International IP transactions: how best to manage the differences?

shapesThe legal aspects of international IP transactions can be challenging. Do you ignore the differences in approach to drafting and interpreting contracts, treating every deal as if it were a domestic transaction between parties in your home territory? As a variant on this, do you run a late draft of the agreement by a local lawyer in the jurisdiction where the agreement is to be performed or (if it comes to that) litigated, for a ‘quick and dirty’ legal review? Or do you try to grapple with the issues yourself, and draft the agreement with one eye out for the approach that it likely to be taken by the foreign court or arbitrator? In most cases, employing an international team of lawyers to be fully involved in the drafting and negotiation of the agreement is unlikely to be acceptable to the client on cost grounds.

The third of these alternatives – keeping an eye out for the overseas laws while you draft – may be the most cost-effective, and in your client’s best interests, but you are only qualified to advise on the law in your home jurisdiction, and dabbling in another country’s laws is frowned upon by regulators and professional indemnity insurers. You also need to know your client – are they employing you to reduce their risk (as some in the banking sector may do), or are you part of their team, so that they will they appreciate whatever insights you can bring, irrespective of whether they are 100% accurate, complete or up-to-date? For obvious reasons, IP Draughts prefers to deal with the latter type of client, who will see the benefits of imperfect knowledge about overseas legal systems, rather than blame you for what you don’t know.

Those insights are learnt throughout one’s career – each international deal that you work on can bring a few snippets of useful information that can be used on later transactions. Reading up on the subject can also help – the comments of the 6 overseas contributors to our book on biotech transactions have been immensely helpful to IP Draughts’ understanding of the approach taken in civil codes jurisdictions.

In IP Draughts’ experience, these hard-won snippets of information can fall into several categories, including the following:

  1. Rummaging in the bottom of the IP cupboard. Only a small part of national IP laws tends to be concerned with transactional issues.  Those issues typically include: first ownership; problems with employees and consultants; co-ownership and associated problems; recognised types of transaction, particularly assignment, licensing and charge; quasi-IP rights, including Government walk-in rights, compulsory licences, rights for developing countries, and incentives such as orphan drug status; and implied terms in licences and assignments.
  2. Pushing a square peg into a well-worn, roundish hole. Applying long-established, national contract law principles to the facts of IP transactions, in circumstances where there may be little case law that is specific to IP transactions to guide the drafter. Examples include interpreting terminology (eg “exclusive”), implied terms (eg IP warranties, duties to exploit, reasonable royalties and rights of termination), and generally the willingness of judges in civil code countries to ‘fill in the gaps’ of the parties’ contract drafting.
  3. Escaping the deathly clutches of US legal drafting. Recognising that many ‘international’ transactions incorporate US-style contract wording. Some of that wording is sub-optimal yet rarely challenged in the US, eg the use of the terms ‘indemnify and hold harmless’, ‘successors and assigns’, or ‘sole and exclusive’. Outside the US, there is even less justification for using imperfect wording that is cosily familiar and therefore often accepted in a US context.
  4. Talking Euro-babble with confidence. Drafting IP agreements to take account of the peculiar and detailed concerns of the European Commission’s Competitition Directorate, as set out in documents such as the Technology Transfer Block Exemption Regulation and the Guidelines on Technology Transfer Agreements.
  5. discoDisco-dancing dad. Knowing enough of the moves to get by, in quirky areas of national law that affect the terms of IP agreements, including employment, insolvency, tax, and security interests, and generally having a view on which laws to choose or avoid for an international contract, if your home territory’s laws cannot be negotiated.

 

 

 

9 Comments

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9 responses to “International IP transactions: how best to manage the differences?

  1. Chris, on “submit to jurisdiction” my heart wants to agree, but I was taught to use those words, perhaps because that is the phrase used in Article 10(5) of the Hague Convention. It is an example of the parties communicating to the court and not to one another. Yes, it may be inconceivable that a party disputes a court’s jurisdiction where it has expressly agreed it in the contract, or that the court declines jurisdiction in such a scenario, but I am not yet convinced that the words are redundant.

  2. Chris on law and jurisdiction, I have seen this mistake being made, and it sounds plausible that US lawyers are better at avoiding it than some others. The only point I would avoid in US drafting on this issue is the wording about not applying local rules on appropriate venue to bounce the case out of the jurisdiction – that is not an issue that I have encountered outside the US. Certainly the English courts are happy to hear disputes between Russian oligarchs, as it helps our economy and provides jobs for English lawyers!

