Factual and Procedural Background
The Plaintiff and her partner founded a fashion business trading under the mark KAREN MILLEN in 1983. In 2004, by a share purchase agreement ("SPA"), they sold their shares in the companies holding the business to an Icelandic consortium. The Defendants derive their rights from the SPA, but there is dispute over the extent of those rights. The SPA included restrictive covenants on the Plaintiff's future conduct, a further assurance clause, and a jurisdiction clause.
In late 2011, the Plaintiff announced intentions to return to the fashion business under the name KAREN, leading to litigation ("the 2011 Action") settled in 2015, which broadly prevents the Plaintiff from using the marks KAREN or KAREN MILLEN in the UK and EU. The present action, begun in October 2014, concerns the position worldwide, especially in the USA and China, where the parties have been engaged in trademark registry disputes including applications, cancellations, and oppositions.
In June 2014, the Defendants commenced civil proceedings in the Eastern District of Virginia ("EDV Complaint"), alleging breach of the SPA by the Plaintiff. The Plaintiff contends this breaches the SPA's jurisdiction clause.
The Plaintiff seeks various negative declarations limiting the Defendants' ability to enforce restrictive covenants and trade mark rights, and damages and injunctive relief related to the EDV proceedings. The Defendants counterclaim for declarations and injunctions preventing the Plaintiff from competing under the KAREN or KAREN MILLEN names globally, and seek damages. They also seek relief requiring the Plaintiff to consent to certain trade mark applications under the SPA's further assurance clause, and an injunction preventing acts damaging their concessions or similar arrangements.
Oral evidence was heard from the Plaintiff, various lawyers, and former executives and senior personnel of the KAREN MILLEN business. The court found the witnesses generally credible, noting some limitations in knowledge based on timing of involvement. Expert evidence on US law was also submitted and admitted without cross-examination.
The KAREN MILLEN business developed from a small operation in Kent to an international fashion brand with stores, concessions, and franchises in multiple countries, including the USA, but had no presence in China or Hong Kong at the time of the SPA. The business expanded product ranges to include accessories and related goods prior to the SPA, but did not sell homewares. The Plaintiff reduced her involvement from 2002 onwards.
After the SPA, the business expanded substantially in the USA and China, increasing the number of stores and product range, including online sales. The business experienced some financial difficulties and rebranding efforts but maintained its general market positioning. Corporate ownership changed hands following financial turmoil in 2008, with the business sold to the Aurora group.
The court described the retail trade practices relevant to the case, including direct stores, franchising, and concessions, noting consumers' general awareness that brands may sell different products through various channels.
Legal Issues Presented
- Whether the restrictive covenants in the SPA, particularly clauses 5.1.4, 5.1.6, and 5.1.7, apply to the Plaintiff's proposed and actual conduct, including trade mark applications and business use in the USA and China.
- Whether the Plaintiff is obliged under clause 10 (further assurance) of the SPA to consent to the Defendants' trade mark registrations.
- Whether the Defendants' commencement of proceedings in the USA breached the SPA's jurisdiction clause (clause 21).
- The correct interpretation of the SPA's restrictive covenants, including whether they are "frozen in time" at the date of the SPA or extend to later developments.
- The scope and appropriateness of granting negative declarations prior to the Plaintiff commencing trading under disputed marks.
- The entitlement of each Defendant to enforce the SPA and its restrictive covenants.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Fenty v. Arcadia Group Ltd. [2015] EWCA Civ 3 |
Admissibility and classification of expert evidence |
Referenced regarding whether certain witness evidence constituted expert evidence requiring permission; court excluded ultimate question evidence but admitted trade evidence. |
| Rainy Sky S.A. v. Kookmin Bank [2011] UKSC 50 |
Principles of contractual interpretation emphasizing the importance of the language used by parties |
Applied to interpret SPA provisions, emphasizing natural meaning and restricting re-writing contracts based on commercial common sense. |
| Arnold v. Britton [2015] UKSC 36 |
Contractual interpretation; importance of language and factual matrix |
Applied alongside Rainy Sky to guide interpretation of SPA clauses. |
| In re E.I. DuPont de Nemours & Co., 476 F.2d 1357 (C.C.P.A. 1973) |
US trade mark confusing similarity test in registration context |
Discussed in expert evidence on US law; court preferred the infringement test instead. |
| AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979) |
US trade mark confusing similarity test in infringement context |
Preferred by the court as the relevant test if US law applied for assessing confusing similarity under SPA clause 5.1.7. |
| Skyscape Cloud Services Ltd. v. Sky Plc and others [2016] EWHC 1340 (IPEC) |
Principles governing grant of negative declarations |
Applied to assess whether negative declarations sought by Plaintiff were appropriate and sufficiently clear. |
| Messier-Dowty Ltd. v. SABENA SA [2001] WLR 2040 |
Principles on negative declarations and discretion to grant them |
Summarized in Skyscape and applied to guide court's approach to negative declarations. |
| Nokia Corp. v. InterDigital Corp [2006] EWCA Civ 1618 |
Negative declarations in intellectual property context |
Approved principles on negative declarations applied in this case. |
| Starbucks (HK) Ltd. v. British Sky Broadcasting Group [2015] UKSC 31 |
Goodwill and reputation for passing off claims |
Applied to assess whether goodwill existed in China in 2004; court found insufficient goodwill. |
| Anheuser-Busch Inc. v. Budejovicky Budvar NP [1984] FSR 413 |
Goodwill requirement in passing off claims |
Referenced in assessing goodwill in foreign jurisdictions. |
| Hotel Cipriani Srl. v. Cipriani (Grosvenor Street) Ltd. [2010] EWCA Civ 110 |
Goodwill and reputation in service contexts |
Considered in contrast to goods cases; court noted actual customers required for goods goodwill. |
| WPP Holdings Italy Srl v. Benatti [2007] EWCA Civ 263 |
Contracts (Rights of Third Parties) Act 1999 and jurisdiction clauses |
Referenced in relation to whether third parties can be bound by jurisdiction clauses in contracts. |
| Hurley Palmer Flatt Ltd. v. Barclays Bank Plc [2014] EWHC 3042 (TCC) |
Interpretation of Contracts (Rights of Third Parties) Act 1999, s.8 |
Applied to explain the operation of arbitration agreements and third party rights. |
| ADM v. PT Budi Semesta Satria [2016] EWHC 1427 (Comm) |
Anti-suit injunctions and delay |
Referenced regarding the timing and appropriateness of anti-suit injunctions in this case. |
Court's Reasoning and Analysis
The court began by interpreting the SPA's restrictive covenants, focusing on clauses 5.1.4 (use of KMHL intellectual property rights), 5.1.6 (acts affecting concessions), and 5.1.7 (use of the name "Karen Millen" or confusingly similar names in competing businesses worldwide). It rejected the Plaintiff's argument that these provisions were "frozen in time" as at the SPA date, instead holding that the goodwill and some rights could develop over time and that the clauses should be assessed as of the time of the Plaintiff's proposed acts.
