the name, personality, and brand are integrally linked, can the brand survive the departure? And is the individual forever prevented from using his or her own name for a similar business? Further, the use of one’s name as a trademark could create difficulties when trying to secure registration of that trademark or enforce rights in that name against someone sharing the same personal name. The ownership issue Personal names as brand names (and valuable assets) of a business create unique issues where ownership in the business is altered, diluted, or sold to another entity so the face of the brand may no longer have any involvement in the entity that owns the trademark. Divided ownership Any new business of substance will incorporate a company and will be owned by the shareholders. The intellectual property, including the trademarks, will be owned by the company. On rare occasions, the individual who has given his or her name to the company’s primary brand will retain the ownership of the trademark personally, however, in most cases, the individual very quickly hands over ownership of his or her name to a corporate entity. From this point on, the individual starts to lose control of their name (being at the mercy of the proportion of shares held, the company’s constitution, and the shareholders’ agreement). Most businesses require capital investment, which may lead to the dilution of the founder’s equity, since investment will typically involve the investor obtaining shares in the business. From the investor’s point of view, it should bear in mind that a brand revolving around the personality of an individual could be vulnerable to that person’s reputation, and the investor should plan for the potential departure of that person from the company. From the founder’s point of view, allowing a company to effectively own your name makes you vulnerable, particularly once you cease to own a controlling shareholding. Transfer of goodwill As a general rule, an agreement to transfer the goodwill of a business as a going concern will include a transfer of the name under which the business was conducted, irrespective of whether this is the personal name of the former owner of the enterprise. This includes unregistered, common law trademarks (where reputational rights have developed). Trademarks do not pass by implication under a transfer of anything less than goodwill (such as stock on hand or business premises). The risk for the new owner of the trademark is that, through its use, they are found to falsely hold out that the former owner of the business remains at the helm. The policy issues surrounding the effects of a transfer of goodwill are clear. A trademark is an indication of origin; transferring the indication of origin (with the original owner/ founder) without transferring the original business would lead to deception of the public. Despite this, courts have held that as a general rule, the person who sells the goodwill of a business can legitimately conduct a business under their personal name provided the name is not used dishonestly, or with the intent of representing that the assignee has a continuing connection to the original enterprise. Of course, it becomes nigh on impossible in that context for the assignee not to make such a representation, unless they provide a clear explanation of the change in circumstances each time they use their name. Unsurprisingly, it is common practice for parties to make an agreement to the contrary, which contractually restricts the assignee’s ‘right to use one’s own name’ in competition with the transferred business. The enforceability issue If a personal name has been selected as a trademark, the first step should be to secure trademark rights via registration under the Trademarks Act 1995. The trademark registration process will require that the application is approved by a trademark examiner at IP Australia. The examiner will consider the extent to which the trademark is ‘inherently adapted to distinguish’ the designated goods and services of the applicant from those of other traders. The trademark must not be one that other traders are likely to wish to use in the ordinary course of their business. Accordingly, the registrability of a personal name is determined according to the commonness of the name. Paul Smith is now a famous fashion brand, however, it is a very common name and only deserves registration on the strength of its reputation. It would not have been registrable at the time of its foundation. McDonald’s is globally famous as a fast food brand, but is also a common surname. This makes the registration process difficult. While surnames (unless they refer directly to the goods or services, such as ‘Smart’ for educational resources) always have some degree of inherent capacity to distinguish and are prima facie registrable, the registrar of trademarks will object to the registration of a name that has a ‘Search for Australian Surnames’ (SFAS) number greater than 750. This means that common names like Smith, which appear more than 750 times on the electoral rolls in Australia, are considered common and will not be accepted as trademarks. If a common surname has a low SFAS value in its possessive form (for example, Scott’s versus Scott), the examiner will still maintain their grounds for rejection on the basis of the name being too common. This practice has been judicially criticised, but is still generally followed. Where a trademark consists of a common name and is rejected on this basis, the adverse finding may be overcome by filing extensive evidence of use. Use should demonstrate that the name in fact distinguishes the goods and services of the trader. Alternatively, representation of the name in stylised logo form or grouping of the name with a unique term will make it more distinctive and monopoly rights in the trademark more tenable. It is advisable to proceed with a trademark application where the surname is unique, where any accompanying first name, other term or logo is distinctive and where the name is not merely descriptive of the goods and services. Even once registration is secured, enforcing rights in a common name is difficult against others with a legitimate claim to the same name where they act in good faith. Points to consider When founding a business, think about whether adopting your own name as the primary brand is a viable prospect long term. What position will you be left in if you decide to leave the company? When purchasing a business, think about what will happen to the individual who has given the company its brand name. Will you be faced with a challenge by the individual who wants to continue in a competing business and still use the strength of the reputation in their name? Will this result in consumer confusion or a messy court battle that undermines the brand’s reputation? * David Moore is special counsel at law firm Cornwall Stodart. For more information on trademarks or intellectual property generally, contact Leneen Forde, partner, commercial litigation at Cornwall Stodart on (03) 9608 2243 or l.forde@cornwalls.com.au. This article first appeared in Inside Retail Magazine’s October/November 2013 issue. To subscribe, click here.