Is a Trade Mark Property At All
Chapter Twenty-Three
Syllabus topic 1.3, "Property in Trademarks – how acquired?"
Pages 104 to 107 of 742
In one line
A trade mark is property, but it is a peculiar kind of property: it exists only as an incident of a business, and the law has spent two centuries deciding how far it can be dealt with apart from that business.
In the wording a student can write in an exam: at common law a trade mark was not property in gross but an incident of the goodwill of the business in which it was used, so an assignment of the mark without the business was void; the Trade Marks Act, 1999 alters that by section 38, which permits assignment with or without the goodwill of the business, subject to the safeguards in sections 40, 41 and 42, and by section 39 for unregistered marks.
Why the old rule existed
A mark's whole function is to point to a source. If the mark can be sold away from the source, the mark points to a source that is no longer behind the goods, and every buyer who relies on it is misled.
So the common law refused an assignment in gross. The mark travelled with the business or not at all. That is the origin of the phrase students meet in the older cases: a trade mark cannot be assigned "in gross", meaning by itself, unconnected with the goodwill.
It followed that a mark had no independent value. It could be worth a great deal, but only inside the business, and a licence was regarded with the same suspicion, because a licensee who was not controlled would also mislead.
Why the rule was relaxed
Because commerce outgrew it. Groups of companies, franchising, regional distribution and multinational trade all require a mark to be held in one place and used in another. A rule that made every such arrangement void would have made the register a poor record of the real world.
And because a safeguard is available. If the danger is that the public will be misled, the answer is not to forbid every assignment but to require publicity where the mark travels without the business, and to allow the Registrar to intervene where the assignment would create confusion. That is what sections 40 to 42 do.
What the Act now says
Section 38, registered marks. Notwithstanding anything in any other law to the contrary, a registered trade mark shall, subject to the provisions of Chapter V, be assignable and transmissible, whether with or without the goodwill of the business concerned, and in respect either of all the goods or services for which it is registered or of some only of them.
Section 39, unregistered marks. An unregistered trade mark may be assigned or transmitted with or without the goodwill of the business concerned.
Is a Trade Mark Property At All
Section 42, the safeguard where goodwill does not go. Where an assignment of a mark is made otherwise than in connection with the goodwill of the business, the assignment shall not take effect unless the assignee applies to the Registrar for directions with respect to the advertisement of the assignment, and advertises it in such form and manner and within such period as the Registrar may direct. Chapter 830 works the mechanics and the six month period.
Sections 40 and 41, the safeguards against confusion. Section 40 forbids an assignment or transmission that would create exclusive rights in more than one person in the same or similar goods, where the use of the marks would be likely to deceive or cause confusion, and provides for the Registrar's certificate. Section 41 does the same where the exclusive rights would subsist in different parts of India.
Where the mark is still not free
Section 43: certification trade marks. They shall not be assignable or transmissible otherwise than with the consent of the Registrar.
Section 44: associated marks. Associated trade marks shall be assignable and transmissible only as a whole, and not separately, though for the purposes of the Act they are to be treated as used by the same proprietor.
Section 54: registered users. A registered user shall not have any right of assignment or transmission.
And the mark still depends on use. However freely it may be dealt with, section 47 removes it for non use, and chapter 870 works that. A mark held as an asset and never used is not safe.
Worked example
Ganga Textiles Ltd. owns the registered mark NEELKANTH for shirts and wishes to raise money.
Sale of the business with the mark. Straightforward. The mark goes with the goodwill under section 38, the assignee applies under section 45 to register his title, and no advertisement is required.
Sale of the mark alone, keeping the factory. Permitted by section 38, but section 42 applies: the assignment does not take effect unless the assignee applies to the Registrar for directions about advertising it, and advertises as directed. The purpose is publicity, so that the trade learns that the mark has changed hands.
Sale of the mark for shirts only, keeping it for trousers. A partial assignment, expressly permitted by section 38's closing words. But section 40 is now in play: if the two proprietors' use in relation to shirts and trousers would be likely to deceive or cause confusion, the assignment is not permitted, and the Registrar's certificate under section 40(2) is the way to find out in advance.
Sale of the mark for the four southern States only. Section 41 is in play, for the same reason, because exclusive rights would subsist in different parts of India.
