Category Archives: Intellectual Property

Three enjoyable years

Today is the last day of IP Draughts’ 3-year term as chairman of the IP Law Committee of the Law Society of England and Wales. Tomorrow, Carolyn Pepper officially takes over. He wishes her all the best in the role over the next 3 years.

It sounds like a cliché to say that people grow into a role, but the phrase resonates with IP Draughts: as he performed the role, he developed the skills and confidence to perform it better.

It has been a real pleasure to work with a talented and dedicated group of people on the committee in pursuit of a common cause. IP Draughts also enjoyed working with others, including:

  • some talented and committed people at the Law Society, including our policy adviser, and former committee secretary, Lauren Rabaiotti
  • representatives of other IP professions, including the IP Bar Association, CIPA, CITMA, the IPLA and the IP Federation
  • representatives of the UK Intellectual Property Office and other government departments and agencies, including some representatives of the Ministry of Justice.

Among many highlights were having the opportunity to give oral evidence to committees of the UK Parliament:

  1. Together with Matthew Harris of the IP Law Committee, and Vicky Salmon of CIPA, IP Draughts gave oral evidence to the House of Lords’ Public Bill Committee that considered the Bill that eventually became the Intellectual Property (Unjustified Threats) Act 2017, and negotiated changes to the text of the draft Bill with representatives of the Law Commission and the Parliamentary Draftsman’s office.
  2. Together with Daniel Nelki, then in a senior role at Wellcome Trust, he gave oral evidence to the House of Commons’ Science and Technology Committee, in relation to its inquiry into technology transfer.

Now, IP Draughts would like another public/legal role that will make use of the chairing skills that he developed with the IPLC, and the legal skills that he has developed over the last 39 years. If you hear of anything, please let him know…

 

 

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The perils of overlooking IP issues in tax structures

Richard Spearman QC

Two cases reported on BAILII this week emphasise the importance of dealing with IP issues when you set up companies to save tax.

Both cases were heard by a deputy High Court judge, Richard Spearman QC. IP Draughts had not heard of him before now, but apparently he is a go-to barrister for gagging orders (also known as super-injunctions). Based on these two cases, he is fast becoming a specialist, albeit part-time, judge on the subject of implied IP terms in contracts.

Chadwick v Lypiatt

The first case, Chadwick & Ors v Lypiatt Studio Ltd & Anor [2018] EWHC 1986 (Ch) (31 July 2018), concerns the estate of the late Lynn Chadwick, a respected British sculptor and artist, who is particularly known for his work during several decades after the Second World War. On the advice of his accountant, and for tax reasons, he formed a company, Lypiatt Studio Ltd in 1973. He transferred certain existing assets into the company in 1973 and thereafter conducted most, if not all, of his artistic activities through that company.

Will the Chadwick case go to the Court of Appeal?

The dispute before the court was essentially whether Chadwick’s sculpture and artwork, and the copyright in them, belonged to the company or remained with the artist’s estate. Specifically did he transfer existing copyright into the company in 1973, and was he an employee of the company thereafter such that the company would be the first owner of any copyright that he created after 1973? The answer to these questions determined which of Chadwick’s descendants would benefit from these assets and in what shares.

Unfortunately, the documentation to address these issues was scanty.

There was no formal written transfer of property to the company in 1973, such as a deed of gift or a written contract, and certainly no formal assignment of copyright. There was no written employment contract between the company and Mr Chadwick for the period after the company started trading, but some payslips and other indirect evidence were before the court.

Ultimately, the judge agreed with the company’s barrister that the evidence was sufficient to indicate an oral transfer of assets, including beneficial ownership of the copyright existing in 1973. A beneficial owner may call for a formal assignment. And there was sufficient evidence to indicate that Chadwick was an employee of the company from 1973 onwards. Thus, the company owned the post-1973 works in dispute and the copyright in them.

IP Draughts’ reaction is that, while this may be the right decision, it is rather a stretch on the basis of the evidence mentioned in the case report.

Sprint Electric v Buyer’s Dream

The second case before deputy judge Spearman, reported this week, is Sprint Electric Ltd v Buyer’s Dream Ltd & Anor [2018] EWHC 1924 (Ch) (30 July 2018).

This case is a dispute between shareholders in a software business (SEL). The minority shareholder, Dr Potamianos, alleged that his service company, BDL, owned the copyright in the source code of some software that he wrote, which was being commercialised by SEL. He also alleged “unfair prejudice” by the majority shareholder in its conduct of the business of SEL, to his disadvantage as minority shareholder. This article will focus on the copyright aspects.

When Dr Potamianos joined SEL, the founder of SEL had invited him to form a company through which he would provide services to SEL. The founder pointed out that he and his co-founder had done this some years earlier, for tax reasons, and that “we have been using our service companies since 1989 with no problems”. As an aside, IP Draughts finds this an unpersuasive argument that he hears too often from commercial parties in relation to legal issues. What it really means is that the Revenue had not critically examined the arrangement from a tax perspective – so far.

