Broad Brush Needed in Family IP Dispute

Disagreements between family members are often bitter, and this can lead to time, effort and expense being incurred which is disproportionate to the importance of the dispute when it concerns a family business, as a recent case illustrates.

Two brothers who fell out found themselves in court arguing about the intellectual property (IP) rights each was entitled to in respect of a contact lens cleaning device, which contained parts designed by each of them.

The arguments concerned the unregistered design rights and the level of sales of the product over which the design rights were disputed.

The first issue was to work out the extent to which the IP rights were shared.

The second issue was to decide the value of sales (and profits) of the product in question.

Predictably, the figures put forward by each brother regarding the value of the sales of the product were significantly different.

In order to calculate the sales figure, a forensic accounting exercise was undertaken. This involved an examination of purchase invoices, in order to determine the number of units that could be made, and of the company’s VAT returns, in order to obtain the declared sales figure.

Having decided the issue of the design rights and then the value of the sales of the product, the court then had to decide the importance of the parts in which there was a shared design right so that the appropriate amount of compensation could be decided.

The case was first heard as long ago as 2011 and the subsequent High Court hearing took place in July 2014.

The case was not one in which there were precise records or documentation of IP rights, so the judge had to adopt a “broad brush” approach to many of the issues.

In the end, the payment ordered to be made by one brother to the other was £15,800, which does not seem much reward for three years of acrimony and two court appearances.

The lessons to be learned are, firstly, that it is critically important to make sure that the appropriate documents are created to evidence the ownership of IP. This is particularly important in the case of a family business as opposed to one operated by unrelated business associates. Secondly, disputes of this nature are often best dealt with by a mediated approach.

For advice on any commercial dispute, contact us.