Technology Transfer 9781526509062, 9781526509093, 9781526509086

Table of contents :
Preface
Selected Bibliography
Table of Statutes
Table of Statutory Instruments
Table of European Legislation and International Materials
Table of Cases
Chapter 1 Overview
Introduction
What is ‘technology transfer’?
Organisations involved in technology transfer, including research and development
Different priorities in technology transfer
Funding of R&D
University research and charitable status
Representative bodies
The role of lawyers in technology transfer agreements and activities
Contact information
Chapter 2 Drafting Technology Transfer Agreements
The legal framework
Boilerplate and commercial clauses
Types of agreement
Best practice
Chapter 3 Overview of Intellectual Property
Introduction
National and international intellectual property laws: current laws and proposals
Commercial transactions and intellectual property law
Chapter 4 Patents
Historical background and overview of legislation
Some recent developments in patent law
Provisions of UK patent law which are directly relevant to commercial transactions
Other fundamental provisions of UK patent law which may affect parties to a patent transaction
Supplementary Protection Certificates
Patents for biotechnological inventions
Patenting and software
Chapter 5 Copyright
Introduction
Some recent developments in copyright law
Commercial transactions involving copyright works
Other fundamental aspects of UK copyright law which may affect the parties to commercial transactions, including ‘moral rights’ provisions
Chapter 6 Protection of Databases
Generally
Meaning of a database
The contents of a database
Database right
Chapter 7 Designs
General
Design right
Registered designs
Community Design
Comparison of features of the various forms of design protection
Chapter 8 The Law of Confidence
Introduction
Some recent developments in the law of confidence
Protection of technical information
The law of confidence and its application to technical information
Organisation of this chapter
The Trade Secrets Directive
Strengths and weaknesses of the law of confidence
Appendix
Chapter 9 Personal Property
Introduction
Implied covenants under the Law of Property Act 1925 (‘the LPA’) and the Law of Property (Miscellaneous Provisions) Act 1994
Other provisions of the Law of Property Act 1925 which could apply to intellectual property transactions
Multiple ownership of property
Bailment
Impact of EU laws on UK property law
Ownership of human tissue and biotechnological products originating from human tissue
Chapter 10 Contract Law
Introduction
Interpretation and construction of licences and other agreements
Ownership rights
Selected contract law statutes affecting intellectual property transactions
Chapter 11 Regulatory Requirements
Introduction
Information protection and release and computer technology
Import and export regulations
Chapter 12 Introduction to EU Competition Laws Affecting Technology-Related Agreements
Introduction
Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty; European Economic Area Agreement
Scope and purpose of this chapter
Article 101 and commercial agreements
Overview of how to determine whether Article 101(1) applies, and whether a block exemption applies, to a technology-related agreement
Software licences
Agreements that provide for both R&D work and the licensing of technology or know-how
Detailed consideration of Notices, Guidelines and block exemption Regulations
Notice on agreements of minor importance
Commission Notice on subcontracting agreements
Implementation Regulation
Chapter 13 The Technology Transfer Agreements Regulation and Accompanying Guidelines
Introduction
Summary of main differences between 2014 TTR and its (2004) predecessor
General approach of the Commission to technology transfer agreements
The changing view of the Commission as to which types of intellectual property have the benefit of the block exemption
Structure of the TTR
Types of intellectual property to which the 2014 TTR applies
Types of agreement to which the 2014 TTR does not apply
Types of party who benefit from the 2014 TTR
Contract products
Market share
‘Hardcore’ restrictions
Hardcore restrictions and competing undertakings
Hardcore restrictions and non-competing undertakings
Excluded restrictions
Withdrawal of benefit of the 2014 TTR in an individual case
Non-application of the 2014 TTR for parallel networks
Relationship between the 2014 TTR and other block exemptions
Agreements that do not come within the scope of the 2014 TTR
Chapter 14 Guidelines on Horizontal Agreements and Regulations on R&D and Specialisation Agreements
Scope of this chapter
Guidelines on horizontal agreements
R&D agreements block exemption Regulation
Provisions which prevent application of the block exemption
Specialisation agreements Regulation
Chapter 15 UK Competition Law
Introduction
UK statutory (and other legislative) provisions concerning competition
Competition Act 1998
When will an agreement breach Chapter I of the Competition Act?
Consistency and harmonisation between UK and EU competition law
Consistency and harmonisation between UK and EU competition law – post the UK leaving the EU
Common law rules on restraint of trade
Chapter 16 Valuation of Technology and Products
Introduction to this chapter for this edition
Introduction
Methods of calculating value
Going rate/benchmarking
Factors that may affect valuation
Chapter 17 A Non-Specialist’s Overview of Tax Issues
Introduction
What has changed?
What has not changed
Overview of the main tax issues in IP transactions
Conclusions
Index

Citation preview

Technology Transfer Fourth edition

Dedicated to Sara with my love

Technology Transfer Fourth edition General Editor Mark Anderson Managing Partner, Anderson Law LLP

Principal Contributor and Coordinating Editor Victor Warner Solicitor, Anderson Law LLP

Bloomsbury Professional Bloomsbury Publishing Plc 41–43 Boltro Road, Haywards Heath, RH16 1BJ, UK BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Bloomsbury Professional Ltd 2020 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/opengovernment-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2020. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN:

HB ePDF ePub

978 1 52650 906 2 978 1 52650 908 6 978 1 52650 907 9

Typeset by Evolution Design and Digital Ltd (Kent) To find out more about our authors and books, visit www.bloomsburyprofessional.com. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

PREFACE At the time of writing, it is almost 10 years since the third edition of the book was completed in March 2010. The last decade was marked by a series of EU proposals, Directives and Regulations. Many of these EU developments are of direct relevance to the subject matter of this book. The second half of the decade was marked by a development (Brexit) whose aim, ultimately, is to unwind many of these EU developments. Although much has changed, the subject of this book has not: it is a book about laws in the context of commercial transactions. Specifically, it concerns transactions that involve the development, use or commercialisation of technology and associated intellectual property rights. Among the many types of transaction that can fall within this category, research and development contracts and intellectual property licences are perhaps the most important, and are the core focus of this book. Just as with previous editions, this fourth edition describes different areas of law that affect technology transfer agreements. Intellectual property (IP) law is an important area, and is covered in some detail. However, it is by no means the only, or even the most important, area. Other individual areas of commercial law, including contract, competition and confidentiality, affect technology transfer agreements just as much as IP laws. What has changed? Some of the changes since 2010 relate to non-‘legal’ matters, such as the introduction of professional qualifications for people in the technology transfer sector (CLP, RTTP, EUKTS), the increasing amount of training available (eg through PraxisAuril, ASTP-Proton and AUTM), the continuing development of standard templates for undertaking research and development, and the reform of the organisations (such as the UK Research Councils) which promote science and technology. There are many changes to the law including: •

the EU  General Data Protection Regulation (and its UK progeny, the Data Protection Act 2018);

•

the implementation of the EU  Trade Secrets Directive (introducing a statutory definition of a ‘trade secret’); also of interest are two cases which involved scientists (Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31, Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch)) which throw spotlights on the circumstances when a third party can be subject to an obligation of confidence and whether a company’s information can be protected by obligations of confidence and non-compete covenants;

•

the implementation of optional exceptions to the exclusive right of an author to authorise the reproduction of the author’s work as set out in v

Preface

the Information Society Directive (with the two most important perhaps being that the permitted acts of research or private study are no longer limited to particular types of works protected by copyright, and the introduction of a new permitted act for computational analysis (text and data mining) of anything recorded in a copyright work, but only when conducting research for a non-commercial purpose); •

a whole host of changes to UK design law (such as, finally, making it more consistent with other intellectual property laws, on the question of who is the first owner of a design);

•

new versions of the Technology Transfer Agreements Regulation and the Research and Development Agreements Regulation, which are more refinements over the previous versions than major changes, but each had some interesting new ‘features’; there was also clarification of the meaning of restriction of competition ‘by object’ and ‘by effect’ (in Expedia Inc v Autorité de la concurrence and others, C-226/11), resulting in re-issuing of the Notice on agreements of minor importance in 2014; and

• the Intellectual Property (Unjustified Threats) Act 2017, which harmonises and improves that UK law for patents, designs and trade marks on the question of how a rights holder may communicate with potential infringers and not face proceedings for making unjustified threats. As with previous editions, we are grateful to the friends and colleagues who have assisted with updating or commenting on the text, and particularly the editor (Peter Smith) for his attention to detail. Any errors that remain are our sole responsibility. This book attempts to be up-to-date in its discussion of English law as at November 2019 (but we have been able to include some important details up to the end of January 2020). The B  word… This preface is written on the last day that the UK remains a member of the EU (31 January 2020). When we were finalising material for this book in the last half of 2019, it was not certain whether, and on what terms, the UK would be leaving the EU. It is still unclear what the UK government’s negotiating objectives will be for our future relationship with the EU, in the areas of law covered by this book. What follows are a few points as we understand the position at present: •

EU block exemption Regulations: The current relevant block Regulations to this book will continue to apply in the UK until they expire (including the Technology Transfer Agreements Regulation and the Research and Development Agreements Regulation). Some of these will expire after the end of the transition period (see paras 15.02 and 15.14). vi

Preface

•

Relevant EU legislation not yet implemented into UK law (or in force): –

the Digital Single Market Directive: the government has made it clear that it has no plans to implement this into UK law (see para 5.03, note 28);

–

the Clinical Trials Regulation: this is not expected to come into force until May 2020 (if the EU portal for the submission of clinical trials applications begins then). If the UK government chooses not to adopt it, an organisation wishing to run a pan-Europe clinical trial will have to make one application to the UK MHRA and another application for all the countries in the EU in which the clinical trial is to take place (see para 11.86, note 401);

–

the European Patent with Unitary Effect and Unified Patent Court: this is currently subject to legal challenge (in Germany) but, like the above Regulation, it will be necessary for the UK and the EU to find a way for the UK to participate (if the UK government wishes to), given that the new court will be subject to EU law and the ECJ (see para 4.02, note 12). Mark Anderson and Victor Warner Oxford, January 2020 www.andlaw.eu

vii

CONTENTS Prefacev Selected Bibliography xiii Table of Statutes xix Table of Statutory Instruments xxxi Table of European Legislation and International Materials xxxvii Table of Cases xlix PART A – COMMERCIAL PRACTICE Chapter 1  Overview 1 Introduction2 What is ‘technology transfer’? 3 Organisations involved in technology transfer, including research and development 5 Different priorities in technology transfer 7 Funding of R&D 14 University research and charitable status 33 Representative bodies 40 The role of lawyers in technology transfer agreements and activities 41 Contact information 49 Chapter 2  Drafting Technology Transfer Agreements The legal framework Boilerplate and commercial clauses Types of agreement Best practice

51 54 60 72 147

PART B – RELEVANT AREAS OF LAW, AND THEIR PRACTICAL APPLICATION TO TECHNOLOGY TRANSFER AGREEMENTS Chapter 3  Overview of Intellectual Property 155 Introduction156 National and international intellectual property laws: current laws and proposals 166 Commercial transactions and intellectual property law 179 Chapter 4  Patents 191 Historical background and overview of legislation 194 Some recent developments in patent law 195 Provisions of UK patent law which are directly relevant to commercial transactions199 Other fundamental provisions of UK patent law which may affect parties to a patent transaction 229 Supplementary Protection Certificates 266 Patents for biotechnological inventions 274 Patenting and software 278

ix

Contents Chapter 5  Copyright 285 Introduction287 Some recent developments in copyright law 289 Commercial transactions involving copyright works 294 Other fundamental aspects of UK copyright law which may affect the parties to commercial transactions, including ‘moral rights’ provisions298 Chapter 6  Protection of Databases 357 Generally357 Meaning of a database 359 The contents of a database 361 Database right 362 Chapter 7  Designs 373 General376 Design right 379 Registered designs 398 Community Design 419 Comparison of features of the various forms of design protection 429 Chapter 8  The Law of Confidence 433 Introduction435 Some recent developments in the law of confidence 437 Protection of technical information 438 The law of confidence and its application to technical information 440 Organisation of this chapter 442 The Trade Secrets Directive 474 Strengths and weaknesses of the law of confidence 484 Appendix486 Chapter 9  Personal Property 501 Introduction502 Implied covenants under the Law of Property Act 1925 (‘the LPA’) and the Law of Property (Miscellaneous Provisions) Act 1994 504 Other provisions of the Law of Property Act 1925 which could apply to intellectual property transactions 510 Multiple ownership of property 519 Bailment524 Impact of EU laws on UK property law 536 Ownership of human tissue and biotechnological products originating from human tissue 537 Chapter 10  Contract Law 545 Introduction548 Interpretation and construction of licences and other agreements 551 Ownership rights 608 Selected contract law statutes affecting intellectual property transactions 610

x

Contents PART C – COMPETITION LAW AND REGULATORY CONTROLS ON TECHNOLOGY TRANSFER Chapter 11  Regulatory Requirements 643 Introduction646 Information protection and release and computer technology 647 Import and export regulations 756 Chapter 12  Introduction to EU Competition Laws Affecting Technology-Related Agreements 767 Introduction770 Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty; European Economic Area Agreement 771 Scope and purpose of this chapter 775 Article 101 and commercial agreements 778 Overview of how to determine whether Article 101(1) applies, and whether a block exemption applies, to a technology-related agreement 795 Software licences 817 Agreements that provide for both R&D work and the licensing of technology or know-how 822 Detailed consideration of Notices, Guidelines and block exemption Regulations 828 Notice on agreements of minor importance 831 Commission Notice on subcontracting agreements 838 Implementation Regulation 845 Chapter 13  The Technology Transfer Agreements Regulation and Accompanying Guidelines 851 Introduction852 Summary of main differences between 2014 TTR and its (2004) predecessor 853 General approach of the Commission to technology transfer agreements 855 The changing view of the Commission as to which types of intellectual property have the benefit of the block exemption 857 Structure of the TTR 858 Types of intellectual property to which the 2014 TTR applies 866 Types of agreement to which the 2014 TTR does not apply 869 Types of party who benefit from the 2014 TTR 871 Contract products 872 Market share 872 ‘Hardcore’ restrictions 875 Hardcore restrictions and competing undertakings 876 Hardcore restrictions and non-competing undertakings 880 Excluded restrictions 883 Withdrawal of benefit of the 2014 TTR in an individual case 886 Non-application of the 2014 TTR for parallel networks 886 Relationship between the 2014 TTR and other block exemptions 887 Agreements that do not come within the scope of the 2014 TTR 890

xi

Contents Chapter 14  Guidelines on Horizontal Agreements and Regulations on R&D and Specialisation Agreements Scope of this chapter Guidelines on horizontal agreements R&D agreements block exemption Regulation Provisions which prevent application of the block exemption Specialisation agreements Regulation

901 902 903 919 941 946

Chapter 15  UK Competition Law 951 Introduction951 UK statutory (and other legislative) provisions concerning competition 955 Competition Act 1998 957 When will an agreement breach Chapter I of the Competition Act? 957 Consistency and harmonisation between UK and EU competition law 965 Consistency and harmonisation between UK and EU competition law – post the UK leaving the EU 967 Common law rules on restraint of trade 969 PART D – THE VALUATION AND TAXATION OF INTELLECTUAL PROPERTY Chapter 16  Valuation of Technology and Products 973 Introduction to this chapter for this edition 973 Introduction974 Methods of calculating value 976 Going rate/benchmarking 986 Factors that may affect valuation 992 Chapter 17  A Non-Specialist’s Overview of Tax Issues 997 Introduction997 What has changed? 998 What has not changed 999 Overview of the main tax issues in IP transactions 999 Conclusions1004 Index1007

xii

SELECTED BIBLIOGRAPHY One purpose of this book is to draw together strands of law and practical information that are relevant to technology transfer. It is possible to find these strands in various ‘traditional’ legal subjects. Some of these are reflected in the chapter headings including intellectual property, tax, contract, competition and regulation of high-tech activities. The following texts provide more detailed treatment of these legal subjects, and are recommended for further reading.

Drafting issues Introductory Anderson and Warner, Drafting and Negotiating Commercial Contracts, 4th edn, Bloomsbury Professional, 2017 Anderson and Warner, A–Z of Boilerplate and Commercial Clauses, 4th edn, Bloomsbury Professional, 2017

Specialist Anderson, Drafting Agreements in the Pharmaceutical and Biotechnology Industries, Oxford University Press, 2009 (looseleaf, updates) Cooke and Horton, Practical Intellectual Property Precedents, Sweet & Maxwell (looseleaf, 4 releases a year) Melville: Forms and Agreements on Intellectual Property and International Licensing, 3rd edn, Sweet and Maxwell (looseleaf, 3 releases a year) Unico Practical Guides Commercialisation Agreements, PraxisAuril, 2004 to 2014. 9 guides on: 1. Confidentiality agreements; 2. Material transfer agreements; 3. Options; 4. Consultancy agreements; 5. Students and IP; 6. Licence agreements; 7. Spin-out transactions; 8. Key issues in technology transfer agreements; and 9. General legal issues. Available from https:// www.praxisauril.org.uk/resource/practical-guides, some of which require membership of PraxisAuril The Lambert toolkit which comprises a decision guide, model agreements and guidance materials. The model agreements include model research collaboration agreements, model consortium agreements together with sample types of other agreements (CDAs, patent and know-how licences, etc). Available from https:// www.gov.uk/guidance/model-agreements-for-collaborative-research

Regulatory – Data Protection Introductory Carey, Data Protection: A  Practical Guide to UK and EU  Law, 5th edn, Oxford University Press, 2018 xiii

Selected Bibliography

Introduction to Data Protection Law, 2019, LexisNexis Butterworths Lambert, A  User’s Guide to Data Protection: Law and Policy, 3rd edn, Bloomsbury Professional, 2018

Specialist Castro-Edwards, EU General Data Protection Regulation – A Guide to the New Law, The Law Society, 2017 Coppel, Information Rights: Law and Practice, 5th edn, Hart Publishing, 2020 Introduction to Data Protection Law, 2019, LexisNexis Butterworths Jay, Boardman and Grant, Encyclopaedia of Data Protection and Privacy, Sweet & Maxwell (looseleaf, 3 releases a year) Voigt and Von dem Bussche, The EU General Data Protection Regulation (GDPR): A Practical Guide, Springer, 2017

Regulatory – Freedom of Information Introductory Carey and Hopkins (editors), Freedom of Information Handbook, 3rd edn, The Law Society, 2012

Specialist MacDonald and Crail, MacDonald on the Law of Freedom of Information, 3rd edn, Oxford University Press, 2016 Coppel, Information Rights: Law and Practice, 5th edn, Hart Publishing, 2020

Regulatory – Internet Specialist Lambert, Gringras: the Laws of the Internet, 5th edn, Bloomsbury Professional, 2018 Smith et al, Internet Law and Regulation, 5th edn, Sweet & Maxwell, 2019

Regulatory – Pharmaceuticals, biotechnology etc Specialist Cooke, Pharmaceuticals, Biotechnology and the Law, 3rd edn, LexisNexis, 2016 McDonough, A  Practical Guide to European Pharmaceutical Regulations for Human Medicines, Law Brief Publishing, 2019 xiv

Selected Bibliography

Competition laws Introductory Whish and Bailey, Competition Law, 9th edn, Oxford University Press, 2018 Jones and Sufrin, EC  Competition Law, 7th edn, Oxford University Press, 2019

Specialist Bellamy and Child, European Union Law of Competition, 8th edn, Oxford University Press, 2018 Tritton, Intellectual Property in Europe, 5th edn, Sweet & Maxwell, 2018

Personal property laws Specialist Bridge, The Law of Personal Property, 2nd edn, Sweet & Maxwell, 2019 Palmer on Bailment, 3rd edn, Sweet & Maxwell, 2009

Intellectual property – General Introductory Brazell (editor), Intellectual Property Law Handbook, 2nd edn, The Law Society, 2013 Cornish and Llewelyn, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, 9th edn, Sweet & Maxwell, 2019 Aplin and Davis, Intellectual Property Law: Text, Cases and Materials, 3rd edn, Oxford University Press, 2017

Specialist Cook, EU Intellectual Property Law, Oxford University Press, 2010 (second edition forthcoming in 2021) Pila and Torremans, European Intellectual Property Law, 2nd edn, Oxford University Press, 2019 Tritton, Intellectual Property in Europe, 5th edn, Sweet & Maxwell, 2018 Turner, Intellectual Property and EU  Competition Law, 2nd edn, Oxford University Press, 2015 Knight (editor), Encyclopaedia of Information Technology Law, Sweet & Maxwell (looseleaf, 3 releases a year) xv

Selected Bibliography

Patents Introductory Cooke, A User’s Guide to Patents, 5th edn, Bloomsbury Professional, 2019 See also books mentioned under Intellectual Property/General above

Specialist CIPA, CIPA Guide to the Patents Acts, 8th edn, Sweet & Maxwell, 2016 Birss et al, Terrell on the Law of Patents, 18th edn, Sweet & Maxwell, 2019 UK Intellectual Property Office, Manual of Patent Practice in the UK Patent Office, regularly updated, available from https://www.gov.uk/government/ publications/patents-manual-of-patent-practice

Copyright Introductory Flint, Thorne and Cornthwaite, A  User’s Guide to Copyright, 7th edn, Bloomsbury Professional, 2017 See also books mentioned under Intellectual Property/General above

Specialist Copinger and Skone James, Copinger and Skone James on Copyright, 17th edn, Sweet & Maxwell, 2019 Tappin et al, Laddie, Prescott and Vitoria: Modern Law of Copyright and Designs, 5th edn, Butterworths, 2018 Sterling, World Copyright Law, 5th edn, Sweet & Maxwell, 2018

Databases Introductory See books mentioned under Intellectual Property/General above

Specialist Davis, Legal Protection of Databases, Cambridge University Press, 2008

Design Introductory Thorne, Bennett, A  User’s Guide to Design Law, 2nd edn, Bloomsbury Professional, 2021 (forthcoming) xvi

Selected Bibliography

See also books mentioned under Intellectual Property/General above

Specialist Howe et al (editors), Russell-Clarke and Howe on Industrial Designs, 9th edn, Sweet & Maxwell, 2016 See also Specialist volumes mentioned under Copyright

Trade marks Introductory Caddick, Longstaff, A  User’s Guide to Trade Marks and Passing Off, 2nd edn, Bloomsbury Professional, 2015 See also books mentioned under Intellectual Property/General above

Specialist Kitchen et al, Kerly’s Law of Trademarks and Trade Names, 16th edn, Sweet & Maxwell, 2017

Confidential information Introductory Anderson and Warner, Drafting Confidentiality Agreements, 3rd edn, The Law Society, 2014

Specialist Gurry on Breach of Confidence: The Protection of Confidential Information, 2nd edn, Oxford University Press, 2012 Phipps, Harman, Teasdale, Toulson and Phipps on Confidentiality, 4th edn, Sweet and Maxwell, 2020 Bloch and Brearley, Employment Covenants and Confidential Information: Law, Practice and Technique, 4th edn, Bloomsbury Professional, 2018

Contract Introductory Koffman and MacDonald, Law of Contract, 7th edn, Oxford University Press, 2010 Furmston, Chesire, Fifoot & Furmston’s Law of Contract, 17th edn, Oxford University Press, 2017 Peel, Treitel: The Law of Contract, 14th edn, Sweet & Maxwell, 2015 xvii

Selected Bibliography

Specialist Beale (editor), Chitty on Contracts, 33rd edn, Sweet & Maxwell, 2019 Lewison, The Interpretation of Contracts, 6th edn, Sweet & Maxwell, 2015 + supplements Anderson, Warner, MacDonald’s Exemption Clauses and Unfair Terms, 3rd edn, Bloomsbury Professional, 2020 Melville: Forms and Agreements on Intellectual Property and International Licensing, 3rd edn, Sweet and Maxwell, looseleaf

Tax law

There are textbooks on the subject of taxation of intellectual property which provide more detail than Chapter 17 of this book, and cover taxation of arts-related intellectual property transactions, eg  contracts by authors and musicians. However, no current textbook provides an up-to-date and comprehensive treatment of all intellectual property transactions. Reference to standard practitioner texts on tax, eg Sergeant & Sims on Stamp Duty, may, therefore, be desirable when considering intellectual property tax issues.

Specialist Eastaway, Gallafent, Dauppe and Kimber, Intellectual Property Law and Taxation, 8th edn, Sweet and Maxwell, 2013 Simon’s Taxes, LexisNexis Butterworths, looseleaf plus annual handbooks De Voil Indirect Tax Service, LexisNexis Butterworths, looseleaf Sergeant & Sims on Stamp Duty, LexisNexis Butterworths, looseleaf

xviii

Table of Statutes References are to paragraph numbers Arbitration Act 1950......................... 10.58 s 4(2)............................................. 10.58 Arbitration Act 1996......................... 10.58 Pt I (ss 1–84)................................. 10.90 Bodies Corporate (Joint Tenancy) Act 1899.................................... 9.35 s 1.................................................. 9.35 Care Act 2014................................... 11.73 Charities Act 2006............................. 1.52 Charities Act 2011............................. 1.52 s 1, 2............................................1.52, 1.53 3................................................1.52, 1.53 (1)............................................. 1.52 4................................................1.52, 1.53 (2)............................................. 1.52 17(1)........................................... 1.52 Children Act 1989............................. 11.73 Civil Jurisdiction and Judgments Act 1982.......................................... 10.59 Communications Act 2003................ 11.71 Companies Act 1948......................4.04, 9.18 Companies Act 1985...................... 4.04, 9.18 Companies Act 2006............ 3.05, 4.04, 9.16, 9.18, 9.22, 11.63 s 40................................................ 2.119 43................................................ 9.19 44(1)–(4)..................................9.19, 9.20 (5)........................................... 9.20 45............................................. 9.19, 9.20 46(1)(a), (b)................................ 9.20 (2)........................................... 9.20 860.............................................. 3.01 861.............................................. 3.01 (4)......................................... 3.05 874.............................................. 3.01 1012............................................ 3.40 Competition Act 1980 s 11................................................ 4.34 Competition Act 1998.......... 2.04, 2.48, 2.84, 4.20, 5.51, 10.46, 10.53, 10.54, 12.86, 14.48, 15.01, 15.02, 15.03, 15.04, 15.05, 15.12 Pt I Ch I (ss 1–16)....... 2.59, 10.53, 12.86, 15.02, 15.05, 15.06, 15.11, 15.12, 15.13

Competition Act 1998 – contd s 2............................................12.86, 15.02 (1).......................................15.06, 15.11 (2)............................................. 15.06 (3)............................................. 15.07 (4)............................................. 15.11 (7)............................................. 15.07 3.................................................. 15.02 (1)(a)......................................... 15.12 (b)......................................... 15.12 (c)......................................... 15.12 4, 5.............................................. 15.04 6.................................................. 15.12 7.................................................. 12.86 10................................................ 15.12 (A1)..................................15.02, 15.12 10A............................................. 15.12 12–16.......................................... 15.04 Ch II (ss 17–24)............................ 15.02 s 20................................................ 15.04 (1)–(5)..................................... 15.14 21–24.......................................... 15.04 25..........................................12.86, 15.04 26–29.......................................... 15.04 30................................................ 15.13 36................................................ 15.13 39................................................ 15.09 50................................................ 15.12 52................................................ 15.04 54................................................ 15.04 60............................. 12.01, 15.01, 15.02, 15.05, 15.09, 15.11, 15.13, 15.14 (1)........................................... 15.13 60A............................................. 15.02 (1)–(5).................................. 15.14 (7)(a)–(f).............................. 15.14 (8)........................................ 15.14 61–65.......................................... 15.04 65B............................................. 15.13 66................................................ 15.04 70, 74.......................................... 4.20 Sch 1.............................................. 15.12 Sch 2.............................................. 15.12 Sch 3.............................................. 15.12 Computer Misuse Act 1990.............. 11.70 s 1–3, 3A, 3ZA.............................. 11.70 Consumer Credit Act 1974................ 10.99 Consumer Protection Act 1987......... 10.66

xix

Table of Statutes Copyright, Designs and Patents Act 1988 – contd s 9(3)............................................. 5.13 10................................................ 5.13 (1)........................................... 5.13 10A............................................. 5.13 11................................................ 3.02 (1)........................................... 5.14 (2)........................................ 5.14, 7.41 (3)........................................... 5.14 12(1)–(4)..................................... 5.16 16................................................ 5.17 (2), (3).................................. 5.17, 5.43 17................................................ 5.17 (2)........................................ 5.17, 5.19 (6)........................................ 5.17, 5.19 18................................................ 5.17 18A(2)........................................ 5.19 19................................................ 5.17 20................................................ 5.17 (2), (3)..................................... 5.17 21................................................ 5.17 (2)........................................... 6.05 (3)........................................ 5.17, 5.19 (4)........................................... 5.19 22............................................. 5.17, 5.18 23............................................. 5.17, 5.18 24............................................. 5.17, 5.18 (2)........................................... 5.18 25–27.......................................... 5.17 28.................................... 5.02, 5.03, 5.20 (4)........................................... 5.20 (4B)......................................... 5.03 28A..........................................5.17, 5.27 29................................................ 5.02 (1)........................................... 5.21 (1A)........................................ 6.19 (1B)......................................... 5.21 (1C), (3).................................. 5.21 (4), (4A).................................. 5.23 29A............................................. 5.03 (1)–(4).................................. 5.22 (5)........................................ 5.03 30................................................ 5.02 (1), (1A).................................. 5.25 (1Z)......................................... 3.20 (1ZA)...................................... 5.25 30A.................................3.20, 5.03, 5.20 31............................................. 3.20, 5.02 31A............................................. 5.20 32...........................5.02, 5.20, 5.38, 7.27 33–36.............................. 5.02, 5.20, 5.38 37–39.............................. 5.02, 5.20, 5.38 40...........................3.20, 5.02, 5.20, 5.38 40A–43..........................3.20, 5.02, 5.03, 5.20, 5.38 44............................................. 5.02, 5.38

