Section 42 of the Trade Marks Act, 1999

This article offers a comprehensive overview of Section 42 of the Trade Marks Act, 1999. It discusses the conditions for the assignment of trademarks, the relevant procedures, and the legal aspects tied to this provision.

Introduction

A trademark acts as a unique identifier, distinguishing a company’s goods or services from those of others. This notion is part of a broader field known as Intellectual Property. The idea of trademarks isn’t a modern concept; it dates back to ancient times when clans marked their cattle for identification. In ancient Rome and Egypt, artisans would leave their marks on sculptures to assert originality and establish value. During the silk trade, the Chinese stamped their products with symbols of quality, while European noble families used specific marks, known as ‘house marks’, as signals of pride and identity.

In today’s world, a trademark is viewed as an asset—it can be transferred to another entity, either for financial gain or as part of a larger arrangement. The process of transferring a trademark, known as ‘assignment’, can be classified based on how it’s done and the conditions set forth. Numerous factors, including compensation, goodwill, and the nature of the assignment play a role in this transfer. In India, trademark registration and related disputes are governed by the Trade Marks Act, 1999 (referred to as the Act). This article focuses on the assignment of trademarks without the associated goodwill of the business.

Details of the Section

• Act involved: The Trade Marks Act, 1999
• Section: Section 42
• Chapter: Chapter V: Assignment and Transmission

Terminologies Associated with Section 42 of the Act

Section 42 of the Act restricts the conditions under which trademarks can be assigned, specifically when such assignments do not involve the business’s goodwill. Before diving deeper into the specifics of this provision, let’s clarify some key terms associated with Section 42.

What is Assignment of Trademark?

According to sub-section (1), clause (b) of Section 2 of the Act, ‘assignment’ means the formal transfer of trademark rights through a written agreement between the parties involved. It serves as a legal mechanism for shifting ownership rights of a registered trademark. Key aspects of an assignment include:

• Assignor: The individual or entity transferring rights.
• Assignee: The individual or entity receiving those rights.
• Assignment Agreement: A legal document detailing rights, responsibilities, and terms of the agreement.

What is Goodwill of the Business?

Goodwill refers to the reputation a business has built over time, which enhances its market value. The term was highlighted in the case Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty (1981), emphasizing the importance of relationships and opportunities cultivated by the business. Goodwill counts as an intangible asset that may yield extra compensation during an assignment. Elements contributing to a business’s goodwill might include:

• Brand identity
• Customer relations
• Technological capabilities
• Social media presence
• Expertise and know-how

Calculating goodwill isn’t straightforward. A general formula often used is as follows:

Goodwill = Purchase Price – (Fair Market Value of Assets – Fair Market Value of Liabilities)

Section 55 of the Partnership Act, 1932 assists in selling goodwill after a company’s dissolution, treating it as an identifiable asset encompassing rights and liabilities.

Differences Between Transmission and Assignment

Conditions Mentioned in Section 42 of Trade Marks Act, 1999

This section sets strict conditions for trademark assignments not associated with business goodwill, which include:

• The assignee must publish an advertisement about the assignment as prescribed.
• The assignee must apply to the Registrar with the advertisement for assignment approval.
• A six-month time frame is allotted post-assignment to file such an application.
• An extension can be sought from the Registrar.
• The total extension cannot surpass three months.
• Advertisements must adhere to the rules set by the Registrar.

These conditions apply to both registered and unregistered trademarks, but not to assignments involving business goodwill. The section additionally forbids other specific assignments, such as:

• Trademark assignment linked to goods/services alongside transferring the associated goodwill.
• Assignments pertaining to exported goods/services involving goodwill.

Types of Assignment of the Trademark

Complete Assignment

This occurs when the assignee assumes full ownership of the trademark, including all rights and obligations. Here, the assignor relinquishes any control over the trademark.

Partial Assignment

In partial assignments, the rights and responsibilities concerning a trademark are only partially passed to the assignee. For instance, a trademark linked to multiple products may be assigned just for a specific item, allowing the assignor to retain rights for others.

