Design & build

IP includes such rights as: confidential information and trade secrets, copyright, database rights, design rights, domain names, know-how, patents and trademarks. Our intellectual property lawyers have a wealth of experience advising on the full range of intellectual property rights covering the management, protection, exploitation and enforcement of IP, and reputation management and privacy issues in relation to super yachts.

Whether you are creating the exterior design of a superyacht or the design of an internal feature of a superyacht, you should consider:

• How to protect your IP.
• How you want to use your IP going forward and the extent to which you want to allow third parties to use it.
• Whether to license the right to use your IP or to assign the rights in your IP to another party.
• How you want to restrict the use of your IP – you must be specific or you risk misuse and infringement.
• Who will own the IP- for example if you are only contributing to one aspect of a design, be clear who will own the design and avoid the pitfalls of joint ownership.
• What consideration do you want for the use of your IP – is a one-off payment sufficient or do you require payment on an ongoing basis via royalty payments.

The following IP rights may apply to various elements you have designed or invented in relation to a superyacht:

• Copyright: Copyright is the right to prevent others from copying your work,and is especially important when creating and negotiating superyacht designs. Copyright protects amongst other things artistic and literary works (which includes sketches, design drawings, photographs, images, books, paintings, sculptures, computer programs and databases, sound recordings, films and broadcasts). Copyright will exist in a work if certain conditions are met, including: the work is original, the work has been recorded, and the work qualifies for copyright protection, which depends on the national status of the author, or the country of first publication of the work. Copyright arises automatically in the UK and there is no requirement for registration.

• Design Rights: Design rights protect the outward appearance of an article resulting from its features, in particular, the shape, lines, contours, texture, colour, materials used and its ornamentation – for example, the shape of a superyacht hull or deck design may qualify for protection. To qualify as a new design, the overall impression of the design must be different from any earlier design. Design rights provide a monopoly right and prevent a third party copying your design for a period of time. Design rights may be registered or unregistered and you can register your design provided it meets the eligibility criteria.

• Patents: Patents protect inventions and give inventors the exclusive right to use and/or commercially exploit their inventions for up to 20 years. Patents cover both manufactured products and processes and they are available for most industrially applicable processes and devices. For a patent to be granted in respect of an invention, the invention must be new, involve an inventive step, be capable of industrial application and not fall within any of the applicable exclusions, for example scientific methods or software.

The benefit of a registered design is that the design may enjoy a larger period of protection.

• TradeMarks: Trademarks protect symbols, names and slogans used to identify goods and services such as the name ‘AM37’ and the brand Aston Martin, they can also protect sounds, smells and shapes which could be something like the classic Coca-Cola bottle. Consider the logo used on a superyacht or the logos which may be found on individual parts of a superyacht – they serve to distinguish the goods and/or services of one organisation from another. Not all trade marks are registrable and there are various legal requirements they must satisfy. Once registered, trade marks can be protected indefinitely provided renewal fees are paid every 10 years. Unregistered trade marks arising through use also provide a certain amount of protection.

We have extensive expertise of the different forms of dispute resolution common to IP disputes and can advise you on the best strategy to adopt should your intellectual property rights be misused or infringed, from negotiating commercial resolutions to the commencement of legal proceedings.

If things do go wrong, take prompt action to protect your rights.

A good contract will appear fairly balanced, while a poor contract will limit the buyer’s rights as much as possible.
A superyacht construction contract will usually be made up of the main contract, the technical specification, the general arrangement plan, and any other elements such as a construction schedule, the form of delivery documents and a makers list.

Never sign a contract without seeking legal advice.

There are some basics you should expect to see in a build contract:

• Payment terms: Stage payments linked to milestones, on a cost plus basis, monthly stage payments or on a percentage of completion basis. Careful consideration should be given to timings, exact triggers of payments and the value of the superyacht as constructed

• Specification: A marine surveyor can help to negotiate this. The specification will include details of the flag and classification notation. When choosing a flag, a number of factors should be considered including tax, intended use (ie chartering or not), flag reputation and the builder’s knowledge/experience building with such flag. Advice should be sought on your choice of class on whether it will add or detract from the value of the superyacht and who will have access to the discussions between the builder and the classification society

• Regulations: Language confirming the regulations the superyacht will be built under and, in particular, whether she will be built as a commercial superyacht. If so, will she be, for example, Large Yacht Code (LY3), Passenger Yacht Code (PYC), SOLAS compliant or regulations issued by United States Coast Guard? Consider at this stage whether a helicopter will be used on board the superyacht so that compliance with the relevant regulations can be incorporated into the build contract.