Consumer Rights Act 2015......... 2.03, 10.01, 10.65 Contracts (Rights of Third Parties) Act 1999................... 2.25, 10.65, 10.79, 10.80, 10.81, 10.82, 10.83, 10.84, 10.85, 10.86, 10.87, 10.88, 10.89, 10.90, 10.92 s 1........................................... 10.88, 10.90 (1)........................... 10.79, 10.80, 10.87 (a), (b).................................. 10.79 (2)............................................. 10.79 (3)............................................. 10.86 (5)............................................. 10.87 2(1)............................................. 10.91 (a)–(c).................................. 10.91 (3)(a), (b).................................. 10.91 (6), (8)....................................... 10.91 3(2)–(6)....................................... 10.88 6(3)(a)–(c).................................. 10.89 7(1)...................................... 10.79, 10.81 (2)............................................. 10.88 (4)............................................. 10.87 8(1)............................................. 10.90 10(1), (3), (4).............................. 10.80 Copyright Act 1911........................... 3.47 Copyright, Designs and Patents Act 1988.................. 3.20, 3.47, 4.21, 4.100, 5.01, 5.02, 5.03, 5.04, 5.05, 5.06, 5.09, 5.11, 5.13, 5.15, 5.17, 5.19, 5.20, 5.21, 5.29, 5.34, 5.38, 5.39, 5.42, 5.43, 5.48, 5.50, 5.51, 5.52, 5.57, 6.01, 6.05, 6.06, 7.01, 7.03, 7.03, 7.05, 7.07, 7.08, 7.20, 7.21, 7.27, 7.28, 7.30, 7.33, 7.34, 7.35, 7.36, 7.38, 7.48, 7.67, 7.90, 8.08, 9.04, 9.33, 12.58 Pt I (ss 1–179)............................ 5.01, 5.08 s 1.................................................. 4.100 (1)..........................................5.09, 7.07 (b), (c).................................. 5.09 (3)............................................. 5.10 2(1)............................................. 5.17 3............................................. 4.100, 5.32 (1)............................................. 5.09 (a)......................................... 5.60 (b), (c).................................. 5.19 (d)......................................... 6.05 (2).......................................... 5.09, 6.05 3A(1)....................................... 5.09, 6.02 (2)....................................... 5.09, 6.01 4(2)............................................. 5.09 9.................................................. 5.13

xx

Table of Statutes Copyright, Designs and Patents Act 1988 – contd s 44B.......................................... 3.20, 5.03 45–49....................................... 5.02, 5.38 50............................................. 5.02, 5.38 (1)........................................... 11.54 (BA)........................................ 5.35 50A..........................................5.33, 5.36 (2)............................ 5.33, 5.34, 5.35 50B.................................5.23, 5.34, 5.36 50BA........................................ 5.23, 5.36 (2)...................................... 5.35 50C(1), (2).................................. 5.36 50D............................................. 5.37 (2)........................................ 5.37 51...........................5.02, 5.16, 5.29, 7.28 52...........................5.02, 5.16, 5.29, 5.30 53....................................5.02, 5.16, 5.29 54, 55.......................................... 5.02 56.............................................5.02, 5.31 (2)........................................... 5.31 57.............................................5.02, 5.38 58, 59.......................................... 5.02 60............................................. 5.02, 5.28 61–65.......................................... 5.02 66....................................5.02, 5.19, 5.32 67–76.......................................... 5.02 77................................... 5.39, 5.40, 5.41 (1), (2)..................................... 5.40 78....................................5.39, 5.40, 5.41 79................................................ 5.39 (2)–(4A), (6)........................... 5.40 80.............................................5.39, 5.41 (2)(a), (b)................................ 5.41 (3), (4)..................................... 5.41 81.............................................5.39, 5.41 82............................................. 5.39, 5.41 (2)........................................... 5.41 83............................................. 5.39, 5.41 84, 85.......................................... 5.39 86............................................. 5.39, 5.42 87................................................ 5.39 (1)–(4)..................................... 5.42 88, 89....................................... 5.39, 5.42 90.............................................7.06, 9.04 (1)........................................ 5.05, 5.06 (2)........................................... 5.07 (3)......................3.01, 3.41, 5.07, 7.14 (4)........................................... 5.08 91................................................ 7.06 (2)........................................... 5.07 (3)........................................... 5.08 92........................... 3.38, 3.41, 5.08, 7.06 (1)........................................... 5.08 93............................................ 5.06, 7.06 94................................................ 5.42 95................................................ 5.42

Copyright, Designs and Patents Act 1988 – contd s 96................................................ 5.43 97................................................ 5.43 (2)........................................... 5.43 98–100........................................ 5.43 101........................................... 3.43, 5.43 101A........................................... 5.43 102.............................................. 3.43 103(1), (2)................................... 5.42 104(1)–(4)................................... 5.44 105(3)......................................... 5.45 107.............................................. 5.43 107A........................................... 5.43 116.............................................. 5.50 144.............................................. 5.51 145–152...................................... 5.52 153.................................. 5.11, 5.52, 5.53 154........................................... 5.11, 5.53 (1)...................................... 5.11, 5.54 (3)......................................... 5.54 (4)...................................... 5.11, 5.54 155........................................... 5.11, 5.53 (1), (3)................................... 5.55 156–158................................... 5.11, 5.53 159.................................. 5.11, 5.53, 5.56 160–162................................... 5.11, 5.53 163........................................... 5.11, 5.14 164.............................................. 5.11 165.............................................. 5.14 173(2)...................................... 9.30, 9.33 178.........................5.19, 5.21, 5.31, 5.41 179.............................................. 5.09 Pt II (ss 180–212A)....................... 5.01 Pt III (ss 213–264)...........3.10, 5.01, 7.15, 7.39, 7.40 s 213........................................... 5.29, 7.07 (1)......................................7.03, 7.07 (2).......................................7.08, 7.39 (3)......................................7.03, 7.10 (4)......................................... 7.09 214........................................... 5.29, 7.16 215........................................... 3.02, 5.29 (1)............................. 7.03, 7.16, 7.17 (3)......................................... 7.18 (4)......................................... 7.19 216........................................... 5.29, 7.20 217........................................... 5.29, 7.21 218........................................... 5.29, 7.21 219........................................... 5.29, 7.21 220.................................. 5.29, 7.19, 7.21 (1)......................................... 7.21 221.............................................. 5.29 222.................................. 5.29, 7.06, 9.04 (1)......................................... 7.13 (2)......................................... 7.14 (4)......................................... 7.15

xxi

Table of Statutes Copyright, Designs and Patents Act 1988 – contd s 223...........................................5.29, 7.06 (1)......................................... 7.14 (3)......................................... 7.15 224........................................... 5.29, 7.06 225.................................. 5.29, 7.06, 7.15 (1).................................... 7.15, 10.16 (2)......................................... 7.15 226........................................... 5.29, 7.25 (1)...................................... 7.22, 7.23 (1A)...................................... 7.44 (2)–(4)................................... 7.23 227................................. 5.29, 7.22, 7.24, 7.25, 7.44 228..................................5.29, 7.24, 7.25 229–235................................... 5.29, 7.25 236.............................................. 7.28 237................................. 4.21, 7.05, 7.29, 7.45 (3), (4)................................... 7.29 238.............................................. 7.30 239.............................................. 7.31 240–244...................................... 7.32 245.............................................. 7.33 247–249...................................... 7.34 249A........................................ 7.27, 7.37 250–252...................................... 7.34 253(1)......................................... 7.98 (b)..................................... 7.98 (2)......................................... 7.99 253A(1)...................................... 7.100 (2)(a), (b)........................... 7.101 (3), (4)................................ 7.101 (5)...................................... 7.102 253B(1)....................................... 7.102 (a).................................. 7.102 (b)(i), (ii)....................... 7.102 (2)(a)–(c)............................ 7.103 (3)....................................... 7.103 (4)(a)–(c)............................ 7.103 (5)(a)–(c)............................ 7.104 253C(1)(a)–(c)............................ 7.105 (3), (4)................................ 7.106 253D(1), (2)................................ 7.107 (3)(a), (b)........................... 7.107 (4)...................................... 7.107 254.............................................. 7.35 255.............................................. 7.21 258(2)......................................... 9.33 259(2)......................................... 9.30 260.............................................. 7.36 263(1)......................................... 7.11 (3)......................................... 7.22 Pt IV (ss 265–273)........................ 5.01 s 267........................................... 7.63, 7.65 Pt V (ss 274–286).......................... 5.01

Copyright, Designs and Patents Act 1988 – contd s 273.............................................. 7.87 Pt VI (ss 287–295)........................ 5.01 Pt VII (ss 296–306)....................... 5.01 s 296(2), (3)................................... 5.48 296A..............................5.33, 5.34, 5.48, 12.58 (1)...................................... 5.48 296F(1), (2)................................ 5.49 296ZA......................................... 5.49 296ZB......................................... 5.49 296ZC......................................... 5.49 296ZD(1).................................... 5.49 296ZE......................................... 5.49 (9).................................... 5.49 Sch ZA1..................................... 3.20, 5.03 Sch 1........................................... 5.15, 7.46 para 19....................................... 4.21 Sch 5A........................................... 5.49 Corporation Tax Act 2009................. 3.06 s 176(1)......................................... 8.06 1139............................................ 3.06 County Courts Act 1984 s 74................................................ 10.99 Criminal Damage Act 1971 s 10(1)........................................... 10.74 Criminal Justice Act 2003................. 7.76 Criminal Justice and Public Order Act 1994 s 165(2)......................................... 5.43 Data Protection Act 1998.................. 11.20 Data Protection Act 2018............ 3.42, 11.02, 11.03, 11.05, 11.06, 11.21, 11.30, 11.52, 11.65, 11.76 s 1(1)............................................. 11.06 (2)...................................... 11.05, 11.06 2.................................................. 11.06 6, 7.............................................. 11.06 8.................................................. 11.06 (1)............................................. 11.12 9.................................................. 11.06 (1)............................................. 11.16 10–11.......................................... 11.06 15................................................ 11.06 (2)(f)....................................... 11.20 16................................................ 11.06 18................................................ 11.06 (1), (2)..................................... 11.30 19................................................ 11.06 (2)–(6)..................................... 11.21 20................................................ 11.06 26................................................ 11.52 Pt 3 (ss 29–81).............................. 11.10 Pt 4 Ch 6 (ss 110–113).................. 11.52

xxii

Table of Statutes Data Protection Act 2018 – contd Sch 1 Pt 1 (paras 1–4)......................... 11.18 Pt 2 (paras 5–28)....................... 11.18 Sch 2........................................11.06, 11.52 Pt 6 (paras 27, 28)..................... 11.20 Sch 3........................................11.06, 11.52 Sch 4........................................11.06, 11.52 Defence Contracts Act 1958............. 4.35 Digital Economy Act 2017................ 3.04 Employment Rights Act 1996 s 230(3)(a), (b).............................. 2.35 Energy Act 2013............................... 11.109 Enterprise Act 2002............ 4.34, 5.51, 12.86, 15.03, 15.04 Pt 3 (ss 22–130)............................ 15.12 s 209........................................12.86, 15.04 Enterprise and Regulatory Reform Act 2013 s 25, 26.......................................... 15.04 Sch 4.............................................. 15.04 Equality Act 2010............................. 11.64 s 4.................................................. 11.64 13–15.......................................... 11.64 20(2)–(4)..................................... 11.64 29(1), (2)..................................... 11.64 31(9)........................................... 11.64 206.............................................. 11.64 Sch 2.............................................. 11.64 Sch 25............................................ 11.64 European Communities Act 1972..... 12.01, 12.02 European Economic Area Act 1993.... 12.05 European Union (Amendment) Act 2008.......................................... 12.02 European Union (Withdrawal) Act 2018................................... 12.02, 12.86 s 20(1)–(5)..................................... 12.86 Export Control Act 2002................... 11.102 Finance (No 2) Act 2017................... 3.07 s 16................................................ 3.07 Sch 2 Pt 2 (paras 12–41)..................... 3.07 Financial Services Act 2012.............. 15.12 Forgery and Counterfeiting Act 1981 s 9.................................................. 2.19 Freedom of Information Act 2000.... 2.108, 11.32, 11.33, 11.38, 11.48, 11.49, 11.50, 11.51, 11.52, 11.53, 11.54, 11.55, 11.56, 11.57, 11.58, 11.60, 11.61, 11.62 s 1(1)(a), (b).................................. 11.33 (3)............................................. 11.36 1(4)............................................. 11.45

Freedom of Information Act 2000 – contd s 2(1)(a), (b).................................. 11.53 (2)(b)......................................... 11.53 (3)............................................. 11.53 (2)............................................. 11.52 (3)........................... 11.47, 11.49, 11.52 3(1)(a)......................................... 11.42 (b).................................. 11.42, 11.44 (2)............................................. 11.45 5.................................................. 11.44 (1)............................................. 11.43 6.................................................. 11.44 7(1)............................................. 11.42 8(1)(a)......................................... 11.33 (b), (c).................................. 11.34 (2)............................................. 11.33 9.................................................. 11.36 10(1), (3)..................................... 11.36 11(1), (4)..................................... 11.37 12(1), (2)..................................... 11.40 14................................................ 11.46 16(1)........................................... 11.38 17(1)........................................... 11.36 (a)–(c)................................ 11.39 (5), (7)..................................... 11.39 19(1), (2)..................................... 11.41 20(1), (2)..................................... 11.41 21................................................ 11.38 22..........................................11.38, 11.52 22A............................................. 11.52 (1), (2).................................. 11.52 38................................................ 11.52 40(1), (2), (4A), (3B), (4A), (5A), (5B).................. 11.52 41................................................ 11.47 (1), (2)..................................... 11.52 43................................................ 11.49 (1)........................................... 11.48 (2).................................... 11.48, 11.51 44................................................ 11.52 (1)........................................... 11.54 45..........................................11.38, 11.39 77(1), (2)..................................... 11.45 ..................................................... 11.52 Sch 1.............................................. 11.42 Higher Education and Research Act 2017....................................... 1.04, 1.11 s 91................................................ 1.11 92................................................ 1.11 (1)........................................... 1.12 93................................................ 1.11 94................................................ 1.11 95................................................ 1.12 109(1), (2)................................... 1.12 Sch 9.............................................. 1.11

xxiii

Table of Statutes Human Fertilisation and Embryology Act 1990..............3.42, 9.49, 9.50, 9.53, 9.54, 11.78, 11.79, 11.81, 11.83, 11.84 s 2A............................................... 11.79 3(1)............................................. 11.79 (1A)(a), (b)............................... 11.79 (1B)........................................... 11.79 (2)........................... 11.78, 11.79, 11.84 3A............................................... 11.79 (2).......................................... 11.84 3ZA(2)–(4)................................. 11.84 4(1)............................................. 11.79 (a), (b).................................. 11.79 (1A).......................................... 11.79 (3)............................................. 11.79 4A(1), (2), (4), (5)...................... 11.79 (6).......................................... 11.84 5–9.............................................. 11.80 8ZB............................................. 11.78 11................................................ 11.80 (1)(c)....................................... 9.54 12................................................ 11.80 (1)(e)....................................... 11.83 13................................................ 11.80 14................................................ 11.80 (3)–(4A).................................. 11.81 15................................9.54, 11.80, 11.81 16–21.......................................... 11.80 23......................................... 11.80, 11.83 24–26.......................................... 11.80 31................................................ 11.82 31A–ZG...................................... 11.82 33–35.......................................... 11.82 41(1)–(4), (11)............................ 11.83 Sch 1.............................................. 11.80 Sch 2.............................................. 11.80 para 3......................................... 9.54 (1), (3)............................. 11.81 (4), (5), (8)....................... 11.81 3A(1), (2).......................... 11.81 4(1).................................... 11.81 (2)(b)–(d)......................... 11.81 Sch 3.............................................. 11.80 Sch 3B........................................... 11.83 Human Fertilisation and Embryology Act 2008...................... 9.49, 9.50, 11.78 Human Organ Transplants Act 1989.......................................... 9.50 Human Rights Act 1998............. 2.108, 11.76 Human Tissue Act 1961.................... 9.50 Human Tissue Act 2004..... 2.51, 2.108, 3.42, 9.49, 9.50, 9.53, 9.54, 11.72, 11.73, 11.77 s 1.............................................9.54, 11.73 (2), (3), (7)................................ 11.73

Human Tissue Act 2004 – contd s 1(8), (9)..................................9.54, 11.73 (10)(a)–(c)................................ 11.73 2.............................................9.54, 11.73 (4)–(6)....................................... 11.73 3.............................................9.54, 11.73 (3)–(5)....................................... 11.73 4.............................................9.54, 11.73 (3)–(5)....................................... 11.73 5.............................................9.54, 11.73 6, 7.............................................. 11.73 8.................................................. 11.73 11................................................ 11.73 13–18.......................................... 11.74 19–22.......................................... 11.74 23(1)–(3)..................................... 11.74 25................................................ 11.74 27(4), (6), (8).............................. 11.73 30, 31.......................................... 11.74 32................................................ 11.74 (1)........................................... 9.50 (9)(c).................................... 9.50, 9.54 33, 34.......................................... 11.74 39, 40.......................................... 11.74 43, 44.......................................... 11.75 45................................................ 11.75 47................................................ 11.75 48, 49.......................................... 11.75 53................................................ 9.54 54(2)(a)....................................... 11.77 (5)........................................... 11.73 Sch 1 Pt 1 (paras 1–7)....................9.54, 11.73 Pt 2 (paras 8–12)....................... 11.73 Sch 2.............................................. 11.74 Sch 4.............................................. 11.75 para 5(1).................................... 11.75 (a)................................ 11.75 6......................................... 11.75 10....................................... 11.75 Sch 5 para 1–5..................................... 11.75 Human Tissue (Scotland) Act 2006.... 2.108, 11.72 Income and Corporation Taxes Act 1988 s 839.............................................. 4.15 Income Tax (Trading and Other Income) Act 2005...................... 3.07 Intellectual Property Act 2014......3.04, 3.22, 4.61, 5.54, 5.55, 7.01, 7.02, 7.03, 7.04, 7.08, 7.16, 7.17, 7.27, 7.37, 7.48, 7.63, 7.67, 7.71, 7.79, 7.84, 11.52 s 16................................................ 4.55

xxiv

Table of Statutes Intellectual Property (Unjustified Threats) Act 2017.........3.04, 4.02, 4.71, 4.75, 7.97, 7.100 Interpretation Act 1978 s 5............................................... 9.06, 9.12 6.................................................. 9.12 Sch 1........................................... 9.06, 9.12 Late Payment of Commercial Debts (Interest) Act 1998.............. 2.88, 10.03, 10.42, 10.65, 10.99 s 1.................................................. 10.99 (1)............................................. 10.99 2(1)............................................. 10.99 3(1)............................................. 10.99 4.................................................. 10.99 5A(1), (2A)................................. 10.99 7–10............................................ 10.99 Law of Property Act 1925.............9.01, 9.02, 9.03, 9.05, 9.10, 9.11, 9.16 s 1.................................................. 9.03 34(1)........................................... 9.34 52................................................ 9.01 61................................................ 9.12 63................................................ 9.10 74................................................ 9.22 (6)........................................... 9.23 74A(1)(b).................................... 9.26 (2)........................................ 9.26 75................................................ 9.26 76...........................................9.06, 10.37 83................................................ 9.12 146.............................................. 9.27 (2)......................................... 9.27 (5)......................................... 9.27 183.............................................. 9.14 (1), (2)................................... 9.14 196.........................................9.13, 10.57 (1)–(5)................................... 9.13 199.............................................. 9.15 205..................................9.03, 9.06, 9.27 209.............................................. 9.03 Law of Property (Miscellaneous Provisions) Act 1989............ 2.118, 9.16 s 1(2)........................................2.118, 9.17 (a)...................................... 9.20, 9.25 (2A).......................................... 9.17 Law of Property (Miscellaneous Provisions) Act 1994.............9.01, 9.02, 9.03, 9.05, 9.06, 10.37 s 1(1), (4)....................................... 9.06 2...................................... 9.01, 9.06, 9.07 3............................................... 9.01, 9.08 (2)............................................. 9.08 4...................................... 9.01, 9.06, 9.10

Law of Property (Miscellaneous Provisions) Act 1994 – contd s 5.................................................. 9.01 6, 7.............................................. 9.06 8(1)............................................. 9.06 10................................................ 9.06 Medicines Act 1968................... 2.108, 11.90 Misuse of Drugs Act 1971................ 11.105 National Health Service Act 2006..... 9.22 Obscene Publications Act 1959........ 11.66 Obscene Publications Act 1964........ 11.66 Patents Act 1949..........................4.01, 10.07 Patents Act 1977......... 3.02, 3.10, 3.23, 3.40, 3.43, 3.47, 4.01, 4.02, 4.03, 4.04, 4.06, 4.07, 4.09, 4.12, 4.19, 4.28, 4.37, 4.38, 4.40, 4.41, 4.47, 4.51, 4.55, 4.56, 4.58, 4.59, 4.64, 4.60, 4.70, 4.71, 4.75, 4.76, 4.82, 4.85, 4.91, 4.92, 4.96, 4.101, 4.102, 7.27, 7.48, 7.49, 7.52, 9.04, 9.29, 9.45, 10.07, 10.09, 10.16, 10.17, 10.24, 10.63 Pt II (ss 77–95).........................4.64, 4.104 s 1................................................4.09, 4.37 (1).............................4.37, 4.102, 10.09 (2).............................4.37, 4.101, 4.102 (c)......................................... 4.37 (3)..........................................4.37, 9.53 (4), (5)....................................... 4.37 2............................................... 4.37, 7.61 (2), (3)....................................... 4.37 (4).......................................... 4.37, 8.03 (a)......................................... 4.39 (b)...................................... 4.39, 8.55 (c)......................................... 4.39 3.................................................. 4.37 4.................................................. 4.37 (1)–(3)....................................... 4.37 4A(1)–(3).................................... 4.37 5.................................................. 4.37 6.................................................. 4.37 7.................................................. 4.42 (1)............................................. 4.42 (2)............................................. 4.43 (3).......................................... 4.09, 4.43 8.....................................4.05, 4.42, 4.45, 10.64 (2), (7)....................................... 4.45 9............................................... 4.42, 4.45

xxv

Table of Statutes Patents Act 1977 – contd s 10....................................4.42, 4.45, 7.49 11................................................ 4.42 12.............................................4.05, 4.42 13.............................................4.42, 4.44 (1)........................................... 4.44 (2), (3)..................................... 4.44 15................................................ 4.47 15A..........................................4.47, 9.04 16.............................................4.47, 4.72 (1)........................................... 4.41 17................................................ 4.47 18................................................ 4.47 19.............................................4.47, 4.63 20................................................ 4.47 20A, 20B.................................... 4.47 21................................................ 4.47 22................................................ 4.48 23................................................ 4.48 24................................................ 4.49 (3)........................................... 10.73 (4)........................................... 4.49 25(1), (3)..................................... 4.49 27.............................................4.49, 4.63 28, 29.......................................... 4.49 30............................................. 4.03, 4.04 (1)............................. 4.04, 9.04, 10.73 (3)........................................... 4.04 (4)............................4.04, 7.52, 10.17, 10.18 (a)....................................... 4.04 (5)........................................... 3.41 (6)............................. 3.01, 4.04, 5.07, 9.01, 9.05 (7)........................................... 9.10 31.............................................4.03, 4.04 32.................................. 4.03, 4.49, 10.73 (1)........................................... 4.49 (2)........................................... 4.50 (d)....................................... 4.52 (3)........................................... 3.40 (5), (6)..................................... 4.50 (11)......................................... 4.50 33................................... 3.45, 4.03, 4.51, 4.54, 4.62, 7.66, 9.05 34.............................................4.03, 4.52 35................................................ 4.03 36...................................2.84, 3.43, 4.03, 4.04, 4.05, 4.06, 4.61, 9.29, 9.30 (1)............................. 9.33, 9.34, 10.62 (2)..............................3.43, 4.05, 4.06, 4.07, 10.62 (3)........................................... 10.62 (a)....................................... 4.05 (b).................................... 4.05, 4.06

Patents Act 1977 – contd s 36(4)........................................ 4.05, 4.06 (5)........................................... 4.05 (6)........................................... 4.05 37............................................. 4.03, 4.05 (1)........................................... 4.07 (2)–(5)..................................... 4.53 (8)........................................... 4.53 38............................................. 4.03, 4.54 (1)–(3)..................................4.53, 4.54 (4), (5)..................................... 4.54 39................................. 1.06, 2.111, 3.36, 4.03, 4.07, 4.08, 4.09, 4.17, 4.18, 10.63 (1)........................................... 4.09 (a), (b)................................ 4.09 (2)........................................... 4.09 (3)........................................... 4.09 40..................................1.06, 2.111, 4.03, 4.08, 4.09, 4.10, 4.12, 4.18, 4.19, 10.63 (1)........................................ 4.11, 4.17 (2)............................... 4.10, 4.12, 4.17 (b)....................................... 4.12 (3)........................................... 4.13 (4)........................................... 4.17 41..................................1.06, 2.111, 4.03, 4.08, 4.09, 4.14, 4.18, 4.19, 10.63 (1), (2)..................................... 4.14 (3)........................................... 4.16 (4), (5)..................................... 4.14 42..................................1.06, 2.111, 3.36, 3.42, 4.03, 4.08, 4.09, 4.17, 4.18, 10.63 (2), (3)..................................... 4.17 43................................. 1.06, 2.111, 4.03, 4.08, 4.18, 10.63 (8)........................................... 4.15 44...................................3.11, 4.03, 4.20, 15.03, 15.15 45............................................. 4.04, 4.20 46................................................ 4.03 (1)........................................... 4.21 (3)........................................... 4.21 (a), (b), (d).......................... 4.21 (4), (5)..................................... 4.21 47............................................. 4.03, 4.21 (3)........................................... 4.21 48.............................................4.03, 4.22 (1)(a)–(c)................................ 4.23 (3), (4)..................................... 4.23 (5)........................................... 4.22 48A............................................. 4.22 (1)..................................... 4.23, 4.24 (2)........................................ 4.24

xxvi

Table of Statutes Patents Act 1977 – contd s 48A(4)........................................ 4.24 (6)........................................ 4.26 48B(1)...................................... 4.23, 4.25 49................................................ 4.03 (1), (2)..................................... 4.23 (4), (5)..................................... 4.23 49B............................................. 4.22 50................................................ 4.03 (1)........................................ 4.25, 4.27 (2)........................................... 4.27 50A............................................. 4.34 51.................................... 4.03, 4.21, 4.34 (1), (3)..................................... 4.34 52............................................. 4.03, 4.22 53, 54.......................................... 4.03 55...................................4.03, 4.05, 4.06, 4.35 (4)........................................... 4.35 56................................................ 4.03 (2)–(4)..................................... 4.35 57............................................. 4.03, 4.35 (4)........................................... 4.35 57A............................................. 4.35 58.................................... 4.03, 4.04, 4.35 59............................................. 4.03, 4.35 60...................................4.56, 4.83, 9.45, 10.07 (1)........................................ 3.37, 4.83 (a).................................... 4.57, 9.45 (b), (c)................................ 4.57 (2)............................... 4.05, 4.58, 4.83 (3)........................................... 4.58 (5)..............................4.02, 4.59, 4.60, 9.45 (a), (b).............................4.59, 4.60 (c)–(j)................................. 4.59 (6D), (6E)............................... 4.59 61.............................................4.04, 4.72 (1), (3), (5).............................. 4.61 62................................................ 4.61 (1), (1A).................................. 4.61 66................................................ 4.61 67................................. 4.72, 9.05, 10.06, 10.13 (1)......................................4.61, 10.13 68................................... 3.01, 3.45, 4.51, 4.62 69.............................................4.04, 4.61 70(1)(a), (b)................................ 4.72 (2)........................................... 4.73 70A(1)........................................ 4.74 (2)(a), (b)............................. 4.75 (3), (4).................................. 4.75 (5)........................................ 4.76 70B(1)......................................... 4.76 (a).................................... 4.76

