That certain something

Trademark specialist Sarah Verstak, from boutique Melbourne corporate advisory firm McDonald Partners, is warning her clients to ensure they have thoroughly thought through any descriptive trademarks they want to try to register. If the terms they want to make their own are too descriptive and generic, it can make it difficult to rely on them if a competitor starts using similar phrasing.

Chemist Warehouse (owned by Verrocchi) found this out the hard way, when it issued court proceedings against Direct Chemist Outlet (DCO) in the Federal Court. Even though Chemist Warehouse’s mark was registered, it was cancelled as being too descriptive and the Federal Court said it should never have been registered.

Alleging misleading or deceptive conduct and ‘passing off’ (wrongfully using someone else’s business reputation, resulting in harm to their business or goodwill), Chemist Warehouse claimed DCO had copied the appearance of its stores, and infringed on its registered trademark – “Is this Australia’s Cheapest Chemist?” – by using the term “Who is Australia’s Cheapest Chemist?” on marketing material.

While Justice Middleton, in March 2015, found the slogans were indeed similar, he ruled that Chemist Warehouse’s trademark was not valid, because it was not sufficiently distinctive and was merely descriptive, explains Verstak.

Chemist Warehouse not only lost their case against a competitor but also ended up having its own trademark invalidated.

While the case revolved around a trademarked slogan, as well as the appearances of the store, the findings have implications for descriptive trademarks generally, says Verstak. “[It] will potentially have an impact on all areas of the market,” she adds. “In terms of business size, it might be the SME businesses that have a [greater] tendency to use descriptive trademarks compared with larger businesses.

“Businesses often adopt descriptive names … they are usually easier to find online, because they describe the goods or services being offered. By contrast, larger businesses probably have the funds to spend on search engine optimisation to promote more distinctive brands/trademarks.”

Due diligence

The case also acts as a reminder that a successful registration is no guarantee that the business will be able to maintain the trademark in the future. Writing about the Chemist Warehouse case on its website, law firm HopgoodGanim notes that registering a descriptive phrase “does not mark the end of the owner’s obligations and a court always has the power to cancel a registration if a mark is found to be not adequately distinctive. There are strategies available to try to acquire and maintain brand distinctiveness – brand owners should seek advice on these strategies prior to embarking on costly enforcement action.”

The Chemist Warehouse case also underscores the importance  of all businesses checking their fundamentals – and doing their homework. A brand name or slogan that describes not only your business but also the generic attributes of the industry it’s in can be hard to defend.

Finding a balance

There is often tension between marketing specialists and owners about having a trademark that is unique and having one that is, in some ways, descriptive. Brett Doyle, special counsel to Clayton Utz and a trademark specialist, notes that this is because if it’s descriptive, you don’t have to spend money telling people what your product or service is.

“If you have a dishcloth and you want to call it ‘Supa Wipe’, well that just tells people what it is,” he says. “But if you want to call it ‘Giraffe’, you won’t have any trouble registering it but it tells you nothing about the product. It’s hard to get it right. If you choose ‘Wizard’, you know it’s supposed to be fantastic but it’s not merely descriptive.”

These issues are not a reason for companies to give up on registering a trademark – far from it. Instead, Verstak and Doyle say it’s a reminder that branding and intellectual property are vital business tools, and it is important to choose strategies that promote a point of difference between yourself and your competitors.

The advantage of having something registered, says Doyle, is that it is a powerful weapon against your competitors and gives a company strong rights.

“People are certainly trying to protect more things that are more descriptive … to give them a competitive advantage and keep other people off their turf,” he says, noting also a growing trend towards protecting intellectual property. Some businesses might get knocked back on a first attempt to register a descriptive trademark, but if they continue to be successful under the name, they may return after several years to demonstrate that the name or expression or visual branding is now so sufficiently recognisable that it has become distinctive.

Valuing a trademark

The issue of intellectual property is not just one for the lawyers and marketing specialists. Finance executives and accountants also need to pay close attention to the integrity of any trademarks a company might hold, says Verstak.

“The level of integrity of the trademark should be properly reflected on the balance sheet,” she says. “Trademarks are not defined as depreciating assets under s 995 of the ITAA97. This is because trademarks can be registered for 10-year periods and are perpetually renewable.

“However, significant goodwill is usually allocated to brands on balance sheets, and this is usually referable to the issue of whether a trademark is registered or not.” In navigating this often-tricky issue, Verstak offers a final word of advice for accountants.

“In valuing trademarks, accountants should not just consider whether they are registered, but rather, whether the trademark is robust enough that it can withstand a challenge to its validity.”