Category Archives: Legal policy

Why professional values matter

poppyEvery few years, political pressure is applied to the professions, to make them more like ordinary people, or to provide services in a similar way to high-street retailers, or to accept external regulation and complaints-handling, or to admit non-graduates to their ranks, or to allow external ownership by people who are not part of the profession, or to remove any remaining monopoly rights they may have in favour of more competition from unlicensed competitors.

Some of these pressures contradict one another. Increasing the burden of regulation on a profession, while at the same time allowing unregulated, non-professionals to provide the same services, is intellectually incoherent. We are pulled in one direction by a belief in open markets, and in another direction by a belief in consumer protection.

There is also a contradiction between professions. The English education minister has recently referred to the importance of teachers regulating themselves; at the same time, the government is proposing independent regulation for solicitors. The nursing profession is moving to an all-graduate entry; at the same time, pressure is being applied to solicitors to admit non-graduates.

Some of the pressures may be contradictory, but the overall theme is clear. Over time, professionals are losing control over many aspects of their professional life, including entry to the profession, training, qualification, rules of conduct, the structure of firms, the terms of their relationships with clients, complaints handling, and expulsion of defaulting members.

In the case of solicitors, the process of emasculation has been a gradual one. First, the profession delegates control over these matters to a ring-fenced subsidiary, with a minority of external lay Board members. The subsidiary employs professional regulators who look at the profession from the outside, and apply their own professional values to regulation, rather than those of the profession that they are regulating. Gradually, they change the rules governing the profession, to make them more like laws than statements of ethical principle.

let goA few years later, the number of lay Board members is increased so that they form a majority, and a lay Chair is appointed. The regulatory body becomes more remote from its parent. Some of the regulations for solicitors seem designed to reduce the SRA’s workload rather than being proper matters for regulation, eg requiring solicitors to run a viable business. Finally, the Chair leads a move to make the regulatory body completely independent from its former parent.

This is what is happening with the solicitors’ profession in England and Wales. In IP Draughts’ view it is the wrong direction for solicitors to take. If we are forced by the government to accept external regulation, so be it. But the model of external regulation should not be based on the self-regulatory model. Self-regulation covers many aspects, including the values that the profession seeks to embody.

familyWhen the Solicitors Regulation Authority was formed, all aspects of the solicitors’ profession, other than representation, were hived off into the SRA, including training, ethical conduct and insurance obligations. This made sense when the SRA was still part of the Law Society family, but in hindsight it was a dangerous route to take. If the SRA is to become completely independent, as the current Chair has recently suggested, then its role should be strictly limited to those aspects that need to be independent, eg misconduct and complaints handling.

This will allow a level, competitive playing field between solicitors and other legal service providers who are bound by the same regulations. At the same time, solicitor should be allowed to impose higher standards on their members, and to offer an upmarket service to clients based on those higher, common standards.

To take a few examples, solicitors have stricter rules than some other service providers in areas such as handling conflicts of interest, acting in the best interests of the client, compulsory insurance (and the terms of that insurance, which seem to annoy some underwriters), and so on.  These and other areas should be under the control of the profession, as part of its USP, rather than a matter for general regulation.

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Interested in influencing IP laws and policies?

law societyAre you interested in influencing the development of future IP legislation and policies in the UK, EU and internationally, as a member of a technical committee of lawyers in England and Wales?

The Law Society of England and Wales (LSEW) has announced that it has vacancies for membership of some of its committees, including its Intellectual Property Law Committee (IPLC). (Mark Anderson is the current chairman of the IPLC.)

The IPLC has an interesting and diverse workload. Recent projects of note include the Unitary Patent, the draft Bill to revise UK law on making threats of IP infringements, a consultation on the EU Enforcement Directive, and the European Commission’s digital rights agenda. As well as meeting 4 times per year, members of the IPLC volunteer to work on responses to consultations and proposals for draft legislation.

Members of the IPLC receive a small allowance and are entitled to claim certain travel costs.

The IPLC has four vacancies. Details of the vacancies (as well as the vacancies for the other committees), and how to apply, can be found here. We are looking for good people, irrespective of background. On this occasion, to balance the experience of IPLC members, we are particularly interested in candidates who are:

  • digital copyright specialists,
  • trade secret specialists,

Including candidates who are:

  • in-house lawyers,
  • City solicitors (and perhaps willing to act as a liaison with the City of London Law Society’s IP group), or
  • Regional solicitors

But even if you don’t fit into these categories, we have 4 vacancies so you shouldn’t be put off from applying if you have the technical knowledge and skills to contribute to the IPLC’s work.

If you are an IP solicitor in England and Wales and this type of work interests you, please consider making an application. The closing date for applications is 12.00 noon on 20 April 2016.  If you would like to discuss any aspect, please contact Mark at msa@andlaw.eu or on 01865 858 878.

 

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Should the courts hear more appeals against arbitrators’ decisions?

Cwm Giedd: attractive venue or remote dead-end?

