The article was published on October 16, 2020. To read it in The Lawyer's Daily, visit: https://www.thelawyersdaily.ca/articles/21683/-lessons-from-dr-dre-is-your-high-powered-trademark-ready-for-divorce-or-death- (subscription required).
Lessons from Dr. Dre: Is your high-powered trademark ready for divorce or death?
Dr. Dre is an American rapper and his solo debut studio album in 1992, The Chronic, made him one of the best-selling American music artists of 1993 and earned him a Grammy.
Dr. Dre established his own label, Aftermath Entertainment, and signed rappers Eminem in 1998 and 50 Cent in 2002. In 2008, Dr. Dre released his first brand of headphones Beats by Dr. Dre. Six years after its release, technology giant Apple purchased the Beats brands for US$3 billion, which was at that point Apple's most expensive purchase.
The deal with Apple made Dr. Dre the richest man in hip hop, surpassing Sean Combs; a.k.a., Puff Daddy, P. Diddy, Puffy or Diddy, and if none of those aliases ring a bell, he was Jennifer Lopez's date at the 2000 Grammys, where Jennifer wore the sheer, exotic green Versace dress with a very low neckline that extended past her navel.
Back to Dr. Dre.
In the midst of all of his success, Dr. Dre managed to find love and married Nicole Young in 1996. While his professional life continued to flourish, his marriage to Young did not. After 24 years of marriage, Dr. Dre and his wife are calling it quits. As is expected from Hollywood divorces, the impending legal battle will be epic.
Young is seeking millions from Dr. Dre. More fascinating, Young is claiming that she is the co-owner of two of her estranged husband's trademarks - his stage name, Dr. Dre, as well as the name of Dr. Dre's debut studio album, The Chronic. Young further alleges that Dr. Dre "secretly transferred" the trademarks to a holding company shortly after he allegedly kicked her out of their home. Oh snap!
Young claims that she has demanded return of the trademarks but that Dr. Dre has "failed and refused to do so." Young has commenced legal proceedings against Dr. Dre and in those proceedings she alleges that it is unjust for Dr. Dre to retain ownership of the trademarks, and the value the trademarks hold, without paying her or allowing her to maintain her equal ownership. Young wants the trademarks to be transferred to a trust.
Dr. Dre's use of his stage name and the release of The Chronic pre-date his marriage to Young. However, the two trademarks were not filed until the year following his marriage to Young and, according to Young, that qualifies the trademarks as "community property" under the California Family Code, and makes Young a co-owner.
Dr. Dre also filed trademark applications in Canada for The Chronic and for his stage name. In Canada, a trademark is adopted whenever a person begins to use the trademark in Canada - assuming he/she is the rightful owner of course. In Canada, if Dr. Dre's use of the trademarks predates any registration of the trademarks then he may have accrued common law rights to the marks. If his use predates his marriage to Young, then there might be an argument that the trademarks are assets brought into the marriage.
We aren't family law lawyers so we won't be discussing much of that in this article. Instead, we will be discussing what happens to your trademark once you pass away. Keep reading.
Estate planning considerations
Regardless of the outcome in his divorce proceedings, hopefully Dr. Dre has good estate planning - especially when it comes to his valuable brands.
If this were in Ontario, and Dr. Dre passed away without a will before finalizing his divorce, his estate would be distributed in accordance with provincial intestacy law. The result is that Young would receive the first $200,000 of the residue of the estate, as well as one-third of the balance of the residue. Dr. Dre's six children would divide the remaining two thirds. And, in the absence of any estate planning, his estate would include any assets he owns at the date of his death, including any intellectual property. Such an outcome would almost certainly not be Dr. Dre's intention.
Tangible assets, like real estate, can be relatively straightforward to identify and value. Intangible assets, such as a trademark, on the other hand, are a completely different species.
How does one value a trademark?
The process of assessing the monetary value of a trademark, for example, is difficult and there are different methods.
For instance, one method is based on the cost incurred to get the brand to its current state, while another could be to forecast future sales generated by the brand. And what could be more valuable to an entertainment superstar than his name?
The treatment of intangible assets on death will be determined by the will (if one exists) and the interests and wishes of the beneficiaries. If a trademark is owned by a company, it is possible for the shares of that company to be transferred to the beneficiaries in accordance with their interest in the estate, and the directors and shareholders of the company would decide how to deal with the trademark going forward.
If the trademark is owned personally, the situation can be slightly more complicated. A will may give the estate trustee the power to sell the trademark or to continue to oversee the trademark's registration and use. All estate trustees have a fiduciary duty to act in the beneficiaries' best interests, so if the trademark generates substantial revenue, the estate trustee may be obligated to continue managing the trademark and pay the income out to the beneficiaries. Such a decision comes at a cost, however, since the estate will have to compensate the estate trustee for the period during which they manage estate assets. The beneficiaries may instead prefer to sell the trademark and invest the money elsewhere.
Whatever the decision, the critical component is that the estate trustee and the beneficiaries obtain sound tax, corporate and financial advice so that they can make an informed decision.
While we generally don't like to think about divorce or death, if you own intangible assets, you should obtain professional advice so that you can avoid this mess that Dr. Dre is currently in. As Dr. Dre put it in the last line of his song "High Powered," you might have no love for the other side.
Originally published by The Lawyer's Daily on October 16, 2020 (subscription required).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.