The Territoriality of Goodwill: The Way Forward in Claims in Passing-off?
21 November 2012
Passing-off in its classical form has developed significantly in the course of the last century. The concept of goodwill as the property protected in a passing-off action was crystallised through a string of decisions in the United Kingdom and accepted and adopted in many Commonwealth jurisdictions, including Malaysia.
Goodwill was defined by Lord Macnagthen in IRC v. Muller & Co’s Margarine as the benefit and advantage of the good name, reputation, and connection of a business and the attractive force, which brings in custom. This goodwill, while residing in a business, is identified with reference to a trademark.
Implicit in this accepted definition is that goodwill is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached. The classical form of passing-off as highlighted in the initial judicial decisions further suggested that this goodwill must be local in character, which requires a place of business, or at the very least custom within jurisdiction, thereby imposing a territorial limitation to this goodwill.
An Exception to the Territoriality of Goodwill – Spill-over Goodwill
With increased globalisation, the concept of territoriality of goodwill has been challenged in various court cases has been challenged in various court cases. It has been argued that to limit rights in this manner would not be consonant with the realities of trade and would set artificial boundaries when international trading borders have been increasingly diluted. Needless to say, opening the floodgates without limitation could result in unfair monopolistic rights.
How have the courts dealt with this issue? It was held in the Australian decision of Conagra Inc. v. McCain Foods (Aust) that reputation without a place of business would be sufficient to maintain an action in passing-off, and the Courts in Ireland held that goodwill does not necessarily stop at the frontier [C&A Modes v. C & A (Waterford)]. It could be observed that the courts were more interested in looking at the merits of the claim rather than be stifled by what they perceived as unnecessary restrictions to legitimate claims of property rights. Despite this, in both cases, the courts imposed the requirement to show extensive reputation and/or custom within jurisdiction, which suggests that these extensions of rights were not without limitation.
The Malaysian Position
The position in Malaysia is not absolutely certain, although there has been some recognition of this concept, which can also be loosely described as spillover goodwill.
In the case of Thrifty Rent-A-Car System Inc. v. Thrifty Rent-A-Car Sdn Bhd & Anor, the High Court, in addressing arguments on the concept of spill-over goodwill, accepted the proposition set down in Conagra. However it is important to bear in mind that on the facts of Thrifty, the claimant did have prior use and business in Malaysia and therefore the observations on spill-over goodwill can only be described as being an obiter finding.
We then have the decision of the Malaysian Court of Appeal in Meidi-Ya Co. Ltd., Japan and Meidi-Ya (M) Sdn Bhd v. Meidi (M) Sdn Bhd. The Court, in considering the competing rights to a trademark, stated as follows: “How can a right be taken advantage of (through infringement or passing-off) when there is no goodwill and reputation residing with a party in Malaysia to begin with?”
Although there were attempts to rely on foreign use of the trademark in dispute, the extent of its exposure to the Malaysian public at the material time was not extensive enough to substantiate the claim of spill-over goodwill based on the said foreign use.
The Impact of Spill-over Goodwill
Should this concept then be accepted as the way forward? The advantages of the applicability and relevance of spill-over goodwill range from curtailing fraud, to support of the position of wellknown trade marks and the recognition of hard-earned reputation and goodwill across borders.
Courts in some jurisdictions have responded to the changes, which have occurred in international communications. In Tan-Ichi Company Ltd. v. Jancar Limited and Others, it was pointed out that the speed and efficiency of modern technology causes business reputations to be more widely spread and recognised than in the past; this change needs to be responded to in law.
On the other side of the coin, spillover goodwill may encourage foreign traders with no connection to a particular country to gain monopolistic rights over another trader, the latter of whom has introduced the trademark into Malaysia and nurtured it into a profitable and well-known mark, which generates independent goodwill and reputation.
The way to balance these competing interests would be to impose a higher standard of recognition and reputation in the case of a claimant relying on goodwill generated through foreign trade, unaccompanied by local use (as in the Australian and Irish decisions). Extensive reputation within the jurisdiction is required, which would be over and above that which is required in the case of goodwill generated through local trading operations. While this could be the way forward, a firm ratio decision from the apex court is much awaited.
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