Category Archives: Licensing

Ignore the IP clause. Examine the parties’ conduct.

twiceThis is a tale about a company that sold the same IP twice, according to some contracts that it signed. But don’t worry, children, because the parties didn’t really believe that the second contract was meant to sell the IP, even though it said that it did. Oh, and it’s also about a confidentiality clause in a licence agreement that meant what it said. Even though the defendant argued that it shouldn’t be taken literally.

The case is called Process Components Ltd v Kason Kek-Gardner Ltd [2016] EWHC 2198 (Ch) (05 September 2016). Don’t bother reading it. It’s not going to change the course of English law. It describes some typical legal argy-bargy that happens when a commercial dispute gets to court. IP Draughts has read it, so that you don’t have to. But it does raise some practice-related issues that should be of interest to transactional IP lawyers. These are summarised below.

Selling the same IP twice

First, the sale of the IP. The two contracts in question were for the sale of different parts of a business, to different purchasers. The assets sold in the first contract (Contract 1) included “£1,350,000 for the Goodwill, the IT system and the Intellectual Property Rights”. The Intellectual Property Rights were defined as:

the full benefit (subject to the obligations) of all patents, registered designs, the Trade Marks, service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by the Seller in the Business…

Let’s leave aside the excruciatingly bad drafting of this definition – for example, what is the word “licences” doing in the fourth line, lumped together with pre-registration rights to IP? In court, the parties’ counsel managed to find ways of arguing about the construction of this definition, eg by breaking it up into 3 parts and arguing that the final phrase only qualified one of those parts. All too tedious to discuss further.

Instead, let’s compare this definition with its equivalent in Contract 2. The same solicitor, who is named in the judgment, apparently drafted both contracts and, according to the judge, “plainly used [Contract 1] as a template for [Contract 2]”. Contract 2 provided for the sale of certain assets, including “the Business Name, the Commercial Information, the Contracts, the Equipment, the Goodwill, the Intellectual Property Rights, and the Work-In-Progress”. In Contract 2, Intellectual Property Rights are defined as:

the full benefit (subject to the obligations) of all patents, registered designs, trade and service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by [the seller] in the Business…

Now, there are ways of trying to distinguish the two definitions, eg that the definitions of Business are different in each case, or that the dates of use by the seller are different. But the judge found that these definitions mostly covered the same IP. And at least one of the commercial representatives of the parties to Contract 2 was surprised to see this definition in the draft contract, but preferred not to rock the boat by querying it.

So, the first lesson of this sermon is: take care in drafting IP definitions. Don’t just cut and paste from an earlier contract. Obvious, really. Or it should be.

Legal snowstorm

Given the apparent conflict between the two contracts, what was the judge supposed to do about it? For example, should she:

  1. darlingDecide that Contract 2 couldn’t ‘bite’ on any of the seller’s IP, as it had already been sold under Contract 1? Or
  2. Treat the buyer under Contract 2 as a bona fide purchaser without notice (sometimes quaintly known as ‘equity’s darling’) of Contract 1?
  3. Treat both buyers as purchasers, so that they became co-owners in different fields?

The parties’ respective counsel slugged away at one another, trying every legal principle in the book to persuade the judge to see it their client’s way. Among the principles mentioned in the judgment are:

  • The admissibility of pre-contract negotiations to show a matrix of fact
  • Rectification
  • Construction
  • Common assumption
  • Estoppel by convention
  • Estoppel by misrepresentation
  • Coming to equity with clean hands

On the facts before her, the judge found that the buyer under Contract 2 was estopped from denying that the buyer under Contract 1 owned the relevant IP.

A practice-related lesson here is that focussing just on the wording of the two contracts doesn’t tell us how a court is going to decide on a complex set of facts. Who said (or didn’t say) what to whom may affect the outcome more than the contractual wording.

Licence agreement – estoppel issue

At around the same time as Contract 2 was made, the buyer under that contract entered into a licence agreement with the buyer under Contract 1, under which the Buyer 1 licensed to Buyer 2 a package of IP that seems to have overlapped with the IP that was the subject of the dispute above.

Buyer 2 argued that it didn’t know the content of Contract 1 when it entered into the licence agreement, and did so to protect its position in case it turned out that the IP had been transferred under Contract 1 and not under Contract 2.

It seems that Buyer 2’s acceptance of the licence, and failure to query the ownership of the IP with Buyer 1, led to the estoppel mentioned earlier.

A possible practice point here is that Buyer 2 should have at least sent Buyer 1 a letter in which it flagged up this issue and stated that it “reserved all its rights”.