The court interpreted "use" in clause 5.1.4 broadly in its ordinary meaning, including preparatory acts in the course of business, but rejected the Defendants' argument that all trade mark applications or oppositions by the Plaintiff constituted use of their intellectual property rights. The court found that the Plaintiff's applications and oppositions did not breach clause 5.1.4.
Clause 5.1.6 was construed narrowly to concern acts directly referable to concessions; the court rejected the Defendants' broad interpretation that any adverse effect on the business that impacted concessions would breach this clause. However, it found that the Defendants' Chinese concession arrangements via GRI amounted to a concession or similar arrangement.
Clause 5.1.7 was held to be a standalone contractual test, not requiring reference to foreign trade mark laws, and requiring a contextual assessment of whether the Plaintiff's proposed business was similar to or competed with the KMHL Group's business and whether the name used was confusingly similar. The court rejected the Plaintiff's argument that the confusing similarity test should be name-only and without context.
Regarding the further assurance clause (clause 10), the court held it was broadly drafted and reasonable to require the Plaintiff to consent to the Defendants' trade mark registrations in the USA and China to give full effect to the SPA. The Plaintiff's refusal to consent was unreasonable and escalated the dispute.
The court examined the goodwill and business presence in China and the USA as at 2004 and at the date of proceedings. It found no material goodwill in China in 2004 but significant goodwill in the USA. By the date of proceedings, goodwill had increased in both jurisdictions. The court concluded that many of the Plaintiff's proposed uses of KAREN MILLEN and KAREN solus marks would breach clause 5.1.7 due to likelihood of confusion.
The court considered the Defendants' entitlement to enforce the SPA and found that the First Defendant, as successor in title, had the right to sue in all relevant territories, and the Second Defendant could enforce in the USA. It rejected arguments limiting enforcement rights territorially or by corporate ownership.
On the jurisdiction clause (clause 21), the court held the Defendants breached the exclusive jurisdiction agreement by commencing the EDV proceedings in the USA. It interpreted the SPA and the Contracts (Rights of Third Parties) Act 1999 as binding successors in title and identified third parties to the jurisdiction clause. The court rejected the Defendants' arguments based on the Act's provisions.
The court acknowledged the complexity of relief regarding damages and anti-suit injunctions related to the EDV proceedings and indicated that further argument would be needed on appropriate orders.
Finally, the court applied established principles governing negative declarations, noting the importance of clarity and justiciability. It found the Plaintiff's declarations sought were overly broad, insufficiently clear, and covered acts that would breach clause 5.1.7, thus not appropriate for granting.
Holding and Implications
The court ruled in favour of the Defendants on clause 5.1.7, finding that the Plaintiff's proposed use of the KAREN MILLEN and KAREN solus marks in the USA and China would breach the restrictive covenant against use of confusingly similar names in similar or competing businesses. Many of the acts within the scope of the Plaintiff's negative declarations would constitute breaches.
The court ruled in favour of the Plaintiff on clause 5.1.4, except that intended breaches of clause 5.1.7 would also breach 5.1.4. It rejected the Defendants' claim that clause 5.1.4 applies to the Plaintiff's trademark applications and opposition proceedings.
The Plaintiff is obliged under clause 10 to consent to the Defendants' trademark registrations in the USA and China, and refusal to do so was unreasonable.
The court ruled in favour of the Plaintiff on clause 5.1.6, finding no sufficient connection between the Plaintiff's conduct and the Defendants' concessions.
The Defendants breached the SPA's jurisdiction clause (clause 21) by commencing the EDV proceedings in the USA, contrary to the exclusive jurisdiction of the English courts agreed in the SPA.
The court will hear further submissions on the form of the order, including whether injunctions or declarations are appropriate, and on damages and anti-suit injunction related to the EDV proceedings.
No new precedent was established; the decision clarifies the application and interpretation of restrictive covenants and jurisdiction clauses in the context of a share purchase agreement involving intellectual property rights and international trade mark disputes.