Assignment Concerning Goodwill

Section 38 facilitates the assignment of trademarks—registered or unregistered—with or without goodwill. Each scenario operates under different provisions:

Assignment Without Goodwill

This describes assigning trademarks without the associated business goodwill. For instance, if Company A’s ‘Super Clean’ detergent tagline is assigned to Company B without goodwill, Company B has rights to the trademark but must create its own goodwill.

Assignment With Goodwill

Here, both the trademark rights and goodwill are transferred to the assignee, allowing them to leverage the established reputation for marketing.

Difference Between Assignment With Goodwill and Without Goodwill

Application for Assignment Without Goodwill

The assignment application process utilizes Forms TM-P and TM-M. TM-P is for registered trademarks, while TM-M is for unregistered ones. Details should encompass the request’s intent and adhere to specific categories relevant to Section 42.

Each request must be encapsulated in a single form. Submitting multiple requests in one form invalidates all but the first one. Upon completion, there are statutory fees associated with offline and online submissions, depending on whether trademarks are registered or unregistered.

Prior to filing, the assignor must obtain advertisement direction under Rule 80 of the Trademark Rules, 2017, adhering to prescribed filing fees. Following the advertisement phase, relevant forms are submitted.

Procedure for Registration of Assignment of Trademark Without Goodwill

The assignment process is defined by the Act and Rules, with Section 45 mandating the assignee to seek registration from the Registrar. Upon application, the Registrar verifies if it meets the stipulated criteria and attributes the trademark’s ownership to the assignee. If doubts arise regarding the assignment’s validity, additional documentation may be required. A trademark assignment remains ineffective in the face of conflicting interests until proper registration occurs.

After a trademark assignment application is submitted, the Registrar is tasked with resolving it within three months. Proof of title may be requested if discrepancies are identified. Necessary entries concerning the assignment must be recorded in the registry, including:

• Names and addresses of the involved parties.
• Date of assignment.
• Rights transferred and goodwill status.
• Consent and consideration terms.
• Date of registration.

Documents Required for Registration of Assignment Without Goodwill

• Form TM-P with signatures from both parties.
• Photocopy of the logo or phrase being assigned.
• Proof of identity and address for both the assignor and assignee.
• Description of the trademark being assigned.
• Copy of advertisement and Register’s direction.
• Proof of the assignment agreement execution.

Judicial Interpretation of Section 42 of Trade Marks Act, 1999

Numerous cases have examined trademark assignment disputes. Understanding these rulings provides deeper insight into the assignment framework.

Paul Brothers and Another vs. Union of India and Others (2023)

This case from the High Court of Calcutta revolved around trademark ownership after assignment.

Facts

The petitioner operated in the pharmaceutical sector. The response involved Duckbill Drugs, which went into liquidation. Trademarks associated with the business were auctioned publicly. The petitioner acquired several trademarks but found that some were previously registered in another’s name through an assignment deed.

Issues

• Ownership claim of trademarks in relation to an auction versus another assignment.
• Validity of trademarks without goodwill and registration.

Arguments

Arguments regarding the petition’s maintainability emerged, highlighting the statutory recourse available through the Act. Furthermore, questions regarding the registration deadline under Section 42 were raised.

Judgment

The court determined that bona fide purchasers at auction hold superior privileges, thereby granting the petitioner rights over the trademarks. Moreover, the court affirmed that unregistered assignments under Section 42 remain ineffective beyond the stipulated registration period.

M/S. Nico Quality Products Represented by its Partner vs. M/S N.C. Arya Snuff and Cigar and Others (2013)

This case tackled Section 42’s enforceability concerning trademark registration.

Facts

The applicant, a partnership involved in snuff and cigar distribution, claimed trademark ownership through an assignment agreement. Following complications in trademark usage by the assignor, the applicant sought an injunction against manufacturing and marketing with the assigned trademarks.

Issues

• Does non-registration of assigned trademarks hinder legal action for assignees?
• Impact of assignment advertising on validity.