Licence agreement – confidentiality and termination

It might not have mattered whether Buyer 2 was the owner of the IP, as long as it continued to have a licence from Buyer 1. But Buyer 1 had terminated the licence agreement for breach of a confidentiality obligation.

The relevant clauses of the licence agreement were:

  1. By clause 10.1 of the licence agreement, “each party agrees to keep the terms of this Agreement confidential…”
  2. By clause 11.2, a party could terminate the licence agreement “immediately by written notice to the other” for certain types of breach.
  3. By clause 11.2(a), those breaches included any material breach of the Agreement that was not capable of remedy. The final sentence of 11.2(a) stated that “breach of the confidentiality obligations under clause 10 constitutes a non-remediable material breach”.
  4. By clause 12.3, on termination of the agreement for any reason, the licensee was required to “cease to make any use of the Intellectual Property Rights”.

The facts relied on for termination are not entirely clear from the judgment, but it seems that Buyer 2 disclosed the terms of the licence agreement to a proposed investor.

Buyer 2 argued in court and in correspondence that:

  • it was absurd to allow the licensor to terminate the licence agreement for any disclosure of the terms, as this would include trivial breaches, ie those that were not material
  • the court would interpret these obligations as allowing appropriate disclosure of the terms of the licence agreement “on a confidential basis to a proposed investor”

The judge disagreed, and held that the licence agreement had been validly terminated.

This raises a very interesting practice issue, which has been mentioned on this blog before. IP Draughts understands that it is common for companies to provide details of its contracts to proposed investors or purchasers, even if those contracts include strict confidentiality provisions. Ever since IP Draughts first encountered this issue as a junior lawyer, he has been troubled by the apparent mismatch between commercial practice and contract terms. Sometimes, a pragmatic response to this concern is to point out that the disclosures are typically made in confidence, eg in a data room, or that the party whose confidentiality has been breached won’t suffer any loss from the breach.

etiquetteThe judge in this case dispelled both of these lazy assumptions. She couldn’t see why a term should be implied allowing a party to disclose in confidence to a prospective investor. She pointed out that the CDA between Buyer 2 and the investor didn’t say anything about not using the information in a way that was detrimental to Buyer 1, who was not a party. IP Draughts suspects that the absence of such a clause is likely to be the case in most CDAs in this situation. And finally, the judge pointed out that the obligations under the CDA had expired at the time the licence agreement was terminated, so that the investor was no longer under a confidentiality obligation. This no doubt reflected the typically short duration of CDAs with investors.

The practice lesson here, in IP Draughts’ view, is that contracts mean what they say and a party should not expect the law to intervene to protect it if it is in breach, just because of dodgy commercial practice or bad habits in the market sector in which that party operates.

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Antitrust issues in IP licensing: competing guidelines

ftcVia the IP Finance blog comes news of a proposed update to the current US Antitrust Guidelines for the Licensing of Intellectual Property, which date from 1995. Although he has read the US guidelines in the past, IP Draughts is much more familiar with the equivalent European Commission Guidelines and the associated block exemption regulation for technology transfer agreements.

The European rules seem to require much more attention for run-of-the-mill licence agreements than the US rules require. He doesn’t recall ever having had a US lawyer refer him to the US guidelines in relation to a transaction under negotiation that included a US territory, whereas European lawyers working on a licensing transaction will frequently have recourse to the EU guidelines and block exemption regulation when the territory of the licence includes all or part of the EU.

Looking at the redline version of the proposed US guidelines, issued by the Department of Justice and Federal Trade Commission, IP Draughts had several thoughts:

  1. The US guidelines are more positive about the pro-competitive effects of licensing than the EU guidelines. To take one detailed example, bans on the licensee selling competing products may be acceptable under the US rules (eg see section of the guidelines), but would ring alarm bells in an EU setting, particularly if the competing product was developed by the licensee (eg see section 4.2.7 of the EU guidelines and Article 5(2) of the block exemption). In the absence of careful and detailed economic analysis, IP Draughts would need strong persuading that such a restriction could safely be included in an EU licence agreement.
  2. Many of the proposed changes to the 1995 US guidelines are technical and don’t make major changes to the antitrust analysis of licence agreements. Where substantive changes are made, they tend to move the guidelines in a more liberal direction, that is to say taking a more positive attitude to licensing. For example, the discussion of resale price maintenance indicates that vertical price restraints in licence agreements will be treated under the rule of reason rather than as per-se illegal, following an important Supreme Court decision in 2007.
  3. Particularly helpful to the practitioner are comments in the US guidelines about the main concern being horizontal agreements between competitors. As most IP licensing is not between competitors, and often has no horizontal element, this provides a very useful context to the analysis set out in the document. By contrast, though the EU guidelines express greater concerns about agreements between competitors, there are plenty of rules about agreements between non-competitors, eg in the block exemption, and no general suggestion that vertical agreements are to be treated much more favourably than horizontal ones.
  4. Not only are the US guidelines more positive about IP licensing, they are also more helpful than the equivalent EU guidelines in explaining, with numerous illustrative examples, where no significant antitrust issue will arise. By contrast, the EU guidelines use up far too much space in simply regurgitating what is permissible under the technology transfer block exemption.
  5. Where shall we three meet again? In Brussels or in Luxembourg?

