Category Archives: Intellectual Property

Brexit clauses in contracts

brexitIt takes time to adjust to a major shock: to recover, to process the information, and to recalibrate. Three weeks after the UK electorate voted, unexpectedly, to leave the European Union, IP Draughts is starting to think more clearly about the implications of the vote for IP practice. To do so, we have to leave behind the lies, the half-truths, and the stirring of ugly emotions in the referendum campaign, in some ways very different to the political process of a general election, and instead focus on the practical.

Some plain talking is now required. Many readers of this blog will fall into a category of people who benefit from international trade, who embrace the cultures of others, and who are prosperous in absolute terms (however much we struggle to pay a large mortgage or look enviously or competitively at others who are doing better than us). We work and often socialise with others who share this perspective, both in our own country and in other countries.

To many people with this mindset – let us give them a name and, for want of a better, use one that was used disparagingly in the referendum campaign, “metropolitan elite” (otherwise known as the London and South East “bubble”) – it is unthinkable that the UK would want to leave the European Union. It would not be in our economic, security, cultural or social interests to do so.

schockBut vote to leave we have, and in processing this information we need to understand the perspectives of those who formed the majority. Of course, there is no single group of Brexiteers. But generalising helps us to focus on what needs to be done. There are the social conservatives, the older generations, the people whose lives are not international. There are those who have been suffering from stagnant salaries over the last decade, combined with worsening conditions of employment. There are those who can’t get access to good medical services or good schools.

In other words, the people that are left behind, through choice or circumstance, in the noisy, difficult, competitive but satisfying ‘global’ world that the metropolitan elite inhabits.

The UK’s new Prime Minister recently made a speech in which she recognised the concerns of the Brexiteers. We should be spending more money on new schools, hospitals and infrastructure. We should be increasing the salaries of public sector workers. In short, we should take steps that are other times would be called left-wing.

Coming back to IP (at last), IP Draughts was at a business dinner this week, sitting next to a senior German IP practitioner. The conversation naturally turned to Brexit. IP Draughts’ dinner companion was sanguine about the prospects for the EU doing a deal with with the UK that was in both parties’ interests. Yet, when pressed, he thought that free movement of people was a non-negotiable issue – it was a subject on which many Germans and other EU nationals felt very deeply. IP Draughts thought and said that this probably meant that a deal was unlikely, as control of immigration was a central theme of the Brexit campaign.

IP Draughts was left with several thoughts. First, there is the (perhaps obvious) point that IP practitioners, and professionals generally, may have more in common with their counterparts in other countries than they do with their fellow citizens who have been left behind by globalisation. Second, and more interesting, that while the metropolitan elite in the UK have had a rude shock and become more aware of the large body of people who don’t share our global perspective, our colleagues in other countries may not be so aware of this issue. This has been noticeable in some of the “advice” that Continental Europeans have given to the UK in IP Draughts’ Twitter feed. It is not that we need to think outside the box; we need to think outside the bubble.

futureTurning to IP contracts, IP Draughts and his colleagues have been thinking about how contracts might be affected by Brexit, and what terms might be included to address this issue. Of course, we don’t yet know what form Brexit will take, as it depends on a negotiation that has not yet started. But contracting parties may want to think through the range of possible implications for their contract of Britain leaving the EU, and perhaps even include a clause or two to address the issue. IP Draughts has previously mentioned on this blog some of the possible situations where contractual terms may need to be revisited. He now wonders whether we need a standard clause to address the variety of issues, many of them not easy to foresee or plan for, to address this issue in more general terms. Such a clause might, for example, provide that:

  1. If performance or interpretation of contractual obligations is substantially affected by the fact of Brexit, or by changes in law arising from Brexit, or by the actions of persons or institutions arising from Brexit or in contemplation of Brexit, then a party can notify the other party that it wishes to renegotiate or terminate the contract to take account of this.
  2. If renegotiation occurs, the objective should be (unless the parties agree otherwise) to put them in as close a position to that in which they would have been if the Brexit-related action or event had not occurred. If they can’t agree, the matter can be referred to an adjudicator who will decide on the appropriate adjustments, or conclude that there are no reasonable adjustments to take, in which case termination may be the agreed outcome.

