Category Archives: Confidentiality

Guidance on aggressive CDAs

The Law Society of England and Wales (LSEW) has issued guidance to individuals about signing confidentiality agreements (CDAs or NDAs). This follows the scandals – if this is not too strong a word – of people being asked to sign extreme CDAs as part of settlement agreements, in both the UK and USA. A UK Parliamentary committee produced a report on this subject earlier this year.

What makes a CDA extreme is a matter of opinion, but candidates for this include:

  • not being permitted to retain a copy of the CDA
  • terms prohibiting disclosure of information, or the CDA itself, to one’s family, doctor, lawyer, in litigation or investigations (civil or criminal), or to regulatory bodies
  • financial penalties (e.g. recovery of money paid in settlement, or indemnities) for certain breaches of the CDA
  • not being permitted to make factual references to one’s activities during the term of employment
  • not being permitted to use information about one’s experience (e.g. of discrimination or harrassment) to support others bringing similar claims

The LSEW’s guidance to members of the public, Non-disclosure agreements: What you need to know as a worker, is disappointingly brief. In IP Draughts’ view, it pussy-foots around some of the concerns that have been highlighted in the Parliamentary inquiry. He would summarise the guidance as follows [followed by his comments in square brackets]:

  • agreements are hard, take legal advice [a bit self-serving by the body representing solicitors, but okay]
  • your employer may pay for this advice [IP Draughts has only seen this with settlement agreements at the end of employment, where getting a certificate from the employee’s legal adviser that they have given advice and that they have insurance is a pre-condition for the employer avoiding the effect of certain employment laws; moreover the amounts offered – typically in the range £250-500 – don’t really cover the costs of giving full advice on what are nowadays becoming excessively detailed and complex agreements]
  • if you are unhappy about a CDA that you have previously signed, take legal advice [see above]
  • it’s important that you understand what you have signed up to [no shit, Sherlock]
  • check whether the terms allow you to disclose to family members or your doctor, how long the confidentiality obligations last, and whether you can talk about your role in future job interviews [this seems a rather partial list of things to check]
  • you can’t be stopped from talking to the police and regulators [arguably the most useful information in the guidance so far]
  • the CDA may not be binding on you, e.g. if you didn’t have the opportunity to think about what you were being asked to sign or you couldn’t get legal advice [a rather downbeat way of making the point that some of these extreme CDAs are there to intimidate you and they may not be legally binding]
  • you should ask for a copy of the CDA [this could be expressed more strongly as, if you are not allowed to keep a copy, you should run a mile from signing the CDA]
  • CDAs can’t be used to stop whistleblowing, but this subject is hard and you may need legal advice on it [see above]

IP Draughts is left uncertain as to the purpose of this document. It seems to be a one-off rather than forming part of a set of guidance notes for consumers on different issues that affect them. He feels the key messages should be not to sign extreme CDAs, and that they are not “normal”; if you have signed them they may not be binding. But perhaps such a blunt message was too much for a body whose members act for employers as well as employees. Perhaps the LSEW felt it had to say something, in view of the criticism that has been directed to lawyers in cases such as those involving Harvey Weinstein and others. Like some other LSEW documents in areas of political sensitivity, it is a bit of a damp squib.

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Predatory behaviour by lawyers – IP aspects

The Solicitors’ Regulation Authority (SRA) is the regulatory body for solicitors (the profession of most lawyers) in England and Wales. It has recently updated its guidance to solicitors on Balancing Duties in Litigation, in light of the recent controversies over extreme non-disclosure agreements (NDAs).

While the guidance is directed primarily to litigators rather than transactional lawyers, and across all sectors rather than being focussed on IP, it is striking that several examples from the guidance are of direct relevance to those of us who advise on IP matters including transactions. Three areas in particular are worth noting:

  1. Predatory IP litigation
  2. Drafting aggressive and unenforceable terms in NDAs
  3. Taking advantage of unrepresented individuals

As the executive summary to the guidance document makes clear:

…although solicitors must advance their clients’ cases, they are not ’hired guns’ whose only duty is to that client. They also owe duties to the courts, third parties and to the public interest.

This is a welcome change of emphasis from the SRA, which in the past has seemed to downplay these duties in favour of an overriding obsession with the interests of “consumers”.

This blog article doesn’t seek to summarise the overall content of the guidance, but instead highlights some points that jumped out as particularly relevant to IP practitioners.

