Tell us what Brexit means, then IP laws can be reviewed

When Brexit happens, what will happen to existing UK IP laws? And what should the UK government’s proposals be in the field of IP law, in the forthcoming Brexit negotiations?

As with so many Brexit questions, the UK government needs to start deciding on its policy and strategy for Brexit, before the IP profession can sensibly suggest IP-specific proposals. One of these policy decisions is what is to happen to existing UK laws that are influenced by EU laws, immediately following the UK’s formal leaving of the EU. Many current IP laws in the UK consist of, or are affected by EU laws; very little is unique to the UK.

IP Draughts assumes that the UK government will have to pass UK legislation to take effect immediately following our formal leaving of the EU, and that there will be insufficient time before Brexit, to draw up individual measures covering every area that is currently influenced by EU laws. In other words there will need to be some kind of sweeping, interim master-law that defines the new legal regime, probably in combination with numerous exceptions and qualifications that are considered sufficiently urgent to be dealt with at the time of Brexit. Once this new legal regime in place, Parliament can take its time to develop new laws and revise existing laws across the policy areas that may be thought suitable for a distinctive UK approach.

If that is right, then it would be helpful to clarify how the new master-law will work. For instance (and some of the following questions overlap):

• Should we assume that all existing, national UK laws that are derived from EU laws (e.g. are designed to implement an EU directive) will remain in place immediately following the UK’s formal withdrawal from the EU? For example, the Data Protection Act 1998 currently falls into this category, as it is a UK law that implements an EU directive. However, this may not be a good example, as the Act may be repealed and replaced before Brexit by the new General Data Protection Regulation (GDPR), which is due to come into effect automatically throughout the EU (ie without the need for national legislation) in 2018.
• Should we assume that all EU laws that currently have direct effect in the UK will automatically cease to have effect on Brexit, or will the UK government introduce some kind of holding measure to continue them all in force as purely national UK laws, unless otherwise stated? If the GDPR is introduced before Brexit, it will fall into this category.
• In the area of laws affecting international trade (a category that may be thought to include IP laws), should we assume that, as a default position, immediately following Brexit UK laws will be aligned as closely as possible with current EU laws, with individual exceptions where it is felt to be in UK interests to have them? Or will the opposite policy position be taken? Or will every law be looked at on a case-by-case basis before Brexit?
• Should we assume that there will be a strong presumption against allowing any EU jurisdiction (eg by the CJEU) to continue in the UK in any field post-Brexit? Or will a more sophisticated and nuanced position be taken, eg distinguishing between EU controls over areas of major political interest, such as immigration, and areas of international trade that don’t affect core political concerns? This may seem like a theoretical question, but consider the case of UK participation in the Unified Patent Convention. If it is possible for the UK to participate post-Brexit, but it is a condition of continued UK participation that the CJEU has ultimate supervisory authority (as CJEU Opinion 1/09 suggests – see this recent opinion by Richard Gordon QC), will the UK government be unable to stomach this ‘loss of sovereignty’ or will it be treated like any other area where, in the interests of UK trade, the UK agrees to supranational authority over UK activities (as may be the case with certain international trade treaties that give authority to the World Trade Organisation). Will the UK government be brave enough to recognise the valuable benefits to the UK of this (minor) loss of sovereignty, even it risks giving the Daily Mail ammunition to write hostile articles? IP Draughts has considerable doubts on this issue, given the recent rhetoric of senior government ministers such as the Secretary of State for International Trade.

In IP Draughts’ view, it is in the UK’s interests for future UK IP laws, and other laws affecting high-tech business activities (eg the regulation of pharmaceuticals, data protection laws, recognition of judgments) to be aligned as closely as possible with those in the rest of the EU. Ideally, there should be ongoing, formal cooperation between the UK and the EU in these areas, so as to ensure such continuing alignment.

But it has yet to be seen what the UK government’s approach to trade laws, including IP, will be following Brexit. A great deal of work is being done by IP practitioners, through various technical committees, to consider the detail of what should happen to IP laws. But until we get a steer from government on their overall approach, and how they plan to deal with IP and trade laws, it is difficult to devise a strategy for negotiating the best outcome with the various actors (including governments, as well as industry and IP professionals, across the EU). This is not purely a matter for governments to negotiate. IP professionals will want to discuss these matters with their opposite numbers in other EU countries. as well as representatives of industry, and hopefully get their support, and their advocacy to their national governments, on areas of common interest. In an area as technical as IP laws, IP Draughts hopes that UK and EU governments will seek advice from specialists in the field.

 

Ignore the IP clause. Examine the parties’ conduct.

This is a tale about a company that sold the same IP twice, according to some contracts that it signed. But don’t worry, children, because the parties didn’t really believe that the second contract was meant to sell the IP, even though it said that it did. Oh, and it’s also about a confidentiality clause in a licence agreement that meant what it said. Even though the defendant argued that it shouldn’t be taken literally.

