The latest instalment in the ongoing dispute between Karen Millen and Karen Millen Fashions recently reached its conclusion. While some points were decided in Karen Millen’s favour, overall the brand’s founder was defeated, says Rachel Cook.

THE CASE: Karen Denise Millen v Karen Millen Fashions Ltd & Mosaic Fashions US Ltd, England and Wales High Court

In 2004 Karen Millen sold her business to the Icelandic private equity group Baugur. The entire issued share capital of Karen Millen Holdings Limited (KMHL) was acquired by Noel Limited and Mohave Limited. As a part of the share purchase agreement (SPA), Karen Millen gave the purchasers various restrictive covenants.

In 2009, Baugur went into administration as a consequence of the collapse of the Icelandic financial sector. KMHL went into administration and the business was sold in a pre-pack. KMHL, Karen Millen Limited and Noel Limited were subsequently dissolved.

The dispute between Karen Millen and Karen Millen Fashions Limited (Karen Millen Fashions) has been ongoing since 2011. A settlement was reached in February 2015 in relation to any use of KAREN MILLEN and KAREN in the UK and the EU. The current proceedings addressed use outside of the UK and/or the EU. In particular, Karen Millen had applied for trademarks in the US and had opposed trademark applications or applied for trademarks to be cancelled in China and the US.

Current proceedings

Karen Millen requested that the court make a number of negative declarations. These included declarations that Karen Millen Fashions cannot enforce the restrictive covenants in the SPA and confirmation that her proposed use of KAREN MILLEN in relation to goods such as homewares in the US and KAREN (with or without stylisation) in relation to a wider range of goods, including apparel and accessories would not be a breach of the terms of the SPA. Karen Millen Fashions asked that these declarations be refused; Karen Millen’s actions in China and the US be declared in breach of the SPA and requested an injunction reflecting the restrictive covenant contained in the SPA.

“If the interpretation of the clauses was frozen in time then Karen Millen was far more likely to succeed in her argument that her proposed new business would not compete.”

Interpretation

The interpretation of clauses 5.1.4 and 5.1.7 of the SPA was the key issue in dispute.
Clause 5.1.4 states that Karen Millen (and other sellers) would not “at any time after the date of this Agreement, use or attempt to use in the course of business any KHML IPR (as defined at Schedule 2).”

Clause 5.1.7 provides that Karen Millen (and other sellers) would not “at any time after Completion in any connection with any business which is similar to or competes with the business of the KMHL Group (not only in the United Kingdom but anywhere in the world) use the name “Karen Millen” or any other name confusingly similar thereto (including names which use, as a prefix or suffix, “KM” or “K.Millen”). The KMHL Group was defined as KMHL and 13 of its other subsidiaries.

Karen Millen argued that both these provisions were “frozen in time”: the KMHL intellectual property was limited to the rights held at the date of the SPA and the business of the KMHL Group had to be assessed against the goodwill, footprint and range of products sold by KAREN MILLEN in 2004.

If the interpretation of the clauses was frozen in time then Karen Millen was far more likely to succeed in her argument that her proposed new business would not compete. The KAREN MILLEN business was less developed and had less international reach in 2004.

Karen Millen also argued that the “business of KMHL Group” requires that the business be held by a company in the KMHL Group. As Karen Millen Fashions was not a member of the KMHL Group, the clause could no longer be enforced.

The court rejected this latter argument with relative ease. The deputy judge considered that the ordinary meaning of the words used was focused on the “business” rather than the particular identity of the corporate owner. As a successor in title to the overall owner of the assets of the business, Karen Millen Fashions had standing to enforce the terms of the SPA.

In respect of the rights covered by clauses 5.1.4 and 5.1.7, the deputy judge considered that some rights would be fixed in time, for instance, registered trademarks. Any applications made after the date of the SPA would be outside of its provisions.

