Don’t Overlook the Estate’s Interest in Intellectual Property! The Fundamentals of Identifying and Marshaling Patents and Trademarks

When someone dies, someone else steps in to manage the decedent’s affairs. Regardless of whether the fiduciary is a trustee or a personal representative, she must not overlook the decedent’s interests in intellectual property (“IP”) assets such as patents or trademarks.

Investigating and Identifying IP Rights.

Generally, the first step for a fiduciary is to investigate potential assets with the purpose of marshaling assets. Surveying a new estate for IP interests should be on every fiduciary’s intake checklist. For example, consider the following hypothetical: When the proprietor of the neighborhood’s favorite café died, no one knew he owned IP. The café was well-known for quality coffee served in compostable cups complete with fettuccini stir sticks. Not only did the café operate under a valuable trademark having considerable good will among regional consumers, the proprietor had invented the famous compostable cup and owned a registered trademark for it. Thus, our fiduciary has three distinct IP assets to collect and manage. (1) the common law trademark for the café (i.e. the business name) (2) the registered trademark for the cup and (3) the patent on the cup.

Identifying Patent Rights. A U.S. Patent secures the national exclusive rights of an inventor to make, use, sell, and offer to sell his or her invention for a specified duration of time, after which time the invention belongs to the public. The nature of a patent asset is rarely uncertain. Our fiduciary can quickly and easily search the records of the U.S. Patent and Trademark Office (“USPTO”) to determine the estate’s interests.

Identifying Trademark Rights. Whereas the patent world implicitly tracks ownership and expiration, the trademark world is concerned with distinctiveness and use from the consumers’ perspective. Trademarks are the brand, image, look and feel of a maker or business. If the decedent owned a business, it is always important to consider if a trademark is in use and who owns it.

Unlike the definitive nature of patent searches, a trademark search with the USPTO will be incomplete because trademarks do not require registration (rather registration perfects and adds to the rights of ownership). It is possible to search the USPTO database of registered marks, but the results will not include those marks in use but unregistered (referred to as common law marks). In our hypothetical, a search would render the cup’s registered mark but the café’s common law mark would not appear. Thus, when a fiduciary encounters a decedent who was engaged in commerce, she needs to look for associated trademarks and determine whether they are owned by the decedent or his business.

Marshaling IP Assets.

Like real property, IP assets can be sold (assigned) or leased (licensed). Thus, securing title is an important part of marshaling IP assets.

Patents. Patent assignments must be in writing and recorded with the USPTO within three months of the date of assignment (35 USC § 261.) Thus, the fiduciary must record assignment to herself as the trustee or the personal representative of the estate and record a second assignment upon distribution of the asset. This federal requirement for recording assignments is in addition to applicable state laws governing assignments of a decedent’s interests as IP rights pass according to state law.

Registered Trademarks. For trademarks, the USPTO advises that assignments or name changes be recorded by submission of an online form. Thus, where a patent assignment must be recorded, a trademark should be recorded. Another reason the trademark database is not as reliable as its patent counterpart.

Common Law Trademarks. Common law rights arise from use when, in the eyes of the consumer, use of a mark distinguishes an item of commerce from others. Such rights are geographically limited. As a common law trademark, the café has a limited geographical expansion area, which means the owner can keep restaurants in the area from using the trademark or similar marks but probably cannot prevent a café with the same name from opening in another state. Registration provides advantages including presumption of nationwide ownership and public notice. (15 USC §1116; 15 USC §1072.) The fiduciary needs to consider if the café trademark should be registered. Framing this as a fiduciary consideration: Is the investment of registration reasonably prudent under the circumstances? Circumstances need to include the investment capacity of the estate, intent to carry on or sell the business, valuation of the business with versus without a registered mark, etc.

Affirmative Ownership of IP.

Estates with ownership interest in IP have more than just the traditional fiduciary duties at play. (Prob. Code § 16000 et seq.) Those traditional duties include the duty to administer per the governing documents, to identify and marshal assets, to act fairly and in a reasonably prudent fashion, to preserve assets and make them profitable, among others. In addition, there are unique duties and risks associated with trademarks and patents that require a fiduciary to take an active ownership role. Not only is this consistent with fiduciary duties to control, preserve and make assets productive, it is required of IP owners in order to maintain the protections afforded to them.

Infringement. It is an IP owner’s duty to monitor the world for infringers and act affirmatively to protect his/her rights. That duty is assumed by the fiduciary with respect to patents and trademarks. Monitoring infringement is fact specific, and there are different levels of engagement varying from simply being in business among competition, to hiring firms that seek out illegal use of your IP. Upon discovery of infringement, a fiduciary needs to seek advice of counsel. Timing is an important consideration as laches is an affirmative defense to infringement.

Continued Use of Trademarks. In addition to monitoring for infringement of a trademark, a fiduciary must ensure uninterrupted use as the strength of a trademark may be significantly weakened or lost without continuous use. Thus, a fiduciary owning an unincorporated business with trademarks, needs to immediately ensure that marks are being used and the business is in continuous operation for the full duration of the fiduciary’s ownership. One instance of tension between fiduciary duties and a trademark owner’s duties arises in this situation because, where a business entity is unincorporated, a personal representative of a decedent needs court authorization to continue the operation of the business beyond an initial six-month period. (Probate Code § 9760.) Thus, the fiduciary must be proactive in obtaining court authorization if she is not certain distribution of the trademark will occur within the initial six months.

Ongoing Duties.

The fiduciary’s duty will not end until all assets are assigned, abandoned or expired. The duty to monitor for infringers continues for the life of the IP asset and a fiduciary is not well-seated to deal with what may be high-risk infringement conflict. If a fiduciary holds IP assets for a substantial length of time, she will likely come to the expense of maintenance fees and obstacle of valuation. Depending on circumstance and impending expense, it may be the most prudent path to swiftly distribute IP assets if the fiduciary is reasonably able to do so.

Conclusion.

IP assets present a unique set of considerations that fiduciaries must keep in mind when encountering each new estate. Joint ventures and small businesses, like the hypothetical café, are often sources of unmentioned IP assets. Do not forget to act timely in running a conclusive patent search online and following through with a trademark analysis before these valuable assets are damaged or lost. When in doubt, a fiduciary can and should hire knowledgeable counsel.