10 words and phrases you should use in IP contracts

Most of the most popular postings of this blog have now been re-posted, but for some reason this one has escaped this fate, until now. Think of it as a Christmas repeat of a long-lost episode of The Two Ronnies. And it’s goodnight from him…

IP Draughts

One of the most popular articles on this blog is Ten Words and Phrases You Should Never Use in IP Contracts.  To celebrate reaching 50,000 viewings on this blog, here is a companion piece to that article, in which we identify 10 words and phrases that should be used in IP contracts, and which make Mr Pettifog happy[marginally less irritable].

1. Hereby. IP Draughts tries to avoid words such as hereinafter and whereof in contracts.  However, he makes an exception for hereby, specifically in the context of hereby grants and hereby assigns.  It may be important to be clear on whether the agreement is granting a licence or assigning IP now, rather than merely promising to do so in the future.  For example, using the words hereby assigns rather than shall assign or agrees to assign places beyond doubt that the assignment is occurring now, under…

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Unconscious bias about lawyers

What do you think, if you see a lawyer applying for a non-legal role? Do you make assumptions about a lawyer’s skill-set? And are these positive or negative assumptions?

IP Draughts would be interested to know your views. At a time when more of us are receiving training to avoid unconscious bias, and to be more inclusive and diverse, so that we don’t just recruit people in our own image, and when the law prohibits bias based on gender, race, disability or age, is discrimination against lawyers the last-remaining, permitted prejudice in the workplace?

IP Draughts can almost hear the jokey, sarcastic responses. In the popular discourse, lawyers don’t attract sympathy, because they are perceived as being successful, and too-clever-by-half. Tall poppy syndrome demands that they are brought down to size.

But this doesn’t stop the same people who make these comments encouraging their children to do law degrees, or being grateful when they receive expert legal advice.

Somewhere between these two extremes of negativity and positivity, are some assumptions about the contributions that lawyers bring to business life. The job that many commercial lawyers are asked to do, is to identify, point out and help manage business risks, particularly those that may have been missed by their more enthusiastic, “let’s just get the deal done” colleagues.

The traditional lawyer culture emphasises independence and integrity over being a team player. They are also often asked to act as “bad cop” in negotiations, leaving their business colleagues to play Mr Nice. The cumulative effect of these roles and attitudes can be to leave the less thoughtful of their colleagues with unfavourable opinions of lawyers.

IP Draughts is not looking for sympathy. This goes with the territory, and a good lawyer can help to mitigate, if not overcome, the prejudices of their colleagues through a combination of excellent service and a solutions-focussed approach.

All of which is a long-winded introduction to what IP Draughts really wants to discuss today. Since retiring from being chair of the IP Law Committee, he has been applying for other, part-time chairing roles. Recently he has received feedback on two of these applications in quick succession. In both cases, he was told that the appointing committee had decided that they didn’t want a lawyer for the role.

Why the h*** not? is IP Draughts’ first reaction. What is disqualifying about being a lawyer? His second thought is to wonder whether this is a gentle way of saying they didn’t want this particular lawyer. And his third thought is to revamp his CV to help the reader see why his varied experiences are relevant to non-legal chairing roles. If you would like to see this new CV, please let IP Draughts know.

But the question remains: do you have negative or positive views of lawyers in general when it comes to applications for non-legal roles? It is a while since this blog conducted a survey, so here goes:

Do M&A lawyers care about contract drafting?

Like all generalisations, it can be shot down in flames with counter-examples. But IP Draughts has seen enough evidence to suggest that many M&A lawyers don’t really give a monkey’s about the discipline of contract drafting.

What matters in that world is following a process, using standard templates, and “doing the deal”. The individual M&A lawyer, negotiating the agreement, is not expected to care too much about the words used. Standard contracts are so long and complex, and deals are done at such speed, that “academic” musing over the meaning of words is alien to the usual way of doing business. Drafting is for the back-room boys and girls (professional support lawyers). If the firm has to take a hit occasionally with a professional indemnity claim, well that’s what insurance is for.

This approach is not unique to M&A work. Finance lawyers are also said to be guilty – see this article about the “three and a half minute lawyer” who spends that amount of time on each transaction.

Of course there are exceptions, including Allen & Overy’s former head of banking, the very distinguished Philip Wood CBE, QC (Hon). A smuggled copy of his drafting notes from the 1980s helped to persuade IP Draughts to write his books on contract drafting and boilerplate clauses.

If these negative thoughts reflect a conscious bias on IP Draughts’ part, fuel for the bias is given by a recent case in the English Court of Appeal. Judgment in the case of Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors [2018] EWCA Civ 2744 was published this week. The case was about a claim under an indemnity in a share sale agreement.

Several clauses of the share sale agreement were scrutinised in this case, but the one that received the most attention from the Court of Appeal read as follows:

6.7 The Purchaser shall not make any Claims against the Warrantors nor shall the Warrantors have any liability in respect of any matter or thing unless notice in writing of the relevant matter or thing (specifying the details and circumstances giving rise to the Claim or Claims and an estimate in good faith of the total amount of such Claim or Claims) is given to all the Warrantors as soon as possible and in any event prior to:

6.7.1 the seventh anniversary of the date of this Agreement in the case of any Claim solely in relation to the Taxation Covenant;

6.7.2 the date two years from the Completion Date in the case of any other Claim; and

6.7.3 in relation to a claim under the indemnity in clause 5.9 on or before the seventh anniversary of the date of this Agreement.

