Author Archives: Mark Anderson

About Mark Anderson

I am an English solicitor (attorney) who qualified originally as a barrister in 1983. After working as an in-house lawyer and with Bristows in London, I formed Anderson & Company (now Anderson Law LLP) in 1994. Our offices are based in Oxfordshire, on the banks of the River Thames, 50 miles west of London. Outside work, I enjoy walking, swimming and canoeing. I met my wife Sara whilst cycling from Land's End to John O'Groats (1,100 miles) in 1991.

Bob Marley: dud case lost again in Court of Appeal

blue mountainIP Draughts has previously reported on a case in the English High Court, over the ownership of copyright in some Bob Marley songs, including No Woman No Cry.

The claimant lost that case and appealed. Last week, the Court of Appeal’s decision in the same case was handed down. In BSI Enterprises Ltd and another v Blue Mountain Music Ltd [2015] EWCA Civ 1151, the claimant lost again.

The central issue in the case was whether copyright in a set of Bob Marley compositions had transferred under an agreement made in 1992.  The songs were not mentioned by name in this agreement, unlike many other of Bob Marley’s songs. But the agreement included wording that broadened its scope beyond the named songs.

If the answer to that question was “no”, then copyright remained with the seller, and a later assignment from the seller to the claimant was effective. If the answer was “yes”, then the later assignment couldn’t transfer what the seller didn’t own. Thus, the case turned on an interpretation of the 1992 agreement.

The claimant’s counsel in the High Court, Hugo Cuddigan, had argued that the parties to the 1992 agreement had deliberately omitted the songs in question from a schedule to the 1992 agreement, and that this was part of the factual matrix in light of which the agreement should be interpreted. The judge at first instance rejected this argument, preferring to rely on the words of the agreement. These words made clear “almost to the point of redundant repetition” that all Bob Marley songs were included, whether or not they were listed in the schedule.

On appeal, the claimant had a new counsel, Madeleine Heal. She obtained permission from the court to base her case on a different argument. Her line was that a close analysis of the words of the agreement led to the conclusion that the songs in question were not covered by the assignment.

The agreement provided for the assignment of copyright in the Compositions, a term that was capitalised in the agreement. But what did this term mean? Clause 1 of the agreement set out a list of definitions. Clause 1.8 was headed “Composition” and “Catalogue”. The text of clause 1.8 included, at the end of a lengthy sentence, the words individually a “Composition” and collectively the “Compositions”. Admittedly the definition slightly muddled up the two terms, Composition and Catalogue, but the wording was broad in scope, and included the phrase including, but not by way of limitation, the Catalogue listed on Schedule 2 hereto. There is no suggestion in clause 1.8 that the definition of Composition is limited to the songs listed in Schedule 2.

no noAccording to Ms Heal, one shouldn’t look at the definitions clause to find the definition of Composition. Oh no, no, no, no. Instead, one should look at the warranty clause, which included, at clause 5.10, a warranty by the seller that “Schedule 2 contains a complete and accurate list of all the Compositions.”

Moreover, continued Ms Heal, a recital to the agreement stated that the seller wished to sell “certain” music publishing rights and interests, which proved that only some, and not all, of the seller’s interests were to be transferred.

Oh dear. Kitchen LJ’s mild response to these and similar arguments was that he was “unable to accept” them, they were “unsustainable”, he was “wholly unpersuaded”, and there was “nothing in this criticism”.

Thank goodness for small mercies.

To IP Draughts’ mind, the court at first instance and the Court of Appeal had a relatively straightforward task to interpret the 1992 agreement, and they performed it well. No new point of law arises from the case. There is no guidance that needs to be given to drafters in light of the case. It is an illustration of how far a party is prepared to go to try to protect its business interests, by pursuing a dud case all the way to the Court of Appeal.





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Common pitfalls in IP licensing

Neither the sports car nor the young people were in evidence yesterday.

Killashee House Hotel, a good location for an episode of the Avengers (the 1960s version)

IP Draughts spent yesterday on a day-trip to Dublin. To be more accurate, he attended a conference at the Killashee House Hotel in Naas, County Kildare, an hour’s drive from the airport.

He was there as an invited speaker at the Knowledge Transfer Ireland (KTI) conference on Licensing Intellectual Property: Strategies and Pitfalls.

By way of background, IP Draughts and his colleagues at Anderson Law have recently completed a writing project for Enterprise Ireland, an Irish Government agency. The fruits of that

Deirdre Kilroy in the tropical part of Ireland

Deirdre Kilroy; Ireland’s tropical rainforest can be seen in the background

project can be found on the KTI website. They consist of a large set of template agreements and commentary for use by Irish universities and industry. They form part of a public policy initiative of the Irish Government, set out in a document called Putting Public Research to Work for Ireland. Support on Irish law aspects of the project was provided by Deirdre Kilroy and her team at LK Shields, an Irish law firm.

