Investors are focusing on Facebook‘s

offering price as the company prepares to go public as soon as next week.

Bloomberg News

Facebook founder Mark Zuckerberg: taking advantage of trusts.

Tax specialists are paying attention to something else: how half a dozen of the firm’s luminaries, including founder Mark Zuckerberg, appear to be using a perfectly legal maneuver called a grantor-retained annuity trust, or GRAT, to avoid at least $200 million of estate and gift taxes on their own Facebook shares.

“I’m not surprised the Facebook insiders have chosen to use GRATs,” says John Bergner, a gift-and-estate tax expert at the Winstead law firm in Dallas. He calls the strategy “an excellent way to shift wealth to others at little or no tax cost and with minimal legal and economic risk.”

Facebook’s prospectus cites eight separate “annuity trusts” set up by insiders Dustin Moskovitz, Sean Parker, Sheryl Sandberg, Reid Hoffman, Michelle Yee (Mr. Hoffman’s wife) and Mr. Zuckerberg over the past four years. All told, these trusts hold about 22 million shares that will be worth more than $690 million if Facebook goes public at $31.50 a share, the middle of its projected range.

Spokesmen or representatives for the six shareholders declined to comment on these trusts, or were unavailable. But Mr. Bergner and others—including Howard Zaritsky, a lawyer and estate expert in Rapidan, Va.—say they feel safe assuming the “annuity trusts” are GRATs, based on their knowledge of the territory and the language in Facebook’s prospectus.

“GRATs offer a perfect vehicle for wealthy investors who put money in start-ups, while other trusts don’t,” Mr. Zaritsky says.

And Facebook offers a good vehicle for explaining GRATs, one of several legal but arcane techniques the truly wealthy can use to sidestep estate and gift taxes.

In essence, these trusts transfer asset appreciation from one taxpayer to others, virtually tax-free.

The benefit can be huge. If the Facebook insiders didn’t use GRATs for those shares, but held them until they died or gave them away to friends or relatives after the offering, then the gift or estate tax owed on the shares would be more than $200 million. (This calculation assumes a $31.50 share price and the current top gift- and estate-tax rate of 35%; rates are scheduled to rise to 55% next year.)

A successful GRAT requires several ingredients: a person worth millions—or potential millions—who wants to avoid gift or estate tax and is willing to part with assets to do so; an asset that will rise in value while in the trust; and, if possible, low interest rates.

With these elements in place, the taxpayer sets up a GRAT with a set term of two years or longer and gives the asset to it before its value surges. Set-up costs include appraisal and legal fees.

Over the life of the trust, the person who set it up gets annual payments adding up to the asset’s original value plus a return based on a fixed interest rate determined by the Internal Revenue Service. That is currently 1.6%, near a record low.

Meanwhile, ideally, the asset soars in value, and that growth is outside of the grantor’s estate. When the GRAT’s term ends, the asset goes to the beneficiaries—usually into another trust set up for their benefit.

The result: no gift or estate tax on the appreciation, even though it has been transferred.

Here is an example, using figures from the Facebook offering document: Messrs. Zuckerberg and Moskovitz each disclosed “annuity trusts” holding 3.4 million and 14.4 million Facebook shares, respectively. The value of each share when the trusts were set up was less than $1.85, according to the prospectus.

After contributing their stock to the GRATs, the two founders would, over time, take payments equal to the original value of the gift plus a small return, Mr. Bergner says. Without knowing information that’s unavailable—such has how long the trusts will run or exactly how they are structured—it’s impossible to say what payments have already been or will be made.

But it is possible make an educated guess as to the appreciation that’s being shifted from the two founders’ estates. Mr. Bergner says that given a $31.50 share price, a conservative estimate of it is $29 per share, or about $100 million for Mr. Zuckerberg and more than $415 million for Mr. Moskovitz.

At current top rates of 35%, that means estate-and gift-tax savings of about $35 million for Mr. Zuckerberg and $150 million for Mr. Moskovitz. Other Facebook insiders and investors appear to be saving $20 million or more with their GRATs.

What if by some chance Facebook stock tanks? The stock would then be returned to the original owner.

“The person who sets up the GRAT is not really worse off, because he paid little or no tax in the first place,” Mr. Zaritsky says. “Either he wins or it’s a tie—except for the lawyer’s fees.” The principal risk with a GRAT is that the owner will die before the term is up, which isn’t likely in this case.

That, in a nutshell, is why the Facebook insiders would find it useful to put some of their shares in grantor-retained annuity trusts.

One question remains: Neither Mr. Zuckerberg nor Mr. Moskovitz appears to have children. So who are these trusts’ beneficiaries? Mr. Bergner says it is possible to name unborn children—as well as future spouses and current friends or relatives—as beneficiaries of a GRAT.

“There’s a window of opportunity here,” Mr. Bergner says, “and it’s good to use it.”

