The name of the franchise is often one of the most distinguishing features of that franchise. It generates its own goodwill in the marketplace and can provide comfort and certainty for those dealing with the franchise. Where the name is registered by another, or used without consent, a franchise can suffer damage that can be difficult to repair.
This Update will look at the risks involved with business name registration for a franchise and will explore some of the avenues that are presently available to obtain relief.
Registering your business name
On the 28 May 2012 the national business name registration legislative package was enacted which included the Business Names Register. 1
This register was introduced to remove the inconvenience and cost caused by the registration of business names in more then one state or territory within Australia. It was also promoted as ensuring that the public can identify the entity trading under a particular business name, so people know who they are dealing with on transactions.
A franchise will not need to register a separate business name if the franchisors are:
- An individual and the business name is the individual’s name;
- A registered company and the business name is the company’s name; or
- A partnership and the business name consists of all the partners’ names.
However, to ensure the right to operate under a name that is not the franchisor’s own name and preclude others from trading under that name, the franchise will need to register their name if they carry on a business or trade within Australia and are not trading under their own entity name.
Changes to the new laws and policies include:
- You only need to register a business name once to have national effect;
- New automated tests determine if a name is available;Y
- ou need an ABN to register a new business name;
- You may not register a name if the proposed holder is ‘disqualified’;E
- ntities may register as the holder of a business name; and
- Entities exempt from holding an ABN may register as the holder of a business name.
It is important to note however that registering a name does not stop another person from registering a similar name and it does not give you an exclusive right to use the name or part of the name.
Other areas of law such as trademark, copyright, passing off and misleading and deceptive conduct all govern who may use what in marketing/developing or trading a business.
Trademark and copyright
Registering a business name will not prevent the name being used by somebody who has registered it as a trademark.2
If a registered trademark is in place entitlement exists to utilize that in the market place to promote a business.
When registering trademarks, consideration is given in section 10 of the Trade Marks Act 1995 (Cth) to whether a trade mark is deceptively similar to another by noting that this will be the case 'if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion'.
The recent case of Facton Ltd v Mish Mash Clothing3 expanded copyright and trade mark owners' opportunities to argue that imitators' labels constitute infringements of copyright. The case also reinforces that in addition to wording, colour, shape and other factors, layout is highly relevant to any analysis of whether an allegedly infringing image is 'deceptively similar' to a trade mark.
‘Passing off’ is a common law restriction and arises when a name is used which is the same or similar to that of an existing business.
This action seeks to protect the owner of a business/franchise, or company name, where the purpose of using the name by another is to create the impression that the business is that of another and thereby taking advantage of the reputation of an established business.4
It is not necessary that the franchise who attempts to ‘pass off’ intended to deceive. However, the franchise must carry on the same kind of business as the party infringed.
A franchise may still use a similar or identical name to someone else if the franchise is using their own name; does so honestly and is not attempting to rely on the reputation of another.
Misleading and deceptive conduct
Parties who utilize some other parties registered business name, trademark or copyrighted brand may also face liability under the Trade Practices Act, or the section 18 of the Australian Consumer Law, found in Schedule 2 of the Competition and Consumer Act 2010 (Cth).
This may be available in similar circumstances as passing off. With parties being infringed seeking relief under trademark, copyright passing off and these provisions of the Australian Consumer Law.
Under this section a corporation is prohibited in trade or commerce from engaging in conduct that is misleading or deceptive. This may include using another’s name.
Recent example: Winnebago Industries
The case of Winnebago Industries Inc v Knott Investments Pty Ltd (No 2)5 highlights the risks involved in failing to take all steps necessary to protect a party operating a business under a specified name and also the avenues for obtaining relief if some other party is infringing the name you are trading under.
Winnebago Industries Inc was and is a US corporation and manufacturer of recreational vehicles, well known for their style of vehicles. The company had and has a substantial reputation through promotional tools such as the Winnebago logo and the ‘W’ logo.
In Australia, Knott Investments Pty Ltd, manufactured and sold recreational vehicles using the Winnebago name throughout Australia. This was registered as a trade mark in Australia in 1997.
In 2010, Winnebago (USA) considered importing and selling its vehicles in the Australian market and took action against Knott Investments Pty Ltd and its dealers for using the Winnebago name/brand.
Causes of action
Winnebago brought three causes of action:
- passing off;
- contraventions of the Trade Practices Act 1974 (Cth) (TPA); and
- contraventions of the Australian Consumer Law (ACL).
Winnebago alleged that Knott passed off its business and products as those of the US Winnebago company.
Further, that Knott Investments Pty Ltd, had made representations:
- it was related to Winnebago;
- the RVs were manufactured by or under a license from Winnebago; and
- Knott’s dealers were authorized dealers or representatives of Winnebago.
Winnebago claimed that these representations constituted misleading and deceptive conduct contrary to section 52 of the Trade Practices Act.
An injunction was sought by the US Winnebago restraining Knott Investments Pty Ltd, from using the Winnebago trademarks, and an order was sought cancelling the Australian trademark.
Winnebago also sought damages or an account of profits for the alleged infringements.
A business that passes off another business as their own may be liable for damages for loss of profits to the infringed party and loss of goodwill to the original company. Additionally, the party committing the infringement may be ordered to pay over profits made as a result of the conduct which is called an account of profits. This could amount to all of the sales made by Knott Investments Pty Ltd in the Australian marketplace or some lesser amount depending upon the US Winnebago’s actual ability to sell into the market at a given point in time.
The court held that Knott Investments Pty Ltd was ‘passing off’ as the US Winnebago and that the TPA and ACL had been breached. The court ordered that the Australian trade mark be cancelled and that the parties to negotiate on appropriate orders for damages and/or account of profits.
Tips for Franchisors
Those looking to use a particular name to operate a franchise should be aware that:
- Registration of a business name does not offer protection of a brand or trading name. It does not stop another person from registering a similar name nor does it give you the exclusive right to use the name.
- The registration of a business name is only a legal obligation and to ensure business owners intellectual property rights are protected, parties should register trademarks.
- To ensure that you are not breaching trademark laws, a new simplified trademark search called the TM check can be performed at no cost online. Also check the ASIC national business names register for name availability.
- In some instances it is worth conducting international searches to determine if some other party is already using that name.
- Once you have built up goodwill and brand recognition through a name protection of that name/brand, it becomes more important and capable of being enforced.
- Identification of damages or losses suffered is important and ability to recover these from the infringing party are considerations when deciding if action is worthwhile.
- If you would like to know more about when names will be registered on the new business names register familiarise yourself with the ASIC Regulatory Guide 235 which is available on ASIC’s website.