Category Archives: Licensing

Terminating licence agreements for breach: how not to do it

At some point, IP Draughts will get around to reviewing and commenting on the recent English court decision on FRAND licensing. Mr Justice Birss’s 87,000-word decision is considered to be of great significance by those who are involved in this area. But that is a topic for another day.

Instead, IP Draughts’ eye has been caught by another Chancery Division decision, this time by Mr Justice Warren, on the subject of trade mark licence agreements. Judgment in the case of General Nutrition Investment Company v Holland And Barrett International Ltd & Anor (Rev 1) [2017] EWHC 746 (Ch) was published last week. This is another lengthy judgment (only 51,000 words rather than 87,000!) which has something for everyone – the effect of IP assignments, notices, contractual interpretation, and implied duties of good faith are just some of the topics that the judge has to address.

Readers based in the UK will be familiar with the Holland & Barrett (H&B) shops that sell health supplements. H&B is also the UK licensee of the “GNC” and “GNC Live Well” trade marks, which are owned by a US corporation, General Nutrition Investment Company (GNIC). It appears from the judgment that GNIC has a reputation in the USA, inter alia, for selling “sports nutrition” products to body builders, though GNIC has sought to broaden its appeal beyond this market.

Part of the dispute between the parties seems to have related to H&B’s focus on selling GNC-branded products to the body building market, rather than the broader market that GNIC was seeking to cultivate, both in the USA and other countries. In the words of Warren J:

Much of GNIC’s complaint appears to me to be about an alleged change in the brand image of GNC in the UK.  According to GNIC, H&B has changed the brand image of GNC from being a general health and wellness brand, to being a sports nutrition brand.  Frequently, and pejoratively, that latter description is juxtaposed in the presentation of GNIC’s case with “body building” with a view, it seems to me, of tainting the brand image actually developed (sports nutrition) with something which would be perceived by some as less savoury (body building) and thereby to demonstrate a breach of clause 3.1(b) of the [Licence Agreement].

Various other breaches were alleged. Warren J concluded that there had been no material breaches that entitled GNIC to terminate.

The real interest of this case to IP transactional lawyers lies in some of the other topics that were discussed in Warren J’s judgment. In brief summary:

  1. Legal or equitable assignment. If you are not the original licensor under the licence agreement, you need to take care that the licence agreement (and therefore the right of action for breach) has been validly assigned to you, and that the licensee has received notice of that assignment. Under English law, notice of a legal assignment must comply with section 136 of the Law of Property Act 1925. If such a notice has not been given, the most you can have is an equitable assignment, and any action for breach (in the case of assignment of a contract) may require the assignor to be joined as a co-claimant. Warren J dismissed the claimant’s case on the ground that effective notice had not been given, but went on to consider other aspects in case he was overruled by the Court of Appeal on this point.
  2. Notice of breach. Notices of breach must be clear to be effective. This includes being clear as to which legal entity is giving the notice and what breaches are alleged. In the present case the party alleging breach had the same name and was incorporate in the same US State as the original licensor, but was in fact a different legal entity and this was not clear from the notice.
  3. Relational contracts and implied duties of good faith. The English courts have been prepared, in some cases, to imply a duty of good faith into certain types of contract where the parties have an ongoing relationship and need to cooperate with one another to make the contract work. The law in this area is still evolving. The category of contracts where such obligations have been implied are sometimes referred to as “relational contracts” and might, for example, include a long-term distribution agreement. IP Draughts has long considered that IP licence agreements are potentially within this category, particularly since he obtained a written opinion from the late Christopher Carr QC, some years ago, that his client (a licensor) was entitled to sue for breach of an implied obligation of good faith by the licensee under a patent licence agreement. In the present case, Warren J seems to pour cold water on the idea that a trade mark licence agreement is a relational contract.

On the relational contracts point, Warren J states (at paragraph 321:

In my judgment, no general obligation of good faith is to be implied into the LA.  I do not consider that the LA is a relational contract in the sense in which that term has been used in the cases.  Although the LA is a long-term contract, it is one where there ought to be no need for any ongoing communication of the sort envisaged in the cases and required to enable the contract to operate effectively.  In any case, even if the LA is relational in the required sense, it is not necessary to imply an obligation of good faith.  Such control as GNIC has over the use of the marks is already subject to express provisions making an implied term in relation to those aspects unnecessary.

The judgment also includes a small point of contractual interpretation. In the following clause, do the words “to an extent likely to cause material loss to the Licensor” qualify the whole of the previous wording of paragraph (a) or only qualify the words “otherwise infringes the Licensor’s rights under the Trade Marks”?