Patents Act 1977 – contd s 70B(1)(a)(i), (ii).......................... 4.76 (2)(a)–(c).............................. 4.77 (3)......................................... 4.77 (4)(a)–(c).............................. 4.77 (5)(a)–(c).............................. 4.78 70C(1)(a)–(c).............................. 4.79 (3)......................................... 4.80 (4)....................................4.80, 7.106 70D(1), (2).................................. 4.81 (3)(a), (b)............................. 4.81 (4)........................................ 4.81 70E(1)......................................... 4.72 71................................................ 4.63 72................................................ 4.53 (1)........................................... 4.63 73................................................ 4.63 74................................................ 4.63 (2)........................................... 10.53 74A(1), (4).................................. 4.55 75................................................ 4.63 76A.................................4.37, 4.92, 4.96 77–81.......................................... 3.13 83A............................................. 4.02 89, 89A, 89B.............................. 3.14 90(3)........................................... 4.04 109.............................................. 4.65 110.............................................. 4.66 (3), (4)................................... 4.66 111.............................................. 4.67 112.............................................. 4.68 113.............................................. 4.69 116–118...................................... 4.70 125.............................................. 9.45 (1)....................................4.83, 10.09 (3)......................................... 4.83 125A........................................... 4.41 128A........................................ 3.29, 4.28 128B........................................ 3.10, 4.82 130................................. 3.38, 4.37, 4.70, 4.93 (1)........................... 4.37, 4.39, 4.61, 10.16 (2)...................................... 4.37, 4.39 (7)......................................... 9.45 131.............................................. 4.04 132.............................................. 4.57 Sch 1.............................................. 4.18 Sch A2........................................... 4.37 para 1......................................... 4.94 2...................................... 4.37, 4.94 3......................................... 4.95 (a)................................. 4.37, 4.98 (b)–(f).............................. 4.37 5...................................... 4.37, 4.94 6......................................... 4.97 7–9..................................... 4.98

xxvii

Table of Statutes Patents Act 1977 – contd Sch 2.............................................. 4.18 Sch 2A........................................4.37, 4.92 para 1......................................... 4.37 Sch 3.............................................. 4.18 Sch A4........................................... 4.02 Sch 4.............................................. 4.18 Sch 4A............................... 3.10, 4.82, 4.85 para 1(1).................................... 4.85 Patents Act 2004..................4.11, 4.12, 4.37, 4.47, 4.48, 4.49, 4.55, 4.63 s 40................................................ 4.12 Patents and Designs Act 1907........... 4.01 s 18(6)........................................... 10.20 37...........................................4.07, 10.62 Patents and Designs Act 1919........... 4.01 s 18(6)........................................... 10.20 Patents and Designs Act 1932........... 4.01 Patents, Designs and Trade Marks Act 1883.................................... 4.01 Plant Varieties Act 1997.................... 3.32 s 7.................................................. 3.07 Plant Varieties and Seeds Act 1964.... 3.32 Postal Services Act 2011 Pt 3 (ss 27–67).............................. 9.13 Protection of Children Act 1978....... 11.66 Protection of Freedoms Act 2012..... 11.44 Registered Designs Act 1949........ 3.10, 3.22, 3.35, 3.40, 7.01, 7.04, 7.48, 7.49, 7.52, 7.56, 7.61, 7.62, 7.63, 7.65, 7.66, 7.67, 7.68, 7.70, 7.71, 7.75, 7.76, 7.77, 7.79, 7.84, 7.90, 7.91, 7.92, 7.100, 7.102, 7.103, 9.04, 9.30, 9.33 s 1(2)............................................. 7.56 (3).......................................... 7.56, 7.62 1B(1)........................................... 7.59 (2)........................................... 7.59 (3), (4).................................... 7.60 (5)........................................... 7.61 (b)...................................... 7.61 (6)........................................... 7.61 (7)........................................... 7.59 1C............................................... 7.62 (2), (3).................................... 7.62 (4)........................................... 7.60 1D............................................... 7.62 2...................................... 3.02, 7.04, 7.66 (1).......................................... 7.63, 7.64 (1A).......................................... 7.63 (3)............................................. 7.65 (3), (4)....................................... 7.64 3...................................... 7.67, 7.71, 7.98

Registered Designs Act 1949 – contd s 3A–3D........................................ 7.67 5.................................................. 7.87 7...................................... 7.66, 7.68, 7.91 (1)............................................. 7.68 (2)............................................. 7.73 (3)............................................. 7.68 7A............................................... 7.66 (1).......................................... 7.69 (2), (3).................................... 7.70 (4).......................................... 7.72 (5).......................................... 7.73 7B............................................ 7.04, 7.71 (1), (3)–(5)............................. 7.71 8(1), (2), (4)................................ 7.74 8A, 8B........................................ 7.74 11, 11ZA–11ZF.......................... 7.67 12................................................ 7.75 14(2)........................................... 7.71 15(4)........................................... 7.51 (7)........................................... 7.52 15A.......................................... 7.50, 9.33 15B.......................................... 7.66, 9.33 (3)............................. 3.01, 7.51, 9.05 (5)......................................... 7.51 15C............................................. 10.16 (1), (2).................................. 7.53 17................................................ 7.76 (2)........................................... 3.40 19(1)..............................3.02, 3.45, 7.49, 7.66, 7.77 (2)........................................... 7.78 (3)........................................... 7.79 (3A)........................................ 7.79 (3B)......................................... 7.80 (4)........................................... 10.73 (5)........................................ 7.66, 7.81 20................................................ 7.82 24A............................................. 7.98 24F.............................................. 7.98 (1), (2), (4), (5), (7), (8)........ 7.53 25C............................................. 7.53 26................................................ 7.83 (1)........................................... 7.98 (b)....................................... 7.98 (2)........................................... 7.99 26A(1)........................................ 7.100 (2)(a), (b)............................. 7.101 (3), (4).................................. 7.101 (5)........................................ 7.102 26B(1)(a).................................... 7.102 (b)(i), (ii)......................... 7.102 (2)(a)–(c).............................. 7.103 (3)......................................... 7.103 (4)(a)–(c).............................. 7.103 (5)(a)–(c).............................. 7.104 26C(1)(a)–(c).............................. 7.105

xxviii

Table of Statutes Registered Designs Act 1949 – contd s 26C(3), (4).................................. 7.106 26D(1), (2).................................. 7.107 (3)(a), (b)............................. 7.107 (4)........................................ 7.107 33................................................ 7.87 34................................................ 7.88 35................................................ 7.89 35A............................................. 7.90 35ZA........................................... 7.04 (1)...................................... 7.85 (a), (b)........................... 7.85 (2)...................................... 7.86 (3)...................................... 7.86 (a)–(c)........................... 7.86 (4), (5)............................... 7.86 (6), (7)............................... 7.84 35ZB, 35ZC................................ 7.86 36................................................ 7.67 Rentcharges Act 1977 s 2(1), (3)....................................... 9.07 Requirements of Writing (Scotland) Act 1995.................................... 4.04 Restrictive Trade Practices Act 1976.......................................... 15.15 Road Traffic Act 1972....................... 9.51 Sale and Supply of Goods Act 1994.......................................... 10.65 s 1.................................................. 10.72 Sale of Goods Act 1979.............. 2.86, 10.01, 10.29, 10.65, 10.67, 10.71, 10.72, 10.73, 10.74, 10.75 s 2(1)............................................. 10.71 12..........................................10.29, 10.72 (2)(b)....................................... 10.29 13..........................................10.67, 10.72 14..........................................10.67, 10.72 (2A)–(2C)............................... 10.72 15..........................................10.67, 10.72 61..........................................10.71, 10.74 (1).....................................10.71, 10.73 Science and Technology Act 1965.... 4.16 Sexual Offences Act 2003................. 11.66 Statute of Monopolies 1624.............. 4.01 s 6.................................................. 4.01

Supply of Goods and Services Act 1982........................... 2.86, 9.41, 10.01, 10.65, 10.67, 10.73, 10.74, 10.75, 10.76, 10.77, 10.78 s 1.................................................. 10.76 6–8.............................................. 10.77 9.................................................. 10.77 (1)............................................. 10.77 10................................................ 10.77 11................................................ 10.77 (3)........................................... 10.77 12................................................ 10.78 (3)........................................... 9.40 15................................................ 10.100 16................................................ 10.78 Telecommunications Act 1984.......... 11.71 Trade Marks Act 1994....................... 9.04 s 22................................................ 9.04 46................................................ 10.13 Unfair Contracts Terms Act 1977..... 2.03, 10.01, 10.65, 10.66, 10.67, 10.68, 10.69, 10.70, 10.72, 10.77, 10.88 s 1(2), (3)....................................... 10.69 2................................ 10.67, 10.69, 10.70 (1), (2)....................................... 10.88 3............................... 10.67, 10.68, 10.69, 10.88 4............................................10.68, 10.69 6............................................10.67, 10.72 7.................................................. 10.67 11, 12.......................................... 10.67 26................................................ 10.68 (3), (4)..................................... 10.68 27(1), (2)..................................... 10.68 28(2)........................................... 10.05 Sch 1.............................. 8.06, 10.01, 10.69 para 1......................................... 10.69 (c).................................... 10.69 Sch 2.............................................. 10.67 Uniform Laws on International Sales Act 1967.................................... 10.71 Youth Justice and Criminal Evidence Act 1999.................................... 7.76

xxix

Table of Statutory Instruments References are to paragraph numbers Civil Procedure Rules 1998, SI 1998/ 3132 Pt 63..............................................  10.01 r 63.2............................................. 4.61 63.12........................................... 4.10 63.27........................................... 4.61 PD 63............................................ 10.01 Commercial Agents (Council Direc­ tive) Regulations 1993, SI 1993/ 3053.......................................... 10.71 reg 2(1).......................................... 10.71 Community Design Regulations 2005, SI 2005/2339................... 7.91 reg 2(1).......................................... 7.98 (b)..................................... 7.98 (2).......................................... 7.99 2A(1)....................................... 7.100 (2)(a), (b)............................ 7.101 (3), (4)................................ 7.101 (5)....................................... 7.102 2B(1)....................................... 7.102 (a)................................... 7.102 (b)(i), (ii)........................ 7.102 (2)(a)–(c)............................ 7.103 (3)....................................... 7.103 (4)(a)–(c)............................ 7.103 (5)(a)–(c)............................ 7.104 2C(1)(a)–(c)............................ 7.105 (3)....................................... 7.106 (4)....................................... 7.106 2D(2)....................................... 7.107 (3)(a), (b)............................ 7.107 (4)....................................... 7.107 Community Designs (Designation of Community Design Courts) Regulations 2005, SI  2005/ 696............................................ 7.91 Competition Act 1998 and Other Enac­tments (Amendment) Regu­ lations 2004, SI 2004/ 1261........ 12.86 reg 3.............................................. 15.04 (1), (2)..................................... 12.86 4....................................... 12.86, 15.04 Sch 1........................................12.86, 15.04 para 2, 3, 9................................. 15.04 Competition Act 1998 (Land Agree­ ments Exclusion Revoca­ tion) Order 2010, SI 2010/ 1709........ 15.12

Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000, SI 2000/310........... 15.12 Competition Act 1998 (Public Tran­sport Ticketing Schemes Block Exemption) Order 2001, SI 2001/319............................... 15.12 Competition Act 1998 (Small Agree­ ments and Conduct of Minor Significance) Regulations 2000, SI 2000/262 reg 3.............................................. 15.09 Schedule para 3......................................... 15.09 Competition Act 1998 (Transitional, Consequential and Supple­ mental Provisions) Order 2000, SI 2000/311 art 3(a), (b).................................... 4.20 Competition (Amendment etc) (EU Exit) Regulations 2019, SI 2019/ 93............................................... 12.86 reg 1(1).......................................... 15.13 2........................... 15.02, 15.04, 15.12, 15.14 3........................................15.02, 15.12 6.............................................. 15.04 22..................................... 15.02, 15.14 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, SI 2013/3134...................... 11.63, 11.67 reg 5.............................................. 11.67 6(1)(b)..................................... 11.67 13............................................ 11.67 (1)........................................ 11.67 28, 29...................................... 11.67 30(2), (3)................................. 11.67 31(2)........................................ 11.67 44, 45...................................... 11.67 Sch 2.............................................. 11.67 Copyright and Duration of Rights in Performances Regulations 2013, SI 2013/1782................... 5.13 Copyright and Related Rights Regulations 1996, SI  1996/ 2967.......................................... 5.13, 5.14, 5.17, 5.19, 5.32

xxxi

Table of Statutory Instruments Copyright and Related Rights Regu­ lations 2003, SI 2003/2498....... 3.20, 5.02, 5.03, 5.17, 5.18, 5.21, 5.23, 5.25, 5.35, 5.38, 5.40, 5.43, 5.48, 5.49, 5.50 Copyright and Rights in Data­bases Regulations 1997, SI  1997/ 3032.................... 3.10, 3.20, 5.09, 5.21, 5.37, 6.01, 6.02, 6.05, 6.07, 6.19 reg 5.............................................. 6.01 12(1)............................ 6.01, 6.07, 6.15 13(1)............................6.01, 6.07, 9.04 (4)........................................ 6.01 15............................................ 6.08 14(1)........................................ 6.08 (2)–(4), (6).......................... 6.09 16(1), (2)................................. 6.14 17............................................ 6.12 (3)........................................ 6.13 18............................................ 6.10 19............................................ 6.20 20............................................ 6.19 (2)................................... 6.19, 11.54 21............................................ 6.19 23.............................. 5.06, 6.06, 6.21, 6.22 Sch 1 para 6......................................... 11.54 Copyright and Rights in Perfor­ mances (Certain Permitted Uses of Orphan Works) Regulations 2014, SI 2014/2861................ 3.20, 5.03 Copyright and Rights in Performances (Disability) Regulations 2014, SI 2014/1384............................. 5.20 Copyright and Rights in Perform­ ances (Licensing of Orphan Works) Regulations 2014, SI 2014/2863.......................... 3.20, 5.03 Copyright and Rights in Perfor­ mances (Quotation and Parody) Regulations 2014, SI  2014/ 2356.............................. 3.20, 5.03, 5.20 Copyright and Rights in Perfor­ mances (Research, Education, Libraries and Archives) Regu­ lations 2014, SI 2014/ 1372...... 3.20, 5.03, 5.20, 5.21, 5.22, 5.25, 5.40 reg 3.............................................. 5.20 Copyright (Computer Programs) Regu­ lations 1992, SI  1992/ 3233.................... 3.20, 4.59, 5.17, 5.18, 5.19, 5.23, 5.31, 5.33, 5.34, 5.36, 5.43, 12.58

Data Protection, Privacy and Elec­ tronic Communications (Amend­ ments etc) (EU Exit) Regu­lations 2019, SI 2019/419...................... 11.03 Design Right (Reciprocal Protec­ tion) (No  2) Order 1989, SI 1989/1294............................. 7.21 Design Right (Semiconductor Topo­ graphies) Regulations 1989, SI 1989/1100................ 3.10, 3.21, 7.38, 7.39, 7.44, 7.46, 7.48 reg 2.............................................. 7.39 5.............................................. 7.42 6........................................... 7.42, 7.43 8.............................................. 7.44 (4).......................................... 7.44 9.............................................. 7.45 Schedule........................................ 7.40 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 1989, SI 1989/2147....... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 1990, SI 1990/1003....... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 1991, SI 1991/2237....... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 1992, SI 1992/400......... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 1993, SI 1993/2497....... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) Regu­ lations 2006, SI 2006/1833....... 7.38 Design Right (Semiconductor Topo­ graphies) (Amendment) (No 2) Regulations 2008, SI  2008/ 1434.......................................... 7.40 Designs (International Registrations Designating the European Com­munity) Regulations 2007, SI 2007/3378............................. 7.67 Duration of Copyright and Rights in Performances Regulations 1995, SI 1995/3297.............. 5.02, 5.16, 5.53, 5.54 Electronic Commerce Directive (Racial and Religious Hatred Act 2006) Regulations 2007, SI 2007/2497............................. 11.66 Electronic Commerce Directive (Ter­rorism Act 2006) Regu­la­ tions 2007, SI 2007/1550.......... 11.66

xxxii

Table of Statutory Instruments Electronic Commerce (EC Direc­tive) Regulations 2002, SI  2002/ 2013.......................................... 11.63 reg 2(1)................................... 11.66, 11.68 7, 8.......................................... 11.68 9.............................................. 11.68 (3).......................................... 11.68 11(1)........................................ 11.68 15............................................ 11.68 17–19...................................... 11.66 Electronic Identification and Trust Services for Electronic Tran­ sac­ tions Regulations 2016, SI 2016/ 696.............................. 2.118 Enterprise and Regulatory Reform Act 2013 (Competition) (Con­ se­quential, Transitional and Saving Provisions) Order 2014, SI 2014/892...................5.51, 7.30, 7.67 Environmental Information Regula­ tions 2004, SI 2004/3391.......... 11.55, 11.56, 11.58, 11.59, 11.61, 11.62 reg 2(1).......................................... 11.56 (2).......................................... 11.57 3(2).......................................... 11.58 5(1).......................................... 11.59 7.............................................. 11.60 8.............................................. 11.62 12............................................ 11.61 (5)........................................ 11.61 Export Control Order 2008, SI 2008/ 3231 art 2(1)..................... 11.99, 11.101, 11.102 4A............................................ 11.99 6(1)........................................... 11.101 (2)........................................... 11.101 (b)...................................... 11.101 9............................................... 11.99 18............................................. 11.99 21–23....................................... 11.102 Sch 1 Pt 1 (paras 1–10)....................... 11.102 Pt 2 (paras 11–22)..................... 11.102 Sch 2.............................................. 11.99 Sch 3.............................................. 11.99 Sch 4....................................11.100, 11.101 Export of Radioactive Sources (Con­ trol) Order 2006, SI 2006/1846 Sch 1A........................................... 11.99 Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2004, SI 2004/3244............................. 11.46 reg 3.............................................. 11.40 4(3), (4)................................... 11.40

Human Fertilisation and Embryology (Amendment) Regulations 2018, SI 2018/334............................... 11.78 Human Fertilisation and Embryology (Amendment) (EU Exit) Regu­ lations 2019, SI 2019/482 reg 2(6).......................................... 11.78 Human Fertilisation and Embryology (Mitochondrial Donation) Regu­ lations 2015, SI 2015/572........... 11.78 Human Medicines Regulations 2012, SI 2012/1916 reg 6.............................................. 11.92 Human Tissue Act 2004 (Ethical Appro­ val, Exceptions from Licen­sing and Supply of Infor­ mation about Trans­plants) Regu­la­tions 2006, SI  2006/ 1260....................................11.73, 11.75 Human Tissue Act (Persons who Lack Capacity to Consent and Transplants) Regulations 2006, SI 2006/1659.......................11.73, 11.75 Human Tissue (Quality and Safety for Human Application) Regula­ tions 2007, SI 2007/1523.......... 11.75 Intellectual Property Act 2014 (Com­ mencement No  5 and Saving Provisions) Order 2016, SI 2016/1139.......................... 5.54, 5.55 Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2019, SI 2019/605 reg 2, 14........................................ 5.11 Intellectual Property (Enforcement etc) Regulations 2006, SI 2006/ 1028.............................3.22, 4.62, 7.48, 7.50, 7.51, 7.52, 7.53, 9.04, 9.33 Late Payment of Commercial Debts Regulations 2002, SI 2002/1674 reg 2(4).......................................... 10.99 Legislative Reform (Patents) Order 2014, SI 2014/1997................... 4.59 Medicines for Human Use (Clinical Trials) Regulations 2004, SI 2004/1031..........11.02, 11.23, 11.86, 11.90, 11.92, 11.95 reg 2(1).......................................... 11.92 3.............................................. 11.92 (11), (11A)–(11C)................. 11.92

xxxiii

Table of Statutory Instruments Medicines for Human Use (Clinical Trials) Regulations 2004 – contd reg 3A............................................ 11.92 4.............................................. 11.92 5–10........................................ 11.91 11............................................ 11.93 14(1), (2)................................. 11.91 15(1)–(3), (5), (8), (10)........... 11.91 16............................................ 11.91 17............................................ 11.92 18............................................ 11.92 (2)–(8)................................. 11.92 19............................................ 11.92 (9)................................. 11.91, 11.92 20............................................ 11.92 21............................................ 11.92 22............................................ 11.93 23(1)–(3)................................. 11.93 24............................................ 11.93 (1), (4)–(7), (9).................... 11.93 25............................................ 11.95 26..................................... 11.92, 11.95 27............................................ 11.95 27A, 27B................................. 11.92 Sch 1 Pt 2 para 10............................ 11.90, 11.91 12................................... 11.90 Pt 4..................................... 11.90, 11.91 Pt 5.....................................11.90, 11.91 Sch 2.............................................. 11.91 Sch 3 Pt 1............................................ 11.91 Pt 2............................................ 11.92 para 11................................... 11.92 Pt 3............................................ 11.93 Pt 4............................................ 11.95 Sch 4.............................................. 11.91 Sch 5....................................... 11.92, 11.95 para 3, 4..................................... 11.92 Medicines for Human Use (Clinical Trials) Amendment Regulations 2006, SI 2006/1928................... 11.86 Medicines for Human Use (Clinical Trials) (Amendment) (EU  Exit) Regulations 2019, SI 2019/744... 11.92 Medicines (Marketing Authorisations etc) Amendment Regulations 2005, SI 2005/2759................... 4.59 Misuse of Drugs Regulations 2001, SI 2001/3998............................. 11.105 Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009, SI 2009/1917............................. 9.21

Patents Regulations 2000, SI  2000/ 2037............................ 3.18, 4.09, 4.37, 4.59, 4.92, 9.53 reg 4.............................................. 4.98 Patents Rules 1995, SI 1995/2093.... 4.22 r 17................................................ 4.41 Sch 2 para 1(3).................................... 4.41 Patents Rules 2007, SI 2007/3291.... 3.46, 4.22, 4.36, 4.38, 4.47, 4.50, 4.55, 4.85, 4.91, 4.102 r 5(3).............................................. 4.37 (4)...........................................4.37, 4.39 (5).............................................. 4.39 11................................................ 4.44 13(1)............................................ 4.41 17................................................ 4.41 44(5)............................................ 4.55 52(2)............................................ 4.41 Pt 7 (rr 73–91)...................4.10, 4.21, 4.23 r 89................................................ 4.21 91................................................ 4.10 95(1)............................................ 4.55 Sch 1 para 2(2).................................... 4.41 3(1)–(4)............................. 4.41 4......................................... 4.41 5(1), (3)............................. 4.41 6–8..................................... 4.41 Patents Act 2004 (Commencement No  2 and Consequential, etc and Transitional Provisions) Order 2004, SI 2004/3205......... 4.48 Patents Act 2004 (Commencement No  3 and Transitional Pro­ vi­ sions) Order 2005, SI  2005/ 2471.............................. 4.49, 4.55, 4.63 Patents Act 2004 (Commencement No  4 and Transitional Provi­ sions) Order 2007, SI  2007 /3396......................................... 4.37 Patents and Trade Marks (World Trade Organisation) Regulations 1999, SI 1999/1899......................... 4.22, 4.23, 4.24, 4.25, 4.26, 4.27, 4.34 Patents (Compulsory Licensing and Supplementary Protection Certificates) Regulations 2007, SI 2007/3293............................. 4.82 reg 1(2).......................................... 4.89 2...........................................3.29, 4.28 Patents (European Patent with Uni­ tary Effect and Unified Patent Court) Order 2016, SI  2016/ 388................................3.23, 4.02, 4.59

xxxiv

Table of Statutory Instruments Patents (European Patent with Uni­ tary Effect and Unified Patent Court) Order 2016 – contd art 2(3)........................................... 4.02 (6)........................................... 4.02 Privacy and Electronic Communi­ca­ tions (EC Directive) Regulations 2003, SI 2003/2426................... 11.68 Provision of Services Regulations 2009, SI 2009/2999.......... 10.65, 10.100 reg 2.............................................. 10.100 reg 7....................................10.100, 10.101 (2).......................................... 10.101 8.............................................. 10.100 (1).......................................... 10.101 (2).......................................... 10.103 9.............................................. 10.100 10................................. 10.100, 10.101 11............................................ 10.100 (a), (b)................................. 10.103 12............................................ 10.100 (1)(a), (b)............................. 10.104 (2)........................................ 10.104 Quality and Safety of Organs Intended for Transplantation Regulations 2012, SI 2012/1501................... 11.75 Registered Designs Regulations 2001, SI 2001/3949......3.22, 7.48, 7.56, 7.60, 7.61, 7.62, 7.66, 7.67, 7.68, 7.69, 7.70, 7.72, 7.73, 7.74, 7.79, 7.80, 7.82 reg 2.........................7.58, 7.59, 7.60, 7.62 9(1).......................................... 7.89 (2).......................................7.66, 7.87

Registered Designs Regulations 2001 – contd Sch 1 para 10(1)–(3)........................... 7.89 Sch 2.............................................. 7.87 Registered Designs Rules 2006, SI 2006/1975.......................... 3.46, 7.67 Regulatory Reform (Patents) Order 2004, SI 2004/2357................ 4.04, 4.47 Regulatory Reform (Registered Designs) Order 2006, SI 2006/ 1974.............................3.22, 7.48, 7.67, 7.74, 7.82 Semiconductor Products (Protection of Topography) Regulations 1987, SI 1987/1497................... 7.38 Trade Secrets (Enforcement etc) Regulations 2018, SI  2018/ 597...............................8.02, 8.38, 8.39, 8.40, 8.41, 8.45, 8.46, 8.48, 8.53 reg 1........................................... 8.02, 8.38 2.......................................... 8.40, 8.45 3(1).......................................... 8.39 (2), (3)................................... 8.46 6(1)(a), (b)............................... 8.47 (2), (3)................................... 8.47 11(1)–(5)................................. 8.48 14(1)........................................ 8.48 (a)–(d)............................. 8.48 15(1)........................................ 8.48 Unfair Terms in Consumer Con­tracts Regulations 1999, SI  1999/ 2083.......................................... 10.66

xxxv

Table of European Legislation and International Materials References are to paragraph numbers TREATIES AND CONVENTIONS Berne Convention for the Protection of Literary and Artistic Works (Paris, 4 May 1896)...............3.20, 5.02, 5.16 Community Patent Convention see European Patent Convention Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine (Oviedo, 4 April 1997)......................................... 11.72 Convention on International Trade in Endangered Species of Flora and Fauna (Washington, 3 March 1973)........................... 11.111 European Economic Area Agreement (2 May 1992)............................. 12.05 Art 53.................................... 12.05, 12.13, 12.17 54–56...................................... 12.05 108.......................................... 12.05 European Patent Convention (Munich, 5 October 1973).....................3.12, 3.13, 4.01, 4.02, 4.59, 4.64, 4.102 Art 52............................................ 4.104 (2), (3)................................. 4.103 55(1)........................................ 4.39 Patent Cooperation Treaty (Washing­ ton, 19 June 1970)........ 3.14, 3.17, 4.01, 4.41, 4.64, 10.49 Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chem­ icals and Pesticides in Inter­ national Trade (Rotterdam, 10 September 1998).................. 11.104