    Where shall we three meet again? In Brussels or in Luxembourg?

    IP Draughts has heard it said that the thinking of those in the European Commission who are responsible for antitrust policy is strongly influenced by the approach of the US authorities. Certainly some of the economic concepts that are seen in the US guidelines, such as innovation and technology markets, have found their way into the EU guidelines and block exemption. But the way in which those concepts are used has a very different flavour in the EU model. It is as though the US concepts have been mixed up in the cooking pot with the desire to promote the EU single market, deep suspicion about IP rights generally as a monopolistic  right, a lack of experience of routine licence agreements, and a Mediterranean statist approach.

  6. IP Draughts was reminded that the US guidelines include a “safety zone” for certain types of agreement, which could be viewed as analogous to the EU block exemption regulation or to the EU Notice on Agreements of Minor Importance. Section 4.3 of the US guidelines places in the safety zone, among other agreements, licence agreements that meet both of the following criteria: (1) they are not “facially anticompetitive” – ie don’t include really bad terms; the equivalent expression in EU law is “hardcore clauses”; and (2) the collective market share of the parties does not exceed 20%. Where market shares cannot be determined, eg in some technology or R&D markets, an alternative to item (2) is that there are at least 4 competing technologies or 4 other parties that can engage in competing R&D.
  7. However, IP Draughts doubts whether this safety zone will be used much, given the more tolerant approach of the US guidelines to most IP licence agreements.

The differences between the US and EU approaches are sometimes found surprising by US clients and their US lawyers. Two points in particular may cause surprise: (1) the extent to which EU lawyers spend time looking at what is permissible under the relevant block exemption (there are other block exemptions for R&D agreements and for distribution agreements, among others), and (2) the difficulty of achieving legal certainty as to whether particular terms will be acceptable under EU antitrust laws. The unsatisfactory state of EU law may make it impossible for their lawyers to provide a quick, cheap and reliable answer to the antitrust questions that arise.



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The technology transfer profession: does it exist?

professionals1When IP Draughts started in practice, many of those who worked in research contracts and technology transfer at universities were drawn from the pool of administrators. Many were not graduates. Most would not have regarded themselves as belonging to a technology transfer profession.

Their skills lay in working with academics over many years, and dealing with all the issues that academics tend to dislike (while believing they could do them better than those responsible for them), and which are bundled together under that dismissive name, administration. Some became highly skilled at managing relationships with industry, and rose to senior positions within leading universities (in one notable case, receiving an honour for doing so); some others probably deserved the opprobrium that academics hurled in their direction.

The people who work in technology transfer nowadays (or, if we are being inclusive or fashionable, knowledge transfer) tend to have many paper qualifications. They may have several university degrees – a PhD and MBA are not unheard of – and many will have attended professional training courses such as those mentioned below. Some have law degrees or are qualified lawyers.

administratorsYet a significant part of their jobs has not changed from the early days. They are still required to work with academics, and liaise with industry. Their work is sometimes still referred to as administration, though there is greater recognition that it requires specialist skills. It is not a purely commercial role, though it requires many of the skills that business development managers in industry possess.

When a specialist work activity grows in scale, the people who perform that activity tend to come together for mutual support. IP Draughts has noticed a pattern to these activities across different disciplines. First, people come together and start to run national conferences and training courses. Next, they establish a professional qualification. At some point, this professional qualification becomes, de facto or de jure, a necessary condition of working in the sector. Finally, the body that oversees the qualification achieves recognition as a professional body. In the UK, this tends to be done by obtaining a Royal Charter.

IP Draughts has seen this happen in the UK investment community, which in the last 30 years has introduced professional exams and continuing education. In 2009, the Chartered Institute of Securities and Investment received its Royal Charter, thereby (according to the CISI website) “join[ing] the ranks of professional bodies such as accountants, lawyers and bankers.” In 2016, the Institute of Trade Mark Attorneys received its Royal Charter.

practitionerThe variety of roles within technology and knowledge transfer, and the variety of types of organisation that do these activities (eg a few research-intensive universities and a larger number of organisations that have a smaller throughput of TT or KT deals) may reduce the likelihood of reaching the final stage of this process soon. But progress is being made with some of the earlier stages.

