All for the sake of lost golf balls ...

Another of those little cases that almost escaped the IPKat's keen attentions was last Friday's ruling in Key-TV Ltd and others v Ramsay and another, a decision of Robin Knowles QC sitting as a deputy judge of the Chancery Division for England and Wales. It's not on BAILII: the Kat encountered it on the LexisNexis Butterworths subscription-only service.

Right: looking for the original agreement -- or was it just a rough draft?

When GSI was incorporated in 2002, Ramsay held 70% of its shares and the second defendant 30%. Both were its directors. In January 2003 GSI applied for a patent for the Ballfinder, a method and apparatus to locate lost golf balls. KTV entered into a European distribution agreement with GSI to sell Ballfinders, raising capital from investors including the fourth claimant in this action, which took a 7.5% shareholding in KTV in return for his investment. KTV in turn invested those funds in GSI and took a shareholding of approximately 10%. These arrangements were reflected in a number of documents, including a shareholders agreement that included a warranty by Ramsay that all of the intellectual property rights relating to the Ballfinder

"which exist at the date hereof or are created hereafter and which have not already been transferred to [GSI] will be assigned to [GSI] as soon as possible and ... [the first defendant] holds any interest which he may have in such Intellectual Property Rights on behalf of and for the sole benefit of [GSI]."

In April 2004 another company, GSM, was incorporated in the Isle of Man. Its sole subscriber was GSI, Ramsay being its sole director and it was created in order to undertake the manufacture of Ballfinders for GSI under licence. GSM later applied in the Isle of Man for a new patent for Ballfinders.

The manufacture of Ballfinders did not proceed as planned, following delays and funding problems. Then, in November 2005, the defendants caused GSM to issue and allot 1260 shares to Ramsay and 540 shares to the second defendant, thereby diluting GSI's shareholding to a fraction of 1%. On 16 November 2005 an exchange of emails indicated that agreement for the advance of further finance could be reached with the third and fourth claimants, following which KTV's solicitors sent a draft agreementsto the defendants. Under the terms of the draft, Clause 2.11 warranted that GSI was the sole shareholder of GSM.

Signature was deferred until 23 November 2005, when the version of the agreement brought for signature by Ramsay had been altered. Clause 2.11 was altered so as to reverse its effect, providing a warranty that GSI was not the sole shareholder of GSM. That change was not brought to the attention of KTV, who signed the documents without reading them. Ramsay then told the third claimant that he had caused GSM to apply for a 'stand-alone' patent'. On discovering that GSI's ownership of GSM had been reduced, KTV sued for breach of contract (specifically the shareholders agreement) and breach of fiduciary duty.

Robin Knowles QC allowed KTV's claim. In his view, the actions of the defendants were motivated by their own interests, not those of GSI, and with the purpose of personal gain rather than gain for GSI. They had acted in breach of their fiduciary duties as directors of GSI and also in breach of their contractual promise, under the shareholders agreement, to use all reasonable endeavours to maintain and improve and extend the business interests of GSI.

The IPKat says, many people today believe that patent specifications are a waste of time because no-one reads them. The same appears to hold for the documentation relating to IP transactions, which gets shoved into a drawer and forgotten about on far too many occasions. While the defendants' conduct was unconscionable and the chances were that KTV would win in court, all parties could have been spared a good deal of expense and inconvenience if they had only read the agreement before they signed it. Merpel adds, it's good to be reminded that the Isle of Man -- which is NOT part of the European Union -- has its own legal system and its own IP laws.

Isle of Man IP law here
Ballfinders on sale from Amazon here