IP Draughts has not yet drafted such a clause, but it sounds a bit like a combination of a force majeure clause and a severance clause, combined with a mechanism for referring a dispute to an expert or arbitrator under a simplified (quick and cheap) process.

As ever, readers’ thoughts on this subject are welcomed.

 

 

 

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Brexit and IP transactions

eliteIP Draughts learnt this week that he was part of a metropolitan elite. Which is nice. #lookingforthepositive

Yesterday the UK electorate decided, unexpectedly, to leave the European Union. At this stage, no-one knows what will happen next, or what “leaving” actually means. The possibilities, however far-fetched some of them may be, include:

  • Change of mind. Nothing changes in the EU (except, perhaps, some face-saving remarks by EU leaders or trivial changes in law), following which the UK electorate has a change of heart and decides not to leave after all. Some point to the Irish experience with the Lisbon treaty as a precedent for this outcome.
  • Squeezing some more concessions. Negotiate real “improvements” in the way in which the EU does things, following which the UK electorate has a second vote in which they decide to remain in the EU, either in a referendum or by voting in a general election for a pro-remain political party. These improvements might be concessions for the UK alone, or general changes in the structure of the EU.
  • demographicsAssociate membership. Create a new, “associate member” category of membership of the EU, which the UK would then transfer to, and which would give associate members some exemptions from EU rules, eg on free movement of labour.
  • Leave and join EFTA. Leave the EU and join the European Free Trade Association, and therefore benefit from some but not all of the legal regime that applies in the EU, but without any special concessions for the UK. In other words, have the same relationship with the EU that Norway has as an EFTA member.
  • Leave and expand EU rights for non-EU members. Leave the EU and change the rules of the EU, so that countries that are outside the EU (ie the UK at that point) can benefit from certain aspects of the EU that are currently only available to members (eg participation in the Community Trade Mark regime). The new arrangements might be designed for, say EFTA members (if the UK decided to join that club) or might be made more broadly available to, say, European countries that are outside the EU.
  • Leave and negotiate one-off trade deals. Negotiate individual, arms-length trade treaties between the UK (as a non-EU-member) and the EU.

social-classesIt is fair to say that the Brexiteers have not focussed on IP during the pre-referendum debates. When Brexit is negotiated, IP legislation is likely to be some way down the list of priorities, after immigration, trade tariffs, and other political topics.

In the area of business regulation, much was made during the referendum campaign of so-called “Brussels red tape” but few examples were given. In one televised debate, IP Draughts heard Boris comment scornfully that the remain campaign didn’t want to change any existing EU laws, “not even the Clinical Trials Directive”, as though this was self-evidently a terrible piece of legislation. For some reason, this law seems to trigger a response in Boris, like a mood-altering drug.  The benefits to the UK economy of pan-European regulation of life-science product development seem to have passed him by.

elite2Perhaps Boris is not aware that the UK has a thriving life-science sector, the best in Europe, and that being part of the EU is a significant benefit for that sector. David Cameron seems to be aware of this, as he negotiated for the UK to have the chemistry and life-science part of the central court for the Unitary Patent.

It is impossible to know what the implications of Brexit will be for international IP transactions until the blueprint for Brexiting has been established. Nevertheless, there are some obvious risks that can be addressed when drafting IP-related agreements. They include:

