A restrictive covenant in a commercial contract is a clause that is designed to stop one party to the agreement doing something that they would otherwise have been at liberty to do.

There are many commercial reasons why your contracts should include carefully drafted restrictive covenants in order to protect your business.  For example, they can be used to prevent another contracting party soliciting and taking away your customers and staff.

There is little point in including a restrictive covenant in a commercial contract if it is not enforceable.  At common law a restrictive covenant is potentially void because it is a restraint of trade.  However, a restrictive covenant is enforceable in a court of law if the restrictive covenant does extend beyond what is reasonably necessary to protect a legitimate business interest.  That is why it is best to take legal advice on what restrictive covenants to include in your contracts and to ensure that they are carefully drafted.

The term ‘reasonable’, in the context of restrictive covenants, means providing no more protection than is relevant and necessary to safeguard the relevant legitimate business interest.  In this regard, the restriction must be reasonable in terms of:

• The duration.
• The scope.
• The geographical area.

If you are negotiating any form of commercial contract it is important to consider the use of restrictive covenants to protect your business interests.  Likewise, if you are being asked to agree to the imposition of a restrictive covenant against you in a commercial contract then you should take legal advice on whether the covenant is reasonable or too restrictive in nature.

For further information on this or any other matters relating to commercial law, please contact Christopher Buck, Associate Partner and Solicitor, on 01908 660966 / 01604 828282 or by email at Christopher.Buck@franklins-sols.co.uk.

Multi-Million pound company Oatly recently took a UK family run business – Glebe Farm Foods to court over a trademark dispute. Lawyers for Oatly claimed that Glebe Farm, which rebranded its Oat Drink product as PureOaty in 2020 (previously known as “Oat drink”), intended “to bring Oatly’s products to mind”, benefiting from Oatly’s brand. They also claimed that the name PureOaty was similar to Oatly, as was the product’s blue packaging and image of a teacup. Ruling in favour of the farm, Judge Nicholas Caddick QC, said while there were similarities between the initial PureOaty packaging and the Oatly packaging, including the use of the colour blue and the use of an irregular font for the product name, these were “at a very general level”.

Photo by Toa Heftiba Şinca from Pexels

Philip Rayner, Glebe Farm’s owner and managing director, said: “It is enormously gratifying that the judge has ruled in our favour, and to see that smaller independent companies can fight back and win. We can now forge ahead with PureOaty and our oat milk enterprise.” Oatly said it fully accepted the court’s decision and would not file an appeal. It said that while for some this might be seen as vindication for small oat drink companies over big oat drink companies, for the Swedish group, “this case has always been about protecting our trademark and how the single letter Y creates too much of a similarity between Oaty and Oatly”.

If you have any enquiries relating to trademarks and intellectual property, please contact Christopher Buck on 01908 660966 / 01604 828282 or email Christopher.buck@franklins-sols.co.uk

Directors can potentially incur personal liability when the company they are a director of proceeds into an insolvency process.  However, directors can take steps to protect themselves against potential personal liability.  The below seeks to offer some outline points of note to directors where the company they are a director of faces insolvency.

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Duties as a director

Ordinarily a director is under a duty to act in the best interests of the company and its shareholders.  However, once they form the view that the company is insolvent (meaning that its assets are exceeded by its liabilities), their duty shifts and is to act primarily in the interests of the company’s creditors.

If there is no reasonable prospect of avoiding an insolvent liquidation or insolvent administration, their obligation is to manage the affairs of the company with a view to minimising the potential losses to creditors from the company’s financial position.  Typically, in such circumstance, they are likely to be well advised to place the company into some form of insolvency process.

When and how can a director be personally liable?

If a company goes into a formal insolvency procedure such as liquidation or administration, the insolvency practitioner appointed to manage the company’s affairs will usually investigate the circumstances in which the company became insolvent.  This investigation will typically include:

• The conduct of the directors, and the decisions that they took with regard to the management of the company’s affairs.
• The transactions entered into by the company in the lead up to its insolvency.

The investigation will typically encompass the grounds highlighted below.  In addition, there are restrictions on the re-use of company names that, if breached, could result in personal criminal and civil liability.

Wrongful trading

Under the Insolvency Act 1986, a director who allows a company to continue trading when there is no reasonable prospect that it will avoid going into insolvent liquidation or insolvent administration (which is known as wrongful trading) may be required to contribute to the company’s assets.

Fraudulent trading

Under the Insolvency Act if, in the course of administration or winding up the company, it appears that any business of the company has been carried on with intent to defraud creditors, or for any other fraudulent purpose, the administrator or liquidator can seek a court declaration that anyone who was knowingly party to the fraudulent business make a contribution to the company’s assets.  This is known as fraudulent trading.