Predatory litigation

One of the examples of predatory litigation cited by the SRA is the action brought by ACS:Law against downloaders of porn. Letters were sent out to multiple parties, in each case alleging copyright infringement and demanding several hundred pounds to settle the case. Though the law firm is not named in the guidance, it is clear who the SRA has in mind as the guidance refers to “blackmail” and includes a footnote linking to the transcript of a House of Lords debate where this firm’s activities were discussed by name.

The guidance includes the following paragraphs:

Predatory litigation generally involves solicitors bringing large numbers of claims with limited investigation of their individual merits or of the underlying legal background. The idea is usually that the cost in time and money of proceedings, or the threat of public embarrassment, will lead to opponents settling cases that might have no real merit.

For example, a law firm might send letters of claim to large numbers of individuals alleging, on limited evidence, that they have breached the intellectual property of their client. The requested settlement is usually significantly lower than the potential cost of fighting the claim, which encourages people to settle the claim before it goes to court and without first seeking their own legal advice.

IP Draughts was challenged about the SRA’s effectiveness in this area, when he gave oral evidence to a House of Lords bill committee in relation to what became the Intellectual Property (Unjustified Threats) Act 2017. His off-the-cuff, unprepared response was that there will always be outliers who break the rules, and it was better to deal with them in a regulated environment than an unregulated environment. He acknowledged that the SRA was like an oil tanker, taking a long time to change direction, but it did eventually take action against ACL:Law and its principal, striking them off the roll of solicitors.

Now the SRA has gone further and provided specific guidance to solicitors about this type of behaviour. Most IP lawyers that IP Draughts’ knows wouldn’t dream of behaving like ACS:Law but there are outliers in any profession, and the guidance is welcome.

Unenforceable terms in NDAs

The Harvey Weinstein case involving a UK member of staff was the subject of much press comment, and lawyers from the English law firms involved were hauled before a Parliamentary committee to explain their actions. Some of the details of that case were, to IP Draughts’ mind, extraordinary, including that a party was not allowed to retain a copy of an NDA that they had signed.

The SRA guidance on this subject includes the following statements:

The role of solicitors in drafting NDAs in relation to allegations of harassment has received public and political attention.4 This attention will continue. There are legitimate uses for these agreements, but solicitors must make sure that they do not draw up clauses that go beyond what is necessary to settle the claim. They must not threaten consequences that cannot legally be enforced. In particular, solicitors must not seek to prevent anyone from reporting offences or co-operating with a criminal investigation and other legal processes, including influencing the evidence they give. They must also not prevent someone who has signed an NDA from keeping a copy of the agreement.

There have also been allegations of employers threatening to give a hostile reference or otherwise to penalise a victim if they do not agree to sign an NDA.5 Other victims have reported being given the impression by the solicitor that they would be imprisoned if they did not comply with the NDA.6 People that have experienced some form of harassment might be vulnerable, in part because of the harassment itself. Solicitors need to consider this when communicating with them and when drafting an NDA.

The document cross-refers to a more specific guidance document on NDAs from the SRA.

Unrepresented individuals

When dealing with a party that is not legally represented, a solicitor should not “take advantage”. The only situation where IP Draughts comes across this on a fairly regular basis is where a university client is negotiating an IP transaction with an individual such as an academic who is forming a spin-out company to exploit IP. Sometimes, the academic does not take their own legal advice on the terms they are being asked to agree to, and IP Draughts recommends recording in writing, eg in an email to that person, that (a) the law firm is acting for the university alone (if that is the case), (b) neither the law firm nor the university is providing legal advice to that person in a personal capacity, and (c) they should consider obtaining their own legal advice.

The SRA’s advice in this area includes the following comments:

In advancing a client’s interests, solicitors must be careful not to take unfair advantage of the opponent or other third parties such as witnesses. Special care is needed where the opponent is unrepresented or vulnerable. Solicitors will need to consider this duty in all cases, but particularly when faced with a party showing a simple lack of legal knowledge or obvious procedural misunderstandings.

There can be a fine line between proper defence of the client’s interest and taking unfair advantage of others, usually highlighted by any form of deceit or misinformation.

Indicative behaviour 11.7 in the Code of Conduct highlights that taking unfair advantage of an unrepresented party’s lack of legal knowledge shows a failure to comply with duties to others. Special care should be taken when corresponding with lay or vulnerable opponents not to take advantage or use language that might intimidate them.8 Regulatory breaches can arise from any oppressive or domineering tactics, regardless of whether misleading information is included. These tactics include:

  • overbearing threats of claims or poor outcomes
  • legalistic letters to minors or others who might be vulnerable
  • threats of litigation where no legal claim arises
  • claims of highly exaggerated adverse consequences.