5.2       The Licensor may terminate this Agreement immediately by notice in writing if:

(a)      The Licensee materially breaches this Agreement or any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks to an extent likely to cause material lost to the Licensor; or …

Sensibly, the judge concludes that the words highlighted above in red qualify only the words highlighted above in blue and not the words highlighted in green. Of course this dispute could have been avoided if the drafter had been more careful, eg by drafting the above wording (with some additional editing – IP Draughts can’t resist it) as follows:

5.2       The Licensor may terminate this Agreement immediately by notice in writing to the Licensee if:

(a)      the Licensee materially breaches this Agreement;

(b)      any other member within the H&B Group commits an act which, if committed by the Licensee, would amount to a material breach of this Agreement; or

(c)      (without prejudice to the Licensor’s other rights to terminate under this Agreement) the Licensee [or any other member within the H&B Group] otherwise infringes the Licensor’s rights under the Trade Marks to an extent likely to cause material lost to the Licensor; or …

The case provides some useful reminders of the need to deal with legal housekeeping points, as described above, before attempting to terminate a licence agreement for breach.

On the format and text of the judgment, IP Draughts is reminded of the frustration he feels that:

  1. High Court judgments have become so long; and
  2. They adopt a very old-fashioned approach to setting out key terms of the contract that they are being asked to interpret. It would be much better, in IP Draughts’ view, if a new convention were adopted in which the full agreement is pasted as an annex to the judgment so that the reader can see its terms in context. If it is considered appropriate to highlight particular terms, this could be done through colour-coding or some other modern method. IP Draughts would have liked to see, for example, whether the licence agreement in this case included any term restricting assignment.

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Trade mark licensing as an afterthought

yes-ministerIn the 1980’s TV comedy series, Yes Minister, a British government minister Jim Hacker struggles to implement policies in the face of opposition by his senior civil servant, Sir Humphrey Appleby. Sir Humphrey uses complex language to obscure his intentions, but occasionally Hacker goads him into an outburst that uses simpler words. One of Sir Humphrey’s comments to Hacker has stuck in IP Draughts’ mind:

If you’re going to do this damn silly thing, don’t do it in this damn silly way.

This sentence comes back to IP Draughts when he sees a technology licence agreement to which has been added, seemingly as an afterthought, a sentence or two of text in which a trade mark licence is granted. While IP Draughts wouldn’t say the line out loud – it probably overstates the issue and shouldn’t get through the diplomacy filter – it sometimes lurks in his mind.

IP Draughts has seen this type of approach in several university technology licence agreements. His first questions, when acting for the university, are to ask who within the university has authority to license its trade marks (often, the answer will not be the technology transfer unit), and whether any assessment has been done of the potential advantages and disadvantages of such a licence. Do the benefits for the individual TT deal outweigh the risks, eg that the university’s hard-won reputation for scholarship and teaching may be prejudiced or that the university may be accepting legal liability for product defects (e.g. under the Consumer Protection Act). IP Draughts has seen situations where, in his opinion, a university has licensed its trade marks without any “big picture” assessment, focussing instead solely on the benefits for the TT deal, and in particular the benefits for the licensee of being able to associate itself with the university’s brand.

If the university decides to go ahead anyway, despite these risks, the next question is whether the trade marking licensing terms are appropriate. Often, this question is asked part-way through negotiations that the parties have started without specialist IP law advice. As a consequence, there may be limited appetite for negotiating a separate trade mark licence agreement. Can’t we just have a simple trade mark licence within the technology licence agreement?, cry the negotiators.

details1The problem with such an approach is that the technology licence template will typically not include many of the provisions that one would expect to see in a trade mark licence agreement. The university may be inexperienced in dealing with such issues and have little insight into why these provisions are important, both from a commercial or reputational perspecttive, and from the perspective of protecting its legal rights in the trade marks. The topics that such provisions typically cover include:

  • quality control of licensed products, including specifying any standards that the licensee must meet
  • prior approval of marketing materials that bear the licensed trade marks. Such approval may relate both to the content of the materials (e.g. are they tacky or misleading, and likely to damage the university’s reputation) and the way in which the trade marks are displayed. In the latter case, trade mark owners often require the licensee to comply with a style guide, that covers detailed issues such as the exact colour and sizing of the marks, use of trade mark registration notices, and so on.
  • prohibitions on modifying the marks, using them in combination with other marks, or as part of a company name, or registering any such marks
  • obligations on the licensee to assign any goodwill generated by it using the marks to the trade mark owner
  • obligations to register the licence

IP Draughts and his colleagues have some condensed trade mark licensing wording “up their sleeves” for when the parties are willing to add a few paragraphs to their technology licence agreement but are not willing to deal with trade mark licensing issues in depth (e.g. in the same level of detail as their agreement deals with technology licensing issues). Using condensed wording is not risk-free but is considerably better than the parties’ starting point, which may be just a sentence or two in a grant clause.

