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The Right to Use Your Name Again After Selling It

2016-10-01

Introduction

On 16 August 2016, the English High Court delivered its Judgment on Karen Denise Millen v Karen Millen Fashions Limited & Anor [2016] EWHC 2104 (Ch), which denied the claimant her use of trade marks deriving from her name, after she sold off her namesake fashion business to the defendants’ predecessors. This case touches upon a number of issues in interpretation of contracts involving assignment of intellectual property rights.


Brief facts of the case

The claimant, Karen Millen, had been an owner of her namesake fashion business (the “Business”). She sold the companies which held the Business to a consortium in 2004 pursuant to a share purchase agreement (the “SPA”). The SPA contained a number of restrictive clauses regarding the claimant’s future conduct. Subsequently, the holding companies of the Business underwent corporate restructuring and the Business is now held under the first defendant.

In 2011, the claimant intended to return to the fashion business and to trade under the mark “KAREN”. A settlement between the claimant and the defendants were reached which restrained the claimant from using the marks “KAREN” and “KAREN MILLEN” in the United Kingdom and the European Union. Nonetheless, the settlement did not address the position in other jurisdictions, and there have arisen competing applications and cancellation and opposition proceedings between the parties over such marks in the United States and China.

The claimant commenced the present action to seek declarations, among others, that her use of the mark “KAREN MILLEN” for homewares in the United States and her use of the mark “KAREN” (without “MILLEN”) for any goods and services, as well as her applications for registration would not breach the SPA. The defendants counterclaimed against the claimant for breaches of the SPA and sought injunctions against the claimant thereunder.


Goodwill changing over time

The geographical and product range of the Business were more restricted when the SPA was signed; in particular, the range of products sold and the number of stores in the United States and China were much narrower and smaller in 2004. The claimant argued that such more restricted range, as part of the state of the Business at the date of the SPA, should be the basis for interpreting the clauses restricting her conduct.

The court disagreed with the claimant and found that although the intellectual property rights assigned under the SPA were only those existed at the date of the SPA, some of these rights might develop over time. Goodwill is one of such rights, which should be assessed at the date of the application, but not at the date of the SPA. Whereas the goodwill of the business under the mark “KAREN MILLEN” has expanded to involve a wider range of products and development in the United States and China, whether the claimant’s intended business(es) would breach the restrictive clauses in the SPA should be assessed with reference to such wider range.


“Further assurance” clause and
competing trade mark applications

A “further assurance” clause is commonly found in commercial contracts prepared by lawyers. In general, it obliges parties to take further actions to give full effect to the contract, in case there are circumstances (usually unforeseen) which require either or both parties to take further actions, or else the contract signed (or any clause therein) would not have the effect as stated or any effect at all. In the case, the further assurance clause reads the following:

“Each party shall, from time to time on being reasonably required to so by any other party, now or at any time in the future, do or procure the doing of all such acts and/or execute or procure the execution of all such documents as may reasonably be necessary to give full effect to this Agreement.”

The court considered the object of the SPA to be allowing the purchasers to have control of the Business and its key assets, including the name and mark “KAREN MILLEN” and its goodwill. In particular, the court considered it entirely possible and predictable that at the date of the SPA, the claimant’s consent to dealings in the name and mark “KAREN MILLEN” would be required, as such is the claimant’s own name.

Finding that the defendants’ applications and registrations of the mark “KAREN MILLEN” are important, natural and foreseeable way of putting the SPA into effect, the court held that the claimant would be in breach of the SPA if she hindered such applications and registrations by withholding her consent. Therefore, by making competing applications and raising opposition and cancellation proceedings against the defendants’ applications and registrations of the mark in the United States and China, the claimant was found in breach of the SPA.

In view of the foregoing, the court ruled in favour of the defendants and held that the claimant is obliged to consent to the defendants’ applications and registrations of the mark “KAREN MILLEN”. The claimant failed to obtain the declarations sought for in the present case. She would risk further breaching the SPA if she carries on the business(es) as contemplated under those declarations.


Lessons from the rulings

The case confirmed that goodwill could develop over time and cross over to other goods and services, and the former owner(s) who sold their businesses would be bound by and estopped from defeating the agreement’s object to vest in the purchaser(s) the intellectual property rights assigned alongside the business.

On the other hand, persons intending to sell a business with a trade mark should take note that an outright sale of the business and the trade mark may mean that they can no longer use the trade mark in a competing business. The seller should be careful in negotiating the scope of the restraint of use of the assigned trade mark in future business, and could consider limiting such restraint in terms of geographical area, the period of time, the goods and services involved, and the mode of use. Further, the seller could suggest appropriate terms to restrict the ambit of the goodwill assigned, as well as its “further assurance” obligations.

After all, careful and mindful drafting of contracts is essential to protect the parties’ interests and reduce the risk of future disputes. Persons intending to sell or purchase any business with intellectual property rights should seek legal advice at an early stage, so that the terms of the agreement can be better structured for them to obtain the full benefit of the transaction.




For enquiries, please contact our Intellectual Property & Technology Department:

E: ip@onc.hk                                                                    T: (852) 2810 1212
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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2016


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