AN OVERVIEW OF THE RULE ON TRADEMARK ASSIGNMENT
The rule against assignment in gross, initially established in common law, was codified in the federal trademark statute in 1905 and has not been altered since However, its interpretation has evolved significantly over time, resulting in inconsistent conclusions.
Part II offers a comprehensive examination of trademark assignment rules and addresses the challenges associated with their enforcement Historically, courts have mandated a significant level of similarity between the products involved to validate trademark transfers.
In recent decades, most courts have validated transactions even when the similarity was questionable However, judicial rulings remain inconsistent, leading to ongoing confusion in the application of the rule.
The Trademark Debate and the Rule on Trademark
Trademark assignment has long been a key topic in discussions about trademark protection Trademark owners, recognizing that their marks often constitute the most valuable part of their business, typically support minimal restrictions on the assignment of their trademarks.
13 See, e.g., Isaacs, supra note 3, at 1217-20 (summarizing the differences between the law on trademark assignment and business reality).
20051 TRADEMARK ASSIGNMENT "WITH GOODWILL": A CONCEPT WHOSE TIME HAS GONE 777 these requests, trademark law has traditionally construed the conditions for trademark transferability by focusing on consumer protection 4
Trademark protection is primarily focused on consumer welfare, serving as symbols of goodwill and conveying information to consumers This protection is limited to preventing confusion among the purchasing public regarding the source of products Historically, these limitations have been justified by the social costs associated with granting trademark rights, which could otherwise lead to unjust monopolies on common words and symbols Therefore, trademark law is designed to safeguard only the goodwill of a mark and its role in informing consumers about the origin and quality of products.
14 2 MCCARTHY, supra note 2, § 18:3."The central purpose of the technical rules regarding the assignment of trademarks is to protect consumers Id.
15 See William M Landes & Richard A Posner, Trademark Law: An Economic Perspective,
Trademarks have historically been protected as they convey essential information about products, ensure consistent quality, and lower consumer costs associated with information gathering during purchasing decisions This protection is rooted in the idea that trademark law aims to enhance economic efficiency.
TRADEMARK REP 523, 523 (1988); William P Kratzke, Normative Economic Analysis of Trademark Law, 21 MEM ST U L REV 199, 213 (1991).
16 2 MCCARTHY, supra note 2, § 18:2 See generally 4 J THOMAS McCARTHY, McCARTHY
In "On Trademarks and Unfair Competition," the author examines various types of infringing uses of trademarks, including their application in noncompetitive goods and services The text also addresses the monopolistic implications of trademarks, highlighting the balance between protecting brand identity and fostering fair competition For a deeper understanding of these issues, readers are encouraged to explore George J Alexander's work on the ethical dimensions of trademark law.
COMPETITION 26-27 (1967); EDWARD HASTINGS CHAMBERLIN, THE THEORY OF MONOPOLISTIC COMPETITION 57-64 (8th ed 1969); A.G Papandreou, The Economic Effect of Trademarks, 44 CAL L REv 503, 505 (1956).
17 See S REP No 79-1333, at 4 (1946) The report in the Senate that introduced the Lanham Act recognized the intertwining of goodwill and a trademark:
Trademarks are vital to competition as they allow consumers to differentiate between products, thereby promoting informed choices They help maintain quality by ensuring that producers benefit from the positive reputation gained through excellence Protecting trademarks safeguards the public from deception, encourages fair competition, and secures the advantages of reputation and goodwill for businesses, preventing unauthorized use by others It has been a longstanding requirement that trademarks be transferred along with their associated goodwill.
The notion that a trademark can be a business's most valuable asset, warranting absolute protection and unrestricted transferability, has been a longstanding argument Originally, common-law courts recognized trademarks as property rights, but this perspective shifted in the early twentieth century to prioritize consumer protection The enactment of the Lanham Act in 1946 solidified this consumer-focused approach and marked a significant development in trademark law that continues to influence the field today.
The notion of protecting trademarks as property has persisted, leading to significant advancements in trademark protection over the past century In the last two decades, legislative changes have increasingly favored the protection of trademarks themselves, rather than solely focusing on consumer welfare This shift is reflected in court decisions that prioritize property rights, marking a trend toward broader trademark protection.
18 See supra notes 2-3; see also Thomas F Cotter, Do Federal Uses of Intellectual Property
Implicate the Fifth Amendment?, 50 FLA L REV 529, 566 n.219 (1998) (highlighting that
"[t]rademarks are assignable, though only if the owner also transfers to the assignee the goodwill symbolized by the mark").
19 See Frank I Schechter, The Rational Basis of Trademark Protection, 40 HARV L REV.
In the late nineteenth century, the concept that trademarks are among the most valuable business assets was promoted by Schechter, emphasizing their role in fostering product acceptance and consumer loyalty Trademarks serve to identify products as satisfactory, encouraging repeat purchases from consumers This idea aligns with Ralph S Brown's insights on the legal protection of trade symbols, highlighting the importance of trademarks in advertising and public interest.
In an acquisitive society, the relentless pursuit of monopoly power poses significant challenges If left unregulated, this drive could lead to extreme measures, such as patenting fundamental inventions like the wheel, copyrighting essential elements like the alphabet, and even claiming natural phenomena like the sun and moon as exclusive trademarks.
20 See discussion infra Part III.A.
22 See, e.g., Frank H Easterbrook, Intellectual Property is Still Property, 13 HARV J.L & PUB POL'Y 108, 118 (1990) (arguing that "we should treat intellectual and physical property identically in the law").
23 One of the most explicit examples of amendment of national trademark law was the adoption of the Federal Trademark Dilution Act of 1995, Pub L No 104-98, §§ 3(a) & 4, 109 Stat.
24 See, e.g., K Mart Corp v Cartier, Inc., 485 U.S 176,185 (1988) ("Trademark law, like contract law, confers private rights, which are themselves rights of exclusion."); San Francisco Arts
& Athletics, Inc v United States Olympic Comm., 483 U.S 522, 525, 527-28, 532 (1987)(prohibiting the use of term "Olympic" in "Gay Olympic Games" and stating that "when a word
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL ": A CONCEPT WHOSE TIME HAS GONE 779
Courts have consistently upheld that consumer confusion is not the sole basis for trademark protection, emphasizing the importance of safeguarding the integrity of the trademarks themselves This evolving perspective has significantly influenced various aspects of trademark law, particularly the regulations surrounding trademark assignment.
Trademark Assignment "with Goodwill"
Rationale of the Rule
The principle of "assignment with goodwill" is rooted in trademark protection, emphasizing that trademarks serve as symbols of goodwill rather than being inherently protected Their value lies in the information they provide to consumers.
Trademarks serve as symbols of goodwill rather than existing independently, a principle established in common law and later incorporated into federal trademark legislation This foundational concept highlights the importance of trademarks in representing the reputation and quality associated with a brand.
35 U.S PATENT& TRADEMARK OFFICE, supra note 30, at § 501.06.
37 Id "A trademark may be owned jointly by two or more persons and a joint owner may assign his or her interest in a mark." Id.
40 Id "Acknowledgement shall be prima facie evidence of the execution of an assignment, and when the prescribed information reporting the assignment is recorded in the United States Patent and Trademark Office, the record shall be prima facie evidence of execution." Id.
41 Lanham Act § 10, 15 U.S.C § 1060(a)(4) (Supp I12003) "An assignment shall be void against any subsequent purchaser for valuable consideration without notice, unless the prescribed information reporting the assignment is recorded in the United States Patent and Trademark Office within 3 months after the date of the assignment or prior to the subsequent purchase." Id
43 See discussion infra Part III.A. assumption that common words and symbols belong to society as a whole and cannot be appropriated by a few trademark owners to the detriment of the general public." Instead, the courts affirmed that what could be appropriated and deserved protection was a mark's goodwill, that is, the ability of a mark to attract and retain consumers and to communicate to the public the qualities and characteristics of the marked products 45 The adoption of this principle directly affected the rule on trademark transferability: if a mark could exist only as a symbol of goodwill, it could not be assigned per se but necessarily with its goodwill 6
The principle that trademarks are protected not for their existence alone but for their role in conveying commercial information originated in common law and became a significant development in trademark theory in the early twentieth century Consequently, courts have historically maintained that this protection is contingent upon a mark's ability to convey accurate information, thereby ensuring public trust.
