Patently saleable?

Patents can be bought and sold like any other property. But patents differ from other forms of IP in that they can be expensive and time-consuming to maintain. Therefore it may be more attractive to sell an asset such as a patent in insolvency than maintain it. The flip-side of this is that there may be some good bargains to be had from an insolvent company if you know what you are looking for.

What is the life of the patent?
If an insolvent company owned a patent, the Patent Office should be informed of the winding-up order and asked to note the Official Receiver’s interest in the patent. The Patent Office should also be asked to provide details of the remaining “life” of the patent, as this could materially affect the value and details of any renewal fees outstanding.

The patent is effective from the date of publication of the specification of the invention by the Patent Office, which is approximately 18 months after the filing date.

Maintaining your patent
A patent must be maintained or its registration may lapse and it will then become worthless. The first renewal date is the end of the calendar month of the fourth anniversary of the application filing date and renewal fees are then due every year for the remaining 15 years that the patent remains in force (some pharmaceutical and agrochemical patents can obtain extension through supplementary protection certificates for up for five additional years).

You should pay your renewal fees to the Patent Office. Fees can be paid any time between 3 months before the due date for payment and one month after, without attracting penalty charges for late payment. If the renewal fee is not paid within six months of the due date then the patent will lapse and the invention will not be protected.

What happens if the patent lapses?
If the patent is not renewed in time it is possible to restore the patent rights by application to the Patent Office as long as that application is made within 19 months of the missed renewal payment. It is necessary for the applicant to satisfy the Patent Office that it intended to pay the renewal fee on time. But you must provide evidence such as a witness statement and any other evidence you may have, setting out the circumstances in which the renewal fee was not paid.

It is possible for the Official Receiver to ask the Patent Office to confirm that the time limit for restoration has not expired. However, the Patent Office cannot give any indication on the likely success of such an application. If the Official Receiver is considering making an application to restore a patent in order to sell it, the costs of the application should be taken into account in the negotiations relating to the sale and should not exceed the potential sale proceeds.

What might prevent the sale of a patent?
Enquiries should be made to establish whether there are any licensees or mortgagees of the patent in order that they can be informed of the making of the Insolvency Order and asked to note the Official Receiver’s interest.

By virtue of s.30(2)&(3) Patents Act 1977 (“PA 1977”) patents, like real property, can be subject to a secured loan by way of a mortgage and will vest by operation of law in the same way as any other personal property; thus a patent owned by a company subject to a winding-up order would belong to the liquidation estate. Bu, instead of contacting the Land Registry, the Official Receiver should verify ownership of a patent by contacting the Patent Office. Information can also be found in the insolvent company’s accounting records and/or by searching at the Patent Office.

Where a patent vests in the liquidation estate, the patent may be sold with the assignment being signed by the liquidator of the liquidation estate. S.30(6) details that the Patent Office should be informed of any change in ownership.

Licences and royalties
But it is not just the patent itself that can be sold. It may be financially beneficial to grant a licence to use the patent. However, such licences need be maintained; the Official Receiver should consider whether such an obligation can be met before such a licence is granted. As when transferring the patent itself, any assignment of a licence should be in writing and signed by the parties; the Patent Office should be informed of the transfer.

Royalties may be paid by a third party to the owner of a patent in return for the right to exploit that patent. The royalties may be payable under the terms of a licence, with the owner retaining the patent. In circumstances where a winding up order is made against the owner of a patent, the Official Receiver should make contact with the third-party and ask them to pay any royalties due to the trustee.

A liquidated company may be in receipt of royalties as a condition of the sale of a patent. In this case, the royalties cannot be claimed as an asset, because the patent does not vest in the liquidation estate. Instead, the royalties should be treated as income and can be claimed under an income payments agreement or an income payments order.

Deciding whether to buy, sell, maintain or licence a patent is a commercial decision. And remember, your patent is worthless if you are unable to defend it against infringement and defending it can be an expensive process in itself. Companies are looking to exploit their patents and other IP rights in the current economic downturn as a way of protecting assets and taking other player out of the market. A report by Freshfields Bruckhaus Deringer found that nearly 40 per cent of the largest corporations "are actively looking to litigate" to protect their rights. In such a climate as this does a liquidated company really have the financial means to protect and maintain patents? If the answer is no, there may be some bargains to be had for the rest.

What do you get for 60m kronor?

Having just read on the IPKat about the sale of The Pirate Bay to Global Gaming Company for 60m kronor (£4.7m), I find myself wondering what sort of intellectual assets the purchaser is obtaining and how valuable they will prove to be.

A couple of weeks ago I looked to see if The Pirate Bay had any trade marks. It didn't seem to have any registered and, if I recall correctly, its website indicated that consumers were free to do interesting and imaginative things to its logo and then send a sample back in order to show what they'd done. As for the software, my impression is that it was licensed in and was basically off-the-peg stuff. Its user database probably wouldn't be worth much, seeing as it consists primarily of people who are used to paying nothing for what they want.

If anyone has any thoughts on the subject or, better still, hard facts, do please let me know.

How much is really lost through downloading? A question of credibility

Via David Holland comes this link to "Home taping didn’t kill music" by Ben Goldacre, who writes the Bad Science column for The Guardian. It was published much earlier this month but I lost sight of it and have only just rediscovered it. The article reads, in relevant part:

"... “Downloading costs billions” said the Sun. “MORE than seven million Brits use illegal downloading sites that cost the economy billions of pounds, Government advisors said today. Researchers found more than a million people using a download site in ONE day and estimated that in a year they would use £120bn worth of material.”

That’s about a tenth of our GDP. No wonder the Daily Mail were worried too: “The network had 1.3 million users sharing files online at midday on a weekday. If each of those downloaded just one file per day, this would amount to 4.73 billion items being consumed for free every year.”

Now I am always suspicious of this industry .... I also doubt that every download is lost revenue since, for example, people who download more also buy more music. I’d like more details.

So where do these notions of so many billions in lost revenue come from? I found the original report. It was written by some academics you can hire in a unit at UCL called CIBER, the Centre for Information Behaviour and the Evaluation of Research (which “seeks to inform by countering idle speculation and uninformed opinion with the facts”). The report was commissioned by a government body called SABIP, the Strategic Advisory Board for Intellectual Property Policy.

On the billions lost it says: “Estimates as to the overall lost revenues if we include all creative industries whose products can be copied digitally, or counterfeited, reach £10 billion (IP Rights, 2004), conservatively, as our figure is from 2004, and a loss of 4,000 jobs.”

What is the origin of this conservative figure? I hunted down the full CIBER documents, found the references section, and followed the web link, which led to a 2004 press release from a private legal firm called Rouse who specialise in intellectual property law. This press release was not about the £10bn figure. It was, in fact, a one page document, which simply welcomed the government setting up an intellectual property theft strategy. In a short section headed “background”, among five other points, it says: “Rights owners have estimated that last year alone counterfeiting and piracy cost the UK economy £10 billion and 4,000 jobs.” An industry estimate, as an aside, in a press release. Genius.