Misfeasance or breach of fiduciary duty

Under the Insolvency Act if, in the course of winding up the company, it appears that a director has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any other fiduciary or other duty, the court may order the director to repay the money or property with interest or contribute such sum to the company’s assets by way of compensation as the court thinks just.

Transactions at an undervalue

Under the Insolvency Act, a liquidator or an administrator can apply to the court to set aside any transaction at an undervalue.  A transaction will be a transaction at an undervalue if the company has transferred assets for significantly less than their market value when it was insolvent or if it became insolvent as a result of the transaction.  The court can set aside the transaction if it was entered into during the two years before the company became insolvent.  It has the power to order a director to refund property or proceeds of sale received by them to the company.  There are exceptions and defences available under the Insolvency Act.

Preferences

Under the Insolvency Act, a liquidator or an administrator can apply to the court to set aside a preference.  A preference is where payments are made or assets transferred to a creditor of the company in preference to another.  Examples of preferences include paying an unsecured creditor in priority to other creditors or granting security to a previously unsecured creditor.  This is because, if the company is insolvent, directors are under a duty to the company’s creditors as a whole and they must treat all the company’s unsecured creditors equally.  If the court believes the company has made a preference, it can set aside the transaction and order a director who has received the company’s assets to refund them to the company.  The court can set aside the preference if it was given in a period up to two years before the company became insolvent.

Practical steps

Where a company is potentially facing insolvency, directors are best advised to keep matters under continual review.  In particular, it is prudent to:

• Hold frequent board meetings convened specifically for the purpose of reviewing the company’s financial position and keep proper minutes of those meetings, noting in particular any decisions made and the reasons for them.
• Maintain accurate and up-to-date company financial records.
• Continually monitor the company’s financial position and future cash flows and consider ways to reduce expenditure.
• Take professional advice aimed at reviewing whether insolvent liquidation is inevitable or whether there is some way of resolving or mitigating the company’s financial difficulties.

How we can assist

If you are a director of a company which is potentially facing insolvency, we can provide focussed advice to you with the aim of mitigating your potential personal exposure.  Likewise, if you are an insolvency practitioner seeking to pursue a director, we regularly assist with such claims too. 

For further information contact Christopher Buck, Associate Partner and Solicitor, on 01908 660966 / 01604 828282 or by email at Christopher.Buck@franklins-sols.co.uk.

Dua Lipa is being sued by Intergral Images for posting a photo of herself, taken by Integral Images, in February 2019 on her Instagram page. Intergral Images has stated that the basis for the claim is that Dua Lipa has profited from the photo as her Instagram page is also a marketing platform for her music and the photo was shared without their consent. Integral Images applied to register copyright for the image, and the request was granted in February 2021 by the US Copyright Office.

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Copyright is a legal right, giving the owner exclusive control over their work and how it is used. Copyright infringement in the UK is largely governed by the Copyright, Designs and Patents Act 1988. In relation to copying work, the key test is whether a substantial part of the work concerned has been copied as stated in section 16(3) of the Act and in determining substantiality the test is qualitative not quantitative. The courts will look at the quality of the parts taken, not necessarily the amount.

It is important to protect your work and prevent others from using your work without your permission. If you require legal assistance in relation to copyright or copyright infringement contact Christopher Buck, Associate Partner in our Business Services Department who will be happy to assist.

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The Commercial Agents Regulations 1993 (‘CAR93’) regulate the relationship between a commercial agent in the UK, and their principal. The CAR93 derives from an EU directive, namely, the EU Commercial Agents Directive. CAR93 defines a commercial agent at Article 2(1) as: “…a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal…”.

For commercial agents in the UK whose agreements are governed by English law, there will not be any significant change in the short term. However, if the UK Parliament decides to modify or repeal the CAR93 in the future, then this could affect how agents whose agreements are governed by English law will be treated.

For further information see Commercial Agency Agreements or contact Christopher Buck, Associate Partner and Solicitor, on 01908 660966 / 01604 828282 or by email at Christopher.Buck@franklins-sols.co.uk.

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Passing off and trade mark(s) are both important to businesses. Passing off is a common law tort, which helps businesses protect goodwill that they have generated in their business and which is accrued to them, which is generally done by the provision of goods or services to consumers.  Goodwill is said to be the attractive force which brings in customers and helps return them and passing off protects against misrepresentation, whether intentional or not, by third parties which could damage that goodwill.

In contrast, a registered trade mark is a property right that is granted by statute upon application in respect of certain indicia for certain goods or services and its purpose is to distinguish the goods or services of one undertaking from another undertaking.  The right that is granted is not a positive right to use that trade mark on the market.  Instead, it is what is termed a negative right – being a right to prevent others trespassing within the scope of that registration.

Why are they important for businesses?