45 See, e.g., United Drug Co v Theodore Rectanus Co., 248 U.S 90, 97 (1918) A trademark's "function is simply to designate the goods as the product of a particular trader and to protect his good will against the sale of another's product as his; and it is not the subject of property except in connection with an existing business." Id.
46 See Grismore, supra note 3, at 491.
It is a well-established principle that a trademark cannot be assigned in gross, as ownership of a trademark inherently involves the goodwill and customer expectation associated with it Instead, what can be transferred is the goodwill and the right to prevent others from infringing upon the trademark by simulating its associated marks and symbols.
Trade names and trademarks serve as symbols of goodwill, holding no independent value outside of the reputation they represent Legal precedents, such as Marshak v Green and Mister Donut of America v Mr Donut, affirm that trademarks cannot be sold or assigned without the associated goodwill, emphasizing that rights in a trademark are intrinsically linked to the business it represents.
47 See Daniel M McClure, Trademarks and Unfair Competition: A Critical History ofLegal Thought, 69 TRADEMARK REP 305, 326-29 (1978).
The realist critique led to a shift in the language used by judges and commentators, although the underlying legal doctrines changed less significantly The focus moved from protecting property rights to emphasizing the importance of safeguarding business goodwill and the values derived from usage Consequently, the rationale for protection increasingly centered on preventing public confusion and deception rather than solely on property protection.
The concept of "trademark assignment with goodwill" emphasizes the importance of continuity in marked products, which does not require trademark owners to provide identical items Courts have clarified that as long as consumers receive products that are substantially similar to those previously associated with the trademark, the requirement for product continuity is met.
Trademark assignment in gross poses risks to the substantial similarity between products, leading most courts to assert that trademarks should be transferred alongside their associated goodwill This requirement aims to prevent assignments from being deemed invalid and to minimize the potential for assignees to alter product quality while retaining the same trademark Courts emphasize that transferring a trademark without goodwill could disrupt product continuity, resulting in consumer confusion if buyers unknowingly purchase new products under the same mark, relying on the quality of previous offerings Therefore, it is essential for trademarks to be transferred with their goodwill to maintain brand integrity and consumer trust.
48 See, e.g., Dawn Donut Co v Hart's Food Stores, Inc., 267 F.2d 358, 363-64 (2d Cir.
1959); Land O'Lakes Creameries, Inc v Oconomowoc Canning Co., 221 F Supp 576, 582-84
49 See, e.g., Marshak, 746 F.2d at 930 (stating that courts have upheld assignments when the assignee is producing a product substantially similar to that of the assignor so that consumers will not be deceived or harmed).
50 See, e.g., PepsiCo, Inc v Grapette Co., 416 F.2d 285,287-88 (8th Cir 1969) "Inherent in the rules involving the assignment of a trademark is the recognition of protection against consumer deception." Id at 288; see also Glow Indus v Lopez, 273 F Supp 2d 1095, 1107 (C.D. Cal 2003) "Goodwill must accompany the assignment of a trademark 'to maintain the continuity of the product or service symbolized by the mark and thereby avoid deceiving or confusing customers." Id (quoting E & J Gallo Winery v Gallo Cattle Co., 967 F.2d 1280, 1289 (9th Cir. 1992)); VittoriaN Am., L.L.C v Euro-Asia Imps., Inc., 278 F.3d 1076, 1083 (10th Cir 200 1) In Vittoria North America, the court stated:
Transferring goodwill alongside the trade or service mark is essential to guarantee that consumers obtain reliable information regarding the associated product or service.
Legislative History
The rule against assignment in gross, established by common-law courts in the late nineteenth century, mandates that trademarks must be assigned along with the associated business This principle was codified in Section 10 of the Trademark Act of 1905, which asserts that every registered trademark is assignable only in connection with the goodwill of the business utilizing the mark Assigning a trademark independently from its original goodwill and product can mislead consumers, who expect the mark to represent consistent quality and nature of goods or services, regardless of ownership changes.
54 See WILLIAM M LANDES & RICHARD A POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 184-85 (2003) (stressing that if consumers know about the transfer, the assignee attaching the new mark to his goodwill will not generally enable him to obtain a higher price for his products).
56 In PepsiCo, Inc v Grapette Co., the court explained:
Trademark assignment rules emphasize the importance of protecting consumers from deception A key principle is that when a trademark and its associated goodwill are assigned—regardless of whether tangible or intangible assets are included—the assignee must use the mark on a product that retains similar characteristics.
58 Trademark Act of 1905, ch 592, § 10, 33 Stat 724, 727 (repealed 1946).
The concept of trademark assignment "with goodwill" has become outdated, as assignments in gross may result in the cancellation of the mark if it is used to misrepresent the origin of the goods.
In the 1920s, trademark experts began to challenge the validity of the "with goodwill" assignment rule The legislative history of the Lanham Act shows that during the debates leading to the 1946 Act, advocates for expanded trademark protection aimed to modify Section 10 Early drafts of this section permitted trademark transfers "with or without the goodwill of the business," reflecting a shift in perspective on trademark assignments.
The parties may agree on specific terms and conditions; however, opposition to diverging from the common-law rule was successful Section 10 of the Lanham Act upheld the 1905 provision in the newly established trademark statute, reinforcing that a mark could be cancelled at any time if it was used to mislead the public.
60 In defending the case for a change from the 1905 rule, Edward S Rogers stated to a House Committee in 1939:
Under modern conditions, goodwill is not synonymous with personal reputation; rather, it is tied to the trademark itself This marks a significant shift from traditional views in this country The notion that allowing the transfer of trademarks without associated goodwill leads to deception is misguided Such deception is unrelated to the assignment of the trademark and pertains solely to the assignee's use of the mark, which can be addressed through proper labeling Essentially, this situation mirrors other forms of commercial fraud and is independent of the assignment process.
Trade-marks: Hearings Before the Comm on Patents Subcomm on Trade-marks on H.R 4744,
76th Cong 81 (1939) (testimony of Edward S Rogers).
61 For a general reconstruction of the debates and drafts that preceded the adoption of the final text of Section 10 of the Lanham Act, see ROBERT, supra note 3, at 23-24; see also 2
MCCARTHY, supra note 2, § 18:10; Halliday, supra note 3, at 970-71.
62 When the trademark bill was introduced in the Seventy-fifth Congress, it provided that
A registered trademark can be assigned with or without the associated goodwill of the business, as stated in H.R 9041 during the 75th Congress and retained in H.R 4744 during the 76th Congress This legal framework has been consistently referenced in relevant literature.
64 See Glynn S Lunney, Jr., Trademark Monopolies, 48 EMORY L.J 367, 411 (1999).
Congress's deliberate focus on the assignment provision and its modification to align with the 1905 Act clearly indicates its intention to uphold the longstanding prohibition on assignment in gross.
65 Trademark Act of 1946 (Lanham Act), Pub L No 79-489, § 10, 60 Stat 427, 432.
The adoption of the Lanham Act in 1946 partially weakened the original provisions regarding trademark assignment Specifically, Section 10(a)(2) established that assignments do not require the transfer of the goodwill associated with the business using a trademark This marked a significant shift from the prior interpretation, which mandated that trademark assignments be linked to the transfer of the business itself The new provision allowed trademark owners to assign their marks independently while retaining ownership of their businesses, aligning with advocates for greater trademark transferability.
Over the past sixty years, the scope of the original rule has diminished significantly A key change occurred in 1962 when the provision allowing for the cancellation of assigned registrations, if the registered mark misrepresented the source of goods or services, was removed from Section 1070 This provision was then integrated as a general requirement for all registrants into Section 14 of the Lanham Act.
66 Cf Lanham Act § 10, 15 U.S.C § 1060 (a)(2) (Supp II 2003).
68 See ROBERT, supra note 3, at 25-26.
69 See Halliday, supra note 3, at 973 "The purpose of this provision, as stated to the congressional committee, is to permit 'a registrant who owns more than one mark to dispose of one mark if he wishes to do so."' Id; cf Indep Baking Powder Co v Boorman, 175 F 448,453 (D.N.J. 1910).