Treaty establishing the European Community (Rome, 25  March 1957) Art 81...........................4.20, 12.02, 12.13, 12.17, 12.31, 12.58, 12.71, 12.72, 12.85 (1)................................. 12.22, 12.60 (3)..................... 12.22, 12.23, 12.28, 12.84 82......................... 12.31, 12.58, 12.71, 12.72, 12.85 85............................................ 12.18 (1)........................................ 12.77 Treaty of Lisbon (Lisbon, 13 Decem­ ber 2007)................................... 12.02 Treaty on the Functioning of the Euro­ pean Union (Rome, 25 March 1957)............ 13.15, 15.08, 15.14 Art 34–36.......................9.46, 9.48, 10.29, 12.02, 12.04, 15.03 81..................................... 15.01, 15.03 (1), (3)................................. 15.15 82..................................... 15.01, 15.03 101...........................2.04, 2.59, 2.103, 3.42, 10.11, 10.46, 10.53, 12.01, 12.02, 12.03, 12.04, 12.05, 12.07, 12.10, 12.11, 12.14, 12.16, 12.17, 12.18, 12.19, 12.20, 12.21, 12.24, 12.27, 12.29, 12.30, 12.31, 12.33, 12.37, 12.44, 12.45, 12.47, 12.52, 12.56, 12.58, 12.60, 12.62, 12.67, 12.70, 12.72, 12.73, 12.76, 12.83, 12.84, 12.85, 13.01, 13.03, 13.04, 13.05, 13.29, 14.03, 14.16, 14.17, 14.48, 15.01, 15.02, 15.03, 15.04, 15.05, 15.06, 15.09, 15.11, 15.13, 15.15

xxxvii

Table of European Legislation and International Materials Treaty on the Functioning of the Euro­ pean Union (Rome, 25 March 1957) – contd Art 101(1)....................10.54, 12.07, 12.08, 12.10, 12.12, 12.15, 12.21, 12.22, 12.23, 12.25, 12.26, 12.27, 12.28, 12.29, 12.31, 12.37, 12.47, 12.49, 12.52, 12.57, 12.60, 12.66, 12.67, 12.70, 12.71, 12.72, 12.77, 12.78, 12.79, 12.81, 12.82, 12.83, 12.85, 13.02, 13.03, 13.05, 13.06, 13.10, 13.17, 13.26, 13.27, 13.28, 13.29, 13.36, 13.37, 13.38, 13.39, 13.40, 13.41, 13.43, 13.47, 13.48, 13.49, 14.02, 14.03, 14.05, 14.08, 14.09, 14.10, 14.11, 14.12, 14.14, 14.16, 14.19, 14.20, 14.21, 14.22, 14.24, 14.26, 14.29, 14.36, 14.50, 15.09, 15.11, 15.13 (2).................... 12.27, 12.85, 15.11 (3)................... 10.54, 12.07, 12.10, 12.22, 12.26, 12.27, 12.28, 12.37, 12.46, 12.68, 12.85, 13.03, 13.05, 13.10, 13.26, 13.29, 13.30, 13.36, 13.40, 13.47, 14.03, 14.05, 14.14, 14.15, 14.16, 14.20, 14.22, 14.24, 15.13 102........................12.01, 12.02, 12.03, 12.04, 12.05, 12.14, 12.58, 12.60, 12.84, 12.85, 15.03, 15.04, 15.13, 15.15 103.......................................... 13.06 179(2)...................................... 14.22 345.....................................9.48, 12.02 World Intellectual Property Organ­ isation Copyright Treaty (Geneva, 20 December 1996).... 5.02 World Intellectual Property Organi­ sation Performances and Phono­grams Treaty (Geneva, 20 December 1996)................... 5.02 DIRECTIVES Directive 65/65/EEC of 26  January 1965 on the approximation of provisions laid down by law, regulation or administrative action relating to medicinal products [1965] OJ 022/369...... 4.83

Directive 81/851/EEC of 28 Septem­ ber 1981 on the approximation of the laws of the Member States relating to veterinary medicinal products [1981]  OJ L317/1....................................... 4.83 Directive 87/54/EEC of 16 December 1986 of the legal protection of topographies of semiconductor products [1987] OJ L24/36....... 3.21, 7.38 Directive 91/250/EEC of 14  May 1991 on the legal protection of computer programs [1991]  OJ L122/42........................ 3.20, 5.02, 5.17, 5.19, 5.33 Art 1.............................................. 5.60 3(2).......................................... 5.60 5(2).......................................... 5.33 Directive 91/414/EEC of 15  July 1991 concerning the placing of plant protection products on the market [1991] OJ L230/1.......... 4.83 Directive 92/100/EEC of 19 Novem­ ber 1992 on rental right and lending right and on certain rights related to copyright in the field of intellectual property [1992] OJ L346/61.................... 3.20 Directive 93/98/EEC of 29  October 1993 harmonising the term of protection of copyright and certain related rights [1993] OJ L290/9....................................3.20, 5.02 Directive 96/9/EC of 11 March 1996 on the legal protection of data­ bases [1996] OJ L077/20....... 3.20, 5.02, 5.61, 5.65, 6.01, 6.03 Recital (10).................................... 6.02 (12).................................... 6.02 (13).................................... 6.03 (14).................................... 6.03 (17).................................... 6.03 (19).................................... 6.03 (20).................................... 6.03 (21).................................... 6.03 (22).................................... 6.03 (23).................................... 6.03 (54).................................... 6.13 (55).................................... 6.13 (56).................................... 6.11 Art 1.............................................. 6.02 3(2).......................................... 6.03 5(a).......................................... 5.63 7(1)..............................5.63, 6.14, 6.18 (2)(b)..................................... 6.18 (5).......................................... 6.14

xxxviii

Table of European Legislation and International Materials Directive 98/8/EC of 16  February 1998 concerning the placing of biocidal products on the market [1998] OJ L123/98.................... 11.104 Directive 98/44/EC of 7  July 1998 on the legal protection of biotechnological interventions [1998] OJ L213/13.......3.18, 4.01, 4.37, 4.91, 4.92, 9.53 Art 6(2).......................................... 4.37 Directive 98/71/EC of 13  October 1998 on the legal protection of designs [1998] OJ L289/28....... 3.22, 7.01, 7.48, 7.91 Recital (13).................................... 7.68 Art 1–8.......................................... 7.91 Directive 2000/31/EC of 8  June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market [2000] OJ L178/1.................................. 3.20, 11.16 Directive 2001/20/EC of 4 April 2001 on the approximation of the laws, regulations and admin­ istrative provisions of the member states relating to the implementing of good clinical practice in the conduct of clinical trials on medicinal products for human use [2001] OJ L121/34....... 11.86, 11.87, 11.88, 11.90, 11.96 Recital (12).................................... 11.86 Art 11(1)(a)–(e)............................. 11.95 (2)........................................ 11.95 Directive 2001/29/EC pf 22  May 2001 of 22  May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society [2001] OJ L167/10.......3.20, 5.02, 5.03, 5.17, 5.19, 5.61, 5.64, 5.65 Art 2........................................... 5.17, 5.63 (a).......................................... 5.17 Directive 2001/82/EC of 6 November 2001 on the Community code relating to veterinary medicinal products [2001] OJ L311/1 Art 1.............................................. 4.59 13(1)–(5)................................. 4.59 Directive 2001/83/EC of 6 Novem­ ber 2001 on the Community code relating to medicinal pro­ ducts for human use [2001] OJ L311/67.............................. 11.85, 11.89 Art 10(1)–(4)................................. 4.59

Directive 2001/84/EC of 27 Septem­ ber 2001 on the resale right for the benefit of the author of an original work of art  [2001]  OJ L272/32..................................... 3.20 Directive 2004/23/EC of 31  March 2004 on setting standards of quality and safety for the dona­ tion, procurement, testing, pro­ cessing, preservation, storage and distribution of human tissues and cells [2004] OJ L102/48..................................... 11.72 Directive 2004/26/EC of 21  April 2004 amending Directive 97/68/EC on the approximation of the laws of the Member States relating to measures against the emission of gaseous and particulate pollutants from internal combustion engines to be installed in non-road mobile machinery [2004] OJ L146....... 3.27 Directive 2004/28/EC of 31  March 2004 amending Directive 2001/82/EC on the Community code relating to veterinary medi­ cinal products [2004]  OJ L136.......................................... 4.59 Directive 2004/48/EC of 29  April 2004 on the enforcement of intellectual property rights [2004] L195/16......................... 3.20, 3.22, 5.03, 7.48 Directive 2005/28/EC of 8  April 2005 laying down principles and detailed guidelines for good clinical practice as regards investigational medi­ cinal pro­ ducts for human use, as well as the requirements for auth­ orisation of the manufac­turing or importation of such products [2005] OJ L91/13............... 11.85, 11.90 Directive 2006/86/EC of 24 October 2006 implementing Directive 2004/23/EC of the European Parliament and of the Council as regards traceability require­ ments, notification of serious adverse reactions and events and certain technical requirements for the coding, processing, preservation, storage and distri­ bution of human tissues and cells [2006] OJ L294/32............ 11.78

xxxix

Table of European Legislation and International Materials Directive 2016/943/EU of 8  June 2016 – contd Art 4(3)....................................... 8.51, 8.53 5.............................................. 8.52 Directive 2016/1164/EU of 12  July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market [2016] OJ L193/1....................................... 17.05 Directive 2017/1564/EU of 13  Sep­ tem­ber 2017 on certain permitted uses of certain works and other subject matter protected by copyright and related rights for the benefit of persons who are blind, visually impaired of otherwise print-disabled and amending Directive 2001/29/ EC on the harmonisation of certain aspects of copyright and related rights in the information society [2017] OJ L242/6.......... 3.20 Directive 2018/1972/EU of 11 Dec­ em­ ber 2018 establishing the European Electronic Com­ mun­ ications Code (Recast) [2018] OJ L321/36.................... 5.03 Directive 2019/790/EU of 17  April 2019 on copyright and related rights in the Digital Single Market and amend­ ing Directives 96/9/EC and 2001/29/EC  [2019]  OJ L130/ 92................................ 3.20, 5.03, 5.22, 5.61, 5.62, 5.65, 5.69, 5.70 Recital (11).................................... 5.70 (12)................................. 5.64, 5.66 (13).................................... 5.67 (14).................................... 5.69 (15).................................... 5.64 (17).................................... 5.64 Art 2(1).......................................... 5.66 (2).......................................... 5.68 (6).......................................... 5.03 3........................................... 3.20, 5.03 (1)....................................... 5.64, 5.65 (2), (3)................................... 5.64 4........................................... 3.20, 5.03 (3).......................................... 5.65 5, 6....................................... 3.20, 5.03 7.............................................. 5.03 (1).......................................5.64, 5.65 15............................................ 5.03 17(1), (2), (4), (6), (7), (9)...... 5.03 29............................................ 5.61

Directive 2009/24/EC of 23  April 2009 on the legal protection of computer programs [2009]  OJ L111/16........................4.59, 5.19, 5.33, 5.59, 5.61, 5.65, 12.58 Recital (6)...................................... 5.59 (11).................................... 5.59 (17).................................... 12.58 Art 1(2), (3)................................... 5.59 4(1)(a), (b).............................. 5.63 5.............................................. 4.59 (2).......................................... 5.33 6.............................................. 4.59 (1).......................................... 12.58 Directive 2011/16/EU of 15 February 2011 on the administrative cooperation in the field of taxation and repealing Directive 77/799/EEC [2011] OJ L64/1.... 17.05 Directive 2012/28/EU of 25 October 2012 on certain permitted uses of orphan works [2012]  OJ L299/5....................................... 3.20 Directive 2015/565/EU of 8  April 2015 amending Directive 2006/86/EC as regards certain technical requirements for the coding of human tissues and cells [2015] OJ L93/43.............. 11.78 Directive 2015/1535/EU of 9 Sep­ tem­­ ber 2015 laying down a procedure for the provision of information in the field of tech­ nical regulations and of rules on Information Society services (codification) [2015] OJ L241/1 Art 1(1)(b)..................................... 5.03 Directive 2016/943/EU of 8  June 2016 on the Protection of Undis­ closed Know-How and Business Information (Trade Secrets) against their Unlaw­ful Acquisition, Use and Dis­closure [2016] OJ L157/1......... 3.05, 3.26, 8.02, 8.06, 8.08, 8.38, 8.40, 8.41, 8.42, 8.44, 8.45, 8.46, 8.49, 8.50, 8.53 Recital (6)...................................... 8.38 (7)...................................8.38, 8.42 (14)................................. 8.06, 8.41 (39).................................... 8.53 Art 1.............................................. 8.46 (2), (3)................................... 8.46 2.............................................. 8.46 3(1).......................................... 8.50 4(2).......................................... 8.51

xl

Table of European Legislation and International Materials REGULATIONS

Regulation 2659/2000/EC of 29 Nov­ ember 2000 on the appli­cation of Article  81(3) of the Treaty to categories of research and development agree­ments [2000] OJ L304/7................14.20, 14.21, 14.22, 14.27, 14.28, 14.29, 14.30, 14.31, 14.33, 14.37, 14.38, 14.40, 14.41, 14.45, 14.47, 14.48, 14.49 Art 3.............................................. 14.37 (2).......................................... 14.23 (3)................................... 14.23, 14.33 (4).......................................... 14.40 4(1), (2)................................... 14.23 5(1)(b)–(d).............................. 14.23 9.............................................. 14.23 Regulation 45/2001/EC of 18  Dec­ ember 2000 on the protection of individuals with regard to the processing of personal data by the Community institu­tions and bodies and on the free movement of such data [2001] OJ L8/1...... 11.88 Regulation 6/2002/EC of 12 Decem­ ber 2001 on Community Designs [2002] OJ L3/1.............3.09, 3.10, 3.22, 7.01, 7.48, 7.91, 7.94 Recital (3)...................................... 7.91 (15)–(17)........................... 7.91 Art 1(1)–(3)................................... 7.91 3–5.......................................... 7.91 6, 7.......................................7.61, 7.91 8–10........................................ 7.91 11(1)........................................ 7.91 12............................................ 7.91 14............................................ 7.91 (1), (3)................................. 7.91 19(1), (2)................................. 7.91 22............................................ 7.91 (2), (3)................................. 7.91 27............................................ 7.93 (1)........................................ 7.92 28............................................ 7.94 32............................................ 7.95 35–42...................................... 7.91 43......................................... 7.91, 7.93 44–78...................................... 7.91 89(1)(a)–(c)............................. 7.91 Regulation 1/2003/EC of 16 Decem­ ber 2002 on the implementation of the rules on competition laid down in Articles  81 and 82 of the Treaty [2003] OJ L1/1......... 12.26, 12.84, 15.01, 15.03, 15.04

Regulation 19/65/EEC of 2  March 1965 on application of Article 81(3) of the Treaty to certain categories of agreements and con­certed practices and Guide­ lines on Vertical Restraint.......... 12.10 Regulation 418/85/EEC of 19 Decem­ ber 1984 of the applica­ tion of Article  85(3) of the Treaty to categories of research and development agree­ments [1985] OJ L53/5.................................... 14.22 Regulation 1768/92/EEC of 18 June 1992 concerning the creation of a supplementary protection certificate for medicinal pro­ ducts [1992] OJ L182/1......... 4.82, 4.83 Art 3.............................................. 4.83 Regulation 2100/94/EC on Com­ mun­ ity plant variety rights [2004] OJ L227/1...................... 3.32 Regulation 3385/94/EC of 21  Dec­ ember 1994 on the form, content and other details of application and notifications provided for in Council Regulation No 17/62 [1994] OJ L377/28.................... 12.28 Regulation 240/96/EC of 31 January 1996 on the application of Article  85(3) of the Treaty to certain categories of technology transfer agreements [1996]  OJ L31/2......................................... 13.01 Regulation 1610/96/EC of 23  July 1996 concerning the creation of a supplementary certificate for plant protection products [1996] OJ L198/30................ 3.10, 3.16, 4.82 art 4............................................... 4.87 5.............................................. 4.86 6.............................................. 4.84 7...........................................4.85, 4.86 8–10........................................ 4.85 13............................................ 4.88 (3)........................................ 4.83 18............................................ 4.85 Regulation 338/97/EC of 9  Decem­ ber 1996 on the protection of species of wild fauna and flora by regulating trade therein [1997] OJ L61/1........................ 11.111 Regulation 141/2000/EC of 16 Dec­ em­ber 1999 on orphan medicinal products [2000] OJ L018/1........ 3.28

xli

Table of European Legislation and International Materials Regulation 1/2003/EC of 16 Decem­ ber 2002 – contd Recital (10).................................... 12.28 (21).................................... 12.85 (37).................................... 12.85 Art 1(2).......................................... 12.85 2.............................................. 12.85 3(1).......................................... 12.85 (2).......................................... 15.13 5, 6.......................................... 12.85 7.............................................. 12.85 (1).......................................... 12.85 8–10........................................ 12.85 11............................................ 12.85 (1)........................................ 12.85 12............................................ 12.85 (1)........................................ 12.85 13–15...................................... 12.85 16............................................ 12.85 (1), (2)................................. 15.13 17–19...................................... 12.85 20, 21............................... 12.85, 15.13 22............................................ 12.85 29(1)........................................ 13.05 (2)................................. 13.05, 13.30 45............................................ 12.85 Regulation 139/2004/EC of 20 Janu­ ary 2004 on the control of con­centrations between under­ takings [2004] OJ L24/1........... 12.29, 12.33, 14.05 Art 1(1)–(3)................................... 12.33 3.............................................. 14.04 (4).......................................... 12.33 Regulation 772/2004/EC on the application of Article  81(3) of the Treaty to categories of technology transfer agreements [2004] OJ L123/11.............. 8.01, 13.01, 13.02, 13.03, 13.04, 13.05, 13.09, 13.10, 13.14, 13.27, 13.29 Art 1(1)(b)............................... 8.01, 13.04 (c)..................................... 8.01 2(1).......................................... 7.02 3(1), (2)................................... 12.53 11............................................ 13.02 Regulation 773/2004/EC of 7  April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles  81 and 82 of the EC  Treaty [2004]  OJ L123/18..................................... 12.84

Regulation 816/2006/EC on compul­ sory licensing of patents relat­ing to the manufacture of pharma­ ceutical products for export to countries with public health problems [2006] OJ L157/1...... 3.29, 4.28, 4.29 Art 1.............................................. 3.29 2.............................................. 4.28 4, 5.......................................... 4.29 6, 8.......................................... 4.32 9.1, 9.2.................................... 4.30 10............................................ 4.31 10.1......................................... 4.31 11............................................ 4.32 16.1–16.4................................ 4.33 17............................................ 4.33 Regulation 1907/2006/EC of 18 Dec­ ember 2006 concerning the Registration, Evaluation, Author­isation and Restriction of Chemicals [2006] OJ L396/1..... 11.110 Regulation 318/2008/EC of 31 March 2008 amending Regu­ lation 338/97/EEC on the protection of species of wild fauna and flora by regulating trade therein [2008] OJ L95/3........................ 11.111 Regulation 1272/2008/EC of 16 Dec­ ember 2008 on classifi­ cation, labelling and packaging of substances and mixtures, amending and repealing Direc­ tives 67/48/EEC and 1999/45/ EC, and amending Regulation (EC) No  1907/2006 [2008] OJ L353/1....................................... 11.104 Regulation 428/2009/EC of 5  May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items [2009] OJ L134/1.................................. 11.99 Annex I.......................................... 11.101 Regulation 469/2009/EC of 6  May 2009 concerning the supple­ mentary protection certifi­ cate for medicinal products [2009] OJ L152/1.............................. 3.10, 3.16, 4.82, 4.83 Art 1.............................................. 4.83 (a), (b)................................... 4.83 (1).......................................... 4.83 3.............................................. 4.83 (a)–(c)................................... 4.83 4.............................................. 4.87 5.............................................. 4.87

xlii

Table of European Legislation and International Materials Regulation 469/2009/EC of 6  May 2009 – contd Art 6.............................................. 4.84 7.............................................. 4.86 13............................................ 4.88 18............................................ 4.85 Regulation 1107/2009/EC of 21  October 2009 concerning the placing of plant protection products on the market and repealing Council Directives 79/117/EEC and 91/414/ EEC [2009] OJ L309/1............. 11.104 Regulation 330/2010/EU of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices [2010] OJ L102/1....... 1.02, 12.10, 12.29, 12.45, 12.46, 12.56, 12.57, 12.68, 13.04, 13.10, 13.14, 13.32, 13.35, 14.05, 14.18, 15.02, 15.12 Art 1(1)(a)................... 12.45, 12.46, 12.57 (e)..................................... 12.46 2(3)................................... 12.57, 13.04 4.............................................. 12.46 5.............................................. 12.46 Regulation 1217/2010/EU of 14 Dec­ ember 2010 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to cer­ tain categories of research and develop­ment agree­ ments [2010] OJ L335/36.......... 12.09, 12.37, 12.38, 12.39, 12.62, 12.63, 12.64, 12.68, 12.69, 13.02, 13.05, 13.14, 13.32, 13.33, 13.35, 14.01, 14.11, 14.17, 14.20, 14.21, 14.22, 14.23, 14.24, 14.25, 14.26, 14.27, 14.29, 14.31, 14.33, 14.34, 14.35, 14.38, 14.39, 14.40, 14.41, 14.42, 14.46, 14.47, 14.48, 14.49, 14.50, 15.02, 15.12, 15.14 Recital (2)...................................... 14.22 (4)...................................... 14.22 (6)...................................... 14.22 (8)...................................... 14.22 (11).............................14.38, 14.40 (15).................................... 14.48 (18).................................... 14.22 Art 1.............................................. 14.24 (1).......................................... 14.41

Regulation 1217/2010/EU of 14 Dec­ ember 2010 – contd Art 1(1)(a)...................14.23, 14.29, 14.31 (i), (ii)........ 14.23, 14.45, 14.48 (iii)........................ 14.23, 14.45 (iv), (v)....... 14.23, 14.45, 14.48 (vi).........................14.23, 14.45 (c)..................................... 14.25 (e)..................................... 14.35 (f)...................................... 14.35 (g)..................................... 14.35 (m).................................... 14.33 (i), (ii).................. 14.41, 14.48 (n), (o).............................. 14.23 (p).............................. 14.31, 14.34 (q)..................................... 14.34 (r)–(t)................................ 14.42 2.............................................. 14.24 (1), (2)................................... 14.26 3............................ 14.24, 14.33, 14.37 (2)................................... 14.23, 14.38 (3)....................................14.23, 14.39 (4).......................................... 14.40 (5).......................................... 14.41 4.............................................. 14.24 (1).......................................... 14.43 (2)(a), (b)....................... 14.23, 14.45 (3).......................................... 14.43 5............................ 14.15, 14.24, 14.48 (a).......................................... 14.48 (b)........................ 14.23, 14.48, 14.49 (i), (ii)........................14.33, 14.48 (iii), (iv)............................ 14.48 (c)–(e).............................14.23, 14.48 (f), (g).................................... 14.48 6.............................................. 14.24 (a)................................... 14.23, 14.49 (b)........................ 14.23, 14.33, 14.49 7, 8.......................................... 14.24 9............................ 14.23, 14.24, 14.27 Regulation 258/2012/EU of 14 March 2012 implementing Article 10 of the United Nations’ Protocol against the illicit manufacturing of and trafficking in firearms, their parts and components and ammunition, supplementing the United Nations Convention against Transnational Organised Crime (UN Firearms Protocol), and establishing export auth­ orisation, and import and transit measures for firearms, their parts and components and ammunition [2012] OJ L94/1 Annex I.......................................... 11.99 Annex IV....................................... 11.99

xliii

Table of European Legislation and International Materials Regulation 549/2012/EU of 4  July 2012 concerning the export and import of hazardous chemicals [2012] OJ L201/60.................... 11.104 Art 14(6)........................................ 11.104 17(1)........................................ 11.104 Regulation 1291/2013/EU of 11 Dec­ ember 2013 establishing Hori­ zon 2020 – the Framework Pro­ gramme for Research and Inno­ vation (2014–2020) and repeal­ ing Decision No 1982/2006/EC [2013] OJ L347/104 Recital (3)...................................... 1.32 (10).................................... 1.32 (20).................................... 1.32 Regulation 1218/2010/EU of 14 Dec­ ember 2010 on the appli­ca­tion of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agree­ ments [2010] OJ L335/43.............12.44, 12.63, 12.68, 12.69, 13.02, 13.05, 13.14, 13.32, 13.33, 13.34, 13.35, 14.01, 14.20, 14.21, 14.50, 15.02, 15.12 Art 1(1)(a)–(d), (i), (j), (q), (r)...... 14.50 2(1)–(3)................................... 14.50 3.............................................. 14.50 4(a)–(c)................................... 14.50 5, 7.......................................... 14.50 Regulation 1215/2012/EU of 12 Dec­ ember 2012 on jurisdiction and the recognition and enforce­ ment of judgments in civil and commercial matters (recast) [2012] OJ L351/1................10.59, 10.61 Art 2.............................................. 10.61 24(2)........................................ 10.61 Regulation 1257/2012/EU of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection [2012]  OJ L361/1..................3.09, 3.10, 3.23, 4.02 Art 2(b).......................................... 4.02 3(1), (2)................................... 4.02 4.............................................. 4.02 5, 7, 8, 11................................ 4.02 Regulation 1260/2012/EU of 17 Dec­ ember 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrange­ ments [2012] OJ L361/89.......3.23, 4.02

Regulation 316/2014/EU of 21 March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the Euro­ pean Union to categories of tech­nology transfer agreements [2014] OJ L93/17......... 1.02, 2.04, 3.01, 8.06, 10.29, 10.53, 12.10, 12.29, 12.48, 12.51, 12.53, 12.54, 12.55, 12.56, 12.59, 12.62, 12.63, 12.64, 12.68, 12.69, 13.01, 13.02, 13.03, 13.04, 13.05, 13.06, 13.07, 13.08, 13.09, 13.10, 13.11, 13.14, 13.15, 13.16, 13.17, 13.19, 13.20, 13.26, 13.27, 13.30, 13.31, 13.32, 13.33, 13.34, 13.35, 13.36, 13.42, 13.43, 13.47, 14.20, 15.02, 15.12 Recital (1)–(3)............................... 13.05 (4)......................1.02, 13.03, 13.05 (5)...................................... 13.05 (6)............................... 13.02, 13.05 (7)................... 12.56, 13.05, 13.14, 13.42 (9)............................... 12.50, 13.05 (11), (12)........................... 13.05 (13).................. 13.03, 13.05, 13.17 (14)............................. 13.05, 13.25 (15)............................. 13.05, 13.29 (16)–(19)........................... 13.05 Art 1.............................................. 13.05 (1)(b).................. 12.51, 13.02, 13.04, 13.10 (c).................... 1.02, 12.50, 13.02, 13.14, 13.15, 13.16, 13.42 (i), (ii).......................... 13.09 (d).............................. 12.54, 13.26 (e).............................. 12.54, 13.26 (f)............................... 12.51, 13.16 (g).............................. 12.51, 13.16 (i)...................................... 12.51 (j)............................... 13.11, 13.23 (k)..................................... 13.24 (l)...................................... 13.25 (m).................................... 13.22 (n)(i), (ii).......................... 13.21 (o)..................................... 13.28 (2)........................ 13.09, 13.14, 13.15 2............................ 13.02, 13.05, 13.42 (1)................................... 12.50, 13.06

xliv

Table of European Legislation and International Materials Regulation 316/2014/EU of 21 March 2014 – contd Art 2(2)........................ 12.51, 13.06, 13.07 (3)................................... 12.52, 13.06 3....................................... 13.03, 13.05 (1), (2)............................ 12.03, 13.17 4........................................13.05, 13.48 (1)................................... 13.02, 13.18 (a), (b).............................. 13.27 (c)...............................13.27, 13.39 (i)–(iv).......................... 13.27 (d).................. 12.64, 13.27, 13.29, 13.39 (q), (r)............................... 13.27 (2)................................... 13.02, 13.18 (a)..................................... 13.28 (b)..................................... 13.28 (i)–(v).......................... 13.28 (c)..................................... 13.28 (3).......................................... 13.18 5............................ 12.55, 13.05, 13.29 (1)(a).............................. 13.02, 13.29 (b)...................13.02, 13.29, 13.41, 14.49 (2).......................................... 13.29 6.............................................. 13.05 (1).......................................... 13.30 (a), (b).............................. 13.30 (2).......................................... 13.30 7....................................... 13.05, 13.31 (1), (2)................................... 13.31 8.............................................. 13.05 (e).......................................... 13.19 9............................12.62, 13.02, 13.05, 13.14, 13.32, 14.20 10..................................... 13.05, 13.08 11..........................13.01, 13.02, 13.05, 13.08 Regulation 536/2014/EU of 16 April 2014 on clinical trials on medi­ cinal products for human use, and repealing Directive 2001/20/ EC [2014] OJ L158/1.............2.05, 3.42, 11.02, 11.20, 11.23, 11.86, 11.87, 11.88, 11.89 Recital (4)...................................... 11.87 (5)...................................... 11.87 (11).................................... 11.88 (12).................................... 11.88 (43).................................... 11.85 (55).................................... 11.86 (67).................................... 11.88 (68).................................... 11.88 Art 2(2)–(4)................................... 11.88 4........................................11.88, 11.89 5.............................................. 11.89

