In dismissing Kraft Heinz’s appeal, the Full Court has provided much needed clarity about the relationship between unregistered trade marks and the elusive legal concept of ‘goodwill’.
The decision serves as an important reminder to businesses that:
- Under Australian law, an entity can’t transfer an unregistered trade mark to another entity without also transferring the business related to the trade mark.
- To transfer a trade mark without transferring a business, the transferor first needs to register its trade mark.
- Failing to register a valuable trade mark used in a business can have major unforeseen consequences in the context of M&A transactions, especially where the business is operated by a subsidiary in a corporate group.
To read about the first instance decision – and see a handy infographic summarising the convoluted facts of the case – see the author’s previous article here.
The Full Court’s decision
In a decision handed down on 15 April 2020, the Full Court clarified the nature of unregistered trade marks and their relationship to ‘goodwill’ as follows:
- As a matter of Australian law, rights in relation to an unregistered trade mark can only be assigned by way of an assignment of the goodwill of the underlying business (see  and ).
- At the level of a business as a whole, goodwill will take on different shapes and have different sources depending on the nature of the business. It might, depending on the facts, be generated through the use of differing sources such as the locations, people, efficiencies, systems, processes and techniques of the business (see ).
- Trade marks, registered or unregistered, can be an important source of the overall goodwill of a business. A given business might operate multiple product lines, each with varying or overlapping trade marks. Each trade mark will make some contribution to the build-up of the goodwill of the business as a whole (see ).
- Goodwill is property in the sense of the right or privilege to use the assets of the business, as a business, to produce income. It has multiple sources, being each identifiable asset or other attribute of the business which contributes to bringing customers back to the business (see ).
- Where a company carries on several discrete businesses, the principles above can be applied to each separate business, such that an unregistered trade mark may be assigned together with the goodwill of the related business, rather than the business as a whole (see ).
The Full Court declined however to clarify how these issues relate to licensing unregistered trade marks (see ). Given this uncertainty, trade mark licensees should consider reviewing licensing arrangements to ensure that they have valid and effective rights. On the other hand, licensors should review their exposure to standard warranties to confirm that they are entitled to grant licensing rights.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.