—Email: taxreport@wsj.com

A version of this article appeared May 12, 2012, on page B9 in the U.S. edition of The Wall Street Journal, with the headline: How Facebook’s Elite Skirt Estate Tax.

By BEN LEVISOHN And JOE LIGHT

How do you like them apples?

Investors got a scare on Monday when Apple,

among the best-performing stocks of 2012, tumbled 4.2%, capping a five-day stretch during which it lost 8.8%. The stock continued its slide later in the week, finishing Friday down 10% from its all-time high.

Apple stock now dominates the Nasdaq index and holds outsized influence even on the S&P 500. With the stock now slumping, investors face big risks. Benjamin Levisohn on The News Hub explains how to limit your exposure to Apple. Photo: AP.

You didn’t have to own a single share to feel the pain. That is because Apple, the largest public company in the U.S., now makes up more than 4% of the Standard & Poor’s 500-stock index and almost 18% of the Nasdaq-100. On some trading days, Apple alone can determine whether broad stock indexes are up or down. On Monday, for instance, the Nasdaq fell 1.1%, while the Dow Jones Industrial Average, which doesn’t include Apple, rose 0.6%. On Friday, Apple fell 2.5%, sending the Nasdaq down 0.4% even as the Dow rose 0.5%.

Making matters trickier, a broad swath of mutual funds have been piling into Apple shares of late—even funds dedicated to such specialties as small-company and emerging-market stocks. The result can be what experts call “concentration risk,” or too big a position in a single stock.

The good news is that there are ways to reduce this risk. By sticking to broader market indexes, choosing alternatives to traditional market-capitalization-weighted mutual funds and investing in other companies that benefit from Apple’s growth, you can cut back on Apple and still prosper if the stock continues to rise.

“Apple’s had an amazing run,” says Barry Knapp, chief equity strategist at Barclays Capital in New York. But “once a stock gets to this level of contribution, you have to think about its effect on markets.”

Pricey? Cheap? Who Cares?

It isn’t clear whether Apple, at $573 per share, is over- or underpriced. Depending on the valuation measure used, different investors can come to different conclusions.

Some companies that previously reigned as the largest in the S&P 500 got there because of irrational exuberance. Cisco Systems,

for example, saw its price/earnings ratio, a measure of valuation, swell to well over 100 at the stock’s peak in 2000—versus the S&P 500′s average P/E of about 25 at the time.

Apple is another story. Since it rolled out the iPhone in 2007, its P/E has shrunk, notes Horace Dediu, a former telecom analyst at Nokia

and founder of Asymco, a data-analysis firm in Helsinki. In 2007, Apple’s P/E based on the next 12 months of earnings was about 30; now it is about 12.8, compared with the S&P 500′s average of 12.5.

During that same period, Apple’s stock price has soared sevenfold—but its profits have increased by 1,200%.

One reason why Apple’s P/E is so reasonable, experts say, is that the technology sector is especially fickle, and investors are unsure of future profits. “This is a technology company in a world where technology changes quickly,” says John Goltermann, a portfolio manager at Obermeyer Asset Management in Aspen, Colo. “Now, it’s the incumbent, but that’s not necessarily going to be the case forever.”

Purely from a portfolio-management standpoint, however, whether or not Apple is overvalued is largely irrelevant. What matters is how much the company dominates your overall holdings.

Associated Press

Whether or not Apple is overvalued is irrelevant.

Experts typically recommend putting no more than 5% of a portfolio in any one company. While that might mean giving up some of the gains of a highflying stock, it protects against bigger losses should that stock crash.

Yet many investors aren’t heeding that advice. Financial planner Bruce Primeau of Summit Wealth Advocates in Prior Lake, Minn., says he just brought on a client who has almost 20% of his portfolio in Apple stock, which the client plans to manage by himself, outside of Mr. Primeau’s purview. Mr. Primeau says he is trying to convince the client to diversify out of the holding, but has had little success so far.

“I can run retirement projections until the cows come home” on the rest of the portfolio, he says. “But no matter what I do, Apple is going to have the most significant impact.”

Outsize Influence

History hasn’t been kind to companies that dominate the S&P 500 to the extent that Apple now does. Since 1990, four other companies have comprised 4% or more of the index, according to the Leuthold Group: Microsoft

in January 1999, General Electric

in December 1999, Cisco in March 2000 and Exxon Mobil

in April 2008. None of them stayed at that level for more than one year. Apple crossed that threshold in February and remains there now.

“It’s always been a good long-term sell signal,” says Doug Ramsey, chief investment officer at Leuthold Weeden Capital Management. “Companies haven’t been able to sustain that position for long.”

