Do the due… part 2

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In July 2020, I wrote an article for this publication entitled “Do the due (diligence, that is)”.* Referencing a New Zealand High Court case, the article highlighted the importance of undertaking comprehensive due diligence when buying a business.

Two years later, I am revisiting the topic of due diligence because of two matters that I recently learned of.

The first matter involved due diligence in the purchase of a business; the second matter involved due diligence in the expansion of a business. Both matters are good examples of why doing the due is important, and, more specifically, why when doing the due it can be very important to seek advice from an IP attorney.

(Before I continue, I should say that to preserve confidentiality, I have kept the descriptions of the two scenarios intentionally broad.)

Turning to the first matter, the background facts were these. Business A had purchased the assets of Business B. All was going fine until Business A tried to enforce its IP rights and was met with an ownership challenge.

On reviewing the relevant documents, it transpired that Business A did not in fact own the rights it thought it did – it only owned a third of the rights; the other two thirds were still owned by Business B.

This news came as a complete and unwelcome surprise to Business A as, not being the exclusive owner of the IP rights in play, it could not enforce them.

This situation could have been avoided if, when doing the due, advice on the IP rights being offered had been sought from a specialist IP attorney. Fortunately, the ownership issue was ultimately resolved but not without a degree of unnecessary frustration (and expense) incurred by Business A.

Owning the rights

In the second matter, Business C was an online business that began trading in Australia a number of years ago. About a year ago, it started trading in New Zealand, albeit on a small scale.

Unfortunately for Business C, it did not own the rights in its name in New Zealand – Business D did, and Business D did not like Business C selling into New Zealand as Business C was selling competing goods.

On becoming aware of Business C, Business D’s lawyers sent a letter of demand to Business C, telling it to stop infringing Business D’s trade mark rights in New Zealand.

This letter came as a complete and unwelcome surprise to Business C, as not being the owner of its name in New Zealand meant it could not use it in New Zealand.

This situation, too, could have been avoided if, when doing the due on its name (i.e. when choosing its name) Business C had instructed an IP attorney to check all the jurisdictions it had aspirations to trade in in the future for users (and registrants) of identical or similar trade marks.

At the very least, Business C could have instructed an IP lawyer to check for other users of its name in New Zealand before it began trading in New Zealand.

As it is, Business C has had to stop trading in New Zealand until it either changes the name of its whole business or it has set up a new website under a different name to trade in New Zealand.

I hope the two examples in this article demonstrate to readers just how important it is not only to do the due, but to do the due properly – which, when IP rights are involved, means seeking advice from a specialist IP attorney.

* If you haven’t read it, fear not, you still can here: Do the due (diligence, that is)

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Ben Cain
Ben Cain
Ben Cain is a Senior Associate at James & Wells. He can be contacted at 07 928 4470 (Tauranga), 07 957 5660 (Hamilton), or email ben.cain@jamesandwells.com.

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