The reason that trade mark rights and the ability to sue for passing off are important for businesses is it relates back to what drives revenue to a business.  Every business will supply goods and/or services to customers to make money and generally they will be supplied to customers under a distinctive name, typically a brand, so the customers can recognise them when they see them on the market and repeat that experience.  Therefore, being able to protect the revenue stream by preventing competitors trespassing within your market space not only helps to maintain market share but can help the business grow.

Another reason why they are important is that, if your business is looking to raise investment or even sell the business, they can be very valuable, saleable assets.  As such, if you are doing due diligence on a business, one of the things that gets asked quite a lot by investors or buyers is the position with the intellectual property – for example: do you have registrations and are things protected?  Generally, the more complete that portfolio, the better the investment or price will be.

How are they different from each other?

The key differences between passing off and trade mark infringement relate to the constituent elements to what a claimant has to prove and what the court will look at. 

In passing off, a claimant will have to demonstrate that it has protectable goodwill and that might also include the geographical scope of that goodwill and the type of scope that that goodwill relates to in terms of the type of product or service that is being provided.  It will then need to demonstrate that the defendant has made a misrepresentation, again whether intentionally or not intentionally, and that it has then suffered damage as a result of that.

With registered trade mark infringement, you start off with the claimant’s trade mark.  You then take the claimant’s trade mark and the defendant’s sign and compare them.  You then compare the claimant’s goods and services covered by the specification with what the defendant’s good and services are.  From there you move on to see whether it fits into one of the types of infringement listed below: 

Why is having a registered trade mark preferable?

The advantages of having a registered trade mark as opposed to only relying on passing off are that a registered trade mark automatically covers the full territorial scope, so for example if you have a United Kingdom trade mark it will cover all of the United Kingdom, whereas at the moment you may only be trading in a limited area of the territory.  Whereas in respect of passing off, if you are only trading in a limited area, it is possible that your rights, the goodwill you have accrued, might be limited to that area.

The next reason is that the evidence in passing off matters can be quite onerous in that you have to have cogent evidence of goodwill and a misrepresentation.  Generally, the courts will be looking for clear evidence that people have actually been deceived by the misrepresentation.  Whereas with trade marks, the court is really looking as to whether in its mind there could be a likelihood of confusion.

The other advantage of a registered trade mark is that for trade marks which have gained a reputation, so they have been used for a certain period of time and people recognise them, they can rely on not only people who are selling similar or identical goods and services but also potentially dissimilar ones, in a way that their use by the third party takes unfair advantage of its reputation or is detrimental to it.

The interrelation between the two

The way that passing off and registered trade marks interrelate is that quite often claimants will plead both causes of action, so a claimant may have a protectable goodwill through its trade but it may also have a trade mark registration.  So it is quite common to see both being pleaded.

Where they further interrelate is that generally with registered trade marks it is a first-to-file system.  So if you are the first on the file, registered, you own the trade mark.  However, that trade mark can be attacked as to its validity through passing off.  The way that works is that someone else can file for a declaration of invalidity of the registered trade mark on the basis that at the filing date of the mark they had a protectable goodwill and notional and fair use of that trade mark would amount to passing off.  So passing off can often be used to attack a registered trade mark.

Contact Us

If you require legal assistance regarding any intellectual property matters, please do not hesitate to contact Christopher Buck, Associate Partner in our Business Services Team, on 01908 660966 / 01604 828282 or by email at christopher.buck@franklins-sols.co.uk who will be happy to assist.

The High Court held that Meghan Markle is the sole copyright owner of the letter which she sent to her father after her wedding to Prince Harry.

Background

In February of this year, Meghan Markle had won most of her claim for misuse of private information and copyright infringement. But the Mail on Sunday suggested that she may not have been the sole copyright owner and argued that the letter had been co-written by the Duchess of Sussex’s former communications secretary Jason Knauf. However, the High Court has confirmed that this has been denied by him.

What is Copyright?

Copyright is the legal right that protects the use of your work. The current copyright legislation in the UK is the Copyright, Designs and Patents Act 1988 which governs the rights of owners and the responsibilities of other people who want to distribute, adapt or use the work.

If you require legal assistance regarding copyright infringement contact Christopher Buck, Associate Partner in our Business Services Department on 01908 660966 / 01604 828282 or email Christopher.Buck@franklins-sols.co.uk.

Marks and Spencer (“M&S”) have commenced legal action against Aldi, arguing that Aldi’s Cuthbert the Caterpillar cake infringes the trade mark of its Colin the Caterpillar cake.

Background

M&S first launched Colin the Caterpillar in 1990 and the cakes have become hugely popular in the UK. M&S have stated that the similarities between the two cakes mean that consumers may think that the Cuthbert the Caterpillar cake is of the same standard as the Colin cake and associated with M&S’s reputation for high-quality food.