Even lesser levels of dominance can be unsustainable, notes Feifei Li, head of research at Research Affiliates. According to the firm, between 1952 and 2010, companies that led their sector in market capitalization have underperformed their sector by 3.2% per year for the next decade. Since the middle of 2007, meanwhile, 26 of the 100 largest companies in the S&P 500 have dropped out of the top 100, according to Leuthold Group data.

The reason they slide? Big companies tend to be less flexible, are easily distracted into markets outside their specialty and face higher government scrutiny, according to Research Affiliates’ Ms. Li. To wit: The U.S. Justice Department last week sued Apple and book publishers for allegedly colluding to raise prices. Apple declined to comment.

Despite the risks, some fund managers have been ramping up their allocations to Apple dramatically in the past few years, as Apple’s stock has soared.

“Whenever a name becomes dominant, it can distort the decision making of the manager and the people investing in their portfolios,” says Tom Brakke, president of investment researcher tjb research. “But as long as it’s going up, people tend not to notice.”

The $108 million Matthew 25

fund, for example, has 17.6% of its portfolio in Apple, the largest holding among all large-cap stock funds, according to investment-research firm Morningstar. That is up from 10.7% in March 2009. The DWS Large Cap Focus Growth

fund has a 14.6% stake in the company, up from 3.6% three years ago. And Fidelity Contrafund,

a core holding in many 401(k)s, as of the end of February had nearly 10% in the company, more than three times its position at the end of March 2009.

Mark Mulholland, the portfolio manager of the Matthew 25 fund, says having a 17% stake in a single company isn’t abnormal for the fund, which owns 19 stocks. Because Apple has been so strong it would be “more risky not to have a heavy position,” he says.

A Fidelity spokeswoman said the Apple holding has benefited Contrafund shareholders and is a result of the manager’s “rigorous investment process.” A DWS spokeswoman says the managers of DWS Large Cap Focus Growth, a portfolio of 35 stocks, look for companies that have attractive valuations, will benefit from strong secular growth stories and have products that are gaining market share.

What to Do

The first step in reducing a position is to take a full inventory. Search your fund companies’ websites for your funds’ holdings, which should be reported at least quarterly. The “Portfolio” section of Morningstar.com also has an “Instant X-Ray” tool, which shows you how much of your mutual funds and exchange-traded funds are in specific stocks.

Examine everything. Apple has been showing up in unusual places, including small- and midcap, foreign, emerging-market and European stock funds, among others.

A caveat: Reducing exposure to Apple means investors could miss out on future gains. Nevertheless, given the stock’s rapid climb, many experts recommend an overall exposure of 3% to 5%.

To get there, investors likely will have to look beyond the S&P 500 index of large-cap stocks—the go-to index for many investors. But those investors should think beyond large caps anyway, experts say, and hold sizable chunks of smaller stocks as well, both in the U.S. and beyond.

People who invest primarily in index funds can reduce their exposure simply by broadening the indexes they use. While the PowerShares QQQ

ETF, the most popular index fund that tracks the Nasdaq-100, has a nearly 18% stake in Apple, that drops to about 4.5% for the SPDR S&P 500

. The iShares Russell 1000

ETF, which follows the largest 1,000 companies in the U.S., has a 4% weighting, while the Vanguard Total Stock Market

ETF, which tracks the MSCI U.S. Broad Market Index of nearly all U.S. stocks, has a 3.6% stake.

Indexes that are weighted by factors other than market capitalization can reduce the impact of Apple even more, says Cokie Berenyi, a financial planner at Alphavest in Charleston, S.C. She recommends keeping money in ETFs that weight stocks equally, rather than by market capitalization, to avoid overconcentration.

The Guggenheim S&P 500 Equal Weight

ETF, for example, has only about a 0.2% allocation to Apple—and the rest of the stocks in the index. This year, the ETF has returned about 11%, roughly the same as the market-cap-weighted SPDR S&P 500 ETF.

Equal-weighted ETFs have their drawbacks. For one, they skew an S&P 500 fund more toward midcap stocks because they take an equal allocation in every stock in the index. That will cause the ETF to lag behind if large stocks take off. With a 0.4% expense ratio, the Guggenheim ETF is also pricier than typical market-cap-weighted ETFs. But those factors are more than offset by eliminating the risks of concentrating in one stock, Ms. Berenyi says.

A few actively managed mutual funds have been among the top performers, despite relatively small positions in Apple. As of April 18, the Dynamic U.S. Growth

fund and the Weitz Research

fund ranked among the top 10% of large-cap growth funds during the past 12 months despite owning no Apple shares in their most recently announced portfolios, says Morningstar. The Thornburg Core Growth

fund also ranked in top 10% of its peers, according to Morningstar, despite having only a 3.1% stake in the company. The funds have expense ratios of 0.95%, 0.9% and 1.45%, respectively.

