“Yep! You can sue the author to get the Co’s IP from them.” | Wholesome Child [2023] NSWSC 1530

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“Yep! You can sue the author to get the company’s IP from them.”

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A Co’s Dir, P, sought to bring derivative proceedings against a Co’s majority shareholder, D.

P wanted declarations that the Co (and not D, who was also the book’s author) was the owner of all intellectual property rights in relation to a book: [1], [6]

P said that after D wrote the book, D and the Co entered into an agreement for the Co to acquire the IP in the book: [7]

Alternatively, P said D was estopped from asserting they owned the IP. Both D and the Co conducted themselves (including by the Co’s accounting and the collection of fees) as if D had assigned the IP. Indeed, in their capacity as co-director, D signed the relevant accounts reflecting this: [8], [10], [12]

Evidence showed D received a real financial benefit in their corporate loan account on the basis of the transfer of IP having been made: [24]

Evidence showed there had been negotiated of a written IP assignment agreement but that D had not signed it: [9]

P attempted to commercialise the IP with one childcare provider. Conflict arose as D tried to do something similar with a competing childcare provider: [11]

D did not lead evidence but said that, if leave was granted, they would defend the claim: [17]

The Co being solvent, the Court then turned its attention to the five criteria regarding whether leave to bring derivative proceedings ought to be granted pursuant to the Corporations Act.

(i) It was clear (from the deadlocked board and D’s refusal) that the Co was not going to bring the proceedings: [19]

(ii) The Court accepted P was coming in good faith, bringing a claim P believed was well-founded, with reasonable prospects, and likely to bring value to shareholders if successful: [20]

(iv) The Court accepted, on the basis of the material before it, that there was a serious question to be tried: [21]

(v) Notice of the application was given to D: [31]

This left the remaining criterion (iii) - whether it was in the best interests of the company for P to be granted leave to bring the application on behalf of the Co.

The Court noted it appeared the Co paid for but had not obtained the value of the IP. The inference arose that the IP might be put to productive use in future; an inference reinforced by the fact that the IP is at the core of the Co’s business purpose and - without it - it was not clear how the Co could pursue its business purposes: [25]

D’s suggestion that it was not in the Co’s best interests to be in dispute with its majority shareholder was acceptable on its face, but did not take the D’s argument very far noting this approach would serve only D’s interests, and not the Co’s: [26], [27]

The Court considered the Co was better off pursuing the IP rights it paid for than going without them: [30]

Noting the indemnity provided by the P for the Co’s costs (an indemnity obtained in part from a related trustee), leave was granted to P to bring the derivative suit: [32], [34]

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