OWNERSHIP OF GOODWILL WHEN COMPANIES DIVIDE
Alex McDonald | Trade Mark Dispute Barrister, Auckland
It is not uncommon for related companies to use a single “house” mark in different countries. However, a trade mark dispute can happen when a company in the group is sold off to a third party. In Patience & Nicholson (NZ) Limited v Cyclone Hardware Limited  3 NZLR 490, the New Zealand High Court dealt with a trans-Tasman trade mark dispute involving the New Zealand rights to the use of the trade mark P&N in relation to cutting tools. The P&N trade mark was registered in New Zealand in 1961 and the brand was a market leader for many years.
The registration was held by the Australian parent, Patience & Nicholson Australia and used by its subsidiary, Patience & Nicholson New Zealand under a series of registered user agreements. In 1987 Patience & Nicholson Australia was sold and from then on both companies operated independently and under different ownership. The trade mark registration subsequently lapsed through non-payment of renewal fees. The case before the court was confined to allegations of passing off and breach of the Fair Trading Act 1986.
The Court determined that upon the sale of the Australian operation the New Zealand company made little use of P&N. From 1987, until the recent sales of P&N branded product which prompted the proceedings, the Australian business had consciously determined not to market P&N branded product in New Zealand.
Central to the plaintiff’s claim was the issue of ownership of goodwill arising out of the historical use of the P&N brand in New Zealand. The Court concluded that up until 1987, any goodwill derived from the use of the registered trade mark by Patience & Nicholson New Zealand accrued to Patience & Nicholson Australia by virtue of section 37 of the Trade Marks Act 1953 which deems use of a trade mark by a registered user to be use by the registered owner. However, neither party to the proceedings could, as a matter of contract, establish an assignment to it of the goodwill associated with the use of the trade mark.
The Court distinguished goodwill derived from the use of the registered trade mark from common law goodwill and appeared to hold that throughout the currency of the user agreement, goodwill accrued to Patience & Nicholson New Zealand as a result of the operation of its business in New Zealand. The Court went on to decide that the trading activities of the plaintiff as successor to Patience & Nicholson New Zealand consolidated rights to the P&N trade name in New Zealand which entitled the plaintiff to an injunction.
The decision highlights the extra care needed in controlling ownership of goodwill within a group of companies where, for whatever reason, a trade mark registration cannot or has not been obtained.
Alex McDonald – Trade Mark Lawyer, Auckland