For holders of individual stocks, the best approach is to identify other companies that will benefit from the forces that are driving Apple’s stock higher, says Amy Lubas, a strategist at Ned Davis Research, including the mobile Internet, cloud computing and the continued digitization of media.

That means looking at Apple’s suppliers, such as chip-makers Qualcomm

and Skyworks Solutions,

and companies set to benefit from the continued growth in the mobile Internet, such as data-storage provider EMC

.

“You might not want too much Apple, but fighting those trends would be foolish,” Ms. Lubas says. “They’re all intertwined.”

Write to Ben Levisohn at ben.levisohn@wsj.com and Joe Light at joe.light@wsj.com

Corrections & Amplifications

The Vanguard Total Stock Market exchange-traded fund was mistakenly called Vanguard Total Market in an earlier version of this article.

A version of this article appeared April 21, 2012, on page B7 in some U.S. editions of The Wall Street Journal, with the headline: Time to Cut Back on Apple?.

By RICHARD GIBSON

Perhaps nowhere is the Americanization of the planet more evident than in the restaurant world.

There’s an Applebee’s in Athens; a Papa John’s pizzeria in Karachi, Pakistan; two Ruby Tuesdays in Bucharest; a Denny’s in Christchurch, New Zealand; a Chili’s Grill & Bar on a riverboat on the Egyptian Nile. And always there are the seemingly ubiquitous outposts of McDonald’s, Domino’s and KFCs that keep popping up, like tourists on holiday, wherever one goes.

As the restaurant industry in the U.S. turns increasingly dour, major brands are turning their attention abroad, where business remains relatively robust and growing middle classes are creating large pools of consumers eager to taste affordable American-style fare.

Not only do the companies encounter less competition there than in the U.S., but newly arrived brands also typically enjoy a novelty aura that attracts the curious. Finally, many franchisers sell operating rights to local businesspeople, who assume responsibility for the restaurants day to day and send royalty payments back to the chains’ home offices, often giving the corporate owners a superior return on their investment.

“Trends continue to be in our favor,” says McDonald’s Corp.

President Ralph Alvarez. “We’re growing [abroad] because demand exceeds our supply.”

Many investors in McDonald’s and multi-fast-food giant Yum Brands Inc.

are holding those stocks precisely because of the perceived opportunities overseas.

This year, Burger King, McDonald’s and Papa John’s International Inc.

are among chains intending to open more restaurants abroad than at home. And in laying out plans for combining Wendy’s International Inc.

with its Arby’s sandwich business, Triarc Cos. said it sees substantial possibilities abroad, where both brands have relatively few outlets.

YUM, which owns Pizza Hut, Taco Bell and Long John Silver’s, along with KFC, estimates that within 10 years 70% of its profits will come from outside the U.S. Today, about 55% does.

The company is a stellar example of how to cook up overseas potential. China, a market it entered 21 years ago, today delivers about 25% of the company’s annual profits. Its KFC brand has more than 2,000 locations in 500 cities across the Chinese mainland, with restaurants that not only serve chicken but also congee soup and fried dough at breakfast. (McDonald’s, which followed KFC to China, has fewer than half that number.) Yum is even venturing into the coals-to-Newcastle business of selling its version of Chinese food to the Chinese.

With 15,000 of its 35,000 restaurants outside the U.S., Yum continues to seek out new markets. KFC soon will enter Nigeria, its 106th country. Next year Yum plans to test the popularity of its best-selling domestic brand, Taco Bell, in India.

Casual-dining operators also are trekking abroad in search of profits. Chili’s parent, Brinker International Inc., which says its long-term vision is to become the “dominant, global casual-dining restaurant portfolio company,” last year signed development agreements to expand in Australia, Canada, Ecuador, Honduras, Peru, Portugal, South Korea and Turkey.

As in the U.S., McDonald’s says, finding the right location is the company’s biggest challenge abroad. Prime real-estate targets are increasingly in suburbs ringing the cities of Europe, Asia and Latin America. The world’s largest hamburger chain, McDonald’s has more than 17,500, or about 56% of its restaurants, outside the U.S.

While McDonald’s Mr. Alvarez says that “we’re not looking for new countries” to enter, archrival Burger King has been doing just that. In fiscal 2007, the No. 2 company in hamburger restaurants behind McDonald’s went into Japan, Poland, Egypt and Indonesia. In the past two years it has opened 34 restaurants in 14 cities in Brazil alone.

Another dominant U.S. player abroad is Domino’s Pizza Inc., with some 3,500 stores, or about 40% of its total, outside the U.S. That 25-year overseas presence recently helped offset disappointing domestic results; in the last quarter, international comparable sales — free from the intense competition that has roiled the U.S. pizza market — rose 8.8% from a year ago while Domino’s domestic business experienced a 5.2% drop.

