January 2021 - Bay of Plenty Business News

18 BAY OF PLENTY BUSINESS NEWS January 2021
The outcome of
the Kraft Foods
Group Brands LLC
and Bega Cheese
Limited case in
Australia could
have an impact on
legal approaches
to trade mark
registration in
New Zealand.
A Bega reason to register
your trade mark
Trade mark rights are assigned – transferred – from one owner to another all the time. How
many trade mark owners know, though, that if they assign an unregistered trade mark to
another owner, then not only do they have to assign the goodwill in that trade mark, they
also, as a matter of law, have to assign the underlying goodwill in their business, too? If they
don’t, the assignment is likely to be invalid.
INTELLECTUAL PROPERTY ISSUES
> BY BEN CAIN
Ben Cain is a Senior Associate at James & Wells and a Resolution
Institute-accredited mediator. He can be contacted at 07 928 4470
(Tauranga), 07 957 5660 (Hamilton), and benc@jaws.co.nz.
This issue was at the
heart of litigation over
the ditch between Kraft
Foods Group Brands LLC and
Bega Cheese Limited, which
was recently brought to a conclusion
by Australia’s highest
court.* The High Court of
Australia denied Kraft Foods
the opportunity to appeal the
decision of the Full Federal
Court of Australia, which
upheld the above legal principle.
Although an Aussie decision,
it is likely to be followed
in New Zealand.
What’s the logic? Well,
according to the Federal Court,
unregistered trade marks are
not recognised under Australian
common law as “a species
of property” – unlike registered
trade marks, which are.
What is recognised, and therefore
protected under Australian
law, is the goodwill or reputation
in an unregistered trade
mark that has been generated
by the use of that unregistered
trade mark.
According to the Federal
Court, however, the goodwill
in an unregistered trade mark
“is inseparable from the business
to which it adds value”;
consequently, the goodwill
in an unregistered trade mark
“cannot be dealt with except
in conjunction with the sale of
that business”. In other words,
you cannot sell/transfer the
goodwill in your unregistered
trade mark without also selling/transferring
the underlying
goodwill in your business – the
goodwill in the unregistered
trade mark and the business
cannot be divided. That can
change things dramatically,
especially the purchase price
of the trade mark.
How does that work though
if your company carries on several
discrete businesses under
different unregistered trade
marks? Where a company carries
on several discrete businesses
(as in the Kraft Foods
case), the principle will apply
to each separate business, such
that an unregistered trade mark
may be assigned together with
the goodwill of the related
business, rather than the company’s
business as a whole.
Why it is problematic
On a practical level, assigning
the underlying goodwill
in a business together with the
goodwill in an unregistered
trade mark is in most instances
unlikely to be an issue, as the
whole of the business is being
sold anyway.
The issue becomes problematic
when the seller wants
to carry on the same business
(for example, manufacturing
and selling peanut butter) after
market has sold its unregistered
trade mark for that
business.
According to the Federal
Court, the seller will do so
without any goodwill in its
business – i.e. the only assets
the seller may have are its
plant, equipment, property
and staff. All the goodwill the
seller had in its business must
be re-built from scratch.
The goods news is you can
prevent the issue from arising
– by registering your trade
mark. Under the Trade Marks
Act 2002, the owner of a registered
trade mark has the exclusive
right to assign or transfer a
registered trade mark either in
connection with the goodwill
of a business or not.
You can therefore assign
your registered trade mark
to a purchaser without losing
the underlying goodwill in the
business generated by your use
of that trade mark. Registering
your trade mark is a no brainer
then, really.
* Kraft Foods Group Brands
LLC v Bega Cheese Limited
[2020] FCAFC 65
The ‘soft’ Due
Diligence checklist
As we relax into summer, not only is it the season of family gettogethers
and beach barbeques, it is traditionally also the period where
many consider their future, how they avoid going back to work in their
old jobs in the New Year and what sort of business they should buy.
How much time do you want to
spend in the business versus
on the business, can you
manage a business where you
may get phone calls at any
time any day, or do you need
a business where you can
compartmentalise your time?
FRANCHISING
> BY NATHAN BONNEY
Nathan Bonney is a director of Iridium Partners. He can be
reached at nathan@iridium.net.nz or 0275-393-022
As the end of 2020
approaches and we
enter 2021, I suspect
there will be a few more people
thinking seriously around
whether a franchised business
is the option for them.
In previous articles I
have discussed the various
approaches in regard to due
diligence, most recently suggesting
that a potential franchisee
entrepreneur should start
with a motivational analysis,
i.e. asking themselves “why”
they are looking at buying a
franchised business.
My assertion is this is going
to assist in guiding a potential
purchaser as to what types
of businesses they should be
looking at. But once they have
done this, what are the other
“soft” non-financial or legal
due diligence items?
When we are guiding
potential franchisee entrepreneurs
there are three key areas
we suggest they consider.
The work-life balance
After all, the elusive work-life
balance is the reason that many
purchase their own franchised
business. In many cases, it’s
true, you could go for a surf
during the day or watch the
kids play sport, but the reality
is it’s going to be your business,
and ultimately there is
no work-life balance, balancing
work being really a part of
your life.
The questions then are,
how much time do you want
to spend in the business versus
on the business, can you manage
a business where you may
get phone calls at any time any
day, or do you need a business
where you can compartmentalise
your time? Are you
required to be in the business
every day, and for how long?
From my experience, perhaps
the number one issue
that franchise business owners
become dissatisfied with or
more importantly, are not successful
at, results from them
misunderstanding, or misestimating
the amount of time
and effort required in running
a business.
Family involvement
The motivation for many in
purchasing a franchise business
is to spend more time with
the family in a family business.
It may come as a surprise
that, according to the Franchise
Relationship Institute,
this motivation is actually
inversely related to statistical
business success rates.
The due diligence questions
here are: have you worked with
your spouse or family before,
and how will you structure the
business?
What will the respective
roles be for each family member,
how much time and attention
will they be required to
spend in the business.
And of course, what are
the expectations from each
family member in terms of
remuneration?
People involved with the
brand
The cliché is that being in a
franchise business is being in
business for yourself but not
by yourself. This is reassuring.
But a franchisee entrepreneur
needs to take into
consideration the other parties
that are associated with the
“not by yourself” part of the
business. These include not
only the primary franchisor
and the key franchise support
team members, but also other
franchisees.
All of these people will
have varying levels of contact
with the franchisee entrepreneur
and impact on their relationship
with the brand. This
impact can extend to other
franchisees and how they manage
their own business and
represent the brand.
The due diligence process
here is to speak to as many people
associated with the brand
as you can. Do so at the brand
or head office level, and also at
a franchisee and perhaps former
franchisee level. Can you
work with these people, are
they competent, are they doing
a good job by the brand that
you are looking at investing
in? Can you see yourself doing
what they are doing?