The former members of defunct UK reggae/pop band UB40 are currently in dispute over the goodwill of the group, and in particular use of the band’s name. A preliminary issue in this matter was recently settled by the High Court, which decided that a purported assignment of goodwill (after a company ceases to carry on its business and abandons its goodwill) is ineffective.

The Band

UB40, responsible for the smash hits “Red Red Wine” and “I Can’t Help Falling in Love (With You)”, had 8 members in its prime. All musicians were formally employed by a first company (“Company 1”), which (as set out in the relevant employment contracts) also solely owned the copyright to the songs and goodwill in the band.  Company 1 went into administration in 2006, and was liquidated in 2008.

A second company (“Company 2”) was setup by the band members, and they continued to use the name “UB40”.  Company 1 did not sell its business to Company 2.  However, band members Campbell, Virtue, and Astro (the Defendants) left Company 2 soon after it was set up but also continued to use the name “UB40”.

As such, at the heart of this case was two bands, each performing under the name “UB40”, and each consisting of some of the original members of the band.

The Arguments

The other band members (the Claimants) argued that the Defendants were passing off by using the name “UB40”, but the Defendants applied for summary judgment to strike out the passing off claim because of an assignment of goodwill given by the liquidators for Company 1 to the Defendants.

The Claimants, in turn, argued that the purported assignment was ineffective because Company 1 had ceased carrying on any business and had effectively abandoned its goodwill at the time of the purported assignment.

The Verdict

The High Court stated that after the band members ceased to be employees of Company 1, it had no business. It did not have any business in performances, recordings, compositions or merchandising, and merely received royalties in relation to its back catalogue (which in any event was sold to Company 2 in 2009). It had no commercial activities, and therefore could not be said to have a business.

Relying on a seminal passing off case about rights to the name of a famous nightclub (Ad-Lib), the High Court did say that if Company 1 had only suspended its activities and left in place a clear intention to resume its goodwill at some point, then the assignment may have been effective.  This was not the case though, and if the Defendants wanted to make arguments to that end then they would have to wait until the trial for that issue to be decided. Ultimately, at the time of any purported assignment, Company 1 had no business and so the assignment was ineffective.

The Lessons

The case highlights the importance of considering at any early stage what is to be done with the goodwill of a product or service where the associated business is no longer operational.  Key questions include: Will the goodwill be transferred to a third party (whether pre- or post-administration)?  When will it be transferred? Is there an intention to resume the business one day and therefore a need to take actions to preserve the goodwill?