    • Mark, I’m not sure what you are referring to unless it is a forum non conveniens dismissal. In the contract context, it is certainly true that the parties’ choice of forum is not binding on Federal courts, although that choice is one of the factors to be considered; the Federal courts may, however, only transfer an action, not dismiss it. The Supreme Court Stewart decision of 1988 is, however, not binding on state courts, and forum selection clauses are generally respected. Indeed, New York has a specific statute that providing that in commercial cases involving more than $1 million, where the parties have stipulated to both New York Judicial jurisdiction and application of New York law, the stipulation will be binding. The wise attorney will also specify a competent court in New York County, rather than just “the New York courts.” I do think it important, however, to have a rationale for the choice of law and even venue provision, especially if neither party is a resident of the forum state. In my own practice, with an emphasis on the entertainment industry, the practical choices of law apart New York would be California, or possibly Illinois, because of a wealth of decisional law related to entertainment issues; as far as venue is concerned, I want to be in New York County not for convenience, but because a high proportion of state court judges will have handled entertainment cases: the same is not true across the river in Kings County (Brooklyn) notwithstanding that borough’s newly found international cachet.

      As far as your Russian oligarchs are concerned, am I to understand that English courts will hear disputes between any parties (assuming they can pay the freight), without reference to the residence of the parties, as some kind of taxpayer-funded arbitrators? Or that the parties contracted for governing law and venue? If the latter, I note that they are equally welcome in New York, at least in the state courts. The welcome would not be extended to defamation actions, of course, but some of us are happy to leave them to the English courts.

      • Interesting. I was referring to choice of law and jurisdiction in contracts, where the English courts will generally respect such a choice. From your comments it seems that, in larger cases at least, the words in asterisks below are not needed in US clauses specifying NY law and jurisdiction (and are not generally used, in my experience, outside the US):
        “Any and all disputes arising out of or relating to this
        Agreement shall be governed by and construed in
        accordance with the laws of the State of New York, **without
        giving effect to principles of conflicts of law**.”
        “Each party submits to the jurisdiction of the state and federal
        courts located in New York City, Borough of Manhattan for
        any action or proceeding arising out of or relating to this
        Agreement **and expressly waives any objection it may have
        to such jurisdiction or the convenience of such forum**.”

      • The lack of necessity for the exclusion of the conflicts-of-laws provisions was addressed specifically by our Court of Appeals in RB-Brasil Resseguros, S.A. v. Inepar Investments, S.A. [20 NY3d 310 (2012)] — though I note that this is one redundancy that Ken Adams favors retaining, as do I. As to the second quoted provision, I would regard any recital of a submission to jurisdiction as overblown and unnecessarily verbose: it seems to me that any contractual provision stating that any action be brought exclusively in a competent court in a particular location suffices. It beggars credulity that a party would argue that it had agreed to bring an action in a court, but not to submit to the jurisdiction of that court. By the way, I prefer the reference be to “a competent court”, if for no other reason than brevity. And I would be astonished were a colleague to specify “New York City, Borough of Manhattan” rather than New York County.

        I would be happy to forward the cited Court of Appeals case, or the statutory provisions requiring our courts to recognize choice of law and venue provisions to any reader who cares to contact me by e-mail at whentlaw@aol.com.

  3. I comment only because the reference to “US legal drafting” has occurred earlier in these otherwise delightful and stimulating columns. As a dual citizen, practicing in the US, I may escape being accused of being unduly defensive when I say that this characterization disparages those of us in this country who would find the examples unacceptable and to be eliminated from our own drafting. Bad drafting is ubiquitous; I have dealt with more than a few English solicitors capable of even worse than my local colleagues. There is no need to indulge in jingoism, implicit or expressed. The admonition should simply be to draft in clear and precise English without resort to magic words, as Ken Adams, calls them, no matter from which jurisdiction they originate.

    • Fair enough. Part of my point is that parties should be extra-vigilant to avoid using wording that (a) has been designed for another legal system (particularly when it comes to clauses dealing with liability and legal risk), (b) is dreadful whichever law is to govern the contract, (c) is often accepted because parties are familiar with it, irrespective of its quality, and (d) as a matter of fact has originated in the USA. For the non-US party I think it is useful to understand all of these points, but I will try to avoid making it look like a jingoistic point.

      (I hope I can be allowed to continue to be rude about the European Commission!)

      • I would put the EC in the same category as our government officials drafting regulations, a category even lower than statutory language drafted in legislative committee. By the way, if I may, in the context of international transactions, you might well have addressed the concepts of governing law and venue. In my experience, US lawyers, perhaps understandably, remain ahead of most European lawyers i have dealt with in distinguishing these concepts when drafting contract language. Too many of the latter assume that the choice of law necessarily dictates the forum, something that no competent US lawyer would assume.

  4. In my experience the approach is case-by-case. The more obscure the jurisdiction or the more financially significant the transaction, the more likely it is that counsel familiar with the jurisdiction will be engaged. Otherwise it’s a matter of obtaining quick-and-dirty review or simply relying on prior experience in the jurisdiction (i.e. a library of executed agreements that were reviewed by local counsel).

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