Owning and assigning data and know-how: what does it mean?

Potsdam conference: ownership of data was not a major issue

First scenario: late at night in the final stages of a corporate transaction.  You are asked to produce IP-related documents for completion (closing).  The documents are to include a know-how assignment.  You look on your office computer system but can’t find a suitable template.  What do you do?  It may be tempting to use a patent assignment, deleting the word patent wherever it appears and replacing it with the word know-how.  But is this good enough?

Second scenario: negotiation of a contract to perform R&D services.  The customer requests that a clause be inserted in the contract stating that the customer owns the data produced in the course of performing those services.

In both cases, the required assignment/clause appears to be based on the premise that know-how or data is property that can be owned and transferred.  Under English law, our understanding is that know-how and data are simply information, and there is no property in information as such, in the absence of specific categories of intellectual property such as patents or copyright.  The position may be different under other countries’ laws (eg under US trade secrets legislation?), and we would welcome readers’ comments on this aspect.

Thus, in scenario 1 above, we have occasionally drafted documents that are called know-how assignments for the sake of convenience, but where the content is rather different to a conventional IP assignment.  The content may include:

• an obligation to communicate the know-how to the “assignee”
• a warranty that the know-how was generated by the “assignor” alone and without use of third party information or IP
• a warranty that the know-how is confidential, has not been publicly disclosed and in the future will not be disclosed or used by the assignor
• a transfer of the right to sue third parties who breach the confidence of the information, including an undertaking by the assignor to cooperate in any action brought by the assignee against third parties for breach of confidence, with the assignor lending its name to the action if required

In scenario 2 above, a statement that the data is “owned” by the customer is often seen in US-drafted contracts, but causes IP Draughts concerns from an English law perspective, as it is not clear what it means.  Any paper on which the data is printed out may be owned, as this is physical property.  If the print-out of data is a copyright work, the copyright can be owned.  If the data is recorded in a database, there may be database right in that database. Any inventions that are disclosed in the data (although this may be unlikely if it is raw data) can be owned, under patent legislation.  But the data itself is pure information, and not property.

What is the customer trying to protect by stating that the data is its property?  Perhaps it wants to be clear that:

• The data will not be used or disclosed by the party that generates it (in effect, confidentiality obligations)
• Any inventions generated using the data will belong to the customer
• Anything else?

We dislike wording in contracts that we don’t understand, and for this reason resist statements that data is owned.  Please let us know your thoughts.

Shall or will in contracts?

You shall go to the ball, Cinderella!

This posting is prompted by seeing this recent article, on a non-legal, grammar blog, about the distinction between shall and will, including the use of these words in contractual obligations.

To focus the discussion, here are some examples of contractual obligations:

1. The Consultant shall provide the Services to the Client.
2. The Consultant will provide the Services to the Client.
3. The Consultant [undertakes / agrees] to provide the Services to the Client.
4. The Consultant covenants to provide the Services to the Client.

Conventional practice among most English commercial solicitors is to use version 1 above.  Shall is almost always used (in preference to will) to express contractual obligations in the template agreements of City [of London] law firms.

Sometimes, variants on version 3 appear, but they take up more words than version 1 and add nothing to the legal effect under English law, so should probably be avoided as unnecessary verbiage.

In real property transactions in England and Wales, covenant has a special meaning, in that a negative covenant given by a purchaser of land may be binding on subsequent owners of the land.   This is an exception to the usual principle that contractual obligations bind only the parties to the contract.  In ordinary commercial contracts, contractual obligations, however described, are only binding on the parties to the contract.

Technically, it seems that the term covenant is an undertaking given in a contract under seal (nowadays, a contract made as a deed).  Conveyances of land must be made as deeds, so one can see why obligations in relation to the land, as described above, have been called covenants.

Covenants are sometimes encountered in ordinary commercial contracts.  Most typically, non-compete obligations, eg in employment contracts, are described as covenants.  Our understanding is that the use of the term covenant in this situation adds nothing to the legal effect, but does make the obligation sound more imposing.

Coming back to shall and will, the article referred to above mentions briefly a distinction that appeared in English language school books until a few generations ago:

(a) for the future tense, it is or was considered correct to say, I shall, you will, he/she/it will, and

(b) for the emphatic mood the words are reversed and it goes I will, you shall, he/she/it shall.

Contracts are usually written in the third person singular, as in our four examples above, hence the correct word to use is shall.  As far as we know, the use of shall in English contracts is based entirely on the application of this rule of grammar.

As the article mentioned above indicates, this is a rule devised by eighteenth century grammarians, and may be considered unnecessarily rigid in the 21st century, when linguistics academics often find prescriptivist rules abhorrent (search for prescriptivist poppycock on that site).  In any event, we find it difficult to believe that any sane English judge would interpret a contract wrongly based on the drafter’s choice of shall or will.

IP Draughts has discussed the use of shall and will in contracts with hundreds of lawyers who have attended his contract drafting courses over the last decade or so.  In the course of these discussions, he has learnt that some lawyers, particularly in the USA, are taught to use the word will when drafting contracts.

This teaching is far from universal in the USA.  The leading US author on contract drafting, Ken Adams, in his book a Manual of Style for Contract Drafting, recommends the use of the word shall for contractual obligations, but only for contractual obligations.  Thus, if a contract refers to something happening in the future but is not a contractual obligation, will may be the appropriate word to use.

This approach may be contrasted with that of the respected US legal author, Bryan Garner, who in his book Legal Writing in Plain English prefers to use the word will.  The title of section 35 of that book may give a clue to Garner’s views: “Delete every shall“.

The approach in US contracts may be affected by the fact that the word shall seems to be regarded as old-fashioned and rarely encountered in everyday speech in the USA.  This may lead one to avoid the word altogether, as Bryan Garner recommends, or to use it only in a specific, technical sense for contractual obligations, as Ken Adams recommends.  For what it is worth, this English lawyer prefers the latter approach.

I must buy some more perfume

Another alternative is to eschew both shall and will and use a neutral word such as must.  IP Draughts has seen must in a small number of contracts, but it hasn’t really caught on.  For some, the word may seem too abrupt and demanding, although this is not a view that IP Draughts shares.