3.6 - Goodwill

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Distinctive signs protect goodwill. The various IP-rights concerning distinctive signs protect trade marks, tradenames, and designs because of the goodwill that is affixed to these signs. This may lead to the question whether goodwill as such – unattached to a certain sign – can or should be protected. In our opinion, the answer to that question should be no.

Freedom to compete. IP-rights, such as trade mark rights and trade name rights that protect goodwill are an exception to the rule that one is free to compete. In essence, competition is nothing more than to achieving demand by a potential customer, which amounts to being in favor with – acquiring goodwill with – that potential customer. Goodwill is therefore the result of competition and this leads to the conclusion that recognizing exclusive rights on goodwill as such – being in favor with somebody – would be the death for competition.

IP-rights require an object. Exactly because IP-rights are an exception to the general principle of freedom to compete in order to enhance competition, the granting of exclusive rights requires that these rights protect a specific immaterial product, an intangible object. In case of IP-rights for means of distinction, these objects are trade marks or tradenames. These objects – that trade mark or tradename – incorporate the goodwill that the trade mark or trade name may have acquired and it is only that incorporated goodwill that can be the object of an exclusive IP-right.

Unincorporated goodwill. It is against this background that goodwill which is not incorporated in an object cannot be the subject of an exclusive right, contrary to incorporated goodwill: that good­will which is materialized in a particular material or intangible object, such as a trade mark, tradename or other sign.