A registered trademark or one with a pending application can be assigned along with the associated goodwill of the business using the mark This assignment may focus solely on the goodwill linked to the specific mark, without needing to include the goodwill from other marks or the business's name However, the assigned registration can be canceled if the assignee uses the mark in a way that misrepresents the source of the goods or services.
Trademark Act of 1946, Pub L No 79-489, § 10, 60 stat 427, 431-32.
Section 6 of the bill proposes to amend section 10 of the act by canceling the following proviso: "Provided, That any assigned registration may be canceled at
The concept of trademark assignment "with goodwill" has become outdated, as recent legal changes have removed redundancies without hindering courts' ability to cancel trademarks Despite this, since 1962, courts have shown increasing reluctance to cancel trademarks, even in cases where they have deemed assignments void.
The 1988 Trademark Revision Act amended Section 10 to introduce stricter requirements for the assignment of intent-to-use (ITU) trademark applications, addressing concerns about the trade of trademarks not yet in use Specifically, ITU applications could only be assigned after the applicant filed a statement confirming the mark's use in commerce However, the 1998 Trademark Law Treaty Implementation Act replaced this requirement, allowing assignments at any time if the registered mark is used by or with the assignee's permission, aiming to prevent misrepresentation of the source of goods or services This change was made to incorporate the provision into a broader context within Section 14 of the act.
72 See, e.g., Mister Donut of Am., Inc v Mr Donut, Inc., 418 F.2d 838, 842 (9th Cir. 1969); Societd de Developmentsv Int'l Yogurt Co., 662 F Supp 839, 841 (D Or 1987) Butsee Interstate Net Bank v Netb@nk, Inc., 348 F Supp 2d 340, 358 (D.N.J 2004).
73 Trademark Revision Act of1988, Pub L.No 100-667,sec 112, § 1060,102 Stat 3935, 3939.
75 Id at sec 103, § 1051(b) (codified as amended at 15 U.S.C § 1051(b) (2000)).
Judicial Developments: Tangible, Intangible, and
The application of the "with goodwill" assignment rule has significantly evolved over the past century, despite the language of the rule remaining unchanged This transformation has been influenced by advancements in the understanding of trademark goodwill and the continuity of products Consequently, these shifts reflect the growing complexities in trademark law and its practical implications.
79 Trademark Law Treaty Implementation Act, Pub L No 105-330, 112 Stat 3064 (1998), available at http://www.uspto.gov/web/offices/com/sol/tmlwtrty/index.html (last visited Feb 20, 2005).
80 North American Free Trade Agreement, Dec 17, 1992,32 I.L.M 289 (1993) [hereinafter NAFTA].
81 Agreement on Trade-Related Aspects of Intellectual Property Rights, opened for signature April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex
IC, LEGAL INSTRUMENTS-RESULTS OF THE URUGUAY ROUNDS vol.31, 1869 U.N.T.S 299 (1995) [hereinafter TRIPS].
The article discusses the differences in trademark assignment approaches between the United States and other countries, as highlighted by Susan Barbieri Montgomery and Richard J Taylor in their work on worldwide trademark transfers It also points out several inconsistencies between Section 10 and the provisions of TRIPS and NAFTA, which are further explored in Part IV.B of the article.
The International Trademark Association's Model Law Guidelines emphasize that the assignment of trademarks should be allowed regardless of whether the goodwill of a business is included This principle, outlined in their 1998 report, supports flexibility in trademark transfers.
A mark is not eligible for registration if it is likely to mislead the public regarding the nature, quality, or geographical origin of the goods or services it represents.
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL ": A CONCEPT WHOSE TIME HAS GONE 789 ambiguities surrounding these concepts, case law has proven contradictory and difficult to predict.
Under common law, courts emphasized that the validity of a trademark assignment depended on the simultaneous transfer of tangible business assets Without this concurrent transfer, assignments were deemed invalid, often resulting in the cancellation or abandonment of the trademark Furthermore, if the assignor continued to market similar products under a different trade name post-transfer, the assignment was also invalidated This perspective highlighted a limited interpretation of trademarks as indicators of commercial origin, asserting that trademark assignments inherently required a change in business ownership.
The conservative approach established by the 1905 Act, which stipulated that an assignment was void if the assignor created similar products under a different name post-transfer, remained in effect for some time However, beginning in the 1930s, courts began to move away from this assumption.
85 See MacMahan Pharmacal Co v Denver Chem Mfg Co., 113 F 468,474-75 (8th Cir. 1901).
A trademark can only be assigned or licensed when it is part of a business or property transfer related to its use Any assignment or licensing that occurs independently of such a transfer undermines the fundamental principles that determine a trademark's value.
In the case of Bulte v Iglehart Bros., the court emphasized that allowing the transfer of a trademark would undermine its essential role, disregard its intended purpose, and effectively permit a deception against consumers purchasing the product.
88 See, e.g., Indep Baking Powder Co v Boorman, 175 F 448,453-54 (C.C.D.N.J 1910).
A man who can successfully create and assign 4 or 5 trademarks while maintaining his original business can similarly manage 400 or 500 without issue While this skill may make him a proficient manufacturer of trademarks, it ultimately poses significant risks to the public and legitimate trademark owners.
The legal precedents established in cases such as Sexton Mfg Co v Chesterfield Shirt Co and Carroll v Duluth Superior Milling Co highlight significant rulings in trademark law Notably, the Supreme Court upheld Section 10 of the 1905 Act in the 1918 case United Drug Co v Theodore Rectanus Co., reinforcing the importance of these early decisions in shaping trademark regulations.
The doctrine regarding trademark rights is fundamentally flawed, as it mistakenly equates these rights with those of statutory copyrights or patents, which are distinct in nature Historically, the assignment of a trademark required the transfer of the entire business associated with it However, courts have increasingly recognized that an assignment can be valid even if only a portion of the business—specifically the part necessary to produce the same goods—has been acquired by the assignee.
Following the adoption of the Lanham Act, courts maintained the requirement for business asset transfers, but the introduction of Section 10(a)(2) led to a broader interpretation, allowing assignors to transfer individual marks while retaining their business Courts increasingly recognized that tangible asset transfers were not essential for valid goodwill transfers, provided the assignee's products were substantially similar to those of the assignor By the 1960s, this interpretation relaxed further, validating assignments even without tangible asset transfers or when products were only similar in kind These changes reflected a growing skepticism towards strict criteria for trademark assignment validity and sparked ongoing discussions about trademark protection's scope The landmark case Hy-Cross Hatchery, Inc v Osborne marked a significant shift, as the Court of Custom and Patent Appeals upheld an assignment where the assignee used the mark on a product.
In the case of Mulhens & Kropff, Inc v Ferd Muelhens, Inc., the court deemed an assignment invalid primarily because the assignee lacked the recipe for the product linked to the trademark, preventing them from authentically supplying the genuine 4711 Eau de Cologne The court concluded that the plaintiff should not be allowed to use a mark in a manner that is inherently deceptive.
An assignment of a trademark without the accompanying business or goodwill associated with it is ineffective and serves only as evidence of the assignor's abandonment of the mark.
Trademark transfers must be accompanied by a business associated with the mark, as established in Nettie Rosenstein, Inc v Princess Pat, Ltd Additionally, trademarks and goodwill cannot be transferred independently; they are integral to the business, as noted in Browning King Co of N.Y v Browning King Co Furthermore, the case of Old Charter Distillery Co v Ooms reinforces the notion that trademarks and the accompanying goodwill are inseparable from the business entity itself.
"ownership of a trade-mark may not be transferred except in connection with a conveyance of the business or of good will").
92 See discussion supra Part II.B.2 But see Indep Baking Powder Co., 175 F at 453 ("[N]either the good will of a business, nor the business itself, can be thus split up.").
93 See, e.g., Old Charter Distillery Co v Ooms, 73 F Supp 539 (D.D.C 1947) (holding valid the assignment of a trademark applied by seller to whisky and by buyer to all kind of liquors).
94 Lunney, supra note 64, at 410-17 (describing how the break with the traditional rule regarding trademark assignment developed in the early 1960s).
95 Hy-Cross Hatchery, Inc v Osborne, 303 F.2d 947,949-50 (C.C.P.A 1962) For a critical review of the decision, see Lunney, supra note 64, at 412.