But what about all these other figures in the media coverage? Lots of it revolved around the figure of 4.73 billion items downloaded each year, worth £120 billion. This means each downloaded item, software, movie, mp3, ebook, is worth about £25. ... this already seems rather high. I am not an economist, ... but to me ... an appropriate comparator for someone who downloads a film to watch it once might be the rental value, not the sale value. ...

In any case, that’s £175 a week or £8,750 a year potentially not being spent by millions of people. Is this really lost revenue for the economy, as reported in the press? Plenty will have been schoolkids, or students, and even if not, that’s still about a third of the average UK wage. Before tax. Oh but the figures were wrong: it was actually 473 million items and £12 billion (so the item value was still £25) but the wrong figures were in the original executive summary, and the press release. They changed them quietly, after the errors were pointed out by a BBC journalist. I can find no public correction.

I asked what steps they took to notify journalists of their error, which exaggerated their findings by a factor of ten and were widely reported in news outlets around the world. SABIP refused to answer my questions in emails, insisted on a phone call (always a warning sign), told me that they had taken steps but wouldn’t say what, explained something about how they couldn’t be held responsible for lazy journalism, then, bizarrely, after ten minutes, tried to tell me retrospectively that the whole call was actually off the record, that I wasn’t allowed to use the information in my piece, but that they had answered my questions, and so they didn’t need to answer on the record, but I wasn’t allowed to use the answers, and I couldn’t say they hadn’t answered, I just couldn’t say what the answers were. Then the PR man from SABIP demanded that I acknowledge, in our phone call, formally, for reasons I still don’t fully understand, that he had been helpful.

I think it’s okay to be confused and disappointed by this. Like I said: as far as I’m concerned, everything from this industry is false, until proven otherwise".

This piece was picked up by Techdirt, the Adam Smith Institute and Slashdot, but doesn't seem to have gone any further. The CIBER report can be downloaded from the SABIP website here, with a 16-page executive summary here.

I'm not sure that a workable solution to the problem of unauthorised downloads can be found, whether we have the right data concerning their commercial impact or not -- but I feel strongly that any research that seeks to quantify that impact must be reliable if it is to justify any measures that are taken to counteract the activity in question. SABIP seems to be in a huge hurry to secure commissioned research in its various target areas, putting great pressure on its suppliers of research results to do so speedily and cheaply. One may wish to ask whether this haste is counterproductive.

All tied up

Neil Wilkof's recent licensing post ("So Is It Joint Ownership or a Licence?") has brought a good crop of what Neil has described as "superb responses". Neil is however all tied up in a transaction at the moment, so he has asked me to say that he'll be making his own responses as soon as time permits.

So Is It Joint Ownership or a Licence?

This week's contract construction issue involves joint ownership. Joint ownership of IP rights is one of those relationships to which parties often gravitate, even if legal counsel takes a dim view. In that context, consider the following two provisions, which in various related forms, I have encountered from time to time.

First, the parties state that they "agree they shall jointly own all of the intellectual property rights resulting from their mutual performance of the Project."

Second, the parties further agree that "Party A grants to Party B an [exclusive] licence with respect to the use of the Intellectual Property rights created during their mutual performance of the Project [for defined purposes of use]."

The obvious question is why are there two clauses apparently covering the same subject matter, one establishing joint ownership, while the other purports to grant a licence from one party to the other? If the IP is jointly owned then, subject to any particular local laws, each party is permitted to do what it likes with respect to these rights. If so, what purpose is served by the grant of licence? Permit me to offer several suggestions (readers are urged to offer their own comments):

1. Declaration of jont ownership may not be legally sufficient to create co-ownership. Perhaps the licence provision is a back-up in the event that joint ownership is not recognized. Even if A and B are not joint owners, A does grant to B the same rights that B would have enjoyed a co-owner.

2. Alternatively, the licence is an unartful attempt to create a limitation on the unfettered right of each joint owner to use the mark with restriction from the other joint owner, in this case a limitation on the right of use by B.

3. To the contrary, the grant of an exclusive licence could have the affect of limiting the right of use by A, in accordance with the meaning of an exclusive licence under various national laws.

4. The licence is provided in accordance with the requirements of local law. We were informally advised, e.g., that there is such a provision under German law. If this is correct, the provision serves to bring the parties into compliance with the applicable local law.

I probably have missed other possible ways to understand the two clauses. Dear readers: the floor is open.

Software: Precautions Against Supplier Insolvency

What would you do if the supplier of your critical systems went insolvent?

In times of economic uncertainty, industries associated with software and technology services are highly likely to suffer. They are heavily reliant on solvent customers themselves, and on those with a sufficient degree of disposable budget to spend on non-essential work, such as software developments and updates (as opposed to rent, bills, wages, etc...). If the software companies are vulnerable, so too are their clients; and -- like it or not -- almost every business is the client of a software company.

Computer software is commonly used and found in most businesses and for every software program there is a source code without whch the software cannot be sold. Importantly this code enables the software to be revised and maintained. Source code is mostly protected by copyright.

Software may be developed by a third party for a client exclusively, or it may be licensed. More often than not it is leased or purchased ‘off the shelf’ and not owned by the business using it. As most of a business’s software is licensed, it will not be transferable and it will probably not available for assignment by the official receiver as liquidator or trustee. Further, as discussed in my previous articles [see note on Tuesday articles in the right hand side-bar], companies should be aware that the official receiver can disclaim onerous property under the Insolvency Act 1986; and that includes licences which may be a critical part of your business.


“But wait”, I hear you say “I own the IP in my software because it was developed for me. That means I’m safe doesn’t it?”. Not necessarily; even when bespoke software is developed exclusively for a company, the software company may still own the IP rights to some or all of the code behind the product. In such circumstances the official receiver should consider the agreement entered into with the supplier in light of both restrictions on assignments and the ownership of copyright. If a software supplier has 'invented' the software for the insolvents use it is likely that they will own it and not the insolvent.

If the software has been developed within the business this may give rise to problems as the individual designing the software may be a contractor rather than an employee. If that is the case the agreements by which that contractor is engaged should be carefully examined to determine who owns any IP rights created.


As a business you should establish at a minimum: (1) who holds the IP rights for your critical software; and (2) where would you find that source code should the company that developed it go bust. Number 2 is easier said than done. The owners or creators of software should not be relied upon to provide information on the location of software they have developed for you after they have gone into liquidation and it is unlikely that the official receiver will know where to begin.

One way of ensuring you know exactly where your code is and how to get to it is to have an escrow agreement built into any software agreement you enter into. Escrow agreements allow code (and other property) to be held upon agreement of the parties by a neutral third party. Code subject to the agreement will they only be released according to the agreement upon the fulfilment of its terms.

You should ensure that the conditions which stipulate the release of source code are looked at in order to determine when and in what way they can be enforced. You should also ensure the agreement allows the beneficiary to request a third party verify the code subject to the escrow is complete and this right should be exercised! You may view verification as an unnecessary expensive, but it can be invaluable. If the escrowed code is defunct it is essentially worthless and by the time you find out it is worthless, the liquidated company may not be in a position to help you locate the correct code.

