IP assets spark estate battle between brothers
8 mins reading time
Executors and administrators of deceased estates are warned of the risk of disposing of estate assets before considering whether there may be value in the intellectual property (IP) residing in those assets. This has been demonstrated in a recent case in the Victorian Supreme Court.
Case Summary
In the Estate of Vaughn (being heard in two parts – Re Estate of Vaughan; Dunn v Dunn-Vaughan [2024] VSC 7 and Re Estate of Vaughan; Dunn v Dunn-Vaughan (No 2) [2024] VSC 128) the Will and estate of Mr Henry Vaughn, a robotics engineer and inventor, was hotly contested by his two step-sons. Mr Vaughn operated a robotics business known as System Dynamics in Cheltenham and was described as being a talented visionary in the field of robotics. In his 50 years of work, Mr Vaughn undertook work for Hilton Manufacturing, Esso, Toyota, CSR and Mitsubishi. The Plaintiff (James) had spent many years working in the business with Mr Vaughn.
Mr Vaughn died on 11 June 2019, leaving a Will dated 1 May 2013. James and the Defendant, Simon, were the sole beneficiaries under the Will and relations between them were tense. Simon obtained a Grant of Letters of Administration with the Will annexed from the Court on 4 November 2019, and commenced acting as the administrator of Mr Vaughn’s estate. In the weeks after Mr Vaughn’s death, the relationship between Simon and James became strained, with each seemingly becoming quite suspicious of the other.
Battle of the beneficiaries
Before and after his appointment as administrator, Simon took steps in relation to the estate administration, including engaging an auctioneer to give an appraisal of the contents of the System Dynamics factory and securing the estate properties (being the factory and Mr Vaughn’s home residence). James was notified of these steps and advised not to attend any of the estate properties.
Notice of sensitive material
In September 2019, James wrote to Simon suggesting that the factory contained sensitive material, such as ”the robot system, the filing cabinets containing all business and personal records, banking records, … engineering drawings and designs required for maintenance of machinery produced and under guarantee … computer system and software used to operate the robot and associated machinery as well as his library of manuals”. The timing of this notice was crucial to the findings made against Simon.
On 5 December 2019, James filed an originating motion seeking that Simon be removed as administrator. This application was settled between James and Simon outside of Court and dismissed on 17 December 2019.
IP assets not included in auction
In January 2020, Simon discarded various documents, described by him as being valueless or in a state of disrepair. This included boxes of Systems Dynamics documents, designs, manufacturing drawings, operating manuals and maintenance manuals. On 7 February 2020, Micheal J Bent Auctioneers conducted an auction of items within the factory, with net proceeds totalling $21,620. Importantly, IP was not included in the items listed for auction.
On 24 February 2020, James wrote to the solicitors for the estate raising concerns regarding the auction at the Systems Dynamics factory – particularly in relation to the IP assets. Hilton Manufacturing had been in contact with James raising questions surrounding a hydraulic system that he and Mr Vaughn had designed, prompting the question. An employee of Hilton Manufacturing gave evidence at trial regarding Mr Vaughn’s inventions for Hilton Manufacturing. Some of the equipment Mr Vaughn supplied was described as unique and bespoke.
Allegations of negligence
On 21 March 2020, James again commenced proceedings alleging (amongst other things) that Simon had failed to obtain a valuation of the Systems Dynamics IP. Following this, he either destroyed or disposed of the IP without taking steps to realise any potential value. James also sought orders that Simon be removed from his role as administrator – one of the reasons in support of this being that Simon had failed in his duties by not “calling in” all the assets of the estate (the IP) and acting negligently in relation to the IP assets.
James asserted that the lost value of the IP was $2,528,000. In response, Simon asserted that he was not aware of any IP, and that if it existed, it would have been of “no real value”. He further asserted that he had searched an IP Australia Register but found nothing registered in Mr Vaughn’s name.
Extensive evidence was given as to the existence of the IP. The Court found that:
- The IP did in fact exist; and
- Simon must have known that there would have been some of the IP in the factory; and
- Simon ought to have known that the IP could have had value.
Financial repercussions
Forensic accountants were engaged to determine the value of the lost IP assets. There was a broad range of values proposed, with the Court in the first hearing ultimately deciding that the value of the lost IP was $300,000. Simon (in his personal capacity) was required to pay the sum of $300,000 into the estate by way of damages. On top of this, he was also ordered to personally pay interest on the $300,000, totalling $119,344.26. This brought the amount Simon was ordered to pay to $419,344.26.
Simon was also removed as administrator of the Estate.
Copyright – Death of the inventor
In Australia, copyright is protected by the Copyright Act 1968 (Cth). This legislation grants creators exclusive rights to reproduce, publish or communicate the material they produce. Copyright protection in Australia is free and automatic as soon as content is in a material form. In this case, the drawings, designs, manuals, associated documents, as well as the software made while creating prototypes and inventions, could be considered original works in material form and eligible for copyright protection. As copyright exists as soon as the work is in tangible form, no registration is required in Australia.
