Considerations On Due Diligence In The Trademark Area

In corporate transactions it is extremely important to conduct a prior and detailed investigation over juridical aspects related to the target company before the closing of any deal. This investigation is known as due diligence. The primary purposes of a due diligenceare to survey the company's assets and rights, as well as to indicate the contingent legal liabilities and risks involved in the intended transaction, providing the interested company with the main legal aspects involving the target company.

In the current globalized market focused on information and technology, the intellectual property became one of the main legal aspects analyzed by the persons in charge of the transactions, in view of the high amounts and strategic significance that intangible assets may reach, specially trademarks. The purpose of this article is to provide an overview of the main aspects to be examined in relation to trademarks during the performance of a due diligence in light of the Brazilian laws.

In Brazil, trademarks are valid for ten (10) years as of the registration issuance by the Brazilian Patent and Trademark Office ("BPTO"), extendable for equal and successive periods. Trademarks can be presented in the following forms: (i) word mark, when expressed just by letters; (ii) device mark, when represented by drawings or symbols; or (iii) compound mark, when characterized by the combination of letters and drawings.

When reading a due diligence report on intellectual property aspects, one should first observe the kind and number of trademarks registrations and/or applications existing under the target's portfolio, either in Brazil or abroad. Quite often companies fail to apply for trademarks before the BPTO, and distinctive signs highly important for their business are used indiscriminately and without any protection.

In addition, Brazil has adopted the first-to-file system, that is, the right to exclusively use a trademark and to prevent any third parties from using it are only granted upon a registration validly issued by the BPTO, and not as a result of the use thereof, as it happens in the United States, for instance. Therefore, companies interested in closing a transaction in Brazil should consider that trademarks applications are nothing but the expectant of rights, and, in this case, it is not possible to calculate and remit royalties in the event they are licensed to third parties.

Therefore, depending on the complexity and significance of the...