  1. EU research funding. In research agreements that benefit from EU funding (eg under the Horizon 2020 programme) what will happen if the UK party ceases to receive EU funding on Brexit? Is it still obliged to do the work but not get paid for it? Or can it terminate its participation in the project? As a separate issue, what do the terms of funding say about the grant of IP rights to companies that are outside the EU? Is any preference given to EU parties?
  2. EU territory. Does the agreement grant rights to a territory defined as the European Union or the European Economic Area? What are the implications if the UK is no longer part of the EU or EEA?
  3. UK territory. Does the agreement refer to the United Kingdom? What implications are there for the agreement if Scotland decides to withdraw from the United Kingdom (but possibly try to remain in the EU)?
  4. Definition of IP. How is intellectual property defined in the agreement? Is the definition flexible enough to cater for changes to the IP system, or new types of IP, that may emerge following Brexit?
  5. Export of personal data outside EU. Sometimes, agreements have clauses that refer to the export of personal data outside the EU. Have the implications been considered of what this will mean in practical terms if the UK is no longer part of the EU?
  6. Compliance with regulations generally. Some agreements, eg clinical trial agreements, impose an obligation on a party to comply with applicable regulations. Are these obligations worded in a way that is resilient to the possibility of UK regulations being significantly different from those in the EU?
  7. Law and jurisdiction. Does the agreement have a clear law and jurisdiction clause? If not, bear in mind that if the UK is not part of the EU, the Rome and Brussels regulations will probably no longer apply to tell a UK contracting party which law and jurisdiction will govern the agreement.

This is unlikely to be a comprehensive list of contractual issues that could be affected by Brexit. If you can think of others, please suggest them in the comments below this posting.

 

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Resolving disputes over IP agreements

friendsHow should the parties to a licence agreement, or other IP agreement, resolve their contract disputes?

Some would reply: amicably, quickly, reasonably. If they can, all well and good, and no special contract terms are needed. But the drafter of the IP agreement needs to cater for the possibility that they can’t.

If you know what the dispute is about, you can form a view on the most favourable dispute resolution mechanism to protect your client’s interests. For example, do you want a thorough examination of the legal issues by a superb court that leaves no stone unturned, and comes up with a magisterial (and public) conclusion? Or would you prefer something cheap, quick and private, focussed more on commercial outcomes than legal precedent?

At the time the agreement is made, it may be difficult or impossible to predict whether any disputes will arise, and what they will be about. So, any dispute resolution clause is a bit of a gamble. It may be best to stick to something ‘plain vanilla’ and, if a more fancy mechanism is needed, try to negotiate it with the other party when the dispute arises.

But what is a plain vanilla solution? Should you go for litigation in court, or arbitration? In the latter case, do you opt for a 3-person arbitration panel which will be expensive but reduce the risk of a quirky decision, or is it best to have a single arbitrator?

In the middle of negotiations, and depending on one’s bargaining position, the priority may be to find a solution that is not obviously terrible. The issue is important, and may justify two or three rounds of proposal and counter-proposal, but probably not many more.

IP Draughts’ preferences tend to reflect the type of clients that instruct him, and his background as an English solicitor. Others may have a different starting point that is better for them and their clients.

There is no absolute right or wrong on this issue, but the closer one can get to a list of preferences, the easier it is to strike a deal.

Trial by Ducking Stool - not part of the ADR toolkit

Trial by Ducking Stool – not part of the modern ADR toolkit

Remember that the final method of dispute resolution is either to go to court or arbitration. Other methods of ADR, such as mediation, can only be viewed as intermediate steps. If you want to force the parties to go to mediation or to have the CEOs negotiate, fine, but IP Draughts doubts the value of such an obligation. It may be better to include these as voluntary options that the parties must consider, but not be obliged to follow.

For the final dispute resolution mechanism, IP Draughts’ preferences, if English law and jurisdiction are not acceptable, include:

Choice of law

Dealing with European parties

  • A large trading nation with a ‘North European’ approach
  • Laws that are not too prescriptive
  • Difficult to get a common law legal system (there aren’t many in Europe)
  • Possible solutions: Swedish or Dutch law
  • Second choices: German or Swiss
  • To avoid: French, Italian, Greek, smaller nations

Dealing with US parties

  • Try to avoid US, offer European alternative
  • But if forced to choose US, go for large State with reputation re commercial disputes
  • Preferably East Coast
  • Preferably laws as close as possible to English law
  • Possible first choice: New York law
  • Second choices: Massachusetts or Delaware