Many businesses value critical transactions and contracts by value. However, this can be fatal when reviewing your software contracts for criticality. You may find that a critical software package that controls you payment systems cost almost nothing to develop, but consider for a moment wht would happen if that software stopped working and the company which developed it went into liquidation; it may have huge knock-on consequences to your business revenue.

In fact a low value contract is likely to be related to a smaller vendor and smaller vendors are more likely to be impacted by the economic downturn and have insufficient safety mechanisms when they do. Therefore your low value contracts may be the critical ones when reviewing your software safeguards in the economic downturn.

So it is not just the criticality of your contracts that you should be managing; you should also ensure that you are aware of the financial state of your suppliers. This way you can direct your resources to deal with the suppliers controlling your critical IP that are financially exposed.

Before a company goes into liquidation, look out for the warning signs that they are in trouble. For instance, has there been a drop in service provided by the company to your business? Have their accounts and annual returns been posted late? In times of financial difficulty, the accounts department will often be distracted by other pressures and overlook accounts filing deadlines. Often when a business is getting into financial difficulty, VAT and PAYE/NIC payments are regularly made late as available cash is being used to pay suppliers to keep the business running. In such cases HMRC will often apply for a business to be wound up if crown debts are continually left unpaid. To protect your interests make sure that if you are aware your supplier of software may go bankrupt ensure you follow the company closely and involve yourself in the insolvency proceedings.

And finally, a note to those dealing with insolvent companies. It has recently been reported that former employees of Factor 5 Inc in the US, who declared Chapter 7 bankruptcy in May, are being sued by former employees for fraudulently hiding assets before declaring bankruptcy in order to avoid paying employees and other debtors. The company ran into trouble when Brash Entertainment, whom it had signed a publishing deal, fell victim to its own financial difficulties and went under, which ended funding for Factor 5's project and eventually forced it to close down as well. The suit alleges that prior to the bankruptcy, the founders of Factor 5 created a new company called Blue Harvest, to which they "fraudulently transferred assets, including source code and other intellectual property," including a partially-completed version of Star Wars: Rogue Squadron for the Wii. It is alleged in the complaint that Factor 5 and White Harvest are essentially the same company. When dealing with an insolvent's estate it may be worth checking, have the rights to code and other IP rights been transferred ‘on mass’ just prior to liquidation? This is easy enough to see when directors transfer houses to their spouses, but may not be as apparent with unregistered rights such as copyright.


Tomorrow I’ll be popping along to give a talk at Winston & Strawn’s Bootlaw Session with my colleague Ian Silcock from Hardwicke Building. It’s free of charge to attend and if you would like further details you can have a look at Bootlaw’s Meet Up page.

IP securitisation and UNCITRAL: it's not too late to comment!

For those who have been following the ongoing drama of IP securitisation over the past couple of years (see IP Finance posts here, here, here, here, here, here, here, here, here, here and here), there's further news. Work has been continuing on a Draft Supplement to the UNCITRAL Legislative Guide on Secured Transactions dealing with security rights in intellectual property, as revised further to the April-May 2009 session of the UNCITRAL Working Group VI (Security Interests) and the approval of the insolvency discussion by the UNCITRAL Working Group V (Insolvency Law) at its May 2009 session. This Draft Supplement forms the basis for discussions at the next session of Working Group VI (Vienna, 2-6 November 2009).

UNCITRAL documents are available on the UNCITRAL website. Informal drafts for discussion with experts are not publicly available. However, UNCITRAL encourages interested organizations with expertise and experts to contact them, if they wish to examine and comment on such informal drafts, which are then finalized in accordance with the instructions of the relevant UNCITRAL (inter-governmental) Working Group and submitted to that Working Group for consideration. Interested organizations with expertise and experts may email the UNCITRAL secretariat here, or Spiros Bazinas (Senior Legal Officer, UNCITRAL's International Trade Law Division) here, if they'd like further information.

Will the ZTE Brand and Name Find its Field of Dreams Outside China?

Like most of you, I imagine, I really did not know much, if anything, about the Chinese company ZTE (here)--at least until I read a recent article in Business Week ("Good Times for Cheap Cell Phones", by Bruce Einhorn, May 11th). It turns out that ZTE, which operates in the telecon equipment space, is the world's sixth largest manufacturer of cell phones. That bit of information, by itself, may be of limited interest--after all, China is a huge domestic market with an expanding consumer population. The size figures may simply reflect the position of ZTE in the local Chinese market.

In fact, however, there is an interesting IP angle to the activities of ZTE. As described in the article, ZTE is angling to become the 3rd largest manufacturer of cell phones in the world; if so, it will leap over Sony Ericsson and Motorola in the process. To do so, however, ZTE will need to establish a presence outside of China. The question is--how? More precisely--the question is how to achieve penetration of its brand overseas?

Until now, Chinese companies had preferred to purchase overseas operations and then try to do a better job than the previous Western owner in extracting value from the purchased operation. The results, however, have not been encouraging. As the article points out, TCL bought Thomson's TV business as well as Alcatel's handset units. It appears that neither acquisition has been overly successful. Even the much ballyhooed acquisition of the IBM PC division by Lenovo is stumbling a bit as of late, where it has been overtaken by Acer, the Taiwanese computer company. In the words of the article, this has been a strategy "to grab down-on-their-luck Western brands."

Indeed, it is the ascendancy of Acer in the PC market that highlights the strategic decision before ZTE in its quest for world-ide penetration of its handsets:

(1) Does ZTE purchase an existing handset business and try to revive it under the ZTE brands?

(2) Does ZTE expand, at least initially, by providing handsets for foreign carriers, but allowing the carriers to remove the ZTE mark in favor of the carrier's brand, and only later attempt to build its own brand recognition? or

(3) Does ZTE attempt to develop brand recognition from the outset (and presumably earn the higher margins for the sale of its branded product)?

According to the article, ZTE has opted for the second strategy. Despite its size in the handset market, at this stage it is content to sell its product to carriers who will then rebrand the product under their own name. The rationale for this strategy is that, if it is successfully carried out, ZTE will gain market share. Presumably later, if it wishes, it can then try to enter foreign markets under its own name. In adopting this strategy, it rejected the purchase of an existing overseas handset business, such as that of Motorola.

There is a precedent for this--which suggests both the risks and opportunities in adopting such a strategy--namely Acer itself. As I recall. Acer started out as a successful contract manufacturer of computer equipment. In the 1990s it then sought to market its products under its own brand. The move was questioned (Taiwanese companies could never compete at the marketing and distribution level required, it was said) and in fact the first stage effort was not a rousing access. But Acer renewed its efforts, and it would appear that it has now successfully made the transition from contract manufacturer to manufacturer of its own branded products.

