Assignment in gross, or not? What happened to the goodwill?

Trademark assignments and the transfer of the goodwill seem, well, oh-so dull, until they are not. Kat friend Ian Gill reports on a recent cautionary tale from the UK.

Scott Hallsworth is a renowned Australian chef who created and opened a chain of London-based restaurants in 2013 under the mark KUROBUTA. The business floundered and administrators were appointed in April 2017, which eventually resulted in the assignment of the goodwill in the business being assigned to Kurobuta Ltd, which had no connection with Hallsworth.

On 31 March 2017, before the administrators were appointed, Hallsworth filed a UK trade mark application for the mark KUROBUTA for a wide variety of goods and services, including restaurant services, and registration was granted on 1 September 2017. This application was not dealt with in the administration process and it is clear from later events that Hallsworth had no intention of giving it up.

Kurobuta 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. The essence of the case was the question of which party owned the goodwill.

Kurobuta was successful before the UK IPO regarding the goods and services relating to restaurants or the like. Much is made at first instance of Hallsworth’s claim to personally own the goodwill, but the argument was not successful, as everything he did was for the benefit of the business, not for him personally. 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: Kurobuta was prevented for contractual reasons from making a claim that Hallsworth’s registration was invalid;

Contention B: Hallsworth’s application was filed before Kurobuta took assignment of the goodwill in the KUBOBUTA mark and therefore it was not the proprietor of a relevant “earlier” right; and

Contention C: The assignment to Kurobuta was ineffective for being an “assignment in gross”.

Contention A is primarily a contractual issue, with Mr Hobbs concluding that Kurobuta 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” established that the objector needed to be the owner of the goodwill at the date the application was filed.

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. First, 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 that 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 to which the goodwill relates. These categories of transaction are inherently deceptive and therefore ineffective.

It was this second alternative that Hallsworth relied on. Mr Hobb’s summarised the thrust of Hallsworth’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, Hallsworth refers to Star Industrial Company Ltd v Yap Kwee Kor t/a New Star Industrial Company [1976] FSR 256, which 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.

Scandecor Developments AB v Scandecor Marketing AB [2001] 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. Customers now realise that the management of a business can change without adversely affecting the quality of the goods.

Looking back to Star Industrial, 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 it did not apply in this case.

Turning to the wording of the assignment, 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” that had been conducted under the name KUROBUTA before the assignment.

Nevertheless, Hallsworth 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 that he did not understand Hallsworth as suggesting that the assignments were a sham, and there is no evidence of deliberate forethought on Hallsworth’s part at the time of the assignment to engineer a position that could be attacked later.

Instead, Hallsworth 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 to transfer the goodwill in the KUROBUTA trade name to Kurobuta.

The assignment left Hallsworth 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.

The more expansive discussion of the background in the original decision of the Hearing Officer (O/259/19) includes Hallsworth’s that he did not know the goodwill was being sold and that, if he had known, he would have objected. While the administration process was dealt with primarily by his business partner, 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.

Picture on right is be Patrick Bell and is licensed under the Creative Commons Attribution 2.0 Generic license.