10 words and phrases you should never use in IP contracts

As most people know by now, Mr Pettifog likes an open fire in his study.  His trainee’s first duty each morning is to rake out the ashes of the previous day’s fire, before setting paper and kindling in a regular tetrahedron, ready to be lit when Mr Pettifog arrives.

The trainee’s second task is to print out any draft contracts that have arrived via the interweb since Mr Pettifog left the office the previous afternoon, and to mark them up with any changes that she thinks Mr Pettifog may require. Woe betide any trainee who allows any of the following list of words to appear in a draft IP contract.  When Mr Pettifog spots them, the entire contract is likely to be hurled into the fire.

This causes the trainee several problems.  First, she has to stand by with a Schweppes soda syphon to put out any stray flames.  Extinguishing the flames in this way makes it much messier to clean up the fireplace the next morning.  And then there is the problem of refills.  Mr Pettifog won’t accept that Schweppes no longer provides replacement bottles, so the trainee has to resort to refilling the bottle herself using a SodaStream.  On bad days, Mr Pettifog has been known to mutter incomprehensibly about getting 7 shillings and sixpence back on the bottle, and replacing the money in the petty cash box before Betty finds out.

While IP Draughts prefers a slightly more modern approach to trainee management, he shares Mr Pettifog’s dislike of these words and phrases.

1. Covenant. Contractual obligations are best indicated by use of the word “shall”, as in “the Consultant shall deliver a report”.  Covenanting to deliver a report adds nothing the legal effect, at least under English law.  The word should be avoided, except in land transactions where it has a specific meaning.
2. Should.  We have encountered lawyers who have replaced “shall” with “should” during negotiations if they wish a proposed contractual obligation to lose its contractual force and become instead an aspiration or statement of intent. We would be nervous that a judge might assume a defect of grammar rather than a conscious choice of words (particularly under the English system where drafts of contracts are not usually admitted in evidence), so instead we would state explicitly that the provision is not legally binding.  This assumes that there is any need for it in the contract; usually contracts contain only contractual obligations.
3. Sideground.  Most IP lawyers are familiar with contractual definitions of Foreground IP and Background IP.  These expressions may have originated in the standard contract terms of EU Framework research grants, or at least have been popularised by their inclusion in those terms.  Typically, Background IP is pre-existing intellectual property that a party brings to a research project, while Foreground IP is intellectual property generated in the research project.  Sometimes, parties wish to address a further category, namely IP that is generated during the term of the research project but outside of the project.  Some people refer to this as Sideground IP, but IP Draughts would rather stick pins in his eyes than use such a horrible phrase.  This category of IP can easily be included in the definition of Background IP, if required.  [IP Draughts has similar views about the word “copyleft” (as distinct from copyright), but he has heard his junior partner, who is very knowledgeable about open source licensing, referring to copyleft without grimacing, so he will keep this view to himself.]
4. Have sold.  Unlike some of the other examples in this list, this one is more of a policy issue than a problem with the words themselves.  Licences to “have made” are commonly seen as part of the grant clause of a licence agreement.  This allows the licensee to engage a subcontractor to undertake manufacturing of the licensed products.  If the licensee is also licensed to “have sold”, a possibility arises that the licensee will subcontract all of its commercial activities under the licence (manufacture, marketing and sale) to one or more other organisations.  Distinguishing this type of arrangement from a sub-licence may be difficult.  Typically, rights to sub-license are made subject to detailed conditions, yet by slipping in the words “have sold” into a typical licence grant clause, the need for formal sub-licensing may be avoided.  The words “have sold” may look innocent enough in a long list of permitted activities under the licence, but they are potentially  dangerous for a licensor, and considerable care and further drafting may be required if they are included.  Usually, these words should be omitted.
5. Hold harmless.  This phrase is often seen in indemnity clauses.  It should usually be avoided.  See our earlier posting on this subject here.
6. Mutatis mutandis.  This is a horrible Latin phrase, which is used as lawyers’ shorthand for “I am too lazy to retype an earlier clause and make changes to it to make it suitable for a different situation, so I will state the new obligation very briefly and cross-refer to the earlier clause where you can get more detail on roughly what I have in mind.”  The phrase should be avoided by all right-thinking contract drafters.
7. Hereinafter.  There is no need for words like this in contracts.  Including them makes lawyers an easy target for cruel jibes and bullying.  Get rid of all the hereinafters, whereofs, parties of the first part and other pompous expressions, and make the world a safer place for lawyers.
8. Determine.  Isn’t it bizarre that contracts sometimes use the word determine in the sense of terminate, when the rest of the world stopped using determine in this sense about a century ago?  Kick the habit!
9. Successors and assigns.  Tucked at the back of the contract, one sometimes sees a boilerplate clause that states that the contract is binding on a party’s successors and assigns.  Leaving aside questions of why such a clause is necessary, and whether it conflicts with a separate assignment clause, let’s just focus on the word itself.  Assigns is being used here to mean assignees.  Why don’t all lawyers put the “ee” back into the word?  Particularly IP lawyers who are familiar with assignors and assignees.  Nobody uses assigns in this sense in everyday speech.  Another of IP Draughts’ favourites in the boilerplate section is “inures to the benefit of”, which sometimes appears in the “successors and assigns” clause.  On more than one occasion, IP Draughts has seen this mistyped as “insures to the benefit of”, probably because the spellchecker couldn’t believe there was such an old-fashioned word as “inure”.
10. In witness whereof.  This phrase reads like something out of the King James Bible.  A simple “agreed by the parties” should suffice, perhaps expanded to “agreed by the parties through their authorised signatories” if you want to make the signers think about whether they are, in fact, so authorised.

