In the case of Lunar Holdings Limited v Lunar Automotive Limited (2020) EWHC 3415, the Intellectual Property Enterprise Court decided on a summary judgement against an alleged infringement of trademark and a breach of licence. In considering the facts of the case, the court had to consider the validity of IP assets transferred at an undervalue.
FACTUAL BACKGROUND
Lunar Caravans Limited (“LCL”) owns the trademark LUNAR, which is an established brand within the UK caravanning sector. LCL is a wholly owned subsidiary of Lunar Holding Limited (“LHL”), whose focus is on property rental. Nine months prior to its administration in July 2019, LCL assigned all of its registered trademarks, including LUNAR, to LHL for a mere £380. The two companies have three directors on their respective boards. Both BM and LR are directors of LCL and LHL, alongside DM in the former company and SM in the latter, both are family members of BM.
A few weeks after an administrator was appointed in relation to LCL, the business was sold to an engineering specialist company based in South Africa. This company obtained a licence from LHL to continue trading in the UK under the LUNAR brand as LAL, as well as using the domain name lunarcaravans.com. The license was granted on the basis that LAL:
- pays LHL a monthly royalty of £1,667 for use of the LUNAR brand trademarks;
- indicates on any of their products that the trademarks were licensed from LHL; and
- must not act in a way that may weaken, damage or be detrimental to the trademarks and their reputation.
However, a couple of months into the granting of the license, LAL stopped making the monthly royalty payments to LHL and the licence was subsequently terminated in February 2020, despite LAL’s continued use of the LUNAR brand and its name.
THE CASE AT THE IP COURT
Following the termination of the licence, LHL issued legal proceedings against LAL for infringing its trademark and breaching its obligation under the licensing agreement. In response to the allegations, LAL counterclaimed that the assignment of trademarks from LCL to LHL was ineffective and that LHL has no basis for bringing the claim for trademark infringement.
LAL contended the assignment was void according to the Companies Act 2006 (the “Act”) on the basis that:
- the directors failed to promote the success of LCL in accordance with section 172(1) of the Act;
- the directors abused their powers in breach of section 171(b) of the Act; and
- the assignment constituted an unlawful distribution under section 830 of the Act.
Having considered the context in which the assignment of trademarks had taken place, the judges agreed with LAL on the first two points, and considered them jointly, since they would result in the same legal consequence.
In consideration of the point that the assignment constituted an unlawful distribution, the judges clarified that in a solvent company, the proprietary interests of the shareholders must be regarded and the shareholders have the right to authorise or otherwise, ratify the actions of directors. As such, challenges cannot be made as to the validity of the directors’ actions. However, where the solvency of the company is in doubt, the interests of the creditors must be considered and take precedence over the shareholders’ and directors’ powers to deal with the company’s assets.
CONCLUSION
On the facts of the case, the solvency of LCL was doubtful at the time of the assignment. As such, the court was of the opinion that LCL’s shareholders could not have ratified the directors’ decisions to assign the trademarks. However, the case was further complicated by the conflicting evidence submitted by both parties to the court, with regard to LCL’s solvency at the time of the assignment. Accordingly, the judge took the view that the assignment was voidable, rather than void. Yet, since there were still unresolved doubts with regards to the point raised under section 830 of the Act, the court dismissed LCL’s application for summary judgment. LAL was also advised to review its pleading as the judge considered that there was a real prospect for LAL in successfully demonstrating LHL’s breach under section 830 of the Act at a trial, with some revision to its pleading.
PRACTICAL TIPS
This case acts as a reminder of the importance of ensuring that any transfer of intellectual property rights is valid and appropriately considered. In the events that a company wishes to transfer intellectual property rights as the way of group reorganisation, proper consideration must be given to the context and procedure in which such assignment takes place. A transfer at an undervalue will undoubtedly cast doubt on the validity of the assignment and may run the risk of it becoming void.
For more information, and any guidance or advice on intellectual property rights, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.