As well as the service company, the parties entered into various agreements with a view to ensuring the benefit of “rollover” tax relief under the Enterprise Investment Scheme. The judge was distinctly unimpressed with some of the evidence he heard on tax issues, and spent some time considering how the tax avoidance activities of the parties should affect his analysis of the contractual relationships.

In the end, he decided that Dr Potamianos was, from a legal perspective, an employee of SEL despite there being no written employment contract between them and, to the contrary, an agreement between SEL and BDL for the latter to provide his services to SEL. The judge held that copyright created by Dr Potamianos in the course of his employment with SEL belonged to SEL, and not to BDL.

Lessons

In both of these cases, the parties established companies with a view to obtaining favourable tax treatment of income, and with little attention being given to the ownership of intellectual property. Partly, this is down to the fact that they took advice from accountants and not from lawyers. IP Draughts hopes that any competent commercial lawyer would have thought about the ownership of IP in work done by, in the first case Mr Chadwick, and in the second case Dr Potamianos, and would have ensured that appropriate agreements were in place to ensure that the IP was held by the correct legal entity. In this way, the parties might have avoided lengthy and expensive litigation.

Unfortunately, some parties are not prepared to spend time and money in getting the contractual details right, or to focus on IP issues. More fool them.

 

 

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Unitary Patent – the UK removes the first veil

For the last year or more, talking to the UK government about Brexit and IP has been a one-way conversation. The UK IP professions have worked hard to agree common positions on what they would like the UK IP system to look like, after Brexit. An important part of the debate has been how far the UK will continue to participate in, or be aligned with, European IP systems. Papers have been written on this subject and supplied to government officials, and meetings have been held with those officials.

But – and IP Draughts doesn’t blame the officials for this, it reflects the political situation they have been in – the meetings have largely consisted of the professions explaining their positions, and government officials nodding wisely and refraining from making any comment whatsoever about how closely the UK wishes to be aligned with the EU. To do so has risked making political statements. For example, many models of alignment would involve the UK accepting the jurisdiction of the CJEU, and avoiding such jurisdiction has been one of Theresa May’s red lines.

Now, at last, with the publication of its White Paper, we are seeing some tantalising glimpses of the UK’s negotiating position on IP and other subjects, as the government starts its dance of the seven veils.

An area that is of particular interest to IP Draughts is the unitary patent, the unified patent court (UPC) and the UPC Agreement. The UK has ratified the UPC Agreement, and has taken out a lease on some rooms in an office block in central London, which will be the UK court. The UK government’s position has been that as long as the UK remains in the EU, it will continue to participate fully in the UPC. But the UK government has previously refused to state whether it wishes to continue as a participant in the system after Brexit or how this might be achieved. “That is a matter for future negotations” was about as much as anyone in government was prepared to say.

Last Autumn, IP Draughts coordinated a joint note from the IP professions to government on Brexit and IP. It was eventually sent to the IP minister and others in government in late December 2017. The note was brief and high-level, targetted at people outside the UK Intellectual Property Office. More detailed papers on IP topics had already been submitted to the UK IPO.

On the UPC, the note included the following recommendations:

…the Government should provide legal certainty regarding the UPC, and now do the following:
(a) confirm that it is the UK’s intention to stay in the UPC, and that the UK is prepared to abide by the terms of the UPC Agreement, following Brexit;
(b) work towards the coming into effect of the UPC as soon as reasonably practicable in collaboration with other UPC Member States; and
(c) work with other UPC Member States and EU institutions to ensure there are no legal or practical obstacles to UK participation in the UPC and the Unitary Patent, following Brexit, on equal terms with other Member States.

The objectives should be (i) continuation of the Court in London; (ii) continued involvement of UK national judges; and (iii) continued rights of participation of legal professionals qualified and based in the UK in all parts of the Court’s procedures on the same terms.

The part of the White Paper dealing with the UPC seems to be consistent with the above position, and this is to be welcomed. Paragraph 151 of the White Paper includes the following statements (colour added):

The UK has ratified the Unified Patent Court Agreement and intends to explore staying in the Court and unitary patent system after the UK leaves the EU. The Unified Patent Court has a unique structure as an international court that is a dispute forum for the EU’s unitary patent and for European patents, both of which will be administered by the European Patent Office. The UK will therefore work with other contracting states to make sure the Unified Patent Court Agreement can continue on a firm legal basis.

The bit in red is perhaps more tentative than one might wish to see (“intends to explore”), but at least it shows a good direction of travel.

