Quantifying Goodwill in Passing-Off Suits through Sales and Advertisement Expenses

In the realm of intellectual property rights and commercial disputes, cases of passing-off often present complex legal challenges. Passing-off refers to the deceptive practice of one party misrepresenting their goods or services as those of another, thereby capitalizing on the goodwill built by the legitimate business. In a recent legal development, the case of Brihan Karan Sugar Syndicate Private Limited vs. Yashwantrao Mohite Krushna Sahakari Sakhar Karkhana (CIVIL APPEAL NO. 2768 OF 2023) has shed light on the significance of figures related to sales and advertisement expenses in passing-off lawsuits. This article will delve into this critical aspect of passing-off litigation, emphasizing the burden on the plaintiff to prove the link between these figures and goodwill.

The Role of Goodwill in Passing-Off Claims:

A fundamental concept in passing-off claims is goodwill, representing the reputation and association that consumers have with a particular brand or business. To assert a passing-off claim, a plaintiff must demonstrate that they have established goodwill in their business or product.

The Importance of Monetary Figures in Passing-Off Claims:

To establish goodwill, the plaintiff often needs to provide cogent documentary evidence of their business activities and investments. Figures related to sales and advertisement expenses play a pivotal role in demonstrating the existence and extent of goodwill, as outlined below:

Sales Figures: Sales figures serve as objective indicators of a company’s success and market presence. A higher volume of sales may indicate greater goodwill, and sales statistics may help demonstrate to the court that consumers have come to recognize and prefer their product or service due to its association with their brand. Moreover, sales figures provide a tangible means of quantifying this intangible asset, goodwill, by assigning a monetary value to it. This is critical in passing-off cases, as the level of damages often depends on the value of goodwill. The evidence related to sales figures can be presented through the following means:

1. Compilation of Detailed Records: Gathering comprehensive records of sales pertaining to the disputed product or service. These records should include data on sales quantities, pricing, profit margins, and other relevant financial documents.
2. Certified Accounts: Validating and certifying sales data through a certified accountant or financial expert enhances the credibility of sales figures.
3. Historical Sales Data: Depending on the case’s relevance, including historical sales data can highlight the growth and popularity of the product or service over time.
4. Geographical Data: Segmenting sales data based on specific regions or geographical locations where the product or service has gained reputation, recognition, and goodwill.

Advertisement Expenses: Advertising plays a crucial role in creating and maintaining brand recognition. Expenses incurred in advertising a product or service are often directly linked to the establishment and upkeep of goodwill. In cases of passing-off where a competitor’s actions harm a brand’s goodwill, the financial impact can be quantified using advertisement expenses. Courts frequently consider the monetary value of the damaged or diluted goodwill, making advertisement expenses a vital metric for estimating this financial loss. Evidence pertaining to advertising and promotional expenses can be presented through the following means:

1. Detailed Records: Compiling all records related to advertising and promotional expenses associated with the disputed product or service. This should encompass expenses for print and online advertising, marketing campaigns, public relations efforts, sponsorship deals, and other promotional activities.
2. Invoices and Receipts: Maintaining records of invoices, receipts, and payment documentation for all advertising and promotional expenses serves as tangible proof of the significant financial resources invested in building and maintaining goodwill.

In the Brihan Karan Sugar Syndicate case, the appellant sought a permanent injunction against the respondent, alleging passing-off. The trial court ruled in favor of the appellant, noting that the respondent’s label was deceptively similar to the appellant’s, and they had infringed upon the appellant’s copyright. Importantly, the court considered the appellant’s evidence related to sales and advertisement expenses as a crucial factor in establishing goodwill and passing-off.

The above-mentioned case highlights the importance of concrete figures, including sales and advertisement expenses, in passing-off claims. Plaintiffs must diligently gather and present this data to demonstrate the existence and extent of goodwill associated with their business, thereby strengthening their position in passing-off litigation and increasing their chances of obtaining a favorable outcome.

Vedant Pujari, Partner

Ritika Reddy, Senior Associate