Irene Calboli, Trademark Assignment “with Goodwill”: A Concept Whose Time Has Gone

57 Fla. L. Rev. 771 (2005) | | | |

INTRODUCTION :: Imagine that tomorrow, when you order your morning STARBUCKS Caramel Macchiato, the coffee tastes richer than usual; you then notice a label on the shop door, and on your coffee cup, announcing that a new owner has purchased the mark STARBUCKS and has changed the quality of some of the STARBUCKS products. Now, imagine that you have planned to purchase a Volkswagen BEETLE and, immediately prior to your purchase, you learn that BMW has acquired Volkswagen and has discontinued the current model of the BEETLE. Instead, the company plans to release a new car, also named the BEETLE, but considerably different in design and technical features from the car that you wanted to purchase. Finally, imagine that a South-African corporation has acquired the Coca- Cola Company and announces that it will not continue to produce the well-known soft drink. Instead, it will use the mark COCA-COLA on a variety of salty snacks.

These scenarios illustrate how, as a result of a trademark assignment, an assignee could choose to change the ingredients or technical features of the products identified by a trademark. As long as these changes do not come unexpectedly and do not harm or defraud consumers, there is no apparent reason why assignees should be prevented from carrying them out. Yet, based on the assumption that such changes could result in consumer confusion because of the breach in the continuity of the product quality or kind they are likely to create, trademark law has traditionally discouraged the use of a mark on substantially dissimilar products by expressly requiring that trademarks are assigned “with the goodwill” of the business to which they refer.

This rule, also called the rule “against assignment in gross,” is currently incorporated in Section 10 of the Trademark Act of 1946 (Lanham Act), and rests on the assumption that trademarks do not exist per se but only as symbols of the goodwill that has been established by businesses while using the marks. This principle was developed by the courts in the nineteenth century to define the appropriate scope of trademark protection. The adoption of this principle directly affected the rule on trademark transferability: if a mark could not exist apart from its goodwill, the mark could not be assigned without it.

Regardless of this rule, however, trading in trademarks per se has always been a custom in the business world. Generally, this trade has been conducted “through a widespread ignorance” or by “making the most of the exceptions” recognized by the law. Unsurprisingly, trademark practices have traditionally provided instruments to minimize, if not legally overcome, the effects of Section 10. In the past decades, the development of the consumer society and the growing role of trademarks in the economy only have accelerated this trend.

Arguing against the disconnect between the legal requirements for trademark transferability and the reality of business practices, trademark owners and practitioners have thus repeatedly advocated for a regime of free trademark alienability, or assignment without goodwill. In support of this contention they have stressed that, contrary to common criticisms, assignments in gross are not harmful for consumers because consumer deception has nothing to do with trademark transfers, but only with the subsequent use of the marks by assignees.

In this sense, to elaborate on the examples above, what harm could be inflicted on the public if the new owner of the mark STARBUCKS chooses to change the quality of the STARBUCKS products? Likewise, would consumers be misled if BMW decides to change the style of the BEETLE car, or if the new owner of the mark COCA-COLA discontinues the production of COCA-COLA soft drinks? As long as the new owners of the marks adopt all reasonable means to inform the public, it seems in principle unlikely that the changes in the product quality or kind will harm or mislead the purchasing public.

Fully aware of the contradictions characterizing the rule on trademark assignment, the courts have traditionally adopted a pragmatic position in the enforcement of Section 10. In the past decades, however, this pragmatic approach has increasingly tolerated assignments de facto without goodwill. More recently, this trend has led the courts to uphold assignments whose direct purpose was not product continuity, but rather control of the assigned mark. Specifically, an analysis of the case law on trademark assignment indicates how the courts have provided trademark owners with a growing flexibility to transfer their marks by gradually relaxing the interpretation of what represents goodwill, a concept per se ambiguous and thus susceptible to inconsistent interpretations. Only in very limited instances have the courts interpreted the rule conservatively and declared assignments invalid.

Trademark scholars have vehemently criticized the gradual judicial shift away from the goodwill requirement. This approach, they have argued, represents evidence that the courts are leaning toward protecting trademarks in gross contrary to the general principles of trademark law. Practitioners and trademark owners, by contrast, have cheerfully saluted this trend and requested that Section 10 be changed accordingly. Yet, whether arguing against or for it, neither scholars nor practitioners have provided a satisfactory analysis of the reasons behind the recent judicial approach. Particularly, they have neither considered if this approach amounts to a de facto abandonment of the current rule to the advantage of business practices, nor asked if it indicates a modern definition of trademark goodwill, reflecting the changes in the role of trademarks in the economy. Specifically, since the enactment of the Lanham Act, neither scholars nor practitioners have considered how the ambiguities surrounding the meaning of the concept of goodwill have affected the debate about trademark protection and, more specifically, the rule on trademark assignment.

Still, the major problem with the idea of trademark goodwill and the rule on trademark assignment is precisely that after almost a century since its introduction into trademark law, the definition of what represents goodwill remains vague and open-ended. As such, the concept of goodwill has traditionally been interpreted inconsistently by the courts, which have often exploited its ambiguity in support of their conclusions. Unsurprisingly, the result has been contradictory case law and inconsistency as to what represents a valid assignment.

Arguing for an end to this inconsistency, this Article fills an important gap in the legal literature and provides an in-depth analysis of the concept of goodwill with particular attention to the rule on trademark assignment. The Article proceeds as follows. Part II offers an overview of the rule against assignment in gross, explores its rationale and legislative history, and considers the inconsistencies that have characterized its application in the last century. Part III explores the concept of trademark goodwill. It summarizes the history and developments of this concept in trademark law, underlines the difficulties in providing a clear definition of goodwill, and considers the consequences of the lack of such a definition. Part IV provides a comprehensive study of international legislation on trademark assignment and considers how they have affected, and constrained, the interpretation of Section 10.

Part V concludes the Article and advocates for a change toward free trademark transferability, or assignment “with or without” goodwill, to eliminate the ambiguities and inconsistencies created by the current wording of Section 10. Part V argues that the rule of assignment “with goodwill” is failing to meet its purpose and suggests that, rather than focusing on a sterile and confusing requirement, the courts should focus directly on the assignee’s use of the mark. If this use is likely to deceive the public, the courts should declare the assignments at issue void. Yet, if no likelihood of confusion or deception results from the transaction, the courts should allow the assignments to stand.

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