Cwm Giedd: attractive venue with good facilities, or remote dead-end?

This posting is a response to a lecture given by the Lord Chief Justice of England and Wales, Lord Thomas of Cwmgiedd, on 9 March 2016. The title of the lecture was Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration.

The central argument of Lord Thomas’s lecture is that legislation brought in 36 years ago to make England and Wales more attractive as a venue for arbitration is having a long-term, detrimental effect on the development of English contract law.

The Arbitration Act 1979 strictly limited the circumstances in which a party could appeal against an arbitrator’s decision to the courts. According to Lord Thomas, before the Act was brought in:

  • “Much was made of delay, the cost and expense and lack of finality because of the [appeal] procedure. It was said to make London an uncompetitive venue for dispute resolution.”
  • 300 applications to appeal were made each year in the English courts against arbitral awards. After the Act was introduced, this dropped to 50 a year. Only a third of these applications are accepted and lead to a hearing of the substantive issues.

It seems that the Act was successful in helping to establish a thriving market in arbitration in England and Wales. But a consequence of this success is that the English courts (including the appeal courts) are hearing fewer commercial cases. In some market sectors, the courts (it is said) have an insufficient throughput of cases to enable the common law to adapt to changing commercial practices. Again in the words of Lord Thomas:

  • “[A] consequence has been to undermine the means through which a significant part of  [London’s] strength – its ‘excellence’ [-] was developed.”
  • “[The loss of cases to arbitration, and loss of appeals to the courts] reduces the potential for the courts to develop and explain the law.”
  • “[Another effect is] retarding public understanding of the law, and public debate over its application.”
  • “The restriction in relation to appeals where the question is one of general public importance is, I have little doubt, a serious impediment to the growth of the common law.”

commercial courtReading the speech, IP Draughts struggled to relate it to his own experience of commercial contracts. It seems that Lord Thomas has past experience as a judge of the Commercial Court, though much of his time now as Lord Chief Justice is devoted to the criminal justice system. The Commercial Court is set up to handle high-value contract disputes, particularly in traditional areas such as shipping and insurance, and these areas seem to be the focus of Lord Thomas’s concerns.

But the Commercial Court is by no means the only part of the High Court that deals with contract disputes. The Technology and Construction Court deals with many contract disputes concerning computer technology, and the Chancery Division tends to be the place where disputes concerning IP contracts are heard, on topics as diverse as the licensing of the patents for the blockbuster drug Humira, or Elton John’s management and recording contracts. Other commercial disputes find themselves in the general list of the Queen’s Bench Division or elsewhere in the English court system. The development of English contract law through reported cases is not necessarily prejudiced just because one part of the court system has a reduction (but not a complete drying-up) in case numbers in certain market sectors.

That the lecture is focussed on the diet of the Commercial Court becomes clearer in a key sentence in paragraph 23, where Lord Thomas refers to:

…particularly relating to the construction industry, engineering, shipping, insurance and commodities, there is a real concern …at the lack of case law on standard form contracts and on changes in commercial practice.

This sentence is also helpful for clarifying which aspects of the development of the law Lord Thomas is really concerned about, namely:

  1. Case law on the interpretation of clauses in standard form industry contracts, such as those developed by trade associations. In some industry sectors, parties tend to use these standards rather than draft bespoke contract terms.
  2. Changes in commercial practice in the above sectors. Lord Thomas goes on to the refer to new Financial List, where specialist judges “are expected to keep up to date with the changes in practice in the financial markets and to resolve disputes on the basis of their specialist knowledge and understanding of the markets…” This comment helps to explain what he has in mind: that judges should apply their knowledge of market practice when interpreting the contracts that parties have entered into in that market.

fossiliseWhile undoubtedly important, these topics are so specific as to be irrelevant to the areas of commercial law in which IP Draughts practises. Even if these areas of the English courts’ work become fossilised through a lack of throughput of cases, it won’t result in a “serious impediment to the growth of the common law” in relation to business contracts more generally.

Several aspects of Lord Thomas’s argument trouble IP Draughts.

