By now, you should have heard about Hostess going out of business after failed mediation talks with the unions.
Recall, in my last blog post, I highlighted the many advantages of owning a federal trademark and one of them was that a federal trademark registration is like real property that can be used as collateral for loans. Well, trademarks are intellectual property. “Property” being the key word here. Trademarks can be the most important asset of your business over and above your office equipment. Indeed, trademarks are sold not just to wind down a business but also are counted as assets during a merger or acquisition of a going concern.
When you build your brands you also generate what is called, “goodwill.”
Goodwill, in trademark parlance, is when the prospective purchaser expects a certain quality of service or consistency in a product. A classic example is McDonald’s. When you think McDonald’s, you think burgers and fries. You also have come to expect how those burgers and fries should taste. This is precisely the goodwill that goes along with the brand when it is transferred to a third party.
Let’s also not forget that brands like Hostess probably own the recipes to the delicious cakes and breads they have sold over the years. The recipes are valuable trade secrets. Unlike trademarks, trade secrets cannot be publicly registered. Otherwise, the trade secret would no longer be a secret. Think about the Colonel’s Recipe for Kentucky Fried Chicken and the formula for Coca Cola. Those trade secrets have never been revealed. To qualify as a trade secret certain measures must be in place to adequately protect against disclosure, such as making sure only a very select few know what the trade secret is and physically locking the trade secret or by developing dense password protected codes if the trade secret is in electronic form.
Your business may not be as famous as Hostess or McDonald’s, but your brand and trade secrets are just as important and may have significant value should you decide to merge or sell your business.
*The information contained in this article should not be construed as legal advice.