High Court gives useful guidance on subsistence of residual goodwill

United Kingdom
In Maslyukov v Diageo Distilling Ltd ([2010] EWHC 443 (Ch), March 17 2010), the Chancery Division of the High Court of England and Wales has dismissed an appeal by an individual, Pavel Maslyukov, and an appeal by Diageo Distilling Ltd.
In 2006 and 2007 Pavel Maslyukov filed applications with the UK Intellectual Property Office to register the trademarks DALLAS DHU, CONVALMORE and PETTYVAICH in respect of alcoholic beverages. Diageo opposed the applications as being descriptive, contrary to public policy and deceptive. It also argued that the applications were made in bad faith and constituted an attempt by Maslyukov to pass off his whisky as that of Diageo’s. In 2006 Diageo filed an application to register the trademark DALLAS DHU, which Maslyukov opposed. 

In 2009 the hearing officer upheld Diageo's oppositions to Maslyukov's applications, but only on the ground of bad faith. It followed that Maslyukov's opposition failed, and Maslyukov appealed. Diageo appealed the hearing officer's rejection of its additional grounds of opposition to the High Court and requested affirmation of the hearing officer's decision to uphold the oppositions to Maslyukov's applications, but on the basis that the applications were an attempt at passing off - or, in the alternative, that the marks were descriptive and deceptive.

With regard to Maslyukov's appeal, the High Court found that he had applied to register the marks in bad faith, as his dealings had fallen short of the standards of acceptable commercial behaviour. Maslyukov knew that the marks were the names of distilleries that were no longer functioning and he had no relationship with the distilleries. There was no other evidence as to why Maslyukov wished to use these marks, other than as a springboard for his own whisky business.

Further, the court found that it did not have jurisdiction to hear Diageo's appeal. This was because it was an appeal by the successful party and was thus contrary to the principle set forth in Lake v Lake (1995), where it was decided that an attempt by a successful party to appeal against an order obtained in that party's favour could not be heard by the court. Despite this, the court considered it worth setting out its findings on the issue of passing off. 

The hearing officer had found that Diageo had not made out its case on this ground because it had not established its ownership of any current or residual goodwill in the marks at the relevant time. The court found that, as Diageo had a stock of malt whisky distilled at Convalmore, which it had marketed recently under the CONVALMORE mark and which it intended to market in the future, Diageo owned the current goodwill in the mark. It was immaterial that there was no probability of whisky being distilled at the distillery again.

As for DALLAS DHU and PITTYVAICH, independent bottlers of the whisky had continued to market and sell whisky using these marks, as well as their own. The hearing officer had acknowledged the use of DALLAS DHU and PITTYVAICH, but had found that the goodwill generated had not accrued to Diageo. The court disagreed and found that the bottlers had generated goodwill on their own behalf, as well as on behalf of Diageo. They had relied upon the goodwill that was already established under Diageo's marks, sustained that goodwill and generated new goodwill for the benefit of Diageo.

Diageo had also argued against the hearing officer’s finding that there was no residual goodwill, as the distilleries no longer distilled whisky. The court found that the correct test was whether the relevant business had been abandoned so as to destroy the goodwill; mere cessation was insufficient. Here, it did not consider that the relevant business had been abandoned so as to destroy the goodwill. Diageo had not liquidated the companies that owned the distilleries, but had in fact continued to produce whisky on a substantial scale. The goodwill in the marks had not, therefore, been destroyed when production of whisky at the distilleries ceased; it had been maintained by further sales, either by Diageo or by independent bottlers. In any event, the goodwill remained Diageo’s asset to exploit as it saw fit.

The court's assessment of the subsistence of residual goodwill is a useful one. The key point is whether a positive step has been taken to abandon the goodwill. Clearly, each case will turn on its own facts, but what is more difficult to assess is what happens to the goodwill if trading ceases, no actual abandonment of the goodwill takes place, but no further use is made of the marks in question.

Rupa Patel, McDermott Will & Emery UK LLP, London

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