Dealing with parties in the Far East, India, etc

  • Common law system if possible, eg Australia, Hong Kong, Singapore

Choice of dispute resolution mechanism

Generally

  • No overall, strong preference for courts or arbitration
  • In England, courts are efficient so may be preferable
  • Arbitration may be preferable in countries whose court systems are unattractive
  • If confidentiality is a major issue, this may point to arbitration

If arbitration is chosen

  • Essential to specify arbitration body
  • Consider WIPO arbitration
  • Avoid ICC – too expensive, heavyweight, not user friendly
  • Prefer single arbitrator
  • Sometimes prefer expedited arbitration procedure (eg for smaller claims)
  • Need to specify seat of arbitration – procedural laws in that jurisdiction will govern

If court litigation is chosen

  • Should be same as law – don’t have law of country A and courts of country B
  • Overlapping issues with choice of law, above
  • Avoid corrupt, biased, slow, jury trials, difficult to get to from Heathrow Airport

 

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Another patent purchase programme: IP3

stop me and buy oneThanks to Mike Mireles of the IP Finance blog, IP Draughts has learnt of a new patent purchase programme, known as IP3, that builds on the Google exercise of last year. Mike has expressed interest in IP Draughts’ views on the standard assignment agreement for the new programme. Could it be as bad as the Google agreement that IP Draughts previously commented on, in an article on this blog, Do No Evil …Drafting?

Preparing for this article, IP Draughts revisited the terms of the Google agreement of last year. He discovered that some of the drafting mistakes that he had identified had been corrected, but many others remained.

stop meComparing the new agreement for IP3 with the older Google agreement, it is clear that some of the text of the older agreement has been copied and pasted into the new one. Other parts of the new agreement are very different. IP Draughts has the impression that the drafter has taken their own, favoured template, and bolted in provisions from the earlier agreement, perhaps in response to specific instructions from their client.

He assumes it has been drafted by the Californian law firm, Fenwick & West LLP, as the address of the assignee is stated in the agreement to be this firm’s address in San Francisco, “Attention: Jake Handy”. Handy is a partner in the firm and chairs their technology transactions practice.

If IP Draughts’ name were put in the first paragraph of a document of this kind, he would be very keen to ensure that the drafting was up to scratch.

PATENTS 3 GUINEAS

PATENTS 3 GUINEAS

In IP Draughts’ view, the IP3 agreement is an improvement on the Google agreement, as he would expect from the work product of a reputable IP law firm. The template on which it is based is more mainstream, less home-made in style. There are fewer obvious drafting errors than in the Google agreement. But it suffers from problems that are seen in many law firm templates, including turgid, old-fashioned language, terms that are irrelevant to the present transaction (which should have been deleted) and wording that has been bolted on to the template in a very clumsy way. It also has its fair share of typos.

Here are a few of the problems with the text:

  1. Multiple verb pile-up. Rather than just “assign” the patents, the drafter considers it necessary, in the operative assignment clause (Section 1.1), to “assign, convey, sell, grant and transfer”. This is one up on the Google agreement, which only required the assignor to “sell, assign, transfer and convey”. But in the recital to the IP3 agreement, the assignor has only agreed to “transfer and assign” the patents. The IP3 assignor is also required to execute a formal confirmatory assignment, the terms of which are set out in Exhibit B to the agreement. Here, the assignor is to “sell, assign, transfer and convey”. Perhaps we should forgive the drafter for using redundant language that appears in their office template, though the chair of the technology transactions practice might feel it is time to modernise the wording of his firm’s IP agreements. But should we also forgive the lack of consistency in the wording throughout the document, which is the responsibility of the individual drafter?
  2. Sloppy and inconsistent drafting of warranties. Article 3 sets out some warranties. They start off in conventional style, but the drafting deteriorates towards the end. For instance, the first sentence of Section 3.3 starts “Assignor represents and warrants to Assignee”, which is clear as to who is making the promise, and to whom the promise is given. The second sentence starts “Assignor has provided Assignee with” – is this a warranty by the Assignor, or an acknowledgement by the Assignee? The first sentence of 3.4 starts “No funding …was utilized” – it is not clear whether either party is making any promise about this statement, though it is more likely than not to be meant as a warranty by the assignor. Depending on the intended meaning, all of these statements should start in the same way. The drafter has not cleaned up inconsistencies in the text. The Google agreement was better in this point, as all of the warranties in Article 6 were qualified by lead-in wording at the start of the Article, which read “Seller hereby represents and warrants to Google…”
  3. Typographical errors. The drafter seems not to have focussed very hard on the wording of section 3.4, as it also appears to have two typos: the word “form” in line 1 should be “from”, and the second instance of the word “and” in line 3 should be “any”. In section 1.3 the term “Assignee” should be used rather than “IP3”.
  4. Irrelevant text. According to section 1.1(d), the assignment includes an assignment of “all goodwill associated therewith”. “Therewith”, in this context, must mean the patents and inventions described earlier in the section. Perhaps there is some quirk of US patent law that has escaped IP Draughts’ attention, but he would have expected an assignment of associated goodwill to appear in a trade mark assignment, and not in a patent assignment. Can any US reader enlighten IP Draughts as to what, in legal terms, it means to assign goodwill in a patent? Or is this section a drafting mistake?
  5. Unclear drafting. Section 3.2 refers to the patents being free of encumbrances including “identifications to standard committees”. IP Draughts finds this wording very unclear but assumes it is the same point that appears in the Google agreement as a warranty that “there is no obligation imposed by a standards-setting organization on Seller or Google to license any of the Patents on particular terms or conditions.” If so, IP Draughts prefers the clarity of the Google wording. More significant, perhaps, is the lack of clarity in section 3.3, which states that the assignor has provide the assignee with “all information …concerning …validity, patentability and/or enforceability of the Patents”. Is this a warranty of validity by the back door? Should it be read as all information in the assignor’s possession or all information in the universe?

There are also drafting points that raise commercial issues, eg Article 2 says that assignee “will pay” the price, but doesn’t say when it will do so, though the sentence ends with an acknowledgement of receipt.

Many of terms in the IP3 agreement are designed to protect the interests of the assignee, and in principle one can see why these terms have been included. What is less understandable is why some of them are different from the warranties and obligations in the Google agreement, when the context of both agreements is similar.

Some of these differences seem random, as if they are simply a reflection of the template that the drafter picked up on each occasion. For example, the Google agreement has much more detail on what the seller must do with the prosecution files, including keeping them confidential (section 5.1), considers it important to address the position of Affiliates, and has extensive clauses limiting liability. The IP3 agreement doesn’t focus on these issues but instead has more of a focus on encumbrances, withholding tax and payment of renewal fees after the Effective Date. It is tempting to speculate that some of these terms reflect issues that arose on an earlier transaction, rather than topics that are important for the present transaction.

Overall, IP Draughts prefers the IP3 agreement, but neither document is well drafted. In some areas, as mentioned above, the Google agreement is better. For example, both agreements refer to the possibility that the assignor may have licensed the patents, but only the Google agreement specifically asks the assignor to deliver the licence agreements (see Exhibit A); section 3.5.2 of the IP3 agreement should have included this item in its list.

processIP Draughts is left with the impression that both of these agreements have been drafted by patent attorneys who are focussed on the technical process of transfer of title to patents, and who lack some of the skills required to draft contracts clearly and accurately. Perhaps their clients do not demand such clarity, and instead assume that patents (including patent transactions) are a difficult technical subject that they can’t and don’t need to understand. If so, that is a shame. We are told that a revolution is coming in the way in which law is practised. Lawyers who are inward-looking and focus only on their core skills may find they are less marketable to employers and clients in future.

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