The materials were commissioned by KTI’s Director, Alison Campbell OBE, PhD, who is well-known in the UK knowledge transfer community. Alison also organised and led the conference.

Alison Campbell is doing something funny with Richard Bruton T.D. Ireland's Minister for Jobs, Enterprise & Innovation

Alison Campbell doing something funny with Richard Bruton T.D. Ireland’s Minister for Jobs, Enterprise & Innovation

The conference brought together about 160 specialists in technology transfer. It seemed as though most of the Irish KT community was present in the room, as well as representatives from Irish companies, both large and small.

IP Draughts spoke on the subject of common pitfalls in IP licensing. He described, in a suitably anonymised way, some of the problems that he had encountered in licensing deals between universities and industry, and how they might be avoided or resolved. His examples included the following:

  1. Wrong type of transaction. Why assigning IP to a company, rather than licensing it, can cause difficulties, particularly if there are ongoing financial obligations such as royalties, and if the IP owner goes into liquidation and sells on the IP to a company that declines to pay the royalty. And why granting exclusive licences to several companies in different fields can cause problems if the fields are too close to one another. KT professionals should apply common sense to field definitions and not rely too heavily on academics telling them that field A is clearly different from field B.
  2. Mismatch of expectations. How companies and universities sometimes approach licensing transactions with a completely different set of expectations and assumptions. Companies sometimes assume that a licensing deal involves them “buying” an asset that they will be free to exploit as they see fit, and expect the asset to be “clean”, eg free from IP infringement, and the seller to take some legal responsibility for the asset that they are selling. Whereas a university may assume that it is granting limited rights to a company to enable the fruits of academic research to be put into the public arena, and that it is entirely proper for the university as a public body to avoid all risks and costs associated with the grant of those rights, while at the same time retaining some legal controls to ensure that the IP is commercialised in an appropriate way. How communication of objectives at the outset may reduce the scope for misunderstanding and frustration.
  3. Wrong mindset for negotiating deal. How both universities and companies can get reputations for being “difficult” and IP Draughts’ experience of the same concerns being expressed by both industry and universities. The importance of professional negotiations, and the need for training for academics, and perhaps senior management of universities, in how to conduct themselves in negotiations. Not allowing back-channels of communication between the company and academic, and through the academic to the university’s senior management, that undermine the work of the KT professionals. How to steer a middle ground between saying no to everything (which inexperienced negotiators sometimes do) and saying yes to everything (which senior management and academics sometimes press the negotiator to do, through lack of understanding of the issues).
  4. Locked into a long-term, loveless relationship. How parties sometimes shun discussion of how they will “divorce” at the time of negotiating their agreement, and why it is important to have a “prenup”. In particular, why it is important to have clear performance and reporting obligations, termination rights for non-performance, a mechanism for resolving disputes over performance, and clear set of obligations on termination.  Also, why it is important to handle “exit” negotiations with a licensee in a professional manner to avoid delays and loss of patent life and secure appropriate compensation for early termination.




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Unconscionably long judgments uphold penalty clause

expensiveCertain phrases in contracts are reassuringly familiar to English commercial lawyers, however weird they may appear to clients. One of these concerns what are known as ‘liquidated damages clauses’. Typically, the clause will say something along the following lines:


If the Supplier is late in delivering the Goods, it will pay the Buyer liquidated damages of 1% of the Price for each week of delay. The Parties acknowledge this is a genuine pre-estimate of the loss that the Buyer will suffer from late delivery, and is not a penalty.

By explicitly agreeing that the payment obligation is a ‘genuine pre-estimate of loss’, drafters have hoped to persuade the court (in a future dispute) that it is a liquidated damages clause and not a penalty. It has long been thought that the former are enforceable under English law, but the latter are not.

IP Draughts considers this form of words to be largely pointless and self-serving, but that it does no harm. What should matter to the court is the substance, and not the label. An interesting, if irritating, variant appeared in a publishing agreement that a publisher recently asked IP Draughts to sign:

In the event that the Publisher wishes to cancel or terminate this Agreement prior to the delivery of an acceptable manuscript or the publication of the Work without due cause, then the Publisher’s total liability to the Author shall be capped at £100 (one hundred pounds), such payment being made by the Publisher by way of liquidated damages. The parties confirm that these sums represent a genuine pre-estimate of the loss that the Author would suffer in the event that the Publisher terminated or cancelled this Agreement.