Inconsistencies in the Application of the Rule
The Intrinsic Difficulty of Defining Goodwill
Goodwill v Trademark
Defining goodwill has traditionally posed challenges, particularly in distinguishing it from the associated mark, which includes the word or symbol it represents This distinction is crucial for trademark assignment rules; if goodwill and its mark cannot be identified separately, transferring the right to use a mark would automatically imply transferring its goodwill Consequently, this could render the requirement for assignment "with goodwill" ineffective.
A mark and its associated goodwill, while closely linked, are distinct concepts A mark is defined as "any word, name, symbol, or device" that serves to "identify and distinguish" products Beyond merely representing goodwill, a mark functions as a tool that generates goodwill As McCarthy notes, it is "a distinguishable token devised or picked out with the intent to appropriate it to a particular class of goods," aimed at symbolizing goodwill This distinction is emphasized by Schecter, highlighting the importance of understanding both elements in the context of branding and trademark law.
"[t]o describe a trademark merely as a symbol of good will, without market)) Id at 195-96.
Goodwill is legally recognized as a form of property, and since a trademark serves as the symbol for this goodwill, its value is intrinsically linked to the goodwill it embodies.
200 1 MCCARTHY, supra note 171, § 2:15 (quoting Beech-Nut Packing Co v P Lorillard Co., 273 U.S 629 (1927)); see also Joseph Schlitz Brewing Co v Houston Ice & Brewing Co., 241
F 817, 820 (5th Cir 1917), aff'd, 250 U.S 28 (1919); Premier-Pabst Corp v Elm City Brewing Co., 9 F Supp 754, 757-58 (D Conn 1935); Coca-Cola Bottling Co v Coca-Cola Co., 269 F.
The concept of trademark assignment "with goodwill" has become outdated, as it overlooks the essential role of trademarks in creating and sustaining goodwill Marketing and advertising experts emphasize the intrinsic value of a trademark, leading companies to develop brand strategies focused on selecting appealing and evocative names for their products This approach is based on the belief that a more effective trademark enhances the goodwill associated with a product In recent years, this trend has intensified due to the growing importance of trademarks in consumer society.
A trademark serves as the name or logo of a product, while goodwill reflects the positive associations consumers have with that trademark Although this distinction seems straightforward, it can be difficult to apply in practice due to the overlapping nature of goodwill and trademarks Goodwill is intangible; it exists solely in the minds of consumers and becomes significant when a purchase is made based on the desire for a product identified by a particular mark Therefore, goodwill depends on the trademark to convey feelings and information to the public, making it challenging to separate the two concepts without losing their interconnectedness.
201 Schechter, supra note 19, at 818 Schechter argued that a trademark has a dual function:
Today, a trademark serves not just as a symbol of goodwill but as a powerful tool for generating it, establishing an anonymous guarantee of satisfaction in the public's mind This creates a strong desire for repeat purchases, as the trademark itself plays a crucial role in selling the goods Ultimately, the more distinctive the trademark, the greater its effectiveness in driving sales.
The goodwill of a business often holds more value than its tangible assets, as emphasized by the notion that a trademark serves as a symbol of this goodwill.
In landmark cases such as Old Dearborn Distrib Co v Seagram-Distillers Corp and Hanover Star Milling Co v Metcalf, the significance of branding and trademarks is underscored, demonstrating their impact on pricing strategies According to an article in The Economist, the mere presence of a recognizable logo, like Coca-Cola's on a beverage can or Mars' on a chocolate wrapper, can substantially increase the product's market value.
203 See The Year of the Brand, THE ECONOMIST, Dec 24, 1988, at 95, 95 "A brand is a name that stands for something positive in the [consumer's] mind." AL RIES & LAURA RIES, THE FALL
OF ADVERTISING AND THE RISE OF PR62 (2002); see also Thomas D Drescher, The Transformation and Evolution of Trademarks-From Signals To Symbols to Myth, 82 TRADEMARK REP 301, 303 (1992).
In 1620, English courts characterized goodwill as the positive relationship and support from customers, highlighting its significance in business reputation (Broad v Jollyfe, 79 Eng Rep 509) This concept underscores the importance of goodwill in enabling a brand to effectively communicate with the public.
Goodwill is intrinsically linked to the mark it represents, yet it signifies more than just an intangible asset Historically, goodwill has been the driving force behind consumer preferences for products associated with specific marks over similar alternatives Factors influencing these preferences include the quality, technical features, pricing, and brand loyalty associated with a product These elements collectively contribute to the goodwill of a mark, shaping consumer purchasing decisions.
Goodwill encompasses the intangible value of a brand, influencing consumer behavior and encouraging repeat purchases However, the specific elements that contribute to goodwill remain ambiguous, as they can vary widely based on individual consumer preferences and can apply to various aspects of a business.
The distinction between a trademark and its associated goodwill remains ambiguous and challenging to evaluate in practice A trademark represents more than just goodwill, while goodwill encompasses more than the intangible value of a trademark.
206 See 2 MCCARTHY, supra note 2, § 18:2 "Good will and its trademark symbol are as inseparable as Siamese Twins who cannot be separated without death to both." Id.
Vice-Chancellor Wood defined goodwill as the totality of positive advantages gained by a business, distinguishing it from the disadvantages of a former partner not continuing the business This concept encompasses benefits associated with the business's previous operations, its premises, the name of the former firm, and any other factors contributing to the business's overall value.
Churton v Douglas, Johns (Eng.) (1859) 174, quotedin J Roberton Christie, Goodwill in Business,
Promotional goods exemplify how a brand mark often embodies the goodwill associated with a product Consumers frequently buy items like Harley-Davidson, Chicago Bulls, or MIT t-shirts primarily for the logos displayed, rather than the shirts themselves This trend highlights the significance of branding in consumer purchasing decisions, as seen in cases like Boston Athletic Ass'n v Sullivan and Boston Prof I Hockey Ass'n v Dallas Cap & Emblem Mfg., Inc.
11 (5th Cir 1975); see also Dreyfuss, supra note 26, at 402.
Even infrequent buyers of a specific electronic product often have experience with the broader category of electronic goods, suggesting they are likely familiar with products bearing the same brand name.
210 Cf discussion infra Part IV.B.
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL": A CONCEPT WHOSE TIME HAS GONE 811 something more is, and whether goodwill and its trademark symbol can be separated, remain uncertain.
Goodwill v Business
Courts have historically connected the concept of goodwill to business success, emphasizing that a company's structure plays a crucial role in generating goodwill This approach is particularly evident in trademark assignments, where the transfer of business assets has been deemed essential for validating trademark transfers.
Although the judiciary has historically used the terms goodwill and business interchangeably, it is essential to distinguish between the two concepts for a precise definition of goodwill As discussed in Part IV of this article, this distinction has gained importance following the enactments of TRIPS and NAFTA, which permit trademark assignment either with or without the transfer of the business.
Separating a mark's goodwill from the business it represents is as challenging as distinguishing goodwill from the mark itself, as both concepts are intrinsically intertwined Goodwill can be defined as the sum of factors that encourage customer loyalty, while business is technically defined as the industrial or commercial activities associated with that mark.
In the case of Red Wing Malting Co v Willcuts, the court established that goodwill is inherently linked to an ongoing business and can be bought or sold alongside it Similarly, Knoedler v Boussod reinforces the notion that goodwill is a tangible asset that exists only in the context of a business's continuity.
Goodwill in business refers to the advantages a purchaser gains by being associated with a previously recognized enterprise, as established in 1891 It can arise from tangible assets, but these assets do not inherently belong to goodwill Additionally, goodwill is often viewed as the favorable perception held by the public towards a specific provider or their products, although it lacks a technical definition as property.
212 See discussion supra Part II.C.
213 See discussion infra Part IV.B.
The establishment of economic activity relies on the essential tangible instruments required to support that activity, as outlined in the TRIPS Agreement and NAFTA provisions.
Goodwill is often misunderstood as separate from the business itself; however, it is a crucial component that enhances the uniqueness of a business's offerings, driving customer loyalty and repeat purchases This uniqueness can stem from high-quality products, which are influenced by tangible assets like specific formulas, ingredients, or personalized services While these elements are indeed business assets, they also play a vital role in the company's success, making its products appealing to consumers and embodying the essence of the company's goodwill.