However, the court noted that other rights do develop over time. The KMHL IPR and business of the KMHL Group included its goodwill. Goodwill is a living thing and will grow or shrink with a business. Therefore, the deputy judge considered that this aspect of the SPA was not frozen in time.

Clause 5.1.4

With regard to clause 5.1.4, the deputy judge held that Karen Millen’s actions in the US and Chinese trademark registries were not in breach of this clause of the SPA. He took the view that Karen Millen’s application for a trademark was not in itself the “use” of a right of Karen Millen Fashions.

The deputy judge did, however, note that the finding in respect of clause 5.1.4 did not mean that Karen Millen was right in the actions she had taken in the US and China. He indicated that his findings in respect of goodwill, the likelihood of confusion and the provisions of the further assurance clause “strongly suggest” that Karen Millen Fashions would succeed. He confirmed that the further assurance clause required that Karen Millen consent to the trademark applications made by Karen Millen Fashions (which she had opposed).

Clause 5.1.7

The deputy judge interpreted the restriction at clause 5.1.7 as requiring that the proposed business of Karen Millen be compared against the business of Karen Millen Fashions. Karen Millen argued that this comparison should be purely name for name. However, the deputy judge considered that the surrounding circumstances of the business should be taken into account and concluded that the parties could not have intended the provision to be “divorced from real life context”.

While the court acknowledged that it had a wide power to make declarations, it viewed Karen Millen’s requests by Karen Millen as insufficiently clear and specific. The deputy judge’s view was that it was not for the court to “blue pencil” the proposals of a party. Although he was sympathetic to Karen Millen’s aims – to know where she stood before trading – he was not prepared to start rewriting the declarations based on the materials produced to him.

In applying clause 5.1.7 the deputy judge concluded that there was a likelihood of confusion at the date of the proceedings in both the US and China. The brand name KAREN MILLEN was strongly distinctive. While consumers might not predict the new product ranges into which KAREN MILLEN would expand, if they saw a product branded KAREN MILLEN (he gave the example of a rug) they would be likely to conclude that it came from the same source. This would continue to be the case if Karen Millen used KAREN MILLEN in respect of some goods and KAREN in relation to others.

“If Karen Millen came back to the court with narrower and more defined proposals in relation to the use of KAREN (stylised or not) (for instance, where and how it would trade, its trade dress and the use of the mark) then the result could be different.”

He indicated that his decision would have been the same if he had assessed the US market as at 2004, although the position in China would have been different due to there being no goodwill in 2004.

Every contractual case will turn on its own facts. However, the deputy judge’s approach to the issue of interpretation was not dictated by the claim being an intellectual property case. A number of recent judgments on contractual interpretation have emphasised that commercial common sense and surrounding circumstances should not be overly applied to reduce the importance of the language used by parties in their contracts. A deal may work out badly for one (or both) parties but that does not mean that the court should impose a different view on the wording used by the parties. Hindsight is not the measure for interpretation and one party may have been more astute than the other or simply unlucky.

Hope for the future

Although the court was not prepared to make the declarations requested or to attempt to amend them, the deputy judge did note that if Karen Millen had pursued a decision solely in relation to the use of “KAREN” then she may have fared better.

This decision, unless appealed, is likely to mean the end of any attempts by Karen Millen to use KAREN MILLEN in connection with any type of goods. If the goodwill of KAREN MILLEN is assessed on an ongoing basis then the result of any further litigation about other jurisdictions would likely be the same.

The court took the view that any use of KAREN MILLEN on some goods and KAREN on other goods is likely to be confusing by association. One hurdle that may prove most difficult to jump is how she would explain and potentially exploit her past connections with the KAREN MILLEN business. However, if Karen Millen came back to the court with narrower and more defined proposals in relation to the use of KAREN (stylised or not) (for instance, where and how it would trade, its trade dress and the use of the mark) then the result could be different.

It is a question of balancing investment – how much should you invest in developing a brand that you might not be allowed to use – but the court thought ultimately Karen Millen was at too early a stage in the development of her plans.