Joint ownership of trademarks is allowed under trademark law here in the US. However, there are some complex legal issues that should be considered before embarking on joint trademark ownership. It may be more advisable to create a joint venture or a corporate entity to hold title to the Certificate of Registration for the trademark(s). Consulting experienced business law and trademark attorneys in advance is advisable. Here are some of the reasons it may be preferable to avoid joint ownership of trademarks.
Joint Ownership can Potentially Affect the Functionality of a Trademark
A trademark is intended to identify a unique commercial source for some product or service. Indeed, a trademark can function as a trademark only if, in fact, the mark identifies one unique commercial source.
Joint ownership has a potential to weaken the functionality of a trademark and, thus, it is better to avoid joint ownership. At the minimum, great care must be taken. Assume, for example, that a single trademark is owned by two business partners — Green Company (headquartered in Michigan) and River Company (located in New York). If the two companies use the trademark on two different products, the trademark will not function as a trademark and the US Patent and Trademark Office (“USPTO”) will not register the trademark. A trademark cannot be used on different products. The whole point of a trademark is defeated.
Even if the two companies sell one product but split business responsibilities — for example, Green Company makes the product and River Company markets the product — the jointly owned and used trademark still might not function as a trademark. On the one hand, consumers might potentially identify two different commercial sources of the product, or, maybe, consumers cannot identify which company is the commercial source. Either way, the point of a trademark is defeated. A long complex joint ownership agreement could be drafted to govern use of the trademark and governing quality control. However, as noted, the better solution is to create a joint venture or jointly-owned holding company.
Joint Ownership can Lead to Destructive Legal Disputes
If a trademark is jointly owned, any dispute between the owners could potentially interfere with use of the trademark and/or risk its validity. Imagine that four members of a gospel rock band agree to register the name of their band as a trademark and agree to own the trademark jointly in their own names. If there is a falling out among the band members, the dispute might lead to civil litigation or arbitration and one member of the band might ask that use of the trademark be enjoined. If a court or arbitration panel were to issue such an injunction, sales of music and other merchandise might suffer. Further, the trademark itself could be jeopardized. To be valid, a trademark must be used in commerce. If use is enjoined and if the litigation drags on over three years, the validity of the trademark could be challenged on the basis of abandonment.
Even if the joint owners are SURE they will never be in disagreement, joint trademark ownership can still generate destructive legal disputes if an owner dies or if there is a divorce. If one of our four band members dies, then ownership of their share of the trademark passes to the band member’s heirs. The heirs may have a very different vision for the future of the band and what should be done with the trademark. A similar problem can occur if there is a divorce. The divorce court is tasked with dividing up the spousal property including the partial share of the trademark. As a result, ownership of the trademark share may be split between the spouses or be awarded to the spouse that is not in the band. As can be seen, even if the band members are very happy with each other, circumstances beyond their control can generate destructive legal disputes.
Rather than joint ownership, the better solution is to create a corporate entity to own the trademark (and the other intellectual property of the band). Then, if there is a dispute among the band members or if there is a death or divorce, the trademark continues to be used in the usual manner and the legal dispute is focused on ownership/control of the corporate entity.
Joint Ownership Potentially Interferes With Trademark Licensing
For the similar reasons, joint trademark ownership can potentially interfere with licensing agreements. Licensing agreements allow third parties to use a trademark under various quality controls in exchange for payment of royalties. Joint ownership leads to two potential problems: disputes among the owners which interfere with use by licensees and licensing agreements executed by fewer than all of the owners. The first problem potentially reduces royalty revenues and the second problem potentially endangers quality control which, in turn, can endanger the validity of the trademark. If a trademark is not used consistently by the owners and all licensees, the validity of the trademark can be challenged. Using a corporate entity or a joint venture to own the trademark avoids these problems.
Joint Ownership can Complicate Transferability and/or Assignment
Finally, joint trademark ownership can complicate transferability and/or assignment of trademarks. Like many types of property, ownership can be transferred or assigned. If there is one owner — like a corporate entity — these tasks are relatively easy and uncomplicated. By contrast, if there are four co-owners, four agreements and sets of signatures will be required. Further, the law is unsettled as to whether all owners must agree if one owner wants to transfer or assign their partial ownership. Using a corporate entity or a joint venture to own the trademark avoids these problems and eases transferability/assignment.
For more information or if you have questions about creating and registering a trademark, contact the trademark lawyers at Revision Legal at 231-714-0100.