The dispute concerned whether the Purchaser had given valid notice of a claim under the indemnity in clause 5.9. In particular, did the notice comply, and did it need to comply, with the obligation to provide details and an estimate of the total amount – i.e. the words in brackets, quoted above?

In the view of the Court of Appeal, “…it cannot be said that …clause 6.7 was well-drafted nor that, as drafted, it fits well with related provisions elsewhere in the agreement.” The court identified several drafting mistakes, which made interpreting the clause difficult.

With some simplification, the mistakes included:

1. The clause uses the defined term Claims. The definition is limited to warranty claims and doesn’t mention indemnity claims. So how do you interpret the word Claims in the quoted phrase in brackets, in relation to claims under clause 6.7.3? Does it mean the details need not be provided? Or that you read “Claims” as meaning “Claims and other claims”?
2. The clause refers to not making claims against the Warrantors. But clause 5.9 (mentioned in clause 6.7.3) doesn’t refer to claims against the Warrantors. Instead it refers to the Vendors and their spouses. Does this mean that clause 6.7 doesn’t apply to people who are not within the definition of Warrantors?
3. Clause 6.7.1 refers to the Taxation Covenant. This is not a defined term. Tax Covenant is defined. But the definition of Claim makes no mention of the Tax Covenant. So should Claim or Taxation Covenant be interpreted broadly?
4. Clause 6.7.1 imposes a 7 year time limit for claims in respect of the Taxation Covenant, while clause 6.7.2 imposes a 2 year time limit for any other Claim. Schedule 4 defines Tax Covenant and separately defines Tax Warranty. One might therefore expect that clause 6.7.2 covers Tax Warranties. But Schedule 4 goes on to provide a 7 year time limit for any claims under either a Tax Warranty or the Tax Covenant. How can one resolve this apparent contradition? By assuming that Taxation Covenant includes Tax Warranties? This was David Richards LJ’s conclusion.

David Richards LJ identified further drafting errors and inconsistencies, in other clauses.

At issue was a letter that purported to give notice of claims. The letter was sent to the sellers within the 7 year time limit but didn’t include any details about the claims or an estimate of losses. The letter referred rather generally to two reviews that the target company had been required to make by the Financial Conduct Authority, and any payments that might be made to customers for misselling of financial services, arising out of those reviews.

In the end, David Richards LJ decided (agreeing with the judge at first instance) that the notice given in this letter was sufficient to bring it within the conditions in clause 6.7, and on this basis dismissed the appeal by the sellers and their spouses. The other two judges in the Court of Appeal agreed with Richards.

Comments

Two observations from David Richards LJ resonate with IP Draughts.

First, the judge speculated (and IP Draughts thinks this speculation is very plausible) that some of the mistakes arose because clause 6.7.3 was bolted onto clause 6.7 as an afterthought, and the drafter didn’t clean up the rest of the agreement to take account of this change.

Drafting detailed agreements is difficult. It requires painstaking care to ensure  clarity and consistency. It is not enough to bolt a clause on to an existing clause and hope it works. Other parts of the clause, associated definitions and other clauses may need to be considered to ensure that the new clause works properly.

Second, the judge discussed that the starting point for interpreting a contract clause was:

the court should assume, unless driven to a contrary conclusion, that the parties who have entered into a professionally drafted agreement in which terms have been elaborately defined intend to use such terms in accordance with the definitions.

In other words, in such circumstances, it may be appropriate for the court to limit its focus to a textual analysis of the words used. This is the traditional approach to contracts drafted by commercial lawyers as distinct from business people.

But just because the contract has been drafted by solicitors from a respectable commercial law firm, that doesn’t necessarily mean that this assumption will hold. In this case, the judge concluded that the relevant clauses were so strewn with errors that rigorous textual analysis was unlikely to reveal the parties’ intended meaning.

A sad indictment of the drafting of a share sale agreement.

 

 

 

 

 

 

Ownership of IP in academic inventions

An LLM student at Queen Mary, University of London, asked IP Draughts today whether he had posted an article on the 2008/9 case of University of Western Australia v Gray. The student’s lecturer, John Hull (who is also a teacher on the UCL course on IP Transactions that IP Draughts convenes) had set a question about the case as an assignment, and had apparently recommended that students look at this blog.

Unfortunately, the case predates the blog, so until now the answer was no. But IP Draughts likes to be helpful, and in the back of his mind he recalled writing an article on the case. Which he has now found. And posted on this blog, via the link below. The style of the article is a little different to those typically posted on this blog, but it was written a decade ago!

Academic employee owns his inventions

Some employers use golden handcuffs…

The case is partly about an ineffective university IP policy, and the large sum of money that the university lost as a consequence.

Happy reading!