International brewer AB InBev requires clear documentation of trademark rights when buying or merging with another company, as Associate General Counsel Jeremy Roe tells Ed Conlon.
Few industries have experienced such large-scale disruption as the alcohol sector in the past few years. A revolution has taken place on both sides of the Atlantic, in which craft breweries have seized on consumer demand for a greater variety of products.
Such a market shift has forced more established players to adapt to the business landscape, including the world’s largest brewer, AB InBev, the company behind the famous BUDWEISER beer brand. In a major deal last year, AB InBev acquired rival brewer SAB Miller for US $105 billion.
Merging with large companies and acquiring new brewers is a key part of the company’s strategy to adapt to the changing market. Consolidation arrives with many legal concerns which, if not addressed, can very easily derail an agreement, and for beer companies such as AB InBev, where branding is vital to its business model, concerns about IP rights can reach the top of the agenda.
“Trademarks are a key part of the value we attribute to M&A deals,” says Jeremy Roe, Primary Counsel for AB InBev’s U.S. craft and import division, The High End.
With the SAB Miller deal, there were a number of obstacles to obtaining its brand rights because of antitrust and other regulatory considerations, he says.
“This was an example of where trademark value was looked at in terms of needing to divest of trademark rights in order to obtain regulatory approval, versus more traditional deals involving craft brewery acquisitions where we seek to grow and cultivate their brands.
“We had to divest many of the trademarks owned or licensed by SAB Miller to third parties. In that case, the trademark value was part of the strategic thinking, but also part of the closing process in order to get regulatory approval in several territories.”
Mr. Roe explains that with licensing, “usually you are looking to license brands to another brewer who would take care of them in a good way and allow us to successfully exercise our quality control obligations.”
With divestiture, “it’s more about value optimization,” he adds.
Upon closing, SAB Miller was required to jettison the PILSNER URQUELL beer brand and around 1,000 other trademark rights to Japanese brewer Asahi.
“PILSNER was one of the most successful global brands in SAB Miller’s portfolio,” Mr. Roe says.
Mr. Roe describes the agreement as “overall a smooth transaction,” in contrast to his experience with AB InBev’s acquisitions of smaller craft brewers, where a laissez-faire approach to IP protection can often pervade.
“One of the biggest issues with regional craft brands is that they are not traditionally aggressive in enforcing their rights. They resolve disputes by calling a colleague at another brewer and coming up with a creative solution. There is often no documentation; there is simply a call or handshake agreement saying ‘we won’t infringe in your area if you don’t infringe in ours.’”
To some degree, these problems have impaired M&A discussions, he says; for instance, where the company wants to acquire a brand but finds during the due diligence stage other trademark uses that the brewer has ignored or not enforced against.
“We’ve reviewed situations where it would be difficult to move forward without having geographical limitations.”
In 2011, AB InBev acquired the Chicago craft brewer Goose Island in a high-profile deal. Under AB InBev’s wing the white goose has become an international symbol while maintaining its craft beer image. Few people will know that the brand is three decades old and “only now are we realizing the value of that brand,” says Mr. Roe.
IP protection and enforcement can be a public relations minefield for brewers. The advent of social media means they can be the subject of David and Goliath stories within hours of a tweet being published or a Facebook status being updated. What is essentially a defensive legal measure can very easily be presented in the media as an aggressive business strategy.
A creative approach is needed, Mr. Roe explains.
“Part of it is getting to know the craft breweries. We operate the breweries in a very independent manner. My aim is for them to see me as a partner, not someone creating a problem where there isn’t one,” he says.
Central to that dialogue is informing them of the benefits of IP protection, especially for smaller brewers.
“Education is the key difference. The smaller brewers often don’t understand what is appropriate for brand registration, so we have to provide education on the value of trademarks.”
Before approaching any acquisition Mr. Roe asks himself three questions: how good has the target been at protecting its rights accrued over time? What will be the position AB InBev takes up on day one? Will there be any portfolio clean-up work needed to operate without risk?
By clean-up work, Mr. Roe means ensuring adequate protection is sought for branding rights—a key consideration when assessing the value of a potential acquisition. An opportunity for a smaller brewer to scale upwards through a merger may disappear if it is unable to fulfil this basic criterion or unless AB InBev can move quickly to ensure protection is set up.
The face of the alcohol industry is changing dramatically and this shift is having a great impact on trademarks, as Mr. Roe notes.
“There are so many brands that it’s become next to impossible to truly clear a mark in this space, unlike before. We are always looking at common law uses and coexistence agreements; very rarely do we come up with a new brand and say ‘we are the first and only use.’ It’s a different risk calculation.”
Beer drinkers can be very loyal consumers—to the newer small craft breweries or to the larger brands that have served them well over the years. And while IP protection is essential to the success of that model, it is ultimately about the quality of the product behind the brand.
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AB InBev, INTA17, trademark, brands, Miller, protection, beer, diligence