Category Archives: Legal policy

Transactions in IP: an incoherent, statutory mess

This week, IP Draughts comes back to a topic that is of interest to only a few: the patchy, incoherent, incomplete, unthoughtful mess of UK legislation in the field of IP transactions.

It seems as though Parliamentary draftsmen, writing Bills for different types of IP at different times, run out of steam by the time they get to the bits that deal with transactions. The subject is a niche (IP transactions) within a niche (property transactions) that is also part of a separate niche (IP law) within a niche (technical commercial laws); the draftsmen seem not to have engaged properly with the complexities of the subject. Perhaps their energies have been sapped responding to Home Office requests for new and unnecessary laws that send people to prison, to satisfy the baying lust of the mob and their interlocutors in Parliament. [Controversial!]

There seem to be several problems:

  1. A failure to consider properly the status of IP as personal property and the extent to which the rules governing IP are intended to be different from or the same as the rules governing other types of property (e.g. goods, land or other intangibles).
  2. A failure to consider properly whether the type of IP under consideration (e.g. copyright) should have rules that are the same as, or different from, the rules governing other types of IP (e.g. patents).
  3. A failure to think through all the implications of the above treatment, and clarify the legal issues that arise.
  4. A failure to consider the international aspects, including the desirability of consistency of treatment of IP transactions in different countries. [This is not a uniquely UK issue.]

Time for some brief and incomplete examples, without references. (This is only a blog article!) Some of the questions raised below have been considered or answered in other articles on this blog (e.g. whether consideration is required for a valid assignment of IP).

  1. Legal status of IP. Traditionally, IP was treated as a “chose in action” or, if you prefer to avoid Norman French legal jargon, a thing in action. The Patents Act 1977 (PA) clarifies that patents are personal property without being a thing in action. But none of the other IP statutes deny thing/chose in action status. The status of IP as property affects whether you can look to general principles of property law to determine issues that are not specifically addressed in the IP legislation. E.g. certain rights of co-owners – see below.
  2. Ownership. When unregistered design rights were introduced, the legislation stated that a party commissioning a design would own it – the opposite of the position for other types of IP. It took about 15 years for this anomoly to be corrected by an amendment to the legislation.
  3. Co-ownership. We know that in the case of patents, co-owners have an equal, undivided share, unless otherwise agreed. This is not stated in the legislation governing all other types of IP. But what does this mean? Is it equivalent to tenancy in common, in land law, and therefore unlike joint tenancy? What is the relevance of saying “equal” unless a party is entitled to a half share of any revenues generated by the other co-owner – a point more explicitly addressed in some other countries’ IP laws?
  4. Formalities for assignment. Can you assign IP that doesn’t yet exist? Copyright, Designs and Patents Act 1988 (CDPA) says you can for copyright; PA is silent on the subject. Why is only the assignor required to sign an assignment, unlike the position for European patent applications? Why is the assignee not required to accept the assignment, as apparently is required under Dutch law? Is consideration required for a valid assignment?
  5. Rights and obligations of assignors and assignees. Do obligations accepted by an assignor (e.g. to pay royalties to a previous owner of the IP) pass to the assignee? Probably not, under the principle of privity of contract, though a good argument could be made for saying they should. Does the assignor give any implied warranties, e.g. of title or the right to assign free of encumbrances?
  6. Legal status of an IP licence. Is an IP licence an interest in property? Possibly not, it is only a contractual right, though an exclusive licensee has certain statutory rights. The answer to this question may affect whether traditional property laws, e.g. on whether a new owner of the property is bound by previously-granted interests, apply to IP. To a certain extent, this issue is addressed in some IP legislation, eg CDPA refers to licences being binding on subsequent owners other than a purchaser in good faith for valuable consideration and without notice of the licence. Other IP legislation, e.g. PA, is silent on this subject but some protection is given by registering the licence.
  7. Formalities for licensing. The Trade Marks Act 1994 (TMA) requires licences to be in writing, but there is no such requirement for licences of other types of IP; the implication being that for other types of IP, licences can be oral.
  8. Rights and obligations of licensors and licensees. Under the PA, a licensee can sub-license “to the extent the licence so provides”, whatever that means. The position for certain other types of IP is not stated in the relevant legislation. What warranties does the licensor give, e.g. as to title? This is not stated in the legislation.

Further questions arise at an international level. For example, if a licence agreement is made under English law, the licensed IP includes a German patent, and the agreement is silent on whether the licensee can sub-license, should one look to UK patent law or German patent law to determine whether sub-licensing is permitted?

Many of these questions are obscure and haven’t been tackled clearly in the legislation, or not with IP transactions in mind. IP Draughts would welcome the Law Commission taking this on as a project, given the increasing importance of IP transactions to the UK economy. Ideally there would a consistent and complete set of statutory provisions governing transactions in all types of IP, unless there is a clearly-identified need for a different treatment in an individual case. In fact, why not go further, and introduce a code for IP licences, equivalent to the rules for the sale of goods under the Sale of Goods Act 1979?