From memory, this is not the only guidance that the SRA gives on dealing with unrepresented parties, but the above is focussed on the specifics of litigation.

Conclusions

Some clients hire a large legal team

The bottom line is that an English solicitor is not supposed to go out “all guns blazing” in pursuit of their client’s interests, if this would result in a breach of the solicitor’s other professional duties. Care is needed, particularly with vulnerable or unrepresented individuals. Although the SRA’s guidance is primarily concerned with litigation, it may also affect those of us who draft IP agreements and are regulated by the SRA. IP Draughts expects that the other regulators of UK IP professionals, including the Bar Council and IPReg, would follow a similar line to the SRA.

Some clients will be disappointed with this approach, and see it as “pulling your punches”. They may prefer the US approach where attorneys are expected to represent their clients in a “zealous” manner.

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One-sided settlement agreements

UK readers can’t have helped noticing that non-disclosure agreements (NDAs) are again in the news. A Court of Appeal ruling has attracted attention. Despite a court order to the contrary, the identity of the person involved has apparently been disclosed in the House of Lords under Parliamentary privilege.

According to a report by the BBC this week, the UK Prime Minister, Theresa May, has commented on the issue:

Mrs May said non-disclosure agreements, or NDAs, should not silence whistle blowers. She added the government would take action to make sure employees knew their rights.

Some – as yet unspecified – legislation to regulate this issue is promised. During a time of legislative paralysis caused by Brexit, IP Draughts is sceptical about the government’s ability to deliver on such a promise.

But, giving the government the benefit of the doubt, what might any new law say? Perhaps that obligations of confidentiality in settlement agreements made by individuals are unenforceable? Or unenforceable where there is a significant imbalance of power between the parties? Would such a law promote or hinder the settlement of disputes?

UCL professor, Richard Moorhead, has provided thoughtful commentary on this issue, eg on his blog. Earlier this week, he was invited onto the Today radio programme and then onto BBC TV programmes to discuss the matter.

IP Draughts’ instinctive view is that, if confidentiality obligations in such circumstances were unenforceable, it would reduce the number of settlement agreements. But whether it would reduce the number significantly is unclear. Sometimes, confidentiality will be a key issue for one or both parties. On other occasions, the key issue may be resolving the dispute and avoiding the cost, time and additional problems associated with litigation, so that confidentiality is merely a “nice to have”.

Although he hasn’t advised on harrassment allegations or their resolution, IP Draughts occasionally advises on the settlement agreements that employers ask their employees to sign when dismissing them, typically in return for a payment that exceeds the contractual entitlement. In the UK, these agreements (formerly known as compromise agreements) can protect the employer against future claims by the (ex-)employee if they are drafted widely enough and comply with statutory requirements. One of those requirements is that the employee obtains legal advice and provides a certificate to this effect from the lawyer.

Although the circumstances of these settlement agreements are different from those that are in the news, there are some similarities: they are entered into between parties of unequal power, and in return for a payment the party with less power gives up a wide range of future rights. Typically they include confidentiality obligations. From an employer’s perspective, it is usually the preferred option to keep the deal secret.

Originally, these settlement agreements were drafted with a view to avoiding future, employment-related claims by the employee, such as for discrimination or unfair dismissal. They provide a limited ‘safe harbour’ or exception to the general rule that an employee cannot contract out of their statutory employment rights. The agreements were sometimes a little lengthy because they listed all the different types of theoretical claim that an employee could bring under UK employment legislation. But apart from these lists, the agreements were relatively straightforward.

More recently, IP Draughts has noticed a trend to throw much more into settlement agreements, to tie the employee up in legal knots. A draft settlement agreement that IP Draughts recently reviewed seemed to acknowledge this, when it said:

…if this Agreement is only effective for the purpose of precluding the Employee from presenting particular statutory complaint(s) to an Employment Tribunal, then the particular statutory complaints to which this Agreement pertains is/are the Employee’s complaints of unfair dismissal, wrongful dismissal or discrimination.

This was a small sub-set of the types of claim that, elsewhere in the agreement, were stated to be waived by the employee.

