Trademark Ownership Issues in Divorce
Many divorced individuals wish they had more seriously considered pre or post-nuptial agreements that govern division of assets prior to marital strife occurring. However, when it comes to certain assets like a trademark, dividing ownership may result in harm to the mark/brand. This article discusses two trademark ownership issues making headlines via the divorce proceedings between rapper and mogul, Andre “Dr. Dre” Young, and his estranged spouse, Nicole Young.
The couple, married in 1996, are now fighting over an estate worth an estimated $800 million dollars, including six registered U.S. trademarks for DR. DRE and THE CHRONIC. Signaling the tone of the proceedings, Nicole Young served divorce papers on her husband at a cemetery where Dr. Dre was attending his grandmother’s funeral. Accordingly, Dr. Dre’s concern over his estranged wife gaining even partial ownership of the marks, especially those comprised of his performance name, is likely justified. The divorce, filed in June of 2020, is taking place in California, where divorce law generally categorizes assets acquired after the date of marriage as community property. In other words, community property assets go into the total “pot” that is divided when couples divorce. The trademark issue came to light in April 2020, when Nicole Young filed a lawsuit alleging that Dr. Dre transferred ownership of the jointly-owned marks to a limited liability company controlled by the rapper, thereby depriving her of those assets.
Why are these trademarks subject to division of assets in a divorce? Nicole’s legal team is arguing that the valuable trademarks belong to the marital estate because they were either filed and registered during the marriage, or they increased in value during the marriage. In addition, these registrations were (until recently) personally owned by Dr. Dre, giving weight to the argument that the marks are personal assets subject to division in this divorce.
Is dividing ownership between the spouses an acceptable solution in a divorce? No! While this may seem like a fair decision to some, the nature of protection afforded by trademarks weakens with co-ownership. As previously stated, trademarks function as sole source identifiers for products and services. By definition, co-ownership represents at least two source identifiers, cutting against a trademark’s function as sole source identifier. Imagine the scenario where joint owners of a mark have equal rights to use, but no cohesion as to standards for use. The potential for conflict is perfectly illustrated by the Young’s divorce - imagine sharing ownership with your ex after a protracted divorce, especially when the mark is also your professional name, in this case DR. DRE.
Splitting ownership of trademarks is often problematic. Very simply, it is not advisable to split ownership of trademarks. Ideally, one entity owns and controls the mark. The owner entity is then free to license use of the mark to other parties via controlled license, but the ownership remains with the sole entity. The justification for sole ownership is demonstrated in the definition of a trademark, i.e., a sole source indicator of goods and services. Essentially, trademarks are devices used by consumers to identify the consistent quality, reliability, etc. associated with a certain brand. Trademarks can be extremely valuable assets of a business, and companies invest vast resources to create and build strong brands that are highly recognizable and have loyal consumer bases. Accordingly, a trademarkcannot be a sole source indicator if it is owned/used by two non-related individuals/entities.
There are risks to individual ownership of trademarks. The facts of this divorce also present a good reminder that trademarks should be owned by an entity when possible, as opposed to an individual. As mentioned in the foregoing paragraphs, Dr. Dre was listed as the individual owner of these marks until April 2020. First, his ownership as an individual likely does not help any argument that the marks do not belong to the marital estate as a personal asset. Next, there are other dangerous aspects of individual ownership, including being held personally liable for infringement, or held personally liable for product defects as the quality control manager as brand owner. Lastly, if a mark is owned jointly, it may be possible for one owner to enter into contracts regarding the mark without the knowledge of the other owners.
It appears that Dr. Dre’s legal counsel agreed, and in April of 2020, they filed an assignment transferring ownership of those registrations from Dr. Dre personally to a limited liability company.
Conclusion: Ownership of trademarks by individuals presents avoidable risks. Joint ownership of trademarks presents avoidable risks. It is uncertain how either of these issues will play out in the Young’s divorce, or if this dispute will remain relevant as the proceedings heat up. It is certain that splitting trademark ownership is not an appropriate solution to division of assets in a divorce, for at least the reasons discussed in the preceding paragraphs. It is also certain that entity ownership of marks is preferable, as individual ownership presents other avoidable risks.