October 7, 2016
The UK courts started back in full swing this week after a two-month summer break, which means that legal practitioners all over the country are eagerly awaiting shiny new legal judgments to scour over. To keep busy while we wait, it is often worth looking back at judgments from the last term which may have points of interest that passed us by the first time.
One such case, Raft Ltd v Freestyle of Newhaven Ltd  EWHC 1711 (IPEC), a design right infringement matter heard earlier this year in the Intellectual Property Enterprise Court, had a counterclaim thrown out because the defendant failed to show that the he owned the IP he was asserting.
Raft, the claimant, is a well-known manufacturer and retailer of furniture. Freestyle of Newhaven (“Freestyle”), one of the defendants, also designed and manufactured sofas and had been a supplier to Raft. Mr Hornsell, another defendant, was the sole director and sole shareholder of Freestyle. Raft claimed that Freestyle infringed their UK unregistered design right in the overall design of two variations of their “Loft” sofa and Mr Hornsell was said to be jointly liable for the infringement. (Raft further brought a passing off claim against the defendants, which, although interesting in its own right as to its discussion of whether a company’s goodwill can ‘attach’ to the shape of its products for the purposes of a passing off claim, is not covered in this article.)
Mr Hornsell counterclaimed against Raft, alleging that Raft infringed his UK unregistered design rights in the overall design of his “Combi” sofa. As ownership of the design was potentially in issue, Freestyle counterclaimed in the alternative.
Raft v Freestyle
As this article focusses on the ownership issue, it should suffice to say that the Court held the design right subsisted, and that Freestyle, through its admission that it made sofas to the Loft design, infringed the design.
To bring a claim in the first place, the claimant must own the IP. Ownership is therefore a feature of nearly every IP case, whether or not it is discussed in detail. In this case, the Court quickly dealt with the issue of Raft’s ownership of the designs. It was held that Mr Quinn, a director of the company and designer of the Loft sofa, designed the sofa in the course of his employment as an employee of Raft and therefore Raft owned the design. In practical terms, Raft was indeed the correct party to bring the claim (and not Mr Quinn).
Hornsell/Freestyle v Raft
In the counterclaim, the defendants asserted that Mr Hornsell owned the UK unregistered design right in the design of the ‘Combi’ sofa and if that was not correct, then Freestyle were the owners.
Mr Hornsell was the sole director of Freestyle of London (a previous incarnation of Freestyle, which went into liquidation) at the time the Combi was created. In the absence of a director’s employment agreement, or otherwise, the judge said that there was a strong inference that Hornsell created the designs in the course of his employment, and therefore owned by the company. Or, in the alternative, Hornsell held the design right on trust for Freestyle of London.
The ownership issue was significant because, when Freestyle of London went into liquidation, there was no paper trail to suggest that the rights had been acquired by the liquidator or any of the defendants. Instead, Mr Hornsell argued that he alone held all the rights and was never an employee of his own company. In his witness statement, he said that he (as designer) had granted ‘express permission’ to himself (as director) to manufacture the designs; a point which he later conceded in cross-examination as having never happened.
The judge saw no barrier in law to an ‘oral’ assignment between Hornsell as director and Hornell as designer, but there was no documentary evidence to support this or other assertions to that effect. Even so, an assignment is not effective unless it is in writing. At best, an oral assignment would lead to Hornsell holding the right in trust for Freestyle of London.
There was an alternative argument that the liquidators had held the assets of Freestyle of London (if indeed the design rights were owned by Frestyle of London) and Freestyle had then purchased the design right from the liquidators. However, it appeared from the documentary evidence that no IP had been transferred from the liquidators, which likely may have been down to Hornsell himself dealing with the liquidators, and he had determined that he alone held the design right all along and therefore there was nothing to transfer.
The judge did not accept any of the defendants’ arguments and held that the designs had been created by him for the benefit of the company in the course of his employment by the company. Therefore, the designs had been owned by Freestyle of London up until the point it went into liquidation. The counterclaim was thrown out because none of the defendants had a course of action to take against Raft.
As a side note, the judge said that had there been a cause of action, he would have found that Raft did not infringe the design.
There are interesting lessons to take from this judgment. Many owner/directors, in particular those that are creative drivers of the company (or are the sole director/shareholder), often misunderstand the position in law regarding ownership of IP. After all, it could be easy to think “I created it, therefore I own it”, especially when you alone own the company. The reality however can be quite different.
Although this case had its own particular set of facts, it is an important reminder to ensure that company’s ownership of IP is clear, even when you are the owner/director of your own company. Further, any IP brought into the company prior to its formation may have its own ownership position. We often advise that the documentary trail shows clear ownership, whether that shows an agreement between the owner/director and their company, or between the company and its employees through express provisions in the employment agreements.
If there is any doubt over the ownership of any of the IP your company uses, see your legal advisor.
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