Karen Millen loses name game, again.

Karen Millen has lost yet another legal battle, in this case to use her own name on clothing and household goods in China and the US. In Karen Denise Millen v Karen Millen Fashions Limited and Others[1], the judge found that the use of Millen’s first name in connection with clothing and accessories would breach the terms of the agreement she made when she sold her eponymous clothing company to Baugur in 2004.

Karen Millen was one of the great British success stories. With a loan of just £100 and 100 metres of cotton cloth, Millen and her partner Kevin Stanford began making shirts and selling them to friends. They opened their first store in Maidstone, Kent in 1983 and a decade later had concessions in Harrods and Fenwick. Karen Millen Limited was incorporated in 1991 and a holding company, KMHL, was set up three years later. By 2004 Karen Millen was a successful global brand with stores or concessions in nine countries and franchises in a further 15.

In 2004, Millen and Stanford sold KMHL to Icelandic retail investor Baugur in a deal valued at £120m. Millen received £54m in cash and a significant shareholding in the group. The agreement included a number of restrictive covenants, one of which prevented Millen from using the name Karen Millen or any other “confusingly similar” names, including “KM” or “K.Millen” for a “similar or competing” business in the UK or anywhere in the world after the sale.

Restrictive covenants are a standard and often heavily negotiated feature of such agreements. Buyers want to restrict what the sellers can do (with the intellectual property, goodwill and other assets of the target business) after the sale while sellers will push back to narrow those restrictions, usually by way of time or geographic limitations. What is ultimately agreed will be shaped by the nature of the business being sold and parties’ relative bargaining power.

The restrictions in Millen’s agreement were so all-encompassing they effectively ruled out any possibility of Millen using her own name for anything fashion-related anywhere at any time in the future. Such terms might be acceptable to a seller if the price is right and she is truly ready to relinquish her name. Millen is on the record saying that in 2004 she “want[ed] a clean break” from the fashion industry and expressed no regrets about selling. Yet in 2011, she revealed plans for a comeback, telling an interviewer that although she was not looking to build another brand, she wanted “something more personal [she could] enjoy doing again”.

This turned out to be a new clothing line called Karen. Not long after the interview was published, Millen was sued by the current owners of the label, Karen Millen Fashions. A settlement was reached in 2015 which prevented Millen from using the names Karen or Karen Millen in the UK or anywhere in the EU. The agreement, however, said nothing about the rest of the world, leaving the door open for more litigation.

In 2014 Millen brought proceedings against Karen Millen Fashions Limited and Mosaic Fashions US, the current owners of the brand. The case, which concluded in September 2016, is unusual in that Millen was not suing the owners for something they had done (or didn’t do), but instead was asking the court to sanction her own future behaviour by way of so called negative declarations. In particular, Millen wanted to be able to sell Karen Millen-branded goods (not including clothing) in the US; and clothing and accessories under the name Karen anywhere in the world without breaching the 2004 agreement.

In an effort to convince the court that Millen’s proposed activities would not constitute competition with the Karen Millen brand, Millen’s lawyers argued that the restrictive covenants in the 2004 agreement were ‘frozen in time’ and therefore their effect should be assessed in light of the  commercial position in 2004, when the company was smaller and had less goodwill.

This argument succeeded in part: the judge allowed that certain IP rights, such as trademark registrations, could be frozen in time as they are “relatively clearly and stably defined”, whereas others, including goodwill, know-how and confidential information, “may get more or less extensive, stronger and weaker” over time. He ruled that trademark applications made by Millen in China and the US in 2004 did not breach the agreement but the majority of Millen’s desired declarations would be in breach. He noted that it was “hard to see how any reasonable range of goods, sold in any reasonable format under a Karen Millen mark would not be confusing (to consumers)”.

As this case demonstrates, the decision to lend your own name to a brand, product or company can be a risky and expensive one, particularly if you have a change of mind or heart after signing on the dotted line. Before taking this step, you may want to consider the following:

  • Keep it to yourself – if you register your name as a trademark with yourself as the owner, not the company, then the trademark will not form part of a company’s assets and potentially avoids the risk of losing ownership/control due to restructuring or insolvency;
  • Be strategic – by assigning intellectual property rights, including your name, to another company which you own, you retain the option of licensing the right to use the name to a buyer.  You could also consider including a change of control clause which would trigger termination of the agreement if more than a certain percentage of a new owner is acquired by a third party. This model was successfully employed by Donna Karan when she sold to Donna Karan International;
  • Carve it out – the judge in Millen’s case said he could imagine “many uses” of the name Karen that would not have breached the agreement and had Millen “defined her intended use more closely in terms of geographic positioning and the like” she might have won. A seller may want to consider retaining the right to sell clearly-defined goods and services under her name, or part of it. It is also possible to set time limits after which the restrictions will lapse;
  • Make it up – you can create an effective and personal touch for your brand/product/company by using a person’s name, it just doesn’t have to be yours.

To view the judgment in full visit: http://www.bailii.org/ew/cases/EWHC/Ch/2016/2104.html

[1] Millen v Karen Millen Fashions Ltd & Anor [2016] EWHC 2104 (Ch) (16 August 2016).

This article was written by Paul Herbert, Partner, Corporate, with assistance from Morgan Wolfe, Trainee Solicitor.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.