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By Mireille Turner
aving established her business on a £100 loan back in 1983, Karen Millen successfully built a fashion empire worth £95 million. Fast forward to 2016, when Millen found herself walking out of court with no right to use her own name. Come 2017 and, to add insult to injury, Millen was declared bankrupt.
With such a strange twist of fate, it’s important for entrepreneurs to understand what went so wrong and how they can be one step ahead of the game when it comes to starting and growing their business.
For Millen, the problem lay at the start of her journey – the name of her business. Many founders will spend a significant amount of time at the start of their business’s life cycle pondering the right name for it: is it reflective of the business’s personality? Is it catchy and memorable enough?
That is not to say that any business named after its founder is doomed to failure, but there are factors that founders should consider, sooner rather than later, to make sure that they are in the strongest position they can be, come the time to exit their business.
Back in 2004, Millen sold her business to Mosaic Fashions under the terms of a share purchase agreement or SPA (the core document governing the sale and purchase of shares). Under the terms of the SPA, Millen promised the purchaser that she would not use her name or any other “confusingly similar” names in connection with a similar or competing business in the UK or anywhere in the world after the sale. This is the type of restrictive covenant that will often be heavily negotiated in any sale contract, relative to the parties’ respective bargaining powers.
Having signed away her rights under the terms of the SPA, Millen had a change of heart in 2011 when she made it known that she proposed to return to the fashion business under the name “Karen” or “KM”. In 2016, the high court eventually ruled that Millen could not use her name or any related names.
Karen’s story is sadly far from being an isolated case:
In 1999, Jo Malone sold her namesake brand to Estee Lauder and upon ceasing to be the business’s Creative Director some years later in 2006, was prohibited from creating another fragrance or skincare line for a period of five years as a result of a non-compete clause. Although the lure of the “undisclosed millions” that she received at the time of the sale was sufficient enough for Jo to sign her rights away, she’s since made it publicly known that she would have sold her company differently and that her focus should have been on the future.
Roland Mouret suffered a similar fate when he quit Roland Mouret Design Ltd following differences with his financial backers. Although it was proposed for Roland to be granted share options in the company when it had made a profit, that never happened and so his financial backers owned all of the shares in the capital of the company. The company owned the trade mark “Roland Mouret” and so following his departure, Roland lost the right to use his name. It is important to add that whilst Roland later re-acquired the trade mark, the price he paid remained undisclosed.
There are a number of ways founders can use this information to their advantage.
Remain anonymous Business owners may wish to consider using a pseudonym. In some instances, they may be better served remaining anonymous – take the founder of Ted Baker, for example, whose real name is in fact Ray Kelvin.
Be strategic On the sale of shares, a purchaser will acquire all of the assets (and liabilities) of the target company. If the name of the company is trademarked, but registered in the name of the founder, it will not automatically form part of the sale (as that asset is owned by the founder, not the company) – this unfortunately was not the case for Roland Mouret. While a purchaser will be likely to insist that the trademark be registered in the name of the company, this will be a matter of negotiation. Although it could be a deal-breaker for a purchaser, a compromise may be for the exiting founder to be granted an irrevocable licence to continue using the name in connection with certain business activities.
Be contract-smart Any restrictive covenant will only remain in place for as long as the parties to the contract agree (subject to certain limitations). To protect their future plans (whether known or unknown), a founder should try to ensure that any contractual restrictions are drafted as narrowly as possible, and if possible are limited in time, as this may prove to give them a strong advantage at a later stage. A good lawyer for the task will prove to be invaluable.
Future Proof Whilst the lure of extra digits in your bank account is hugely appealing, it is worth highlighting that each of Karen, Jo and Roland all eventually went back into the same and/or similar businesses. Founders should carefully consider the implications (sometimes permanent) of what they agree in light of their future plans.
Your business might be your baby, but you might want to think twice before giving it the family name.
By Mireille Turner