Some restaurateurs modify their menus to cater to local tastes. In some parts of Asia, for instance, McDonald’s serves rice burgers: shredded beef between rice patties. Customers in the Netherlands can order a deep-fried patty of beef ragout. In India, its Big Mac — called the Maharaja Mac — is made with chicken rather than beef. But, says Mr. Alvarez, “our core menu is still what you know in the U.S. People come to McDonald’s because they want an American product.”

Overseas success isn’t a sure bet. Papa John’s stumbled on its first foreign sojourn, when it entered Mexico in 1998. “We didn’t have our act together,” says David Flanery, president of the pizza company’s international operations. “We had the wrong franchise partner.”

As a result, the company eventually closed most of its 40-or-so stores there, found new local operators, revised its support structure and started over. Today, the Louisville-based firm has pizzerias in 28 countries.

Getty Images

Despite the allure, some big U.S. restaurateurs haven’t ventured outside North America. They include Cheesecake Factory Inc.,

Jack In The Box Inc.,

Panera Bread Co.,

CBRL Group‘s

Cracker Barrel Old Country Store chain and Darden Restaurants

Inc.. Each has indicated it sees significant growth at home.

“We periodically look at international expansion to understand where opportunities exist,” says Darden spokesman Rich Jeffers. “However, given the momentum that we have at our existing businesses and given the potential that we have with LongHorn [steakhouse], Bahama Breeze, Capital Grille and Seasons 52, we believe that our focus on domestic opportunity will consume most of our time over the next few years.” Darden does operate a smattering of Olive Garden and Red Lobster restaurants in Canada.

Write to Richard Gibson at dick.gibson@dowjones.com

Printed in The Wall Street Journal, page B5A

By ANGUS LOTEN And EMILY MALTBY

Get ready for the return of Astro Pops, Boast logo shirts, National Premium beer and the Seafood Shanty restaurant chain—all names that had avid followings in their time.

The difficult economy is prompting many entrepreneurs to try to revive old brands from the dead—or the near-dead.

Get ready for the return of long-abandoned products like Astro Pops and National Premium Beer. The difficult economy is prompting entrepreneurs to revive old brands. Angus Loten has details on The News Hub. Photo: Miranda Harple for The Wall Street Journal.

The problem is that tastes have changed in the meantime. But that hasn’t stopped Eddie Riegel of Exeter Township, Pa. The owner of a Reading, Pa., cleaning company has invested $1 million of his personal savings and a government-backed small-business loan in his bid to revive the old Seafood Shanty chain.

The restaurants, first launched in 1970, had 14 locations in Pennsylvania and New Jersey by the 1980s and were known for clam chowder and Key lime pie. But founder Joseph C. Gentile lost his small seafood empire after falling into debt by the 1990s. He was later charged with failure to pay taxes, including payroll taxes. (He couldn’t be reached for comment.)

Mr. Riegel, who took his wife to a Seafood Shanty on their first date in 1982, acquired the trademark for the brand in 2010 after asking his lawyer to find out whether the rights to the mark had expired. He bought the original recipes for $7,500 after tracking down the former chef on Facebook. He says he also got some fishing nets and other original decor from former Seafood Shanty workers.

In February, Mr. Riegel opened the first new Seafood Shanty restaurant in Spring Ridge, Pa., not far from the chain’s former headquarters. As early as November, he says, while crews were still putting up the drywall, about 200 people had lined up outside for prelaunch gift cards.

While he’s kept much of the original concept—19 of the 85 employees used to work for the chain, including the manager—he has added a raw bar and a seafood market at the flagship location. “There’s a tremendous amount of buzz around this,” he says. “Anyone who grew up in the area remembers these restaurants.”

Using an old brand or product gives entrepreneurs at least one important advantage over start-ups: The amount they have to spend on marketing is often less than the cost of creating a new brand or concept, says George T. Haley, who teaches marketing at the University of New Haven’s College of Business.

If a trademarked brand hasn’t been used for three or more consecutive years, the law presumes it has been abandoned and it becomes available for others to register and use, according to Lawrence J. Siskind, a founding partner at the law firm Harvey Siskind LLP in San Francisco who specializes in intellectual-property law.

Other entrepreneurs say they are actively seeking the owners of old products and concepts that may have fallen by the wayside in order to buy the rights. “It’s pretty much open season for older brands,” says Garland Pollard, a former travel writer from Sarasota, Fla., who started BrandlandUSA, a Web site for posts about classic American brands, five years ago.

A year ago, Mr. Pollard added classified ads to the site, enabling people to buy and sell old brands. The site itself gets 17,000 visits a month, he says, while the classified-ad page is getting about 400 visits a month, up from 200 at the start of the year.

“Because something is discontinued doesn’t necessarily mean it’s a bad product,” says entrepreneur Ellia Kassoff of Newport Coast, Calif. “Maybe it just didn’t fit the business model of the company at the time.”