Regulation 536/2014/EU of 16 April 2014 – contd Art 5(1), (3)–(6)............................ 11.88 6.............................................. 11.89 (1), (4), (7), (8)...................... 11.88 7.............................................. 11.89 (1).......................................... 11.88 8.............................................. 11.89 (3).......................................... 11.88 9–11........................................ 11.89 12–24................................11.88, 11.89 28............................................ 11.88 (3)........................................ 11.23 29(1), (6)................................. 11.88 30–35...................................... 11.88 36(1)–(3)................................. 11.88 37(1)–(5)................................. 11.88 38(1), (2)................................. 11.88 40–43...................................... 11.89 47............................................ 11.86 71............................................ 11.88 72............................................ 11.88 (2)........................................ 11.88 73............................................ 11.88 74(1)–(3)................................. 11.88 76............................................ 11.88 77............................................ 11.88 81............................................ 11.88 (1), (4), (7).......................... 11.88 98............................................ 11.86 Regulation 910/2014/EU of 23  July 2014 on electronic identifica­ tion and trust services for elec­ tronic transactions in the internal market and repealing Directive 1999/93/EC [2014] OJ L257/73................................ 2.119 Regulation 2016/679/EU of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC [2016] OJ L119/1...... 3.42, 11.02, 11.03, 11.04, 11.05, 11.06, 11.07, 11.09, 11.10, 11.11, 11.14, 11.15, 11.16, 11.17, 11.20, 11.22, 11.23, 11.24, 11.25, 11.29, 11.52, 11.65, 11.76, 11.88 Recital (22).................................... 11.07 (23).................................... 11.07 (24).................................... 11.07 (26).................................... 11.04 (27).................................... 11.11

xlv

Table of European Legislation and International Materials Regulation 2016/679/EU of 27 April 2016 – contd Recital (28).................................... 11.04 (41).................................... 11.12 (42).................................... 11.15 (43)............................. 11.14, 11.15 (45).................................... 11.12 (47).................................... 11.12 (159).................................. 11.20 (161).................................. 11.20 Art 2.............................................. 11.08 (2).......................................... 11.10 3(1)................................... 11.04, 11.07 (2).......................................... 11.07 (a), (b).............................. 11.04 4(1), (4), (5), (11).................... 11.04 (13)........................................ 11.17 5(1)(a)................... 11.04, 11.08, 11.52 (b)–(e).............................. 11.08 (f)............................... 11.04, 11.08 (2).......................................... 11.08 6(1).......................................... 11.12 (a)..................11.12, 11.14, 11.22, 11.52 (b).............................. 11.12, 11.14 (c).............................. 11.12, 11.23 (d)..................................... 11.12 (e).................. 11.06, 11.12, 11.22, 11.23 (f)................... 11.12, 11.22, 11.23, 11.52 (2).......................................... 11.12 (4).......................................... 11.13 7.............................................. 11.04 (1), (2)................................... 11.14 (3).......................................... 11.14 (4)................................... 11.14, 11.15 8.............................................. 11.04 (1)................................... 11.06, 11.16 (2).......................................... 11.16 9(1)........................ 11.04, 11.06, 11.17 (2)(a).................. 11.18, 11.22, 11.23, 11.52 (b)–(d).............................. 11.18 (e).............................. 11.18, 11.52 (f), (g)............................... 11.18 (h).............................. 11.06, 11.18 (i).................... 11.04, 11.18, 11.23 (j)....................11.04, 11.18, 11.22, 11.23 (3).......................................... 11.18 12(1)................................. 11.04, 11.19 13.......................... 11.04, 11.06, 11.28 (1), (2)................................. 11.19 14..........................11.04, 11.06, 11.28 15, 16.............................. 11.04, 11.06, 11.20

Regulation 2016/679/EU of 27 April 2016 – contd Art 17..................................... 11.04, 11.06 (1), (3)................................. 11.23 18.......................... 11.04, 11.06, 11.20 19, 20............................... 11.04, 11.06 21..........................11.04, 11.06, 11.20, 11.52 22............................................ 11.28 27(1)........................................ 11.04 30............................................ 11.04 37..................................... 11.04, 11.28 (1)........................................ 11.04 38............................................ 11.04 39............................................ 11.04 44............................................ 11.25 45.....................................11.25, 11.26 (3)........................................ 11.30 46............................................ 11.25 (1), (3)................................. 11.27 47............................................ 11.25 (1), (2)................................. 11.28 48............................................ 11.25 49............................................ 11.25 (1)........................................ 11.29 (a)–(c)............................. 11.29 (d)............................ 11.29, 11.30 (e)–(g)............................ 11.29 50............................................ 11.25 51............................................ 11.31 49(1)(d)................................... 11.06 79............................................ 11.28 89............................................ 11.20 (1)..................... 11.08, 11.18, 11.20, 11.21, 11.22, 11.23 (2), (3)................................. 11.20 Regulation 2017/745/EU of 5  April 2017 on medical devices, amend­ ing Directive 2001/83/ EC, Regulation (EC) 178/2002 and Regulation (EC) 1223/2009 and repealing Council Direc­ tives 90/385/EEC and 93/42/ EEC [2017] OJ L117/1..........2.05, 2.59 Regulation 2017/1001/EU of 14 June 2017 on the European Union trade mark [2017] OJ L154/1.... 3.09 Regulation 2018/1922/EU of 10 Octo­ber 2018 amending Coun­cil Regulation (EC) No 428/2009 setting up a Community regime for the control of exports, transfer, broker­ ing and transit of dual-use items [2018] OJ L319/1....................................... 11.99 Annex I.......................................... 11.99

xlvi

Table of European Legislation and International Materials Regulation 2019/125/EU of 16 Janu­ ary 2019 concerning trade in certain goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punish­ment [2019] OJ L30/1 Annex II........................................ 11.99 Annex III....................................... 11.99 Regulation 2019/2130/EU of 25 Nov­ ember 2019 establishing rules on the operations to be carried out during and after documentary checks, identity checks and physical checks on animals and goods subject to official controls at border control posts [2019] OJ L321/128.............................. 15.03, 15.04, 15.09, 15.12, 15.13 Art 3.............................................. 15.15 (2).......................................... 15.15 DECISIONS Commission Decision 84/191/EEC of 30 March 1994 relating to a proceeding under Article 85 of the EEC Treaty.......................... 12.16 Commission Decision of 23  April 1986 relating to a proceedings under Article 85 of the EEC Treaty........................................ 12.18 Commission Decision 94/210/EC of 29 March 1994 relating to a proceeding pursuant to Articles 85 and 86 of the EC Treaty........ 12.16 Commission Decision 2000/146/EC of 14  December 1999 relating to a proceeding pursuant to Article  15(1)(b) of Council Regulation 17............................ 12.16

Council Decision 2013/743/EU of 3  December 2013 establishing the specific programme imple­ menting Horizon 2020 – the Framework Programme for Research and Innovation (2014– 2020) and repealing Decisions 2006/971/EC, 2006/972/EC, 2006/973/EC, 2006/974/EC and 2006/975/EC Art 2(2).......................................... 1.32 Agreement on Trade-related aspects of Intellectual Property Rights Art 39(2)........................................ 8.41 INTERNATIONAL LEGISLATION ITALY Civil Code art 2592–2594............................... 3.25 Industrial Models Act........................ 3.25 Royal Decree No 1411 of 5/8/40...... 3.25 Royal Decree No 1354 of 31/10/41.. 3.25 UNITED STATES Patent and Trademark Law Amend­ ments Act 1980 (Bayh-Dole Act)......................................2.05, 2.114 Copyright Act 1976 s 107.............................................. 5.26 Hart-Scott-Rodino Antitrust Improve­ ments Act 1976.......................... 12.10 Orphan Drug Act 1983...................... 3.28 Uniform Commercial Code art 2............................................... 10.74 Uniform Trade Secrets Act................ 8.08 s 1(3)............................................. 8.06

xlvii

Table of Cases References are to paragraph numbers A ACF Chemiefarma NV v Commision of the EC (Case 41-69) (judgment 15 July 1970).......................................................................................................................12.16 A-G v Blake (Jonathan Cape Ltd third party) [2001] 1 AC 268, [2000] 3 WLR 625, [2000] 4 All ER 385................................................................................................8.22 A-G v Guardian Newspapers Ltd (No 2) see A-G v Observer Ltd A-G v Jonathan Cape Ltd [1976] QB 752, [1975] 3 WLR 606, [1975] 3 All ER 484...8.27 A-G v Observer Ltd; A-G v Guardian Newspapers Ltd (No 2); A-G v Times Newspapers [1990] 1 AC 109, [1988] 3 WLR 776, [1988] 3 All ER 545......... 8.13, 8.26, 8.27 AOPI/Beyrard [1976] 1 CMLR D14, [1976] FSR 181...................................................12.13 AT Poeton (Gloucester Plating) Ltd v Michael Ikem Horton [2001] FSR 169, [2000] ICR 1208............................................................................................................. 8.01, 8.31 Ackroyd’s (London) Ltd v Islington Plastics Ltd [1962] 1 WLUK 23, [1962] RPC 97................................................................................................................8.10, 8.26, 8.27 Acrow (Automation) v Rex Chainbelt Inc [1971] 1 WLR 1676, [1971] 3 All ER 1175, 115 SJ 642...............................................................................................................10.38 Actavis Group PTC (Case C-577/13).............................................................................4.83 Actvus Group PTC HER (Case C-443/12).....................................................................4.83 Actavis UK Ltd v Eli Lilly & Co [2016] EWHC 234 (Pat), [2016] 2 WLUK 350........10.29, 10.60 Adorn Spa Ltd v Amjad [2017] EWHC 1313 (QB), [2017] 3 WLUK 330....................8.31 Aerotel Ltd v Telco Holdings Ltd (and others) and Macrossan’s Application [2006] EWCA Civ 1371, [2007] 1 All ER 225, [2007] RPC 117, [2007] IP&T 158, [2006] NLJR 1687, [2006] All ER (D) 346 (Oct)....................................4.37, 4.99, 4.104 African Gold Recovery Co Ltd v Sheba Gold Mining Co Ltd (1897) 2 Com Cas 277, (1897) 14 RPC 660.................................................................................................10.46 Ahlstrom v Commission (Wood Pulp Case) (Cases 89, 104, 114, 116, 117, and 125 to 129/85) [1988] ECR 5193, [1988] 4 CMLR 901, ECJ................................... 12.25, 15.02 Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 2 All ER (Comm) 60, [2012] 1 Lloyd’s Rep 349...................................................................10.68 Akzo Nobel NV v Commission of the EC (Case T-112/05) [2007] ECR II-5049, [2007] 12 WLUK 281, [2008] 4 CMLR 12............................................................12.14 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie (Case C-67/96) [1999] ECR I-5751, [1999] 9 WLUK 330, [2000] 4 CMLR 446...........12.13 Albert (Prince) v Strange (1849) 1 Mac & G 25, 1 H & Tw 1, 18 LJ Ch 120, 12 LTOS 44, 41 ER 1171.......................................................................................................8.10 Allen & Hanbury v Generics; sub nom Beecham Group plc v Gist-Brocades NV [1986] 1 WLR 51, [1986] LS Gaz R 206, [1985] FSR 610, 129 SJ 899, [1986] RPC 203.......................................................................................................... 10.06, 10.19 Allen & Hanbury Ltd’s (Salbutamol) Patent [1987] RPC 327.......................................10.18 Ali v Petroleum Co of Trinidad & Tobago [2017] UKPC 2, [2017] 2 WLUK 320, [2017] ICR 531.......................................................................................................10.30 Allianz Hungaria Biztosito Zrt v Gazdasagi Versenyhiatal (Case C-32/11), [2013] 3 WLUK 376, [2013] RTR 19, [2014] 4 CMLR 25..................................................12.22 Amber Size & Chemical Co Ltd v Menzei [1913] 2 Ch 239, [1913] 6 WLUK 17........8.08 American Cyanamid Co v Ethicon [1975] AC 396, [1975] 2 WLR 316, [1975] 1 All ER 504, [1975] RPC 513, [1975] FSR 101, 119 SJ 136.........................................8.32 American Cyanamid Co’s (Fenbufen) Patent [1990] RPC 309; affd [1991] RPC 409.....10.24

xlix

Table of Cases American Home Products Corporation v Novartis Pharmaceuticals UK Ltd (No 2) [2000] EWCA Civ 231, [2001] RPC 159, [2001] FSR 784, [2000] IP&T 1308....8.13 American Home Products Corporation v Novartis Pharmaceuticals (UK) Ltd (No 2) [2001] EWCA Civ 165, [2001] FSR 784, [2001] All ER (D) 141 (Feb)................2.33 Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385............................................................................................................10.68 Anglo-American Asphalt Co Ltd v Crowley Russell & Co Ltd [1945] 2 All ER 324, 173 LT 228...................................................................................................... 10.26, 10.51 Anserf-Equifax, Servicios de Información sobre Solvenica y Crédito, SL v Associación de Usuarios de Servicios Bancarios (Ausbanc) (Case C-238/05) [2006] ECR I-11125, [2006] All ER (D) 315 (Nov), ECJ..........................................................12.16 Anya v Wu [2004] EWHC 386 (Ch), [2004] 2 WLUK 670, [2004] All ER (D) 413 (Feb)........................................................................................................................5.40 Apple Computer Inc v Articulate Systems Inc 44 USPQ 2d 1369 (ND Cal 1997)........10.07 Apple Corps Ltd and Another v Apple Computer Inc and Others [1992] FSR 431, (1991) IP& T Dig 2.................................................................................................10.53 Argos Ltd v Office of Fair Trading; JJB Sports plc v Office of Fair Trading [2006] EWCA Civ 1318, [2006] 10 WLUK 535, [2006] UKCLR 1135...........................15.10 Arnold v Britton [2015] UKSC 36, [2015] AC 1619, [2015] 2 WLR 1593...........10.04, 10.13, 10.18 Ashdown v Telegraph Group Ltd [2001] EWCA Civ 1142, [2002] Ch 149, [2001] 4 All ER 666, [2001] 3 WLR 1368, [2002] RPC 235, [2001] 31 LDS Gaz R 29, 145 SJLB 201, [2001] EMLR 1003, [2001] IP&T 1282........................................5.26 Ashmore v Douglas-Home [1982] 2 WLUK 249, [1987] FSR 553...............................5.13 Asnef-Equifax, Sevicios de Informacion sobre Solvencia y Credito SL & Administracio del Estado v Associacion de Usuarios de Servicios Bancarios (Ausbanc) (Case C-238/05) [2006] ECR I-11125, [2006] 11 WLUK 540, [2007] 4 CMLR 6.........12.18 Astor Managemetn AG v Antalaya Mining plc [2017] EWHC 425 (Comm), [2018] 1 All ER (Comm) 547, [2017] Bus LR 1634.............................................................10.40 Astrazeneca UK Ltd v Albermarle International Corpn [2011] EWHC 1574 (Comm), [2011] 6 WLUK 473, [2011] 2 CLC 252............................................................ 2.55, 2.58 Astron Clinica Ltd and others v Comptroller General of Patents, Designs and Trade Marks [2008] EWHC 85 (Pat), [2008] 2 All ER 742, [2008] RPC 14, [2008] IP&T 507, [2008] All ER (D) 190 (Jan).................................................................4.104 Ault & Wiborg Paints Ltd v Sure Service Ltd (The Times, 2 July 1983).......................10.35 Austin Baldwin & Co Ltd v Greenwood Batley Ltd; Austin Baldwin & Co Ltd v Magnetic Car Co Ltd (1925) 42 RPC 454..............................................................10.18 Auto Securities Ltd v Standard Telephones & Cables Ltd [1965] 1 WLUK 64, [1965] RPC 92....................................................................................................................8.21 Avraamides and another v Colwill and another [2006] EWCA Civ 1533, [2006] BLR 76, [2006] NPC 120, [2006] All ER (D) 167 (Nov)...............................................10.86 B B Davis Ltd v Tooth & Co Ltd [1937] 4 All ER 118, 81 SJ 881....................................10.32 BICC v Burndy Corporation [1985] Ch 232, [1985] 1 All ER 417, [1985] 2 WLR 132, [1985] RPC 273, (1984) 128 SJ 750, (1984) 81 LS Gaz 3011......................... 9.27, 10.24 BJM Inc v Melport Corp, 18 F Supp 2d 704, 48 USPQ 2d 1537 (WD KY 1988).........10.27 BNOS Electronics Ltd (BL O/270/98)....................................................................... 4.43, 4.44 Bagot Pneumatic Tyre Co v Clipper Pneumatic Tyre Co [1902] 1 Ch 146, (1902) 19 RPC 69....................................................................................................................10.50 Baird v Nelson (1842) 8 Cl & Fin 726...........................................................................10.46 Balsamo v Medici [1984] 1 WLR 951, [1984] 2 All ER 304, [1983] 10 WLUK 159....9.43 Barker v Stickney [1919] 1 KB 121, 88 LJKB 315, 120 LT 172, [1918–19] All ER Rep Ext 1363...........................................................................................................5.14 Basset v Graydon (1897) 14 RPC 701............................................................................10.07 Baxter International Inc v Nederlands Produktielaboratorium voor Bloedtransfusiapparatuur BV [1998] RPC 250, (1997) 20(9) IPD 20091, Pat Ct...................4.04

l

Table of Cases Bayer v Commission of the European Communities (Case T-41/96) [2000] ECR II3383, [2000] 10 WLUK 737, [2001] 4 CMLR 4....................................................12.16 Bayer AG and Maschinenfabrik Hennecke GmbH v Sullhofer (Case C-65/86) [1988] ECR 5249, [1990] FSR 300, ECJ...........................................................................10.53 Beecham Group Ltd v Bristol Laboratories International SA [1978] RPC 521.............10.09 Belegging-en Exploitatiemaatschappi Lavender BV v Witten Industrial Diamons Ltd [1978] 12 WLUK 41, [1979] FSR 59.....................................................................5.17 Bergmann v Macmillan (1881) 17 Ch D 423.................................................................10.50 Berker Sportcraft’s Agreements, Re; Hartnell v Berker Sportcraft (1947) 177 LT 420, 91 SJ 409..........................................................................................................10.03, 10.22 Bessimer v Wright (1858) 31 LTOS 213........................................................................10.37 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996 SLT 604, [1996] FSR 367, [1996] CLC 821, [1997] Info TLR 73, [1996] Masons CLR 16, Ct of Sess (OH)................................................................................................................10.71 Beta Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch), [2003] All ER (D) 133 (May)...................................................................................................10.32 BetterCare Group Ltd v Director General of Fair Trading (Case No 1006/2/1/01) [2002] CAT 7, [2002] Com AR 299................................................................ 15.08, 15.13 Betts v Willmott (1871) 6 Ch App 239, 19 WR 369, 25 LT 188....................................10.29 Bewley v Hancock (1856) 6 De GM & G 391...............................................................10.64 Blacklock (H) & Co Ltd v C Arthur Pearson Ltd [1915] 2 Ch 376, 84 LJ Ch 785, 113 LT 775, 31 TLR 526...............................................................................................6.01 Bonython (John Lavington) v Commonwealth of Australia [1951] AC 201, 66 TLR (Pt 2) 969, 94 SJ 821...............................................................................................10.45 Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216......................................................5.09 Bookmakers’ Afternoon Greyhound Services Ltd v Wilf Gilbert (Staffordshire) Ltd [1994] FSR 723................................................................................................... 5.07, 5.09 Boussois v Interpane [1988] 4 CMLR 124, [1987] OJ L50/30......................................12.19 Bower v Hodges (1853) 22 LJCP 194, 13 CB 765.........................................................10.50 Brake v Radermacher (1903) 20 RPC 631.....................................................................10.05 Brandeaux Advisers (UK) Ltd v Chadwick [2010] EWHC 3241 (QB), [2010] 12 WLUK 626, [2011] IRLR 224................................................................................8.27 Brighton and Another v Jones [2004] EWHC 1157 (Ch), [2004] EMLR 507, [2005] IP&T 223, [2004] All ER (D) 247 (May)...............................................................5.13 Bristol Repetition Ltd v Fomento (Sterling Area) Ltd [1960] RPC 163................. 10.46, 10.53 Bristol Repetition v Fomento (Sterling Area) Ltd [1961] RPC 222...............................10.09 British Horseracing Board Ltd and others v the William Hill Organisation Ltd (Case C-203/002) [2004] ECR I-10415, [2005] RPC 260, [2005] IP&T 407, [2004] All ER (D) 146 (Nov), ECJ..............................................................................6.07, 6.13, 6.15 British Leyland Motor Corporation Ltd and another v Armstrong Patents Co Ltd and another [1986] 1 AC 577, [1986] 1 All ER 850, [1986] 2 WLR 400, [1986] RPC 279, [1986] FSR 221, [1986] ECC 534 (1986) 136 NLJ 211, (1986) 83 LS Gaz 974....................................................................................................  2.40, 9.44, 9.46, 9.47, 10.40 British Mutoscope and Biograph Co Ltd v Homer [1901] 1 Ch 671, 18 RPC 177, [1900–3] All ER Rep 785, 70 LJ Ch 279, 49 WR 277, 84 LT 26, 17 TLR 213.....10.17 British Nylon Spinners Ltd v Imperial Chemical Industries Ltd [1953] Ch 19, [1952] 2 All ER 780, 69 RPC 288, [1952] 2 TLR 669............................................... 10.05, 10.06 British South Africa Co v Companhia de Mocambique [1893] AC 602, [1891-94] All ER Rep 640, [1893] 9 WLUK 4.............................................................................10.59 British Technology Group Ltd’s SPC Application [1997] RPC 118, Patent Office.......4.83 Brown v Gould [1972] 1 Ch 53, [1971] 3 WLR 334, [1971] 2 All ER 1505, 115 SJ 406, 22 P&CR 871.......................................................................................... 10.40, 10.41 Brown v Mcasso Music Production Ltd [2005] EWCA Civ 1546, [2005] 11 WLUK 334, [2005] FSR 846...............................................................................................5.13 Buchanan v Alba Diagnostics Ltd [2004] UKHL 5, [2004] RPC 34, [2004] SC (HL) 9, [2004] All ER (D) 73 (Feb)......................................................................... 10.10, 15.15

li

Table of Cases C C & H Engineering v Klucznik & Sons [1992] FSR 421, (1992) IP&T Dig 9..............7.07 CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013, [1988] 2 WLR 1191, [1988] 2 All ER 484......................................................................................5.17 CD-Contact Data GmbH v Commision of the EC (Case T-18/03) [2009] ECR II-1021, [2009] 4 WLUK 596, [2009] 5 CMLR 5................................................................12.16 CEF Holdings Ltd v Mundey [2012] EWHC 1524 (QB), [2012] 6 WLUK 50, [2012] IRLR 912................................................................................................................8.35 CMI Centres for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235, (1998) 21(11) IPD 21123........................................................................................8.32 Cadbury Schweppes Inc v FBI Foods Ltd (1999) 83 CPR (3d) 289 (SC Canada), [2000] FSR 491................................................................................................... 2.40, 8.32 Cadillon v Hoss (Case 1/71) [1971] ECR 351, ECJ.......................................................12.24 Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995] FSR 818, (1995) IP&T Dig 18....................................................................................................... 5.13, 5.43 Calland v Information Commissioner and FSA (EA/2007/0136, 8 August 2008), Information Tribunal...............................................................................................11.52 Cambridge Antibody Technology v Abbott Biotechnology Ltd and another [2004] EWHC 2974 (Pat), [2004] All ER (D) 323 (Dec)........................................... 10.47, 10.48 Campbell v G Hopkins & Sons (Clerkenwell) Ltd (1931) 49 RPC 38; 50 RPC 213.....10.05, 10.53 Cantor Fitzgerald International and another v Tradition (UK) Ltd and others [2000] RPC 95, (1999) 22(7) IPD 22068, [1999] Masons CLR 157, [1999] All ER (D) 389........................................................................................... 5.19, 5.59, 8.13, 8.43, 9.44 Carflow Products (UK) Ltd v Linwood Securities (Birmingham) Ltd [1996] FSR 424, (1996) 19(6) IPD 6, Pat Ct......................................................................................8.03 Caterpillar Logistic Services (UK) Ltd v Huesca de Crean [2011] EWCA Civ 1671, [2011] 12 WLUK 246, [2012] IRLR 410...............................................................8.31 Catnic Compondents Ltd v Hill & Smith [1980] 11 WLUK 270, [1981] FSR 60, [1982] RPC 183......................................................................................................9.45 Celltech R & D Ltd v Medimmune Inc [2004] EWCA Civ 1331, [2004] All ER (D) 279 (Oct).............................................................................................. 10.50, 10.58, 10.61 Centrafarm BV and Adnaan de Peijpper v Sterling Drug Inc (Case No 15/74) [1974] ECR 1183, [1974] 2 CMLR 480, [1976] FSR 164, ECJ........................................12.02 Chadwick v Bridges (SN) & Co Ltd [1960] RPC 85...............................................10.40, 10.41 Channel Four Television Corpn v IC & British Sky Broadcasting Ltd [2011] 2 WLUK 727..............................................................................................................11.51 Chanter v Dewhurst (1844) 13 LJ Ex 198, 12 M&W 823, 3 LTOS 104........................10.05 Chanter v Johnson (1845) 14 LJ Ex 289, 14 M&W 408, 153 ER 534, 5 LTOS 331......10.05 Cheetham v Nuthall (1893) 10 RPC 321................................................................ 10.22, 10.30 Chemidus Wavin v Societe pour la Transformation et l’Exploitation des Resines Industrielles SA [1978] 3 CMLR 514, [1977] FSR 181.......................10.54, 12.27, 15.11 China-Pacific SA v Food Corpn of India, The Winson [1982] AC 939, [1981] 3 All ER 688, [1981] 3 WLR 860, (1981) 125 SJ 808, [1982] 1 Lloyd’s Rep 117........... 9.41, 9.42 Chiron Corp v Organon Teknika Ltd (No 3); Chiron v Murex Diagnostics Ltd (No 3) [1996] RPC 535, [1994] FSR 202, Pat Ct................................................ 4.20, 4.37, 15.03 Chiron Corp v Organon [1993] FSR 567, [1994] FSR 187, [1994] 1 CMLR 410....  2.04, 3.11 Chugai Pharmaceutical Co Ltd v UCB Pharma SA [2017] EWHC 1216 (Pat), [2017] Bus LR 1455, [2017] All ER (D) 56 (Jun)...................................................... 10.58, 10.61 Clark v Adie (1873) 21 WR 456, 21 WR 764.................................................................10.38 Clearsprings Management Ltd v BusinessLinx Ltd [2005] EWHC 1487 (Ch), [2006] FSR 21, [2005] All ER (D) 172 (Jul)....................................................... 5.08, 5.14, 10.18 Coco v Clark (AN) (Engineers) Ltd [1969] RPC 41, [1968] FSR 415............. 4.39, 8.12, 8.13, 8.14, 8.16, 8.32, 8.39, 8.42, 10.55 Coditel SA, Compagnie generale pour la diffusion de la television v Cine-Vog Films SA (Case 262/81) [1982] ECR 3381, [1982] 10 WLUK 27, [1983] 1 CMLR 49..........12.21