Not just an Ace(r), but a royal flush

Based on the Acer experience, the current strategy of ZTE not to promote its own branded products abroad might make sense. As Kevin Costner never said in "Field of Dreams" (here): "Build market share, and the customers for your branded products will ultimately come." But if ZTE is to realize its "field of dreams", it will take time to do so. ZTE may have the benefit of access to abundant capital (the article states that it has a five-year, $15 billion credit line with the China Development Bank), and access to funding is no trifling matter, especially these days. But it will not be enough. Building a strong, lasting, durable brand is always a time-consuming and challenging effort. It took Acer many years to do so, and while it appears that Acer has ultimately succeeded, Acer's success was never assured. I expect that ZTE is in a similar position.

Will ZTE find its field of dreams in foreign markets?

What happens to all that Jammie money?

The US $1.92 million copyright infringement award in favour of the Recording Industry Association of America (see 1709 Blog here) against single mother-of-four Jammie Thomas-Rasset works out at $80,000 per infringed track. This post does not seek to replicate the comments of others but just to ask this: what happens to the $1.92m in the event that it gets paid? How transparent are RIAA's accounts? Does it simply sit in the RIAA's coffers? Or does it get allocated to a litigation enforcement fund? How much, if any, is received by the individual recording companies whose works are infringed, and how much, if any, by the creatives?

Can anyone advise?

End of the New Era? Ocean Tomo under the hammer

Law.com reported earlier this week that Ocean Tomo has sold its high-profile patent auction business to entrpreneurial British information brokerage ICAP for $10 million. The purchase, described (perhaps a little unkindly but probably honestly) as a "distressed-asset sale",comes not very long after Ocean Tomo appeared to be riding high, having sold more than $40 million worth of patents at three auctions during 2008, raking in between $12 million and $14 million in revenue. Loss of key personnel and the economic downturn have however combined, with devastating effect.

Ocean Tomo keeps its lesser-known lines of business, such as its expert-witness service.

What is the (Copy)right way to Maximise IP Rights upon Insolvency?

When a company associated with the arts goes into liquidation it is easy to think of their copyright works as some of the most valuable potential assets in their portfolio. But with the cost of registered IP rights out of the reach of many smaller start-up, technology-rich businesses, copyright is increasingly used as a cheaper alternative to traditional registered IP Rights. There are potentially hundreds of ‘works’ that might vest in a company that could be sold to the highest bidder. For instance, the liquidated company may have a wealth of tender documents, developed and built up over a number of years, the format of which could be sold to a former competitor. As a result, anyone dealing with a company facing liquidation should be mindful that there may be a number of copyright works that are valuable assets that can be easily overlooked in favour of its more easily identifiable IP rights like trade marks and patents.

Copyright as an asset

Copyright is property and, by virtue of s.283 and s.306 of the Insolvency Act 1986 (“IA 1986”), any work created by an insolvent prior to the making of an insolvency order vests in the liquidation estate or trustee of the bankruptcy estate, subject to certain exclusions relating to the creation of copyright works. For instance s.11 of the Copyright, Designs and Patents Act 1988 (“CDPA 1988”) provides that, subject to any agreement to the contrary, the author of the work is the first owner of any copyright subsisting in it (except where the work is created by an employee during the course of employment when, unless otherwise agreed, the ownership passes to the employer). And, by virtue of s.145 IA 1986 and Schedule 4A, copyright can pass to a company in liquidation or a bankrupt on the same basis, i.e., if the liquidated company still has employees. S.307 IA 1986 is also a useful provision as it states that the copyright relating to a work created by a person whilst in bankruptcy may be claimed by the trustee as after-acquired property. Again, this is subject to the exceptions relating to works created in the course of employment.

When the copyright of an insolvent vests in the liquidation estate, the copyright can be sold and the assignment signed by the liquidator as assignor. If the insolvent is a licensee and owes outstanding royalties to the author the liquidator may still, subject to the terms of the original assignment, sell the copyright licence with the outstanding royalties being a provable debt in the insolvency.

Royalties

Royalties may be paid by a publisher or other organisation under licence to the copyright owner in exchange for exploitation of that right, with the owner retaining the copyright.

In circumstances where a winding up order is made against the owner of a copyright, the official receiver should try to make contact with the publisher or other organisation paying the royalties to ensure they pay any future royalties directly to the liquidator.

It may be the case that the copyright itself does not vest in the liquidated company but the liquidated company is entitled to royalties. If so these payments should be treated as income and can be claimed under an income payments agreement or an income payments order. If a liquidated company is in receipt of royalties as a condition of the sale of a copyright, it should be noted that royalties are treated as income for corporation or income tax purposes and cannot be claimed as an asset.

Assignment and licensing of copyright

Copyright is an asset that can be freely transferred by assignment, disposition under a will, or by operation of law as personal property (s.90(1) CDPA 1988). S.90 CDPA requires assignments to be in writing, and failure to ensure that the assignment is effected in writing can undermine the validity of the transaction. S.92 CDPA provides that a copyright owner who does not wish to transfer the copyright outright, may instead choose to licence its use. But whilst there are no requirements for licences to be in writing, an exclusive licensee will have no right to sue infringers unless it is signed by the owner of the copyright in issue.

Sale of a copyright licence

A company in liquidation may hold a licence in respect of a work subject to copyright. Depending upon the terms of the licence (and upon the availability of any potential buyers) it may be possible to sell the licence as an asset in the insolvency. Often though, the licensee may have been chosen specifically for their personal skill or reputation and this may make the licence agreement one of a personal nature, which cannot be transferred or sold.

It has been decided that an author may have a personal contract with a company notwithstanding that the constitution of the company or its directors may change (Griffith v Tower Publishing Co Ltd (1897) 1 Ch 21). Where an author is to be paid either by a share of profits or royalties, it is likely to be assumed by the courts, in the absence of contrary evidence, that the payment of the author by share of profits or royalties indicates that the agreement was intended to be of a personal (and therefore non-assignable) nature. Alternatively, if the author was instead paid a fixed sum, the opposite may be assumed and it is much more probable that the publisher would have the right to assign the agreement. Licenses which are not of a personal nature may be assigned.

In circumstances where the official receiver wishes to sell a licence a copy of the original agreement to establish the nature of the licence and whether or not it is realisable should be obtained.

Disclaimer of copyright

Returns relating to copyright licensing or exploitation are often very low and, obviously, unpublished works will generate no royalties at all. Unless the work is a real hit the returns are likely to be minimal and In these circumstances it may be appropriate for the official receiver to consider disclaiming any interest in the copyright as onerous property (s.178 and 315 IA 1986). Particularly when it is considered that copyright can continue for 70 years after the death of the author and would have to be administered for a long period.

South Africa: SABC's reply, and implosion

The television content industry (represented by the TVIEC) are able to celebrate news that their march has played a part in the resignation of three members of the SABC board with more likely to follow, and the industry's demands have achieved a reply. However, the industry remains unpaid and the SABC reply appears unsatisfactory. The industry will also be depressed to learn that the SABC also owes SuperSport nearly R100 million (approx $12million) for broadcast rights to the local Premier Soccer League, which is more than the TVIEC's combined claim, and that the SABC's R2 billion government bail-out request is unlikely to materialise soon, according to reports.

For a review of how this story has unfolded, the posts South Africa: Content Industry Marches and South Africa: Content Industry v SABC will be useful.

