In the wake of the MG Rover collapse, business writer John Revill examines the complex issues surrounding who owns the intellectual property to the car maker's brand and designs...
To say the collapse of MG Rover has left a tangled mess would be something of an understatement, not least when it comes to the intellectual property rights.
The question of who owns the intellectual property (IP) rights could still end up in the courts with lawyers poring over the details of deals struck by the Longbridge car maker during its final months.
In 2004, MG Rover sold the IP right for the Rover 25, 75 and K series engines to its would-be Chinese partner, the Shanghai Automotive Industry Corporation (SAIC).
SAIC paid £67 million for the privilege, money which, it seems, was needed to keep MG Rover afloat while the bigger deal, a joint venture between the two firms, was sealed.
As everyone now knows, SAIC took fright at MG Rover's mounting losses and pulled the plug on the deal, and the last British-owned volume car maker plunged into administration.
But where does that leave the IP? And when it comes to the rights of the Rover name, was it really MG Rover's to sell in the first place?
Administrators PricewaterhouseCoopers (PwC) are considering legal action to reclaim the intellectual property rights to the company's name and products.
PwC has engaged lawyers to examine claims that SAIC already owns far-reaching rights to the designs of the 25 and 75 models and K series engines.
The inquiry could centre on whether the car and engine designs were under-priced and whether there were any flaws in the transfer of IP rights.
A fault in the deals could, in theory, lead to anything from legal action against directors to the annulment of the designs' transfer.
Rover's lack of rights to the designs is a serious impediment to selling its remaining assets because it prevents potential buyers making the cars without permission from SAIC.
Tony Lomas, joint administrator and partner with PwC said: "We are reviewing with our lawyers precisely what IP had purportedly been acquired and the price they paid for it.
"We are looking at whether or not the price paid for the designs was appropriate. We are looking at exactly what was and what was not transferred. And we are looking at the interdependency of the different parts of the transaction."
SAIC is confident it has the rights to the designs.
A spokesman for the Chinese state-owned firm said: "The deal was negotiated and executed properly and SAIC are perfectly confident that their legal title to the intellectual property rights is sound - £67 million is a lot of money."
Chinese engineers spent a period of time at Longbridge last year, seeing how they could work with MG Rover, and examining the production processes.
Now the deal is off, it will be difficult to ensure the knowledge they picked up is not used elsewhere.
Further claims could also centre on whether SAIC has the right to use the Rover name on any new cars it produced in China.
The Rover name is owned by BMW and was licensed to MG Rover, but it is believed the name was sub-licensed to SAIC as part of the same IPR deal last year.
A source close to SAIC suggested that the administrators were looking to determine what the firm's interest was.
"Without SAIC's permission, nobody else can make a Rover," said the source.
"They are trying to get the Chinese to say 'what we would want to do is to buy this, this and this'. I suggest we are going to have an argument between lawyers."
The lawyers and, indeed, the administrators, must be scratching their heads. In an already extremely complicated company structure, who has the design rights and the right to the name is further tangled by the involvement not only of MG Rover and SAIC, Chinese and English law, but other motor manufacturers as well.
When BMW sold the business to MG Rover for £10, it included a licence to use the registered trademark Rover on cars.
Shanghai Automotive appears to be claiming that it can build these cars under the Rover marque, but that would be unusual in trademark licence terms, according to Neil Maybury, principal at intellectual property law specialists Maybury & Co.
Many questions surrounded the right to use the Rover name, according to Mr Maybury, who said: "The trademark licence from BMW to MG Rover allowing MG Rover to use the Rover marque would, apart from being personal to MG Rover, almost certainly have contained a clause terminating, or at least giving an option to terminate, the licence on MG Rover going into administration or liquidation.
"Equally, it would be unusual in a trademark licence to allow the licensee to assign or indeed sub-licence the Rover marque to a third party without at least the express written permission of BMW.
"Assuming that the licence of the Rover marque to MG Rover was personal to them, then any attempt by MG Rover, in the absence of the permission of BMW, to give it away to Shanghai Automotive could not succeed.
"You cannot give what you do not have."
Even if there had been some form of sub-licence by MG Rover, said Mr Maybury, it would still not affect a clause in the original agreement between BMW and MG Rover that the original licence would terminate on the administration of MG Rover.
Although it is rumoured that the law of Singapore applies to the licence by BMW to MG Rover, any licence under a UK registered trademark needs to be registered within six months if, for example, the proprietor wants to claim damages for infringement.
A check at the Patent Office revealed no such registration, said Mr Maybury.
So, although MG Rover could still call its cars MG Rovers, so could anyone else without damages being claimed.
This would be the normal course of events, but BMW has stated it had no concerns over the trademark being used by SAIC and would not be, for the moment anyway, cancelling its licence agreement.
The German company, which sold MG Rover to Phoenix Venture Holdings (PVH) in 2000, still holds the IP rights to the names of Riley, Triumph and, of course, Mini, which it has successfully relaunched.
A spokeswoman for BMW said: "If we did cancel the main licence, that would have a knock-on effect and cancel the sub-licence. But at the moment
we do not see the need to."
This is because when the licence to use the Rover name was signed, BMW made an agreement with Ford to prevent the Rover name being used to make 4x4 vehicles which could compete with the Land Rover brand bought by the American car maker.
The BMW spokeswoman said: "If we felt we could not meet our obligations to Ford, then we could cancel the licence, but the agreement relates only to the Rover 75 and 25, which don't compete with the Land Rover."
Meanwhile, questions remain about whether SAIC got the intellectual property rights on the cheap.
Rob Hunt, a partner at PwC and joint administrator, said the question of who owned the rights for the Rover 75 and 25 needed to be settled.
"This is an issue that needs to be understood by ourselves and any purchasers of the business because it has ramifications for them because it tells them what they can and cannot make," he said.
"SAIC has maintained they have bought certain IP off MG Rover, and we are talking to our lawyers to make sure what they purport to own, they actually own.
"It is very important we get to the bottom of this. It is a complicated issue and, if we are not happy, then we will be in dispute and seek a way of trying to resolve it."
The valuation of intellectual property rights was far from being an exact science, said Mr Maybury, adding: "At the end of the day, a valuation depends on what a willing purchaser will pay a willing seller in an arm's-length transaction.
"Although the sale of the intellectual property rights relating to the Rover 75 and 25 before the main deal was done with Shanghai Automotive would appear unwise, to say the least, it would be a difficult argument to say that those rights were worth more and, if so, how much more."
If Shanghai Automotive does start to manufacture cars under the Rover marque and there is argument to say that they have no right to do so, then either BMW or the administrators of MG Rover will have to decide whether it is worth their while taking restraining proceedings against SAIC in China.
While in 2002, China joined the World Trade Organisation and had to comply with certain basic requirements on IP rights, there are still many hurdles to overcome before success can be guaranteed, said Mr Maybury.
"Counterfeiting, unfortunately, is rampant in China and, as the career prospects of the local judiciary may well depend on local employment levels, corruption is common," he said.
"Attempts by a foreign brand owner to enforce rights against a local infringer may well result in undue influence being brought to bear on the local administrative trademark enforcement agency. Not an easy one to resolve."