lii

Table of Cases Collag Corpn v Merck & Co Inc [2003] FSR 16........................................................ 8.12, 8.15 Commission of the EC v Anic Partecipazioni SpA (Case C-49/92) [1999] ECR I-4125, [1999] 7 WLUK 191, [2001] 4 CMLR 17..............................................................12.18 Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC 572, [1970] 3 WLR 389, [1970] 3 All ER 71, 114 SJ 618....................10.58 Confetti Records (a firm) v Warner Music UK Ltd (t/a East West Records) [2003] EWHC 1274 (Ch), [2003] 6 WLUK 76, [2003] ECDR 31.....................................2.22 Co-operative Union Ltd v Kilmore, Aughrim and Killcan Dairy Society Ltd (1912) 47 ILT 7........................................................................................................................5.09 Cornelius v de Taranto [2001] EWCA Civ 1511, [2001] 10 WLUK 468, (2001) 68 BMLR 62................................................................................................................8.27 Coslett Anti-Rust Syndicate Ltd v Lennox (1912) 29 RPC 477.....................................10.05 Courtauld’s Application [1956] RPC 208.......................................................................10.16 Cranleigh Precision Engineering v Bryant [1965] 1 WLR 1293, [1964] 3 All ER 289, [1966] RPC 81, 109 SJ 830.....................................................................  8.11, 8.29, 8.32, 10.55 Crediton Gas Co v Crediton Urban District Council [1928] 1 Ch 174...........................10.22 Crehan v Courage Ltd (Case C-453/99) [2001] ECR I-6297, [2001] 5 CMLR 1058, ECJ................................................................................................................15.11 Crittall Windows Ltd v Stormseal (UPVC) Window Systems Ltd and Another [1991] RPC 265...................................................................................... 9.27, 10.06, 10.24, 10.69 Crossley v Dixon (1863) 10 HL Cas 293, 32 LJ Ch 617, 9 Jur NS 607, 1 New Rep 540, 11 WR 716, 8 LT 260.......................................................................................10.05, 10.16 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 25, [2016] AC 923, [2015] 2 WLR 875........................................................................10.24 Cureton v Mark Insulations Ltd [2006] EWHC 2279 (QB), [2006] All ER (D) 85 (Mar).......................................................................................................................6.09 Cutlan v Dawson (1897) 14 RPC 249, 13 TLR 213............................................... 10.21, 10.22 D Dalgety Foods Holland BV v DEB-ITS Ltd [1994] FSR 125........................................10.40 Dalrymple (JR)’s Application, Re [1957] RPC 449........................................................8.15 Dansk Rekylriffel Syndikat Akt v Snell [1908] 2 Ch 127, (1908) 25 RPC 421.............10.50 Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd and others [2004] EWHC 44 (Comm), [2004] 1 All ER (Comm) 991............................ 10.32, 15.15 De Maudsley v Palumbo [1996] FSR 447, [1996] EMLR 460......................................8.12 Deckmyn v Vandersteen (Case C-201/13) [2014] Bus LR 1368, [2014] 9 WLUK 81, [2015] CEC 461......................................................................................................5.20 Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361, [1971] 2 All ER 216, (1970) 115 SJ 171................................................................10.23 Dellareed v Delkim [1987] 11 WLUK 302, [1988] FSR 329.........................................9.45 Dendron GmbH v Regents of the University of California [2004] EWHC 1163 (Pat), [2004] 5 WLUK 394, [2004] FSR 43.....................................................................10.13 Designers Guild v Russell Williams (Textiles) Ltd [2001] 1 All ER 700, [2000] 1 WLR 2416, [2001] FSR 113, [2001] IP&T 277, [2000] All ER (D) 1950.............5.17 Destra Software Ltd v Comada (UK) LLP [2013] EWHC 1575 (Ch), [2013] 6 WLUK 203, [2013] Info TLR 294.......................................................................................5.14 Directmedia Publishing GmbH v Albert-Ludwigs-Universitat Freiburg (Case C-304/07) [2009] IP & T 69, [2008] All ER (D) 88 (Oct), ECJ.............................6.15 Dixon v London Small Arms Co Ltd (1876) 1 App Cas 632, 46 LJQB 617, 25 WR 142, 35 LT 559................................................................................................ 10.18, 10.19 Donwin Productions v EMI Films (The Times, 9 May 1984)........................................10.40 Doodeward v Spence (1908) 6 CLR 406 (Australia)......................................................9.50 Dorling v Honnor Marine Ltd [1964] Ch 560, [1963] 3 WLR 397, [1963] 2 All ER 495, [1963] RPC 205, [1963] 1 Lloyd’s Rep 377, 107 SJ 738............ 10.17, 10.22, 10.23 Douglas v Hello! Ltd [2001] QB 967, [2001] 2 WLR 992, [2001] 2 All ER 289, [2001] EMLR 199, [2001] FSR 732...................................................................................8.18

liii

Table of Cases Douglas v Hello! Ltd (No 3) [2005] EWCA Civ 595, [2006] QB 125, [ 2005] 3 WLR 881, [2005] 4 All ER 128, [2005] 2 FCR 487.....................................................8.01, 8.12 Dunlop Pneumatic Tyre Co Ltd v Cresswell Cheshire Rubber Co (1901) 18 RPC 473 10.19 Dunlop Pneumatic Tyre Co Ltd v David Moseley & Sons Ltd [1904] 1 Ch 612, 73 LJ Ch 417, 21 RPC 274, 52 WR 454, 48 SJ 311, 91 LT 40, 20 TLR 314...................9.44 Dunlop Pneumatic Tyre Co Ltd v Holborn Tyre Co Ltd (1901) 18 RPC 222................10.19 Dunlop Pneumatic Tyre Co Ltd v Neal [1899] 1 Ch 807...............................................9.44 Dunlop Pneumatic Tyre Co Ltd v North British Rubber Co Ltd (1904) 21 RPC 161....10.07, 10.19 Dyson Ltd v Qualtex (UK) Ltd [2006] EWCA Civ 166, [2006] RPC 769, [2007] IP&T 747, [2006] All ER (D) 101 (Mar)..............................................................7.07, 7.08, 9.44 E East West Corporation v DKBS 1912 A/S and another; Utaniko Ltd v P & O Nedlloyd BV [2003] EWCA Civ 83, [2003] QB 1509, [2003] 3 WLR 916, 2003] 2 All ER 700, [2003] 1 All ER (Comm) 525.........................................................................9.36 Edwards v Newland & Co (E Burchett Ltd, third party) [1950] 2 KB 534, [1950] 1 All ER 1072, 66 TLR (Pt 2) 321, 94 SJ 351.................................................................9.42 Edwards v Skyways Ltd [1964] 1 WLR 349, [1964] 1 All ER 494, 108 SJ 279............10.40 Electricity Supply Nominees Limited v IAF Group Limited [1993] 1 WLR 1059, [1993] 3 All ER 372, (1992) 67 P&CR 28, [1993] 37 EG 155, [1992] EGCS 145...............................................................................................................10.69 Electrolux Ltd v Hudson and others [1977] FSR 313.....................................................10.63 Eli Lilly & Co v Human Genome Sciences Inc [2008] EWHC 1903 (Pat), (2008) 105 BMLR 27, [2008] All ER (D) 410 (Jul) (Pat Ct)................................................ 4.40, 4.84 English & American Insurance Co Ltd v Herbert Smith & Co (A Firm) [1988] FSR 232, (1987) 137 NLJ 148..................................................................................8.19, 10.55 Erith Engineering Co Ltd v Sanford Riley Stoker Co and Babcock & Wilcox Ltd (1920) 37 RPC 217.................................................................................................10.25 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, [1967] 2 WLR 871, [1967] 1 All ER 699, 111 SJ 174..........................................................15.15 Establisssements Consten SA & Grundig-Verkaufs-GmbH v Commission (Cases 56/64, 58/64) [1966] ECR 299, [1966] CMLR 418, ECJ.................................9.48, 12.02 Eurodynamic Systems plc v General Automation Ltd (unreported, 6 September 1988).......................................................................................................................10.74 European Sugar Cartel, Re; Cooperatiëve Vereniging ‘Suiker Unie’ UA v Commission (Cases 40–8, 50, 54–6, 111 and 113–4/73) [1975] ECR 1663, [1976] 1 CMLR 295, ECJ.......................................................................................................... 12.16, 12.18 Expedia Inc v Autorité de la concurrence (Case C-226/11) [2013] Bus LR 705, [2012] 12 WLUK 438, [2013] 4 CMLR 14.................................................... 12.21, 12.71, 12.72, 14.02 Exxon Corpn v Exxon Insurance Consultants International Ltd [1982] Ch 119, [1981] 3 All ER 241, [1982] RPC 81, (1981) 125 SJ 527; affirming [1981] 1 WLR 624, [1981] 2 All ER 495, [1982] RPC 69, [1981] FSR 238...................................... 5.09, 5.60 F FSS Travel and Leisure Systems v Johnson [1998] IRLR 382................................... 8.06, 8.31 Faccenda Chicken v Fowler [1984] ICR 539; [1987] 1 Ch 117, [1986] 1 All ER 617, [1986] 3 WLR 288, [1986] FSR 291...............................................8.01, 8.28, 8.29, 8.30, 8.31, 8.44 Farmers Build Ltd v Carier Bulk Materials Handling Ltd and others [1999] RPC 461, [1999] ITCLR 297, [2000] IP&T 49, (1999) 22(3) IPD 22031, [1998] All ER (D) 681......................................................................................................................7.08, 7.09 Fenin v Commission (Case C-205/03) [2006] ECR I-695, [2006] 5 CMLR 559, ECJ..15.08 Fiona Trust v Privalov [2007] UKHL 40, [2007] 4 All ER 951, [2008] 1 Lloyd’s Rep 254..........................................................................................................................10.61 Fisher v Brooker [2009] UKHL 41, [2009] 1 WLR 1764, [2009] 4 All ER 789............5.13

liv

Table of Cases Fitzroy Robinson Ltd v Good Start Ltd; Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 3365 (TCC), [2009] 12 WLUK 694, [2010] BLR 165............10.99 Fixtures Marketing Ltd v Organismos Prognostikon Agonon Podosfairou (Case C-444/02) [2004] ECR I-10549, [2005] IP&T 453, [2005] ECDR 3, [2004] All ER (D) 149 (Nov), ECJ....................................................................................... 6.02, 6.07 Fleming v JS Doig (Grimsby) Ltd (1921) 38 RPC 57....................................................10.05 Florey’s Patent [1962] RPC 186.....................................................................................10.62 Fluflon Ltd v William Frost & Son Ltd [1968] RPC 508, [1966] FSR 184...................10.09 Folding Attic Stairs Ltd v Loft Stairs Co Ltd [2009] EWHC 1221 (Pat), [2009] FSR 24....................................................................................................................8.18 Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd [1958] 1 WLR 45, [1958] 1 All ER 11, [1958] RPC 8, 102 SJ 51........................................................... 10.39, 10.51 Football Dataco Ltd v Sportradar GmbH [2013] EWCA Civ 27, [2013] Bus LR 837, [2013] 2 WLUK 158........................................................................................... 6.01, 6.07 Football League v Littlewoods Pools [1959] Ch 637, [1959] 3 WLR 42, [1959] 2 All ER 546, 103 SJ 490.................................................................................................6.01 Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch), [2012] 3 WLUK 664, [2012] RPC 29........................................8.16 Forensic Telecommunications Services Ltd v West Yorkshire Police [2011] EWHC 2892 (Ch), [2011] 11 WLUK 243, [2012] FSR 15.................................................5.09 Franchi v Franchi [1967] 1 WLUK 175, [1967] RPC 149.............................................8.26 Francis Day & Hunter v Bron [1963] Ch 587, [1963] 2 WLR 868, [1963] 2 All ER 16......................................................................................................................5.43 Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892, [1984] 2 All ER 408, (1984) 128 SJ 484, (1984) 81 LS Gaz 2225...........................................................8.18 Fraser v Thames Television Ltd [1984] QB 44, [1983] 2 WLR 917, [1983] 2 All ER 101...................................................................................................................... 2.53, 8.10 Fraser-Woodward Ltd v British Broadcasting Corpn [2005] EWHC 472 (Ch), [2005] FSR 762, [2005] EMLR 487, [2006] IP&T 15, [2005] All ER (D) 410 (Mar)......5.25 Frayling Furniture Ltd v Premier Upholstery Ltd (1999) 22(5) IPD 22051...................10.37 Fresh Del Monte Produce Inc v Commission (Case C-293/13P) [2015] 6 WLUK 758, [2015] 5 CMLR 7....................................................................................................12.14 Fresh Trading Ltd v Deepend Fresh Recovery Ltd [2015] EWHC 52 (Ch), [2015] 1 WLUK 524..............................................................................................................5.14 Fuel Economy Co Ltd v Murray [1930] 2 Ch 93, (1930) 47 RPC 346..........................10.53 Fuji Electric Co Ltd v Commission (Case T-132/07) [2011] 7 WLUK 282, [2011] 5 CMLR 21................................................................................................................12.14 Fujitsu Ltd’s Patent Application [1997] RPC 608, [1997] Info TLR 103, (1997) 16 Tr LR 352, (1997) 20(7) IPD 20060, [1998] Masons CLR Rep 99; affirming [1996] RPC 511, [1997] Info TLR 101, [1998] Masons CLR Rep 112, (1996) 19(9) IPD 19078, Pat Ct.......................................................................................... 4.37, 4.103, 4.104 Fyffes v Chiquita Brands International Inc [1993] FSR 83............................................15.15 Fylde Microsystems Ltd v Key Radio Systems Ltd [1998] FSR 449, [1998] Info TLR 374, [1998] ITCLR 77, [1998] Masons CLR 190, (1998) 21(5) IPD 21045..........5.13 G Gadget Shop Ltd v Bug.Com Ltd [2001] FSR 383........................................................8.32 Gale’s Patent Application [1991] RPC 305............................................................ 4.103, 4.104 George Hensher Ltd v Restawhite Upholstery (Lancs) Ltd [1976] AC 64, [1974] 2 WLR 700, [1974] 2 All ER 420..............................................................................5.09 Georgetown University & Octrolcentrum Nederland (Case C-484/12) (judgment 12 December 2013)......................................................................................................4.83 Georgia-Pacific Corporation v United States Plywood Corporation 318 F Supp 1116 (SDNY 1970), affirmed in principle on appeal 446 F 2d (2nd Cir 1971), USA.........................................................................................................................16.06 Gibbs Mews plc v Gemmell [1999] ECC 97, [1998] Eu LR 588, [1999] 1 EGLR 43, [1999] 01 EG 117, [1998] NPC 124.......................................................................15.11

lv

Table of Cases Gill v Stone & Co Ltd (1911) 28 RPC 329.....................................................................10.42 Gillette Safety Razor Co Ltd v AW Gamage Ltd (1908) 25 RPC 492; revsd (1908) 25 RPC 782..................................................................................................................10.06 Godfrey v Lees [1995] EMLR 307.................................................................................5.13 Goucher v Clayton (1865) 13 LT 115, (1865) 11 Jur NS 462........................................10.05 Great Eastern Shipping Co Ltd v Far East Chartering Ltd [2012] EWCA Civ 180, [2012] 2 All ER (Comm) 707, [2011] All ER (D) 289 (May)................................10.79 Greater Glasgow Health Boards Application [1996] RPC 207, (1996) 19(1) IPD 6, Pat Ct.......................................................................................................................4.09 Green Lane Products Ltd v PMS International Group Ltd and others [2008] EWCA Civ 358, [2008] All ER (D) 313 (Apr)....................................................................7.61 Groupement des cartes bancaires (CB) v European Commission (Case C-67/13P) [2014] 9 WLUK 315, [2014] 5 CMLR 22..............................................................12.22 Guyot v Thomson [1894] 3 Ch 388, (1894) 11 RPC 541, 64 LJ Ch 32, 8 R 810, 71 LT 416.................................................................................................................. 10.21, 10.22 H HTC Europe CO Ltd v Apple Inc [2013] EWCA Civ 451, [2013] 5 WLUK 113, [2013] Info TLR 161....................................................................................... 4.103, 4.104 Hadden v Smith (1847) 20 LTOS 154............................................................................10.50 Hadley v Kemp [1999] EMLR 589.................................................................................5.13 Hall v Conder (1857) 26 LJCP 138, 288, Ex Ch............................................................10.37 Halliburton Energy Services Inc, Patent application in the name of [2011] EWHC 2508 (Pat), [2011] 10 WLUK 40, [2012] RPC 12..................................................4.104 Hansen v Magnavox Electronics Co Ltd [1977] RPC 301.............................................10.46 Harrison v Project & Design (Redcar) Ltd (No 1) [1977] 3 WLUK 208, [1978] FSR 81....................................................................................................................8.13 Harris’s Patent [1985] RPC 19........................................................................................4.09 Hartlington Conway Ltd’s Patent Application, Re; Xtralite (Rooflights) Ltd v Hartington Conway Ltd [2003] 2 WLUK 713, [2004] RPC 6................................4.04 Haughland Tankers A/S v RMK Marine Gemi Yapi Sanayil ve Deniz Tasimaciligi Isletmesi AS [2005] EWHC 32 (Comm)................................................................2.54 Henderson v Shiels (1906) 24 RPC 108................................................................. 10.05, 10.28 Henry Bros (Magherafelt) Ltd v Ministry of Defence (Revocation of Patent) [1997] RPC 693, (1997) 20(10) IPD 20096, Pat Ct; [1999] RPC 442, (1999) 22(3) IPD 22023........................................................................................................4.05, 4.07, 4.43, 10.19 Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] EWHC 145 (Ch), [2008] 1 WLUK 442, [2008] 5 EG 166 (CS).....................................................................................10.34 Hoffman v Drug Abuse Resistance Education (UK) Ltd [2012] EWPCC 2, [2012] 1 WLUK 324, [2012] Info TLR 63............................................................................5.17 Höfner & Elser v Macroton GmbH (Case C-41/90) [1991] ECR I-1979, [1993] 4 CMLR 306, (1991) 135 SJLB 54, ECJ........................................................... 12.13, 15.08 Hogan v Information Comr (EA 2005/0030)..................................................................11.51 Holland & Barrett International Ltd v General Nutrition Investment Co [2018] EWCA Civ 1586, [2018] 7 WLUK 42, [2019] FSR 1................................................. 10.06, 10.13 Howard & Bullough Ltd v Tweedales & Smalley (1895) 12 RPC 519, 40 SJ 32, 12 TLR 28................................................................................................................ 4.05, 4.06 Hubbard v Vosper [1972] 2 QB 84, [1972] 2 WLR 389, [1972] 1 All ER 1023, (1971) 116 SJ 95.................................................................................................................5.26 Hughes v Paxman [2006] EWCA Civ 818, [2007] RPC 34, [2006] All ER (D) 279 (Jun)....................................................................................................................4.05, 4.07 Huntoon Co v Kolynos (Inc) [1930] 1 Ch 528, 47 RPC 403, 99 LJ Ch 321, 143 LT 165, 46 TLR 253............................................................................................. 10.22, 10.52 Hyde Park Residence Ltd v Yelland [2001] Ch 143, [2000] 3 WLR 215, [2000] IP&T 412..........................................................................................................................5.26

lvi

Table of Cases I IBM Computer Programs (EPO Decision T935/97), [1999] RPC 861, [1999] EPOR 301, [1999] Info TLR 135, (1999) 22(6) IPD 22059, EPO (Technical Bd App)....4.103, 4.104 IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335...............................10.32 IDA Ltd and others v University of Southampton and others [2006] EWCA Civ 145, [2006] RPC 21, [2006] All ER (D) 22 (Mar)..........................................................4.43 IGT / Acres Gaming Inc (Patent Application No GB 0311200) [2008] EWHC 568 (Pat), [2008] 3 WLUK 501.....................................................................................4.37 IMH Investments Ltd v Trinidad Home Developers Ltd [1994] FSR 616, Trinidad CA................................................................................................................... 10.28, 10.37 IPC Media Ltd v News Group Newspapers Ltd [2005] EWHC 317 (Ch), [2005] 2 WLUK 623, [2005] All ER (D) 367 (Feb)..............................................................5.26 Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275....5.09, 5.19, 8.13, 9.44 Illumina Inc v Premaitha Health plc [2017] EWHC 2930 (Pat), [2017] 11 WLUK 484..........................................................................................................................10.13 Imasa Ltd v Technic Inc [1981] FSR 554, ECJ..............................................................10.32 Immingham Storage v Clear plc [2011] EWCA Civ 89.................................................2.22 Imutran Ltd v Uncaged Campaigns Ltd [2001] EWHC 31 (Ch), [2001] 2 All ER 385, [2001] EMLR 563, [2002] FSR 20.........................................................................8.18 Incandescent Gas Light Co Ltd v Cantelo (1895) 11 TLR 381, 12 RPC 262................10.29 Infabrics Ltd v Jaytex Ltd (No 1) [1980] Ch 282, [1980] 2 WLR 822, [1980] FSR 161..........................................................................................................................5.43 Infopaq International A/S v Danske Dagblades Forening (Case C-5/08) [2012] Bus LR 102, [2009] ECR I-6569, [2009] 7 WLUK 441....................................5.03, 5.17, 7.07 Initial Services v Putterill [1968] 1 QB 396, [1967] 3 WLR 1032, [1967] 3 All ER 145, 111 SJ 541, 2 KIR 863....................................................................................8.13 Inline Logistics Ltd v UCI Logistics Ltd [2001] EWCA Civ 1613, [2002] RPC 611..........................................................................................................................8.12 Innoweb BV v Wegener ICT Media (Case C-202/12)....................................... 6.01, 6.14, 6.18 Insituform Technical Services Ltd v Inliner UK plc [1992] RPC 83, Patents Ct...... 4.04, 9.05, 10.06, 10.69 Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ 536, [2010] 5 WLUK 419........2.22 Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, [1998] 1 All ER 98, [1998] 1 BCLC 531, [1997] PNLR 541, [1997] CLC 1243, (1997) 147 NLJ 989......................................................................................10.49 Invista Textiles (UK) Ltd v Botes [2019] EWHC 58 (Ch), [2019] 1 WLUK 170, [2019] IRLR 977......................................................................................  8.01, 8.02, 8.11, 8.31, 15.15 J JP Morgan Bank (formerly Chase Manhattan Bank) v Springwell Navigation Corpn [2008] EWHC 1186 (Comm), [2008] 5 WLUK 633..............................................10.70 JR French Ltd v Redbus LMDS Ltd [2005] EWHC 1436 (Ch), [2006] FSR 13....10.18, 10.24 Jackson Distribution Ltd v Tum Yeto Inc [2009] EWHC 982 (QB), [2009] All ER (D) 107 (May)................................................................................................................10.23 Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, [2012] 2 All ER (Comm) 1053, [2012] 4 WLUK 28.................................................................10.34, 10.36 John Connor Press Associates Ltd v The Information Commissioner (EA/2005/0005), 25 January 2006......................................................................................................11.51 John Richardson Computers v Flanders [1993] FSR 497, (1993) 26 IPR 367, (1993) IP&T Dig 25...........................................................................................................5.19 Johnson & Bloy (Holdings) Ltd v Wolstenholme Rink plc [1987] 8 WLUK 15, [1987] IRLR 499, [1989] FSR 135.....................................................................................8.10 Jolley v Carmel Ltd [2000] 2 EGLR 153........................................................................10.33

lvii

Table of Cases K Kabushiki Kaisha Sony Computer Entertainment Inc and others v Ball and others [2004] EWHC 1738 (Ch), [2004] 39 LS Gaz R 34, [2004] All ER (D) 334 (Jul).....5.33, 9.44 Kavanagh Balloons Pty Ltd v Cameron Balloons Ltd [2004] RPC 5, Patents Cty Ct....4.37 Kawasaki Kisen Kabushiki Kaisha v Belships Co Ltd Skibs A/S [1939] 2 All ER 108, (1939) 63 Ll L Rep 175, [1939] 3 WLUK 14.........................................................2.54 Kelly and another v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] All ER (D) 114 (Feb)............................................................................................................. 4.12, 4.19 Kirin-Amgen Inc and others v Hoechst Marion Roussel Ltd and others; Hoechst Marion Roussel Ltd and others v Kirin-Amgen and others [2004] UKHL 46, [2005] 1 All ER 667, [2005] RPC 169, [2005] IP&T 352, 148 SJLB 1249, [2004] All ER (D) 286 (Oct).......................................................................................... 9.45, 9.52 Kostul’s Application (BL 0/28/12)..................................................................................4.37 L LA Gear Inc v Hi-Tech Sports plc [1992] FSR 121................................................... 5.18, 5.43 LIFFE Administration & Management v Pinkava [2007] RPC 30, [2007] 4 All ER 981, [2007] ICR 1489.............................................................................................4.09 Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273, [1964] 1 All ER 465, 108 SJ 135...................................................................................... 5.03, 5.17 Laemthong International Lines Co Ltd v Artis and others [2005] EWCA Civ 519, [2005] 23 All ER (Comm) 167...............................................................................10.79 Lakeview Computers plc v Steadman (unreported), 26 November 1999.......................5.07 Lambretta Clothing Co Ltd v Teddy Smith (UK) Ltd and another [2004] EWCA Civ 886, [2005] RPC 88, [2005] IP&T 609, 148 SJLB 911, [2004] All ER (D) 269 (Jul).........................................................................................................................7.08 Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629, [1997] IRLR 113, (1996) 19(8) IPD 2.......................................................................................................  8.31, 8.32, 8.37 Lansing Linde Ltd v Kerr [1991] 1 WLR 251, [1991] 1 All ER 418, [1991] ICR 428, [1991] IRLR 80, (1990) 140 NLJ 1458.............................................................. 8.06, 8.31 Lantana Ltd v Comptroller General of Patents, Design & Trade Marks [2014] EWCA Civ 1463, [2014] 11 WLUK 343, [2015] RPC 16............................................ 4.37, 4.104 Lawson v Donald Macpherson & Co Ltd (1897) 14 RPC 696.......................................10.17 Leland Stanford/Modified Animal [2002] EPOR 2, European Patent Office (Opposition Division).............................................................................................4.95 Levy v Rutley (1871) LR 6 CP 523, 40 LJCP 244, 19 WR 976, 24 LT 621..................5.13 Liardet v Hammond Electric Light and Power Co (1883) 31 WR 710, 36 Digest 672, 1551................................................................................................................ 10.37, 10.64 Libraco Ltd v Shaw Walker Ltd (1913) 30 TLR 22........................................................5.09 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martin’s Property Co v Sir Robert McAlpine & Sons [1994] 1 AC 85, [1993] 3 WLR 408, [1993] 3 All ER 417, 63 BLR 1, 36 Con LR 1, (1993) 137 SJLB 183, [1993] EGCS 139, (1993) 143 NLJ 1152..............................................................................................10.20 Lines v Usher (1896) 13 RPC 685, (1897) 14 RPC 206..........................................10.37, 10.52 Linotype & Machinery Ltd v Hopkins (1910) 27 RPC 109...........................................10.10 Litholite Ltd v Travis & Insulators Ltd (1913) 30 RPC 266...........................................8.08 London Printing and Publishing Alliance Ltd v Cox [1891] 3 Ch 291, 60 LJ Ch 707, 65 LT 60, 7 TLR 738..............................................................................................5.07 Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch), [2008] 7 WLUK 975, [2008] ECDR 17............................................................................................................5.09, 10.60, 10.61 Lux Traffic Controls Ltd v Pike Signals Ltd & Faronwise Ltd [1993] 1 WLUK 873, [1993] RPC 107......................................................................................................4.37 Lyle-Meller v A Lewis & Co (Westminster) Ltd [1956] 1 WLR 29, [1956] 1 All ER 247, [1956] RPC 14, 100 SJ 13; affirming (1955) 72 RPC 307..................... 10.28, 10.53

lviii

Table of Cases M Mackie Designs Inc v Behringer Specialised Studio Equipment (UK) Ltd [1999] RPC 717, [1999] Info TLR 125, (1999) 22(7) IPD 22069, [1999] All ER (D) 411........7.11 McKennitt v Ash [2005] EWHC 3003 (QB), 2005] 12 WLUK 734, [2006] EMLR 10............................................................................................................................8.13 Mackenzie Patten & Co v British Olivetti Ltd (unreported, 11 January 1984), QBD....10.74 Malone v Commissioner of Metropolitan Police (No 2) [1979] Ch 344, [1979] 2 WLR 700, [1979] 2 All ER 620, (1979) 69 Cr App R 168, (1979) 123 SJ 303...............8.18 Manchester Ship Canal Co Ltd v Vauxhall Motors Ltd (formerly General Motors UK Ltd) [2018] EWCA Civ 1100, [2019] Ch 331, [2019] 2 WLR 330........................10.24 Markem Corp and another v Zipher Ltd [2005] EWCA Civ 267, [2006] IP&T 102, [2005] RPC 761, [2005] All ER (D) 377 (Mar)......................................... 4.42, 4.43, 4.45 Marks & Spencer plc v BNP Pasribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742, [2015] 3 WLR 1843.....................................................10.30 Mars UK Ltd v Teknowledge Ltd (No 1) [2000] FSR 138, [2000] ECDR 99...............8.12 Marshall (Thomas) (Exporters) Ltd v Guinle [1979] 1 Ch 227, [1978] 3 All ER 193, [1978] 3 WLR 116, [1979] FSR 208.................................................................. 2.33, 8.13 Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556, [1955] 2 All ER 722, [1955] 3 WLR 212, (1955) 72 RPC 236.......... 10.01, 10.03, 10.22, 10.23 Massmann v Massmann and the Custodian of Enemy Property (1943) 61 RPC 13; (1943) 60 RPC 45 (1943)........................................................................................10.20 MasterCard Inc v Commission (Case C-382/12 P) [2014] 9 WLUK 320, [2014] 5 CMLR 23................................................................................................................12.14 Meccano Ltd v Anthony Horden & Sons [1918] SR (NSW) 696...................................5.09 Medeva BV v Comptroller-General of Patents, Designs & Trade Marks (Case C-322/10) [2011] ECR I-12051, [2011] 11 WLUK 709, [2012] RPC 25..............4.83 Mellor v William Beardmore & Co Ltd (1926) 43 RPC 361, Ct of Sess; varied (1927) 44 RPC 175, 1927 SC 597, Ct of Sess....................................................................10.05 Meltwater v Newspaper Licensing Agency [2013] UKSC 18, [2013] 2 All ER 852, [2013] 4 WLUK 304...............................................................................................5.09 Merill Lynch Inc’s Application [1989] RPC 561........................................... 4.37, 4.103, 4.104 Merryweather v Moore [1892] 2 Ch 518, [1892] 5 WLUK 17......................................8.26 Metropole television (M6), Suez-Lyonnaise des eaux France Telecom & Television francaise 1 SA (TF1) v Commission of the European Communities (Case T-112/99) [2001] ECR II-2459, [2001] 9 WLUK 207, [2001] 5 CMLR 33...........12.23 Microbeads AG v Vinhurst Road Markings Ltd [1975] 1 WLR 218, [1975] 1 All ER 529, (1974) 119 SJ 81; sub nom Microbeads AG and Ehrismann (Alfred) AG v Vinhurst Road Markings Ltd [1976] RPC 19, [1975] 1 Lloyd’s Rep 375.......10.29, 10.72 Midas IT Services v Opus Portfolio Ltd (unrerpoted, 21 December 1999)....................8.35 Miles-Martin Pen Co Ltd and Martin v the Selsdon Fountain Pen Co Ltd, Ralph Selsdon and Rebecca Selsdon (No 2) (1950) 67 RPC 64.......................................10.40 Miller International Schallplatten GmbH v EC Commission (No 19/17) [1978] ECR 131, [1978] 2 CMLR 334, [1978] FSR 524, ECJ...................................................12.24 Miller (James) & Partners v Whitworth Street Estates (Manchester) [1970] AC 583, [1970] 2 WLR 728, [1970] 1 All ER 796, 114 SJ 225, [1970] 1 Lloyd’s Rep 269...................................................................................................................10.58 Millichamp v Homes [1982] 1 WLR 1422, [1983] 1 All ER 267, [1982] 4 WLUK 1...2.54 Mills v Carson (1892) 9 TLR 80, (1892) 10 RPC 9, 37 SJ 64................................ 10.22, 10.46 Mitsui Construction Co Ltd v A-G of Hong Kong (1986) 33 BLR 14, (1986) 10 Con LR 1, (1986) 2 Const LJ 133..................................................................................10.49 Monkland v Jack Barclay Ltd [1951] 2 KB 252, [1951] 1 All ER 714, [1951] 1 TLR 763, 95 SJ 236.........................................................................................................10.32 Monsanto Co v Stauffer Chemical Co and Another [1985] RPC 515; [1985] RPC 515, [1985] FSR 55.........................................................................................................4.59 Moore v Regents of the University of California 51 Cal 3d 120, 271 Cal Rptr 146, 793 P 2d 479 (1990), Cal Sup Ct...................................................................................9.53