The Mail & Guardian carries the front page headline: SABC Implodes and Screenafrica.com has published the SABC's reply.

Co-incidentally this all happens as South Africa prepares to remember its June 16 1976 Soweto Uprising with a national holiday, tomorrow.

The power of image rights

The power of image rights is no better illustrated than by this link to an article in The Guardian entitled "Endorsements block a 'major factor' in Ronaldo's move to Real Madrid".  Brand Finance specialist and brains behind Elle Mcpherson's original licensing model, Mary-Ellen Field, is heavily quoted:

"Ferguson's view that [commercial exploitation] takes a player's mind off the game is valid," Field said. "However, the contract between the player and licensee means they usually have to work 20 days a year at most.

"With any brand building, whether it's a person or product, the more positive exposure you get, the more valuable your brand becomes. It would have been beneficial for the club and player to get as much exposure as possible."

"In 2002, United signed a 13-year £300m contract with Nike that allows the company to control the club's global licensing and retail operations. believes that if Ronaldo had been able to develop, for example, his own perfume brand, like Beckham's lucrative Pure Instinct, it would have been mutually favourable. Despite being the world and European player of the year, Ronaldo's only major deal is a recent agreement with Castrol, in contrast to Beckham's blue-chip partnerships with Armani and Adidas. "There is no downside. The player is happy with his endorsements, and the club can sell the product and get the mark-up – website sales are huge," Field said

When it comes to player management it is not often that one criticises Sir Alex but is this an indication that Manu are struggling to keep pace? Or perhaps it is another shrewd move by a manager who realises that a team is not just a collection of stars but a closely knit unit where no individual is beyond the game or the team? Either way, it is a fascinating insight into the potential power of image rights. The irony is that stars like Ronaldo and Beckham owe so much to nurturing by the likes Ferguson in creating their image. One just has to consider the deft management of both players' images following the infamous Rooney (created by Ronaldo) and Beckham send offs during crucial tournaments; on both occasions potential image annihilators. 

....which leads me to my quote of the day: "The intellectual property and sheer weight of experience in this Springbok squad make them one of the best ever" The Sunday Times, ahead of the Springbok v Lions test match series in South Africa this month.

Will the Licensor Warrant Non-Infringement?

Last week, I wrote that from time to time I will consider issues that arise in the drafting of licensing agreements. One reader has responded with the following:

"One issue that often causes problems when negotiating a licence is where a licensee seeks a warranty/indemnity that exercising their rights under the licence will not infringe the IP rights of a third party. It can be difficult to communicate to the licensee that the licensor is simply agreeing not to sue under its IP rights, not making a positive statement that there are no other IP rights which might affect what the licensee will be doing, and that it remains the licensee's responsibility to carry out any clearance searches that may be necessary to establish whether any such rights exist."

I would make the following comments:

1. As a starting point, I agree that the narrow import of the licence is that the licensor agrees not to exercise its negative right against the licensee with respect to the IP right being licensed. That said, since a full-fledged commercial licence consists of multiple elements in addition to the basic "covenant not to sue", whether or not the licensee's request is apt may ultimately depend upon the particular circumstances.

2. I must confess that, while I find this issue raised by a licensee from time to time, at least in my practice it arises less frequently than other licensing matters. It would seem to depend a lot upon the relative bargaining power of the two parties. A desperate patentee with one potential licensee, if requested to give the warranty by the licensee, may be more inclined than the licensee selected by a world-famous trade mark owner to serve as the licensee for a major territory.

Is she the licensor or the licensee?

3. An interesting twist is to migrate the issue from an IP licence to the warranties and representations given in a corporate acquisition with a major IP component. While here, as well, bargaining power may affect the extent to which the purchaser will be able to extract such an undertaking from the seller, in my experience the issue will be addressed in the agreement in some way, either with or without knowledge qualifiers or subject to other seller qualifications.

4. Following on the licence/acquisition comparison, it is not infrequent that a portion of the purchase price is held- ack for a certain period of time in connection with breach of a warranty or rep. When it comes to IP, as the purchaser, I like to carve out an additional hold-back directed specifically to IP. The greater the value of this IP hold-back, and the further out in time the IP warranty and rep extends, the more willing the seller may be to take care of IP clearance, even if not stated so explicitly in the agreement.

5. Back to the licence situation, while in my experience it is a rare for the licensor to agree to put a sum into escrow to cover potential violation of third party IP rights by the licensee under the licence, it is not unheard of.

6. Moreover, a licensee that is committing itself to a new ramp-up of facilities and resources may be well placed to expect from the licensor some form of IP clearance and/or a rep prior to entering into the agreement.

How do these observations comport with the experience of the readers? Comments are welcome.

New CDMA2000 patent pool launched

This week Sisvel launched a new joint patent licensing program, offering a licence to essential CDMA2000 patents (patents for hybrid 2.5G/3G technology of mobile telecommunications standards that use CDMA, code division multiple access, a multiple access scheme for digital radio enabling the sending of data between mobile phones and cell sites) on “fair, reasonable, and non-discriminatory terms”. The patents included in the program are owned by big players such as France Telecom, Nippon Telegraph and Telephone Corporation, and Siemens.

Sisvel, the Italian consumer electronics group, started in 1982 and today is one of the leading companies in managing IP and maximizing the value of patent rights. Sisvel will act on behalf of the patent owners as licensing administrator for the program, which is designed to make essential CDMA2000 patents more easily accessible and ensure that users can “benefit from the flexibility and practicality of the license terms available”. The royalty rate for all included functions under any license is “only US$ 0.05 per patent family per unit, up to a cap of US$ 0.50 per unit for products that include the 1x-RTT air interface but have no EV-DO functionality, and a cap of US$ 1.00 per unit for products that include the EV-DO air interface”.

More information is available here and some CDMA2000 market statistics can be found on the CDMA Development Group website here.

Dominating the Domain Name Game in Liquidation

It goes without saying (but I’ll say it anyway) that in this day and age the internet is big business. It is highly likely that any potential customer may first come into contact with brand or product online and as a result domain names can command large sums. When the official receiver, or anyone else dealing with the insolvent company, is aware of the existence of a domain name in insolvency proceedings they should first verify the registration of the domain name.

While the ownership of a domain name can be easily established by reference to websites such as http://www.who.is/, the registration certificate issued by the internet service provider in respect of each domain name should be consulted in order to fully authenticate registration and attribute it to a named person. The official receiver ought to first attempt recovery of this certificate from the insolvent’s records and, if this certificate cannot be found, enquiries should be made from the relevant internet service provider. This is necessary because, in order to transfer the name to the purchaser, the registration certificate is usually required. If the certificate cannot be found, Nominet UK should be contacted for guidance on transferring .co.uk domain names without the registration certificate. The US .com equivalent is InterNIC.

There have been many high profile disputes regarding domain names and cybersquatting. The failure to investigate the right to use a name, or even the reckless or deliberate disregard of someone else’s right to use a name, is a frequent cause of domain name disputes. Such situations can include when the registrant wishes to harm the business or reputation of the other party. One interesting recent example of this type of action is the Mike Morgan and Goldman Sachs saga, which although not connected to insolvency, is connected to the financial markets, so I think I will indulge.