The 43-year-old Mr. Kassoff, who owns an executive recruiting firm, noticed a few years ago that a local cash-and-carry chain was no longer carrying Astro Pops, the rocket-shaped lollipop he used to buy as a kid.

He says he called the pops’ owner, Spangler Candy of Bryan, Ohio, in 2010 and was told that Astro Pops had been discontinued in 2004.

National Premium

Baltimore Orioles’ Fan Favorite

He agreed to pay cash up front for global rights to the trademark and recipes as well as three years of royalty payments. He then figured out how to make the product in China in a way that would let him replicate the pops’ look and taste. He plans to launch the pops at Dylan’s Candy Bar in New York next month.

Tim Miller of Easton, Md., paid $1,200 for the National Premium beer trademark at a December 2010 auction. Launched in the 1930s, the brand, familiar to generations of Baltimore Orioles fans, disappeared in the mid-1990s after then-owner Stroh Brewing Co. ceased production amid weak sales.

“It was just too good to be true for a native Marylander to see a brand like that available,” says Mr. Miller, a realtor, who spent the first six months of 2011 tracking down the beer’s original recipe. He has since lined up two distributors and hopes to start selling the beer later this year.

John Dowling of New York City first saw Boast polo shirts at a tennis camp in the 1980s. The shirts, a preppy icon, were launched in Greenwich, Conn., in 1972 by All-American squash and tennis player Bill St. John. “Everyone was wearing Lacoste, but the cool camp counselors were wearing Boast,” says Mr. Dowling, a former New York University film student who worked in advertising.

Boast

Tennis star Roscoe Tanner wore a Boast polo shirt in the 1979 Wimbledon finals.

The logo had vanished from mainstream clothing stores by the early 1990s, although Boast shirts were still available at tennis and country clubs. Two years ago, Mr. Dowling, 40 years old, and a partner—both avid tennis and squash players—struck a deal with Mr. St. John to buy the brand’s trademark logo, a tiny Japanese maple leaf that is often mistaken for marijuana. They paid more than $1 million, according to Mr. St. John, though the buyers dispute that.

Under the deal, Mr. St. John got a 32% share of Branded Boast, a spinoff company that would sell the clothing line in the U.S. Mr. St. John also continues to run Boast Inc., which sells a private-label line without the logo at sports and country clubs in the U.S. and overseas.

Mr. Dowling launched the revived clothing line in September 2010 with financing from an angel investing round. The new line updates the 1980s look with a slimmer, contemporary cut.

At a New York City trade show in January 2011, he says, “People came by the booth and were like ‘Holy cow! Is that Boast?’”

The first run of 8,000 shirts had sold out, with about 90% of sales online. Mr. Dowling is adding shorts, tennis dresses and accessories that used to be features of the brand.

Mr. St. John, now 63, says having fans of the past isn’t enough, though. “There are all those youngsters out there now [who] need to be turned on to it.”

Write to Angus Loten at angus.loten@wsj.com and Emily Maltby at emily.maltby@wsj.com

A version of this article appeared April 19, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Old Brands Get a Second Shot.

By ANTONE JOHNSON

Venture capitalists, angel investors and start-up lawyers these days tend to be obsessed with “intellectual property,” or IP.

And for good reason: In the information economy, the core assets of a new venture are likely to be talented people, the IP they create, and little else.

To maximize future value, founders should try to lay a solid IP foundation even before a new start-up is incorporated. Here are five common mistakes to avoid:

1. “Contamination.”

Perhaps the single greatest source of IP anxiety in Silicon Valley stems from the fact that engineers and executives tend to build on what they know best when starting a new venture.

Jay Goldman

If a former or “day job” employer can lay any claim to the IP upon which a new start-up is built, that claim, however tenuous, injects risk into the venture. And that risk grows in magnitude over time proportionate to the success of the business.

A classic example is the so-called “Winklevoss Twins problem” made notorious by the movie “The Social Network.” Some degree of ambiguity regarding IP ownership may be inevitable, but if a sliver of equity must be granted to settle the dispute, it makes quite a difference if the “sliver” is in a company worth $1 million or $100 billion. In Facebook’s case, the settlement netted the Winklevoss brothers stock worth many millions of dollars.

Of course, such disputes are rarely litigated except when the new start-up turns out to be a big success, in which case everyone scrambles for a piece of it.

2. Mixing up what came from where.

IP rights ordinarily belong to the individual who creates the work unless the creation occurs as part of the person’s job, a so-called “work for hire.”

One common mistake is to use a non-employee contractor or consultant to produce work without obtaining the necessary assignment of IP rights to the client company.

After the contractor has been paid, the company’s leverage to coax him or her into signing more legal documents is more or less gone.

This all gets complicated, thanks to the natural fluidity of start-ups as business enterprises: A software developer may have started out tinkering with a side project during evenings and weekends, bring some of that knowledge or code to bear on a consulting engagement with a colleague who founded a startup, and ultimately join the team as a co-founder or one of the first employees.

