• Parties in dispute over what intellectual property each of them acquired during the administration of a business
  • Court of Appeal required to analyse unclear terms of assignment agreements
  • How important is it to use commercial common sense when interpreting an agreement?

What's it about?

Kemutec Powder Technologies Limited (KPTL) entered administration in 2009. Process Components Limited (PCL) purchased the 'Mucon' and 'spares' part of KPTL's business, and, under a separate sale agreement which was entered into later, KEK-Gardner Limited (KGL) purchased the 'unit machine' part of KPTL's business.

PCL's sale agreement purported to sell "all IP" to PCL. Subsequently, PCL and KGL entered into an exclusive licence for KGL to make and sell unit machines, in which KGL acknowledged PCL's ownership of the IP relating to the unit machine business (the Licence).

In 2015, KGL was acquired by Kason Industries Inc. (Kason), a competitor of PCL, after which the relationship between KGL and PCL soured and PCL terminated the Licence. Kason KEK-Gardner Limited, as KGL then became known, disputed PCL's ownership of the IP and claimed repayment of royalties paid to PCL in the sum of 600,000.

A key issue in the case was whether PCL had purchased all IP relating to the Mucon and spares business from KPTL in the first place. The High Court ruled that it had, meaning that KGL did need a licence to use the relevant IP. KGL appealed to the Court of Appeal.

Why does it matter?

The Court of Appeal dismissed KGL's appeal, albeit that it came to the same conclusion as the judge in the High Court using different reasoning. In construing the assignment agreements under which IP was purportedly assigned to PCL and KGL, the Court of Appeal drew on a range of principles. For example, the Court of Appeal emphasised that it should not rely on commercial common sense to an extent which devalues the importance of the plain language of the agreements (referring to the 2015 Supreme Court case of Arnold v Britton). Also, only the background information to a contract that is known to both parties is admissible.

Now what?

This dispute arose because of ambiguous drafting as to what IP each purchaser was buying under their respective sale agreements. It therefore emphasises the importance of clear, careful drafting when it comes to agreements relating to the assignment or licensing of IP.

Kason KEK-Gardner Limited v Process Components Limited [2017] EWCA Civ 2132