In contrast to what the Defendant was told by a friend, copyright protection for literary, dramatic and artistic works usually lasts for the life of the creator plus 70 years. Therefore, Simon and James would have had many years to realise the value in the IP. Although Simon noted the material would become outdated, there would have been some residual value in the short term and potentially for years to come. Recent customers of the company that were using the robotic designs in their factories may have wanted the opportunity to purchase those designs relating to the machinery they used.
Discharging Duties as Executor and Administrator
Executors and administrators must carefully undertake their role to ensure they properly discharge their fiduciary duties to the beneficiaries. In this matter, Simon was found to have breached his duties in more ways than one, but relevantly to the IP created by Mr Vaughn, he did not take the necessary steps to determine whether the IP existed and what value it may have had. In doing so, he breached his fiduciary duties and exposed himself to personal liability (in the order of $419,344.26 for the lost IP and likely legal costs).
Simon was not experienced in the business of Mr Vaughn or Systems Dynamics, which is often the case of the executors and administrators. However, as is made clear in the judgement, there were people in Mr Vaughn’s life that could have assisted him in determining what documents were valuable and how that value could have been realised. It is not enough for an administrator to plead ignorance because the assets are niche or unusual. Simon should have taken steps to identify and protect the IP, obtain valuations and opinions from suitably qualified advisors/businesses (possibly James who had worked in the business) and then sought to realise the value of the IP assets. If he had taken these steps and the IP was found to be of no value, he would have likely been discharged from his duties and would not be bearing the expense of damages and interest.
Key Takeaways
- Consult with an estates lawyer to ensure you understand your responsibilities as executor or administrator. Get a proper valuation of all estate assets, even if the nature of the asset is unusual or out of the ordinary.
- The potential value of any IP in the estate should be identified, and the IP itself should be dealt with in the manner of an “ordinary prudent businessperson in the management of their own affairs”.
- Consider whether the deceased created anything in which copyright might subsist. This includes drawings, paintings, photographs, writings and – if the deceased is a known inventor – any designs, engineering plans or manuals. To this end, an IP lawyer would be very helpful.
Macpherson Kelley’s Wills and Estates and Commercial (Intellectual Property) teams are well placed to advise in relation to estates that own intellectual property. We welcome enquiries and encourage you to reach out to Ashleigh Pearse (Senior Associate, Wills and Estates) or Elise Steegstra (Associate, Commercial (Intellectual Property) to discuss any matters that may spark interest following this insight.
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IP assets spark estate battle between brothers
Executors and administrators of deceased estates are warned of the risk of disposing of estate assets before considering whether there may be value in the intellectual property (IP) residing in those assets. This has been demonstrated in a recent case in the Victorian Supreme Court.
Case Summary
In the Estate of Vaughn (being heard in two parts – Re Estate of Vaughan; Dunn v Dunn-Vaughan [2024] VSC 7 and Re Estate of Vaughan; Dunn v Dunn-Vaughan (No 2) [2024] VSC 128) the Will and estate of Mr Henry Vaughn, a robotics engineer and inventor, was hotly contested by his two step-sons. Mr Vaughn operated a robotics business known as System Dynamics in Cheltenham and was described as being a talented visionary in the field of robotics. In his 50 years of work, Mr Vaughn undertook work for Hilton Manufacturing, Esso, Toyota, CSR and Mitsubishi. The Plaintiff (James) had spent many years working in the business with Mr Vaughn.
Mr Vaughn died on 11 June 2019, leaving a Will dated 1 May 2013. James and the Defendant, Simon, were the sole beneficiaries under the Will and relations between them were tense. Simon obtained a Grant of Letters of Administration with the Will annexed from the Court on 4 November 2019, and commenced acting as the administrator of Mr Vaughn’s estate. In the weeks after Mr Vaughn’s death, the relationship between Simon and James became strained, with each seemingly becoming quite suspicious of the other.
Battle of the beneficiaries
Before and after his appointment as administrator, Simon took steps in relation to the estate administration, including engaging an auctioneer to give an appraisal of the contents of the System Dynamics factory and securing the estate properties (being the factory and Mr Vaughn’s home residence). James was notified of these steps and advised not to attend any of the estate properties.
Notice of sensitive material
In September 2019, James wrote to Simon suggesting that the factory contained sensitive material, such as ”the robot system, the filing cabinets containing all business and personal records, banking records, … engineering drawings and designs required for maintenance of machinery produced and under guarantee … computer system and software used to operate the robot and associated machinery as well as his library of manuals”. The timing of this notice was crucial to the findings made against Simon.
On 5 December 2019, James filed an originating motion seeking that Simon be removed as administrator. This application was settled between James and Simon outside of Court and dismissed on 17 December 2019.
IP assets not included in auction
In January 2020, Simon discarded various documents, described by him as being valueless or in a state of disrepair. This included boxes of Systems Dynamics documents, designs, manufacturing drawings, operating manuals and maintenance manuals. On 7 February 2020, Micheal J Bent Auctioneers conducted an auction of items within the factory, with net proceeds totalling $21,620. Importantly, IP was not included in the items listed for auction.