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The Legal Manufactory

Why would anyone, starting out in their career, decide to become a lawyer? According to the visionaries and marketing men, the era of the traditional lawyer is over. It is so twentieth century! Instead we have become legal process engineers, for whom a knowledge of computer coding may be as important as a knowledge of case law on constructive trusts.

The astute visionary, seeking to convince his audience, must give practical examples to which the audience can relate. The examples given in the legal sector sometimes focus on the benefits of new technology, and other times focus on competitive pressures (real or desired) on the legal profession.

We can automate the due diligence or discovery process using current technologies, though manual sifting of the results is usually still required. We can create online courts for certain types of dispute, though lawyers and judges will still have a role. We can even automate the process for preparing a contract, using detailed questionnaires. But someone needs to prepare the questionnaire and draft the multi-option contract template that underlies the automated system. And, no matter how much automation has been used, the transactional lawyer needs to approve the final product as suitable for his client’s deal.

As with driverless cars that still have a human in the driving seat, we have varying appetites for allowing a computer to decide everything. As with electric cars that currently (a) cost more than petrol cars, (b) only work for long journeys if there are charging points at suitable intervals, and (c) require downtime to allow the recharging to occur, most of us will treat them – electric cars and some legal automation technologies – as novelty or luxury items for many years to come.

The competitive pressures on lawyers come from different directions and with varying degrees of force.

  1. From commercial clients, there is some pressure on law firms to be seen to be taking steps to re-engineer their processes. As well as the use of new technologies, there is the outsourcing of routine legal tasks to lawyers in lower-cost centres, from India to Northern Ireland. But IP Draughts is not sure how real these pressures are. If a client is sufficiently price-insensitive as to use a major London law firm when there are plenty of other, experienced commercial law firms across the country, it suggests that financial considerations are still not at the fore of the commercial client’s thinking.
  2. Consumer clients are not perceived as having much competitive power, and pressure comes instead from their proxies, including politicians and regulators. But the growth of McKenzie friends suggests that, if not prevented by the regulatory system, some consumers will gravitate towards non-lawyers to provide their legal services.
  3. The virtual abolition of legal aid (government reimbursement of legal costs for poor people) has put considerable pressure on legal practitioners who made most of their income from this route, and on free advice centres whose customer base has increased as a result. This has indirectly created pressure on the legal profession, as there is then greater focus on why the (unsubsidised) legal system doesn’t provide services at a price that consumers can afford. There is a vague and hopeful view that if only the regulatory constraints were loosened, and outside investors were enabled to create new types of legal factory, the loss of legal aid would become unimportant.
  4. Thus, politicians pressurise the legal regulators, and the legal regulators then come up with inventive ways of seeking to stimulate the market for new entrants to the legal profession. The regulators may think they are just shaking the tree to cause some fruit to fall, but there is a danger that the shaking may disturb the roots of the tree so much that it dies, or stops producing fruit. Any competent gardener would have told them they were applying the wrong kind of pressure, but regulators tend to be controlled by the professional quango elite nowadays, rather than experts in the subject-matter of the regulation. As a UK politician said during the Brexit campaign, the people have had enough of experts.

IP Draughts doesn’t complain about the use of technology. When he started his own firm 23 years ago, it was technology such as the fax machine, the laptop computer and the mobile phone that enabled him to compete with large firms. He was also pleasantly surprised at how easy and cheap it was to practice on his own account – much simpler and cheaper than it is now in the era of the Solicitors Regulation Authority.

He is concerned about the current, blundering incompetency of the legal regulators, and their inability to distinguish between opening up the market to new entrants (inter-profession competition) and interfering in the internal practices of the existing legal professions (intra-profession competition). By all means allow new categories of regulated organisation to provide legal services . But don’t dictate how a solicitor is trained, keeps up-to-date, and offers legal services – these are internal matters that help to distinguish the solicitor brand, and the SRA, LSB and other regulators should keep out of them.

Coming back to the original question, the pressures of new technologies and the market will likely change the way in which some lawyers practise, and for some it may be a less satisfying or financially rewarding role. No doubt there will be an increase in legal factories, run by non-lawyers, though IP Draughts would never want to be involved in such an enterprise.

But, in IP Draughts’ view, there will always be a need for the wise counsellor who guides the non-lawyer through the maze of online courts and outsourced [electronic] paper pushers, and manages their legal problem or opportunity. Of the 160,000 solicitors who are currently on the roll of the Law Society, perhaps half this number will have this role in a few decades’ time, and the rest will be working in other types of legal or non-legal role. IP Draughts hopes that the Law Society will retain its role as the ‘guild’ for those who follow the wise counsellor route. If it tries to cater for all types of lawyer and legal engineer, it may end up satisfying none.

 

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What will the next UK government do about IP?