This clause is fundamentally misconceived, in that it is an attempt to limit liability masquerading as a liquidated damages clause. Thankfully, the editor at IP Draughts’ publisher has agreed to go back to the wording of the agreement used for the previous edition of the same work, which didn’t include this kind of lawyers’ nonsense.

The general assumption, that under English law penalties are unenforceable but liquidated damages clauses are enforceable, goes back at least 100 years. One of the leading cases on this subject was a House of Lords decision, Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. In that case, Lord Dunedin proposed 4 tests for whether a payment obligation was a penalty. One of those tests used the phrase ‘genuine pre-estimate of damage’, and this phrase seems to have been picked up by the courts in subsequent cases.

Last week the UK Supreme Court issued its decisions in two combined cases on the subject of penalties. The judgments and an abbreviated ‘press release’ can be found here. In effect, this is the first time that the Supreme Court (formerly the House of Lords) has looked in detail at this subject

£85? You've got to be codding!

£85? You’ve got to be codding!

in a century. The second of the two cases (Parking Eye Limited v Beavis) concerned the owner of a fish-and-chip shop, who refused to pay an £85 penalty charge for staying in a free, short-term car park connected to a shopping mall for more than the permitted 2 hours. Their lordships’ decision in this case, that the charge was enforceable, was reported in most of the national newspapers earlier this week.

The first of the two joined cases (Cavendish Square Holdings BV v Talal el Makdessi) was a large commercial dispute in respect of a contract to sell a majority shareholding in a major advertising agency in the Middle East. The contract included stage payments, and non-compete obligations on the sellers. If the sellers breached the non-compete obligations, there would be two consequences: (1) later stage payments would not become due, and (2) the sellers would have to sell their remaining shares to the buyers at a pre-determined price. The seller argued that both of these provisions were unenforceable penalty clauses. The Supreme Court disagreed.

7Usually, a panel of 5 justices decides Supreme Court cases. Occasionally, as in this case, where major issues are at stake, 7 are empanelled. Readers who think they could handle the pressure of having difficult legal questions fired at them continuously and for a long period by 7 extremely bright justices may wish to see the recordings of the proceedings, which can be viewed here.

In essence, the Supreme Court has introduced some new tests for whether a contractual penalty is enforceable. Exactly what those tests are needs to be unpicked from the various judgments, which in total run to a staggering 123 pages.

Probably, we should focus on the joint judgment of Lords Neuberger and Sumption, not least because (a) they are brainier than the others, (b) their judgment is clearer than the others (even if it does take up a whopping 49 pages), and (c) Lords Carnwath and Clarke agreed with their judgment, which means that a majority of the justices have agreed that the legal points made in this judgment form the basis of the decision.

numptyLords Neuberger and Sumption (hereinafter collectively referred to as Lord Numpter) considered the previous focus on pre-estimates of loss to have been unsatisfactory, and to have resulted in the law on penalties becoming ‘the prisoner of artificial categorisation’.

Nor is it helpful to consider whether a provision is a ‘deterrent’, as this is just the flip-side of an ‘inducement’ and not inherently bad. Instead, the test of whether something is a penalty should be whether it is ‘penal’. [Duh!]

Unconscionable or extravagent

To determine whether a provision is penal and therefore unenforceable, it is necessary to consider whether it seeks to influence a party’s conduct in an ‘unconscionable’ or ‘extravagent’ way (these words also appear in Lord  Dunedin’s 1915 judgment).

At this point in Lord Numpter’s judgment, and in the equivalent parts of the judgments of the other justices, a selection of words and phrases is used to elaborate on the threshold of unconscionableness. IP Draughts noted the following:

  • out of all proportion to a legitimate interest of the innocent party
  • exorbitant
  • in terrorem

And in the different context of a claim in the Parking Eye case based on the Unfair Terms in Consumer Contract Regulations:

  • significant imbalance in the parties’ rights
  • disportionately high sum in compensation

Several of their lordships referred to the fact that penalty rules also existed in certain civil-code countries, where provisions might be unenforceable if they were:

  • manifestly excessive
  • disproportionately high

Lord Hodge also referred to certain ‘soft law’ principles established by international bodies such as UNCITRAL, which would limit the right to damages that are:

  • grossly excessive
  • substantially disproportionate

He also referred to the tests of exorbitance and unconsionableness as preventing the enforcement of ‘egregious’ contractual provisions.

So much for the adjectives. Lord Numpter’s judgment also focussed on the following points:

Primary or secondary?