Arguments

The respondents contested the assignment’s legitimacy based on alleged fraudulent documentation, stressing the necessity of registration for its validity.

Judgment

The court ultimately opined that non-registration does not prevent the assignee from legal recourse regarding contract violations. The court emphasized Section 42’s obligation for assignment visibility through advertisement.

Cott Beverage Inc., A Georgia vs. Silvassa Bottling Company (2003)

This case addressed a trademark usage dispute following assignment.

Facts

Plaintiffs, successors of the Royal Crown Company, faced off against a defendant manufacturing cola drinks under a similar mark. Contentions arose regarding the validity of the assignment, particularly given delays in trademark registration.

Issues

• Relevance of trademark registration during disputes.
• Importance of assignment advertising.

Arguments

The plaintiff contested the defense’s claim of common usage of the trademark while asserting that delays in registration undermined the assignment’s validity.

Judgment

The court determined that the plaintiffs failed to establish trademark infringement and cited existing registration delays as a significant factor in the ruling.

International Perspective of Goodwill of the Business

Goodwill represents one of the most valuable attributes a business may hold. Its significance is underlined in profit margins exceeding investments. Globally, legal frameworks recognize the importance of goodwill, and principles established in English and American jurisdictions provide structure regarding its treatment.

International Precedents on Business Goodwill

Goodwill is deemed an essential constituent of a successful business. When determining business value, goodwill merits monetary evaluation to reflect a company’s genuine worth. Various landmark cases, including Cruttwell vs. Lye (1810), have shaped perceptions surrounding goodwill. During the 19th century, increasing capital availability led to greater emphasis on goodwill, making it a common subject for litigation.

Substantiation of Goodwill

Valuing goodwill presents challenges; numerous methodologies exist to approximate its worth. For example, the average returns over several years may hint at goodwill value, while others focus on differential analysis between market and investment values. Guidelines exist, such as WIPO’s suggestion that unidentifiable intangibles could be equated to a defined percentage of total capitalization.

Practical Considerations and Recent Developments

The discourse on trademark assignment beyond goodwill entails a range of tangible and intangible assets. It becomes vital to differentiate between assets that can be readily measured and those requiring holistic assessments, particularly as society becomes increasingly dynamic.

Illustrative Analysis of Assignment with or Without Goodwill

Consider two bicycle companies—Company A, operational for decades, versus Company B, a new entrant. Both manufacture similar bicycles, yet Company A commands higher prices, attributed to its established goodwill. In the instance of a trademark assignment, results vary significantly based on goodwill transfer.

If Company A transfers trademarks alongside goodwill, it relinquishes all rights while Company B can leverage existing reputation for growth. Conversely, if only rights are transferred, Company A retains goodwill for potential future endeavors, while Company B must independently cultivate goodwill for the absorbed trademarks.

Quantitation of Goodwill

Given diverse international approaches, quantifying goodwill remains challenging. The Indian government incentivizes these valuations, encouraging specialized assessments either through regulated bodies or private agencies.

Conclusion

Understanding the assignment of trademarks without goodwill is crucial in navigating intellectual property laws. Section 42 delineates guidelines that distinguish between assignments involving goodwill and those that do not, and recognizes the legal complexities of interpreting and valuing goodwill.

With an evolving marketplace, effective legal frameworks are essential to maintain market integrity while minimizing disputes. This becomes even more pressing as companies adapt and modernize. By enhancing advertising regulations and establishing clear valuation standards, we can create a transparent and competitive business landscape.

Frequently Asked Questions (FAQ’s)

What Are the Assets Other Than Goodwill?

In addition to various tangible assets like machinery and land, intangible assets play crucial roles in operating businesses. These may encompass technology, copyright, patents, and licensing agreements, with goodwill being a distinctive intangible asset that maintains indefinite usage—a significant point of differentiation from other assets.

Why Is It Necessary to Register an Assignment Agreement in India?

Timely registration, within six months, provides concrete ownership and legal protection in potential disputes over trademark rights. Failing to register within the stipulated time not only undermines ownership but may present challenges to enforcing rights.