Huge IT contract is litigated: IBM and AZ dispute meaning of terms

Last week brought the publication of an English High Court judgment in the case of AstraZeneca UK Limited v International Business Machines Corporation [2011] EWHC 3066 (TCC).  IP Draughts assumes that this is part of the fall-out from AZ’s decision to drop IBM as a supplier of worldwide IT services under a $1.4 billion deal, reported here.

The case concerns the obligations of the parties on termination of their contract, including obligations on IBM to provide “termination assistance” during an “exit period”.  The judgment of Ramsey J focuses on the interpretation of  certain words used in the contract.

The general approach of Ramsey J appears to be in line with that taken in other recent cases, including the much-cited judgment of Lord Hoffmann in the West Bromwich case.  For IP Draughts, the main points of interest in this case are:

1. The judge’s apparent acceptance that in a contract of several thousand pages, running to 90 clauses and 32 schedules, some of the text may be redundant and not relevant to interpreting the obligations of the parties.  The judge quotes Lord Mance in an earlier case as saying “even the most skilled drafters sometimes fail to see the wood for the trees”, and this is not surprising when the contract is so long and complex.
2. That a provision that AZ “may” prepare one or more IT Transfer Plans should be interpreted in context as an obligation on AZ to prepare an IT Transfer Plan.  See paragraphs 175 to 193 for the judge’s detailed reasoning.  This is a good illustration that one does not just look at the dictionary meaning of the word “may” in isolation from the rest of the contract.

As this case demonstrates, disputes over IT contracts can raise large numbers of points of detailed interpretation, both as to the meaning of obligations and whether those obligations have been met.  The Technology and Construction Court, where this case was heard, is experienced at dealing with such disputes.  It requires a lot of painstaking work to analyse each obligation and compare it with the facts as to what work has been done, before deciding whether a breach has occurred.

This painstaking work may be justified when the sums at stake run into hundreds of millions of pounds per annum.  Unfortunately, in IP Draughts’ experience, IT contracts can raise complex questions of interpretation and fact when the amount at stake is only a few tens of thousands of pounds.  In this situation, it is too easy to waste legal fees for the sake of a principle.  The parties’ lawyers can help their clients to avoid wasting money and reach a pragmatic but imperfect solution, but only if the clients are willing to compromise.

Do you need a science degree to be a good IP lawyer?

Many good intellectual property lawyers have science degrees.  Some have several – IP Draughts can think of one well-known IP barrister who, in addition to his legal qualifications, has a PhD in applied mathematics and an MSc in economics, and is currently studying for a chemistry degree in his spare time.

For some areas of patent litigation, a scientific training can be useful.  Penny Gilbert (DPhil in molecular biology from Oxford), the doyenne of biotech patent litigation and co-founder of Powell Gilbert, springs to mind.  Some IP litigators consider a science degree far better than a law degree as preparation for legal practice.  However, opinions vary.  Some highly-respected IP litigators have (only) law degrees, eg Sally Field of Bristows.

In most cases, UK IP lawyers either have an undergraduate science degree or an undergraduate law degree, and not both (although, increasingly, non-law graduates who pursue the legal practice courses are taking on an extra subject or two to build them up into a law degree).  Typically, therefore, science graduates take a condensed course of legal training over one year (plus one year’s LPC) rather than three (plus one), en route to qualifying as lawyers.  Inevitably, this results in a less in-depth approach to studying law than law students receive.

This can cause some science graduates to struggle when they take the Oxford postgraduate diploma in IP, as many junior IP lawyers now do.  This has been particularly noticed in the last couple of years, as the academic tutors on that course are gradually making it more academically rigorous and more aligned with other Oxford law courses, eg through the introduction of compulsory essays.

