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Consumer confusion

26 September 2016 by Paul Harris

Intellectual property: Consumer confusion - read more

Declarations may not be granted where the scope of a name is too broad

The fashion industry is renowned for creative individuals who invariably part company with the fashion house for whom they have been designing for a number of years: Hedi Slimane from YSL, Raf Simons from Christian Dior and Alexander Wang from Balenciaga, to name but three.

There is, however, another breed of designers who sell their companies and their names, and often regret the decision. Jimmy Choo, Helmut Lang and Jil Sander have all gone this way, as did the Emmanuels who created Princess Diana’s wedding dress. Of these, the Emmanuels have attempted to recover their business name, without success. Despite her legal team no doubt being aware of all these cases, Karen Millen, the previous founder and designer of Karen Millen Fashions, sought to recoup her name and business from the fallout that came from the Icelandic banking collapse.

Humble beginnings

Like many great businesses, Karen Millen’s started from humble beginnings. Karen Millen and her (then) husband, Kevin Stanford, sold t-shirts out of the back of a van, before becoming a household brand name and even having stores in the US and one or two other places.

Deciding to cash in on that fame, in 2003 Karen and Kevin sold their shares to the Icelandic investment group, Baugur, funded by the Icelandic bank Kaupthing. As many of you will know, this later collapsed like a pack of cards during the international financial crisis triggered by the Lehman Brothers demise.

The original Share Purchase Agreement (SPA) contained a number of provisions which sought to identify the business being sold under the KAREN MILLEN brand name. It also sought to restrict future use of KAREN MILLEN and variations thereof (including KM) in the same business as the company being sold and the same geographical location.

For reasons only Karen Millen will truly know, her restless talent looked for another creative outlet and in 2011 she announced her intention to get back into the fashion business under the name ‘KAREN’.

Litigation inevitably ensued, resulting in a settlement in 2015 which regulated the position insofar as the UK and the rest of the EU were concerned, but left out what should happen in the US and China. Karen Millen brought the present action in October 2014 in order to seek declarations as to what the scope of the SPA was. Part of the reason for doing so was that although the UK and EU may have been settled, the position in the rest of the world was far from certain, with a large number of spats in various trademark registries globally.

As well as looking to trade under the name KAREN, in respect of fashion, Karen also wanted to use KAREN MILLEN in relation to housewares.

Pausing there, one may be forgiven for thinking that homeware/home furnishing etc. is a natural adjunct for a fashion house. That is undoubtedly the case for a number of companies (certainly Next, Zara and Ralph Lauren). However, unlike patent law, there is no ‘obviousness’ attack as to the direction any business may go and it depends entirely upon what the parties contracted in the SPA and the state of the business at that point in time.

The key, however, was where the business was going, both geographically and also merchandise-wise. This involved the deputy judge looking carefully at the scope of the business and how the various overseas businesses were also being run. It was, therefore, by no means a foregone conclusion that the company would succeed and Karen fail.

Frozen in time

The key aspect of the case related to the definition of Intellectual Property Rights (IPRs) and specifically goodwill. What Karen Millen argued was that the business of the defendant (i.e. the one she sold) was, in effect, ‘frozen in time’. Accordingly, any business activity of hers in the future should be measured against what the business was that she sold, as at the date of sale. What that would mean, therefore, is that no matter what direction the original business took, even if there were clashes in the future, that would be an inevitable consequence of the agreement the parties reached.

The deputy judge appeared to have some sympathy with Karen Millen’s arguments. However, because the definition of IPRs included goodwill, whatever their business was doing at the date of the action would create goodwill, which would inevitably enable them to prevent Karen Millen from operating a similar business.

The evidence that was put forward by the defendants suggested there was jewellery, eyewear and watches and (almost) perfume but certainly no evidence of, for example, furniture. However, the case was complex because Karen Millen was seeking negative declarations in relation to the use of KAREN in respect of women’s clothing and KAREN MILLEN in relation to a whole gamut of goods or services, some of which were based on the international classifications used for trademark filing and registration.

The difficulty faced by the deputy judge was neatly illustrated by the example of the possibility of Karen using the brand KAREN in respect of clothing etc. in one part of a fashion mall in the US and KAREN MILLEN in another part in relation to homeware, while the ‘original’ clothing outlet was in yet another part. Confusion would be inevitable. In this regard, the deputy judge was not prepared to pick and choose through the list of goods or services and considered the restrictions placed on Karen by the SPA were justifiable.

The Millen’s tale

Perhaps if Chaucer were living in this day and age he may well be able to create a spellbinding story of a fashion icon selling out to the greedy bankers who then collapse, leaving her good name in the hands of wily merchants, and of her attempts to wrest her reputation from them. Perhaps not, although tragedy it certainly is.

The biggest tragedy seems, however, to be the broad scope of what Karen Millen was actually after. Although the deputy judge threw her a small consolation bone in finding against the defendants for having brought proceedings in the US (when they were prevented from doing so by the SPA) he nevertheless concluded that he could not grant the negative declarations sought because of their breadth.

The fact that she sought to combine negative declarations for both KAREN and KAREN MILLEN, and clearly intended to use them both, meant that the deputy judge had little room for manoeuvre in the ‘a-contextual scenario’ that was being presented to him (given that she had not yet started any business). Had she just focussed on KAREN, then the deputy judge hinted that things may well be different. However, on the basis of what she sought, he found for the defendants.

Hung out to dry

At the time the press reported on the decision, both parties expressed satisfaction with the outcome. I suspect the defendants are the happier of the two, since Karen Millen did not get any form of green light in respect of the business she sought to launch.

Moreover, the proverbial ‘sword of Damocles’ of a ‘competing business’ which causes ‘confusing similarities’ (as one of the restrictions is worded) may yet prove problematic. This is because of the deputy judge’s view that consumers, on seeing a well-known fashion name (which he considered KAREN MILLEN was), may well conclude that the same or a similar name on another store are connected. Couple that with the inevitable for Karen Millen to let consumers know she has a new business and the potential for consumer confusion is manifest. Whether Karen Millen will ever be able to work in fashion again remains to be seen. And perhaps thereby will hang another tale.

Paul Harris is a Partner at Venner Shipley Legal Limited

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