• The Contract Without End

    by  • August 16, 2016 • copyright • 6 Comments

    This case relates to some kind of intellectual property, denominated in the agreement as “copyright” and “industrial design” rights, although the true nature of the rights was not examined by the court. It’s a mess of a problem, with a “solution” that turned out not to work quite as the parties planned. I’ll set out the facts and I’m curious to see how readers would have solved the problem, if it can be solved.

    Bruce Kirby invented the “Kirby Sailboat”:

    boat better

    His company, Bruce Kirby, Inc., owned the rights to the design of the boats. In 1983 it entered into a “Head Agreement” with two international sailing bodies to regulate the manufacture, sale, and registration of the sailboats, sold under the brand name “Laser.” (Bruce Kirby was not the trademark owner, though). In 1983 and 1989 Bruce Kirby licensed the rights to make the boats to two companies (the “Builder Agreements”), the successors of which were defendants LaserPerformance (Europe) Limited and Quarter Moon, Inc. The opinion doesn’t tell us whether there were other companies authorized to make the boats.

    In 2008 Bruce Kirby decided to get out of the business and sold it in its entirety to Global Sailing Limited (GSL). The Builder Agreements had this limitation on Bruce Kirby’s transfer:

    Kirby contract snip

    If you can’t read it, it says “Neither Bruce Kirby nor Kirby Inc. shall assign any rights in the Licensed Design save to an assignee who shall enter into an agreement with Licensee on terms and conditions identical with the terms and conditions of this Agreement.”

    I suppose that GSL never entered into new Builder Agreements—at least the opinion never says that they did and, although the two companies were told to send their royalty payments to GSL, they continued to send the payments to Bruce Kirby. When Bruce Kirby refused the payments, the two boat builders put the payments into escrow. The opinion doesn’t offer any reason for the boat builders’ reluctance to deal with GSL, although their excuse for not paying royalties to GSL was “the lack of documentation to show that plaintiffs had assigned rights to GSL.”

    The agreements could only be terminated for cause (Article 10); there was no termination for convenience and the agreement didn’t have a term. The choice of law is Province of Ontario, Canada.

    So we’ll stop here: if you were counsel for GSL, what would you do? Add your comment.

    Creative Commons License
    This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.

    6 Responses to The Contract Without End

    1. August 16, 2016 at 10:56 am

      1) Get a representation/quitclaim/disclaimer/etc from Kirby that I was the One True Assignee of all rights to the underlying IP in whatever form. This is probably in the transfer agreement but I would want something I could show to third parties without having to show them the entire transfer agreement. Notarized, sworn under penalty of perjury, etc.

      2) Send an assumption agreement to the licensees which had identical terms to the Kirby license and agree to accept them as is and in full with regard to the underlying IP, along with representation above.

      3) (Optional.) Include a warranty and indemnification that if Kirby ever challenged making the payments to me or their use of the licensed IP I’d defend the licensees.

      4) Politely request that they sign the assumption agreement and start sending me the payments or identify a clear legal reason that this was not reasonable. Phrase carefully to avoid giving rise to a cause of action for declaratory judgment.

      5) If they wouldn’t, either send them a C&D on the grounds that I am now the holder of all rights and they are in violation of the license agreement or just initiate legal proceedings, depending on a lot of various strategic and tactical considerations.

      • Pam
        August 16, 2016 at 1:36 pm

        Assume 1-3 happened and the builders refused 4. What’s the legal basis of your proceedings? The builders are licensed to the rights and have tried to meet their obligations, i.e., pay Bruce Kirby, which is who their contract is with. Breach of contract, but what provision? infringement? But they’re licensed.

        • August 17, 2016 at 12:34 am

          I’d want to see the notice provisions of the original license as well as know if there was any language requiring consent to assign. Your original description as well as your comments below make me think there was no consent required. Assuming good notice and no consent requirement, I’d argue *both* breach and infringement, in the alternative.

          If the license is good, they have a good faith obligation to conduct themselves reasonably. He had the right to assign, they know he assigned, they must conduct themselves accordingly or they’re in breach. If they’re arguing they’re not in breach, they need explain why. If they don’t have a lawful reason, they have a duty to cure and to remedy past breach (i.e. pay over to the new licensor.)

          If they don’t have a defense, they’re in material breach and you said that the license could be terminated for cause. Badly as it was drafted, I still have to hope that uncured material breach is good cause. 🙂 Either cure your breach or the license is terminated, which means your use is infringing.

          Which of course assumes that the right is still enforceable and has not expired, etc. Those are substantial questions I haven’t got the answers to at this point.

    2. August 16, 2016 at 11:53 am

      Shall not assign? I… What?

    3. Lori White
      August 16, 2016 at 4:56 pm

      Breach for failure to pay royalties under 10.1 (e). Kirby assigned the license and the underlying rights to GSL. If Builders are going to refuse to accept a new license from GSL *and* refuse to accept the assignment of the old license to GSL, then they don’t have a license to operate under.

      There is no requirement in 11.4 for the licensee’s consent to an assignment – there is just the requirement for the assignee to give the same deal. Without the requirement of consent, the clause effectively reads “Kirby can assign to whoever he wants as long as the Builders get the identical terms and conditions from the new assignee”. It’s awkwardly worded, but if a court would allow Builder to choose whether or not to accept GSL’s license under the same terms, it would be writing into the agreement a right for Builder to refuse consent.

      It’s interesting because 11.4 doesn’t talk about assigning the *license* itself, it talks about assigning the underlying rights – almost in a way that makes it sound like they were concerned about rights possibly being spun off piecemeal . I don’t know if it is the same under Canadian law, but my understanding is that absent a provision requiring consent, IP licenses are considered assignable by the Licensor. So if ALL of the Kirby rights went to GSL, and GSL accepted assignment of the License from Kirby, then they’ve complied with the requirements of 11.4 (because it literally is the *same* agreement).

      • Pam
        August 16, 2016 at 8:48 pm

        What about the fact they were paying royalties into escrow? (Incidentally, that was the reason given in the eventual termination notices.)

        Isn’t the right of the builder to decline consent implied by the fact that there has to be a new contract with the buyer? The licenses could have provided for an assignment of them, but that’s not how it was done, it required a whole new contract.

        I’ll mention in the next post that the parties treated it as a failure of Bruce Kirby to get the necessary consents for the sale. But I agree with you that I don’t see this language as requiring “consent,” although maybe the sales agreement between Bruce Kirby and GSL, which is sealed, characterized it that way.

    Leave a Reply

    Your email address will not be published.