Once the budding IP litigator has passed the Oxford course, there is a point of view that their formal legal training is complete.  They have been exposed to an intensive course of study on IP legislation and on litigation practice, and this will be supplemented by learning on the job, under the supervision of more experienced litigators.  They have also had a condensed, general exposure to law via the CPE and LPC. If the IP litigator is also a science graduate who can understand and prepare technical evidence, they may bring more to the table than a law graduate.  Or at least so the argument goes.

The legal skills required of transactional IP lawyers overlap with those required of IP litigators, but they are not the same.  Clearly, both areas of practice require a knowledge of IP law, and both probably require an understanding of competition laws (or access to someone with that understanding).  Transactional IP lawyers also need to understand contract law and (at least at some level) other areas of commercial law, eg insolvency, tax, general property law, tort, company law, trusts, and so on.  This is why our proposed postgraduate diploma in IP transactions will cover much wider areas of law than the Oxford course currently does.

For transactional IP work, IP Draughts thinks a law degree is probably more valuable than it is for IP litigators.  Spending 3 years studying law to degree level gives a greater breadth of legal knowledge, and more extensive training in analysing legal principles and case law, than the CPE or LPC can provide.  This is not to denigrate science degrees.  A science or engineering degree provides other, useful skills for transactional IP work, but there is probably not the same natural bias towards science graduates as there may be in highly-technical areas of patent litigation. The key thing is to fill in any gaps in knowledge or approach early in one’s career.  In our office we have three law graduates, one law and computing graduate, one physics graduate (to PhD level), one engineering graduate, and one non-law graduate who has an MBA.  Having a mix of skills in the team helps us all to do our jobs better.

Finally, we should not overlook mathematicians.  Some of the most prominent UK lawyers of the twentieth century studied maths at university, including Lord Denning and, from Scotland, former Lord Chancellor, Lord Mackay of Clashfern.

Bits and pieces

Conor v Angiotech

IP Draughts attended a highly entertaining debate at University College London last night, run by the Institute of Brand and Innovation Law.  It was structured as an appeal to the World Intellectual Property Court in the case of Conor v Angiotech, and starred as counsel Professor Lord Hoffmann (reprising his judgment in the House of Lords in favour of Angiotech), and Professor Sir Robin Jacob (reprising his judgment in the Court of Appeal in favour of Conor). Justice Marshall Rothstein of the Supreme Court of Canada played the role of judge of the World Intellectual Property Court.

Readers may recall that Conor v Angiotech was a case about whether a patent that claimed a stent coated with taxol (extracted from the Pacific Yew tree) was invalid, eg for obviousness.  We may get around to a more serious posting about the merits of the arguments raised by counsel, but for now, we will mention simply that the court found in favour of Lord Hoffmann.

Best joke of the night came from Justice Rothstein.  Paraphrasing:

I was surprised and pleased to be invited to this event.  I said to my wife, could you ever have imagined in your wildest dreams that I would be presiding over a case with two icons of world intellectual property as counsel?  She replied, Marshall, you’re not in my wildest dreams.

Best line from Lord Hoffmann:

As your Lordship will recall, extract of yew (“slippes of yew”) was one of the ingredients of the witches’ brew in Macbeth.

Best line from Sir Robin Jacob:

My Lord, may I have permission to appeal to the Inter-Galactic Intellectual Property Court?

European contract law

IP Draughts commented here about the European Commission’s recent proposals (supported by the European Parliament) to introduce an EU-wide contract law.  Readers who replied to our survey on that posting were divided as to how the UK should respond to that proposal.  50% objected and thought the UK should resist the proposal.  36% thought we should face the reality that the proposal is likely to become law, and focus on making detailed drafting suggestions to improve the law.  14% thought we should wholeheartedly embrace the proposal.

Since we posted that survey, the UK Government has commissioned the Law Commission and the Law Commission of Scotland to provide it with advice on how the UK Government should respond to the proposal.  That advice has now been published. It is luke-warm to the idea and identifies a large number of problems with the proposal.  Its brief conclusion is:

The CESL offers the parties a free choice – which we welcome. Even if the CESL is hardly ever used, no harm would be done. On the other hand, we are not convinced that developing a CESL for commercial parties should be seen as a priority. We think efforts would be better spent on developing a European code for consumer sales over the internet, where there is stronger evidence that the current variety of contract laws inhibits the single market.

Charity Commission guidance on investment by charities

The (English) Charity Commission has issued revised guidance on how charity trustees should make decisions about making investments. This is general guidance and not focussed specifically on universities investing in spin-out companies.  However, many of the issues raised in the guidance are familiar from the Charity Commissions earlier guidance to universities, summarised on the Anderson Law website here.