According to Webster's Dictionary, "business" is defined as a commercial or mercantile activity typically pursued for livelihood, encompassing both commercial and industrial enterprises, as well as economic dealings.
216 See, e.g., Mulhens & Kropff, Inc v Ferd Muelhens, Inc., 43 F.2d 937, 939 (2d Cir.
The assignment of a trademark is intrinsically linked to the assignment of the underlying business, as established in several legal cases For instance, the court in Sexton Mfg Co v Chesterfield Shirt Co ruled that selling a trademark without the associated business grants no rights to the buyer Similarly, Carroll v Duluth Superior Milling Co emphasized that a trademark cannot be transferred independently of the business it represents The D.C Circuit in Sauers Milling Co v Kehlor Flour Mills Co noted that a trademark assignment without an accompanying business is ineffective, except to indicate the mark's abandonment Furthermore, Indep Baking Powder Co v Boorman likened a trademark to goodwill, reinforcing its connection to the business Eiseman v Schiffer also highlighted that a trademark cannot be assigned to one party while the business remains with another, underscoring the necessity of a cohesive transfer of both the trademark and the business.
The concept of goodwill refers to the likelihood that customers will continue to patronize a previously established business location This principle is highlighted in Cruttwell v Lye, which emphasizes that goodwill is essentially the expectation of customer loyalty tied to a specific place of business For further insights, see Vandevelde's analysis on the subject.
219 See Christie, supra note 207, at 72-73.
Attracting customers is essential for sustaining a business, as it establishes a vital connection that enhances the perceived value of the products or services offered This relationship, influenced by various factors such as customer habits, contributes to the goodwill of the business, making it a lasting asset Ultimately, the strength of these connections is what differentiates a business in the marketplace.
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL": A CONCEPT WHOSE TIME HAS GONE 813
The simultaneous representation of assets as both a component of the business and its goodwill highlights the challenge of distinctly separating goodwill from the overall business structure.
A comprehensive definition of goodwill must encompass the entire business and most of its assets, as excluding these elements may overlook crucial factors that foster customer loyalty.
Certain business assets do not contribute to a company's goodwill, as they do not encourage customer loyalty However, some tangible assets are essential components of goodwill This overlap between goodwill and tangible assets can create confusion in distinguishing between the two in the context of a business's economic activities.
Excluding tangible business assets from the definition of goodwill significantly narrows the application of Section 10, confining goodwill to an intangible realm with limited practical use This approach appears to be the direction taken by the courts.
Consequences of the Lack of a Clear Definition of
THE INTERNATIONAL DRIFT TOWARD ASSIGNMENT "WITHOUT
Intellectual property law is highly harmonized globally, with its roots in the 19th century when the need for comparable standards to protect intangible assets emerged This necessity has driven ongoing international negotiations, resulting in agreements that establish common protection standards Consequently, many countries have integrated these new rules into their domestic legal frameworks.
Part IV explores the development of international provisions on trademark assignment Initially, the international community allowed member states to retain their own regimes on trademark assignment 235 More recently, however, most countries have shown an increasing preference for trademark assignment in gross, and the international community has adopted the rule that trademark owners should not be obliged to assign their marks with the associated business 236
The Early Approach: Article 6quater of the Paris
In the context of the 1934 London revision of the Paris Convention, 237
234 See generally G.H.C BODENHAUSEN, GUIDE TO THE APPLICATION OF THE PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY AS REVISED AT STOCKHOLM IN 1967
(1968) (elaborating on the history of the Paris Convention for the Protection of Industrial Property);
INTRODUCTION TO INTELLECTUAL PROPERTY THEORY AND PRACTICE (World Intellectual Property Organization ed., 1997) [hereinafter INTRODUCTION TO IP] (providing an introduction to international treaties on intellectual property).
235 See discussion infra Part IV.A.
236 For a historical reconstruction ofvarious countries' approaches on trademark assignment, see Montgomery & Taylor, supra note 82, at 1, and 2 STEPHEN P LADAS, PATENTS, TRADEMARKS, AND RELATED RIGHTS: NATIONAL AND INTERNATIONAL PROTECTION § 617 (1975).
237 Paris Convention for the Protection of Industrial Property, Mar 20, 1883, 53 Stat 1748,
The Paris Convention, originally enacted in 1883, is the key international treaty that regulates patents, trademarks, and unfair competition It has undergone several revisions, including updates in Brussels (1900), Washington (1911), The Hague (1925), London (1934), Lisbon (1958), and Stockholm (1967) This treaty is formally known as the Paris Convention for the Protection of Industrial Property and serves as a foundational framework for intellectual property rights worldwide For more information, refer to the WIPO Intellectual Property Handbook, available at the World Intellectual Property Organization's website.
In 2005, the Paris Union made its first attempt to establish regulations for the validity of trademark transfers However, due to disagreements among contracting parties, they reached a compromise that maintained the existing conditions Consequently, member states incorporated Article 6quater into the Paris Convention, which addressed the transfer of trademarks without altering the prevailing status quo.
In certain Union countries, the assignment of a trademark is only valid if it coincides with the transfer of the associated business or goodwill However, for the assignment to be recognized as valid, it is sufficient that the portion of the business or goodwill situated in that country is transferred to the assignee, along with the exclusive rights to manufacture or sell the goods bearing the assigned trademark within that country.
The Union countries are not required to recognize the validity of a trademark assignment if the assignee's use of the mark could mislead the public about the origin, nature, or essential qualities of the associated goods.
The primary concern of the provision is to safeguard the national sovereignty and territorial independence of member states It emphasizes that all national choices regarding assignment in gross must be respected, while also clarifying that restrictions cannot extend to a mark's goodwill or business located outside national borders Furthermore, domestic policies prohibiting assignment in gross cannot penalize trademark owners who transfer their mark without the associated goodwill.
In 2005, an introduction to intellectual property was provided, highlighting international treaties and conventions that govern intellectual property rights The World Intellectual Property Organization (WIPO) lists its current member states, which include countries that are part of the Paris Convention for the Protection of Industrial Property For more information, visit the WIPO member states page.
238 See BODENHAUSEN, supra note 234, at 104.
During the discussions surrounding Article 6quater, certain jurisdictions mandated that trademark transfers occur alongside the transfer of the entire business In contrast, the United States permitted the assignment of trademarks with just the transfer of goodwill, as established in the Trademark Act of 1905.
240 Paris Convention 1934, supra note 237, art 6quater.
241 See BODENHAUSEN, supra note 234, at 104; INTRODUCTION TO IP, supra note 234, at 217.
Article 6quater of the Paris Convention 1934 establishes that the assignment of a trademark is valid only when it occurs simultaneously with the transfer of the associated business or goodwill This provision implies that free assignment of trademarks is generally permissible unless specific domestic laws in some member countries dictate otherwise Notably, during the 1930s, many countries still mandated that trademarks be transferred along with the goodwill and the businesses they represented.
The second part of the provision is ambiguous, as it suggests that countries in the Union are not obligated to recognize the validity of trademark assignments if their use by the assignee could mislead the public Instead of clearly stating that misleading assignments are invalid, it implies that such agreements may be deemed invalid However, Article lObis of the Paris Convention clarifies this issue by prohibiting any actions that could mislead consumers, including deceptive trademark assignments, categorizing them as unfair competition.
243 Section 10 does not extend to the assignment of trademark registrations owned by American or foreign trademark owners in other countries Termed the "territoriality principle" or
The territoriality doctrine asserts that a trademark exists independently in each sovereign territory where it is registered or legally recognized This principle underscores the importance of trademark registration in different jurisdictions, as seen in cases such as Person's Co v Christman and J Atkins Holdings Ltd v English Discounts, Inc.
244 Paris Convention 1934, supra note 237, art 6quater.
245 See generally Greenfield, supra note 220 (providing a survey of the laws of trademark assignments in several foreign countries).
246 Paris Convention 1934, supra note 237, art 6quarter.
248 See Paris Convention 1934, supra note 237, art l0bis.
(1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.