Commonly, co-founders are asked to assign all rights in any IP they may have created in the past that relates to the new business in any way as part of the “purchase price” for their shares of stock.

Assuming the individual has those rights to assign in the first place, that takes care of the past, but it still leaves the future. To ensure that the company gets the benefit of future innovation, every employee, co-founder or contractor should sign an agreement with the start-up, commonly called a Confidential Information and Invention Assignment Agreement or similar mouthful, that clearly assigns IP rights in all work done on the company’s dime going forward to the company.

3. Planning to launch a business around a clever, catchy brand name that can’t be used.

Registering a corporate name with a state or obtaining a domain name doesn’t necessarily mean the same name can be used in commerce.

Here is where trademark law rears its ugly head. It’s also one of the most notoriously subjective areas of law.

If I start a company called CloudTech Solutions Inc. in California, and you start one in New York called TechCloud Systems Inc., are they confusingly similar?

An entire law school final exam could be given on this one question.

There’s no substitute for consulting with a qualified trademark lawyer before investing heavily (financially or emotionally) in a brand.

Although it never hurts to consult the U.S. Patent and Trademark Office TESS online database, that kind of search alone is notoriously inadequate.

4. Confusing types of IP and means of protection.

Even industry veterans occasionally confuse a trademark with a copyright or a patent with a trade secret. Often multiple IP rights reside in the same product or creation.

They may overlap but they’re viewed as discrete rights under law and should be treated accordingly. So, a little terminology goes a long way:

• 
  Trademarks are brand and product names, graphic logos, slogans, taglines, and other indicators of origin of the goods or services in question.

• 
  Copyright is the right to control reproduction and distribution of original works of authorship fixed in tangible forms of expression. Every original work is automatically copyrighted under U.S. law upon creation, whether or not registered, although there are benefits to registration.

• 
  Patents are property rights granted by the government to exclude all others from making, using, selling or importing anything that uses or incorporates the patented invention.

• 
  Trade secrets, generally covered by state law in the U.S, are everything else that could be considered confidential or proprietary. Examples include clever ways of solving technical problems, algorithms, internal financial or operational data, and other valuable business information, provided that the company takes care to treat it as confidential.

5. Overvaluing patents.

Although entrepreneurs often want to “patent an idea,” ideas themselves are not patentable.

To be patentable, an invention must be a new, useful and non-obvious method or process, described in enough detail that it can be “reduced to practice” by a person with the relevant technical expertise.

What makes patents unique is that they can legally prevent a copycat competitor from doing business, regardless of how hard it may have worked to develop something similar or equivalent to the patented invention.

(In other areas such as copyright or trade secret, with few exceptions, independently developing a similar product or work without actually copying the original is perfectly legal.)

Patents require the greatest investment—of technical employees’ time and the company’s money—and they tend to be narrow in applicability, and written in highly technical terms.

The process is slow and expensive, but for those who succeed, the payoff is a 20-year government-sanctioned monopoly over the patented technology.

The “Holy Grail” in IP is obtaining a valid patent that your fiercest competitors cannot avoid infringing in order to do business at all.

Patents are most valuable in areas such as pharmaceuticals.

But they can be of minimal value in Internet and software businesses because those categories of businesses generally come with continuous change in technologies and business models.

By ANGUS LOTEN And EMILY MALTBY

Get ready for the return of Astro Pops, Boast logo shirts, National Premium beer and the Seafood Shanty restaurant chain—all names that had avid followings in their time.

The difficult economy is prompting many entrepreneurs to try to revive old brands from the dead—or the near-dead.

Get ready for the return of long-abandoned products like Astro Pops and National Premium Beer. The difficult economy is prompting entrepreneurs to revive old brands. Angus Loten has details on The News Hub. Photo: Miranda Harple for The Wall Street Journal.

The problem is that tastes have changed in the meantime. But that hasn’t stopped Eddie Riegel of Exeter Township, Pa. The owner of a Reading, Pa., cleaning company has invested $1 million of his personal savings and a government-backed small-business loan in his bid to revive the old Seafood Shanty chain.

The restaurants, first launched in 1970, had 14 locations in Pennsylvania and New Jersey by the 1980s and were known for clam chowder and Key lime pie. But founder Joseph C. Gentile lost his small seafood empire after falling into debt by the 1990s. He was later charged with failure to pay taxes, including payroll taxes. (He couldn’t be reached for comment.)

Mr. Riegel, who took his wife to a Seafood Shanty on their first date in 1982, acquired the trademark for the brand in 2010 after asking his lawyer to find out whether the rights to the mark had expired. He bought the original recipes for $7,500 after tracking down the former chef on Facebook. He says he also got some fishing nets and other original decor from former Seafood Shanty workers.