 

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Use restrictions in contracts of sale

pink or black for court?

pink or black for court?

Long-term readers of this blog may recall earlier articles about whether a seller of a product may restrict the use that the purchaser can make of that product, and whether such restrictions are binding on subsequent owners of the product. For example, may the original seller exercise its IP rights against a subsequent owner to enforce any such restrictions? This subject raises questions of public policy that, in different jurisdictions, are channelled into legal principles such as exhaustion of rights, non-derogation from grant, and the first sale doctrine. See, for example, the EU UsedSoft case, discussed here in 2012.

This subject was forced back into IP Draughts’ mind by the recent spat between two artists, Sir Anish Kapoor and Mr Stuart Semple, reported here.

Apparently, Sir Anish has acquired an exclusive licence, in the field of art, to use Vantablack, the “blackest black” in existence, which is a technology based on carbon nanotubes. According to an FAQ on the website of Surrey Nanosystems, the creator of Vantablack, it seems that what Sir Anish has a licence to is a variant of Vantablack, known as Vantablack S-VIS:

Vantablack is generally not suitable for use in art due to the way in-which it’s made. Vantablack S-VIS also requires specialist application to achieve its aesthetic effect. In addition, the coating’s performance beyond the visible spectrum results in it being classified as a dual-use material that is subject to UK Export Control. We have therefore chosen to license Vantablack S-VIS exclusively to Kapoor Studios UK to explore its use in works of art. This exclusive licence limits the coating’s use in the field of art, but does not extend to any other sectors.

Let’s leave the interesting export-controls point to another day. It is not entirely clear what IP is being licensed, though presumably there is at least some know-how involved. Another FAQ indicates that:

Vantablack is a globally registered trademark and recognised brand owned by Surrey NanoSystems Limited. Companies would need written permission from SNS to use the Vantablack name in their products.

Incensed by Sir Anish’s actions in taking this exclusive licence, and the consequent restraint on artistic freedom, fellow artist Mr Stuart Semple has created the “pinkest pink” and is selling pots of the stuff, subject to the following condition:

Note: By adding this product to your cart you onfirm [sic] that you are not Anish Kapoor, you are in no way affiliated to Anish Kapoor, you are not purchasing this item on behalf of Anish Kapoor or an associate of Anish Kapoor. To the best of your knowledge, information and belief this paint will not make it’s [sic] way into that [sic] hands of Anish Kapoor.

Sir Anish has apparently responded to this provocation with a photograph of (inter alia) his hand:

pink

According to Surrey Nanosystems, one of the stated benefits of Vantablack is “its ability to absorb light energy and convert it to heat”. Mmm…

Readers are invited to comment on whether they think the contractual restriction on supply to Anish Kapoor is enforceable, and what the measure of damages for breach of contract might be.

 

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Leading UK licensing lawyers 2017

leaguesFor several years, this blog has produced a table of leading IP licensing lawyers, created by the simple but imperfect method of identifying all the lawyers who are recommended in both of the following directories for that year:

(a) the IAM Patent 1000 list of leading UK patent licensing lawyers; and

(b) the Chambers Directory list of leading UK transactional lawyers in the field of life sciences.

The latter list  was published earlier today; the IAM list was published some months ago.

So, who is on the IP Draughts list for 2017? Drum roll…

Laura Anderson  Bristows LLP
Mark Anderson  Anderson Law LLP
Malcolm Bates  Taylor Wessing LLP
Alison Dennis  Fieldfisher LLP
Patrick Duxbury  Gowling WLG
Jim Ford  Allen & Overy LLP
Michael Gavey  Simmons & Simmons LLP
Mark A Lubbock  Ashurst LLP
Nicola Maguire  Cooley LLP
Lucinda Osborne  Covington & Burling LLP
Daniel Pavin  Covington & Burling LLP
Stephen Reese  Olswang LLP
Chris Shelley  Penningtons Manches LLP
Sally Shorthose  Bird & Bird LLP
John Wilkinson  Cooley LLP

 

Most of the names on this list have been on the list for several years. A few names have dropped off but there are no new names. As a result, there are 15 names on the above list compared to 20 last year.

vennAn advantage of this list over the Chambers Directory list is that this list omits some individuals who are really corporate lawyers rather than IP lawyers. A disadvantage of this list is that it omits some fine IP lawyers who are not particularly focused on life science work, eg Matthew Warren of Bristows, or who are up-and-coming (eg IP Draughts’ partner Lisa Allebone, who has been named in the IP section of Chambers Directory for the first time).

Despite these defects, the list continues to be a fairly good indicator of the leading technology licensing lawyers in England and Wales.

Congratulation to all who appear!

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