensees"), for [one-hundred and twenty (120) days]
after the Closing Date (the "Transition Period"), a worldwide, royalty-free, non-transferable, non-exclusive
irrevocable license to use the Seller Marks in connection with the continued operation of the Business
For a checklist on trademark due diligence in M&A transactions, see Trademark Due Diligence in
Mergers and Acquisitions Checklist (http://us.practicallaw.com/5-508-3554).
Where the buyer is acquiring certain seller entities and the seller holds record ownership of any
marks that those entities should own, the buyer should seek to have the seller transfer ownership
before signing. If this is not possible, the buyer should seek a covenant specifying the relevant
marks and jurisdictions, as applicable, and requiring the seller to make the transfer before the
closing date or as soon as practicable after it. If the transfer in certain jurisdictions cannot be made
for a signicant time after the closing date, the buyer can seek a licensing arrangement for the
right to use the marks until the transfer is practicable.
Seller
The seller should ensure that the retained seller marks are dened to include all relevant owned marks.
The seller may also seek to have the denition of seller marks expressly include all registrations and
applications for registrations for any of the seller marks and broaden the denition to cover:
Any and all variations of or acronyms for any of the seller marks.
Any marks confusingly similar to or dilutive of the seller marks.
The seller may also seek to include an express acknowledgement by the buyer that as of the
closing date any and all rights of the target company or acquired business to use the seller marks
will terminate and revert to the seller.
If any seller marks are owned by the target company or acquired business, the marks should be
transferred to the seller before the closing date. If it is not possible to transfer the marks before the
closing date or the transfer may not be effective, then the seller may require a:
Covenant from the buyer agreeing to take all actions necessary or reasonably requested by the
seller to transfer all rights.
Broad exclusive license to the seller covering the period before the rights are transferred,
subject only to the permitted uses specied in these clauses.
Corporate Names
During due diligence, the seller should identify all relevant entities with corporate names that
incorporate any of the seller's marks.
If the buyer is acquiring any entities with corporate names that incorporate any of the seller's
marks, the seller should consider including an additional clause obligating the buyer to begin
changing the relevant entities' names within a specied period of time after closing. If the name is
used solely as a corporate name and is not otherwise known by the public, a brief period to begin
transitioning, such as ten days, may be sufcient. However, the buyer may require a longer period
of time or broader rights if the name is used as a trademark or is otherwise known by the public.
For an example of this clause, see Standard Clauses, Transitional Trademark License Clauses (Pro-
seller), Corporate Names (http://us.practicallaw.com/1-517-8785).
4 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
Transitional Trademark License Clauses (Pro-buyer)
in a manner consistent with the [Seller's/Company's] use of the Seller Marks prior to the Closing Date,
including (i) in connection with the manufacture, sale, distribution, promotion, advertising and marketing
of the [Company's/Business'] goods and services, and (ii) on [the Company's/Business'] existing stocks of
signs, business cards, packaging, letterheads, invoice forms, Internet and Intranet websites, advertising,
marketing and promotional materials, machinery and equipment, inventory and other documents and
materials containing or bearing any Seller Mark ("Existing Stock"). Each Licensee may sublicense the
rights granted in this Section [SECTION NUMBER] to its authorized distributors, vendors, subcontractors
and resellers acting on behalf of the Licensee in connection with the continued operation of the Business
during the Transition Period. All goodwill generated by the Licensees' use of the Seller Marks as permitted
in this Section [SECTION NUMBER] inures solely to Seller's benet.
Transitional Trademark License
This provision includes a broad license for the buyer to continue using the applicable marks owned
by the seller during the transition period as necessary for the buyer or target company to operate the
business in a manner consistent with the use of the marks by the seller or target company before
the transaction. This includes the manufacture and sale of goods and services, as applicable, as well
as use with existing stock of materials and inventory. The license extends to the buyer's afliates,
including, if applicable, the target company, and includes a right to sublicense the rights.
The license covers a 120-day wind-down period. While a shorter transition period can be specied,
the parties should consider entering into a long-form transitional trademark license agreement if a
transition period greater than 120 days is used.
Buyer
The buyer should ensure that the specied transition period and scope of use are sufcient for it
to operate the acquired business or for the target company to operate after closing. For example,
the above clause, while broadly covering uses made before the transaction, does not permit any
new uses of the marks. The buyer's due diligence of the acquired business's or entities' use of the
seller marks will be important for these purposes.
Where a broader or long-term license is required, the buyer may seek a long-form transitional
trademark license agreement.
Seller
License Scope
It is generally reasonable for the seller to grant the buyer those rights necessary for a proper
transition. However, the seller should limit the scope of the license to only those rights and the
territory required for the buyer to operate the target company or acquired business after closing.
