Goodwill Overview

Man-Running-FilesA business’ identity and its brand awareness are growing increasingly important over the last few decades as consumers, customers, clients have immediate and unlimited access to to local and national marketplaces throughout the world; thus, strong trademarks continue to increase in value also.  Well-crafted and well-known trademarks command high premiums as a function their underlying goodwill.  As such, businesses with strong, unique, effective trademarks and service marks can significantly enhance their tangible and intangible value through increased sales and less marketing/advertising.

The intellectual capital of a businesses product and/or service most often includes a portfolio of intangible assets.  These assets include the obvious patents, trademarks, copyright, trade names, logos, slogans, symbols and other elements.  These assets are frequently categorized as goodwill and seldom valued individually.  Goodwill encompasses all of the intangible assets of a business, company or organization, which can be managed and the value measured.   In a legal context, goodwill may be defined as value that attached to a piece of intellectual property (e.g., trademark).  For example, US Courts have ruled that a trademark cannot continue to maintain its value or uniqueness apart from its goodwill and that the goodwill of a particular trademark is always linked with the trademark that describes the particular product, service and/or company brand.

Goodwill in Trademarks

Trademarks are vital symbols of goodwill and reputation. In fact, goodwill and reputation are indeed very tightly interconnected. It includes the value to a business by reason of customer situation, name and reputation, connection with consumers, among other things.

Goodwill means consumer willingness to purchase a good or service over and over again. When a consumer recognizes a product, he or she will likely have a previously formed opinion regarding that product and/or service. This may be positive, neutral, or negative. This opinion will influence his decision whether to purchase the product or not. If the consumer’s opinion is positive, the trademark has come to symbolize the goodwill of the mark’s owner to encourage the continued use of the product and/or service.

The concept and definition of goodwill is often difficult to understand; to state it simply, goodwill may be defined as the value within a business that is left over after all other assets, both tangible and intangible, have been accurately valued.  As assets, trademarks and service marks have become ever more important to the financial success or failure of the businesses with which the trademark is associated.

Goodwill in Trademark Assignments

Trademarks, absent very rare circumstances, cannot be sold apart from their businesses because the trademark does not have have value as property without its association with the underlying business with which the trademark is associated.  Thus the trademark as associated with the business are most often inseparable.

Trademarks assignments, whether or not they are purchased in a business acquisition or merger, are declared illegal if the trademark is sold, assigned or transferred alone, divorced from the business it formerly represented.  When an attempted trademark assignment results in a bare transfer, not involving the assets and genuine goodwill, court will invalidate the assignment or transfer as an assignment in gross.

Pursuant to section 1060 of the Lanham Trademark Act, 15 USC 1060, US courts have consistently stated that the policy basis for invalidating illegal trademark assignments is the need to protect the public from being misled or confused about the source and nature of the goods and services in the public domain.  When a buyer obtains a trademark that is separated from the goodwill of the assignor, the buyer has taken the symbol or known quantity, but not the substance that the public expects to find when encountering the trademark.  The trademark becomes meaningless.  Trademarks assigned in gross are characterized by the absence of genuine intent to continue the identity and meaning of the assigned trademark.  Thus, it is very important in determining whether a proposed trademark transfer or assignment will divorce a trademark from its business, you contact one of our trademark attorneys or other intellectual property lawyer.