Property in information? Wrong question, m’Lud.

Readers with long memories will recall this blog’s discussion of a case in the English High Court last year, in which the judge decided that there was no “property” in information.  The information in question was emails stored on a computer.

High Court decision

Mr Adkins, when he was CEO of Fairstar

The case, Fairstar Heavy Transport NV v Adkins [2012] EWHC 2952 (TCC) had some unusual facts.  Mr Adkins had been employed as the CEO of Fairstar (a company involved in the shipping industry), but was not an employee.  His services were provided through a Jersey-based company controlled by him.  Emails sent to his company email account were automatically forwarded to his personal email account and the original emails were then deleted from the company’s system.

The agreement between Mr Adkin’s company and Fairstar was made under Dutch law and was subject to the exclusive jurisdiction of the Dutch courts.  A dispute between that company and Fairstar had been resolved by a settlement agreement made under Dutch law, but there was continuing litigation in the Dutch courts between Fairstar and Mr Adkins personally, in which it was alleged that he had mismanaged the company, and in which Fairstar sought to enforce some restrictive covenants.

The only question before the English court was whether Fairstar could have access to the emails on Mr Adkin’s personal computer.  Mr Adkins was refusing to provide access.

In the English High Court, the parties’ counsel were asked to formulate a specific question on which they sought a ruling from the court.  They came up with the following:

Does Fairstar have an enforceable proprietary claim to the content of the emails held by Mr Adkins… insofar as they were received or sent by Mr Adkins acting on behalf of Fairstar?

The judge in the High Court, Edwards-Stuart J, decided that the answer to this question was “no”.  He reviewed the case law on the nature of information and concluded that there was no property in pure information.

Appealing to the Court of Appeal

Fairstar sought leave to appeal the decision.  The judge refused, but the Court of Appeal decided to give leave to appeal.  The case came before the Court of Appeal in April this year (Mummery, Patten and Black LJJ), and their written decision was handed down last week.

It seems that Fairstar’s legal team had a rethink on the best way to present their case to the Court of Appeal.  Instead of focussing on the jurisprudential nature of information as property, they argued that Mr Adkins was acting as an agent of Fairstar, and that under the law of agency, when an agency appointment comes to an end, the principal is entitled to have access to documents held by the agent in his capacity as agent.

Mr Peter Susman QC, for Fairstar, asked the court to allow him to submit a revised skeleton argument that focussed on this area.  Mr Richard Spearman QC, for Mr Adkins, objected on the ground that this was a completely different point, which had not been argued in the High Court, and that it would be improper to allow the appeal to be argued on this new legal basis.

Mummery LJ, who gave the only judgment in the Court of Appeal (and with which Patten and Black LJJ agreed) allowed Mr Susman to submit his revised skeleton argument and to argue the point before the court.  In Mummery LJ’s view, it was part of the original case that Mr Adkins was an agent of Fairstar.  It was unfortunate that the parties had focussed so much on the proprietary nature of information in their question to the court (quoted above).  This had introduced an unnecessary complication and was a distraction from the core issue, which was the relationship between Fairstar and Mr Adkins.

Court of Appeal decision

Mummery LJ declined to enter into the controversy over whether information is property.  It was not necessary to do this in order to decide the case before him.  In particular he was very reluctant to make sweeping statements, such as that information could never be property.  There might be cases where the facts pointed in a different direction.  For instance, he observed that:

Some kinds of information, such as non-patentable know-how, are more akin to property in their specificity and exclusivity than, say, personal information about private life.

Before stating his conclusions on the agency point, Mummery LJ cleared the decks by saying what the case was not about.  In the English case:

• there was no claim for ownership of the computer on which the emails were stored, nor any claim to own any USB stick, electronic medium, sheets of papers or other physical thing or material
• there was no claim to ownership of confidential information in the emails, nor any claim of misuse of confidential information
• there was no claim to copyright or other IP in the content of the emails
• there was no allegation of breach of contract, fiduciary duty or any other wrongful conduct on Mr Adkin’s part, and he was willing to preserve the emails.