David v Goliath
Mike Morgan, a US investment advisor, real estate agent, attorney and blogger has got into deep water with Goldman Sachs. Why? Well Mike’s blog site is called goldmansachs666.com. No prizes for guessing what the problem is here. Mike Morgan is using the site to criticise the bank after the outcry in the US regarding AIG bonuses of $185 million, while (so Mike tells us) Goldman Sachs had ‘walked quietly out the back door with $180 billion’. In a bid to educate the public, Mike started his blog.

Goldman Sachs, not being best pleased with the situation, subsequently sent Mike a cease and desist letter threatening trade mark infringement and claiming that his domain name interfered with those registered rights. And this is where it gets interesting. Mike did not roll over and die, nor did he ignore the letter and see what happened next. Instead he took the bull by the horns and filed a complaint in the United States District Court asserting his right to free speech. You can see a news clip interview of Mike discussing the situation here.

The posts on the website are currently on hold pending the litigation, but the website itself is still very much active. According to Mike, dates for pre-trial issues have already been set and as there are no signs of backing down from either party, this one looks like it might go all the way.

Domain name disputes are not only resolved in court, interested parties can also use the registrar or the Internet Corporation for Assigned Names and Numbers (ICANN's) dispute procedure (various ICANN dispute resolution policies can be found here). ICANN’s website also holds a wealth of useful information and is well worth a visit. Potential purchasers of domain names should always try to make sure the seller discloses any disputes with third parties relating to the domain name and attempt to ensure that those disputes are resolved before any transfer is undertaken.

How much is it worth?
If the domain name is not infringing it is potentially a valuable asset. The key question is; how much is it worth? There are companies out there that can provide a valuation of a domain name over the internet and these can be used to test the value. Factors used by various service providers include the number of characters, the extension, and the volume of keyword searches. Each company has its own set of predictors. These factors are the variables that predict the demand for a domain name. As a result of these multiple and varied methodologies, valuation can be a relatively arbitrary test and, depending on the potential value, it may be worth getting more than one valuation.

If the domain name appears to be valuable the official receiver should try to sell it in order to maximise the liquidated company’s assets. There are lots of ways domain names can be sold. These include auction sites brokering domain names on the internet and specialist transfer agencies. The amount of commission charged varies between sites. However, if it appears that the domain name has no value (or so little value that the transaction costs are likely to outweigh any potential gain), then the receiver may prefer simply to cancel the registration or leave it to lapse at the end of the registration period, rather than try to sell it; whichever is most cost effective.

This is my third article in the series and it should be read in conjunction with last week’s article on trade marks and my first article on company names. This is because, as previously observed, it makes sense to ensure that domain names which are similar or identical to other IP assets, such as trade marks or company names, are packaged up and sold together. This is to prevent potential future claims, such as infringement or passing off claims.

Mea Culpa

It has been brought to my attention that several omissions and a glaring misuse of a homonym crept into my post of yesterday--"IP Rights and Chinese Producers: You Live and Die by the Jump Shot." The substance remains unchanged. I apologize to the readership.

IP Rights and Chinese Producers: You Live and Die by the Jump Shot

If readers will please forgive me, I want to begin these comments with another sports saying, this time from basketball. It is a basketball truism that "you live by the jump shot, you die by the jump shot." In other words, you can work harder to try and get that safe shot close to the basket, or you can prefer the easier route of shooting at the basket from further away. If it works--fine, but if your shot is off, your are courting disaster.

This saying came to mind when I read a view that appeared in the May 16th issue of The Economist of the book by Paul Midler, "Poorly Made in China: An Inside Account of the Tactics Behind China's Production Game." The title well-describes the contents of the book as reviewed. One paragraph of the review particularly caught my attention:

"In a further effort to create a margin, clients from with strong intellectual-property protection and innovative products are given favorable pricing on manufacturing, but only because the factory can then directly sell knock-offs to buyers in other countries where patents and trademarks are ignored. It is, Mr. Midler says, a kind of factory arbitrage."

With all due respect, I find this comment a bit puzzling. In particular, it seems to me that the observation confuses the issue of strong or weak IP protection with the industrial organization framework in which IP is deployed. I have little doubt that the current IP regime in China falls woefully short of the IP regime in other, particularly developed countries. But to say so, no matter how true the statement is, misses the point. After all, even in the countries with the most "advanced" IP protection systems, there is a long history of manufacturers being challenged for unauthorized over-production which is then sold by the manufacturer for its own account.

Once we recognize this point, then we can see that the problem described by the reviewer is not precisely an issue of strong or weak IP protection, but rather the extent to which the owner of the IP rights chooses to rely on third parties to translate the IP into a competitive product. As David Teece of U-Cal Berkeley famously instructed us over 20 years in his classic article, "Profiting from Technological Innovation" (Research Policy 15(6), pp. 285-305), innovation can be divided into two components--the appropriability regime, roughly identical with IP rights, and complementary assets, roughly the some total of manufacturing, design, distribution and other assets that enable an innovative development to be translated into a competitive product.

At the margin, an extraordinarily strong IP right could simply trump a consideration of complementary assets capabilities (in which case the strong IP/weak IP dichotomy might be relevant). In practice, however, IP rights usually need effective complementary assets to create a competitive product. While the owner of the IP right could in principle vertically internalize its complementary assets position, this is a rare situation. More typically, complementary asset capabilities require turning to third parties, sometimes to the ultimate advantage of the third party. This is the case even in a developed country with strong IP protection.

With this in mind, one can view the rush to the so-called "China price" as a risk, sometimes more calculated, sometimes less calculated, taken by the owner of the IP rights that he can minimize the ultimate threat posed by the foreign (here: Chinese) provider of the complementary assets. Seen in this light, reliance on "China's Production Game" is akin to the basketball saying which opened this blog posting. Like his basketball counterpart, as long as he continues to enjoy the price advantage of Chinese production, he and his corporate team can enjoy competitive success. But it is also possible that he will ultimately be done it by his reliance on his Chinese producer. After all: "you live by the jump shot, you die the jump shot", in basketball, and also in the production commercialization of IP rights.

FIND THE COMPLEMENTARY ASSETS

Continued OPEL IP Confusion

As reported previously on this blog, there was quite some confusion about whether Opel, the largest employer in the German state of Rhineland-Palatinate, owns some key patent rights – and this confusion remains.

This weekend several papers reported on the (Euro 100 million) investment plans of Magna International Inc. and the Russian Sberbank regarding General Motors’s Opel unit, with an additional Euro 400 million to be offered in the form of a no-interest loan backed by collateral.

Among all the open issues (financing, employment and pension issues, competition law aspects, etc.) it remains unclear whether Opel owns key patents or whether it has only the right to access them. This makes of course a huge difference. If General Motors continues to own the patents, Opel’s access rights could be withdrawn at any time. In addition, Opel would have to pay licence fees – and these reportedly almost reached 1 billion US$ in the past few years.

