Goodwill has a long history in case law in Australia and the Commonwealth legal system. In IRC v Muller & Co Margarine Ltd (1901) AC 217 at 223 – 224, Lord MacNaghten described goodwill:
“What is goodwill?
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.
- The attractive force, which brings in custom.
- 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 is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade.”
A business establishes and builds goodwill or reputation simply by carrying out that business, as well as via its trade marks and brands by using its trade marks, get-up or product packaging (both registered and unregistered) in the course of fulfilling the operations of the business.
Goodwill is an intangible asset of a business and embodies the legal right or privilege to use its reputation, market standing or “attractive force that brings in custom” in order to attract revenue and advertise to the market its trade origin, on products or services from a business, as opposed to some other business.
The relationship between goodwill and trade marks
Like any good partnership, goodwill and unregistered trade marks are inseparable and cannot exist independently from a business.
In fact, the goodwill in unregistered trade marks or get-up cannot be dealt with except in conjunction with the operation or sale of that business. However, this is not the case for registered trade marks, which can exist as property in their own right.
We’ve previously discussed the numerous benefits that registering a trade mark provides a business, including one of the most important: the ability to protect your business should another one attempt to copy or infringe on your trade mark.
When another business misuses your trade mark or misrepresents their products or services they could mislead consumers and attract sales that may have otherwise been yours. As a consequence this can have an adverse impact on both your revenue and business reputation.
How can you protect your business?
Both registered and unregistered trade marks are recognised under law. The former is protected by Trade Marks Act 1995 (Cth) whilst the latter is protected by section 18 of the Australian Consumer Law (ACL) which addresses misleading or deceptive conduct, and more specifically by way of an action in passing off.
Section 18(1) focuses on the prevention of misleading and deceptive conduct, stating that a person must not engage in such conduct in trade or commerce. A person includes individuals, partnerships and corporations.
In order to establish misleading or deceptive conduct several criteria must be met:
- The conduct leads or is capable of leading a person into error;
- The error results from the conduct of the individual or corporation; and
- There is a real possibility that a reasonable person would be misled or deceived.
Passing off can be defined as when an individual or business presents their products or services as those of another party, potentially creating confusion and effectively misleading or deceiving the purchaser.
In order to demonstrate passing off, three criteria must be proven:
- You hold goodwill or reputation in particular trade or commerce;
- A trader misrepresented (intentionally or unintentionally) the existence of a connection between the business and products or services offered; and
- You have or are likely to experience damage such as diminished reputation, decreased sales and turnover, bad reviews or something similar.
Passing off provides a remedy for the infringement of a right of property. The property does not need to be a registered trade mark, name or get-up. It is the property in the business or goodwill likely to be injured by a misrepresentation.
In this situation, the business seeking protection is required to substantiate that their particular trade mark has goodwill and reputation associated with it, which can prove challenging especially for businesses that have only been in operation for a short period of time, as both take time in the market to develop and grow.
Alternatively, registered trade marks provide business owners and operators with the automatic right to bring an action, which means that a court automatically presumes confusion and misrepresentation when an individual uses the trade mark of another.
In addition, there is no requirement to provide evidence, or fulfill certain criteria, in order to make a claim, which in effect, makes it a simpler process to seek recourse and protection.
It’s beneficial for all new businesses and start-ups to register their trade marks so they can better protect their business. Registering trade marks will help to overcome the lack of organic reputation and goodwill that can only be grown over time in the market.
Whilst there are numerous options available for protecting the goodwill and reputation of a business, it is clear that registering your trade mark is the more efficient route when it comes to safeguarding the value of your business no matter what stage of the journey, from start up to scaleable to sound and successful.
If you have any questions, feel free to contact us at Antcliffe Scott, we’d be more than happy to help.