For example, depending on the circumstances:
The buyer may only require use of the marks for the wind-down of existing stock of materials
and inventory, rather than a broad license covering all pre-existing activities such as
manufacturing.
The buyer may not require a license to use the marks outside of the US.
The buyer's afliates may not require a license.
The buyer may not require the right to sublicense the rights to third parties.
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5 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
(c) [Transitional Domain Name License. Effective as of the Closing Date, Seller hereby grants to the
Licensees during the Transition Period a worldwide, royalty-free, non-transferable, exclusive license to
use the following Internet domain names incorporating the Seller Marks: [IDENTIFY DOMAIN NAMES]
(the "Seller Domains") as URLs in connection with the continued operation of the Internet and Intranet
websites operated under those URLs prior to the Closing Date. Seller shall maintain the registrations for
the Seller Domains in full force and effect for the duration of the Transition Period at Seller's cost and
expense, unless directed otherwise by Buyer.]
In evaluating the duration of the transition period, the seller may seek to specify that the buyer
must cease using the seller marks as soon as reasonably practicable after the closing date and no
later than the specied end date. After the transition period, the seller may also expressly require
the buyer to remove or destroy or cause others to remove or destroy all seller marks from any
remaining stock of materials and inventory.
Where, as in the above provision, the license permits the buyer to use the seller marks in
connection with an inventory of existing products, the seller may want to specify a distinct
inventory sell-off period or other additional requirements. For example, after the transition period,
the buyer may be permitted to continue using the inventory as they are part of the acquired assets
but be required to completely and permanently cover, delete or destroy the seller marks.
Disclaimer, Indemnication and Equitable Relief
In addition to rening the scope and nature of the license, the seller should also seek to include
the following additional provisions to limit the risks arising from the buyer's use or misuse of the
marks and protect the seller's reputation:
A disclaimer of all liability for the use of the trademarks and of any express or implied
representations and warranties relating to the trademarks.
An indemnity by the buyer for its use of the seller marks as permitted by or in violation of the
agreement. This may be subject to a reasonable carve-out for infringement and dilution claims,
as the seller is generally the party positioned to be aware of and defend these claims.
An acknowledgement that misuse of the marks will cause irreparable harm to the seller and
therefore the seller may prefer to prevent or mitigate a misuse of its marks by means of equitable
relief, including an injunction, rather than relying on damages for breach of the agreement.
The seller may also include an acknowledgement by the buyer that it will not permit its employees
or others to hold themselves out as ofcers, employees or agents of seller or its afliates when
conducting business or enter into contractual arrangements.
Transitional Domain Name License
If the target company uses or acquired business use any domain names incorporating the seller marks
that are necessary to operate the business after the closing, the buyer can include this optional clause.
The license to the domain names in this clause is coterminous with the transition period as dened in
the transitional trademark license provision, but can be modied to dene a distinct period of time if
appropriate. This provision also assumes that the website registration or registrations are owned by the
seller, but that the website will be maintained and operated by the buyer or target company.
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6 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
Transitional Trademark License Clauses (Pro-buyer)
(d) Quality Control. Buyer shall ensure the Licensees use the Seller Marks only in the form and manner
consistent with which, and in connection with goods and services of a level of quality equal to or greater
than the quality of goods and services in connection with which, [Seller/the Company] used the Seller
Marks immediately prior to the Closing Date.
If these provisions cover a number of different domain names, a disclosure schedule can be used
to identify the relevant domain names.
Buyer
In addition to securing the right to operate any necessary domain name through a license, the
buyer should conrm that it will have the ability to maintain and operate the website or websites
after the closing or whether the seller will control and operate the website or websites on the
buyer's behalf during the transition period.
If one or more relevant websites will be maintained and operated by the seller, the buyer should
include a covenant obligating the seller to maintain and operate the site or sites as necessary in
support of the buyer's or target company's business. This covenant can require the seller to maintain
the site's or sites' existing content and functionality, unless changes are agreed to by the buyer.
If one or more relevant domain names will in fact be owned by the buyer after the transaction, a
license may not be required to the domain names themselves. However, the buyer should ensure
any domain name that incorporates a seller mark is covered by a license.
If the buyer needs to access or use on an ongoing basis any e-mail addresses for domain names
that incorporate any seller marks, it should include:
The express right to continue accessing and using the e-mail addresses.
If necessary, an obligation for the seller to provide e-mail related services, such as e-mail
support and forwarding.
The buyer's obligation can be included in a related transition services agreement. For a model
transition services agreement, see Standard Document, Transition Services Agreement (http://
us.practicallaw.com/7-386-4628).