The case is called Process Components Ltd v Kason Kek-Gardner Ltd [2016] EWHC 2198 (Ch) (05 September 2016). Don’t bother reading it. It’s not going to change the course of English law. It describes some typical legal argy-bargy that happens when a commercial dispute gets to court. IP Draughts has read it, so that you don’t have to. But it does raise some practice-related issues that should be of interest to transactional IP lawyers. These are summarised below.

Selling the same IP twice

First, the sale of the IP. The two contracts in question were for the sale of different parts of a business, to different purchasers. The assets sold in the first contract (Contract 1) included “£1,350,000 for the Goodwill, the IT system and the Intellectual Property Rights”. The Intellectual Property Rights were defined as:

the full benefit (subject to the obligations) of all patents, registered designs, the Trade Marks, service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by the Seller in the Business…

Let’s leave aside the excruciatingly bad drafting of this definition – for example, what is the word “licences” doing in the fourth line, lumped together with pre-registration rights to IP? In court, the parties’ counsel managed to find ways of arguing about the construction of this definition, eg by breaking it up into 3 parts and arguing that the final phrase only qualified one of those parts. All too tedious to discuss further.

Instead, let’s compare this definition with its equivalent in Contract 2. The same solicitor, who is named in the judgment, apparently drafted both contracts and, according to the judge, “plainly used [Contract 1] as a template for [Contract 2]”. Contract 2 provided for the sale of certain assets, including “the Business Name, the Commercial Information, the Contracts, the Equipment, the Goodwill, the Intellectual Property Rights, and the Work-In-Progress”. In Contract 2, Intellectual Property Rights are defined as:

the full benefit (subject to the obligations) of all patents, registered designs, trade and service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by [the seller] in the Business…

Now, there are ways of trying to distinguish the two definitions, eg that the definitions of Business are different in each case, or that the dates of use by the seller are different. But the judge found that these definitions mostly covered the same IP. And at least one of the commercial representatives of the parties to Contract 2 was surprised to see this definition in the draft contract, but preferred not to rock the boat by querying it.

So, the first lesson of this sermon is: take care in drafting IP definitions. Don’t just cut and paste from an earlier contract. Obvious, really. Or it should be.

Legal snowstorm

Given the apparent conflict between the two contracts, what was the judge supposed to do about it? For example, should she:

1. Decide that Contract 2 couldn’t ‘bite’ on any of the seller’s IP, as it had already been sold under Contract 1? Or
2. Treat the buyer under Contract 2 as a bona fide purchaser without notice (sometimes quaintly known as ‘equity’s darling’) of Contract 1?
3. Treat both buyers as purchasers, so that they became co-owners in different fields?

The parties’ respective counsel slugged away at one another, trying every legal principle in the book to persuade the judge to see it their client’s way. Among the principles mentioned in the judgment are:

• The admissibility of pre-contract negotiations to show a matrix of fact
• Rectification
• Construction
• Common assumption
• Estoppel by convention
• Estoppel by misrepresentation
• Coming to equity with clean hands

On the facts before her, the judge found that the buyer under Contract 2 was estopped from denying that the buyer under Contract 1 owned the relevant IP.

A practice-related lesson here is that focussing just on the wording of the two contracts doesn’t tell us how a court is going to decide on a complex set of facts. Who said (or didn’t say) what to whom may affect the outcome more than the contractual wording.

Licence agreement – estoppel issue

At around the same time as Contract 2 was made, the buyer under that contract entered into a licence agreement with the buyer under Contract 1, under which the Buyer 1 licensed to Buyer 2 a package of IP that seems to have overlapped with the IP that was the subject of the dispute above.

Buyer 2 argued that it didn’t know the content of Contract 1 when it entered into the licence agreement, and did so to protect its position in case it turned out that the IP had been transferred under Contract 1 and not under Contract 2.

It seems that Buyer 2’s acceptance of the licence, and failure to query the ownership of the IP with Buyer 1, led to the estoppel mentioned earlier.

A possible practice point here is that Buyer 2 should have at least sent Buyer 1 a letter in which it flagged up this issue and stated that it “reserved all its rights”.

Licence agreement – confidentiality and termination

It might not have mattered whether Buyer 2 was the owner of the IP, as long as it continued to have a licence from Buyer 1. But Buyer 1 had terminated the licence agreement for breach of a confidentiality obligation.

The relevant clauses of the licence agreement were:

1. By clause 10.1 of the licence agreement, “each party agrees to keep the terms of this Agreement confidential…”
2. By clause 11.2, a party could terminate the licence agreement “immediately by written notice to the other” for certain types of breach.
3. By clause 11.2(a), those breaches included any material breach of the Agreement that was not capable of remedy. The final sentence of 11.2(a) stated that “breach of the confidentiality obligations under clause 10 constitutes a non-remediable material breach”.
4. By clause 12.3, on termination of the agreement for any reason, the licensee was required to “cease to make any use of the Intellectual Property Rights”.

