Trademark assignments and the transfer of the goodwill seem, well, oh-so dull, until they are not. Ian Gill reports on a recent cautionary tale from the UK.
Scott Hallsworth (‘SH’) is a renowned Australian chef who worked his way up to be the Head Chef at the Michelin starred Park Lane restaurant of Nobu. SH created and opened a chain of London based restaurants in 2013 under the mark KUROBUTA. The business floundered and administrators were appointed on 21 April 2017 which eventually resulted in the assignment of the goodwill in the business being assigned to a new entity, Kurobuta Ltd (‘KL’), which had no connection with SH.
On 31 March 2017, shortly before the administrators were appointed, SH filed a UK trade mark application to register the mark KUROBUTA in relation to a wide variety of goods and services, including restaurant services, and a registration was granted on that application on 1 September 2017. This application was not dealt with in the administration process and it is clear from later events that SH had no intention of giving it up. KL therefore applied to invalidate the registration under s.5(4)(a) of the Trade Marks Act 1994, i.e. use of the mark is likely to be prevented by the law of passing off. Given that KL had taken assignment of the goodwill from companies in which SH was a Director and a substantial shareholder this does not seem to be an unreasonable line of attack.
The essence of the case was the question of which party owned the goodwill.
KL were successful before the UK IPO in relation to the goods and services relating to restaurants or the like. Much is made at first instance of SH’s claim to personally own the goodwill – this was not successful as everything he did was for the benefit of the business, not for him personally, and that finding was not the subject of the appeal to the Appointed Person.
In decision O/590/20 Mr Geoffrey Hobbs QC, sitting as the Appointed Person, distilled the appeal down to three contentions:
Contention A: KL were prevented for contractual reasons from making a claim that SH’s registration was invalid;
Contention B: SH’s application was filed before KL took assignment of the goodwill in the KUBOBUTA mark and therefore they were not the proprietor of a relevant “earlier” right; and
Contention C: The assignment to KL was ineffective for being an “assignment in gross”.
Contention A is primarily a contractual issue and is dealt with in paragraphs 25 to 30 of the judgement, with Mr Hobbs concluding that KL was entitled to bring the claim.
Contention B is given short shrift by Mr Hobbs, who did not accept that the word “earlier” in the expression “earlier right” establishes “a temporal requirement which the objector must satisfy by having been proprietorially entitled to the cited ‘earlier right’ at the date with effect from which the relevant trade mark application / registration stands to be rejected if the objection succeeds”.
Contention C gave Mr Hobbs an opportunity to stretch his legs and take us on a historic tour of judgements relating to the conditions under which a trade mark can be assigned.
An “assignment in gross” can take one of two forms – the owner of goodwill purports to grant to a third party the bare right to use a mark, there being no connection between the two which would justify use by the assignee. Alternatively, an assignor may purport to assign the goodwill without the assignee taking any relevant interest in the business that the goodwill relates to. These categories of transaction are inherently deceptive and therefore ineffective.
It was this second of these two alternatives that SH relied on. Mr Hobb’s summarised the thrust of SH’s arguments as “the Assignment stopped short of transferring to KL the business interest it needed to acquire in order to invest it with proprietorship of KUROBUTA as a trade mark at common law”. In support of this position SH refers to Star Industrial Company Ltd v Yap Kwee Kor t/a New Star Industrial Company  FSR 256 where it is stated that “a purchaser of a mark becomes owner of it only if he becomes at the same time purchaser of the manufactory or the business concerned in the goods to which the mark has been affixed”. Mr Hobbs traces this proposition back through various cases to Leather Cloth Co. v American Leather Cloth Co. (1865) H.L.C. 523 “as the leading authority for the proposition that a purchaser of a mark becomes owner of it only if he becomes at the same time purchaser of the manufactory or business concerned in the goods to which the mark has been affixed”.
Scandecor Developments AB v Scandecor Marketing AB  UKHL 21 takes us through the changes that have taken place over time to the way trade is conducted and hence the changing conditions that have been applied to the sale of trade marks. As modern business practices developed from the early days of the 19th century, when a trade mark was personal and it was not considered to be something that could be sold, to the position where the trade mark was only a representation that the goods were manufactured by a business without any representation of the person or persons who manufactured them. Customers now realise that the management of a business can change without notice to them or adversely affecting the quality of the goods.
This change was recognised in the UK Trade Marks Act 1938 where it became possible to assign a registered trade mark without the goodwill of the business, although at that time an assignment without the goodwill had to be advertised. This position was further relaxed by the UK Trade Marks Act 1994 which allows the assignment of a trade mark subject to the sanction of the transferred mark being deprived of protection if it becomes a source of deception in the hands of the assignee.
Looking back to the Star Industrial case referred to by SH, the background to which is summarised in paragraphs 58 to 61 of this decision, Mr Hobbs concludes that the claim in that case failed not because of an unallowable “assignment in gross” but because the business associated with the goodwill had been abandoned and that did not apply in this case.
Turning to the wording of the assignment from SH to KL, this defined the goodwill as: “the goodwill, custom and connection of the KUROBUTA trade name in relation to the Kurobuta business and the right to represent itself as carrying on the Kurobuta business”. Absent any definition of the “Kurobuta business”, that was taken to mean the “business” which had been conducted under and by reference to the name KUROBUTA before the assignment.
Nevertheless SH maintained that the assignment had not transferred the business itself and did not involve an assignment of the business as a going concern. Mr Hobbs comments in paragraph 76 that he did not understand SH as suggesting that the assignments were a sham, and there is no evidence of deliberate forethought on SH’s part at the time of the assignment to engineer a position that could be attacked later. Instead SH was asking the Tribunal to look behind the assignment to find its true effect. However, Mr Hobbs saw no reason why the assignment should not be held to do what it purported to do and transfer the goodwill in the KUROBUTA trade name to KL. The assignment left SH with no right, title or interest in the goodwill and the associated business and it was not an “assignment in gross”. The appeal therefore failed.
It seems doubtful that many people would have contested this case as fiercely as SH given that, from the outset, it must have been understood that the chances of success were slim. The more expansive discussion of the background in the original decision of the Hearing Officer (O/259/19) includes SH’s evidence that he did not know the goodwill was being sold and that if he had known he would have objected – the administration process was dealt with primarily by his business partner – but this position is hard to square with SH’s filing of a trade mark application shortly before the administrator was appointed, and as a Director and substantial shareholder he could not later rely on his own lack of engagement in the administration process.
Ultimately, but unsurprisingly, the conclusion was that even a celebrity chef cannot have his cake and eat it.
This article was first published in IPKat in February 2021.