April 1, 2021

A Bega reason to register your trade mark you may not find

Trade mark rights are assigned – transferred – from one owner to another all the time.
How many trade mark owners know, though, that if they assign an unregistered trade mark to another owner, then not only do they have to assign the goodwill in that trade mark, they also, as a matter of law, have to assign the underlying goodwill in their business, too? If they don’t, the assignment is likely to be invalid.

This issue was at the heart of litigation over the ditch between Kraft Foods Group Brands LLC and Bega Cheese Limited which was recently brought to a conclusion by Australia’s highest court, the High Court of Australia, when it denied Kraft Foods the opportunity to appeal the decision of the Full Federal Court of Australia which upheld the above legal principle. Although an Aussie decision, it is likely to be followed in New Zealand.

What’s the logic? Well, according to the Federal Court, unregistered trade marks are not recognised under Australian common law as “a species of property” – unlike registered trade marks which are. What is recognised, and therefore protected under Australian law, is the goodwill or reputation in an unregistered trade mark that has been generated by the use of that unregistered trade mark.

According to the Federal Court, however, the goodwill in an unregistered trade mark “is inseparable from the business to which it adds value”; consequently, the goodwill in an unregistered trade mark “cannot be dealt with except in conjunction with the sale of that business”. In other words, you cannot sell/transfer the goodwill in your unregistered trade mark without also selling/transferring the underlying goodwill in your business – the goodwill in the unregistered trade mark and the business cannot be divided. That can change things dramatically, especially the purchase price of the trade mark.

How does that work though if your company carries on several discrete businesses under different unregistered trade marks? Where a company carries on several discrete businesses (as in the Kraft Foods case), the principle will apply to each separate business, such that an unregistered trade mark may be assigned together with the goodwill of the related business, rather than the company’s business as a whole.

On a practical level, assigning the underlying goodwill in a business together with the goodwill in an unregistered trade mark is in most instances unlikely to be an issue, as the whole of the business is being sold anyway. The issue becomes problematic when the seller wants to carry on the same business (for example, manufacturing and selling peanut butter) after market has sold its unregistered trade mark for that business. According to the Federal Court, the seller will do so without any goodwill in its business – i.e. the only assets the seller may have are its plant, equipment, property and staff.  All the goodwill the seller had in its business must be re-built from scratch.

The goods news is you can prevent the issue from arising – by registering your trade mark. Under the Trade Marks Act 2002, the owner of a registered trade mark has the exclusive right to assign or transfer a registered trade mark either in connection with the goodwill of a business or not. You can therefore assign your registered trade mark to a purchaser without losing the underlying goodwill in the business generated by your use of that trade mark. Registering your trade mark is a no brainer then, really – isn’t it?

* Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65

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