Organisations such as PraxisUnico (in the UK) and ASTP/Proton (across Europe) have been running training courses and annual conferences for well over a decade. Disclosure: IP Draughts and his colleagues have taught on some of these training courses for many years, and IP Draughts’ partner Paul Maclennan is currently on the training committee of PraxisUnico.

In the last few years, membership organisations of technology transfer managers in different countries have come together to form the Alliance of Technology Transfer Professionals. ATTP has established a professional qualification, the Registered Technology Transfer Professional (RTTP).

Some technology transfer managers may also consider themselves licensing executives. A few years ago, the Licensing Executive Society (USA and Canada) formed an independent body to administer a new qualification, the Certified Licensing Professional (CLP).

A few weeks ago, a new qualification appeared. The European Knowledge and Technology Transfer Society appears to have grown with funding from the European Commission. It has established a certification for TT managers, at 3 levels.

expertA mixture of curiosity and professional pride led IP Draughts to apply for these qualifications (or should they be called certifications or registrations?). He is now entitled to put the letters CLP, RTTP and EuKTS (Expert) after his name. In reality, his qualification as an English solicitor (attorney) is the one from which he makes his living, but these other qualifications are nice to have.

TT practitioners are clearly travelling in the direction of professional status. But whether they want or need to reach that destination is far from clear. In IP Draughts’ view, a true profession has several attributes:

  1. A set of skills that are not easy to learn, and formal qualifications that must be obtained to demonstrate competence in those skills. Those skills should be maintained for as long as the individual remains actively involved in the profession.
  2. A shared understanding of what it means to be a member of the profession, and a shared set of professional values – an ethos. These professional values should be maintained in the face of pressures from employers, clients and others, and there should be a mechanism for ejecting people from the profession if they don’t adhere to these values.
  3. Protection for the public in the form of compulsory insurance and compensation schemes.

travelUsing this definition, TT practitioners are making good progress with item 1. Many will feel they have elements of item 2, but not the formal processes. As most TT practitioners are employed rather than self-employed, item 3 may be less relevant.

It will be interesting to see where TT practitioners go next on their professional journey.










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Issue spotting in IP agreements

ip manAnother year has gone by. Last week we had the fourth annual outing of the UCL 5-day course, IP Transactions: Law and Practice. This year’s students came from City and specialist law firms, well-known companies, government departments and public bodies, and universities in the UK and overseas.

Several students made favourable comments to IP Draughts on the high quality of the teachers and the practical content of the talks. Thanks are due to our volunteer speakers from Anderson Law, Ashurst, Baker & McKenzie, Bristows, Bird & Bird, Eversheds, Farrer, Hill Dickinson, Linklaters, Nabarro, Olswang, Pennington Manches, Pinsent Masons, Taylor Wessing, and other organisations. You are giving your time and expertise to help train the next generation of specialist IP lawyers, and your efforts are appreciated.

The course provides insights into legal and practice issues that are relevant to IP transactions across different market sectors, including M&A, life sciences, IT, media, universities, and finance transactions. As well as covering core topics such as the law affecting IP ownership, assignment and licensing, we explore some of the wider legal issues that IP lawyers need to be aware of, including competition law, tax, insolvency, charges and dispute resolution.

red flagNo-one can be expert in all of these areas, but you can be aware of when an issue needs to be explored further, and when specialist advice should be sought. When reviewing an IP agreement, you should be able to spot these issues. They should sound a warning bell, or raise a red flag, in your mind.

Does the draft agreement contain provisions about insolvency that may not be legally effective (eg a reversion of IP), or terms that breach EU competition laws (eg an assignment of licensee improvements), or payment terms that address tax issues in an unfavourable way to your client (eg grossing up of witholding tax), or terms that are unlikely to be acceptable to a university (eg an absolute ban on publications)? None of these examples concerns intellectual property law, but they are part of the larger category of commercial laws that affect IP transactions. Having at least a basic awareness of them is part of the legal toolkit of the transactional IP lawyer.

mastersHopefully, this course will continue for many years to come. In addition, IP Draughts is planning to create another course on IP transactions, this time for LLM students. This is a more difficult category of people to teach a subject of this kind, as LLM students tend to have very little experience of practice. The teaching style and content need to be tailored. If you are an IP practitioner and are interested in helping to design and teach on a future LLM module, to be run by UCL Faculty of Laws from 2017 or 2018, please let Mark know on or 01865 858 878.


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