• Insurance: Should there be an accident during the build process, make sure you have the details of the builder’s insurance. Elements to consider are insurance levels, coverage of owner-supplied items, and whether the buyer is co-assured etc.

• Protecting the buyer’s pre-delivery instalments: Progressive title transfer (getting ownership in the superyacht as she is built), bank refund guarantees – either or a combination of both. Where the title is being transferred, check with the relevant jurisdiction what requirements may impact title registration to ensure that this is validly transferred to the buyer. How best to protect your pre-delivery instalments and how effective is that bank refund guarantee?

Protecting the builder’s interests: Does the contract provide any mechanism to guarantee the buyer’s payment obligations during the build process? What if the buyer fails to pay the pre-delivery instalments when they fall due or if the buyer unlawfully terminates the contract or illegitimately refuses to take delivery of the superyacht? Will the builder be able to recover any of its losses from the buyer?

In addition, or as an alternative to retaining title and ownership of the superyacht, some builders, upon payment of each pre-delivery instalment, request performance bonds from a buyer guaranteeing the payment obligation of (at least) the next pre-delivery instalment. This gives some comfort to the builder in securing (a minimum) cash flow to continue the build if the buyer steps out of the contract during the construction period when the builder has already invested its funds in the construction.

Alternatively, where the contract is entered into by a single purpose vehicle company it is not unheard of for the builder to request a personal guarantee from the beneficial owner or a corporate guarantee from a parent company guaranteeing the buyer’s obligation under the contract.

• Project management: Depending on the complexities of the project,during the build you may have an on-site project manager to supervise the build, or a project manager overseeing the process. The build contract should allow access and office space for the project manager.

• Performance warranties: Depending on the size, the buyer should at least expect to see speed,range, noise and vibration warranties as a minimum. Paint system warranties should also be considered. The liquidated damages and levels set will depend on what features are important to your superyacht. English law changed in late 2015 such that whatever the parties agree to be the commercial level of liquidated damages will be enforceable.

• Jurisdiction, forum and technical disputes: You need to know the law that will govern disputes and whether you will go to court or rely on arbitration.

• Delivery and VAT: Where will delivery take place and what VAT structure should be set up? As you will see within our section on tax, this should not be overlooked or viewed lightly.

• Post-delivery warranties: What is the period? What will it cover? Is there an extended warranty where an item is fixed during the warranty period? Consideration should be given as to whether the buyer should have limited rights when it comes to latent defects.

• Termination: If it all goes wrong and the contract is terminated, what happens? If the builder terminates, what are the damages? If the buyer terminates and has the superyacht taken away, you need to make sure that they have access to all the design work, and all the class and flags files to continue the build. At this point, do not forget that during the build, class and flag are contracted to the builder and their files are closed to the buyer.

• Commission: While not mentioned in the build contract, if the buyer is introduced to the builder by an intermediary, a commission may well be payable by the builder.

We have seen a rising number of contracts in which buyers have raised numerous and extensive claims that frequently go well beyond what the builder is obliged to perform. There is then a tension between the legal obligations under the contract and the commercial desire of the builder to assist and satisfy its customer.

The English courts have indicated, following a particularly interesting case in 2000 (recently reinforced in 2016), that a properly worded warranty clause can represent a complete code that governs what is or is not covered by the builder after delivery.

With appropriate wording, the warranty clause replaces any liability on the part of the builder for breach of both express and implied terms of the contract with an obligation solely to repair or replace defective workmanship.

Essentially the clause becomes an indemnity under which all other damage or financial losses suffered by the buyer would be excluded and it is for the buyer to establish that it ‘qualifies’ for the assistance
of the yard.

However, with fairly small changes to the wording of a warranty, or a carelessly drafted clause, this complete code can be disrupted, such that the warranty becomes less effective, and may open up the builder to liability for all of the losses suffered by a buyer in connection with a defect.

While much of the attention in concluding a contract will focus on the specification and pricing, we recommend that equal attention is given to what could come after delivery.