One of the critical parts of a business acquisition is ensuring that the purchaser actually gets all the essential elements of what makes up the business, eg the name, the staff, the equipment, the customers, and the IP.
In Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 (22 March 2005) (reference via Kim Weatherall) the Federal Court dealt with a trade mark infringement claim by Pacific Brands.
The claim was complicated because the original proprietor of the
trade marks "King Gee" and "Stubbies", Saramar LLC, a United States corporation, granted a licence to use
the marks to Sara Lee Apparel (Australasia) Pty Ltd, a related company. In turn
Sara Lee granted Underworks a sub-licence to use the marks. In due course Sara
Lee’s rights under the sub-licence were assigned to Pacific Brands (as a result of 2 business sales). Underworks refused to sign a direct licence unless some terms were changed.
What relationship did Pacific Brands have with Underworks? Could it terminate the sub-licence even if there were grounds?
Judge Finkelstein rejected Pacific Brands claim:
Pacific Brands’ case is that the sub-licence was assigned to it and
as a consequence it stood in the shoes of Sara Lee. Plainly this is incorrect.
In the absence of novation it is not possible to bring about a substitution of
parties to a contract…
whether there is a novation depends upon it being
established that there was an agreement between Sara Lee and Underworks to
discharge the sub-licence and a further agreement between Underworks and Pacific
Brands on the same terms as the sub-licence, perhaps with necessary
modifications in point of detail. In relation to any agreement between
Underworks and Sara Lee its existence depends upon the intention of the parties:
Vickery v Woods (1952) 85 CLR 336, 345. In this regard there is
simply no evidence upon which to base a finding that either Underworks or Sara
Lee intended (by inference) to release each other from their obligations under
the sub-licence.
Although the Judge found it was not necessary to decide on whether there were grounds for termination, he found there were none.
