India: Role Of Goodwill In Transfer Of Trademark

INTRODUCTION

A trademark is a property of the owner and owner has a right under the Trade Marks Act, 1999 to transfer the property to other person against any consideration. Although the classical theory regarding the goodwill and trademark says that, the two are inseparable but the contemporary law evolved to an extent that now a trademark is treated separately from goodwill and hence a trademark can be transferred with goodwill as well as without goodwill.

LAW REGARDING ASSIGNMENT OF TRADEMARK

Assignment is the legal term for transfer of ownership which simply means any act of parties by which interest or rights associated with property of any kind can be transferred from one party to another party.

Trade mark can be assignable or transmissible by three Modes

  • By legal operation;
  • Inheritance; and
  • Giving authority to other party.

The assignee will become the subsequent proprietor of the trademark assigned whether in part or in full based on the conditions agreed between the parties.

As per The Indian Trade Marks Act, 1999 (hereinafter "Act"), a trademark can be assignable with or without of goodwill of the business either in respect of all the goods or services or part thereof. Indian law according to Sec. 37 of the Act recognize the right of proprietor in trademark & in Sec. 38, 39 of the Act by which registered or unregistered trademark can be assignable and transmissible with or without goodwill subject to restrictions laid down in Sec. 40 of Trade Marks Act, 1999. On the other hand, U.S. legislation under Sec. 10 of Trademark act (Lanhman Act) 1946, recognize only assignment of trademark with goodwill and assignment without goodwill is termed as assignment in gross and invalid, therefore assignee acquire no rights in such transfer.

WHAT IS GOODWILL

Goodwill is also an intangible asset which cannot be easily defined. In the words of Lord Macnaghten, in case of Commissioner of Inland Revenue v Muller & co's Margarine Ltd2 can be described as "it is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in customers. It is the one thing which distinguishes an old established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates."

Goodwill of a trademark is local in character and divisible like in case of business of a brand situated in different countries. In every country business holds a separate goodwill related to the particular brand although some part of that goodwill is dependent upon the overall working of the business around the world. Business of a brand may be closed in a particular country but closing of that business would not affect the overall goodwill of the business. While the element of goodwill may be based primarily on earnings, such factors as the prestige and renown of the business, the ownership of a trade or brand name, and a record of successful operation over a prolonged period in a particular locality, also may furnish support for the inclusion of intangible value. This shows that goodwill is inclusive of brand value and based on number of other factors. While trademark get its value from goodwill associated with products or services.

TRADEMARK & GOODWILL: SEPARABLE OR INSEPARABLE

In case of assignment with goodwill, assigner transfer absolute rights i.e. all the rights and values associated with trademark which give absolute authority to transferee to control, to sell or to improvise or change the quality or structure or completely stop the services of such products. It is basically that transferor is replaced by transferee in terms of authority, control & rights & after assignment transferor is completely barred from using such trademark associated with any products & services in kind. Whereas trademark assigned without goodwill means the right to use trademark associated with the specific products or services of transferor is transferred to the transferee & rest of the goodwill lies with transferor. Accordingly, transferee can use such trademark for specific products & services as per agreement unless and until it is likely to deceive or create confusion it does not create multiple rights in the same goods or services or if they are associated with each other.

In Associated Electronics & Electrical Pvt. Ltd.v. DCIT3 , Income Tax Appellate Tribunal held that trademark and goodwill are two different concepts and transfer of trademark does not mean transfer of goodwill. Therefore, both Goodwill and trademark are different assets.

Similarly in Kwality Biscuit v. Assistant CIT, Bangalore4Income Tax Appellate Tribunal court held that right to manufacture biscuits was independent, separate and distinct right from right to market, distribute and sell biscuits under the brand name 'kwality', That means right to manufacture is still with assignor and will continue in the same business but under different brand name. Trademark and goodwill is separable.

ASSIGNMENT PROCEDURE

To assign the trademark, application under sec 45(1) of the Act shall be required to be filed with the Registrar of Trademark and shall be made either in form TM 24(by assignee only) or TM 23 (if applied by assignor & assignee both) with duly stamped original documents or attested copies of instrument.The important points that needs consideration are as follows:

1. When application is made for transfer of trademark along with goodwill, it must contain a statement by assignor stating that all the rights vested in trademark with rights to use, sell, assign, transfer, modify, delete or stop such or any kind of products or services in respect of that trademark are completely transferred to assignee with no reservation. The Assignment deed should specifically include the clause related to transfer of goodwill along with trademark and it should also mention the amount of consideration for the transfer.

2. If the application is made for transfer of trademark without goodwill, then assignment agreement should state that assignor has reserved his rights in respect of such trademark in particular goods or services & has not absolutely transferred the trademark in all goods or services5 . This means that assignor & assignee both can use the same trademark but in dissimilar goods or services. The assignee has to apply to the Registrar for his direction for publication of the assignment within six months from the date of assignment other wise same would be treated as null. After being satisfied with all the conditions the Registrar would allow the assignment to be advertised for the public. After publication the assignee will apply for the registration of assignment and leave a copy of direction of Registrar for the publication together with a copy of publication at the Trademark Office. After considering all the facts and circumstance the Registrar may allow the assignment and enter the particular in the Register.

3. An affidavit for no legal proceeding pending against the trademark assigned from the assignee or its representative shall also be required to be filed for the assignment.

As the registration of trademark is optional, likewise the registration of assignment is also optional and non registration of assignment does not affect the validity of assignment but registration of assignment would be a valid proof in case of dispute related to the trademark.

CONCLUSION

While wrapping up, it can be stated that the transfer of proprietary rights in trademark is similar to any other asset, the difference, however, comes in reference to the goodwill attached to it. It is the goodwill which creates the value of a trademark and in the contemporary period same is also a separable part of trademark. Goodwill provides bargaining power in the hand of the seller and therefore same is been recognized under the law in reference to the transfer of rights in a trademark. A trademark which is transferred with goodwill will get much higher value in comparison to the trademark which is transferred without goodwill.

Footnotes

Student of NLSIU Bangalore LLM IInd year.

2. (1901)A.C. 217 at 223-224

3. IT(SS)A No. 9/Bang/2000, Block Assessment Year : 1988-89 to 1998-99; ITA No. 242/Bang/2001,

4. 2012(3) TMI 209

5. Associated Electronic & Electrical Industries Pvt. Ltd. v.DCIT

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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