Nestle announced that it was paying $7.15 billion dollars for the right to sell Starbucks coffee. Nestle is not buying any physical assets from Starbucks. This is a pure trademark licensing deal. This deal is a great example of the power of a brand. Despite its best effort to make inroads in the coffee market with its Nespresso product, Nestle recognizes Starbucks’ stronghold on the coffee market and rather than fight it Nestle decided to get onboard the Starbucks train.
In the case of the Nestle deal, it appears that Nestle will sell Starbucks beans and capsules. So no trademark search is necessary. However, trademark licensing deals often involving leveraging the popularity of a brand to expand into other product or service lines. In those cases, a trademark search is necessary not only to protect the licensee but also to protect the licensor.
In a prior post, we talked about product extensions not being automatic. What are the possible ramifications of the inability to expand into a particular product or service? From the licensee’s perspective the ramification is obvious: you will not be able to sell the product or service either at all or at least within a specific geographic region. The trademark licensee may also be ordered to pay any profits it made from the infringing sales.
With respect to the trademark licensor, the possible ramification is to reimburse the trademark licensee for any monetary damages it is ordered to pay, and to pay the attorneys’ fees and costs incurred by the licensee to defend itself. Most trademark licenses include an indemnification section that requires the trademark licensor to indemnify, defend, and hold harmless the licensee from any claims of trademark infringement. In essence, these sections function as a form of insurance for the licensee against a trademark infringement lawsuit, which is why some licensees will require the licensor to prove it has insurance coverage for a trademark infringement claim and that the licensor name the licensee as an additional insured. Agreeing to indemnify and defend is a nice gesture, but meaningless if the trademark licensor does not have the money to actually pay for a future liability or the defense of a lawsuit.
In a prior post, we also talked about how much a proceeding before the Trademark Trial and Appeal Board can cost. All of this can be avoided with a proper trademark search conducted prior to putting pen to paper on a contract that may harm both parties.