On 24 February 2020, James wrote to the solicitors for the estate raising concerns regarding the auction at the Systems Dynamics factory – particularly in relation to the IP assets. Hilton Manufacturing had been in contact with James raising questions surrounding a hydraulic system that he and Mr Vaughn had designed, prompting the question. An employee of Hilton Manufacturing gave evidence at trial regarding Mr Vaughn’s inventions for Hilton Manufacturing. Some of the equipment Mr Vaughn supplied was described as unique and bespoke.
Allegations of negligence
On 21 March 2020, James again commenced proceedings alleging (amongst other things) that Simon had failed to obtain a valuation of the Systems Dynamics IP. Following this, he either destroyed or disposed of the IP without taking steps to realise any potential value. James also sought orders that Simon be removed from his role as administrator – one of the reasons in support of this being that Simon had failed in his duties by not “calling in” all the assets of the estate (the IP) and acting negligently in relation to the IP assets.
James asserted that the lost value of the IP was $2,528,000. In response, Simon asserted that he was not aware of any IP, and that if it existed, it would have been of “no real value”. He further asserted that he had searched an IP Australia Register but found nothing registered in Mr Vaughn’s name.
Extensive evidence was given as to the existence of the IP. The Court found that:
- The IP did in fact exist; and
- Simon must have known that there would have been some of the IP in the factory; and
- Simon ought to have known that the IP could have had value.
Financial repercussions
Forensic accountants were engaged to determine the value of the lost IP assets. There was a broad range of values proposed, with the Court in the first hearing ultimately deciding that the value of the lost IP was $300,000. Simon (in his personal capacity) was required to pay the sum of $300,000 into the estate by way of damages. On top of this, he was also ordered to personally pay interest on the $300,000, totalling $119,344.26. This brought the amount Simon was ordered to pay to $419,344.26.
Simon was also removed as administrator of the Estate.
Copyright – Death of the inventor
In Australia, copyright is protected by the Copyright Act 1968 (Cth). This legislation grants creators exclusive rights to reproduce, publish or communicate the material they produce. Copyright protection in Australia is free and automatic as soon as content is in a material form. In this case, the drawings, designs, manuals, associated documents, as well as the software made while creating prototypes and inventions, could be considered original works in material form and eligible for copyright protection. As copyright exists as soon as the work is in tangible form, no registration is required in Australia.
In contrast to what the Defendant was told by a friend, copyright protection for literary, dramatic and artistic works usually lasts for the life of the creator plus 70 years. Therefore, Simon and James would have had many years to realise the value in the IP. Although Simon noted the material would become outdated, there would have been some residual value in the short term and potentially for years to come. Recent customers of the company that were using the robotic designs in their factories may have wanted the opportunity to purchase those designs relating to the machinery they used.
Discharging Duties as Executor and Administrator
Executors and administrators must carefully undertake their role to ensure they properly discharge their fiduciary duties to the beneficiaries. In this matter, Simon was found to have breached his duties in more ways than one, but relevantly to the IP created by Mr Vaughn, he did not take the necessary steps to determine whether the IP existed and what value it may have had. In doing so, he breached his fiduciary duties and exposed himself to personal liability (in the order of $419,344.26 for the lost IP and likely legal costs).
Simon was not experienced in the business of Mr Vaughn or Systems Dynamics, which is often the case of the executors and administrators. However, as is made clear in the judgement, there were people in Mr Vaughn’s life that could have assisted him in determining what documents were valuable and how that value could have been realised. It is not enough for an administrator to plead ignorance because the assets are niche or unusual. Simon should have taken steps to identify and protect the IP, obtain valuations and opinions from suitably qualified advisors/businesses (possibly James who had worked in the business) and then sought to realise the value of the IP assets. If he had taken these steps and the IP was found to be of no value, he would have likely been discharged from his duties and would not be bearing the expense of damages and interest.
Key Takeaways
- Consult with an estates lawyer to ensure you understand your responsibilities as executor or administrator. Get a proper valuation of all estate assets, even if the nature of the asset is unusual or out of the ordinary.
- The potential value of any IP in the estate should be identified, and the IP itself should be dealt with in the manner of an “ordinary prudent businessperson in the management of their own affairs”.
- Consider whether the deceased created anything in which copyright might subsist. This includes drawings, paintings, photographs, writings and – if the deceased is a known inventor – any designs, engineering plans or manuals. To this end, an IP lawyer would be very helpful.
Macpherson Kelley’s Wills and Estates and Commercial (Intellectual Property) teams are well placed to advise in relation to estates that own intellectual property. We welcome enquiries and encourage you to reach out to Ashleigh Pearse (Senior Associate, Wills and Estates) or Elise Steegstra (Associate, Commercial (Intellectual Property) to discuss any matters that may spark interest following this insight.