Such licence fees would constitute another crucial burden for Magna (or any other potential investor) – however the question of patent ownership proves that difficult that not even Alfred Hagebusch, the German government's trustee appointed to run Opel following GM's application for protection from its creditors, seems to have an answer to it; the memorandum of understanding signed by Magna and GM is silent on the issue of patent fees.

2005 Opel transferred all patent rights to GM subsidiary GTO - but GM reserves the rights to key technologies, such as for fuel cells or hybrid cars. Whatever the answer - GM and Opel will try their best to avoid letting their rights fall into the hands of the competition... For more background and news on this click here and here.

National Patent Registration Information: Do I Need That Old Scorecard from the Baseball Stadium?

A brief item in an April issue of Business Week reported on the annual compilation of patent registrations by major companies. The compilation was carried out and published by IFI Patent Intelligence, a Wolters Kluwer Health business. I finally located a copy of the IFI news release on the compilation here, entitled "IFI Patent Intelligence Analysis of 2008's Top U.S.-Patent Recipients Suggests America May be Losing Dominance: Companies Outside the U.S. Tip Scales to 51 Percent Share of New Patents" (with a dateline of January 14, 2009). With a title like that, I could not help and dig deeper into the findings.

First, a summary of the facts as set out in the report.

1. The total number of utility patents issued in 2008 by the USPTO was 157,774, slightly above the total for 2007.

2. IBM is still the corporate leader of US patents issued in 2008.

3. U.S. companies now number only 4 out of the 1op 10 slots (it was five out of 10 in 2007), and only 12 out of the top 35 slots. This should be compared with Japan, which has five of the top 10 and 14 out of the top 35. (It is not clear from the report what is the significance of the 35-company cut-off.)

4. The country scorecard for new patents in 2008 are as follows:

U.S.-- 26%
Japan-- 23%
Germany-- 6%
South Korea-- 5%
Taiwan-- 4%

A National Champion of the Non-Patent Kind

5. The full list of the 35 companies are reported as follows: IBM, Samsung, Canon, Microsoft, Intel, Matsushita, Toshiba, Fujitsu, Sony, HP, Hitachi, Micro, Seiko, GE, Fujifilm, Rico Infineon, LG Electronics, TI, Honda, Siemens, Hon Hai, Denso, Cisco, Broadcom, Honeywell, Nokia, Silverbrook Research, Sharp, NEC, Xerox, LG Philips, Renesas, Sun Micropsystems, Koninklijke Philips Electronics.

6. The leading sectors of patent activity are semiconductors, multiplex communications, drug compositions and biotechnology.

What are supposed to make of this information? Well, I guess at the simplest level, these data are the IP equivalent of what the hawkers used to cry out at the American baseball parks--"Scorecard here--you can't tell the players apart without a scorecard!" And so then I parted with my hard-earned 50 cents, only to realize that beyond the fact that I could link up the player's number with his name, the scorecard provided scant additional information, at least directly. That may be the case here as well.

First, as the report itself noted, issued patents in 2008 reflect patent filings made in 2005 and 2006, if not earlier. While it is true that the applicant always has the option of abandoning the application, issuance data has an historical aspect to it which makes extrapolation to the present and future problematic. This especially is when the application period for these issued patents has been followed by the worst recession in a half of century. Under such circumstances, the nexus between patent applications made then and innovation and technology here and now, and here and in the future, is clouded at best.

Second, what do we make of the emphasis on national patent issuance statistics? If we observe, even anecdotally, the five countries that lead the list--U.S., Japan and Germany, South Korea, and Taiwan--one hardly finds reinforcement for the notion that patent activity is a clear indicator (correlative, causal, or both) of successful economic activity. Maybe the largest multinationals are simply better, or at least better placed, at the patent filing business than smaller companies, or companies in other countries? Maybe the result of the patent activity of the multinationals continues to be Rembrandts in the Attic, maybe not. The IFI data do not seem to be of much assistance in providing an answer (more on the issue of the national identity of inventors and issued patents in a subsequent blog posting.)

Third, we note that there do not appear to be any representatives of any of the BRIC countries on the list of the "Top 35." We recognize that the BRIC countries themselves appear to diverge significantly between themselves regarding the role of patents in their national economies (without any intended slight, patents seem more central in China and India than in Brazil and Russia). That said, the emphasis on the patent activity of the major multinationals would seem to hide potentially significant patent activity in at least some of the BRIC countries.

I would like to think that I am not naive, and that I recognise full well that the relationship between patents (and IP more generally), innovation and economic activity is devilishly multi- factored. Still, I wonder how much utility there is in providing national and multinational scorecard information. When I was 10-years old, I bought into the notion that I could not distinguish the ball players of my beloved Cleveland Indians without a scorecard. I am not convinced that I find value in the present-day patent equivalent.

South Africa: Content industry marches

Following on from an earlier post "Content Industry v SABC", the protest march took place earlier today with ScreenAfrica providing this report: Huge turnout for anti-SABC march

"During the march protestors wielded dozens of banners with slogans that read: “Pay up – it’s the right thing to do”, “Stop actors being cheated”, “Rest in Peace South African programmes”, “SABC squanders while film workers suffer”, “The shows must go on”, “No show with no dough”, “Programmes not perks”, “Lights, camera , no action”, “Stop pulling our strings”, “Where is South Africa’s best content?” “Our industry can’t survive on air” and “Bored with the Board”.


A banner representing the Independent Producers Organisation (IPO) read: “IPO fighting for sustainability and fair trade, quality local content, ownership of IP, and respectful relationships”.

A representative from the South African Scriptwriters Union (SASWU) talked about the issue of residuals to actors and musicians. She also said that intellectual property (IP) should reside with the creator. “We want a standard contract to protect writers. I’m standing here as someone wanting to make a living in this industry.”

South Africa is of course a country where mass action has, historically, been very effective in producing results. SABC's response is therefore eagerly awaited.

How to make money out of music

What’s making money in the music business these days? There are (at least) two events in June that look into this issue:

Tomorrow, Music Week’s one-day conference “Making Online Music Pay” will take place, exploring how the music business can “truly monetise the digital space”. Attendees will learn about how to monetise unprofitable existing digital channels and about music businesses that have successfully discovered new ways of generating money online, maximising profitability.

On 17 June, Own-it will be organising an event to explore ways of how musicians and bands can turn their popularity into real cash. With traditional record sales on the decline, this event will look into alternative ways of how to generate income out of music, including through online sites such as MySpace and YouTube, or selling merchandise to fans.

Trade marks as assets of a liquidation

The UK's Trade Marks Act 1994 (“TMA 1994”) states that a registered trade mark and a pending application are both items of personal property (TMA 1994 s.2(1), s.22 and s.27(1)). As a result a registered trade mark, or even just an application for a registered trade mark, can be included as assets of a company in liquidation.

Where a registered trade mark has vested in the liquidation estate, the trade mark registration may be sold, with the assignment being signed by the liquidator as assignor (TMA 1994 s.24(3)). The UK IPO must be informed of the assignment for it to be valid (TMA 1994 s.25(3)). To record the transfer of ownership of a registered trade mark form TM16 should be used.