Thus, the only issue was whether Fairstar was entitled to access to the emails.  Fairstar described this claim as “proprietary” but, as mentioned earlier, this was an unfortunate distraction from the real basis of the claim which was in agency.

Mummery LJ accepted Fairstar’s submissions and allowed the appeal.  In summary, his main reasons were:

1. The relationship was one of agent and principal.
2. A principal is entitled to require production by the agent of documents relating to the affairs of the principal.  This right survices termination of the agency appointment.
3. Documents may include information held electronically (eg see CPR 31.4).
4. Documents held on a computer are subject to the rule summarised in point 2 above.
5. The question of whether information is property does not need to be decided in this case.

Comments on the decision in the Court of Appeal

In IP Draughts’ view, Mummery LJ was bending, if not breaking, the rules to do justice in the case.  Viewed from the outside, it looks like a completely new line of argument was raised in the Court of Appeal.  It is difficult to detect any sign of the agency point being part of the argument or decision in the High Court.  The principal line of authorities under discussion in the High Court was on the question of property in information.  The principal line of authorities under discussion in the Court of Appeal was from a different branch of commercial law – agency law.

Mummery LJ is a very experienced, wise, humane and pragmatic judge who is due to retire fairly soon.  His approach is the opposite of some Chancery judges whose judgments read more like academic treatises than practical decisions for busy people.  IP Draughts is left feeling that justice was probably done in this case, but at the same time he is uneasy: if judges disregard the rules on what can be argued on appeal, there may be costs to the justice system overall, and the outcome of cases becomes less predictable.

As for the question of whether information is property, we are no further forward.  As this blog has previously mentioned, the question is not just an academic one.  It has practical implications for the wording of IP contracts, including licences and assignments.  Mummery LJ rightly highlights that commercial know-how looks more like property than private information.

Don’t come to me, if the product I sell you infringes IP

Disclaimers can take many forms…

The title of this post is almost poetic.  Recently, IP Draughts was asked for advice on the sale of products by an overseas company to purchasers in the UK.  The products were to be sold to retail businesses, who would resell to consumers.

The question that was raised was whether the contract terms between the client and the retailer could include a provision by which the client excluded liability if the retailer were sued by a third party for IP infringement.

Any such provision would face some legal obstacles.

Section 12 of the (UK) Sale of Goods Act 1979 (SGA) implies into contracts for the sale of goods, in summary:

1. A condition that the seller has the right to sell the goods; and
2. A warranty that the buyer will enjoy “quiet possession” of the goods.

In Microbeads v Vinhurst Road Markings [1975] 1 All ER 529 (CA), Lord Denning MR discussed that either or both of the above implied terms could be breached if the buyer were sued for patent infringement by a third party.  In that case, on the facts, a breach of the first of these terms could not be established, but a breach of the quiet possession warranty was established.  The latter is an ongoing warranty that continues while the buyer remains in possession of the goods.

Lord Denning also discussed the earlier Court of Appeal case of Niblett v Confectioners Materials [1921] 3 KB 387 (CA), in which a similar point was discussed in relation to trade mark infringement.  In the latter case the products in question were tins of condensed milk marked with the name Nissly, to which Nestle (pronounced ness-lay) not surprisingly objected.

These are the only two cases of prominence that IP Draughts is aware of, in this field.  The SGA and its predecessors date back to the nineteenth century.  In 1975, in the Microbeads case, Lord Denning described the infringement issue in relation to section 12 as a “new and interesting point”.

If one accepts that the law is this area was settled by the Microbeads case, the next question is whether a seller can avoid liability for IP infringement by the buyer through the use of suitable contract terms.  Unfortunately for sellers, there is another legal obstacle.  Section 6(1)(a) of the Unfair Contract Terms Act 1977 (UCTA) states that liability for breach of section 12 of the SGA “cannot be excluded or restricted by reference to any contract term.”