  1. The law on the interpretation of contracts is much wider than the two aspects highlighted above. There are more fundamental and general questions such as whether liquidated damages clauses are enforceable (the subject of a recent Supreme Court case), or what amounts to valid consideration, or what categories of loss are recoverable for breach of contract. The law in these and many other areas continues to be developed through a large number of court cases. In fact, we are suffering from a glut of cases on Bailii, so many that it is difficult to keep up to date with them, including many reported decisions in the Commercial Court. This didn’t use to happen a couple of generations ago, when reported cases tended to be limited to those that established a new principle or had some other outstandingly important quality.
  2. In many areas of commercial practice, the judges really don’t have much insight into commercial practice in the industry sector, because the throughput of cases is too small, and would be even if all arbitrations were diverted to the courts. IP licensing is a good example. Not only are there few cases in the courts, judges can’t rely on experience gained when they were barristers, because very few IP licence agreements are drafted or negotiated by barristers in private practice.
  3. A distinction should be made between interpretation of industry-standard contracts, where the court may be strongly influenced by the interpretation of the same clause by an earlier court, and the larger number of other (non-industry-standard) contracts, where the courts tend to be reluctant to place much weight on the interpretation of similar words in an earlier contract. In other words, Lord Thomas’s comments about interpreting standard form contracts are not relevant to contracts generally. For example, this is true of his statement that “courts [give] definitive rulings on the scope and interpretation of contractual clauses.” In fact, the misguided view of some that the courts do develop standard interpretations of contract wording is often trotted out as an argument against updating template agreements or changing from old-fashioned legalistic contractual language to modern English. It is disappointing that Lord Thomas was not clearer that his remarks in this area were limited to industry-standard contracts.
  4. Contrary to Lord Thomas’s view, IP Draughts has some sympathy with the comments of Lord Denning in the Nema case, which Lord Thomas summarised as “that a commercial arbitrator was more likely to be better placed to interpret the contract in a commercial sense than a judge…” Perhaps Lord Thomas is right to dismiss this comment in relation to contract disputes in markets with which he is familiar. IP Draughts, however, can foresee many situations in which a well-chosen arbitrator, with experience of IP licensing, would be better able to reach a commercial conclusion on the interpretation of an IP licence agreement than a High Court judge. This is not to say that he would always prefer arbitration over litigation, but he thinks Lord Thomas is on dodgy ground if he is arguing that judges are better than arbitrators at interpreting the commercial intentions of contracting parties.
  5. The extracts from the lecture quoted above include references to the importance of “public understanding of the law and public debate over its application”. Elsewhere in the lecture Lord Thomas makes a similar point, where he comments that “open court proceedings enable people to watch, debate, develop, contest and materialise the exercise of both public and private power”. This theme struck IP Draughts as a weak argument to use in relation to the development of contract law. Other areas of the law, such as criminal law or defamation, seem more likely to attract public interest and debate than incremental developments in the canons of construction or other principles of contract law.

IP Draughts is left feeling that Lord Thomas probably has a valid point to make (though IP Draughts has insufficient experience of the market sectors that Lord Thomas cites to know whether this is the case), but that he weakens his argument by making it too broadly. It will be interesting to see if others, including companies that make use of arbitration in England and Wales, agree that something needs to be done to rebalance the relationship between the courts and arbitration.

 

 

 

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March-in to glory

marchesIn January this year, over 50 US Congressmen wrote to Sylvia Burwell, the US Secretary of Health and Human Services, asking her to consider using so-called government march-in rights as a way of reducing the price of pharmaceutical drugs. In February, Secretary Burwell is reported to have responded positively to this suggestion, or at least not dismissed it out of hand.

The rights in question arise under the Bayh-Dole Act 1980. Other aspects of this Act have been discussed on this blog here. The relevant sub-sections of the Act (35 USC 203) read as follows:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;
(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
(3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or
(4) action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.
The Congressmen’s letter proposed that action should be taken under sub-section (a)(2), quoted above. It seems that these march-in rights are rarely used, and that the US government has previously refused to use them as a general means of applying pressure on drug prices, regarding this as a subject that would require primary legislation.
This is consistent with what IP Draughts has previously been told by US lawyers, eg when doing due diligence on a company that had entered into an IP licence agreement that included a clause that specifically referred to these march-in rights. In the past, he has been told that many companies consider the risk of a US government march-in to be theoretical rather than real. Whether this is still a common understanding in light of Secretary Burwell’s recent comments is less clear.
IP Draughts has noticed a rash of march-in rights recently. A kind-of-march-in-right features in national patent laws. For example, section 22 of the UK Patents Act 1977 allows the government to step in if a patent application contains information that might be prejudicial to the defence of the realm. The section enables compensation to be paid to the applicant in certain circumstances.
There is no direct equivalent to the Bayh-Dole provisions in UK law, but the standard contract terms of several UK government departments contain analogous provisions. IP Draughts sees these terms in research collaboration agreements to which a government department is a party, or where a government department has funded research done by others.
onionsFor example, such terms exist in certain research funding conditions of the UK Department of Health. An example sometimes used is that if there were a major outbreak of influenza, this might be a national emergency. If private companies were not able to meet the demand for drugs to treat the condition, the government might need to make very urgent arrangements to do so.
IP Draughts has also seen such terms in UK Department of Defence contracts. For example, Defcon 705, which is an often-used contract term on intellectual property rights, includes several provisions that could be viewed as march-in rights.
These and other provisions have the potential to devalue the IP assets of private companies and other organisations. If the government can march-in and license the IP to someone else, the rights of an IP owner or exclusive licensee may be prejudiced. But is this risk real, or are the government’s rights more honoured in the breach than the observance?
So far, it seems that march-in rights are rarely used. They probably fall into the category of very small risk of a major event. Plenty of other risks fall into that category. IP Draughts wonders whether it is possible to insure against this risk at a reasonable price; he hasn’t heard of any such insurance.

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