The bit in blue we can ignore – it is directed to Eurosceptics who may be concerned about the residual jurisdiction of the CJEU, and seeks to divert attention from this point by making the legitimate point that for most practical purposes it will be the UPC court that decides matters.

The bit in green adds little to the bit in red, other than to say that the UK will be talking to other EU states about how the UPC Agreement can lawfully continue – in practice, an amendment to the text will be required if the UK is to continue to participate.

So, there is not much meat on how this miracle will be achieved, but at least the government is finally saying that it wants to achieve it. IP Draughts hopes that the UK IPO will now have a mandate to start, and actively pursue, negotiations with other member states and with the European Commission on these points.

According to IPKat, the a spokesman for the UK IPO has clarified what the IPO will be doing in light of the White Paper:

The UK intends to stay in the Unified Patent Court and unitary patent system after we leave the EU. The UPC and unitary patent project are an important means of simplifying the protection of innovative products throughout Europe. This Agreement sets the bar for the level of constructive cooperation that the UK seeks with European partners in the future.

UK participation in the UPC and Unitary Patent will extend the benefits of these systems to businesses operating in the UK.

The UK will work with our European Partners to ensure the Unitary Patent and Unified Patent Court continue on a firm legal basis. This will need to reflect the change in the UK’s status as we cease to be an EU Member State, which will require negotiations with our European Partners. We look forward to beginning those negotiations with our European Partners so as to ensure the continuing success of this new system.

So, things are moving at last. Let’s hope the IPO is able to negotiate a solution that enables the UK to participate fully after Brexit, and retain the life sciences part of the central division of the court in London.

 

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Interpreting trade mark agreements

The authority of Court of Appeal decisions is sometimes said to be greater if a “strong court” decides the case. For a decision on the interpretation of an IP licence agreement, it would be difficult to think of a stronger court than:

  1. Lady Justice Arden – the first female judge to be appointed to the Chancery Division, who has decided many contract and company law cases. She is shortly to become a Supreme Court judge.
  2. Lord Justice Kitchin – a senior IP judge in the Court of Appeal. He is also shortly to become a Supreme Court judge.
  3. Mr Justice Birss – an IP judge in the Chancery Division who revitalised what is now the Intellectual Property Enterprise Court, and is surely due for promotion to the Court of Appeal before too long.

This was the panel in the recently-reported case of Holland And Barrett International Ltd & Anor v General Nutrition Investment Company [2018] EWCA Civ 1586 (04 July 2018). IP Draughts reported on the decision at first instance, here.

On appeal, the points at issue have crystallised into a point that was not discussed in IP Draughts’ summary of the first instance decision. He would summarise the point this way.

  1. GNIC sells a business in nutritional supplements to Holland & Barrett (HB), whose shops are familiar in UK high streets. As part of the deal, GNIC grants HB an exclusive licence under certain GNIC trade marks, including the “GNC” word mark and several ancillary marks that include the word GNC, eg one consisting of a device and the words “GNC Herbal Plus”.
  2. Clause 5.6 allows GNIC to terminate the licence in respect of one or more of the licensed marks if HB fails to use the relevant marks for a period of 5 years.
  3. GNIC purports to terminate the licence for 5 unused, ancillary marks. The licence remains in force for the main GNC word mark.
  4. GNIC contends that the implication of terminating the licence to these marks is that it may use them in the HB territory, even though such use may infringe the main GNC word mark.
  5. HB contends that such use would be a breach of the grant of exclusive rights to the GNC word mark.
  6. The judge at first instance agrees with GNIC.
  7. The Court of Appeal agrees with HB, and overturns the first instance decision on this point.

The Court of Appeal focused on the exclusivity granted to HB with respect to the main GNC mark, and found it would be breached if, for example, GNIC sold products under a mark that included the GNC word and other elements, as in the GNC Herbal Plus mark mentioned above. This analysis was not affected by:

(a) the fact that a separate licence had been granted to, for example, the GNC Herbal Plus mark; nor

(b) the fact that the latter licence had been terminated. It was not necessary to imply a term that on termination of the latter licence, the exclusive licence to the GNC word mark was qualified or reduced in scope.

And as the Court of Appeal stated, paragraph 53 of their judgment:

Putting the matter in a different way, if when the licence was being drafted, someone had suggested to the parties that clause 5.6 might have the consequence which GNIC contend for today, then taking into account the parties’ intention construed objectively from the document as a whole, the parties would have agreed that that is not what they intended to achieve.

In IP Draughts’ view, the Court of Appeal’s forensic analysis of law and facts is persuasive, and overcomes a first thought that such an interpretation fails to give GNIC an effective remedy for failure to use the marks.

It is also interesting to note that the judgment is described as “the judgment of the court” rather than being ascribed to one of the court members and then agreed to by the others. This technique should be used more often, in IP Draughts’ view, and is a further sign of the quality of the judgment.

 

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