Intellectual Property: Trade Marks - Goodwill

By Rosanna Cooper

In Newman Ltd v Adlem (2005), the Court of Appeal held that there was a duty on the seller of a business not to undermine the goodwill attached to that business (if included in the sale) even after the non-competition covenants in the sale agreement had expired. Goodwill is an intangible asset valued according to the advantage or reputation a business has acquired.

The defendant took over a funeral director's business in 1965. He also offered his services as an agricultural contractor and as a provider of memorial headstones and plaques. By 1993 he was trading under his own name, 'Richard T Adlem,' and had built up a business, which was well respected. He decided to sell the undertaker's business in 1993, but to retain his farming and headstone businesses. He entered into a contract, which contained a restrictive covenant, with B, who bought the funeral business and its goodwill. In this case, the restrictive covenant was an obligation preventing the defendant from competing with B for a specified period.

After the completion of the sale of the funeral business, the business belonged to B, not the defendant. However B frequently used the defendant's services and paid him for these services. Throughout that period, the defendant knew that B was using the name 'Richard T Adlem' for the funeral business.

In 2000, B sold the funeral business to the claimant. By that agreement, the claimant bought the goodwill of the business including the right to carry on business in succession to B and to use the business name. The defendant made no objection, and actually assisted the claimant with about 40 funerals undertaken by the claimant under the 'Richard T Adlem'.

In March 2001, the defendant re-commenced his own business under the name 'Richard T Adlem', and started advertising under that name. He also started to object to the claimant using the name. In April 2002, the defendant registered the name 'Richard T Adlem Funeral Director' as a trade mark.

The claimant commenced proceedings alleging that:

the defendant was passing off his business as an undertaker;

the defendant's assertion of an entitlement to use the name amounted to a derogation from that which had granted to B in 1993; the trade mark registration was invalid pursuant to s 47(2)(b) of the Trade Marks Act 1994 and that in any event it was unenforceable against them by virtue of s 11(3).

The Court held that:

once the defendant had assigned the goodwill in the funeral business, it was not open to him to start, after the expiry of the restrictive covenant, a fresh business under exactly the same name; having sold the goodwill, Mr Adlem was under a duty not to undermine it; the claim in passing off succeeded; and the registration was invalid pursuant to s 47(2)(b) of the Act.

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© RT COOPERS, 2005. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

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