Understanding the Interplay between Trademark and Mergers & Acquisition

This article has been written by Aman Degra, pursuing B.A. LL.B (Hons) from Institute of Law Nirma University, Ahmedabad.

Introduction

In the world of internet, everyone has access to every information. Now, for a company to run and to prosper, protection of a trademark is necessary because it is the only mark by which consumer recognises the brand. Trademark helps the company to establish its goodwill in the market and to maintain a reputation among the consumers.


Protection of uniqueness of any business is necessary and a trademark is the only mark from which any normal prudent person can identify the specific product. Also, as companies are becoming huge day by day, they all want to the leading brand in their respective class. For that, many companies’ merger into one to remove the competition and to create a monopoly in the market.


E.g., Vodafone-idea, in order to counter their rivalry, merged into each other and formed a new entity with the name of (VI). Another case of Adidas and Karhu sports where Adidas purchased the trademark of Karhu sports to compete in the market. In this paper, I’m going to discuss the importance of trademark and how mergers and acquisition affect the trademark.


Trademark and its importance

A trademark is a mark which can be represented graphically and which can distinguish the goods or services of one person from others and also includes the shape of goods, their packaging and combination of colours [Laxmikant v. Patel v. Chetanbhat Shah]. It means any kind of mark by which any normal prudent person can identify the quality, and source of the product and can distinguish it from other goods in the market.


Trademark gives the owner right in rem i.e. right against the world to use that trademark. After getting registered, no other party can use that trademark without the permission of the owner. It gives the privilege to the owner to use its trademark for whatever time he/she wants and maintain the quality of his product.

E.g. TATA is a well-known trademark and it can only be used by TATA groups and its licensees. Trademark is one of the important assets of any business and many times have more value than that of other tangible assets.

E.g. trademark value of google is $44.3 billion whereas Microsoft Trademarks value is $42.8 billion.

Brief on Mergers and Acquisitions

Merger and acquisition is a process in which ownership of a company changes. When two or more company come together to form a new entity or to form a single entity, then that process is known as merger and acquisition. It allows the businesses to transfer the managerial operations, assets, liabilities, and all other rights attached to the company. These are of different types:

  • Horizontal merger

In this, when two competitive companies merge that are in direct competition in the same line of products and services, then it is known as a horizontal merger. This takes place to remove the competition from the market and to establish a monopoly.

  • Vertical merger

When two companies in the same chain of production, merge with each other, then it is known as a vertical merger. E.g. when a mobile manufacturing company merges with a motherboard manufacturer, then it is a vertical merger.

  • Congeneric merger

When two companies in the same line of business, but offer different products and services, when merged, then it is a congeneric merger. E.g. when a laptop manufacturing company merges with a mobile manufacturing company.

  • Conglomerate merger

When two companies totally unrelated to each other, merge, then it is known as a conglomerate merger. E.g., a steel manufacturing company merges with a mobile manufacturing company.


Trademark in Merger & Acquisition

In merger and acquisition, trademark is the most important and sometimes only reason for the mergers of large giants in the market. Sometimes mergers only take place to remove the competition and earn the goodwill of other parties’ trademark. In 1971 in the case of Karhu trademark infringement by Adidas, Adidas was using a trademark which it has spikes shoes placed between two lines.


However, later it was revealed that this mark is already used by Karhu Sports. So, Adidas purchased that logo for 1600 euros to maintain its uniqueness and its goodwill in the market. In this symbol, the straight strips signify the diversity of the company and the trefoil gives the impression of North America, Europe and Asia. Also, with the time, the company has managed to registered 4 trademarks namely:

  1. Three parallel strips: used for all kind of product lines.

  2. Trefoil: used for casual wears and shoes.

  3. Mountain: used for professional designed product.

  4. Circle: used for any product which has been produced with any designer.

The use of four trademarks by a single company shows how important trademarks are. Any normal prudent person can identify products origin and its quality only by looking at the trademark. It helps to build trust among the consumers and guarantees the same quality all across the globe wherever they operate.


According to Deloitte survey, from the total 1000 participants, 750 believe that M and A will increase in 2017 as compared to previous. Also, it will lead to large scale purchase and sell of trademarks of large giants.


Another case is of Vodafone-Idea merger in the Indian market. In 2018, British telecom giant i.e. Vodafone and India's leading telecom company i.e. Idea, to create a large customer base and counter the rivalry companies like Jio and Airtel, merged into each other. Till now they were using their respective trademarks, and this was creating big confusion among the investors and customers. Also, both have to spend extra money on advertising as they both were advertising with there respective name and marks.


However, in 2020, both giants launched a trademark (Vi) pronounced (we) which has characteristics of both companies. Now both can advertise with the same name and can provide the service under a single identity. As a result, shares of (VIL) rose by 10 per cent to rupees 13.21 on the BSE. Also, VIL can raise a fund of rupees 15000 crores of equity and debt instruments.

Conclusion

Trademark plays a vital role in the mergers of companies. It is the mark which represents the quality, reputation and origin of any product. Nowadays, a trademark is one of the most valuable property and it is necessary to include the trademark in the deal because without a trademark, you cannot buy the same reputation and there will be no mean of the merger.


Also, it is not necessary to register the trademark, but for availing the protection under the law, it is required to be registered and can protect the trademark from any kind of infringement. Mergers of big giants sometimes take place only to acquire the trademark and its goodwill attached to it.


It is necessary to conduct due diligence before proceeding further so that future claims and disputes can be removed and the merged company can operate smoothly without any disputes. So, we can conclude that trademark is one of the most important parts of mergers deal and it is necessary to be precautious and to inquire about the registration, licensing, or any legal claim on the trademark before going for any merger deal.