Is Goodwill Synonymous with Reputation ?

Author:Gvantsa Gugeshashvili
Position:Doctoral Student, Tbilisi State University

1. Introduction - 2. The notion of goodwill - 3. Goodwill and reputation under Georgian legislation - 4. The meaning of goodwill and reputation in regard of geographical indications under Georgian legislation - 5. The connection of goodwill with trademarks - 6. Conclusions

1. Introduction

The Georgian Parliament on 2 September 1997 adopted resolution 828-1s, according to which "All laws and normative acts adopted by the Georgian Parliament from 1 September 1998 shall be compatible with the standards and rules established by the European Union." 1

On 22 April 1996, the Georgian parliament concluded the Partnership and Cooperation Agreement with the European Community. 2 Besides other important issues, this agreement deals with the protection of intellectual, industrial, and commercial property. Pursuant to Article 42 of the agreement, Georgia shall continue to improve the protection of intellectual, industrial, and commercial property rights in order to provide for a level of protection similar to that existing in the community, including effective means of enforcing such rights. In addition, Georgia shall accede to the multilateral conventions on intellectual, industrial, and commercial property rights.

This agreement was followed by the national programme on harmonisation of Georgian legislation with the legislation of the European Community. Then, 2006 saw the entry into force of an action plan 3 forming part of the European neighbourhood policy. With this document Georgia is obliged to approximate its intellectual and industrial property rights to the requirements of the PCA and TRIPS agreements and ensure their effective implementation.

Today, Georgia is a signatory to many international conventions. The national parliament has gradually made Georgian legislation compatible with that of the wider community. But still there exist gaps in laws; some legal acts should have been altered. Georgian legislation contains some concepts that need comprehensive study.

As regards legislation in the field of intellectual property law, most is compatible with the directives and regulations of the European Community as well as with international conventions. However, problems arise concerning some terms and concepts included in Georgian laws, the content of which is explained neither in the legislation nor in Georgian juridical literature. For this reason, only through theoretical analyses and comparative study of international acts and foreign literature in the field of intellectual and industrial property law is it possible to determine what should, or could, have been mentioned in those terms and concepts.

One of those terms that is not clarified in Georgian legislation and needs to be studied is goodwill. This term is mentioned only in the Tax Code of Georgia. But definition of the concept of goodwill can be found neither in the Tax Code nor in other legal acts of Georgia.

Because so far it has not been distinctly explicated in Georgia what function goodwill serves, what its basic characteristics are, and what role it plays in competitive relationships, it is preferable to define, through scientific literature and case-law studies, the characteristics and functional meaning of this object.

On the basis of the present analysis of the Georgian legislation, this is the first attempt to define the place accorded to goodwill in the Georgian legal landscape and the extent of its protection in Georgia. It is a rather arduous task to study the nature of goodwill and set it out in an exhaustive manner; however, one can state that, as a rule, the concept is identified almost in an equality relationship with reputation.

Goodwill and reputation are indeed very tightly interconnected. 'Goodwill' and 'reputation' as legal terms are defined by the legislature and/or jurisprudence in the legal system within which they operate. Each country may give them different meanings. Georgia is no exception here. But the problem arises in relation to specification of the legal framework within which the meaning of those terms is explored.

As was mentioned above, goodwill and reputation are very often considered to be synonyms. Perhaps the reason for this is the following: these terms are reflected in different legal systems but are used in connection with the same objects of intellectual property, such as trademarks and geographical indications, and therefore it is quite difficult to give an exhaustive answer to the question of whether they are the same objects but with different names or instead differ from each other.

In order to address this question, it is necessary to examine whether and how the concepts of goodwill and reputation are reflected in different legal systems.

If one proceeds from the Georgian legislation, it is hard to conclude that goodwill and reputation are synonyms. That is the very reason this article focuses not only on study of goodwill but also on its distinction from reputation.

In order to elucidate the existing similarities and differences between the two terms, it is expedient to clarify the notion - and the characteristics - of goodwill itself. This is the lens through which the substance of this object shall be studied and compared with reputation.

The article focuses on the definition of legal boundaries within which goodwill and reputation may be protected.

2. The notion of goodwill

'Goodwill' is an English term, and probably English lawyers were the first to take interest in its content. William Henry Browne mentioned in his work that English courts tried to clarify what was meant under this term. 4

Griffits carried on consideration of the question: "What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start." 5

A generally accepted definition of goodwill does not exist, though most opinions are very similar to each other. For example, in 1856, M.R. Romilly said: "There is a considerable difficulty in defining accurately what is included under this term goodwill. It seems to be that species of connection in trade which induces customers to deal with a particular firm" 6 or, as Lord Eldon put it, "the probability that the old custom will resort to the old place" 7 .

According to Goyal, "[g]oodwill denotes the benefit arising from connection and reputation. It includes whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers and agreed absence from computation, or any other things" 8 .

In view of the above-mentioned opinions, goodwill can be defined as a power of attraction gained by an enterprise. This is an outcome of the favourable attitude of the customers and their constant support. Besides, goodwill acts as a preface to future successful activities. Acquisition of goodwill might be the main purpose of each enterprise while goodwill encompasses everything that conduces to the growth in value of the enterprise.

Goodwill is a property. It is an intangible asset and always has a particular value. According to its nature as a property, goodwill may be alienated. It is natural to raise the question of how an intangible thing can be transferred to another person. Goodwill may not be sold or transferred separately from the business with which it is associated or apart from trademarks, trade names, or other symbols that represent goodwill. A purchaser of goodwill obtains all of the privileges and benefits which the vendor had.

The owner of goodwill has a property right that can be protected by an action of passing-off. Passing-off is a tort and can be described as the common-law form of trademark protection. Business 'goodwill' is protected by passing-off and, whilst this may be associated with a particular name or mark used in the course of trade, this area of law is wider than trademark law in terms of the scope of marks, signs, materials, and other aspects of a trader's 'get-up' that can be protected.

In the opinion of Buckley, a proprietary right protected by an action of passing-off may be described in the following manner:

A man who engages in commercial activities may acquire a valuable reputation in respect of the goods in which he deals, or of the services which he performs, or of his business as an entity. The law regards such a reputation as an incorporeal piece of property, the integrity of which it is entitled to protect. 9

He wished to confirm that the property right is not a right in the name, mark, or get-up itself but that it is a right in the reputation or goodwill, of which the name, mark, or get-up is the badge or vehicle. The words 'reputation' and 'goodwill' are often used interchangeably, but it is really in connection with goodwill that passing-off is applied. It is possible after all to have a reputation without goodwill. 10

In the common law system, for a long while, a passing-off action required proof of local goodwill, not merely a reputation. The first case in which the court granted protection against passing-off to a foreigner who could prove reputation but no local goodwill was Catersham Car Sales & Coachworks Ltd v. Birkin Cars (Pty) Ltd., which was heard in 1998. 11

As we can see, goodwill and reputation are not considered synonyms under common law. The courts tend to give broader protection to goodwill than to reputation. In the common law approach, when a business has a reputation, this does not mean that it also has goodwill. But reputation, in its turn, serves as one of the preconditions for the acquisition of goodwill.

It is impossible to set out clearly the difference between the concepts of reputation and goodwill according to common law. The reason for this is that neither in the case law nor in the...

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