In addition, this particular agreement had some rather strong obligations on the employee, eg:

  • non-compete obligations on the employee
  • obligations not to make subject access requests under data protection legislation
  • obligations to cooperate with the employer in any future UK or overseas regulatory or legal proceedings to which the employer was party
  • full disclosure obligations (similar to an utmost good faith obligation) that were not reciprocated by the employer
  • obligations not to make disparaging statements about the employer

The wording of some of the obligations was extremely dense and difficult to follow. For example, a sub-clause on tax liabilities was part of a single, longer sentence. The tax part of the sentence ran to 348 words and included multiple qualifiers, ifs, buts and provisos.

These types of agreement tend to be drafted entirely to protect the employer, and detailed negotation of the terms is not usually expected. Something has gone wrong when they are are as complicated and one-sided as this one. Personally, IP Draughts wouldn’t sign such an agreement for the low thousands of ex gratia payment that are typically on offer, but perhaps he is talking with the luxury of being a well-paid professional. He finds it difficult to believe that the original intention of the legislation which brought in compromise (now settlement) agreements was to facilitate extreme agreements of this kind.

Some lawyers take the view that their role is to provide maximum benefit to their client and if that means maximum disbenefit to the other party, so be it. Some clients require their lawyers to act in this way. While this approach has its place, IP Draughts agrees with Richard Moorhead that when one is dealing with individuals, and when there is an imbalance of power, ethical considerations may require a tempering of the “win as much as you possibly can, and without caring about the other side” mentality.

 

 

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Is it unethical to be a b*****d?

Confidentiality agreements have been hitting the news in recent months. If it isn’t Harvey Weinstein, it is Donald Trump. Their circumstances are different, but they both seem to have required people to sign detailed, and very one-sided, non-disclosure agreements (NDAs).

This should be good news for IP Draughts, as the author of a Law Society book on drafting confidentiality agreements. But somehow, he doesn’t think the lawyers acting for these gentlemen are likely to be purchasers. And even if they are, they won’t find any mention of the extraordinary clauses that are said to be included in their NDAs. Perhaps that is a new feature that we should include in the 4th edition.

Increasingly, IP Draughts is seeing commentary on the ethical issues for lawyers who advise on extreme NDAs. This is part of a larger issue of whether lawyers should uncritically follow their client’s instructions, however dodgy those instructions may be. Professor Richard Moorhead of UCL has been particularly prominent in this field, with a string of interesting articles about what he calls “solutions-focused but ethically neutered lawyering”.

If you think this problem is confined to a particular type of noisy, low-grade lawyer, think again. The House of Commons Women and Equalities Committee had some tough questions for partners in Allen & Overy about one of the cases in the news.

All of this prompts in IP Draughts’ mind the question of how far a lawyer should go in his or her client’s interests.  Sometimes, clients want a lawyer who is an aggressive b*****d. Some law firms in the City of London have made it part of their selling point that they are “tough but fair” in litigation or negotiations. By this, they mean that they will comply scrupulously with their ethical obligations (as they see them), but they will go right up to the boundary of what is acceptable and, staying on the right side of the line, make life as miserable as possible for their client’s opponent.

If you are dealing with hard-nosed corporate clients, perhaps such an approach is acceptable and commonplace. But if you are dealing with individuals, such as women who are pursuing claims of personal misbehaviour against rich tycoons, does the boundary of what is ethical shift? And is it appropriate to operate right at that boundary? Behaviour that may seem conventional in other circumstances, eg all-night meetings to discuss the terms of an NDA, or fielding a large team of experienced lawyers against a lone, junior associate, may become inappropriate by default, because no-one has stood back from the situation and questioned the status quo.

IP Draughts may not be the best person to comment on being tough but remaining within acceptable bounds. One of his longstanding but occasional clients, whose judgment he respects, recently told him that his trouble was that he was “too nice”. The implication seemed to be that he would have been instructed more if he had been less nice. And he still remembers the time, about 30 years ago, when as a junior associate he refused to work all night on an agreement, just because his opposite number’s boss (a partner in one of the biggest London law firms) thought it would be a good idea. His refusal was regarded as extraordinary. But the world didn’t come to an end, and everyone was much fresher mentally when they resumed work on the draft agreement the next morning. This wasn’t niceness, it was not following convention when it didn’t make sense.

If you are going to be an ethical b*****d, you have to work really hard to make sure you don’t stray over the line. And be aware that the position of the line may change, for reasons outside your control. Much better for your peace of mind to stay back from the line in ethically secure territory, and be nicer than you need to be or even, sometimes, your client wants you to be.

 

 

 

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