(2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
(3) The following in particular shall be prohibited:
1 all acts of a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;
2 false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor;
3 indications or allegations the use of which in the course of trade is
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL": A CONCEPT WHOSE TIME HAS GONE 819
Article 6quater plays a vital role in highlighting the need for consistent standards regarding the alienability of trademarks; however, its scope is primarily confined to reiterating the principles of territoriality and national treatment in international trademark law Despite the article's broad implications, many national legislatures maintained a trademark transfer system linked to business goodwill, similar to the United States, for several decades following its adoption.
In the United States, the 1905 Act remained effective when Article 6quater was added to the Paris Convention Reflecting the laissez-faire approach of this provision, Congress chose not to alter Section 10 of the 1905 Act, thus reaffirming the assignment rule "with good will" in the Lanham Act However, the language of the Paris Convention did inspire attempts to reform the domestic trademark assignment provisions during Congressional hearings before the finalization of Section 10 in 1946, although these efforts ultimately did not succeed.
Watering Down the "Goodwill Requirement"
Article 21 of TRIPS
The adoption of Article 21 of TRIPS marks a significant shift towards embracing trademark assignment in gross, despite ongoing debates surrounding the issue This article establishes that member countries can set conditions for trademark assignments while affirming the owner's right to assign their trademark independently of any business transfer.
A less stringent standard for trademark transferability was established, with Article 21 mandating national legislatures to create policies that enable trademark owners to assign their rights "with or without" their businesses However, the provision's focus on the transfer of the "business" without mentioning "goodwill" resulted in a minimal consensus rather than a uniform standard, thereby maintaining the ongoing compromise between proponents and opponents of assignment in gross.
Article 21 specifically pertains to the transfer of the "business," while Article 6quater of the Paris Convention remains relevant for the transfer of goodwill.
261 NAFTA, supra note 80, art 1708(11) For a critical overview of the effect of NAFTA on the Lanham Act, see generally Elke Elizabeth Werner, Comment, Are We Trading our Lanham
Act Away? An Evaluation of Conflicting Provisions Between the NAFTA and North American
Trademark Law, 2 Sw J.L & TRADE AM 227 (1995).
263 See discussion supra Part III.B.
The TRIPS Agreement, effective from January 1, 1995, establishes minimum intellectual property protection standards for WTO member countries While it mandates compliance with these standards, TRIPS also permits member states to implement more extensive legal protections, provided they do not violate the agreement.
265 Cf GERVAIS, supra note 258, at 183-84.
Members of the Paris Union retain the freedom to determine their domestic policies; however, Article 21 of TRIPS significantly limits the ability of member countries to enforce trademark transfers "with goodwill." If member nations cannot mandate that trademark owners assign their marks along with business assets, the effectiveness of any national laws requiring such assignments depends on the interpretation of "intangible goodwill." Furthermore, neither TRIPS nor the Paris Convention offers clear guidelines for interpreting the concept of goodwill beyond its association with the respective business.
On December 8, 1994, the United States enacted the Uruguay Round Agreements Act to implement the General Agreement on Tariffs and Trade (GATT) Following this, the U.S made several amendments to its national trademark law, but the language of Section 10 remained unchanged, as it was believed to already comply with Article 21 requirements Despite this assertion of compliance, significant doubts persisted regarding the adequacy of these measures.
269 See TRIPS, supra note 81, art 21; Paris Convention, 1967, supra note 237, art 6quater. Particularly, Article 2 of TRIPS states:
(1) In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1-12 and 19 of the Paris Convention (1967).
This Agreement does not diminish any existing obligations that Members have towards one another under the Paris Convention, the Berne Convention, the Rome Convention, and the Treaty on Intellectual Property in Respect of Integrated Circuits.
270 See TRIPS, supra note 81, art 21.
According to Gervais, within the context of TRIPS, the term "business to which the trademark belongs" refers to the tangible aspects of the enterprise, whereas "goodwill" represents the intangible value associated with the brand This distinction highlights the dual nature of trademark significance in international law, as outlined in the Paris Convention of 1967.
The Uruguay Round Agreements Act, enacted as Public Law No 103-465 in 1994, establishes that the General Agreement on Tariffs and Trade (GATT) operates in the United States through an executive agreement rather than a treaty For GATT to be enforced as national law, Congressional approval and the enactment of relevant legislation are necessary According to a memorandum from the United States Trade Representative, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement will not become effective in the U.S until Congress approves it and passes appropriate implementing legislation.
274 See, e.g., Federal Trademark Dilution Act of 1995, Pub L No 104-98, 109 Stat 985.
275 Compare TRIPS, supra note 81, art 21, with Lanham Act § 10, 15 U.S.C § 1060 (Supp.
II 2003) Even if the USPTO has never acknowledged any conflict between Article 21 of TRIPS and Section 10, a conflict certainly does exist Cf Werner, supra note 261, at 228 n 14.
The compliance of Section 10 with TRIPS remains uncertain, particularly regarding its definition of goodwill If goodwill is defined narrowly, it aligns with international legislation; however, if it encompasses the broader concept of business, any trademark assignment involving the involuntary transfer of tangible business assets would likely violate TRIPS regulations.
Accordingly, notwithstanding Congress's resistance to change Section
Article 21 has significantly weakened the strict application of the assignment rule concerning goodwill Although the shift towards a more flexible interpretation among courts may not be solely due to judges' deliberate alignment with TRIPS, the language of Article 21 has effectively eliminated the possibility of courts invalidating assignments on the grounds of non-transfer of tangible assets This change has broadened the scope for interpreting goodwill in a more expansive manner.
Article 1708(11) of NAFTA
Article 1708(11) of NAFTA addressed the trademark assignment debate by mirroring the language of Article 21 of TRIPS, establishing a compromise rule This article stipulates that NAFTA members can set conditions on trademark assignments, while affirming that the owner of a registered trademark retains the right to assign it independently of the business to which it is linked.
The recent provision highlights the modern shift towards a more adaptable approach to trademark assignment, enabling owners to utilize their marks similarly to property This aligns with the strategic emphasis of TRIPS on enhancing trademark flexibility and ownership rights.
276 See generally Daniel R Bereskin, A Comparison of the Trademark Provisions ofNAFTA and TRIPS, 83 TRADEMARK REP 1 (1993) (discussing the differences between NAFTA and TRIPS relating to the transfer of goodwill).
277 See GERVAIS, supra note 258, at 184.
278 For a critical discussion see Lemley, supra note 10, at 1709-10.
279 See, e.g., 2 MCCARTHY, supra note 2, § 18:10 (noting that some courts vigorously apply the "with goodwill" rule while others concentrate on the nature of the assignees use and not the assets transferred).
NAFTA establishes minimum standards for intellectual property protection that member states are required to implement In accordance with TRIPS, NAFTA permits member countries to adopt more extensive intellectual property protections in their domestic laws, as long as these enhanced protections do not conflict with NAFTA provisions.
The discussion highlights that the focus is on the transfer of business rather than goodwill, as indicated by the omission of goodwill references This clarification under NAFTA and TRIPS reinforces that Article 6quater of the Paris Convention remains applicable to national policies concerning goodwill transfer, allowing member countries to adopt their preferred policies.
Article 1708(11) of NAFTA established a compromise between trademark protection in common-law and civil-law systems Following NAFTA, Canada incorporated this language into its Trademark Act, allowing trademarks to be transferable with or without the associated goodwill, provided public confusion is avoided Mexico adopted a similar policy, enabling the free alienability of trademarks in line with civil-law practices The United States signed NAFTA in December 1993 and made partial amendments to its trademark law, but Section 10 remained unchanged as it was already aligned with NAFTA's provisions, ultimately reducing the original scope of that section.
The USPTO has clarified that a trademark transfer does not necessitate the transfer of tangible business assets, indicating no conflict between the relevant provisions.
283 Canada, Mexico, and the United States are members of the WIPO See Member States, supra note 237.
284 See Rayle, supra note 260, at 240-46; see also NAFTA, supra note 80, art 1708(11).
286 Although it is not required, some form of disclaimer or advertisement is advisable in cases of trademark transfers in order to avoid consumer deception See McDade, supra note 11, at
287 See Ley de la PropiedadIndustrial, Article 143 (D.O.F June 27, 1991) (amended Aug.
Mexican trademark law allows trademark owners the flexibility to transfer their marks without restrictions Owners can transfer their trademarks for all registered products or selectively for specific goods or services For more information, visit the official IMPI website.