Trade mark infringement claim 

M&S has three trade marks against the Colin cake, which it believes means that Colin has acquired and retains a distinctive reputation. When a trade mark is used the owner acquires ‘goodwill’ in relation to that mark. Goodwill is the quality or reputation which causes a customer to use one particular good or service rather than any other. The owner of a trade mark can take legal action against another trader who uses that mark in a way which confuses the customer or the public into believing that his goods or services are those of the owner of the mark. This action is defined as ‘passing-off’.

What is a trade mark?

Trade marks provide important protection for your brand and your business and are a sign, capable of distinguishing the goods or services of one undertaking from those of another. It is essentially a “badge of origin”.

A sign must not have already been registered in respect of the goods or services to which it relates, and it must not be descriptive of the goods or services to which it relates.

Securing a trade mark in the UK

To secure trade mark protection in the United Kingdom, an application process is required to be undertaken through the United Kingdom Intellectual Property Office. The process is commenced by filing an Application Form. The application is then examined and, if it is accepted, it will then be published. Third parties are then afforded an opportunity to oppose the registration. If the registration process is successful, a United Kingdom Registered Trade Mark will be obtained and this can be indicated by placing the ® symbol next to a mark. The process takes on average five months.

Protection lasts indefinitely in renewable 10 year periods. However, such a registration would only allow acts of infringement undertaken within the United Kingdom to be pursued. Saying this however, a registration in the United Kingdom allows the symbol to be placed next to the mark wherever it is used in the world and, since most laypersons assume this means the same is protected worldwide, a registration in the United Kingdom can prove to be a strong worldwide deterrent to infringers. 

If you require legal assistance regarding trade marks, then please do not hesitate to contact Christopher Buck, Associate Partner in our Business Services team on 01908 660966 / 01604 828282 or email christopher.buck@franklins-sols.co.uk who will be happy to assist.

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Retention of title clauses are found in most contracts for the sale of goods.  The concept of retention of title is a simple one whereby the supplier of goods seeks to protect itself against non-payment by retaining ownership of goods until payment is received from the customer.

What is retention of title?

The concept arises from the Sale of Goods Act 1979.  The Act provides that property in goods will only pass when the parties to the transaction intend it to pass, thus allowing a supplier to retain title to goods after delivery of those goods to the customer.  A supplier wishing to retain title to goods until payment is made must ensure that this intention is expressly stated in their terms and conditions with the customer; otherwise it is implied by the Act that title will pass on delivery.

Retention of title clauses can be a powerful weapon for suppliers.  This is particularly so where a customer enters into an insolvency process since generally they can be enforced against insolvency office-holders (such as liquidators) and hence can, in roundabout terms, improve a supplier’s position compared to other creditors of their customer (including secured ones).  This is because the goods will not form part of the customer’s insolvency estate.  In corporate insolvencies there is rarely enough money to pay all creditors and hence the opportunity to obtain goods back can be an effective remedy for a supplier.

Where should a retention of title clause be incorporated?

Although a relatively simple concept, in practice, many suppliers get retention of title wrong.  A common reason for this is a failure to properly incorporate the terms and conditions which contain retention of title clauses into a contractual relationship with a customer.  I have lost count of the number of suppliers I have seen who have simply referred to their terms and conditions in their invoices to customers and expect this to be sufficient.

Incorporation is a matter of contract law.  The most effective way of a supplier evidencing incorporation is by producing terms and conditions signed by the customer confirming its assent to the terms.  Other modes of incorporation include taking steps to give reasonable notice of the terms prior to the goods being supplied.  Retention of title clauses commonly fail where a supplier seeks to rely on terms and conditions referred to or printed on an invoice or delivery note, where no written contract was in place before the goods were supplied.  Invoices and delivery notes are generally viewed as post-contract documents, meaning before the supplier has offered to supply goods and the customer has accepted that offer. 

What to do next

Businesses supplying goods on credit would be well advised to take a close look at their standard terms and conditions to check that they include a valid retention of title clause.  They should then ensure that their contracting techniques validly incorporate these into contracts with customers.  This may well require sales staff to be advised on how to effectively achieve this.

If you require legal assistance regarding terms and conditions or insolvency, please do not hesitate to contact Christopher Buck, Associate Partner in our Business Services team, on 01908 660966 / 01604 828282 or by email at christopher.buck@franklins-sols.co.uk who will be happy to assist.

How might your commercial contracts be affected by the end of the Brexit transition period, and what can you do to protect your position?

On 30 December 2020, the UK government and the European Commission signed the EU–UK Trade and Cooperation Agreement (TCA) which now governs the trade relationship between the UK and the EU following the end of the transition period on 1 January 2021. The following checklist sets out some of the key provisions of a commercial contract that will need to be considered.

Click here for a downloadable PDF version.

For legal advice and assistance, contact Christopher Buck, Associate Partner & Corporate Solicitor, at Franklins on 01908 660966 or email christopher.buck@franklins-sols.co.uk.