The facts relied on for termination are not entirely clear from the judgment, but it seems that Buyer 2 disclosed the terms of the licence agreement to a proposed investor.

Buyer 2 argued in court and in correspondence that:

• it was absurd to allow the licensor to terminate the licence agreement for any disclosure of the terms, as this would include trivial breaches, ie those that were not material
• the court would interpret these obligations as allowing appropriate disclosure of the terms of the licence agreement “on a confidential basis to a proposed investor”

The judge disagreed, and held that the licence agreement had been validly terminated.

This raises a very interesting practice issue, which has been mentioned on this blog before. IP Draughts understands that it is common for companies to provide details of its contracts to proposed investors or purchasers, even if those contracts include strict confidentiality provisions. Ever since IP Draughts first encountered this issue as a junior lawyer, he has been troubled by the apparent mismatch between commercial practice and contract terms. Sometimes, a pragmatic response to this concern is to point out that the disclosures are typically made in confidence, eg in a data room, or that the party whose confidentiality has been breached won’t suffer any loss from the breach.

The judge in this case dispelled both of these lazy assumptions. She couldn’t see why a term should be implied allowing a party to disclose in confidence to a prospective investor. She pointed out that the CDA between Buyer 2 and the investor didn’t say anything about not using the information in a way that was detrimental to Buyer 1, who was not a party. IP Draughts suspects that the absence of such a clause is likely to be the case in most CDAs in this situation. And finally, the judge pointed out that the obligations under the CDA had expired at the time the licence agreement was terminated, so that the investor was no longer under a confidentiality obligation. This no doubt reflected the typically short duration of CDAs with investors.

The practice lesson here, in IP Draughts’ view, is that contracts mean what they say and a party should not expect the law to intervene to protect it if it is in breach, just because of dodgy commercial practice or bad habits in the market sector in which that party operates.

Legal drafting issues in medical research

IP Draughts has been reviewing a large number of publicly-accessible documents used in medical research, particularly in the context of what are variously known as tissue libraries or biobanks. In other words, collections of materials taken from patients and intended for use in research. The materials might include body tissue, cancerous cells, or blood. The research might lead to the development  of diagnostic products or therapies for human diseases and conditions.

The documents currently on IP Draughts’ desk include patient consent forms, information leaflets, material transfer agreements, and policy guidance notes. Reading these documents, it is striking how much variation there is in the language used to convey similar ideas, and how difficult it seems to be to communicate clearly and accurately.

IP Draughts doesn’t underestimate how complex the task is. The drafter needs (but often seems to lack) a wide range of skills, including:

• Regulation. How to comply with and explain complex laws and regulations, such as the Human Tissue Act and Data Protection Act. Often there are several layers of regulation, each with their own vocabulary, including those applying to human tissue, associated data, data protection and medical ethics.
• Contract drafting. How to draft documents in a legally accurate way. For example, in identifying the parties to an MTA. Organisations such as  “the Loamshire BioRepository” (to anonymise the name in an MTA in front of IP Draughts) doesn’t exist as a legal entity, and is simply a convenient name for a collaboration between Loamshire University and Loamshire Hospital NHS Trust. Referring to the Biorepository as the provider of the materials is unclear. At the end of the document, it is unclear whether the person asking for the materials is an individual researcher or an institution. Failing to identify the parties to a contract is a very basic mistake. In the same document, the drafter clearly doesn’t understand the conventions on using defined terms; he defines the “Material”, then uses the expression ‘Material’ with pointless and weird single inverted commas.
• Science. How to communicate with researchers, whose focus is likely to be mainly on their scientific projects, and less on the details of compliance with legislation.
• Donors. How to explain, at a level suitable for the general population, the nuances of the permissions being sought – eg the range of research in which the human materials will be used, the right of the person to withdraw consent, why individual-related information on the outcome of the research will not be provided (it should be done by the patient’s doctor, not by a research team; and anyway, if the research has been anonymised, the researchers won’t know the identity of the patient, etc)
• Communicating at a time of grief. In the case of material to be taken from a corpse, how to communicate with grieving relatives who are being asked for permission to use the body of a recently-deceased person for medical research, or to confirm their consent to instructions given by the deceased before his or her death

Reading through a selection of documents, IP Draughts is left feeling that the drafting of documents within a complex regulatory regime should be a multi-disciplinary team effort, in which the best communicators among doctors, nurses, researchers, regulatory experts and lawyers should be engaged. Instead, the drafting seems often to be left to someone to ‘muddle through’ as best they can.

