The importance of goodwill

22-05-2017

Geetanjali Visvanathan

The importance of goodwill

AMR Image / iStockphoto.com

A passing off dispute in India has clarified the main points that rights owners should follow when seeking to defend a trademark, as Geetanjali Visvanathan of Anand and Anand explains.

A passing off dispute in India has clarified the main points that rights owners should follow when seeking to defend a trademark, as Geetanjali Visvanathan of Anand and Anand explains.

Trademark attorneys anywhere in the world would agree that to succeed in a case of passing off, the plaintiff must establish the classic trinity as laid down by the UK House of Lords in the case of Reckitt & Colman v Borden,ie, (i) goodwill or reputation; (ii) misrepresentation; and (iii) damage or its likelihood.

So, to cross the first hurdle in a case of passing off, the questions that arise are (i) what is goodwill?; (ii) what is the difference between goodwill and reputation?; and (iii) how does one prove goodwill? 

The answer to the first two questions can be found in any book on trademark law. As succinctly stated in Kerly’s Law of Trade Marks and Trade Names, Fourteenth Edition: “Goodwill is the attractive force which brings in custom and is a form of legal property representing the connection between the business and customer. Reputation is a matter of fact and its existence does not require that there should be a business in the said jurisdiction.”

So, to establish goodwill there should be a business or market for the goods or services bearing the mark of the plaintiff in the jurisdiction where the passing off action is filed. 

"Little use of a mark may be sufficient insofar as proprietorship of a mark is concerned, but it is not so in the case of establishing goodwill." 

The third question—how to prove that this attractive force brings in custom—was clarified in March 2017 by the Division Bench of the Delhi High Court in the case of Intex Technologies India and Anr v AZ Tech (India) and Anr.

Case study

In this case, AZ Tech sought a permanent injunction restraining Intex from using the mark ‘Aqua’ with respect to mobile phones and related accessories. AZ Tech alleged that it was the prior user of the unregistered mark ‘Aqua’, which had acquired goodwill and reputation among consumers in India having been used there since 2009, whereas Intex had started using the name only in 2012.

AZ Tech won the first round before the single judge, despite Intex having pointed out that on the date when Intex had launched its mobile phones under the mark ‘Aqua’, AZ Tech hardly had any sales or incurred advertising expenses for its own phones under the said mark in India.

The judge, while granting an interim injunction in favour of AZ Tech, misapplied the view of another Division Bench in the case of Century Traders v Roshan Lal Duggar. The judge held that in a case of passing off, prior use remains the ultimate test and at the interim stage, it was not necessary to show substantial sales or advertisements.

Aggrieved by the injunction, Intex appealed against the order of the judge. The Division Bench, taking into consideration the minimal sales and advertising expenses incurred by AZ Tech, vacated the injunction and held that although AZ Tech may have a reputation in other parts of the world, it had failed to establish goodwill in India.

The key points in this judgment pertaining to proving goodwill can be summarised as follows:

(i)     In a passing off case, both reputation and goodwill in the jurisdiction need to be shown;

(ii)    The relevant date for proving reputation and goodwill for the plaintiff in its unregistered mark is the date when the defendant commenced the acts complained of;

(iii)   Reputation can be established with familiarity of the mark among the consumers without any need for business in the said jurisdiction, whereas for goodwill to exist some market or business in the jurisdiction has to be established;

(iv) The extent of sales, advertising expenses, etc, indicate goodwill;

(v)    Proprietorship of a mark is different from goodwill; and

(vi) Single use or little use of a mark may be sufficient insofar as proprietorship of a mark is concerned, but it is not so in the case of establishing goodwill in respect of that mark.

Therefore, as reaffirmed by the Division Bench, it has to be remembered before initiating any action for passing off that the property which is protected is not the plaintiff’s proprietary right in the mark which the defendant allegedly misappropriates, but the goodwill and reputation of its business, which is likely to be harmed by the defendant’s misrepresentations. In contrast, for a registered trademark, the property exists in the mark.

Geetanjali Visvanathan is a managing associate in the litigation team at Anand and Anand. She completed her master’s in competition, innovation and information law from the New York University, School of Law and received her BA LLB from the Army Institute of Law, Mohali. She can be contacted at: geetanjali@anandandanand.com

Geetanjali Visvanathan, Anand and Anand, trademark, trademark defence, Trademark attorney, India,

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