Trading in Trademarks-Why the Anti-Assignment in Gross Doctrine Should Be Abolished When Trademarks Are Used as Collateral^
Intellectual property used to be the tail that failed to wag the dog in commercial transactions. Now it is the dog itself.1
Coca-Cola's is worth almost $48 billion.2 McDonald's is valued at almost $20 billion.3 And, Nike's, Kellogg's and AT&T's all hover close to $11 billion.4 What is it about these companies that those figures reflect? It is their trademarks-the value of their names.5 One commentator has noted that for technology companies, "when [the company's] market capitalization exceeds its book value by an appreciable amount, the difference has something to do with its intellectual properties. "6
Technically, "trademarks are widely viewed as devices that help to reduce information and transaction costs by allowing customers to estimate the nature and quality of goods before purchase"7 and "are undeniably valuable business assets."8 However, that value is not reflected in a company's financial statements because the accounting profession considers a trademark to be an intangible asset.9 Despite their intangible value trademarks can be, and are often used as, the principal collateral for a loan.10 One author has recently gone so far as to claim that, in high technology companies, "intellectual property and other intangible assets are more important to economic viability than any other company asset."11 Therefore, security interests in intellectual property, such as trademarks, can be a "rich source of value" to a company in funding operations and facilitating commercial transactions.12 Indeed, "[t]he notion of security interests in intellectual property presupposes the capacity of such property to attain significant values in and of themselves. "13
When using a trademark as security for a debt, issues such as the proper way to perfect the interest and what must accompany the transferred interest arise. Many articles have been written on how to perfect a security interest in various forms of intellectual property, including trademarks.14 While trademark and corporate finance attorneys should be familiar with the important issue of perfecting security interests in trademarks,15 this Note tackles a different topic that has not been exhaustively explored: What should a secured creditor be able to do with a trademark once a debtor trademark owner defaults on his loan?
This Note argues that a lender should be able to accept a trademark assignment16 as satisfaction for a loan without necessarily having to obtain the goodwill associated with the mark. This would allow a trademark owner to offer his trademark to a lender "in gross." Unfortunately, the Lanham Act provides that no assignment-either an assignment pursuant to a sale or a transfer being used as collateral for a loan-may occur in gross. 17 For an assignment to violate the anti-assignment in gross rule the trademark would have to be assigned either without any goodwill18 or without sufficient assets to make a substantially similar product, which would, at least in theory, allow the trademark to suffer discontinuity from its past.19
The rationale for retaining this minority position,20 which is derived from the common law,21 reflects what most commentators view as the central theory underlying trademark law22-to protect consumers from confusion and deception.23 According to this rationale, if a trademark were assigned in gross, "the consumer would have no assurance that he was getting the same thing (more or less) . . from its new maker."24 This principle underlying the anti-assignment in gross rule is not inconsequential; however, for reasons that will be explored in this Note the rule is unnecessary in the context of trademark transfers being used as collateral.25
An illustrative hypothetical will help explain the problem and is examined in Part II. Part III explores the varying approaches that American courts have taken in determining what constitutes "goodwill" and what sorts of assets are likely to be construed as sufficient to avoid a "naked" transfer. …