This time next week, the UK is likely to have another Conservative government. None of the party leaders seems to be greatly inspiring the voters. The Brexit issue is still central. The mood of the electorate appears to be one of resignation to the inevitability of Britain leaving the EU, with little appetite for reversing the decision, and a vague hope that the Prime Minister can do a good deal, as she has been claiming.

Like many, IP Draughts was surprised to read that the Secretary of State for Exiting the European Union, David Davis, had claimed earlier this week that “over a hundred pages of detail” had been published on the UK’s negotiating position for Brexit. IP Draughts had assumed that this meant that the government had moved from airy principles to a slightly more detailed position. He had been planning to comment on the absurdity of thinking that thousands of detailed Brexit issues could be reduced to 100 pages.

But, listening to the radio broadcast just now, he realises he was naive. The Secretary of State was simply adding up the page numbers of several statements of principle made at different times, including the White Paper, notification letter to the European Union, and so on. The Secretary of State’s claim is even more vacuous than IP Daughts had first thought.

The IP Law Committee of the Law Society of England and Wales, currently chaired by IP Draughts, is in the course of preparing a table that summarises the main IP-related Brexit issues and our recommendations for how to deal with them. So far, the table has reached 24 pages of A4 paper, and over 6,000 words of text. This is a short-ish note of headline issues rather than a detailed briefing paper.

There are hundreds, if not thousands, of other trade-related, Brexit themes of similar significance to IP, including (to take a few that come immediately to mind):

  • mutual recognition of judgments
  • the Euratom treaty and future cooperation in atomic research
  • the regulation of medicines
  • VAT laws
  • data protection

Assuming that UK civil servants are preparing detailed briefing notes on each of these topics (plus short summaries for ministers), IP Draughts estimates that there will be hundred of thousands of pages of detail going in the direction of the Department for Exiting the EU.

IP Draughts fears that, in this blizzard of paper and electronic documents, IP issues will be relegated to something like schedule 27 to an overall briefing note, and will not be given the attention it deserves. He is also concerned that there are cross-cutting themes, affecting IP and other subjects, whose importance may be missed.

Many years ago, the management guru, Charles Handy, referred to the “silos” of expertise within the UK Civil Service. IP Draughts wonders whether these silos are well-placed to identify and suggest solutions for dealing with cross-cutting themes such as CJEU jurisdiction, which comes up in many of the trade issues.

At some point, the UK government is going to have to address the detailed issues. At present, we have no visibility on the process for developing policy on these issues, or whether it will be possible for external organisations such as the Law Society to influence the policy.

Usually, when new laws are made, there is a formal consultation process. In this context, consultation implies not just being willing to receive papers, but also engaging in a conversation. Usually, the IPO consults on every small change to IP laws. If a similar process is envisaged for Brexit-related changes to IP laws, it will be a major exercise. It remains very unclear how this is going to be managed, given the timescale of Brexit and the huge number of issues that arise.

At present, civil servants are in pre-election purdah. But it seems like they have been in purdah since long before the election, and there are no signs of any change after the election. We are told to keep sending in our submissions, but we get no feedback and no clues as to whether we are making the right underlying assumptions as to the direction of the government’s travel.

At some point, surely the dam must break and a flow of policy dialogue will resume? Or are we just supposed to sit and wait until the Prime Minister tells us what deal she (assuming she continues to be Prime Minister) has struck on the EU trade mark and thousands of other issues?

These are strange times.

 

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Contribute to IP policy

It’s that time of the year when the Law Society of England and Wales advertises for new members of its policy committees.

The Intellectual Property Law Committee is looking for 3 new members. Have you considered making a contribution to the development of UK and international IP policy through membership of the IPLC? It can be rewarding, particularly when you see the results of diligent, thoughtful submissions to government, e.g.

  • the Intellectual Property (Unjustified Threats) Bill, which now awaits Royal Assent. The IPLC initiated a campaign to amend the law on IP threats in about 2006, and after a slow start the Law Commission was persuaded to review the subject and make recommendations which the government largely accepted.
  • David Cameron, when Prime Minister, negotiating to get the life science part of the central court of the Unitary Patent system to be located in London. (There are currently issues around how long the UK will be able to remain a member of the system, in view of Brexit, but the deal about the London court was struck prior to the Brexit referendum.)

Details of the current membership of the IPLC and its terms of reference can be found on the Law Society website here. The members are usually solicitors qualified in England and Wales, and are a mixture of private practice and in-house practitioners.

Inevitably, Brexit is taking up a lot of our time at present, as we identify the issues that will arise, particularly in relation to EU IP rights, and make recommendations on how to deal with these issues. IP Draughts recently attended a meeting with the IP minister, Jo Johnson MP (younger brother of Boris) and others to discuss some of the headline issues.

Ideally, we probably want one patent specialist, one copyright specialist and one trade mark and designs specialist, to complement the existing membership.

Details of all the Law Society vacancies and how to apply can be found here. Expenses are paid (subject to navigating the policy and procedures!) and a small honorarium is also paid. The closing date for applications is 12 noon on Monday 10 April 2017.

 

 

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