Intellectual Property

Trademarks, patents, and copyrights are valuable assets which should not be owned directly by the operating entity. A separate company can own these assets and make them available through a form of a licensing agreement. The objective is to protect these assets in the event of a judgment against the corporation.

One of our clients was in the garment manufacturing business. His company sold primarily to the large department stores. This is always a dangerous business. A large amount of capital is needed to fill orders which are not paid until sixty or ninety days after shipment. A common scenario goes like this: An unusually large order is placed by a retailer, and the manufacturer uses all of its cash and credit to buy the materials and pay the workers to fill and ship the order. Then, ninety days later, before the manufacturer has gotten paid, the truck pulls up with the entire order returned. Since the value of the goods to the manufacturer is only a fraction of the invoice amount, the manufacturer is now out of business since it is out of cash and out of credit. The bankruptcy court and the creditors now attempt to seize and sell every asset of the company including any valuable trademark or trade name.

Our client engaged in the proper planning before these events took place. The trademark and the trade name were owned by a separate company. The new company (NewCo) then licensed the use of these properties to the corporation on a monthly basis. When the corporation ultimately filed for bankruptcy (because of the circumstances we just described), the trademark and trade name were safely protected in NewCo. Since it was these assets which contained all of the goodwill of the business, our client was able to successfully go back into business and establish a new company.