Tuesday, 7 July 2009

Insolvency, Registered and Unregistered Design Rights

There are two types of design rights (“DRs”): registered design rights (“RDRs”), which are principally governed in the UK by the Registered Design Act 1949 (“RDA 1949”) and unregistered design rights (“UDRs”) introduced by the Copyright, Designs and Patents Act 1988 (“CDPA 1988”). There are rules on qualification for protection by both citizenship of the designer and place of design. Qualifying countries in addition to the UK include the European Economic Area and British overseas territories. Since RDRs afford greater protection for designs than UDRs, the value of the right is likely to be affected accordingly, making it essential to establish what kind of DRs the insolvent company may have.

UDRs are saleable assets but do not subsist in designs made before the commencement of the CDPA 1988. UDRs are similar to copyright in that they exist automatically when a new design is created. However, unlike copyright, the length of protection is much more limited. The right lasts for 10 years after the date that an item made to the design is first marketed, or up to a limit of 15 years from the creation of the design and is only exclusive for the first five years. A licence of right to make and sell articles copying the design is available during the last five years of the UDR's life (s. 237 CDPA 1988).

UDRs differ from RDRs in that they do not give a total right of design ownership; instead giving a simpler form of protection against copying. This makes the subject of maintaining licences very important for an insolvent company who has an interest in UDRs. Further information regarding copyright and insolvency can be found at my earlier post accessed from this link.

Once a design is registered the RDA 1949 makes clear that RDRs shall vest by operation of law in the same way as any other personal property. Therefore RDRs owned by a company subject to a winding up order will belong to the company in liquidation. By registering a design the owner of the right will have exclusive use of a design in the territory in which it is registered. In the UK and EU this period is 25 years and design registrations are renewable every 5 years. Any disposition of RDR’s must be made in writing and signed by all parties to the transaction. The UK IPO has a database of RDRs which can be accessed here.

RDRs may also be subject to a secured loan by way of a mortgage and enquiries should be made to establish whether there are any licensees or mortgagees of the right in order that they can be informed of the making of the Insolvency Order and asked to note the Official Receiver’s interest. Instead of contacting the Land Registry the way you would to check if land was subject to a mortgage, the Official Receiver should contact the UK IPO. Information may also be found in the insolvent company’s accounting records and/or by searching at the UK IPO.

Exceptions to RDRs
There are many exceptions to protection offered by RDRs, which include, but are not limited to: parts of a design necessary to connect to another article (“must fit” designs), to methods and principles of construction or to those parts of a design which are dependent on the appearance of another article, or where that article and the article that the design right applies to is an integral part of the second article (“must match” designs) and to surface decoration. RDRs also don’t apply if a design is not original, and a design is essentially defined as not being original if the object so designed is already commonplace. If a right is not covered by RDRs, it may be still be subject to other forms of IP protection such as copyright and UDRs.

Ownership of DRs
S.215 CDPA 1988 stipulates that the first owner of a UDR is the designer, except in the circumstances that the design is created under a commission or in the course of employment, in which case the commissioner or employer is the first owner. In the case that the owner of a UDR is also the owner of a RDR, it is assumed that any assignment of the UDR also includes an assignment of the RDR, unless a contrary intention is shown.

The Official Receiver should establish ownership of any RDRs from the insolvent’s records and/or by carrying out a search of the information held at the UK IPO (whose database can be found here). Where RDRs vest in the company in liquidation they may be sold with the assignment being signed by the liquidator as assignor. In such a case the UK IPO should be informed of the change in ownership (s.19 RDA 1949).

Does more than one person own the RDRs?
Joint entitlement to ownership of RDRs will usually arise in two situations; either where there are co-designers or if a share of the design is sold. Where a design is registered to two or more persons they are entitled, unless there is agreement to the contrary, to equal undivided shares. The interest of each would survive his death as part of his estate. Importantly, joint owners may not sell their interest to a third party without the consent of the co-owners. Therefore if the Official Receiver is able to establish any RDRs, they should also be aware of other interested parties and ensure that they do not breach their rights by attempting to sell or license the design.

In addition to the sale of the rights themselves, royalties may be paid by a third party to the owner of RDRs in exchange for exploiting that right. The royalties may be payable under the terms of a licence, with the owner retaining the RDRs. Where a winding up order is made against the owner of a registered design, the Official Receiver should contact the third party paying the royalties and ask it to pay any royalties due to the liquidator.

If the company in liquidation holds any licences, those licences are also saleable property and any assignment of such a licence should be in writing and signed by the parties. In such an instance the UK IPO should be informed of the transfer.

It may be the case that a liquidated company is in receipt of royalties as a condition of the sale of RDRs. In this case the royalties cannot be claimed as an asset as the right does not vest in the company in liquidation. Instead, the royalties should be treated as income and can be claimed under an income payments agreement or an income payments order.

How to Protect RDRs
If an insolvent company owns RDRs, the UK IPO should be informed of the winding up order and asked to note the Official Receiver’s interest in the design. The UK IPO should also be asked to provide details of the remaining “life” of the registration as this could materially affect the value and details of any renewal fees outstanding.

Enquiries should always be made to establish whether there are any licensees or mortgages of the right in order that they can be informed of the making of the insolvency order and asked to note the Official Receiver’s interest.

European Community RDRs
The rules governing the procedures, processes and requirements for European Community (EC) design registration are largely the same as those relating to the UK registration process. The guidance above can be followed in respect of an insolvent that owns any EC design registration, with the exception that the relevant authority will not be the UK IPO. It will instead be the Office for the Harmonisation of the Internal Market (OHIM), which maintains a searchable online register which can be accessed here.

Valuation of DRs
The valuation of intellectual property is a complicated and sometimes controversial area and the value will very much depend on the circumstances. It is unlikely that the Official Receiver will have experience in this field and should exercise discretion as to whether to employ specialist advice such as forensic accountants. A specialist in designs may be contacted through The Chartered Institute of Patent Attorneys.

1 comment:

Anonymous said...


I think there are a few mistakes in the section on exceptions - there is no "surface decortaion" exception for UK RDR (this is an exception for UK UDR only), and there is no longer a "must match" exception for UK RDR (the EC Designs Directive got rid of it).

The initial mention of rules of qualifcation is also rather misleading, I think - this applies only to UK UDR, and not to UK RDR, EC RDR or EC UDR (EC UDR needs to be made available to the public in the EC, but I'm pretty sure there are no citizenship requirements).

It's probably worth noting that UK RDR, EC RDR and EC UDR all come from EC law, so are much the same, but UK UDR comes from the CDPA, and is different in many ways.