Rights Under A Licence Agreement Are Contractual And Not Proprietary In Nature.

 

Guy Neale and others v Ku De Ta SG Pte Ltd [2015] SGCA 28

 

Summary

 

A licence of a registered trade mark is a registrable transaction under the Trade Marks Act (“TMA”) as “an interest in or under a registered trade mark” (ie ss39(1) and (2) of the TMA) and is capable of affecting third parties in certain situations. For example, a licence to use a trade mark is binding on every successor in title to the grantor’s interest except a bona fide purchaser without any notice (actual or constructive) of the licence or unless the licence provides otherwise (ie s42(5) of the TMA).

 

Considering the “almost proprietary” effects of a trade mark licence, it is not surprising that it has been argued that a licence might be proprietary in nature. On the other hand, it is equally possible to say that a licence is simply a contractual bundle of rights that has been given some in rem effects by statute and this would not warrant the wholesale adoption of property doctrines from the common law or in equity.

 

In this case, the Singapore Court of Appeal adopted the position taken by the English courts in holding that a licence to exploit a registered trade mark is purely contractual in nature and does not confer any proprietary rights on the licensee.

 

Background

 

The Appellants are members of a partnership (“Partnership”) which owns and operates a restaurant, bar and club which bear the “Ku De Ta” name in Bali. The Partnership is also the beneficial owner of two registered trade marks in Singapore relating to the “Ku De Ta” name (“Singapore Marks”). Up till recently, the registrations for the Singapore Marks were held by Nine Squares Pty Ltd (“Nine Squares”) on trust for the Partnership. The Respondent is a company that operates a restaurant, bar and club which bear the “Ku De Ta” name in Singapore (“Ku De Ta Singapore”).

 

In June 2009, Nine Squares entered into a licence agreement (“Licence Agreement”) with a Hong Kong businessman named Chris Au (“Au”), purporting to give Au an exclusive licence for the use for one of the two Singapore Marks (“1st Singapore Mark”). In November 2009, Au assigned his rights under the Licence Agreement to the Respondent.

 

In September 2010, the Respondent opened Ku De Ta Singapore. In December 2010, the Appellants commenced proceedings against the Respondent seeking, among other things, to restrain the Respondent from continuing to use the “Ku De Ta” name in Singapore (“Suit 955”). The Appellants also commenced proceedings against Nine Squares, seeking among other things, for a declaration that the Singapore Marks were held on trust for and should be transferred to the Appellants (“Suit 314”). When Suit 314 was dismissed by the High Court judge, Suit 955 was also consequently dismissed without the need for the High Court judge to deliberate on its substantive issues.

 

Upon the Appellants’ successful appeal against the High Court’s decision in Suit 314, Suit 955 came before the Court of Appeal for its consideration.

 

In resisting the Appellants’ allegations of infringement of a well-known trade mark (ie the 1st Singapore Mark), the Respondent relied primarily on the fact that:

 

(a) it was the assignee of an exclusive licence granted pursuant to the Licence Agreement to use the 1st Singapore Mark;

 

(b) it acquired bona fide proprietary interest in the “Ku De Ta” name for value and without notice of the Partnership’s rights; and

 

(c) its interest took priority over that of the Partnership.

 

Court Of Appeal's Decision

 

The Court of Appeal held that the Respondent’s rights under the assignment of the Licence Agreement were purely contractual in nature, and the Respondent could not enforce its rights under the Licence Agreement against the Partnership (of which the Appellants were members of) because the Partnership was not party to the Licence Agreement.

 

Upon an examination of the facts of this case, the Court of Appeal held that the Respondent had obtained its rights under a licence that was granted in breach of the earlier rights of the Appellants as the equitable owners of the trade mark. The Respondent therefore cannot rely on s45(2) of the TMA to enforce its rights against the Appellants who subsequently perfect their title by being the registered proprietor.

 

Nevertheless, the Court of Appeal held that the Respondent may be able to subject the prior equitable interest of the Partnership in the 1st Singapore Mark to its rights under the Licence Agreement if it could demonstrate that the equities weighed in its favour. A critical factor the Respondent had to show was whether the Respondent had notice of the Partnership’s interest at the time it was assigned its rights under the Licence Agreement.

 

The Court of Appeal held that the Respondent failed to establish that it had better equity. On the facts of this case, the Respondent’s interest in the 1st Singapore Mark was acquired with, at the very least, constructive notice of the Partnership’s beneficial interest. While the Court of Appeal allowed the Appellants’ appeal, it held that while the Appellants were entitled to enjoin the Respondent from any further use of the “Ku De Ta” mark, the Court of Appeal would not grant an injunction if the Respondent undertook to the Court of Appeal that it would not use the “Ku De Ta” mark or name anymore.

 

Comment

 

In considering the nature of the rights under a licence agreement, the Court of Appeal examined a string of English cases as there has (up till now) been no authoritative pronouncement on this point in Singapore.

 

Our Court of Appeal found the English Court of Appeal’s decision in Leofelis SA and another v Lonsdale Sports Ltd and others [2008] ETMR 63 particularly instructive. Lloyd LJ at paragraph 14 of the judgment observed that while a trade mark, when registered is a proprietary right (ie an item of property), the same is not true of a trade mark licence.

 

Similarly, in a recent decision of the English High Court in VLM Holdings Limited v Ravensworth Digital Services Limited [2014] FSR 9, Mann J held at paragraph 57 that a licence does not create a lower proprietary right carved out of a superior proprietary right in the same manner as a sublease is carved out of a head lease.

 

It is clear from these English cases that in considering the nature of a licence of intellectual property, it is not apposite to draw an analogy with the way in which the law deals with similar transactions involving real property.

 

This judgment is particularly instructive as it clarifies that in Singapore, rights under a licence agreement are contractual, and not proprietary in nature.

 

References

 

Please click on the following link to access the case of:

 

Guy Neale and others v Ku De Ta SG Pte Ltd [2015] SGCA 28

 

 

For further information, please contact:

 

Cavinder Bull, Director, Drew & Napier

cavinder.bull@drewnapier.com

 

Yvonne Tang, Director, Drew & Napier
yvonne.tang@drewnapier.com

 

Gabriel Ong, Drew & Napier

gabriel.ong@drewnapier.com