Consumer law and IP contracts

Consumer law might seem a long way from IP contract drafting, but here is the connection…

Contracts with consumers, if they are to be legally effective, must comply with an ever-increasing number of consumer protection laws.  In the European Union (EU) those laws require (among other things) that contract terms and conditions be written in plain, straightforward language and not be “unfair”.

In practice, the terms and conditions of consumer contracts come in all shapes and sizes. Some are simply written and say very little about consumer rights (but equally, say little about excluding those rights). Amazon’s terms and conditions of sale are a good example of this approach.

Other consumer ts and cs are still wedded to an old-fashioned style of drafting or try to limit the consumer’s rights in a clever or less-than-clever way. There are too many examples of this approach in circulation.  Some of these ts and cs seem to go on forever (my mobile telephone contract, for example, which is printed in a very small type size).

The European Commission (EC) has come up with two ideas: first, that there should be an EU-wide system of contract law; and second, that the EC should provide model contract terms and conditions. This is primarily aimed at cross-border trade (for most consumers, a purchase from Amazon is a cross-border trade, as Amazon is incorporated in Luxembourg). A further aim of these proposals is to lower transaction costs for all businesses who wish to start trading, not only those involved in cross-border transactions. There is a good case for a new business wishing to sell goods over the internet having access to a set of contract terms and conditions which is well-drafted, fully-compliant with EU consumer laws, and “straight out of the box”.

Most IP contracts that we encounter are not focussed on consumers, although IP terms are often found in consumer contracts.  For example, licensing terms are found in the terms of sale of software products (eg a Microsoft consumer package) and IP provisions are included in the terms of use of many websites.

It is sometimes difficult to reconcile the technical precision required in IP agreements with the need for plain, straightforward language in consumer contracts.  A chapter on drafting consumer contracts under English law appears in our book, A-Z Guide to Boilerplate and Commercial Contracts.  Anyone involved in drafting consumer contracts under English law should also consult the Office of Fair Trading’s website.  That website includes specimen contract wording that the OFT has challenged under consumer legislation, including both “before” and “after” versions of the wording, following the OFT’s intervention.

Mistakes, I know I’ve made a few… (Part 1)

If words and figures do not match…
Last week a client asked about a problem she had with a contract.  She had recently started providing consultancy services and didn’t have her own terms and conditions. She had to use those of the large company to which she was providing her advice.

Their conditions stated all amounts twice, once in figures and a second time in words.  This is commonly seen, as in the following general example:

    “We will pay you £1000 (one thousand pounds sterling) within 30 days of you completing the Services”.

What was agreed orally with her was that she would be paid £2,000, but the written contract said:

“We will pay you £2,000.00 (one thousand five hundred pounds sterling) within 30 days of you completing the Services”

Subsequently, the company told her they were only going to pay the amount written in words and not that in figures (£1,500 and not £2,000). They said that their lawyers had advised them that it was the amount in words which was binding and not the amount in figures. In effect they told her, take the £1,500 or walk away from the contract.

Unfortunately for her, it could be said that the company is right. There is a presumption, if a dispute such as this ended up in a court room, that amounts written in words are correct if there is a difference between them and those written as figures. The presumption is that it is easier to make a mistake in writing out figures then words.

If she could clearly show that the difference was a mistake then a court would be able to correct it, and override the general presumption (the courts have the power to correct mistakes by interpreting the wording used and by determining what the parties’ intentions were).  A clear and unambiguous written record of what the parties discussed and negotiated and agreed would help her.

Irrespective of the legal rights and wrongs, the cost of taking legal action is likely to exceed the amount of the difference.

Given the amount involved, it would be heard in the small claims court, but  any litigation is time consuming and would take the client away from earning money.

Plug: I am working on the third edition of Drafting and Negotiating Commercial Contracts. Due for publication in October 2011. You can order your copy now or see what was said about the second edition.

Informative plug: The whole subject of “Mistakes and what to do about them” is one of the new topics to feature in the new edition. If there is something you would like to see in the book please contact me or Mark Anderson.