Guernsey image rights: six years on!

BY JASON ROMER AND DAVID EVANS[1]

 

Introduction

  1. The London Olympics. Gangman style. Julian Assange went into hiding. Guernsey image rights were launched.

We are not sure which of these is highest in the memory of the reader of this article, but 2012 was definitely most memorable for us for the last of these. It seems a long time ago now, in a world which thankfully had not yet heard of Brexit.

At the time, we were incredibly hopeful for the introduction of these ground-breaking rights and the intervening six years has, in some respects, delivered on those expectations and promises.

It is incredibly difficult to launch a brand-new product onto an unsuspecting group of seasoned advisors and their clients when there is no comparable product elsewhere in the world.

This article gives you an insight into the story of image rights and some highs and lows from the last six years and takes a look into the future and how these rights might be used.

 

Background

From a background perspective, the creation of an image rights register in Guernsey had been a long time coming. Whilst England was happy to recognise image rights for tax purposes but not recognise them elsewhere in law, Guernsey decided to formalise these rights and allow for their registration.

For those readers who are not aware of what an image right actually is, for quite some time, the US have had recognition, at least in some states, of what they term “rights of publicity”. These differ fundamentally from what became formal image rights in Guernsey, as a right of publicity in the US is only for the famous. In addition, they are not registrable rights, rather than state acknowledged rights, which enable a claimant to pursue an infringer more easily than under other legal rights. This has not stopped the ever-commercial US building a whole industry around such rights, especially in relation to the deceased.

Prior to image rights being developed, Guernsey had already developed and put into practice its own suite of intellectual property laws. One of the key facets of these laws was the overarching ability to add to those laws with its own primary legislation, should it choose to do so. This is where the concept of image rights was born. The idea was to create a recognition of the value of image as a right per se as distinct, say from copyright or trademarks, neither of which fully covered the recognition of an individual or a corporate personality in the modern world. Copyright in a photograph, for instance, does not protect the subject of that photograph; whilst trademarks only relate to the goods or services for which they are registered and used.

Having identified the requirements, Guernsey set out to draft the appropriate legislation, clearly a monumental task, given that there was no precedent.[2] The solution to this was a very clever one: create a right of personality, around which images associated with that personality are placed.

This gives the ability to register a core right, which did not change over time, around which more transient image rights are registered. This enables any registrant to have a fluid mix of rights, which can adapt and change, accurately representing their requirements at any one time. The registration periods for each of these distinct rights was also different: 10 years for the core right and 3 years for the image rights. This also allows for the owners of the rights to deal with the images in any way they see fit, the benefit being that the registration is able to be added at any time.

In addition to this, the legislation also allowed for any party, such as a company or trust, to own the rights.

An individual could transfer their personal rights to a company, which could, in turn, register those rights.

Each image could be dealt with separately, so it could be licensed without affecting the other rights within the registration.

Finally, there was the ability to register anything associated with the personality, not only still images. This meant that anything from gestures and mannerisms to avatars could be registered, giving the legislation some future proofing.

We think that it is fair to say that what we had been given was a novel piece of law. All we had to do was find clients!

 

2012-2018

Once we had been handed the legislation and the launch date, as a registered agent for these new rights we were off and running! We presented to large groups of advisors, held seminars announcing the rights and wore out shoe leather pounding the streets between countless meetings.

It is fair to say that we had a wide range of responses to the new rights. Just like anything untested, there was a degree of cynicism (some more healthy than others) surrounding the rights themselves. Many responses gave rise to what became a list of FAQs. Guernsey – that’s just about tax isn’t it? What good is a right in Guernsey if it’s not recognised elsewhere in the world? Can I enforce this right in China? Do I have to be famous? Can I register someone else’s image without them knowing?

What came out of this was that advisors had clear requirements for their clients, some of which may not have been obvious to us on day one. We had imagined that sport would be an obvious place to start. As a firm, we did not have a background in this area, so spoke to everyone we could find who specialized in it. The conversations and approaches were so disparate that we realised we had to take our own approach and talk about the merits of the rights generally, rather than trying to identify specific uses. In the end, the clients and their advisors have come up with ever interesting and novel ways to use these rights – some of which, it is fair to say, we would not have considered.

