In Australian law, unregistered trade marks and their associated goodwill are treated as one in the same. Goodwill can have many shapes and sources, but it is understood generally to refer to the commercial aspects of a business other than tangible assets that have attracted custom to it.
Under section 106 of the Trade Marks Act 1995 (‘the Act’), an assignment of a registered trade mark may be with or without the goodwill of the business concerned in the relevant goods and/or services. The Act, however, is silent in relation to the assignment of an unregistered trade mark. A 2020 judgment of the Full Court of the Federal Court illustrates the position in Australian law and its far-reaching implications for trade mark licensing and assignment.
Background
In 2018, Kraft Foods Group Brands LLC (‘Kraft’) brought a claim against Bega Cheese Limited (‘Bega’) over use of an unregistered trade mark. The trade mark in question was the yellow lid and clear plastic jar of their peanut butter products (‘Trade Dress’), as shown below in examples of products sold by Kraft Foods Limited, an Australian entity within the Kraft corporate group which was later renamed to Mondelez Australia (Foods) Ltd following a restructure (‘KFL/MAFL’).
Image source: Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65, [1].
In July 2017, Bega acquired the assets of KFL/MAFL’s Australian peanut butter business. After removing the Kraft trademarked logos, Bega continued to use the Trade Dress as it had been designed and used by KFL/MAFL. Kraft commenced proceedings and argued that Bega did not acquire the Trade Dress when it bought the peanut butter business, as it was never KFL/MAFL’s to sell. Instead, Kraft claimed that Bega’s use of the Trade Dress was actually licensed by them, and when that licence expired in December 2017, Bega had no right to continue using it.
Kraft lost at first instance and appealed to the Full Federal Court. The Full Court was asked to decide to whom the goodwill of the mark inured, and which entity could continue to use the Trade Dress to the exclusion of the other.
Decision
The Full Court highlighted two key principles on which it based its decision.
Firstly, unregistered trade marks or product ‘get-up’ are not species of property in Australian common law. They do not have statutory infringement provisions like registered trade marks. Instead, it is the business goodwill or reputation generated through their use that is recognised and protected.
Secondly, the Court noted that this goodwill is property capable of assignment. Thus, the sale, assignment or ownership of an unregistered trade mark is the sale, assignment, or ownership of business goodwill; the two are inseparable. Their Honours stated that the rationale for this prohibition against a “naked assignment of the mark without the accompanying goodwill” goes to the nature of trade marks and the very objective of trade mark law, which is to protect consumers from being misled or confused as to the origin of goods or services.
These principles were fatal to Kraft’s claim against Bega. The Court traced the use of the Trade Dress across various licensing agreements and restructure documents and ultimately found that the goodwill inured to KFL/MAFL and that they had maintained ownership over it during the relevant period. Consequently, when KFL/MAFL transferred all of the assets that comprised the peanut butter business in Australia to Bega, this constituted the assignment of the rights in relation to the Trade Dress from KFL/MAFL to Bega. Bega was therefore entitled to use the Trade Dress in relation to the peanut butter products that it manufactured and sold. Even though some aspects of the peanut butter business were licensed from Kraft to KFL/MAFL, the Court held that they never owned the goodwill generated by, and thus the rights to, the Trade Dress.
Kraft also attempted to prevent Bega’s use of the peanut butter Trade Dress by arguing consumers would be misled into believing Bega had a connection to Kraft because of the jar style, regardless of any rights Bega may have. The Court disagreed, holding that nothing in Bega’s conduct beyond their lawful use of the Trade Dress would cause a mistaken belief of connection in a reasonable consumer.
Key Takeaways
The Full Court’s judgment confirms that in Australian law, unregistered trade marks do not have property rights like registered trade marks; the business goodwill they generate is taken to be inseparable from the business to which it adds value, and cannot be dealt with except in conjunction with the sale of that business.
Accordingly, the assignment or licensing of unregistered trade marks is not possible without the transfer of the accompanying goodwill. In contrast, registered trade marks (and trade marks pending registration) can be assigned with or without the associated goodwill, as expressly provided by section 106 of the Act.
To avoid any unwitting transfer of underlying goodwill, businesses should ensure that all important trade marks are registered with the Trade Marks Office.
Should you wish to speak further on this, or have any queries relating to your business’s IP protection, please contact our Intellectual Property team David Mazzeo, Stefano Mazzeo or Jess Tomlinson of our office.
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