April 24, 2015

RadioShack Trademark Up For Sale; Even This One Has Goodwill

by Guest Blogger

So much for being mercilessly gouged for obscure cords and batteries in sketchy strip malls across the country. According to its website, RadioShack "is a leading national retailer of innovative technology products and services." What comes to mind when you think of RadioShack?

In March, RadioShack's bankruptcy judge approved a plan to sell (i.e., keep open) 1700 former RadioShack stores to an investment fund called Standard General (self-described as an "event driven opportunity fund"). According to a WSJ article last week, that leaves approximately 2300 stores to be liquidated. According to the same article, Standard General only acquired the rights to use the RadioShack name for six months. Meanwhile, Standard General and Sprint are moving forward with a co-branded "store-within-a-store" concept.

Radio Shack

This raises and interesting trademark question: What if someone other than Standard General buys the RadioShack name?

According to statute (15 U.S.C. 1060(a)) trademarks must be assigned together with the goodwill of a business. Otherwise, the trademark becomes invalid because trademarks cannot live apart from the goods/services they represent. "Goodwill" is actually not just the warm fuzzy feeling you have for your favorite store. The term has been redefined by accountants to mean the amount of value that a company's good reputation adds to its overall value. Interestingly, since RadioShack is currently worth less than its assets, that would seem to indicate there is no goodwill in the RadioShack name. Fortunately, lawyers are not mathletes so let me assure you that there is undoubtedly some goodwill in the RadioShack name. People around the country know that if they really need a $1 wire, RadioShack probably has something they will sell you for $15 â there is value in that because sometimes you just don't care and will tuck up your tail and hand over the cash.

The trademarks will be auctioned in May as part of the bankruptcy. If General Standard buys the RadioShack trademark, the trademark will be in good shape because it would be presumed to have purchased goodwill when it acquired the successful stores. What if General Standard doesn't buy the trademark? Buyer beware because they better buy some part of the old RadioShack business or figure out a good way to get some of its goodwill. Otherwise, they'd have been better off buying RadioShack on the NYSE back in January!

An assignment without the goodwill is called an "assignment in gross." I'd probably rename it a "self-destructing assignment" because you can't do it. This same rule applies outside the bankruptcy context for every trademark assignment.

The good news is that it doesn't take much to successfully assign a trademark along with its goodwill. An assignment will be valid so long as consumers would not be misled or deceived and as long as there is continuity before and after the assignment (i.e., no drastic change in the quality of goods, etc.).

The first cousin of the "assignment in gross" is the "naked license." In the current example, a naked license would occur if RadioShack licensed the RadioShack mark to General Standard without maintaining any controls over the quality of the goods and services General Standard is providing under the mark. This type of license (without quality control) will also invalidate a trademark.

If you ever get ready to sell a trademark, just remember that a RadioShack without gadgets is nothing.