The resultant six years have been an interesting journey, to say the least. Quite naively, we imagined that premiership footballers would be beating a path to our door from day one – this did not happen! When you start to understand all the intertwined relationships between players, their advisors, agents, not forgetting clubs or contracts that they may have already signed, the world of football is one which is fraught with complications, to say the least. What did happen was that advisors became aware that Guernsey had invented a unique product which has since been taken up by many sports personalities, including the originally expected footballers.

As a result of the subsequent conversations and registrations over the years, we have noticed a trend amongst registrants and the type of registrations, which point to really sophisticated reasons for filing these rights. These break down into three distinct categories as follows:

1  clarity of rights;

2  succession planning; and

3  potential infringement protection.

 

We always put infringement at the bottom of this list for a simple reason: like all intellectual property rights, Guernsey image rights are territorial and, therefore, may prove difficult to enforce effectively elsewhere in the world. What is clear, however, is that the mere existence of a registration has helped several parties obtain very good settlements from infringers, where more traditional rights would not have helped. None of these actions have gone to court, which from a precedent perspective is always frustrating, but it is clear to us that owning these rights certainly does no harm when contacting a potential infringer.

The other two reasons are more wide ranging and commercial in their outlook. The clarity of right is a simple enough concept. If a contract is over something which can easily be identified on a register, then the job of accurately describing that right becomes much easier. This is even more the case when the rights in question deal with images of a person, or gestures and mannerisms of that person – something which would be far more difficult to define effectively otherwise. This is particularly useful when dealing with licences or commercial territorial restrictions.

As for succession planning, this is something that became more apparent as we talked to advisors. It was often commented on that these rights gave the perfect opportunity to deal with rights separately and gave rise to the ability to leave these rights to different beneficiaries after death. Again, this allowed for very clear planning opportunities which could be explicitly referred to in a will, something which has been well received. It also gave the ability to deal with these property rights in a way that was not able to be done previously, as no legal definition exists, certainly under English law.

There were two very important things that happened over this six-year period in relation to image rights generally and it would be remiss not to mention these in a review such as this.

The first is the Rihanna case.[3] We will not go into the background of this case, but the pivotal sentence in the judgement by Lord Justice Kitchin states:

There is in English law no “image right” or “character right” which allows a celebrity to control the use of his or her name or image.

In the end Rihanna succeeded in this case by virtue of her reputation in fashion, but this judgement made it very clear what the English courts felt about image rights. It also pointed to the fact that, whilst Rihanna was able to succeed with a passing off claim, others may be less likely to succeed.

The second was a far less high profile, but just as powerful piece, which appeared as a Capital Gains Tax update by HMRC.[4]

The essence of this was to affirm the position that image rights did not exist under English law, but further refined the treatment of these rights from a tax and accounting perspective. In doing so, HMRC also set out its view on what was owned, if image rights were unavailable, and encapsulated this as potentially being “goodwill”. If it is found that goodwill is the asset in question, then this, in turn, causes potential problems when dealing with transfers and the questions surrounding actual use within a business context. Whilst the piece was written for UK tax purposes, it was clear to us from this that, if there was any doubt as to the substance of an individual’s rights, then the best starting point would surely be to register these rights in the only place possible.

 

The future

What has happened over the course of the last few years is that another, potentially far more persuasive use for these rights, has come along in the form of BEPS (base erosion and profit shifting) and substance tests for IP holding companies.

Substance is an interesting concept. There’s a duality to the word which conjures up both a quality based on fact whilst at the same time denoting wealth or affluence. In terms of what is on the horizon for IP rich companies, the second of these two definitions will inevitably force the IP owner to demonstrate the first definition. For the last 20 years or so, IP or IA (intellectual assets) rich companies have been able to move profits around the world, taking advantage of tax neutral environments to harbour these gains. Just around the corner are a whole range of methods designed to change, or, at least, require justification for, these arrangements.

What used to pass as directing or controlling a company is no longer applicable in today’s more transparent and open business world. Intellectual property has long been the subject of corporate structures design to maximise the value out of these incorporeal assets. By doing this and charging related companies within a multinational group for the privilege, businesses have been able to move profits to tax favourable jurisdictions, something which the OECD has tasked themselves with preventing.

One of the ways of doing this has been the BEPS initiative[5], which demands that companies comply with a series of action points designed to realign taxation with economic substance and value creation. In plain terms, this means ensuring that the operation represents the real economic activity of a company, rather than merely moving profits around the world to ever favourable jurisdictions.

