Bona vacantia: the importance of stripping out IP rights before dissolving companies

The Natasha Courtenay-Smith v The Nottinghill Shopping Bag Company case is a reminder of the importance of assigning IP rights out of companies' ownership before they are dissolved – anything not stripped out passes bona vacantia to the Crown.

What has happened?

• The judge found no trade mark infringement. The claimants did not have proper title to the trade marks relied upon, which had passed bona vacantia to the Crown upon dissolution of the owner-company.

• There are only two ways to recover assets which have passed to the Crown: (a) restore the company (which, once restored, will be deemed to have continued in existence as if it had not been dissolved with all its assets – unless sold or disposed of by the Crown via vesting order – revesting in the restored company); and (b) apply for a vesting order (if assets were held on trust for the benefit of another party, the third party can apply for a vesting order to vest the legal title in that party). 

• If a trade mark expires while the original owner-company has been dissolved and the mark is vested in the Crown, any purported renewal without the Crown's authority is void and a nullity. That was the case here. 

• This case is an excellent lesson in the importance of stripping out IP rights before dissolving the companies that own them. Goodwill should also be separately and specifically transferred out as it does not pass with trade mark registrations and can be very difficult to restore/recover in the two ways described above.

• Even if there is no desire to continue to use particular IP rights or goodwill, the value of continuing to own them to prevent others from using/registering them – at least in the short term – should be considered. 

Want to know more?

Background

Formerly a sole trader who sold tote bags displaying the logo "the Notting Hill shopping bag", Courtenay-Smith incorporated The Notting Hill Shopping Bag Company Limited in 2010. It registered a figurative device mark in October 2013 for bags, comprising the below.

At Courtenay-Smith's request, the company was dissolved on 10 April 2018. The trade mark had not been transferred out of the company before dissolution. Owing to the lack of assignment out of the dissolved company, the trade mark in dispute had vested bona vacantia in the Crown on 10 April 2018, when dissolution became effective. The mark was due to expire on 2 May 2023, but a third party (and later, a co-claimant in this case) purported to renew the trade mark on 22 March 2023. It did so because Courtenay-Smith had become aware of a third party using a similar mark. Meanwhile, Courtenay-Smith also successfully applied to have her retired company restored. This restoration was not effective until 12 October 2023.

The issues

On the alleged trade mark infringement, the court found that neither of the co-claimants owned the trade mark, which had vested in the Crown upon the company's dissolution.

The trade mark had not been validly assigned prior to dissolution of The Notting Hill Shopping Bag Limited. The second claimant argued that a combination of the claimants' intention to assign and use it was enough to generate a beneficial interest in the trade mark, which had in turn passed to the second claimant in equity. This, the second claimant averred, left only the legal title to pass to the Crown bona vacantia.

However, the judge found that even if this was the case (which on the facts, it was not), equitable ownership of the trade mark did not entitle the second claimant's owner to apply for renewal of the trade mark registration.

Without authority or permission from the Crown, the second claimant's purported renewal of the trade mark on 22 March 2023 was a nullity. Consequently, the trade mark progressed to expiration on 2 May 2023 and was ultimately found to be invalidly registered.

The Crown's ownership

IP rights which pass bona vacantia to the Crown are either disclaimed or sold. Gov.uk has a guidance page on how to buy IP rights which, prior to being owned by the Crown, belonged to a since-dissolved company. 

It did not matter that neither the Crown – nor anyone else - from April 2018 to January 2023 knew that the trade mark had vested in the Crown. From 10 April 2018, the company had ceased to exist and only the Crown was in a position to give permission for renewal or continued use.

What could have been done differently?

Apart from transferring out the trade mark and goodwill before the owner-company was dissolved, Courtenay-Smith could also have applied to renew/restore the trade mark registration once the company had been restored.

This could have been done during the six-month grace period (ie before 2 November 2023) permitted under section 43(3) or further six-month restoration period (ie before 2 May 2024) under section 43(5) of the Trade Marks Act 1994.

Before making such an application, the company would have had to apply for directions under section 1032 of the Companies Act 2006, for retrospective or prospective permission and varied undertakings, given the limited scope of the restoration application. 

Despite being put on notice by the defendants, no such application was made.

Passing off

The second claimant also brought a claim for passing off. However, the court held that the existing goodwill subsisting in the dissolved company was abandoned or extinguished as a consequence of the dissolution. The dissolution amounted to "a voluntary, positive and deliberate choice to cease to trade". 

The court cited case law which provided that, if a business is deliberately abandoned in circumstances which deem it unlikely to ever be reinstated, goodwill is destroyed unless contemporaneously assigned to a new owner. Goodwill can't be assigned "in gross" and must be assigned with the business to which it is attached.

In relation to the goodwill in the second claimant's business, which had been selling the bags, the court was not satisfied the evidence established goodwill in the business related to the logo and the brand name between April 2018 and November 2022. For example, there was no evidence of a single sale of the bag to a member of the public in the UK in that time period, its social media following was minimal and there was no accounting information to support claimed turnover figures. 

Consequently, the court did not consider misrepresentation or damage, and the tort was not made out. 

Copyright

The court found Courtenay-Smith owned copyright in the logo as an artistic work, which comprised various components which collectively demonstrated creative freedom of choice, for example, the font choice, left justification and lower case "t" on the "the". However, the overall degree of creativity was deemed low. Correspondingly, the protection conferred on the logo was limited and only a close copy would have been deemed to have infringed.

Ultimately, the court was not satisfied the defendants had copied a substantial part of the copyright work, given the narrow degree of protection. On the basis the defendants' use did not amount to close copies, they were found not liable for copyright infringement.

What does this mean for you?

• Rightsholders should assign or otherwise transfer IP rights out of corporate entities before dissolving them. 

• Goodwill should also be assigned (separately and specifically) as it does not pass with trade mark registrations and can be difficult to recover. 

• Assignment is often worth it, even if there are no immediate plans to use the IP rights or rely on the goodwill in question.