Residual goodwill cannot save TRU Kids Inc from losing opposition to rival mark

TRU Kids Inc. loses its Section 5(4)(a) opposition to the mark GroceriesRus for a groceries delivery service notwithstanding a finding of residual goodwill in the TOYS R US brand

07 June 2022

Background

TRU Kids Inc., owner of the ‘TOYS R US’ brand and associated marks, has lost its opposition to Y&C Wholesale LTD’s UK trade mark application for the word mark ‘GroceriesRus’ for services in Class 39, including “[d]elivery of groceries to consumers, foods, household goods”.

The opposition was based on Section 5(4)(a) of the Trade Marks Act 1994 and opposed all services in the application.

Section 5(4)(a) prohibits registration of a sign if its use can be prevented by any rule of law which protects an unregistered trade mark or other sign used in the course of trade,, in particular passing off. TRU Kids asserted that, in light of its earlier goodwill, use of the GroceriesRus mark would constitute a misrepresentation, as consumers would perceive a connection between GroceriesRus and its business, leading to inevitable damage in the form of injury to reputation, loss of control, or dilution of its TOYS R US brand.

TRU Kids claimed that “Rus” was the primary distinctive element of the GroceriesRus mark and was primarily associated with it (and its predecessor in title) in the UK. Y&C Wholesale filed a defence and counterstatement denying the claims and putting TRU Kids to proof as to the existence of goodwill in the TOYS R US mark.

Decision of the UKIPO

Goodwill

The hearing officer first dealt with the challenge to the existence of goodwill in the TOYS R US mark. TRU Kids had acquired the TOYS R US mark, including the goodwill associated with it, in 2019 from Geoffrey LLC and its parent company Toys R Us, Inc., which had traded in the UK (via its subsidiary, Toys “R” us Limited) from 1985 to 2018 (at which point it had 85 physical stores in the UK).

Y&C Wholesale argued that any goodwill generated by TOYS R US would have accrued to Toys “R” us Limited and that TRU Kids had not established a clear chain of title from that UK subsidiary. The hearing officer disagreed, holding that TRU Kids and its predecessor in title owned any remaining goodwill as a result of the transfer of the same from Geoffrey LLC.

The hearing officer considered both the nature of “residual goodwill” and whether the sign TOYS R US was distinctive or associated with any residual goodwill of the ceased business at the date of the opposed application, 17 November 2020. Following a cessation of trading, a business could retain an enforceable goodwill for a time, depending on the facts. It is not necessary that the business have concrete plans for restarting operations, but the longer the business is left un-resumed, the more likely it is that the goodwill will dwindle to such an extent that it cannot found an action for passing off.

TRU Kids’ evidence of plans to relaunch the business post-dated the date of the application. The hearing officer disagreed with Y&C Wholesale that this evidence was therefore irrelevant, stating that such evidence was relevant if it provided a “look back” at the situation as at the relevant date. This evidence established that a strong goodwill existed at the start of 2022 (post the application date) which suggested that a strong goodwill also remained in existence at the application date in 2020. The level of sales in the years up to the cessation of trading, the nationwide presence and the evidence that TOYS R US was, at its height, a household name, led the hearing officer to find that the mark had a fairly strong level of residual goodwill at the relevant date, but associated with the physical retail stores.

The hearing officer then found that the sign TOYS R US was distinctive of that goodwill, even if predominantly used in a stylised form. The hearing officer did, however, agree with Y&C Wholesale that the evidence did not establish use on the goods themselves and should be accordingly restricted. Overall the hearing officer was satisfied that, as at the relevant date, TRU Kids had a fairly strong goodwill in relation to “in-store retail services relating to toys, games, playthings, and electrical and electronic goods and accessories for these goods”, and that the sign TOYS R US was distinctive of this goodwill.

Misrepresentation and Damage

The hearing officer disagreed with TRU Kid’s submission that the TOYS R US sign was highly distinctive, finding instead that the sign had an average level of distinctiveness (as it alluded to some of the services provided, but the incorrect grammar in the mark was striking). As between the respective signs, the hearing officer further found a medium degree of visual and aural similarity, but no, or at best a very low, degree of conceptual similarity between them.

TRU Kids claimed that the public, on encountering GroceriesRus, would assume a connection between the opponent and the applicant, or an expansion its retail services. The hearing officer disagreed; a mere wondering as to whether there is a trade connection was not sufficient for a passing off action to succeed. There must be significant numbers of the public who will assume a trade connection. The move from physical retail stores selling toys, games, playthings, and electronic goods to the delivery of groceries was not a logical diversification.

Despite the existence of a strong residual goodwill residing with TRU Kids, therefore, the hearing officer concluded that the similarities between the earlier sign and the contested mark were not strong enough, and the fields of activity too far apart, for the customer to be deceived in such a way as to cause damage to TRU Kids. Accordingly, the opposition under Section 5(4)(a) was dismissed. 

Comment

Oppositions brought solely under Section 5(4)(a) are relatively uncommon. The case provides a rare in-depth review of the law of passing off, in particular, on the concept of residual goodwill and the circumstances in which it may survive business cessation.

This article was written by Louise Carey and Chloe Perea Poole and first appeared in WTR in May 2022.

For more information or if you have any questions, please contact Louise Carey or Chloe Perea Poole or your usual IP team contact.

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