Goodwill is a business asset

The Arkansas Democrat-Gazette reports (paywall ahead) on a recent Arkansas Supreme Court case involving a well-known Little Rock restaurant and its divorcing owners. The Court held that the corporate entity owned the "goodwill" of A Brave New Restaurant separate and apart from the chef's reputation. Because the two spouses owned the corporation, they had to divide the business equally, including the goodwill, to the tune of $420,000 each.

Goodwill is a common concept in trademark law. The term literally means the reputation of a business, although it can include products as well. Typically, the value of goodwill is the theoretical price someone would pay for a business over and above the tangible assets of the business, like land, buildings, fixtures, and accounts receivable.

For products, goodwill is a similar concept. It means consumer recognition of a particular name, logo, or sound. Companies like Apple create an association in the mind of consumers between an apple missing a bite and computers. This happens through extensive marketing and sales of a product. The resulting association in the mind of consumers is known as goodwill. 

Goodwill is important for businesses. It is a source of new customers through word of mouth. It also means existing or former customers are more likely to return to a particular business for their next purchase. And, when it comes time to sell a business (or take it through a stock IPO), goodwill plays a significant role in the purchase price. 

At the Chaney Law Firm, we have experience protecting and valuing goodwill and other intangible assets as part of an overall business strategy. We design employment agreements for our clients so that there is no dispute over who owns goodwill and other intellectual property of a business.

We'd be happy to help you with your business. Thanks for reading.

The importance of the civil justice system

In a recent episode, CNN's Michael Smerconish discusses the importance of the civil justice system. He observes that sometimes government oversight doesn't work correctly, or even at all. In those situations, our civil justice system is what keeps our communities safe. That is, civil lawyers identify problems with products, then file lawsuits bringing those problems to light and forcing companies to correct them.

See for yourself — watch Smerconish talk about the GM ignition switch scandal below:

Attorney General appeals ruling on stricken 2013 petition law

Attorney General Dustin McDaniel has appealed the ruling by Circuit Judge Mary Spencer McGowan striking portions of Act 1413 of 2013. As I reported here, Judge McGowan ruled that the Act was an unconstitutional infringement on the right of the people to petition. The appeal will likely be expedited, as the appeal transcript has already been picked up. 

This appeal will affect, for better or worse, the very first right guaranteed by the Arkansas Constitution — to petition the government for changes in laws. I've helped several counties through the local option initiative process, and the counties currently running these types of elections are watching closely. 

Judge invalidates 2013 changes to petition laws

Yesterday, a Circuit Judge in Pulaski County invalidated changes made in Act 1413 of 2013 to the Arkansas laws about petition drives. As I reported here when the lawsuit was filed, two individuals representing groups filing petitions in 2012 challenged the law as unconstitutional and unclear. Circuit Judge Mary Spencer McGowan agreed, stating:

The effect of the new provisions, especially the sections which fail to define the use of the words, disability, anything of value, material defect, etc., will mean that the citizens of the State of Arkansas will lose their ability to propose legislative measures and laws directly to the people.

While the goals of stamping out fraud, forgery and false statements are laudatory, and appear to have been met in 2012 by the Secretary of State, the effects of Act 1413 are crushing to the citizens who wish to bring their issues directly to the people. The effects of Act 1413 seem to impact the citizens rather than the special interests who always seem to have the money to further their goals.

Judge McGowan went on to enjoin the Secretary of State from enforcing certain sections of Act 1413 applicable to statewide petition drives. This is good news for Arkansans, as it preserves the right to freely petition the government. However, the Attorney General and Secretary of State have said they will appeal Judge McGowan's ruling. Most appeals take at least several months.

A hurdle remains, however, for citizens working on local option elections. A separate act, Act 1432 of 2013, passed laws creating the exact same burdens on local option elections as Act 1413 did for statewide initiatives. This initiative has yet to be challenged in Court. Whether the Arkansas Supreme Court sides with Judge McGowan will likely determine the outcome for Act 1432 as well. Those interested in local option elections will be watching.  

From GTOs to mud tires: what's your brand, and does it matter anymore?

A recent article in the New Yorker suggested that brands are in decline. That begs the question: what's a brand?

A brand is simply a name or symbol that indicates source. It has another name — a trademark. In days past, as the New Yorker article observes, a brand (or trademark) was a shorthand way of determining quality. In 1969, the brand "Judge" referred to a souped up American muscle car with a distinctive paint job, retractable headlights, and optional 370 hp. (Full disclosure: in 1998, I negotiated for a week or so with a judge in New York who was trying to sell his cherry '69 GTO Judge on eBay. It didn't happen, but I sometimes regret not pursuing it further).  When you went to the dealer and asked for that car in 1969, you knew you'd be getting a classic American muscle car. However, you might not have known about "an internal GM policy limiting all cars except the Corvette to no more than one advertised horsepower per 10 lb of curb weight," which served to limit performance.

Now that the Internet has been around a while, Amazon and other online companies provide tons of information on the quality of goods. Anymore, we don't have to rely upon brand names as shorthand for quality. We can research any item we want to buy, whether it is a soft-shell jacket, a set of tires, or a beard trimmer. We can immediately compare product specifications (which set of mud tires has the best wear rating?), as well as scores of customer reviews about any product under the sun (how do those same tires fare with road noise?). For instance, I've worn about half the tread off my 285/75R16 BF Goodrich KM2's after 26,000 miles, and I've only been stuck once (thanks Dr. J — UPDATE: photos of getting stuck).

The New Yorker article cites some statistics about how we rely upon brand names a lot less than we used to as a result of the availability of this type of information. So, trademarks are less an indicator of quality, and more an indicator of source (which is the traditional definition anyway). Brands are now a starting point for as an indicator of quality, rather than the final word. I think that's a good thing for consumers. In the past, brand = quality = price. Now, since the comparison of cost versus quality is much easier to make; brand might still equal price, but consumers can pretty well figure out if the quality justifies the price.

As an example, when I bought my KM2s, the Nitto Mud Grappler was a more expensive and much more popular alternative. However, I'd had Michelin tires before (Michelin owns BF Goodrich) and never had a flat after having too many with Firestone, Cooper, and Kelly tires. So, my comparison was based on what I saw on the street and also on experience with several brands. I did a lot of research on tirerack.com (which no longer carries the Nittos). I wound up going with the KM2s after reading not-so-great treadwear reviews of the Nittos, which were about 10% more expensive. I also considered the Bridgestone mudders, since that's what Dad and a property manager for a local timber company both ran. However, the Bridgestone's treadwear ratings were about 15% worse than the KM2s, which justified paying about 10% more for the KM2s. I still like my choice because I rarely feel like I'm going to get stuck, even if I'm in the middle of the Ouachita River. Another review dealt with road noise: with the KM2s, I can still hear myself think, even on the interstate.

So, what does this means for brands? I agree with the New Yorker article that it's a mixed bag. Consumers still might lean one way or the other due to prior experience, but now they have the option of easily researching purchases on the Internet. Sometimes that will sway opinions, sometimes not. But it's nice to have choices.