White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
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White SW Computer Law Intellectual Property, Information Technology & Telecommunications newsletter - May 2004

Business Acquisition - Did you really buy the intellectual property?

In the matter of JWH Group Pty Ltd & Anor v Kimpura Pty Ltd & Anor, which was heard by the Supreme Court of Western Australia, the Court had to decide whether certain goodwill and intellectual property had been included in the purchase of a business. The purchase arose after two parties decided to end their business association. One of the parties had agreed to purchase parts of the business formerly owned by both parties. Part of the problem was that some words used in their agreement were difficult to define. In such cases, the Court decides what the meaning of the document would convey to a reasonable person, having all the background knowledge available to the parties at the time the contract was made.

Urban Answers was a brand that was developed by the business being purchased, namely the Rural Building Company ( “RBC” ). The brand was being used to market RBC designed homes, formerly only targeted at the rural market, to the urban market. RBC was one division of J-Corp Pty Ltd ( “J-Corp” ), a residential construction business. In the deed which governed the purchase of the RBC business, it was agreed that, amongst other things, intellectual property in all designs, logos and advertising, historic and current would be sold and transferred.

Because the business name “Urban Answers” was not expressly transferred in the deed, the Court held that it needed to be shown that the transfer of the business name was included by way of the transfer of RBC's goodwill. For this to occur, it had to be shown that the name “Urban Answers” generated business and thereby developed reputation and goodwill for RBC. Although the name “Urban Answers” had been used in some brochures and on the RBC website, no designs had been offered under that brand before the sale of RBC had occurred. The Court held that there had been no evidence provided the proved that the name “Urban Answers” had attracted any custom or generated any earnings and so it was not part of the goodwill transferred on the sale of RBC.

The Court also needed to decide what was included in the sale by use of the term “intellectual property”. Of particular importance was whether certain building designs and the “Urban Answers” logo were included in the sale. Where the Court found that some of the building designs or the logo had been prepared by contractors to J-Corp, and the copyright had not been assigned to J-Corp, J-Corp was held to have an implied licence to use the works for which they had been brought into existence and therefore it was able to assign such rights. As a result, the licence to publish the logo and reproduce the building plans in a material form were included in the sale as intellectual property and therefore assigned to the purchaser.

It is interesting to note that a licence to used copyright works does not confer any right on the purchaser to sue for breach of copyright, without joining the copyright owners, who were in this case the contractors who created the copyright works.

The purchaser also claimed that the copyright in a building design created by an employee of J-Corp was included in the definition of intellectual property and therefore had been transferred to the purchaser as part of the sale. Because the designs were commissioned by RBC and used as part of its business, the court held that they were “used by or in, or [were] relevant to” the RBC business (as required by the sale agreement) and therefore the vendor was contractually bound to assign the copyright in the design to the purchaser.

Although the purchaser was successful in having the copyright in the employee created building design and the licence to use the contractor created building design and logo assigned to it, the Court made a nominal award of $3 for damages for the purchaser.

When you are purchasing a business it is very important to ensure that all assets, including intellectual property assets, are clearly listed in the acquisition agreement. It is very easy to fall into the trap of ignoring lists of assets, that often appear in the schedules of business acquisition agreements - you do so at your own peril. Having the Court decide the meaning of vague terms used in an agreement, where asset lists are inadequate can be a costly way to finalise an acquisition.

Of particular interest for those in the information technology industry are the all too common problems which arise with incomplete schedules or the “TBA - to be advised” references in schedules and the utmost importance of insuring that all the necessary rights are procured for the supply of any computer program or other work in which intellectual property rights might subsist. An integral step in ensuring you have obtained all the required intellectual property rights is firstly determining who the authors of the copyright works were and ensuring that the sale agreement adequately transfers the intellectual property ownership from those parties.

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