Is a Trade Mark Property At All
Mortgage of the mark to a bank. Nothing in the Act forbids it. The mark is property that can be charged, and the charge is given effect through the assignment provisions if it is enforced. What the bank must understand is that the value of the security depends on the business continuing to use the mark.
The common law and the Act compared
| Common law | The 1999 Act | |
|---|---|---|
| Assignment with the business | Valid | Valid, s.38 |
| Assignment without the business | Void | Valid, s.38, subject to s.42 advertisement |
| Unregistered marks | Not assignable in gross | Assignable with or without goodwill, s.39 |
| Partial assignment by goods | Doubtful | Permitted, s.38, subject to ss.40 and 41 |
| Assignment by territory | Doubtful | Permitted, subject to s.41 |
| Licensing | Distrusted; risk of deception | Permitted, Chapter VI, with control |
| Certification marks | Not applicable | Only with the Registrar's consent, s.43 |
What it does NOT mean
The Act has not made a trade mark ordinary property. Sections 40, 41 and 42 exist precisely because it is not. A mark can still be lost, cut down or refused effect because of the way it is dealt with, which is not true of a piece of land.
"Assignment in gross" is not a term of the Act. It is the common law description of what section 38 now permits. Use it in an answer to describe the old rule, and cite section 38 for the new one.
And section 38 does not override the deception principle. Section 40 stops an assignment that would put confusingly similar rights in two hands. Section 42's advertisement requirement is there so that the public is not misled. The old objection survives as a safeguard rather than as a prohibition.
The Supreme Court's warning in Power Control Appliances v. Sumeet Machines Pvt. Ltd., (1994) 2 SCC 448 is the same idea from the other end: there can be only one mark, one source and one proprietor, and a mark cannot have two origins. Every restriction in Chapter V is an application of that sentence.
Limits and criticism
The advertisement requirement in section 42 is weak in practice. An advertisement directed by the Registrar reaches the trade, not the buying public, and the buyer who relies on the mark is the person the rule is supposed to protect. The honest observation is that Indian law has chosen commercial convenience over the strict logic of the origin function, and has kept a formality as a reminder of what was given up.
The tension shows up again in licensing. Chapter 950 works quality control, and the objection there is the same: a licence without control puts the mark on goods the proprietor does not stand behind.
Is a Trade Mark Property At All
Quick revision
Common law: a mark is an incident of the goodwill; no assignment in gross.
s.38: a registered mark is assignable and transmissible with or without the goodwill, and for all or some of the goods or services. s.39: the same for an unregistered mark.
s.40: no assignment creating exclusive rights in more than one person for the same or similar goods where confusion is likely; s.41: the same for different parts of India; the Registrar's certificate is the safeguard.
s.42: an assignment otherwise than in connection with the goodwill does not take effect unless the assignee applies for directions and advertises as the Registrar directs.
s.43: certification marks only with the Registrar's consent. s.44: associated marks assignable only as a whole. s.54: a registered user has no right of assignment or transmission.
Power Control Appliances, (1994) 2 SCC 448: one mark, one source, one proprietor.
Test yourself
1. What was the common law rule about assigning a trade mark, and why? That a mark was an incident of the goodwill of the business and could not be assigned in gross, because a mark separated from the business it identified would mislead the public about the source of the goods.
2. What does section 38 permit? That a registered trade mark shall be assignable and transmissible, whether with or without the goodwill of the business concerned, and in respect either of all the goods or services for which it is registered or of some only of them, subject to Chapter V.
3. What must an assignee do where the goodwill does not pass? Under section 42, apply to the Registrar for directions with respect to the advertisement of the assignment, and advertise it in the form, manner and within the period the Registrar directs. Until that is done the assignment does not take effect.
4. Name three marks or interests that cannot be dealt with freely. A certification trade mark, assignable only with the consent of the Registrar under section 43; associated trade marks, assignable only as a whole under section 44; and the interest of a registered user, who has no right of assignment or transmission under section 54.
5. Has the Act abolished the objection that a mark separated from its business misleads the public? No. It has converted a prohibition into a safeguard. Sections 40 and 41 forbid assignments that would create confusingly similar exclusive rights in different hands, and section 42 requires publicity where the goodwill does not pass.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.