When considering whether a mark should be bought or sold in these circumstances, there are a number of potential issues to consider, such as splitting trade marks into ‘job lots’ and selling them separately from the goodwill of the business, charges and licences.

Splitting trade marks into ‘job lots’ separate from the goodwill of the business

While trade marks can be assigned as property separate from the goodwill of the business (TMA 1994 24(1)), whoever is planning the sale and/or purchase of that mark must take care to divide up a portfolio of marks owned by an insolvent company carefully. Unregistered trade marks can become worthless if they are sold in a way which splits the goodwill from the remaining assets of the business because such division may result in the trade mark become confusing for the consumer in consequence of an inability to identify the origins of products associated with that mark.

One recent example of such a situation involves the owners of the MG mark. When MG Rover went into administration in 2005 its key assets were purchased by Nanjing Automobile Group. Nanjing, which owns the majority of the UK registered “MG” marks, is now in dispute after Rover went bankrupt, when PricewaterhouseCoopers (who were dealing with the administration of the business estate) sold another MG Mark, MG X-Power, to a small UK company. The Birmingham Mail reported the story back in April 2008. The UK company launched invalidity proceedings against all the MG trade marks for the very reason that the assets of MG were split up in that manner.

In September, Nanjing Automobile issued High Court proceedings against Mr Riley, the owner of MG XPower, over his launch of the turbocharged MG X-Power model. Nanjing had made an application to stay the proceedings launched by Mr Riley’s company and instead of granting the stay the hearing officer opted to refer the UK IPO proceedings to the High Court by way of counter-claim.

Mr Riley had sought the award of costs of between £40,000 and £60,000, but the hearing officer has already indicated that he does not envisage an award of costs of anything approaching that figure, which appeared to him to be “staggeringly high”. This ruling prolongs Nanjing’s challenge to Mr Riley’s plans, less than a year after he launched the Worcestershire company in a £2 million venture.

Nanjing are not backing down. Their legal consultant Natalie Atkins said in a subsequent witness statement:

“NAC has made it clear to Mr Riley and MG Sports and Racing Ltd throughout that NAC is the owner of the global MG brand... NAC has also made it clear that NAC cannot allow MG Sports and Racing Europe Ltd to continue using the MG and/or the MG X Power names.”

Who knows how this will end? One risk is that the MG brand might be rendered valueless for deceptiveness. The lesson here is to ensure that one buys all similar/identical marks from a liquidated company to avoid such risks.

A seller or purchaser of marks should also pay heed to company names and domain names which incorporate marks they are buying or selling, as if these are similar/identical and are split between purchasers, thus being owned by different entities, such a situation may give rise to passing off and trade mark infringement claims.

Charges as securities or potential pitfalls

Insolvency practitioners should be aware that registered trade marks can be, and often are, used as security for a loans by way of a charge or other mortgage (TMA 1994 s.24(5)). Before any registered marks are sold or transferred to third parties, there should first be checks to see if there are any other interested parties who may have a charge against the mark. Enquiries should be made to establish whether there are any licensees or mortgages of the mark in order that they can be informed of the making of the insolvency order and asked to note the official receiver’s interest.

Licences

The mark may also have licences attached to it which would give rise to an obligation for royalties to be paid to the owner of a mark by a third party in return for the use and utilisation of that mark (TMA 1994 s.28). In order to maximise a bankrupt’s estate where a winding-up order or bankruptcy order is made against the mark’s owner, the official receiver should make contact with any third party who may be liable to pay royalties, inform them of the company’s position and ensure that they pay any future royalties due directly to the liquidator or trustee. A licence of a trade mark may also be sold and any assignment should be in writing and signed by the parties.

If it is the case that the company in liquidation is in receipt of payments under a condition of the sale of a registered trade mark, rather than because they have licensed the mark, the payments cannot be claimed as an asset as the trade mark will not actually vest in the estate of that company. In this instance the payments should be treated as income and can be claimed under an income payments agreement or an income payments order.

In absence of a express provision in a licence agreement which terminates the licence, a licensor will often be keen to ensure that its relationship with an insolvent company is brought to end as quickly as possible for a number of reasons including: the prospect of tarnishing or damage to the brand as a result of association with the insolvent company; the ability to attract a new licensees who will be able to exploit the mark more effectively; and the risk of the licence being sold to an unknown third party by the liquidator, particularly damaging if the licence is sold to a competitor brand.

However, it is usually the licensee who will face the greatest losses. If the licensor becomes insolvent the licensee could be at risk of losing the trade mark that is essential to the operation of their business, thus giving rise to a substantial commercial impact. This is because the liquidator can set aside an IP licence as onerous property, say because the licence obliges the licensor to protect the brand; or it may decide not to honour its commitments under that licence. In practical terms this may not be as damaging an impact when considering the licence of a trade mark compared to, let’s say, database rights or crucial commercial know-how, but it can still have a lasting and substantial impact. This is something that should be considered from the outset of any negotiations regarding contracts outlining the rights of parties who are licensed to, or are licensing, their marks or other IP rights.

If a sale and/or purchase of a mark is successful, or any person becomes entitled to a trade mark by virtue of the making of a court order (including winding-up and bankruptcy orders) that person must to inform the UK IPO of his interest in the mark (TMA 1994 sections 25(1) and 25(2)(e)). Where an insolvent owns a registered trade mark, it is prudent for the official receiver dealing with that estate to inform the UK IPO of the winding up order or bankruptcy order and ask it to note the official receiver's interest in that mark.

The key to a successful acquisition and sale of a registered trade mark starts with due diligence, including knowing where to look and keeping the UK IPO informed of all changes along the way.

Quantum of damages for cybersquatting: a note on Danish practice

Jubii A/S owned the trade mark JUBII and operated an associated website, 'jubii.dk'. This multifunctional site, which included a dating portal, was the eighth most popular Danish site in 2007. Webdoxa.com registered the domain name 'wwwjubii.dk' in 2002, but Jubii did not learn of this until 2007. Visitors to 'wwwjubii.dk' were automatically transferred to a competing dating site after 10 seconds.

In Case V-2/08, February 24 2009, the Copenhagen Maritime and Commercial Court found that  'wwwjubii.dk' was confusingly similar to Jubii’s trade mark and that the services rendered by the parties partially overlapped.  Webdoxa was ordered not only to transfer the domain name 'wwwjubii.dk' to Jubii but also to pay compensation of approximately €4,000 for trade mark infringement, plus legal costs of approximately €3,000.

While domain name disputes are usually brought before the Danish Complaints Board for Domain Names, that board does not have to power to award compensation. Damages in such cases are however available under the Trade Marks Act. Since the costs of a lawsuit often exceed the compensation awarded by the courts, trade mark owners are advised to think carefully about the amount of compensation that they are likely to receive before bringing a domain name dispute before the courts.

Source: note in World Trademark Review, 21 May 2009, by Lisbet Andersen, Bech-Bruun, Copenhagen