288 See North American Free Trade Agreement Implementation Act, H.R REP No 103-361
(1993), reprinted in 1993 U.S.C.C.A.N 2552 Congress amended Sections 2(e)-(f), and 23(a) of the Lanham Act to comply with Article 1712 of NAFTA, which governs geographical and geographical misdescriptive marks Id.
289 See generally Werner, supra note 261, at 228 n 14 (raising and then dismissing the existence of a possible conflict between Article 1708(11) ofNAFTA and Section 10 of the Lanham Act).
The effectiveness of Section 10 under NAFTA relies on the ability to distinguish the business associated with a trademark from its goodwill Like the TRIPS context, NAFTA negotiation reports offer no clear interpretation of these concepts, placing the responsibility on national courts and legislatures Ultimately, the interpretation of goodwill that aligns with NAFTA is that of "intangible" goodwill.
The imposition of transferring tangible assets, like formulas or recipes, to ensure the continuity of trademarked products and the transfer of goodwill is inconsistent with NAFTA's language and purpose A strict interpretation of NAFTA undermines Section 10, making it a redundant requirement Similar to TRIPS, NAFTA advances a regime with minimal or no requirements for trademark transferability, reflecting a trend towards a more lenient perspective on trademark assignments.
The Formalistic Survival of Goodwill: Article 11(4) of the Trademark Law Treaty
THE CASE FOR ABANDONING THE RULE OF ASSIGNMENT "WITH GOODWILL"
Recent discussions in Parts II, III, and IV indicate a growing trend towards the free transferability of trademarks, with courts consistently supporting transfers that involve only the trademark itself, despite the restrictions of Section 10 However, this trend has not yet clarified the acceptance of assignment in gross, as judicial outcomes continue to vary based on differing interpretations of goodwill.
Part V advocates for a change allowing transfers in gross or "with or without" goodwill and argues that this change will restore consistency between the rule on trademark assignment and its interpretation and enforcement Despite common criticisms, this change will not adversely affect consumers, for the courts have alternative, and better, tools to prevent misleading assignments Additionally, it will prevent frivolous legal actions whose ultimate goal is not to protect consumers but to control the course of trade 309
304 See Summary of the Trademark Law Treaty Implementation Act of 1998 [hereinafter TLT Summary], at http://www.uspto.gov/web/offices/com/sol/tmlwtrty/tlt-summ.htm (last modified Nov 16, 2003).
305 See discussion supra Part II.B.2.
The article discusses the potential implications of the U.S ratifying the Trademark Law Treaty (TLT), highlighting that such a move could lead to the adoption of a majority policy that emphasizes the distinct identity of a trademark separate from the underlying business This perspective is supported by a comparative study of U.S and German law, which suggests that the TLT includes provisions that encourage this separation of identity.
308 See discussion supra Part II.C.
The primary objective of trademark assignment regulations is to safeguard consumer interests, as established in McCarthy's analysis These rules were not designed to invalidate all trademark assignments that fail to meet a rigid set of formal requirements, as highlighted in the case of Syntex Labs, Inc v Norwich Pharmaceutical Co This underscores the importance of balancing legal formalities with the protection of consumers in trademark law.
2005] TRADEMARK ASSIGNMENT "WITH GOODWILL ": A CONCEPT WHOSE TIME HAS GONE 829
Failures of the Rule of Trademark Assignment "with
The rule of assignment "with goodwill" is traditionally defended by the belief that it ensures a connection between a trademark and its associated products However, both case law and trademark practices have consistently questioned this assumption, revealing numerous inconsistencies in the application of this principle.
Judicial decisions and trademark practices have led to uncertainty regarding valid trademark transfers, undermining the continuity of business endeavors that the rules were intended to ensure This uncertainty primarily stems from the challenges courts face in defining trademark goodwill.
The ambiguity surrounding Section 10 can be clarified by examining its underlying rationale and acknowledging its limitations Contrary to popular belief, Section 10 does not prohibit assignees from altering the quality of their goods or services, nor does it mandate a specific quality for their products Instead, the provision historically requires that trademarks be transferred along with the associated goodwill Assignees are only legally obligated to avoid misleading use of the assigned marks and to adhere to the technical standards relevant to their specific categories of goods or services.
In the case of Sugar Busters L.L.C v Brennan, the Fifth Circuit emphasized the importance of continuity between trademarks and the products they represent This continuity is crucial to ensure that consumers can trust they are receiving the same quality and characteristics in a product or service, even when it is produced by a different manufacturer Without this assurance, consumers may be misled about the nature of the products they are purchasing.
311 See generally supra Part II.D (discussing inconsistencies in application of the rule).
312 See McDade, supra note 11, at 473:
The goodwill requirement, initially designed to safeguard the public, often contradicts this purpose by incurring excessive legal expenses and potentially invalidating transfers that align with modern business practices and needs.
Id (alteration in original) (quoting Montgomery & Taylor, supra note 82, at 22).
Section 10(a)(1) of the Lanham Act stipulates that a trademark can be transferred along with the goodwill of the associated business This provision emphasizes the connection between a mark and its commercial reputation, ensuring that the value of the trademark is maintained during the assignment process.
TRADEMARK REP 641,645 (1988); Elmer William Hanak, III, The Quality Assurance Function of Trademarks, 43 FoRDHAM L REv 363, 367 (1974); Rogers, supra note 3, at 236.
Labeling requirements and standards established by the Food and Drug Administration (FDA) play a crucial role in ensuring product quality For example, Title 21 of the FDA regulations does not inherently guarantee the consistent quality of labeled products Instead, these regulations aim to promote continuity, encouraging assignees to provide products that closely resemble those of the original assignors to maintain validity in assignments.
Section 10 has historically distinguished between assignees and original trademark owners regarding the obligation to maintain specific product qualities While assignees were required to uphold the same quality standards as their predecessors to avoid voiding assignments, original trademark owners have always had the freedom to alter the quality or type of their products This flexibility was permitted as long as their use of the trademark was not misleading or deceptive to consumers This disparity in treatment has been a point of criticism, highlighting a significant flaw in the enforcement of trademark assignment rules.
"with goodwill." While continuing to produce products of the same quality as those of the assignor is often in the assignee's best interest, 319 some
Chapter 1 of the Code of Federal Regulations outlines the Food and Drug Administration's (FDA) product standards and regulations, specifically in 21 C.F.R §§ 1.20-1.21 and §§ 1:23-1:24, which detail general labeling requirements Notably, the case of Original Appalachian Artworks, Inc v Granada Elecs, Inc illustrates that significant confusion can warrant a permanent injunction, while research indicates that few cases have successfully invalidated a trademark due to inadequate control.
315 See discussion supra Part II.C.
316 See Parks, supra note 11, at 545-47.
The "New Coke" case serves as a significant example of marketing missteps, where Coca-Cola replaced its traditional Coke with "New Coke." Due to a strong backlash from consumers, the company quickly adapted its marketing approach and reintroduced the original formula as "Coca-Cola Classic."
318 Section 2(a) of the Lanham Act expressly prohibits the registration of trademarks that are
Deceptive trademarks can be canceled under Section 14(3) of the Lanham Act (15 U.S.C § 1064(3)), as established in case law Courts have affirmed the obligation to prevent deception, as seen in Dawn Donut Co v Hart's Food Stores, Inc., where the Second Circuit emphasized this duty Additionally, in Nat'l Lead Co v Wolfe, the Ninth Circuit ruled that a misleading name warranted an injunction and accounting Furthermore, Geo Wash Mint, Inc v Wash Mint, Inc confirmed that a preliminary injunction could be a valid remedy under the Lanham Act, except for prior local use.
319 As Landes and Posner pointed out:
Trademarks possess a self-enforcing characteristic, as their value hinges on the consistent quality they represent Only companies that can uphold this quality are motivated to invest in building a robust trademark When a brand fails to deliver consistent quality, consumers realize that the trademark no longer connects their previous experiences with future purchases.