In February, Mr. Riegel opened the first new Seafood Shanty restaurant in Spring Ridge, Pa., not far from the chain’s former headquarters. As early as November, he says, while crews were still putting up the drywall, about 200 people had lined up outside for prelaunch gift cards.

While he’s kept much of the original concept—19 of the 85 employees used to work for the chain, including the manager—he has added a raw bar and a seafood market at the flagship location. “There’s a tremendous amount of buzz around this,” he says. “Anyone who grew up in the area remembers these restaurants.”

Using an old brand or product gives entrepreneurs at least one important advantage over start-ups: The amount they have to spend on marketing is often less than the cost of creating a new brand or concept, says George T. Haley, who teaches marketing at the University of New Haven’s College of Business.

If a trademarked brand hasn’t been used for three or more consecutive years, the law presumes it has been abandoned and it becomes available for others to register and use, according to Lawrence J. Siskind, a founding partner at the law firm Harvey Siskind LLP in San Francisco who specializes in intellectual-property law.

Other entrepreneurs say they are actively seeking the owners of old products and concepts that may have fallen by the wayside in order to buy the rights. “It’s pretty much open season for older brands,” says Garland Pollard, a former travel writer from Sarasota, Fla., who started BrandlandUSA, a Web site for posts about classic American brands, five years ago.

A year ago, Mr. Pollard added classified ads to the site, enabling people to buy and sell old brands. The site itself gets 17,000 visits a month, he says, while the classified-ad page is getting about 400 visits a month, up from 200 at the start of the year.

“Because something is discontinued doesn’t necessarily mean it’s a bad product,” says entrepreneur Ellia Kassoff of Newport Coast, Calif. “Maybe it just didn’t fit the business model of the company at the time.”

The 43-year-old Mr. Kassoff, who owns an executive recruiting firm, noticed a few years ago that a local cash-and-carry chain was no longer carrying Astro Pops, the rocket-shaped lollipop he used to buy as a kid.

He says he called the pops’ owner, Spangler Candy of Bryan, Ohio, in 2010 and was told that Astro Pops had been discontinued in 2004.

National Premium

Baltimore Orioles’ Fan Favorite

He agreed to pay cash up front for global rights to the trademark and recipes as well as three years of royalty payments. He then figured out how to make the product in China in a way that would let him replicate the pops’ look and taste. He plans to launch the pops at Dylan’s Candy Bar in New York next month.

Tim Miller of Easton, Md., paid $1,200 for the National Premium beer trademark at a December 2010 auction. Launched in the 1930s, the brand, familiar to generations of Baltimore Orioles fans, disappeared in the mid-1990s after then-owner Stroh Brewing Co. ceased production amid weak sales.

“It was just too good to be true for a native Marylander to see a brand like that available,” says Mr. Miller, a realtor, who spent the first six months of 2011 tracking down the beer’s original recipe. He has since lined up two distributors and hopes to start selling the beer later this year.

John Dowling of New York City first saw Boast polo shirts at a tennis camp in the 1980s. The shirts, a preppy icon, were launched in Greenwich, Conn., in 1972 by All-American squash and tennis player Bill St. John. “Everyone was wearing Lacoste, but the cool camp counselors were wearing Boast,” says Mr. Dowling, a former New York University film student who worked in advertising.

Boast

Tennis star Roscoe Tanner wore a Boast polo shirt in the 1979 Wimbledon finals.

The logo had vanished from mainstream clothing stores by the early 1990s, although Boast shirts were still available at tennis and country clubs. Two years ago, Mr. Dowling, 40 years old, and a partner—both avid tennis and squash players—struck a deal with Mr. St. John to buy the brand’s trademark logo, a tiny Japanese maple leaf that is often mistaken for marijuana. They paid more than $1 million, according to Mr. St. John, though the buyers dispute that.

Under the deal, Mr. St. John got a 32% share of Branded Boast, a spinoff company that would sell the clothing line in the U.S. Mr. St. John also continues to run Boast Inc., which sells a private-label line without the logo at sports and country clubs in the U.S. and overseas.

Mr. Dowling launched the revived clothing line in September 2010 with financing from an angel investing round. The new line updates the 1980s look with a slimmer, contemporary cut.

At a New York City trade show in January 2011, he says, “People came by the booth and were like ‘Holy cow! Is that Boast?’”

The first run of 8,000 shirts had sold out, with about 90% of sales online. Mr. Dowling is adding shorts, tennis dresses and accessories that used to be features of the brand.

Mr. St. John, now 63, says having fans of the past isn’t enough, though. “There are all those youngsters out there now [who] need to be turned on to it.”

Write to Angus Loten at angus.loten@wsj.com and Emily Maltby at emily.maltby@wsj.com

A version of this article appeared April 19, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Old Brands Get a Second Shot.