Is the financial obligation a primary obligation or merely the (secondary) consequence of failing to comply with a primary obligation? In the words of Lord Numpter:

The penalty rule regulates only the remedies available for breach of a party’s primary obligations, not the primary obligations themselves…

This means that in some cases the application of the penalty rule may depend on how the relevant obligation is framed in the instrument, ie whether as a conditional primary obligation or a secondary obligation providing a contractual alternative to damages at law…

This topic is discussed at greater length in the judgment. In other words, the question of whether a provision is unconscionable and extravagent, and therefore unenforceable, is only relevant if the obligation is a secondary one. If the obligation is a primary one, the penalty rule doesn’t apply.

IP Draughts’ reaction is that this distinction is ‘too clever by half’ and that manoeuvring around the penalty rule on the basis of primary and secondary obligations will be fraught with difficulty for us mere mortals who actually draft contracts.

parking eyeLater in the judgment Lord Numpter concluded that both of the financial provisions at issue in the commercial case – the loss of future stage payments and the obligation to sell the remaining shares at a pre-determined price – were primary obligations and therefore not subject to the penalty rule. In the consumer case, Lord Numpter concluded that the £85 charge was a secondary obligation and therefore the penalty rule was engaged, but on the facts it was justified and not an unlawful penalty.

In their judgments, Lords Mance and Hodge seemed unconvinced that the obligations in the commercial case were primary obligations. But this ultimately didn’t matter, as they found them not to be unconscionable or extravagent in the circumstances of the case. Lord Toulson seemed to agree with this analysis.

If we take the Mance/Hodge/Toulson line, it may be risky to make any assumption about a clause being a primary obligation. If we take the Neuberger/Sumption line, it should be possible to draft many penalty-like clauses so that they fall outside the penalty rule altogether. Which line represents the current state of English law?

agreeYour guess is as good as mine. In his short judgment, Lord Clarke “agree[d] with the reasoning of Lord Neuberger and Lord Sumption, Lord Mance and Lord Hodge.” With respect, you can’t agree with all of them on this point, as they had different views. Rather oddly, Lord Carnwath says nothing in the official judgment; there is simply a laconic statement, in parenthesis and as part of the heading, before Lord Numpter’s judgment, that Lord Clarke and Lord Carnwath ‘agree’ with that judgment.

Relief against forfeiture

Lord Numpter spends some time discussing the differences between (a) the law on relief against penalties and (b) the law on relief from forfeiture, but declines to reach any conclusions on whether relief from forfeiture might be available in a contract case, even if the penalty rule doesn’t apply. Lords Mance and Hodge expressed the view that relief from forfeiture could be available in these circumstances, and Lord Clarke’s single paragraph of judgment is mainly devoted to saying that his “present inclination” is to agree with them. In other words, an obligation might not be so bad as to amount to an unlawful penalty, but might avoided under the rule on relief against forfeiture. However, this was not the basis of the decisions in the present, joined cases.


Their lordships declined counsels’ invitations to abolish or significantly expand the rule on penalties. Instead they sought to ‘explain’ the rule, which had been misunderstood by an undue emphasis, over the previous century, on Lord Dunedin’s 4 tests, including the phrase ‘genuine pre-estimate of damage’.

Where the penalty rule is engaged (and it may well not be engaged if the obligation is a ‘primary’ one), the test for whether an obligation should be struck down as a penalty is, in the words of the press release that accompanied the judgment, the following:

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation

Following this judgment it will be easier, in IP Draughts’ view, to enforce what the world knows as penalty clauses . In English law agreements, there will be less emphasis on formulaic drafting of clauses that refer to genuine pre-estimates of loss.

allenFinally, congratulations to the lawyers at Allen & Overy who advised Cavendish Square Holdings in 2008 and presumably drafted the clauses that the Supreme Court upheld in the commercial case. Job well done. Does anyone know who the individuals were who drafted these clauses?

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Should we replace judges with computers in contract cases?

book-professionsThe recent publication of another visionary book from Professor Richard Susskind has stimulated debate in the legal world on whether automation is going to put us all out of a job. One of the jobs that lawyers do is interpreting contracts.

IP Draughts remembers being challenged by scientist colleagues, over 30 years ago, on whether a computer would interpret contracts more accurately and consistently than human judges and lawyers. Instinctively, IP Draughts felt it would be too difficult to program a computer to address all of the issues that a judge needs to consider when deciding a contract case.

The scientists were disappointed that it wasn’t possible to have certainty on how words used in a contract would be interpreted. This desire for certainty seemed to assume that the task of interpretation was simply one of applying linguistic analysis to the words used.