Seller
If a provision addressing domain names is included in the agreement, the buyer may seek to
narrow the scope of the license. For example, the seller may specify that the buyer only has the
right to use the seller domains during the transition period for the purpose of redirecting users to
websites used by the buyer or target company.
If the buyer will retain ownership of any applicable domain names after the closing, the seller
should include a provision specifying that after the necessary transition period the buyer must
transfer all rights to and control of the domain name back to the seller.
7 Copyright 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.
Quality Control
A trademark owner must exercise quality control over third parties' use of its trademarks to avoid:
Damaging the reputation of its products or services.
A naked license that can result in abandonment of a mark on the basis that the mark no longer
functions as an indicator of source and uniform quality.
This provision sets a minimum quality control requirement keyed to the seller's standards before
the closing date. For a transitional use provision, this general standard is appropriate and typically
reasonable from the buyer's perspective.
For more on trademark quality control, see Standard Document, Trademark License Agreement:
Drafting Note: Quality Control (http://us.practicallaw.com/8-500-7097).
Buyer
As part of its due diligence, the buyer should ensure that it understands the manner in which the
seller marks have been used and whether there are any special requirements for use.
If the use of the seller marks during the transition period is limited to winding down use of
existing stock of materials and inventory, it is unlikely that any special requirements will need to
be considered. To the extent that the buyer is using the marks to create new materials, additional
requirements may be appropriate.
Seller
To safeguard its marks, the seller should ensure that the transitional trademark license includes, at
a minimum, a quality control provision consistent with the above provision.
The seller should also consider including additional provisions relating to the protection of its
trademarks, for example, covenants that:
The buyer will ensure that all use and distribution of the seller marks and stock complies with
applicable laws and industry practice.
The buyer will not and will not permit others to:
use any seller mark in a way that tarnishes, degrades, disparages or reects adversely any
of the seller marks or the seller's or its afliates' business or reputation, or that dilutes or
otherwise harms the value, reputation or distinctiveness of or the seller's goodwill in any
seller mark;
register or le applications to register any trademark that consists of, incorporates, is confusingly
similar to or is a variation, derivation, modication or acronym of, any seller mark; or
contest the ownership or validity of any of the seller marks.
The seller may also consider including a right to terminate the license if the buyer, its afliates or, if
applicable, sublicensees, fail to comply with the license's terms and conditions or otherwise fail to
comply with the seller's directions about the use of the marks.
For examples of these additional provisions, see Standard Clauses, Transitional Trademark
License Clauses (Pro-seller), Quality Control and Trademark Protection (http://us.practicallaw.
com/1-517-8785).
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8
Transitional Trademark License Clauses (Pro-buyer)
(e) Other Uses. Licensees may not use the Seller Marks after the end of the Transition Period, except
that Licensees may at all times after the Closing Date (i) retain and use, for Licensees' internal business
purposes, records and other historical or archived documents containing or referencing the Seller Marks;
(ii) use the Seller Marks to the extent required by or permitted as a fair use or otherwise under applicable
Law, including uses that would not cause confusion as to the origin or sponsorship of a good or service;
and (iii) refer on their websites and in their advertising, marketing and promotional materials to the
historical fact that [the Seller/Company] previously conducted the Business under the Seller Marks.
Other Uses
This provision species certain permitted uses for the seller marks after the transition period.
Buyer
In addition to the right to retain materials for internal business purposes, this provision expressly
permits the buyer to make uses of the mark on a non-trademark or fair use basis or as otherwise
permitted or required by law. While the buyer would arguably have the right to make these uses of
the marks absent this acknowledgement, it should seek to include them in the provision to avoid
any unintended ambiguity or future dispute.
The buyer can argue that the language is intended to ensure that it is made no worse off than any
other third party.
If the buyer is acquiring any entities with names that incorporate any of the seller's marks, it may
also want to include an express right to state that any new entities were "formerly known" under the
seller's name. The buyer's right to identify any entities in this manner should be expressly negotiated,
as it will require the ongoing use of the relevant seller's marks in connection with any new marks.
Seller
The seller may seek to limit this provision to the retention for internal business purposes of
materials containing or referencing the seller marks. It may argue that regardless of any provision
the buyer would otherwise be permitted to make non-trademark or fair uses of the marks or uses
required or permitted by law.
If the seller insists on an express right to additional uses for the marks after the transition period,
such as ongoing use as part of a "formerly known" formulation, the seller should consider limiting
the permitted time period for the use and the importance of obtaining indemnication from the
buyer for any claims arising out of the buyer's use.
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