What's in a name?

Many business founders choose to name their businesses after themselves and these names often remain long after the founder has exited the business. In the fashion industry, the use of own-name brands is particularly common – Alexander McQueen, Abercrombie & Fitch, and Gucci are just a few examples.

But what are the legal implications of choosing this branding strategy? The recent decision of the High Court in Karen Millen v Karen Millen Fashions Limited [2016] EWHC 2104 (Ch) provides valuable guidance in relation to businesses that are identified by the personal name of their founder.

Karen Millen started her clothing business in 1983 and remained in charge of all creative matters until around 2002, at which point she decided to step back for personal reasons. The business was sold in 2004 to the defendant’s predecessor in title under a detailed sale and purchase agreement. At the time of sale, the Karen Millen brand was associated primarily with women’s clothing. However, following the sale, the business expanded substantially, both geographically and in product range.

In order to protect the value of the Karen Millen brand, the 2004 sale agreement included a number of restrictive covenants regarding Ms Millen’s future conduct, including a provision that she would not use the names ‘Karen Millen’, ‘K Millen’, ‘KM’, or any other confusingly similar name anywhere in the world.

In 2011, Ms Millen stated that she intended to return to the fashion business under the names ‘Karen’, to sell clothing and accessories, and ‘Karen Millen’’, to sell homewares and accessories. Litigation ensued in the UK and EU, which was settled in 2015.

However, the position in the US and China remained outstanding and formed the subject of further proceedings before the High Court, with Ms Millen seeking a series of negative declarations establishing whether her proposed activities would or would not breach the terms of the sale agreement and/or infringe the rights of the defendant.

In considering whether to grant the declarations requested, the court found that the sale agreement included an appreciation that the value of the name of the Karen Millen business would be eroded if Ms Millen were to use it in a competing business following the sale.

The court further acknowledged that if Ms Millen had sought merely to use the name Karen, in relation to all goods of interest, her claim might have succeeded: due to the low distinctive character of the first name Karen alone, and the number of other Karen brands in use in the fashion industry, the court took the view that a risk of confusion would probably not arise.

However, Ms Millen had not restricted her claim to this; rather, she had requested the right to use her first name on clothes which would be sold in close proximity to the defendant’s stores, along with the right to simultaneously use the name Karen Millen in relation to other goods. The court considered that such use was likely to result in confusion on the part of the public with the defendant’s business, and consequently would be in breach of the sale and purchase agreement.

The decision warrants careful consideration at a number of different points during a business life cycle. On commencement of a business, the founder should think carefully about whether to use their personal name to identify that business.

If the founder’s intended exit strategy involves the sale of the business, the sale will almost always include the right to continue to identify the business using that personal name, such that if the founder seeks to re-enter the same commercial sector under the same name following the sale, such activities may amount to actionable passing off or trade mark infringement. Adoption of a pseudonym or alternative distinctive brand name for the business might be more appropriate.

Equally, upon the sale of the business, the founder should consider the effect of any restrictive covenants included within the sale agreement upon future activities. If it is possible that the founder would wish to start a new business that could potentially compete with the previous business, restrictions on future use of the personal name in question may impede such new ventures.

A licensing arrangement may overcome such difficulties, with the right to use the founder’s name being merely licensed to the new purchaser; however, such an arrangement is likely to be unattractive to a potential purchaser of all other assets of the business.

From the perspective of the purchaser of an existing business, clear and unambiguous provisions regarding future use of the founder’s name should be included within the sale agreement to ensure that if the founder does seek to develop a competing business in the future, costly litigation seeking to clarify the scope of such restrictions may be avoided.

Mike Shaw is a partner at Marks & Clerk and a member of the Institute of Trade Mark Attorneys

@ITMAuk www.itma.org.uk