So, the short answer seems to be that a seller is liable if the buyer is sued by a third party for IP infringement.  No doubt there are special cases where this might not be so.  For example, sections 12(3) and (5) of SGA limit the implied terms of title where “there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have”.  And section 26 of UCTA disapplies certain of UCTA’s prohibitions in the case of “international supply contracts”.

Moreover, if the buyer provides a detailed design and specification for the product, and the seller simply follows the buyer’s instructions, common sense might suggest (although IP Draughts hasn’t yet worked out whether the law follows common sense on this point) that the buyer should not able to rely on section 12.  Or perhaps section 12(3) then applies.

Has any reader encountered this legal issue under English or other laws?  If so, what conclusions did you reach?

IP threats: If it were not assize time, I would not take such language from you!

Apologies for the odd title.  This posting is about the threats provisions in UK IP legislation.  Thinking about this subject reminded IP Draughts of the above quotation, which is from a seventeenth century criminal case, Turberville v Savage, that IP Draughts half-remembers from law school.  The issue was whether a conditional statement amounted to a threat and therefore to common law assault.  Or something like that.

Reminiscing further, IP Draughts’ glittering career as a criminal barrister ended shortly after it started, in 1984.  As a pupil barrister he was sent to the Old Bailey to be stand-in counsel for a client, part-way through a criminal trial.  The client was charged with some serious firearms and assault offences. The offences related to a dispute between neighbouring businesses which occupied workshops beneath the arches of a railway bridge.  Classy stuff.

The evidence had been given, the judge had summed up, and the jury had been deliberating for some time.  Unfortunately, the client’s “proper” counsel couldn’t wait any longer for the jury, and had to attend another trial.  At short notice, IP Draughts had to read the papers and decide what to say in a plea in mitigation, if the jury found the client guilty.

Fortunately, IP Draughts’ client was found not guilty of all the serious charges (did counsel and judge know this was likely before agreeing that a 24 year old know-nothing could take over the case?).  All that was left was a conviction for possession of an unlicensed firearm, which was a shotgun that didn’t work.  IP Draughts’ oratory, in best Marshall Hall style, no doubt had a tremendous effect on the judge’s sentence.  The client received a conditional discharge, almost the lowest sentence that could be given.  IP Draughts claims all due credit for this sentencing victory.

Anyway, back to the real world.  As IP Draughts has previously reported, the Law Commission is undertaking a review of whether the provisions of UK IP legislation concerning threats should be revised or abolished.  These provisions are intended to prevent an IP owner from making unjustified threats to sue others for IP infringement.  By saying the wrong thing in pre-action correspondence, an IP owner may find himself being sued by the would-be defendant, as this case illustrates.  In addition, a party’s legal advisers can be sued for making threats, even if they are just putting forward their client’s position.

The IP Working Party of the Law Society, of which IP Draughts is a member, produced a report some years ago which recommended that these provisions be abolished. (The previous link – at Schedule E – is to a version of the recommendations in a Gowers response; the stand alone report not immediately findable on the Law Society website.)

The Law Commission has now considered the subject of threats and has come up with its provisional conclusions, on which it is inviting comments.  Its consultation papers can be found here.  The summary version of their consultation paper runs to 31 pages, so this is not a subject for the faint-hearted.  In a nutshell, the Law Commission’s proposals are either:

1. To revise the threats provisions rather than abolish them, but end the right to sue a party’s legal advisers; or
2. Move to remedies based on a more general concept of “unfair competition” which is familiar in civil code countries and in Canada.

Please make your views known to the Law Commission.  The deadline for making responses is 17 July 2013.  Responses should be made:

By email to: intel.prop@lawcommission.gsi.gov.uk; or
By post to: Julia Jarzabkowski, Law Commission, Steel House, 11 Tothill Street, London SW1H 9LJ.

Why don’t the competition authorities understand IP licensing?