One of the areas where these issues come up is in relation to IP and property issues arising from the use of materials in research. These issues arise at several levels:

1. As a matter of public policy and law, it may not be possible for there to be property in body parts, though there seem to be some exceptions to this principle. Similarly under the EU Biotechnology Directive, some aspects of the human body are not patentable. Therefore, referring to a biobank as owning materials, or owning the IP in materials, may or may not be legally meaningful.
2. Linked to the above points is whether the patient can claim any financial or other interest in, or control over, the exploitation of products derived from research that made use of their materials. If consent forms mention this issue at all, they vary widely in how they cover it.
3. Should the biobank, in its relationship with the researcher who takes material from the biobank, claim to own those materials? Some do and some don’t. A policy document issue by the UK National Cancer Intelligence Network in June 2009, quoting a recommendation of the Confederation of Cancer Biobanks, suggests that biobanks should waive their IP rights in the materials that they supply to researchers.

IP is just one of dozens of legal, practical and policy issues that are typically addressed in the documents. It is difficult to know how best to deal with these issues as a researcher or the employer of a researcher. Should one take the terms on offer or try to negotiate them, if only to remove glaring inconsistencies and inappropriate terms? It seems that some biobanks refuse to negotiate the terms of their MTAs, no matter how badly drafted they may be.

Rather than spend a time and money negotiating terms in individual cases, shouldn’t the sector be developing some standard contracts, as has been done for university research contracts (the Lambert agreements) and for clinical trial agreements in NHS hospitals? Although neither of these examples of standard contracts is perfect, at least they provide a way of reducing negotiation time.

 

What’s the point of good contract drafting?

This post is triggered by several recent conversations and thoughts:

• the patent attorney who told IP Draughts’ colleague recently about the poor quality of patent examiners in the USA and certain other countries, who apparently sometimes misunderstand basic English, let alone complex scientific concepts. This raised in IP Draughts’ mind the question of why patent attorneys spend years honing their patent drafting skills to a very high technical level, when the system seems to be crude and imperfect; and whether a similar question should be raised about the drafting of contracts.
• the Court of Appeal judge who told IP Draughts that courts would always try to “do justice in the case” in contract disputes, the implication being that interpretation of the wording used in the contract might take second place to wider policy considerations, and that if IP Draughts wanted an approach based purely on the contractual obligations he should go to arbitration.
• the fact that contracting parties will sometimes argue an interpretation of contract wording that is clearly wrong, no matter how clear the drafting, if it is in their commercial interests to do so.

There is a legitimate question about whether we are too nice (in the senses of fastidious or foolish) about the drafting of contracts. Rather than waste time focussing on clear and accurate use of language to state contractual obligations, shouldn’t we recognise that the world is imperfect, treat contracts as a process rather than an opportunity for exercising our writing skills, get the wording roughly right, and save our energies (and the client’s money) for arguing the toss when a dispute arises?

IP Draughts’ answer to this question is an emphatic no. But mere assertion is not enough. Why should we spend time in getting the wording as right as we can? Several thoughts come to mind:

1. The example of the construction industry, where parties tend not to take legal advice at the stage of entering into their contracts, and instead spend more money on litigating their contracts. There is a view among (at least some) lawyers that more money spent in getting the contracts right in the first place would save money in litigation and overall.
2. The fact that sometimes court cases are decided based on the wording of the contract – several examples come to mind  – where clear and accurate wording may reduce the likelihood of the court coming up with an inappropriate interpretation. In recent years, the UK Supreme Court has heard several cases in which it has updated its approach to interpretation – particularly where the wording is unclear. Those cases would probably not have reached the Supreme Court if the wording had been clear.
3. That producing clear, accurately drafted contracts demonstrates professionalism, which itself can help to smooth contract negotiations.
4. That clients don’t always know whether their lawyer has the necessary legal knowledge and experience to handle their matter, but they can more often spot poor use of language. The self-interest of lawyers should encourage them to draft well.
5. That consumer pressure, particularly in the UK but probably in other advanced countries, has made it difficult for lawyers to hide behind obscure, fusty language. IP Draughts had a very interesting conversation with some Chinese law students during a recent training course, in which they queried IP Draughts’ focus on clear, simple language and said that clients in China would expect their lawyer to use complex legal language, and possibly even think less of their lawyer if they used simple language. This didn’t resonate with IP Draughts’ current experience of UK clients, but he could imagine a similar approach a few generations earlier in the UK.
6. That even if clients sometimes argue extreme interpretations of wording if it suits their commercial purpose, by making the wording clear and accurate, those arguments become more difficult to make.

In summary, clear contract drafting is not a magic wand that guarantees that disputes are avoided and that contracts are interpreted correctly. The benefits are more nuanced. But there should not be any doubt that taking care to draft clearly and accurately is a good use of time and money.