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How to Choose a Valuable Trade Mark: A Chemist Warehouse Case Study

mdp Team | March 4th, 2016

When Chemist Warehouse issued trade mark enforcement proceedings against its competitor, Direct Chemist Outlet, they not only lost the case but also their trade mark registration.

Why? Because their trade mark lacked the requisite distinctiveness under the Trade Marks Act (Cth). 

If a trade mark is highly descriptive, the mark could be of very little value because it will be difficult to enforce against a third party, or worse, it could be of no value at all if the Court finds that the registration should be cancelled.

Moreover, if a business has highly descriptive trade marks, this is likely to have a detrimental effect on the sale price of the business. The strength of trade marks and other forms of intellectual property (IP) is a key factor that must be taken into account when conducting due diligence for a potential acquisition of a business or specific IP assets.

How to Choose a Valuable Trade Mark - Chemist Warehouse.jpgSource: Nick D

The claims of the case

In the case of Verrocchi v Direct Chemist Warehouse, the applicants, trading as ‘Chemist Warehouse’ issued proceedings against Direct Chemist Outlet (DCO) for the following:

  • Misleading or deceptive conduct under the Australian Consumer Law and passing off in relation to the ‘get-up’ used by DCO. Chemist Warehouse alleged that DCO had copied the visual appearance of its stores which depict yellow as a prominent feature along with other primary colours red and blue; and
  • Infringement of its registered trade mark ‘Is this Australia’s Cheapest Chemist?'

Handpicked related article: 3 Reasons Why You Shouldn't Choose a Descriptive Trade Mark

The Federal Court’s findings

Chemist Warehouse alleged that DCO’s use of the slogan ‘Who is Australia’s Cheapest Chemist?’ infringed Chemist Warehouse’s registered trade mark ‘Is this Australia’s Cheapest Chemist?’ (the Trade Mark).

However, interestingly, Justice Middleton held that the Trade Mark was not valid because it did not meet the distinctiveness requirements under s.41 of the Trade Marks Act (the Act).

A trade mark must be perceived as ‘a reliable badge of origin on its own’, and in his Honour’s view, the slogan was merely descriptive. Even if the Trade Mark had been found to be valid, Justice Middleton did not consider that DCO had used the slogan ‘as a trade mark’, and accordingly, there would have been no infringement in any event.

The moral of the story

If you want a valuable trade mark, you should be very careful about the brands that you adopt. You should select a name that is sufficiently distinctive so that you do not have to encounter the difficulties described above.

You should also ensure that you have selected a name that is different from other brands to ensure that you do not expose yourself to an action by another trader for:

  1. infringement of their registered marks; or
  2. misleading or deceptive conduct or passing off.

Why would you want your brand to be similar to your competitors' anyway? If you have a good business model or strategy, you will set your business apart by adopting a unique brand position.

And what about accountants?

The Chemist Warehouse case shows the importance of properly considering the integrity of a trade mark, and thus, what value should be properly reflected on the balance sheet.

In valuing trade marks, accountants should not just consider whether a trade mark is registered, but rather, whether the trade mark is robust enough that it can withstand a challenge as to validity. The strength of the trade mark (and indeed other forms of IP) will have a significant impact upon the sale price of the business or the IP assets of the business.

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mdp Team

We are more than a law firm – we work closely with our clients to bring their vision to life. We get our clients' businesses investment-ready, through risk and tax structuring so they maximise their IP beyond protection. Your ambition is our passion.