The European Commission (EC) has recently started a consultation exercise on its draft Technology Transfer Block Exemption Regulation (TTBER) and draft Guidelines for Technology Transfer Agreements.  The draft TTBER is designed to replace the current TTBER when it expires in 2014.  The draft Guidelines are being updated to reflect the EC’s current thinking on the competition issues that arise in licence agreements.  The draft documents can be found here.  The consultation exercise ends on 17 May 2013.

For readers who are not familiar with these documents, here is the nutshell summary.

Agreements that affect trade between EU member states and contain anti-competitive terms may be in breach of Article 101(1) of the Treaty on the Functioning of the European Union.  Where a breach occurs, parties may be fined up to 10% of their worldwide group turnover.  The agreement, or the offending terms, may be void.  Parties may be sued by third parties who suffer loss.  However, a breach doesn’t occur if the offending terms can be justified under Article 101(3).  That is generally up to a court to decide.

Rather than run the risk of breach, parties sometimes or often try to bring their agreement within the “safe harbour” of a block exemption regulation (BER).  Agreements that fit with a BER get automatic exemption under Article 101(3).  The BER for technology licensing is the Technology Transfer BER (TTBER), which covers patent and know-how licensing and a whole lot else besides.  BERs typically remain in force for about a decade and are then replaced.  The current TTBER is due to expire in 2014.  Hence the consultation over what should replace it.

Regrettably, the EC does not seem to have published a red-line version of the two drafts, showing changes over the current documents.  IP Draughts’ excellent trainee, Christopher Beck, has done so; please let us know if you would like a copy.

In the last few days, IP Draughts has been working on a draft submission to the EC in response to its consultation.  There is plenty to react to in the two documents, but two points really jumped out when he reviewed the drafts, and a third point seems to follow a trend.

1. Still no certainty for mid-level agreements. The TTBER continues to drift away from its original purpose as a simple checklist of what terms are, or are not, acceptable in a technology licence agreement.  This really started to happen in the 2004 TTBER; the draft TTBER takes us further on this path.  The EC has expanded its thinking on new and, in some cases, rather exotic scenarios where IP licensing causes serious competition concerns.  What we don’t have, though, is a straightforward set of rules for the majority of licence agreements that are, potentially, in breach of Article 101 but are not likely to cause competition concerns.  In particular, it is unrealistic to expect managers of SMEs and general commercial lawyers to understand and interpret complex provisions in the TTBER about market shares in technology markets and whether the parties are competitors in those markets.
2. No-challenge clauses. For decades, transactional IP lawyers in the EU have known that, if you want to fit with the TTBER, you mustn’t include in the licence agreement any provision that prohibits the licensee from challenging the validity of the licensed IP, but it is acceptable to include a provision that allows the licensor to terminate the agreement if such a challenge is made.  The draft TTBER would tighten up on no-challenge clauses by making even a “termination on challenge” clause fall outside the TTBER.  This could have the effect of locking a party into a licence agreement with its commercial enemy.  This seems, to IP Draughts, a crazy and counter-intuitive idea, which is unlikely to be acceptable to IP owners.
3. Software distribution is not IP licensing. It is interesting to see that the EC now considers software distribution agreements to be closer to distribution agreements than IP licence agreements, and therefore to be assessed under the BER for Vertical Agreements, rather than the TTBER.  Similarly, the Guidelines state that shrink-wrap licences are not really IP licences either, and are more in the nature of the sale of goods.  This view from a competition perspective coincides with some of IP Draughts’ thoughts from a commercial law perspective, which he has previously expressed on this blog.  It is unclear to IP Draughts how much software licensing is left to be assessed under the TTBER.  It seems from the Guidelines that software licensing where software is incorporated into a licensed product is what the EC has in mind.

IP Draughts perceives a sharper mind behind the draft TTBER than the one that hatched the 2004 TTBER; certainly some of the drafting changes show a more incisive approach and a better command of English.  But it is still the mind of an economist who sees dangers rather than opportunities in IP licensing, and who seems to be very remote from the practical realities of technology transfer.