Goodwill Hunting - Of Trademarks, Assignments, and the Business Concerned

One aspect that can make trademarks and related transactions interesting, is the treatment of goodwill associated with the mark.

Under the Trade Marks Act, 1999, a registered or unregistered mark may be transferred with or without the goodwill of the “business concerned”. A reading of the provision in the statute, can often lead one’s mind to conflicting opinions and interpretations of law.

The use of this phraseology, created a sudden doubt in my mind, thanks to the haste I exercised- Is “Business concerned” to be interpreted as the business concerned with the trademark, or does it refer to the business entity, that used the trademark?

In the course of my research, I stumbled upon a case that discussed, in a somewhat indirect, yet interesting manner, the assignability of a trademark and the goodwill associated thereby, vis-a-vis an action for infringement. The 2007 Delhi High Court decision in Doctor Morepen Ltd. vs. Yash Pharma Laboratories Ltd., dealt in the use, assignment, and consequent infringement of a mark, used inrespect of a lemon based pharmaceutical preparation.

The mark LEMONLATE (along with copyrights, technical knowhow etc.), was assigned by Yash Pharma to Morepen. Later, Yash Pharma adopted the mark LEMOTAB, in respect of a medicine for common cold and flu. 

In deciding whether a case of infringement had been made out, the court noted that Yash Pharma even at the time of the assignment, was cognizant of the fact that the word 'LEMO' was derived from lemon, and that 'LEMOLATE' was a coined word. The assignment had been made for a “hefty” consideration, accompanied by an undertaking, that they would not coin another mark similar to the coined 'LEMOLATE'.

The court stated that after giving this specific undertaking, and after receiving consideration, the defendant was precluded from using the term LEMO in respect of similar formulations. Observing that both the drugs being over the counter drugs, the court opined that the use of similar trade names, elevated the likelihood of confusion amongst consumers.

While the court did not directly attack goodwill or any aspect with respect to the intent to assign, the Court clearly noted as below:

“...the assignment agreement marks the entering of the plaintiff into the shoes of defendant to take full advantage of the trademark and maintenance of secrecy about the change in ownership reflects the intention that the market of the plaintiff may not be affected. By bringing a tablet almost in the similar name 'LEMOTAB', the defendant is not only infringing the trademark but also announcing indirectly that it has sold 'LEMOLATE' and now it has come up with another tablet which would be competing with 'LEMOLATE'.”

This case in my opinion, removes all doubt regarding assignment of a mark and goodwill. As I read it, not only does goodwill associated with the mark, need to be assigned, but the assignor also needs to give up any intent, plan or speculation to bring into the market, any mark likely to interfere with the goodwill appending the assigned mark.

In light of this decision, it seems apparent to my mind, that “with or without the goodwill of the ‘business concerned’” should be interpreted to mean the goodwill associated with the business as a business entity, and not the business appending or necessarily travelling with the mark.

If an interpretation otherwise be adopted, it seems to nullify the purpose of an assignment, which in fact is to ride upon the goodwill (and perhaps reputation) associated with the mark, without inviting any legal impediments.

I am a however informed that there are instances where goodwill need not necessarily be assigned. But in a situation such as this, wouldn’t such an assignment qualify as a naked or void one? (I understand that a similar position is adopted under the US law.)

Further, what strengthens my line of thought, is that it would be more lucrative for a person seeking assignment of a mark stripped away from its goodwill, to use an absolutely new mark and build on its goodwill independently, rather than paying for and using an assigned mark, while also incurring expenses on building its reputation afresh.

Having said this, I am unable to reconcile a line of logic behind the allowance of an assignment devoid of the mark’s goodwill. However, in view of businesses having multiple marks, and possibly multiple lines of business, I can imagine a situation whereby a mark is assigned (perhaps a mark different from the house mark), but not the goodwill of the business as a whole.

Debate and Disapproval on this string of thought is welcome.