All in the name of business

This High Court decision should encourage owners of eponymous brands to think carefully about the possible implications of contractual provisions restricting use of their name if they wish to use it as a brand in the future.

After starting her fashion business in 1983, Karen Millen subsequently sold it in 2004 under a share purchase agreement (SPA). The SPA contained various restrictive covenants concerning her use of the KAREN MILLEN brand throughout the world, amongst which was an undertaking not to use the name “Karen Millen”, or any other name confusingly similar to it, in connection with any similar or competing business anywhere in the world.

In 2011, Millen declared an interest to re-enter the fashion business, prompting the purchasers of the KAREN MILLEN brand to bring proceedings against her. In the most recent of a series of cases between the parties, Millen sought declarations from the Court that her proposed ventures in the United States and China, trading under KAREN MILLEN for homewares and KAREN for any goods and services (including fashion and accessories), would not breach the restrictions in the SPA. It was noted that in carefully trimming the name in this way, Millen was seeking to avoid the purchasers’ rights by the narrowest possible margin (though the Court saw this as an astute strategy rather than reckless or dishonest conduct).

The Court considered that the two limbs of the restrictive covenant (confusingly similar name and similar or competing business) had to be considered together, and in context. To use a confusingly similar name in respect of a competing business would be to misuse the goodwill in the KAREN MILLEN brand, and therefore Millen would be in breach of the SPA if her proposed business would cause confusion which would be detrimental to the goodwill in the KAREN MILLEN brand.

The Court held that use of the KAREN MILLEN name for homewares was likely to confuse customers, not least since these were a type of goods into which fashion brands often branched out. A purchaser of a KAREN MILLEN rug may well believe that it came from the same source as KAREN MILLEN clothing they had purchased previously.

In relation to the activities under the KAREN name, the Court noted that the scope of the declaration sought by Millen was extremely broad. If granted, it might lead to use of the name in Millen’s store on clothing, alongside use of the KAREN MILLEN name on homewares, in close physical proximity to the counterparty’s stores, in which clothes were be sold under the KAREN MILLEN name. When combined, these factors were likely to produce confusion on the part of consumers, and therefore placed Millen in breach of the SPA.

This decision and other recent decisions such as Merck KGaA v Merck Sharp and Dohme Corp provide a useful reminder to brand owners that it is important to consider long-term implications of contractual provisions which restrict brand use when negotiating IP-related agreements such as co-existence agreements.

Originally published in BrandWrites 7th Edition. Co-authored by Stefan Shaw.