The concept of trademark assignment "with goodwill" is becoming increasingly outdated, as changes in quality or type are often essential for businesses to adapt to market demands Denying assignees the flexibility to make these adjustments could ultimately hinder their competitiveness in the marketplace.
Courts have historically taken a practical approach to the rule regarding changes in the quality of products distributed by assignees, often allowing modifications as long as they do not pose a risk to the public In contrast, transactions that present such risks have been deemed void This case-by-case analysis has led courts to navigate the ambiguities surrounding the concept of goodwill, enabling them to reach varied conclusions based on the specifics of each situation.
The judicial rule of reason has intensified inconsistencies in the application of Section 10, particularly as courts have shifted towards recognizing sufficient continuity rather than product identity as the key standard for valid trademark transactions This shift indicates that a transfer of tangible assets is not essential for the passing of goodwill As discussed in Part IM, many courts have addressed the challenge of tracking the transfer of intangible goodwill by emphasizing that trademarks do not diminish search costs.
LANDES & POSNER, supra note 54, at 168.
Calling for a Consistent Rule on Trademark Assignment 832 1 The Case for Trademark Assignment "Without
Alternative-and More Effective-Tools to Protect
Trademark owners should be allowed to assign their marks to promote consistency in trademark transferability and benefit businesses However, this must not harm consumers or competitors Trademark law must safeguard the public from dishonest manufacturers who might exploit legitimate consumer expectations, ensuring protection against potential fraud arising from mark transfers.
Consumers have the right to accurate information when making purchases, even if they are not legally guaranteed goods and services of the same quality If there are any changes to the quality of marked products, consumers should be informed before or during their purchase Clear package labels play a crucial role in ensuring transparency for buyers.
Consumer fraud occurs when trademark owners engage in deceptive practices, making them liable both civilly and criminally Relevant legislation includes the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act and the Consumer Product Safety Act, which outline the responsibilities of sellers Additionally, the Restatement (Second) of Torts addresses misrepresentation by sellers of goods to consumers, highlighting the legal implications of such deceptive actions.
A seller of goods who misrepresents a material fact about the character or quality of their products through advertising or labeling can be held liable for any physical harm suffered by consumers who justifiably relied on that misrepresentation This liability exists even if the misrepresentation was not made fraudulently or negligently, and regardless of whether the consumer purchased the product directly from the seller or had any contractual relationship with them.
Courts consistently assert that a sufficient explanation eliminates the potential for deception, thereby preserving trademark rights Hanak highlights specific instances that illustrate this principle.
[I]n Hy-Cross Hatchery it was held that a change in the breed of chickens did not constitute grounds for cancellation of the trademark when "the type of chick
The concept of trademark assignment "with good will" is becoming outdated, as effective marketing strategies, including targeted advertising and product labeling, are essential for informing consumers about changes in product quality While courts have historically been skeptical of disclaimers, they can serve as evidence that assignees are making a genuine effort to communicate with the public, even if some consumers may overlook these messages.
Changes in ownership of a trademark can negatively impact consumers if new owners exploit public expectations of the mark These issues can arise regardless of whether the trademark is assigned with or without its associated goodwill Essentially, such scenarios involve commercial fraud, where assignees mislead the public using the mark Courts should declare these assignments invalid and cancel or abandon the mark under Sections 14 or 45 of the Lanham Act Even under a rule of free transferability, the courts can still apply these provisions to void misleading assignments and ensure marks are not misused.
A revision of Section 10 will maintain competitors' rights to invoke Section 43(a) of the Lanham Act, which relates to trademark protections In the case of Menendez, it was determined that trademark rights associated with cigars made exclusively from Cuban tobacco were not lost when the mark was used on cigars produced in Florida with non-Cuban tobacco, as this distinction was clearly labeled on the cigar boxes.
Id (footnote omitted) (quoting Hy-Cross Hatchery, Inc v Osborne, 303 F.2d 947, 950 (C.C.P.A. 1962)).
347 See Hanak, supra note 313, at 331-34.
349 See discussion supra Part II.B.
350 See discussion supra Part II.B.
In commerce, it is prohibited for any individual to use any word, term, name, symbol, or device, or any combination thereof, in connection with goods or services, if it involves a false designation of origin or presents a false or misleading description or representation of fact.
Section 43(a) serves as a powerful tool for competitors to challenge unauthorized trademark uses that may cause confusion or deception Even with a shift towards allowing free trademark transfers, this provision remains effective in protecting against misleading practices Courts will prioritize the differences in mark usage between assignors and assignees, declaring any transfers that could mislead consumers as invalid.
When evaluating the use of a mark by an assignee under Sections 14, 45, or 43(a), courts must carefully consider product quality differences to determine potential consumer confusion In cases where products are similar, as illustrated in the initial scenarios, a test assessing the affiliation, connection, or association between entities should be employed, focusing on the origin, sponsorship, or approval of goods and services.
In commercial advertising, any misrepresentation regarding the nature, characteristics, qualities, or geographic origin of goods, services, or commercial activities can lead to civil liability Individuals who believe they have been or may be harmed by such misleading practices have the right to take legal action.
Section 43(a) of the Lanham Act, which addresses the rights of "any person," has seen courts reluctant to grant standing to consumers This hesitation is evident in various cases, including Seven-Up Co v Coca-Cola Co., Serbin v Ziebart International Corp., Dovenmuehle v Gilldorn Mortgage Midwest Corp., and Colligan v Activities Club of New York, Ltd Legal expert McCarthy highlights this trend, indicating that consumer protection under this section remains limited.
During the congressional process of the Trademark Law Revision Act, an initial House bill included a provision granting consumers the right to sue for violations of § 43(a) However, this provision was ultimately removed during the House-Senate Conference Committee discussions Representative Kastenmeier noted in the record his belief that existing case law already granted consumers standing, suggesting that the deleted provision would have merely clarified this legal interpretation.
Id (citation omitted) (citing H.R REP No 100-1028, at 13-15 (1988); 134 CONG REC H 10419 (daily ed Oct 19, 1988) (statement of Rep Kastenmeier)); see also Tawnya Wojciechowski,
Letting Consumers Stand On Their Own: An Argument for Congressional Action Regarding
Consumer Standingfor False Advertising under Lanham Act Section 43(a), 24 Sw U.L REV 213,
No legal precedent has established that using a trademark with goods of varying quality levels qualifies as an actionable "false description" or "misleading representation" under Section 43(a).
CONCLUSION
The change in the taste of the morning Starbucks Caramel Macchiato may evoke mixed reactions; while some may feel disappointed, others might be excited or indifferent Regardless, we will likely adapt to the new flavor or discover a new favorite drink.
363 Federal Trade Commission Act (FTCA), ch 311, 38 Stat 717 (1914) (codified as amended at 15 U.S.C §§ 41-58 (2000)).
Under Section 5(a)(1) of the Federal Trade Commission Act (FTCA), unfair methods of competition and deceptive practices in commerce are deemed unlawful Specifically, "unfair" practices, as outlined in Section 5(n), are those that can cause significant harm to consumers, which cannot be reasonably avoided, and are not justified by any counterbalancing benefits to consumers or competition.
Trademark rights cannot be obtained for marks that are considered deceptive or misleading, as established by the rulings of this court and other competent jurisdictions.
In the case of 786, 788, 792 (C.C.P.A 1964), the court upheld the opposition to trademark registration, determining that the trademark misleadingly suggested that the plastic material was leather Consequently, no trademark rights can be established for a deceptive trademark This principle is further supported by the case of Gaffrig Performance Industries v Livorsi Marine, Inc.
7778, 99 C 7822, 2003 U.S Dist LEXIS 23018, at *37-39 (N.D Ill Dec 19, 2003) (holding that the registration of a mark fraudulently obtained and deceptively used should be cancelled).
366 See, e.g., 15 U.S.C §§ 2301-2312 (2000) (statutes governing consumer product warranties and the federal trade commission); 15 U.S.C § 2051 (2000) (congressional intent that the public should be protected from unreasonable risks associated with consumer products).
367 See, e.g., 15 U.S.C § 2069 (2000) (explaining civil penalties under the Consumer ProductSafety Act); 15 U.S.C § 2070 (2000) (explaining criminal penalties under the Consumer ProductSafety Act).