lix

Table of Cases Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414................8.13 Morris v Ashbee (1868) LR 7 Eq 34, 33 JP 133, 19 LT 550..........................................6.01 Morton-Norwich Products Inc and Others v Intercen Ltd (No 2); Morton-Norwich Products Inc and Others v United Chemicals (London) Ltd [1981] FSR 337........10.15, 10.16 Murray v Bogue (1852) 1 Drew 353, 61 ER 487, [1852] 12 WLUK 61........................5.43 Murray v King [1986] FSR 116 (Fed Ct, Australia).......................................................5.07 Murray (HM Inspector of Taxes) v Imperial Chemical Industries Ltd [1967] Ch 1038, [1967] 3 WLR 301, [1967] 2 All ER 980, [1967] RPC 216, [1967] TR 129, 46 ATC 138, 44 TC 175...............................................................................................10.15 Mustad v Dosen [1964] 1 WLR 109n, [1963] RPC 41; sub nom Mustad (O) & Son v S Allcock & Co Ltd and Dosen [1963] 3 All ER 416.................................8.26, 8.27, 8.37 N N v ‘Splendor’ Gloeilampen Fabrieken v Omega Lampworks Ltd (1933) 50 RPC 393..........................................................................................................................10.52 National Broach & Machine Co v Churchill Gear Machines [1965] RPC 61................8.24 National Broach & Machine Co v Churchill Gear Machines [1967] 1 WLR 384, [1966] 3 All ER 923 (Note), [1967] RPC 99..........................................................10.11 National Carbonising Co Ltd v British Coal Distillation Ltd (1937) 54 RPC 41, [1936] 2 All ER 1012, 80 SJ 652................................................................................ 10.06, 10.17 National Phonographic Co of Australia Ltd v Menck [1911] AC 336, 28 RPC 229, 80 LJPC 105, 104 LT 5, 27 TLR 239................................................................... 10.07, 10.29 Navitaire Inc v Easyjet Airline Co and another [2004] EWHC 1725 (Ch), [2006] RPC 111, [2004] All ER (D) 162 (Dec)...................................................................... 5.59, 5.60 Nederlandsche Banden Industrie Michelin NV v Commission of the European Communities (Case 322/81) [1983] ECR 3461, [1983] 11 WLUK 104, [1985] 1 CMLR 282..............................................................................................................12.19 Neurim Pharmaceuticals (1991) Ltd v Comptroller-General of Patents (Case C-130/11) [2012] 7 WLUK 593, [2013] RPC 23...................................................4.82 Newspaper Licensing Agency Ltd v Marks and Spencer plc [2001] UKHL 38, [2003] 1 AC 551, [2001] 3 All ER 977, [2001] 3 WLR 290, [2002] RPC 225, [2001] 31 LS Gaz R 32, [2001] EMLR 991, [2001] IP&T 1116............................... 5.03, 5.17, 9.44 Newspaper Licensing Agency Ltd v Meltwater Holding BV [2010] EWHC 3099 (Ch), [2010] 11 WLUK 713, [2011] ECDR 10......................................................5.17 Niblett Ltd v Confectioners’ Materials Co [1921] 3 KB 387, [1921] All ER Rep 459.....10.29, 10.72 Nichrotherm Electrical Co v Percy (JR) and Harvey (GA) & Co (London) [1956] RPC 272..........................................................................................................................8.11 Nisshin Shipping Co Ltd v Cleaves & Company Ltd and others [2003] EWHC 2602 (Comm), [2004] 1 All ER (Comm) 481..................................................................10.79 Noah v Shuba [1990] 2 WLUK 236, [1991] FSR 14......................................................5.14 Northern & Shell plc v Conde Nast [1995] RPC 117, (1995) 14 Tr LR 263.................10.06 Nova Productions Ltd v Mazooma Games Ltd and others [2007] EWCA Civ 219, [2007] IP&T 899.....................................................................................................5.60 Nungesser v Commission (Case 258/78) [1982] ECR 2015, [1983] 1 CMLR 278, ECJ..........................................................................................................................12.21 O O2 (Germany) GmbH & Co OHG v Commission of the European Communities (Case T-328/03) [2006] ECR II-1231, [2006] 6 WLUK 23, [2006] 5 CMLR 5...............12.23 Ocular Sciences Ltd v Aspect Vision Care Ltd, Geoffrey Harrison Galley v Ocular Sciences Ltd [1997] RPC 289, (1997) 20(3) IPD 20022, Pat Ct...............5.19, 7.09, 8.10, 8.13, 8.32, 8.37 Office Angels Ltd v Rainer Thomas [1991] 3 WLUK 166, [1991] IRLR 214...............8.31 Office of Communications v Information Comr & T Mobile (EA/2006/0078).............11.54

lx

Table of Cases On Demand Information plc (in administrative receivership) and another v Michael Gerson (Finance) plc and another [2001] 1 WLR 155, [2000] 4 All ER 734, [2000] 2 All ER (Comm) 513, [2000] NLJR 1300.................................................9.27 Openwork Ltd v Forte [2018] EWCA Civ 783, [2018] 4 WLUK 245...........................10.40 Orchard (Developments) Holdings plc v Reuters Ltd [2009] EWCA Civ 6, [2009] All ER (D) 85 (Jan).......................................................................................................9.13 Otto v Singer (1889) 7 RPC 7.........................................................................................10.50 Oxford Gene Technology v Affymetrix Inc [2001] IP&T 93; [2000] IP&T 1006, HC....10.01, 10.56 Oxford Gene Technology Ltd v Affymetrix Inc [2000] FSR 12.....................................10.18 Oxford Nanopore Technologies Ltd v Pacific Biosciences of California Inc [2017] EWHC 3190 (Pat), [2018] Bus LR 353, [2017] 12 WLUK 385............................10.13 Oxonica Energy Ltd v Neuftec Ltd [2009] EWCA Civ 668, [2009] All ER (D) 13 (Sept)...................................................................................... 1.63, 2.01, 2.10, 2.59, 10.49 P PLG Research v Ardon International Ltd [1992] 7 WLUK 439, [1993] FSR 197.........4.37 Pagnan SpA v Feed Products [1987] 2 Lloyd’s Rep 601................................................10.40 Panayiotou v Sony Music Entertainment (UK) Ltd [1994] EMLR 299, (1994) Tr LR 532.................................................................................................................. 2.112, 15.15 Parker & Parker v Tidball [1997] FSR 680, (1997) 20(3) IPD 20027............................7.09 PASSONI/Stand Structure [1992] EPOR 79..................................................................4.39 Pasterfield (t/a Glider Advertising Design) v Denham (t/a Denham Design) [1999] FSR 168, Plymouth Cty Ct.....................................................................................5.41 Patchett v Sterling Engineering Co (1953) 70 RPC 269; (1954) 71 RPC 63; [1955] AC 534, [1955] 2 WLR 424, [1955] 1 All ER 369, (1955) 72 RPC 50........................10.43 Paul Auckland and Enderby Construction Ltd BL 043/06 (2006) 11 December, Patents Office.......................................................................................................................4.09 Paul (KS) (Printing Machinery) Ltd v Southern Instruments (Communications) Ltd and EP Ellis (Male) t/a Ellis & Sons [1964] RPC 118...........................................8.17 PC(UK) v Diamond Shamrock Industrial Chemicals Ltd [1981] FSR 427....................10.13 Peart’s Patent (SRIS O/209/87)......................................................................................4.09 PennWell Publishing (UK) Ltd v Isles and others [2007] EWHC 1570 (QB), [2007] All ER (D) 180 (Jun)...............................................................................................6.09 Pepsi/Co Inc v Grupo Promer Mon Graphic SA [2011] (Case C-281/10) [2011] ECR I-10153, [2011] 10 WLUK 514, [2012] FSR 5.......................................................7.60 Peter Pan Manufacturing Co v Corsets Silhouette [1964] 1 WLR 96, [1963] 3 All ER 402, [1963] RPC 45, 108 SJ 97..............................................................................10.51 Pfizer Corpn v Ministry of Health [1965] AC 512, [1965] 2 WLR 387, [1965] 1 All ER 450, [1965] RPC 261, 109 SJ 149..........................................................................10.07 Phillips Petroleum Co (UK) Ltd v ENRON (Europe) Ltd [1997] CLC 329.......... 10.33, 10.36 Pips (Leisure Products) Ltd v Walton (1980) 43 P&CR 415, 260 EG 601, [1981] EGD 1003........................................................................................................................10.32 Postcard Automatic Supply Co v Samuel (1889) 6 RPC 560.........................................10.05 Potters-Ballotini v Weston-Baker [1977] RPC 202........................................................2.26 Price v Elf Print Media Ltd [2001] EWCA Civ 622.......................................................4.10 Primary Group (UK) Ltd v Royal Bank of Scotland [2014] EWHC 1082 (Ch), [2014] 2 All ER (Comm) 1121, [2014] 4 WLUK 503.......................................................8.14 Printers & Finishers Ltd v Holloway (No 2) [1965] 1 WLR 1, [1964] 3 All ER 731, [1965] RPC 239, 109 SJ 47.............................................................................. 8.31, 10.55 Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462, 44 LJ Ch 705, 32 LT 854, 23 WR 463............................................................................................10.64 Procter & Gamble Co v Reckitt Benckiser (UK) Ltd [2007] EWCA Civ 936, [2008] FSR 208, [2007] IP&T 464, [2007] All ER (D) 133 (Oct).....................................7.61 Proforce Recruit Ltd v The Rugby Group Ltd [2006] EWCA Civ 69, [2006] 2 WLUK 383..........................................................................................................................2.22 Prout v British Gas plc [1992] 2 WLUK 184, [1992] FSR 478......................................8.27

lxi

Table of Cases Q QBE Management Services (UK) Ltd v Dymoke [2012] EWHC 80 (QB)............... 8.33, 8.35, 8.36 R R v Kelly (Anthony Noel); R v Lindsay (Neil) [1999] QB 621, [1999] 2 WLR 384, [1998] 3 All ER 741................................................................................................9.50 R v Rothery [1976] RTR 550, [1976] Crim LR 691; sub nom R v Rothery (Henry Michael) (1976) 63 Cr App R 231..........................................................................9.51 R v Welsh [1974] RTR 478.............................................................................................9.51 R v Whiteley (1991) 93 Cr App R 25, [1993] FSR 168, [1991] Crim LR 436, (1991) 135 SJ 249, (1991) 155 JP 917, (1991) 155 JPN 378.............................................10.74 R Griggs Group Ltd v Evans [2005] EWHC 1487 (Ch), [2006] FSR 21, [2005] All ER (D) 172 (July)..........................................................................................................5.14 R (on the application of Mercury Tax Group) v R & C Comrs [2008] EWHC 2721 (Admin), [2009] STC 743, [2008] 11 WLUK 303.................................................2.118 RFH Suhr v Crofts (Engineers) Ltd (1932) 49 RPC 359........................................ 10.28, 10.37 RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753, [2010] 3 All ER 1.............................................................2.22 Rackham v Peek Foods Ltd [1990] BCLC 895..............................................................10.32 Railway and Electrical Appliances Co, Re (1888) 38 Ch D 597, 57 LJ Ch 1027, 59 LT 22, 36 WR 730........................................................................................................10.30 Raineri v Miles [1981] AC 1050, [1980] 2 WLR 847, [1980] 2 All ER 145..................8.24 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, [2012] 1 All ER 1137..................................................................................................................10.04 Rapid Steel Co v Blankstone (1907) 24 RPC 529..........................................................10.13 Ravenseft Properties v Director General of Fair Trading [1977] 1 All ER 47; sub nom Ravenseft Properties’ Application [1978] QB 52, [1977] 2 WLR 432, [1977] ICR 136..........................................................................................................................15.15 Reade v Bentley (1858) 4 K & J 656, 27 LJ Ch 254, 4 Jur NS 82, 6 WR 240, 30 LTOS 269..........................................................................................................................10.03 Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, [1968] 2 WLR 775, [1968] 1 All ER 433, 4 KIR 132...............5.14 Redges v Mulliner (1892) 10 RPC 21..................................................................... 10.03, 10.42 Regina Glass Fibre Ltd v Werner Schuller [1972] RPC 229, [1972] FSR 141, (1972) 116 SJ 138.............................................................................................. 2.40, 10.12, 10.55 Reid & Sigrist Ltd v Moss & Mechanism Ltd (1952) 49 RPC 461................................8.26 Research Corpn’s Supplementary Protection Certificate [1994] RPC 387; on appeal [1994] RPC 667, Pat Ct..........................................................................................4.90 Rhodia International Holdings Ltd and another v Huntsman International LLC [2007] EWHC 292 (Comm), [2007] 2 All ER (Comm) 577, [2007] 2 Lloyd’s Rep 325.....10.33, 10.34 Rickmond & Co Ltd v Wrightson (1904) 22 RPC 25.....................................................10.64 Robb v Green [1895] 2 QB 315, [1895] 7 WLUK 40................................................ 8.11, 8.29 Robin Ray v Classic FM plc [1998] FSR 622, [1998] ECC 488, (1998) 21(5) IPD 21047, (1998) 148 NLJ 445, (1998) 95(17) LSG 32................................. 5.13, 5.14, 6.01 Roger Bullivant Ltd v Ellis [1986] 5 WLUK 225, [1987] ICR 464, [1987] IRLR 491....8.33, 8.35 Rolawn Ltd and another v Turfmech Machinery Ltd [2008] EWHC 989 (Pat), [2008] All ER (D) 77 (May)...............................................................................................7.68 Rose v Information Services Ltd [1986] 10 WLUK 184, [1987] FSR 254....................5.09 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 1995] 3 WLR 64, [1995] 3 All ER 97......................................................................................................................8.19 S SA des Manufacturers de Glaces v Tilghman’s Patent Sand Blast Co (1883) 25 Ch D 1...........................................................................................................................10.38

lxii

Table of Cases SAS Institute Inc v World Programming Ltd (Case C-406/10) [2013] Bus LR 941, [2012] 5 WLUK 54, [2012] 3 CMLR 4..................................................................7.07 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482, [2013] 11 WLUK 538, [2015] ECDR 17....................................................................5.17, 5.58, 7.07 SELEX Sistemi Integrati SpA v Commission (Case T-155/04) [2006] ECR II-4797, [2007] 4 CMLR 372................................................................................................12.13 SIA “Maxima Latvia” v Konkurences padome (Case C-345/14) [2015] Bus LR 1565, [2015] 11 WLUK 718, [2016] 4 CMLR 1..............................................................12.23 St Albans City and District Council v International Computers Ltd [1995] FSR 686, [1997] Info TLR 25, [1994] Masons CLR 14, QBD; revsd in part [1996] 4 All ER 481, [1997] Info TLR 58, (1996) 15 Tr LR 444, (1997) 20 IPD 20020, [1996] Masons CLR 13................................................................................... 10.03, 10.71, 10.74 Sadgrove v Godfrey (1919) 37 RPC 7............................................................................10.10 Saltman Engineering Co, Ferotel and Monarch Engineering Co (Mitcham) v Campbell Engineering Co Ltd [1963] 3 All ER 413n, [1963] RPC 203................... 8.10, 8.13, 8.22, 8.32, 8.39, 10.55 Salvage Association v CAP Financial Services Ltd [1995] FSR 654, QBD......... 10.03, 10.69, 10.74 Samsung Electronics (UK) Ltd v Apple Inc [2012] EWHC 1882 (Pat), [2012] 7 WLUK 212, [2013] ECDR 1..................................................................................7.60 Sandeman Coprimar SA v Transistos u Integrales SL [2003] EWCA Civ 113, [2003] QB 1270, [2003] 2 WLR 1496................................................................................9.42 Saphena Computing Ltd v Allied Collection Agencies Ltd [1995] FSR 616 and Official Referee.................................................................................................5.14, 10.72 Sawkins v Hyperion Records Ltd [2005] EWCA Civ 565, [2005] 3 All ER 636, [2005] 1 WLR 3281, [2005] RPC 808, [2005] IP&T 923, [2005] EMLR 688.............. 5.40, 5.57 Scammell (G) and Nephew v Ouston [1941] AC 251, [1941] 1 All ER 14, 110 LJKB 197, 164 LT 379......................................................................................................10.40 Schering Chemicals v Falkman [1982] QB 1, [1981] 2 WLR 848, [1981] 2 All ER 321, (1981) 125 SJ 342...........................................................................................8.26 Schlesinger v Turner (1890) 63 LT 764..........................................................................5.43 Schutz (UK) Ltd v Werit (UK) Ltd [2013] UKSC 16, [2013] 2 All ER 177, [2013] Bus LR 565....................................................................................................................9.45 Scott and Beard’s Patent (In the matter of) (1927) 45 RPC 31.......................................10.20 Scottish Vacuum Cleaner Co Ltd v Provincial Cinematograph Theatres Ltd (1915) 32 RPC 353, Ct of Sess................................................................................................10.29 Seager v Copydex Ltd (No 1) [1967] 1 WLR 923, [1967] 2 All ER 415, [1967] RPC 349, [1967] FSR 211, 111 SJ 335, 2 KIR 828; reversing [1967] RPC 349........8.10, 8.21, 8.24, 8.37 Seager v Copydex Ltd (No 2) [1969] 1 WLR 809, [1969] 2 All ER 718, [1969] RPC 250, [1969] FSR 261, 113 SJ 281...........................................................................10.55 Searle & Co v Celltech [1982] FSR 92...........................................................................8.01 Sectrack NV v Satamatics Ltd and another [2007] EWHC 3003 (Comm), [2007] All ER (D) 312 (Dec)................................................................................................ 8.06, 8.35 Shanks v Unilever plc [2019] UKSC 45, [2019] 1 WLR 5997......................... 4.11, 4.12, 4.19 Sheffield District Railway v Great Central Railway (1911) 14 Ry, and Canal Traffic Cases 299, 27 TLR 451...........................................................................................10.32 Siemans v Taylor (1892) 9 RPC 393..............................................................................10.46 Simtech Advanced Training and Simulation Ltd v Jasmin Simtec Ltd [1995] FSR 475, (1995) IP&T Dig 24................................................................................................10.40 Sirdar Rubber Co Ltd v Wallington, Weston & Co (1905) 22 RPC 257; on appeal (1906) 23 RPC 132; affd (1907) 24 RPC 539, 97 LT 113......................................9.44 Smith v Anderson (1880) 15 Ch D 247, 50 LJ Ch 39, 43 LT 329, 20 WR 21................10.56 Smith v Buckingham (1870) 18 WR 314........................................................................10.37 Smith v Neale (1857) 26 LJCP 143, (1857) 2 CBNS 67.........................................10.37, 10.64 Smith Kline & French Laboratories Ltd v Bloch (1981) 125 SJ 81...............................10.58 Smith Kline & French Laboratories Ltd v Evans Medical Ltd [1989] FSR 513............4.59

lxiii

Table of Cases Societe de Vente de Ciments et Betons de L’Est SA v Kerpen & Kerpen GmbH & Co (No 319/82) [1983] ECR 4173, ECJ............................................................... 12.27, 15.11 Societe Technique Miniagere v Maschinenbau Ulm GmbH (Case 56/65) [1966] ECR 235, [1966] CMLR 537, ECJ............................................................... 12.22, 12.23, 12.27 Software Incubator Ltd v Computer Associates UK Ltd [2016] EWHC 1587 (QB), [2017] Bus LR 245, [2016] 7 WLUK 22................................................................10.71 Solar Thomson Engineering Co Ltd v Barton [1977] RPC 537.................................9.44, 9.45 Sony Computer Entertainment Inc v Ball (Application for Summary Judgment) [2004] EWHC 1738 (Ch), [2004] 7 WLUK 528, [2005] ECC 24..........................5.48 Sony Music Entertainment (UK) v EastInternetCafeLtd [2003] EWHC 62 (Ch), [2003] 1 WLUK 608, [2003] ECDR 27..................................................................5.43 Speed Seal Products Ltd v Paddington [1985] 1 WLR 1327, [1986] 1 All ER 91, [1985] 7 WLUK 385........................................................................................... 8.26, 8.27 Sport International Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776, [1984] 2 All ER 321, (1984) 128 SJ 383, (1984) 81 LS Gaz 1992, (1984) 134 NLJ 568...........10.24 Stanelco Fibre Optics Ltd’s Application [2004] EWHC 2263, [2005] RPC 15, [2004] All ER (D) 06 (Oct)................................................................................................8.13 Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53, [1998] 16 EG 140.............10.69 Stevenson Jordan and Harrison Ltd v Macdonald and Evans [1952] RPC 10; sub nom Stephenson Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101....10.55 Stoddard International plc v William Lomas Carpets Ltd [2001] FSR 848...................9.44 Stuart v Barrett [1994] EMLR 448.................................................................................5.13 Sun Valley Foods Ltd v John Philip Vincent [2000] FSR 825........................... 2.40, 8.33, 8.35 Symbian Ltd v Comptroller General of Patents [2008] EWCA Civ 1066, [2009] RPC 1, [2008] All ER (D) 75 (Oct)......................................................................... 4.103, 4.104 Szewczyk’s Application BL 0/301/04.............................................................................4.09 T T Coleborn & Sons v Blond [1951] 1 KB 43, [1950] 2 All ER 351, 66 TLR (Pt 2) 57.....9.45 Taylor v Hare (1805) 1 Bos & PNR 260.........................................................................10.50 Technograph Printed Circuits Ltd v Mills and Rockley (Electronics) Ltd [1972] RPC 346, [1971] FSR 188...............................................................................................4.38 Technomed Ltd v Bluecrest Health Screening Ltd [2017] EWHC 2142 (Ch), [2017] 8 WLUK 268, [2018] ECDR 1..................................................................................6.03 Tepea BV v EC Commission (Case 28/77) [1978] ECR 1391, [1978] 3 CMLR 392, [1979] FSR 11, ECJ................................................................................................12.13 Terrapin Ltd v Builders Supply Co (Hayes) Ltd [1967] RPC 375................... 2.40, 8.10, 8.33, 8.34, 8.37 Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234, 96 SJ 596, [1952] 2 TLR 574, affd (1952) 70 RPC 97............................................................................................10.32 Tett Bros Ltd v Drake & Gorham Ltd [1928–35] Mac CC 492......................................5.09 Teva UK Ltd v Gilead Sciences Ltd [2017] EWHC 13 (Pat), [2017] 1 WLUK 130......4.82, 4.83 Theal/Watts [1977] 1 CMLR D44, [1977] OJ L39/19....................................................12.13 Thomas v Pearce [2000] 2 WLUK 334, [2000] FSR 718...............................................8.19 Thompson, Sir Charles, exors of Lord Chesterfield v Eugenia Stanhope, Widow, & John Dodsley (1774) Amb 737, 27 ER 476, [1774] 3 WLUK 8.............................8.10 Thorn Security Ltd v Siemens Schweitz AG [2008] EWCA Civ 1161, [2009] Bus LR D67, [2008] All ER (D) 211 (Oct)..........................................................................4.04 Toby Construction Products Pty Ltd v Computa Bar (Sales) Pty Ltd [1983] 2 NSWLR 48, NSW SC.................................................................................................... 10.71, 10.74 Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761, [1955] 2 All ER 657, 72 RPC 209, 99 SJ 470........................................................15.15 Torrington Manufacturing Co v Smith and Sons (England) Ltd [1966] RPC 285....8.22, 10.55 Tournier v National Provincial & Union Bank of England [1924] 1 KB 461, [1923] 12 WLUK 61................................................................................................................8.27 Transfield Pty Ltd v Arlo International Ltd [1981] RPC 141, Aust HC.........................10.35

lxiv

Table of Cases Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [2009] 2 All ER (Comm) 1050, [2009] 3 WLR 861...............................................10.68 Triomed (Proprietary) Ltd v Beecham Group plc [2001] FSR 583................................2.33 Triplex Safety Glass Co Ltd v Scorah [1938] Ch 211, [1937] 4 All ER 693, [1937] 11 WLUK 13................................................................................................................8.26 Tucker v Farm and General Investment Trust Ltd [1966] 2 QB 421, [1966] 2 WLR 1241, [1966] 2 All ER 508, 110 SJ 267..................................................................10.77 Tudor Grange Holdings v Citibank [1992] Ch 53, [1991] 3 WLR 750, [1991] 4 All ER 1........................................................................................................................10.70 Turner v Royal Bank of Scotland [1999] 2 All ER (Comm) 664, [1999] 3 WLUK 446, [1999] All ER (D) 326............................................................................................8.27 Tweedale v Howard and Bullough Ltd (1896) 13 RPC 522...........................................10.05 U UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November 1986)............................................................................................. 10.33, 10.34 UBS AG v HSH Nordbank AG [2009] EWCA Civ 585, [2010] 1 All ER (Comm) 727, [2009] 2 Lloyd’s Rep 272.......................................................................................10.61 UDT (Commercial) Ltd v Eagle Aircraft Ltd [1968] 1 WLR 74, [1968] 1 All ER 104, [1967] 10 WLUK 72...............................................................................................10.57 UKRS Training Ltd v NSAR Ltd [2017] CAT 14, [2017] 7 WLUK 73, [2017] Comp AR 368....................................................................................................................15.08 Unchained Growth III plc v Granby Village (Manchester) Management Co Ltd (1999), 8 October 1999, (unreported), QBD...........................................................10.69 Unipat AG v Dowty Hydraulic Units Ltd [1967] RPC 401, [1967] 291........................10.58 Unwired Planet International Ltd v Huawei Technologies Co Ltd [2015] EWHC 3422 (Pat), [2015] 11 WLUK 496...................................................................................16.01 United Railways of Havana and Regla Warehouses, Re [1961] AC 1007, [1960] 2 WLR 969, [1960] 2 All ER 332,104 SJ 466...........................................................10.58 United Shoe Machinery Co of Canada v Brunet [1909] AC 330, 78 LJPC 101, 100 LT 579, 25 TLR 442, 53 Sol Jo 396.............................................................................15.15 United Wire Ltd v Screen Repair Services (Scotland) Ltd [2000] FSR 204..................9.45 Universal Music Australia v Sharman License Holdings [2005] FCA 1242..................5.17 Universal Thermosensors v Hibben [1992] 1 WLR 840, [1992] 3 All ER 257, [1992] 1 WLUK 663...........................................................................................................8.35 Ultraframe (UK) Ltd v Fielding [2003] EWCA Civ 1805, [2004] RPC 24, [2007] 2 All ER 983..............................................................................................................5.14 University of London Press Ltd v University Tutorial Press [1916] 2 Ch 601, 86 LJ Ch 107, 115 LT 301, 32 TLR 698............................................................................ 5.09, 5.57 V VLM Holdings Ltd v Ravensworth Digital Services Ltd [2013] EWHC 228 (Ch), [2013] 2 WLUK 354, [2014] FSR 9.......................................................................10.18 Valeo Vision SA v Flexible Lamps Ltd [1994] 6 WLUK 299, [1995] RPC 205............8.19 Vaesen/Moris [1979] 1 CMLR 511.................................................................................12.13 Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch), [2010] 3 WLUK 187, [2010] Bus LR D141.......................................................................................8.11 Vereeniging van Cementhandelaren v Commission (Case 8/72) [1972] ECR 977, [1973] CMLR 7, ECJ..............................................................................................12.19 Vestergaard Frandsen S/A (no called MVF3 APS) v Bestnet Europe Ltd [2013] UKSC 31, [2013] 1 WLR 1556, [2013] 4 All ER 781................................ 8.01, 8.02, 8.12, 8.16, 8.17, 8.19, 8.26 Vicom Systems Inc, Re T-204/84 [1987] 2 EPOR 74, EPO (Technical Bd App)...........4.103, 4.104 Viho Europe BV v Commission of the EC (Case C-73/95P) [1996] ECR I-5457, [1996] 10 WLUK 390, [1997] 4 CMLR 419..........................................................12.14 Vokes Ltd v Heather [1945] RPC 135............................................................................8.29