Nowadays, IP Draughts is becoming increasingly frustrated with how courts sometimes seem to ignore the linguistic meaning of contract terms and instead interpret the contract in a forced way, in order to do justice in the case. He put this point to a Court of Appeal judge recently at a UCL dinner. The judge commented that judges were always going to try to do justice in the case, as it was their job to do so, and if IP Draughts didn’t like that he should provide for arbitration in his agreements. Later, IP Draughts reflected that he wasn’t sure that arbitrators as a class would be any better at disciplined linguistic interpretation than judges.

Meanwhile, Ken Adams has recently raised the question of how often a case turns on the interpretation of the words used. He hopes to arrange for some empirical research to be done on this topic.

These varied thoughts are prompted by reading the judgment of the Court of Appeal in the case of Mortgage Express v Countrywide Surveyors Ltd [2015] EWCA Civ 1110, which was issued last week. The case turns on a small point of contractual interpretation.

bitThe case concerned claims by a mortgage company (lender) against a surveyor in respect of the latter’s valuation of properties. The parties had entered into a standstill agreement, under which they had agreed that the clock would be stopped in relation to time limits for bringing an action. The present action was over the interpretation of the standstill clause. The key part of the clause read as follows:

2.1. For all purposes of any defence or argument based on limitation, time bar, laches, delay or related issue in connection with the Dispute (a ‘Limitation Defence’), time will be suspended from the date of this Agreement until 30 days after the service by any Party of a notice which is compliant with Clause 3 below stating that the running of time is to recommence (the ‘Standstill Period’).

A recital to the agreement defined Dispute as follows:

4. In this Agreement, ‘Dispute’ means any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in paragraphs 1, 2 and 3 above.

Paragraphs 1 to 3 summarised that the defendant had been hired to conduct valuations and that the claimant had alleged (in 2010) that the valuations had been performed negligently.

A dispute arose as to whether a later claim, in 2013, was covered by the standstill agreement or was time-barred. The later claim, which was concerned with the same valuations, alleged “fraudulent misrepresentation and/or deceit and/or breach of contract and breach of duty of care”. The defendant argued that a claim in deceit was not contemplated by the earlier settlement agreement and was time-barred.

The recitals to the standstill agreement mentioned negligence but not deceit.The question of interpretation was therefore whether an allegation of deceit was , in the words of the fourth recital, “directly or indirectly arising out of or in any way connected with the matters referred to in [the recitals]”.

At first instance in the Technology and Construction Court, HH Judge Raeside QC agreed with the defendant. He commented:

I do not see how a claim in deceit can either directly or indirectly arise out of (1) and (2) and (3) of [the recitals]. The deceit claim is a case of systematic, opportunistic and deceitful overpricing from the outset and over the full period of time by these surveyors of each and every one of the 50 properties …

HH Judge Raeside QC (not to be confused with HH Judge Raeside)

HH Judge Raeside QC (not to be confused with HH Judge Raeside)

It seems to IP Draughts that this interpretation chooses to ignore the broad wording of the fourth recital, quoted above. The judge’s reasoning could be viewed as saying that deceit is much worse conduct than negligence, and the language used by the parties should be subject to an implied term that limits the words “directly or indirectly connected” to claims based on the same types of causes of action. It seems to IP Draughts unlikely that any computer would be programmed to come up with an interpretation of this kind.

The Court of Appeal overruled Judge Raeside. In the words of Lord Justice Simon, who gave the lead judgment:

…in my judgment the wide definition of ‘Dispute’ plainly extends beyond what had been alleged by the First Claimant at that stage. It would, for example, plainly cover a claim for breach of fiduciary duty based on the payment of a bribe. The difficulty with Mr Lawrence’s reading down of the paragraph 4 is that it could have been achieved by a much shorter paragraph 4: ‘In this Agreement, ‘Dispute’ means any claim or claims directly or indirectly referred to in paragraphs 1, 2 and 3.’ His answer, that the Claimant might have wanted flexibility in relation to particular valuations does not, in my view, give sufficient weight to the words ‘in any way connected with.’

In my judgment the proper construction of the Standstill Agreement is that if the claims arise ‘indirectly’ from the matters referred to in paragraphs 1-2 of the Background Preamble, or if they were in some way connected to those matters, they fall within the suspension provisions. The claims based on dishonesty fall within this very broad category of claims since they were at least in some way connected with the factual matters set out in paragraphs 1 and 2 of the Background Preamble and with the specific allegations described in paragraph 3.

Good. But this small case illustrates how much scope there is for a judge to come up with his or her own interpretation of the words used in a contract. Does this mean we should apply a simpler set of criteria to interpreting the words, based purely on linguistic analysis, which a computer might be able to replicate? IP Draughts is still undecided.


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