The Hidden Treasure of IP After Insolvency 

The Hidden Treasure of IP After Insolvency 

The power of the brand – it’s likely the company’s biggest treasure

The latest demise of fashion retail giants BHS and Austin Reed appears to be just another in a long line of recent retail-based insolvencies. While fingers have been pointed in numerous different directions when trying to determine the source of these failures, the blame has largely been placed on internal mismanagement rather than a decline in the value of these long-standing brands. But this is nothing new. In fact, this has been a common theme over the history of retail insolvencies, evident by the resurrection and restructuring of iconic brand names which have been able to retain their value despite business inefficiencies.

A business may be in trouble: financial solvency evaporating, stock depreciating. But this certainly doesn’t mean everything is lost

At the start of the year, for example, menswear retailer Ben Sherman was sold via pre-pack administration to the clothing supplier BMB Clothing. And just last month, the Australian-based electronics retailer Dick Smith was set to be revived as an online-only consumer electronics retailer following a fierce two month bidding war for its trade marks, customer database, website and domain names. After all, brand recognition and – more importantly – consumer brand loyalty do not always necessarily suffer as a result of operational inefficiencies. You’d be hard pressed to find someone that would say that the goodwill associated with these various brands was completely eradicated simply because the business model has faded. And, in fact, these brands are likely worth much more than the physical stock bearing their collective names.Simply put, brands – as well as other classes of intellectual property – often have value outwith the current businesses usage. The buyer gains the benefit of the goodwill in brand from the consumers who come with it.

IP Asset Sales

3 excellent examples of when our experts have preserved assets post-insolvency

Case Study

This has been an oft-repeated mantra around the Metis Partners office, not least of which is due to our own first-hand experience in seeing (and helping) multiple well-known, niche and/or heritage brands survive insolvency. Horrockses, an iconic British fashion and lifestyle brand; Bank Fashion, a former leading retailer of trendy and dynamic fashion items; Internacionale, a high street UK brand; and Ortak, a designer, manufacturer and retailer of classic and contemporary jewellery, are just a few examples of companies that had IP assets preserved post-insolvency. These brands had a presence and a loyal customer base, in addition to a number of associated and enabling IP assets – all the necessary ingredients for a third party looking to break into the retail sector, without the added burden of endeavouring to build up the business from scratch.

We can’t stress enough the hidden benefits of IP

Back in the summer of 2013, we wrote a blog entitled Insolvency and the Hidden Brand Benefit.” It was a discussion of the potential for established brands to provide a significant uplift on the available return for creditors or, even, lay the groundwork for a commercial comeback. But with these latest insolvencies, we thought it would be worth delving into insolvency and the hidden IP benefit once more. We’ve sung the praises of brand value in insolvency scenarios already (which you can read more about in our previous blog), but what about the other assets which exist in a retail business?

Three IP assets that make the intangible, tangible:

  1. Brands – The business crown jewels

We would be amiss if we didn’t touch, at least briefly, on the value of brands in insolvency; after all, it is often the single greatest asset – tangible or intangible – a business possesses. Building and maintaining a successful brand is one of the most costly and involved activities for a business, particularly in the retail and fashion industry. It requires genuine dedication, as well as strategic and financial resource. Also, a brand is much more than the physical name and logo produced by marketing gurus; it is often inextricably linked with business performance, sales track record, customer relationships and even the public image of key people within a company. As a result, the smallest mistake may undo years of brand-enhancing work carried out by a company and their marketing strategists. This is why the value enshrined in brands which have achieved market recognition, or have been in the marketplace for decades, may be particularly attractive to purchasers.

  1. Customers – The fuel behind the power of the brand

In September 2015, then-CEO Darren Topp claimed BHS serviced circa one million customers a week, and while those were not all unique, first-time customers, there is little doubt that the BHS customer database is nothing short of mammoth. Brand and customers are inextricably linked; brand value is bolstered by customer loyalty, and the ability to retain these customers would unquestioningly be a boon to any third party hoping to continue the business. More than that, customer data may be useful to competitors or even to third parties in unrelated sectors; after all, there are numerous ways to leverage a significant customer database based on age, location, buying preferences, etc. Customer data is ripe for monetisation, but this must be done in light of legal considerations, therefore, we would always advise using a solicitor when selling/purchasing customer information.

Keeping it Legal

In brief, however, the processing of any customer data must be done in accordance with the Data Protection Act 1998 (“DPA”); it would suffice to say, the definitions of both data and  it’s processing are wide, and its likely that any retail business with customer information will fall within the Act’s ambit. There are two ways customer data could be monetised after an insolvency event: (1) as part of a “going concern” sale, or (2) as a separate asset, outwith the context of the business it sat in. The latter is of particular concern, and depends quite heavily on a company’s policy pre-insolvency.

If a company’s privacy policy stated that all data was to be kept private and promised data would never be sold on to third parties, then endeavouring to sell the data would be in breach of the DPA. Conversely, if a customer consented to use of their personal information in other capacities, then it is unlikely that selling a customer database would fall foul of the DPA provisions. Likewise, if the data is being sold to a buyer in order to continue the provision of goods and/or services provided by the insolvent company, provided a fair processing notice is sent out – which alerts customers to the transfer of information and allows them an option to opt out – then this would likely satisfy data protection requirements.

We would stress that liquidators do not fall out with the scope of the DPA. Liquidators are not data controllers; rather, they are acting as agents of the insolvent company and so the position will be judged by reference to the selling company itself. There are no special exemptions for liquidators, insolvency situations or insolvency sales. Though the hoops may seem high, the return on a truly comprehensive customer database may be even higher (to read more about databases, have a look at our previous blog on “Big Data”).

  1. Designs – Often the stimulus for brand familiarity

Another obvious but often overlooked asset are product designs – especially those which have a strong association with one particular brand. These can be particularly valuable in the continuation of a retail business or in the formation of a new one. Designs, naturally, are the result of significant resources expended for the purpose of their creation.  Not only does acquiring designs save third parties the time and money necessary to recreate something similar, but the designs themselves can evoke brand familiarity from loyal customers.

Take Ortak, for example, which had a myriad of designs underpinning its unique and varied range of jewellery. By acquiring the design database, the business was able to continue exploiting the designs created for the company over the years, whilst simultaneously deterring any potential infringers and/or third parties from taking advantage of the IP entering “bona vacantia.”

Registered designs can potentially be even more valuable, since – as with patents – they grant the owner a legal monopoly for a defined period of time. Think of something like Burberry, and its distinct checked pattern. Although it is currently in the public domain, you can easily see how purchasing the rights to the design, and accruing goodwill over the legal period of exclusivity, could be a worthwhile investment.

IP – both the means and the ends

Though we may have belaboured the point, it is worth repeating once more – intellectual property can be both the means and the ends. Whilst the fate of BHS and Austin Reed is yet to be determined, we’ll be keeping our eyes open and our fingers crossed for canny buyers who can spot the value which exists beyond their individual warehouses.

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