Lecture 4 (Part 2) – Passing off and Infringement
• Registered trade marks – infringement
• Unregistered trade marks – passing off
• Notion of passing off – goodwill
• Goodwill in Scots law:
– Cruttwell –v- Lye [1810] 17 Vess 335
The court said that goodwill was “nothing more than the probability that the old
customers will resort to the old place”. So you can see from this that what is sought
here is a question of customer loyalty. But it's not really expressed in a way that made
it very clear that goodwill is involved. If you are going to have damages claims, then
you have to be able to state what the amount of goodwill is that has been lost. Was
the damages is for the loss that has been suffered in patrimonial, that is in terms of
property values terms. This was recognised as too narrow and was developed …
– Trego –v- Hunt [1896] AC 7 – the court in this case said that goodwill was “the whole
advantage, whatever it may be, of the reputation and connection of the firm.”
So, we have to find some way of being able to assess reputation and working out what
reputational damage is when it comes to a firm and indeed you can if you are a
company, you can sue for reputational damage, not necessarily because of passing off
an infringement, but nonetheless for other things as well, which may have caused
damage to your reputation and connection. The idea of the connexion of the firm also
means that you are talking not only about goodwill in relation to customers, but
you're also talking about other persons who may come across the firm, such as, for
example, competitors and also potential customers and including, of course,
suppliers. It is very important if you are purchasing from suppliers and do you want to
be able to take advantage of credit agreements that you have a good reputation for
your firm.
• But we as lawyers have to have some idea how to quantify this …
• Consider this business balance sheet …
, On the left hand side, we have the assets, which are the things owned by the business, and on the
right hand side, you find the things owed by the business. And these must always be the same. Why
must they be the same? Because the business is owned by its shareholders, by the people who own
the business, partners in the case of a non-corporate business.
The value which is given as the goodwill figure is the capital value, and that depends on the amount
of revenues that have been lost, revenues that have been lost years ago as a revenue figure, it relates
to profitability and streams of income. But if you look at that and value it in accordance with the return
on capital employed, you can convert that figure into the amount of capital that has been lost.
• Goodwill is quantifiable and is directly related to the amount of return you can get on the
capital you have employed in the sector of business concerned. So a certain amount of
revenue loss in one year is equivalent to a capital value, which is calculated usually using the
return on capital employed and is often very much higher than the amount of revenue that
has been lost in that one year.
• Hence the filching of customers by your rival will result in a quantifiable loss of revenue and
so an estimatable loss of goodwill and reputation.
• Brands and trade marks can appear on accounts as business assets
• Registered trade marks – infringement
• Unregistered trade marks – passing off
• Notion of passing off – goodwill
• Goodwill in Scots law:
– Cruttwell –v- Lye [1810] 17 Vess 335
The court said that goodwill was “nothing more than the probability that the old
customers will resort to the old place”. So you can see from this that what is sought
here is a question of customer loyalty. But it's not really expressed in a way that made
it very clear that goodwill is involved. If you are going to have damages claims, then
you have to be able to state what the amount of goodwill is that has been lost. Was
the damages is for the loss that has been suffered in patrimonial, that is in terms of
property values terms. This was recognised as too narrow and was developed …
– Trego –v- Hunt [1896] AC 7 – the court in this case said that goodwill was “the whole
advantage, whatever it may be, of the reputation and connection of the firm.”
So, we have to find some way of being able to assess reputation and working out what
reputational damage is when it comes to a firm and indeed you can if you are a
company, you can sue for reputational damage, not necessarily because of passing off
an infringement, but nonetheless for other things as well, which may have caused
damage to your reputation and connection. The idea of the connexion of the firm also
means that you are talking not only about goodwill in relation to customers, but
you're also talking about other persons who may come across the firm, such as, for
example, competitors and also potential customers and including, of course,
suppliers. It is very important if you are purchasing from suppliers and do you want to
be able to take advantage of credit agreements that you have a good reputation for
your firm.
• But we as lawyers have to have some idea how to quantify this …
• Consider this business balance sheet …
, On the left hand side, we have the assets, which are the things owned by the business, and on the
right hand side, you find the things owed by the business. And these must always be the same. Why
must they be the same? Because the business is owned by its shareholders, by the people who own
the business, partners in the case of a non-corporate business.
The value which is given as the goodwill figure is the capital value, and that depends on the amount
of revenues that have been lost, revenues that have been lost years ago as a revenue figure, it relates
to profitability and streams of income. But if you look at that and value it in accordance with the return
on capital employed, you can convert that figure into the amount of capital that has been lost.
• Goodwill is quantifiable and is directly related to the amount of return you can get on the
capital you have employed in the sector of business concerned. So a certain amount of
revenue loss in one year is equivalent to a capital value, which is calculated usually using the
return on capital employed and is often very much higher than the amount of revenue that
has been lost in that one year.
• Hence the filching of customers by your rival will result in a quantifiable loss of revenue and
so an estimatable loss of goodwill and reputation.
• Brands and trade marks can appear on accounts as business assets
