France: Beware the impact of corporate restructuring on licences

November 21, 2016

Trade mark and patent licence agreements generally include provisions regarding the transferability of the agreement to third parties.

Such agreements are frequently concluded in consideration of the person of the licensor or the licensee and include clauses providing that any transfer is subject to the prior consent of either party.

It is also very common that companies and groups of companies be affected by reorganisation or change in capital control which may involve mergers or an equivalent procedure unique to France (called TUP) consisting of the dissolution of a company further to the collection of all the capital shares in hands of its only shareholder. Both procedures involve the complete transfer of all the assets (including IP rights) and debts of the prior company to the surviving company.

Companies are used to thinking about the consequences of the transfer on their IP rights portfolio but rarely about the consequences on their licence agreements.

In this case decided on April 14 2016 by the Paris Court of First Instance, the licensee realised its mistake too late.

Laguiole Licences SAS granted a licence to Koox on the trade marks Laguiole and Bee design for manufacturing and selling cooking devices. It was stated in the agreement, signed on June 1 2011, that the licence was finalised in consideration of the person of the licensee and was not transferable without the prior written consent of the licensor.

On June 22 2012 Koox was dissolved further to the collection of all capital shares in the hands of its only shareholder Der Grune, to which all the assets and debts of Koox were thereby transferred.

Koox did not pay the royalties due further to the agreement and the licensor claimed for this payment, first with Der Grune as successor in title to Koox, and then before the Court.

Der Grune filed the action before the Court for obtaining the termination of the licence agreement, considering it was still the licensee in accordance with the licence granted to Koox.

The Court held that the licence agreement was terminated at the date of dissolution of Koox since it was conditioned by the person of the licensee and since the consent of the licensor was not sought. As a consequence, the agreement was not transferred to Der Grune.

Accordingly Der Grunewas not admitted to act as a licensee by the Court.

However Der Grune acquired the debts of Koox further to the dissolution and the Court held that the unpaid royalties had to be paid by Der Grune to the licensor.

This decision applies to cases of merger of companies as well as to any IP rights.

In addition it should be kept in mind that the company that is no longer a licensee has become an infringer.