Whilst many may perceive Guernsey as a likely candidate for this activity to date, this has not been the case. The main reason for this is that Guernsey does not have a wide tax treaty network with other countries and, as such, any flow of royalties may result in withholding taxes being applied and not being able to be offset. This has resulted in Guernsey not being a jurisdiction of choice for such arrangements to date.

What is clear from the BEPS initiative, however, is that IP and IA holding companies are being targeted in a way like never before. Many famous multinational companies use European Union countries which have low tax bases to house their IP and have done so for a long time now. Once these assets are situated in one of these countries, it is then licensed to other foreign entities in the group, and it is here that the potential problems for BEPS compliance start. Up until now, the cost of such a licence could be arrived at internally and justified in any number of ways, irrespective of the practical or economic ramifications of this. This could result, for example, in a subsidiary company paying a disproportionately large licence fee, which had no bearing on the underlying value of the core brand assets being licensed.

This brings us to one of the main difficulties with IP generally: how to value it. There is no single exchange where these assets are freely traded every day and a consensus figure arrived at. These assets, after all, generally form part of much larger companies with staff, plant and machinery, stock, etc. If quoted on a stock exchange, the composite value of a company as a whole is what is being traded.

What has this got to do with image rights? Well, firstly these rights can represent all of the brand assets that currently cannot be registered elsewhere using traditional IP, such as trademarks, copyright and patents. Let us suppose that a franchisor owns a wide range of IA, which includes traditional IP, but also consists of a wide range of what we used to call trade dress. Often it is these much more transient assets which form the bulk of a franchisor’s valuable licensing assets. Items, such as brand get up, organisational know-how, design, store dress, even down to menu design can be protected, provided these items are readily associated with the brand. This is, in turn, gives the ability to break down the licence fee charged to franchisees into more justifiable elements. By arriving at a licence fee in this way, a backward calculation can be made to establish an overall brand value.

In addition, because image rights are only available in Guernsey, any reason for having IA based there is wholly justifiable. What does need to be done, however, is to ensure that these assets are properly created and managed in the jurisdiction, in order to ensure compliance with the new rules. The 2018 UK budget dealt with a change in offshore receipts in respect of intangible property (previously Royalties Withholding Tax). Whilst these measures are designed at larger companies (there is a de minimus threshold of £10 million), there is also exemption for income relating to intangible property that is supported by sufficient local substance. We see this becoming part of a much larger trend where IP assets are owned and administered offshore, by suitably qualified businesses able to support the development of these rights, thereby creating justifiable value. In turn, the need for boards to understand IP and IA will become ever more necessary, as these assets make up more and more of a company’s balance sheet.

A great deal has changed in the last six years in terms of corporate, fiscal and social responsibility. More is being demanded of directors in terms of stewardship and management of a brand’s assets. As the requirement for an understanding of IP increases throughout the corporate world, it will become ever more important for companies to manage these assets effectively and in a way that can be justified to both shareholders and authorities. We see image rights playing an increasing role in the new landscape of multinational IA ownership.

 

Art

There is a further use for image rights which always raises a great debate when mentioned and that is in the world of art. What has traditionally been the sole preserve of copyright can now be augmented by image rights. For an example, many famous artists and their estates have a good business licensing images from an artist’s portfolio. When the copyright in those images expires, then logic and the law dictates that these images themselves fall out of protection. Whilst this is clearly the case, this should not mean that the subject of those images should not be protected. We are working closely with various institutions and art bodies to discuss the future potential to give the ability to further protect works, which are clearly associated with the artists concerned, and see this as a real area of potential.

 

Conclusion

The last six years have been eventful for both Guernsey’s image rights regime, as well as the wider IP world.

We are firm believers that image rights represent an opportunity for brands (whether personal or corporate) and their owners to fully register their assets in a way which makes sense for the modern requirements of international trade and licensing.

In doing so, these assets are then able to reflect more accurately the state of an owner’s balance sheet and, therefore, its true value.

 

[1] Collas Crill, Guernsey, Channel Islands. Website: www.collascrill.com (accessed 3 December 2018).

[2] See Jason Romer and Kate Storey, “Image is everything! Guernsey registered image rights”, in: GSLTR 2013/1, at p. 7-10.

[3] Robyn Rihanna Fenty & ors v. Arcadia Group & ors [2015] EWCA Civ 3.

[4] Available at www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg68465 (accessed 30 November 2018).

[5] BEPS Frequently Asked Questions: www.oecd.org/ctp/beps-frequentlyaskedquestions.htm (accessed 30 November 2018).