lxv

Table of Cases W WN Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L Rep 359, [1932] 7 WLUK 9, (1932) 147 LT 503..............................................................................................................10.40 Wallace Bogan & Co v Cove [1997] IRLR 453.............................................................8.01 Walton v Lavater (1860) 8 CBNS 162, Ex Ch................................................................10.37 Ward v Livesey (1887) 5 RPC 102..............................................................10.05, 10.22, 10.50 Warwick v Hooper (1850) 3 Mac & G 60, 17 LTOS 228....................................... 10.05, 10.22 Waterlow Publishers Ltd v Reed Information Services Ltd [1992] FSR 409.................6.01 Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696, [2001] BLR 143.......................................................10.03, 10.67, 10.71 Watts v Everitt Press Manufacturing Co (1910) RPC 718..............................................10.53 Werderman v Société Générale d’Electricité (1881) 19 Ch D 246, 45 LT 514, 30 WR 33.....................................................................................................................10.50 Wessex Dairies Ltd v Smith [1935] 2 KB 80, [1935] All ER Rep 75, [1935] 4 WLUK 13............................................................................................................ 8.26, 8.29 Western Geophysical Co v Bolt Associates 200 USPQ 1 (2d Cir 1978)........................10.32 Whitehead & Poole Ltd v Sir James Farmer & Sons Ltd (1918) 35 RPC 241......... 4.07, 10.62 Williams v Williams (1882) 20 Ch D 659, [1881–5] All ER Rep 840...........................9.50 Winter Garden Theatre v Millennium Productions [1948] AC 173, [1947] 2 All ER 331, [1947] LJR 1422, 177 LT 349, 63 TLR 529, 91 SJ 504.................................10.22 Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, [2017] 2 WLR 1095...............................................................................................................10.04 Wood v Leadbitter (1845) 13 M & W 838, [1843–60] All ER Rep 190.........................10.22 Woodhouse UK plc v Architectural Lighting Systems [2006] RPC 1........................ 7.61, 7.65 Woodroffe v Box [954] ALR 474, 28 ALJ 90 (High Ct, Australia)................................2.53 Worthington Pumping Engine Co v Moore (1902) 20 RPC 41......................................10.64 Wouters v Algemene Raad van de Nederlandse van Advocaten (Case C-309/00) [2002] ECR I-1577, [2002] 2 WLUK 426, [2002] 4 CMLR 27..................... 12.13, 12.14 Wrenn v Landamore [2007] EWHC 1833 (Ch), [2007] All ER (D) 361 (Jul); [2008] EWCA Civ 496.......................................................................................................5.14 Wright Hassall LLP v Horton Jr [2015] EWHC 3716 (QB), [2015] 12 WLUK 731.....4.04, 5.07 X Xaar’s International Application (BL O/257/98) (1998) 7 December, Patent Office.....4.43 Y Yates Circuit Foil v Electrofoils [1976] FSR 345....................................................... 8.05, 8.37 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37, [2010] QB 1, [2009] 3 WLR 118............................................................................................................. 9.36, 9.50 Yeda Research v Rhone-Poulenc Rorer [2007] UKHL 43, [2008] RPC 1, [2008] 1 All ER 425, [2008] IP&T 411................................................................................... 4.09, 4.83

lxvi

CHAPTER 1

Overview Introduction2 What is ‘technology transfer’? 3 Organisations involved in technology transfer, including research and development5 Different priorities in technology transfer 7 Universities and research institutions 7 Revenue sharing within universities 10 Technology transfer within high-tech companies 11 Technology transfer in industry generally 12 International transactions 13 Funding of R&D 14 UK Government funding 14 UK Research and Innovation 14 Committees of UKRI (formerly research councils) 15 UKRI funding 16 Funding by individual committees 16 Biotechnology and Biological Sciences Research Council 16 Engineering and Physical Sciences Research Council 17 Economic and Social Research Council 17 Innovate UK 17 Medical Research Council 17 Natural Environment Research Council 18 Science and Technology Facilities Council 18 Research England 18 Devolved counterparts 18 National academies 19 The Royal Society 19 The British Academy for the humanities and social sciences 19 The Royal Academy of Engineering 19 The Academy of Medical Sciences 20 Examples of government R&D funding programmes 20 Development funding 20 Industrial strategy 20 Capacity funding 21 Other government funding 21 EU funding Framework Programmes 21 Introduction21 Definitions used 24 Provisions relating to background 25 Provisions relating to results 25

1

1.01  Overview Obligation to exploit results 26 Protection of results 27 Transfer of ownership of results 27 Granting licences 28 Access rights to results 29 Dissemination of results 29 Failure to comply with intellectual property and dissemination provisions30 Non-commercial funding bodies 30 Charitable research 30 British Heart Foundation 31 Cancer Research UK 31 The Gatsby Charitable Foundation 32 The Leverhulme Trust 32 Nesta32 Nuffield Foundation 32 Versus Arthritis 33 Wellcome Trust 33 University research and charitable status 33 Introduction33 University research projects 34 A charitable purpose 35 The public benefit 35 The role of university trustees 37 University technology transfer companies 39 Representative bodies 40 The Russell Group of universities 40 PraxisAuril40 Overseas organisations 41 The role of lawyers in technology transfer agreements and activities 41 General41 Factors influencing when to use a lawyer 42 Drafting the agreement 46 Negotiating the agreement 47 Legal costs 48 Contact information 49

INTRODUCTION 1.01 This chapter provides an overview of technology transfer in the UK and overseas, including: •

what is ‘technology transfer’;

•

who is involved in it;

•

how it is funded; 2

What is ‘technology transfer’? 1.02

•

who benefits from it; and

•

the role of lawyers in these activities.

Later chapters of this book will consider legal and commercial topics that affect the drafting, negotiation and interpretation of technology transfer agreements. The remainder of this first Part will consider other commercialpractice subjects, including how technology transfer agreements are structured, and the main commercial issues that are addressed in technology transfer agreements. Relevant areas of law, and their practical application to technology transfer agreements, are considered in detail in Part B, whilst Part C considers regulatory and competition law controls on technology transfer. Part D addresses how intellectual property is valued and taxed.

WHAT IS ‘TECHNOLOGY TRANSFER’? 1.02 The term ‘technology transfer’ can have specific or wider meanings, depending on the context. The specific meanings include: •

For the purposes of the EU  Technology Transfer Agreements Block Exemption Regulation,1 ‘technology transfer’ effectively means the licensing of technology rights (including patents, software protected by copyright (but not other forms of copyright), design rights, and knowhow) with a practical aim: the production of contract products by the licensee and/or its sub-contractor(s) (or the assignment of such rights for the same purpose).2

•

The term is sometimes used to refer to the transfer of up-to-date technology and products from advanced, industrial nations to lesstechnology developed countries, sometimes on preferential financial terms, and with a view to enabling the poorer countries to take advantage of modern techniques for producing goods and services.

In this book the term is used in a broader sense, to include any activity where a person or an organisation creates or makes technology which is made available to another. It is best to illustrate this point by explaining how the term ‘technology transfer agreement’ is used. This book discusses a wide range of agreements that are concerned with the creation, transfer or exploitation of technology and related intellectual property rights: 1

2

Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements. See, eg, Recital 4 and Art 1(c). The Regulation also covers other forms of intellectual property (such as utility models, supplementary protection certificates). See para 13.10.

3

1.02  Overview

•

The two principal forms of agreement which are covered are: –

research and development (R&D) agreements; and

–

intellectual property licences and assignments;

then •

at appropriate points the discussion will extend to related types of agreement, including: –

confidentiality agreements;

–

sub-contracting agreements;

–

manufacturing agreements;

–

trials and testing agreements;

–

material transfer agreements; and

– employment contracts (particularly, provisions relating to intellectual property and confidentiality). Occasionally, there is use of the term ‘technology-related agreements’ (such as in the chapters on EU competition laws) where ‘technology transfer agreement’ might be confusing. In the Technology Transfer Agreements Block Exemption Regulation, there is a narrower meaning of that term – which concerns only licensing and assignment agreements. In some areas, it is not always easy to find a clear dividing line between the law relating to technology transfer and the law relating to other activities such as production, distribution or sales. Two examples, both in the context of EU competition law, come to mind: •

Where a distributor sells software that has been supplied to it by another company (the supplier), it may do so either: –

by simply re-selling copies of the software that have been made and packaged by the supplier; or

–

by using a master copy of the software given to it by the supplier with the supplier licensing the distributor to make copies, package them (perhaps with a licence to include the supplier’s trade marks on the packaging) and sell them on to purchasers.

The former method falls outside the category of technology transfer, the latter method may sometimes fall within that category. For EU competition law purposes, the former method may qualify for block exemption under the Vertical Agreements Regulation, whilst the latter method may be regarded as technology transfer. Another example in the software field that is likely to be within the category of technology transfer is where a software author produces a set of tools or a 4

Organisations involved in technology transfer 1.03

program which needs to be turned into a developed, finished product whether alone or with other programs and the licence to carry out the development also provides the right to sell the finished product incorporating the licensed program or tools, etc. •

Where the parties to a research collaboration project conduct it via a joint venture company, and if that joint venture is a full-function joint venture with a Community dimension, it will be treated as a corporate merger for competition law purposes and fall to be assessed under the EU Merger Regulation.3

Accordingly, a comprehensive treatment of technology transfer agreements might require a consideration of the law relating to distribution agreements and the law relating to corporate mergers. Another example arises in the university context, where technology transfer departments are increasingly using ‘spin-out’ companies as a vehicle for technology transfer rather than licensing the technology to an independent, usually large, company. Company law, including company formation, shareholder agreements and investment agreements, is outside the main subject area of this book.4 The authors must make a judgement, perhaps arbitrary, as to when a legal subject strays too far from the main theme of the book. At various points the reader will be referred to other sources of information on legal topics that are treated briefly, or not at all, in the text.

ORGANISATIONS INVOLVED IN TECHNOLOGY TRANSFER, INCLUDING RESEARCH AND DEVELOPMENT 1.03 Research and development (R&D), and associated technology transfer activities, are conducted by a range of different types of organisation, including: •

Large manufacturing companies that typically spend a small percentage of their turnover on R&D, and where R&D may be viewed as ancillary to the main purpose of the business, ie to manufacture and sell products. Traditionally, such R&D activities have often been conducted in-house, making technology transfer agreements unnecessary. In recent years, in-licensing of technology has become more popular, particularly in an area such as pharmaceuticals where there is a constant pressure to find new sources of drugs. Sometimes, large companies may ‘drop’ a technology, eg because it doesn’t fit their strategic objectives, and be prepared to license it out.

3

See para 12.33 and Council Regulation (EC) 139/2004 ([2004] OJ L24/1) on the control of concentrations between undertakings (the EC Merger Regulation) from 1 May 2004. For a discussion of legal and practice issues in venture capital, joint ventures and shareholders agreements, see the Encyclopaedia of Forms and Precedents, particularly vols 4, 19 and 9 respectively.

4

5

1.03  Overview

•

Technology-based companies, many of them small-to-medium-sized companies, that spend a large part of their turnover on R&D, and where the in-licensing and/or out-licensing of technology is a central part of their commercial activities.

•

Universities and other research-based charities, which have always been involved in research activities and increasingly are becoming involved in commercially-focused R&D  work and in the licensing of their inventions to commercial companies.

These categories are clearly generalisations, but they help to clarify the following discussion. In recent years, technology transfer agreements have become of increasing commercial significance, and growing numbers of lawyers are specialising in this field. This may be partly as a result of an increased willingness on the part of traditional manufacturing companies to contemplate licensing-in technologies – in other words, a move away from the traditional hostility on the part of large companies to technology that it was ‘not invented here’. It may be partly as a result of universities becoming more actively involved in commercial activities, including technology transfer. Many of the leading UK universities now have sophisticated technology transfer operations that are generating significant revenues for these universities. Perhaps the most significant factor is the increased scale and activity of technology-based companies and the number of organisations promoting and supporting such activity, including the Russell Group and PraxisAuril.5 The newer, technology-based industries are becoming increasingly important to the UK economy, as evidenced by the number of biotech and e-commerce companies that have joined (and, in some cases, quickly left) the FTSE-100 index in recent years, replacing companies in traditional industries. Many of these high-tech companies do not make or sell products, or if they do their stock market value is not based on a multiple of annual product sales. Instead, their value is based on intangibles such as intellectual property and goodwill. In the case of a biotech company, these intangibles might be patents protecting their drugs in development. In the case of an internet bookseller, they might be a customer base that is predicted to generate future revenues. In both of these examples, the company may not have made a profit since formation, and may not be expected to do so for many years to come. Put another way, many of these companies are valued on the basis that they possess valuable information and a means of protecting that information, and that they are conducting activities to realise value from that information. For example, a biotech company may possess information about its drug in development, may protect that information through patents, regulatory exclusivity and confidentiality agreements, and may intend to realise the value of that information by bringing the drug to the market or by licensing 5

See para 1.58 below.

6

Different priorities in technology transfer 1.04

another company to do so. The internet bookseller may not yet have made a profit, but may have generated goodwill and customer loyalty from users of its website (ie information possessed by customers and others about the company); it may possess a valuable database on its customers, and may realise value from that information in a number of ways, eg  by using its website to sell products other than books, and to provide advertising space to third parties. Thus, many technology-based companies are in the business of generating, using and deriving value from information. One of the more important ways in which they do this is by entering into agreements with third parties to create, transfer and commercially exploit the information – in other words, technology transfer agreements.

DIFFERENT PRIORITIES IN TECHNOLOGY TRANSFER Universities and research institutions 1.04 Universities approach R&D  agreements, and other forms of technology transfer agreement, with different priorities and objectives to those of most commercial companies. Other types of charitable research institution, eg a cancer research charity that employs research scientists, will often have similar issues and concerns to a university. Many UK universities, particularly those engaged in prestigious scientific research, are incorporated by Royal Charter and have charitable status. Their charitable status means that most if not all of the income that they receive is exempt from corporation tax. Some types of R&D agreement with commercial companies are consistent with a university’s charitable and tax-exempt status, other types are not. An important test of charitable R&D  work is whether the results are made available to the public, usually by means of academic publications. If the university conducts the R&D  under an agreement that includes restrictions on publication, the results of the R&D may cause the R&D  to be regarded as non-charitable and cause any payments received under the agreement to be subject to corporation tax. The HMRC and the Charity Commissioners take the view that a delay in publication of up to six months to allow patents to be filed does not prejudice charitable status, but lengthier or wider restrictions may do so.6 Even if the payment is subject to the corporation tax regime, there may not be a tax liability. It is understood that many UK universities fail to charge companies the full costs of commissioned research projects. The university may be able to show that the costs incurred in undertaking the work exceed the payments received, ie there is no ‘profit’ on which tax would be assessed. 6

See para 1.52 below.

7

1.04  Overview

A related issue is that academic scientists and their institutions are judged7 by the quantity and quality of academic research that they undertake. Some research conducted under agreements with commercial companies qualifies as academic research for these purposes; other commercial research activities do not. Again, a key test is whether the results of the research are published or allowed to be published. A delay in publication of up to a year is generally permitted for this purpose. These issues may mean that a university is not willing to accept certain restrictions on publications, or if it does it will classify the research as commercial and increase the price for that research work accordingly. In some cases a university may be unwilling to conduct research that is too focused on one company’s products or technology. A related issue that affects the terms of R&D agreements is who is to own and who may use any of the intellectual property that may be generated in the research programme, and on what terms. Some historical background may help to set the scene here. Traditionally, UK universities have obtained much of their funding from what are now various committees of United Kingdom Research and Innovation (although still called under their old title of a ‘Research Council’, such as the Medical Research Council (MRC)). Although now fairly ancient history, until 1985 there were restrictions on how universities could exploit the intellectual property created.8 Many UK universities now have technology transfer departments or subsidiary companies which are responsible for the commercialisation and exploitation of inventions made at the university (whether or not funded by a Research Council). In many cases these departments did not exist prior to 1985. Some of them have grown large in recent years and now run a sophisticated operation; others are still at a relatively early stage of development. As well as simply licensing their intellectual property to commercial companies, there is an increasing tendency for universities to form ‘spin-out’ companies, transfer items of intellectual property into the company and obtain venture capital investment to finance the company’s activities. 7

8

Eg by what is now United Kingdom Research and Innovation (UKRI) (which replaced the Higher Education Funding Council (HEFCE) in terms of funding of higher education. The HEFCE duties were taken over by the Office for Students (as the regulator of higher education) and UKRI by the Higher Education and Research Act 2017 from 1 June 2018. The work of UKRI and its various committees is described later in this chapter. Until 1985, if any commercially valuable technology resulted from research that was conducted at a UK university and funded by a Research Council, the university was expected to commercialise the technology through the National Research and Development Corporation (NRDC). In 1985 the Government announced that universities were no longer to be restricted to using the NRDC. If they wished, they could pursue other routes to commercialisation. They were, however, required to report what steps they were taking to ensure the proper commercialisation of such technologies. At around the same time, the NRDC was renamed the British Technology Group (BTG), and a few years later the BTG was privatised (and renamed again to 3i).

8

Organisations involved in technology transfer 1.04

It should also be mentioned that universities are highly political organisations, with powerful vested interests, particularly amongst the senior academic staff and heads of department. It is predictable that a university’s level of interest in pursuing an R&D project will not always be related to whether commercially valuable results are likely to flow from the project. Academic priorities may override purely commercial objectives. What is less easy to predict is whether issues other than the scientific merit of an R&D project will influence the university’s approach. To put it bluntly, considerations such as ‘keeping Professor X happy’, or avoiding controversy or bad public relations, may be important factors. University research contracts offices do not always have much influence in these internal debates; it is sometimes easier to ignore the commercial arguments than the political arguments, particularly when any commercial returns from a technology are likely to be several years ahead, and in an institution whose primary purpose is academic rather than commercial. This can be a source of frustration for research contracts staff, who are not always given clear guidance from the university authorities as to what their objectives (for example, when negotiating an R&D agreement) should be. There is also the issue of academic freedom, which does not arise in a commercial company. University scientists expect and receive considerable freedom as to the direction that their research takes and they are not usually obliged (unless they agree to be obliged) to co-operate in the university’s relationships with commercial companies. Some academics wish to avoid contact with commercial companies; others are happy to work with them. In the medical and biotech fields, public concern about scientific research activities may also influence the university’s approach. Such concerns include the use of animals in medical research, genetic engineering, the use and exploitation of materials found in so-called ‘third world’ countries (whether for reward or not) and whether academics in UK universities should be working with scientists and academics in certain countries. These are all matters that influence the type of work and the participation of academics in universities. In recent years some of these issues have also affected commercial companies.9 9

To take one example, at the time of the second edition of this book, the issue of use of animals in medical research and testing had become very sensitive, with strong views expressed and high profile campaigns by animal rights campaigners against such testing and research. A case in point is the use of, and building of new, animal research facilities at Cambridge University. Internet searches on this topic (such as YouTube videos and news articles (eg http://news.bbc. co.uk/1/hi/uk/4177200.stm) indicate the need to carefully consider these factors, whether to carry them out at all (a consideration for universities) and whether to invest in or participate in such work (a consideration for commercial concerns). Another more recent example concerns climate change and the steps that universities are taking (or not taking) to reduce their carbon footprint, from internal measures to achieve carbon reduction as well as more external factors such as the amount of air travel academics take to attend conferences (eg  https:// www.theguardian.com/education/2019/jul/16/university-green-rankins-risk-despite-climateemergency).

9

1.05  Overview

Revenue sharing within universities 1.05 Often, technology transfer agreements involve the payment of royalties or other sums for use of intellectual property. Most UK universities have a policy (or even a contractual obligation; this is not always made clear in the university regulations) to pay a share of such payments to the inventor and his department within the university. A typical apportionment of revenue (they do vary from university to university) might be as follows: Amount received by the Percentage paid to Percentage paid to university inventor(s) inventor’s department

Percentage retained by university

First £50,000

75%

12.5%

12.5%

Next £200,000

50%

25%

25%

Over £250,000

25%

37.5%

37.5%

At least one UK university pays its technology transfer company a commission on licence revenues received through the technology transfer company’s efforts, and this commission (30 per cent) is deducted before the above apportionment is made. University patents often name more than one inventor; a practical issue for university technology transfer staff in such situations is how any revenues should be apportioned between individual inventors. Sometimes, disputes arise over who should be named as an inventor. It is sometimes difficult to persuade would-be inventors that their contribution, though valuable, is not inventive in legal terms, and that just because you are named as a joint author of an academic paper reporting on a programme of research, this does not entitle you to be named as an inventor of a patented invention made in the course of that research. The inventor’s share may be subject to deduction of income tax and national insurance contributions, although this may partly depend on whether the inventor is an employee of the university and whether the invention is owned by the university as employer or has genuinely been sold by the inventor to the university in return for the revenue-sharing arrangement. (If the latter, then the university may be able to make the payment without deducting tax and NI, but the inventor may find himself/herself liable to charge the university VAT on the amount of the inventor’s share, if the annual amounts exceed the VAT threshold.) It is understood that university practice may vary on whether income tax and NI contributions are deducted before the payment is made to the inventor, and on whether the NI deduction is taken from the inventor’s percentage share. In at least one case, the university and the inventor share the 10.4 per cent NI contribution equally. These revenue-sharing policies generally apply to inventions, and are most frequently encountered in relation to patents. They may also apply 10

Organisations involved in technology transfer 1.06

to know-how and some copyright (eg  in relation to computer programs). However, there is often a quite separate policy in relation to copyright in books and other materials. Many universities allow their staff to write books and retain any royalty income generated, although some have a different attitude to copyright in course materials as such. It is now common for universities to set up ‘spin-out’ companies as a vehicle for technology transfer, and to obtain outside investment in the spin-out company. Sometimes, the university will receive shares in the ‘spin-out’ company in return for assigning relevant intellectual property to it. In such situations, the university may agree with the academic inventor that he or she will also receive shares in the company instead of an entitlement to revenues generated by the university.

Technology transfer within high-tech companies 1.06 There is usually a greater commercial focus in biotech and other high-tech companies than in universities; but the people who are employed to carry out research in such companies may not be very different to their colleagues in academia: indeed, many R&D staff in smaller technology-based companies have experience of working in universities. Senior R&D staff in high-tech companies will generally have greater exposure to commercial issues than their counterparts in universities. This greater commercial focus affects both the terms sought in R&D agreements and the way in which the activities under an R&D agreement are pursued. For instance, freedom to publish will not generally be a concern of the industrial researcher, or at least not as great a concern as for the academic scientist. Revenue-sharing policies are rarely encountered in commercial companies: scientists who work for companies are paid a salary and are expected to make inventions for the good of the company. There may be a bonus scheme or other special rewards, but it will not generally be directly related to income received from the invention, and will not usually be anything like as generous as the university revenue-sharing policy. Instead, share options in the employing company may provide the more frequently-encountered (but equally unpredictable) route to financial wealth. Patents Act 1977, ss  39– 43 provide for inventors to be compensated by their employer in certain circumstances, but in practice it is rare that an employee will qualify for compensation under the statutory provisions.10 One of the theories behind setting up small technology-based companies is that the scientists who work in them are more motivated, work harder and achieve better results than their counterparts in large corporations. They may 10 See further para 4.08.

11

1.07  Overview

also have greater freedom in the way in which they pursue their research activities: there is likely to be less corporate bureaucracy than in a large company. This flexible approach is sometimes reflected in the terms of the technology transfer agreements that such companies negotiate; precedents as to deal structure, etc may be less rigidly followed than in some large, established companies. Where precedents or business models are followed, as often as not they tend to be precedents from overseas, particularly from the United States, where biotech and other high-tech companies are longerestablished, and in some cases much larger (eg by market capitalisation) than in the UK. A  point that should not be overlooked in discussion of small, high-tech companies is the extent to which their business approach is linked to the personality and opinions of the key member (or members) of the management team. These companies are sometimes founded by entrepreneurs who have a very strong personality and distinctive approach to business life: the ‘philosophy’ of the person in charge may be a significant factor in the company’s technology transfer agreements. For example, some high-tech companies wish to have a reputation in the scientific community as being ‘fair’ in relation to the terms of their agreements, eg  agreements with the academic community. Others take a more buccaneering approach.

Technology transfer in industry generally 1.07 Some large UK companies, including household names in areas such as pharmaceuticals, computers, telecommunications, engineering and defence, have many years’ (or decades’) experience of funding R&D or collaborating in R&D  with other organisations. Generally, these companies have an inhouse legal department and well-established views on the terms that are appropriate for R&D agreements and other technology transfer agreements. For example, it is understood that GlaxoSmithKline has traditionally taken the view that in R&D  agreements with UK universities it should own any intellectual property arising from the R&D project.11 Some other companies have been willing to take merely a licence to the results. Universities tend to prefer to grant sponsoring companies a licence to resulting intellectual property (IP), or an option to acquire a licence. Much will depend on the nature of the R&D  and the relative bargaining strength of the parties, but many companies do accept a licence rather than an assignment of resulting IP. In large companies, the way in which a technology transfer agreement is negotiated may depend in part on whether the agreement has an influential ‘champion’ within the company. In the author’s experience, it can greatly assist the smooth negotiation of an agreement, particularly one whose terms vary from the norm within a large company, if it is championed by an influential 11 It is understood that this policy may have changed in recent years.

12

Organisations involved in technology transfer 1.08

senior scientist or commercial manager. The champion’s influence is seen in a number of ways, from causing the agreement to be approved in principle, to giving direction to the company’s legal department on the detailed terms, and speeding up the negotiation and signature process. Without such direction, the technology transfer agreement may receive a lower priority with busy people than other matters. It can be very important to start the relationship on the right footing, with the appropriate contractual structure and the most suitable people involved in any joint R&D project. The champion can greatly assist this process.

International transactions 1.08 Many technology transfer agreements are between organisations based in different countries, or have other international aspects (for example, if they concern intellectual property that is registered in several countries). Where lawyers are involved in drafting and negotiating the agreement, they may find that the person they are negotiating with has a different culture and legal framework for drafting and negotiation to the one they are used to. This is probably no different in principle for technology transfer agreements than it is for other types of international commercial transaction. Particular issues (or generalisations) in the context of technology transfer agreements include: •

if any intellectual property is to be jointly owned by the parties, be aware that national laws on the rights of joint owners of patents vary from country to country. In particular, it seems that US patent law allows a joint owner to grant a non-exclusive licence under the patent without the consent of the other joint owner, whereas under UK patent law (and, it seems, the patent laws of most other countries) the consent of the other joint owner is required for any licensing (whether exclusive or non-exclusive). Generally, parties may wish to provide in detail for what happens to jointly-owned property, and this is particularly important in international contracts;

•

the US business culture tends to value know-how as a commercial asset to a much greater extent than, say, the Japanese. This is reflected, for example, in the commercial terms sought in intellectual property licence agreements;

•

government regulations and other national laws and practices can affect international technology transfer agreements in unexpected ways. For example, if research is funded by the US government, or performed by certain US national research bodies (eg  the National Institutes of Health), the US government may have ‘walk-in rights’, ie  certain automatic rights under intellectual property arising under the contract. Another example is that some countries have standard arrangements for compensating patients who are injured in clinical trials of new drugs. However the arrangements differ from country to country, eg as to the minimum levels of insurance that a pharmaceutical or biotech company 13

1.09  Overview

conducting clinical trials may be required to maintain. This may also affect the terms (eg indemnity terms) that should be included in clinical trials agreements, eg between a pharmaceutical company and a hospital or individual clinician; •

academic scientists often enter into consultancy arrangements with commercial companies; typical financial terms might include an annual fee of £10–£20,000. The standard consultancy provisions of some US corporations are very one-sided, at least in relation to intellectual property issues. Sometimes the provisions of these agreements purport to transfer to the company intellectual property rights far beyond those specifically arising under the consultancy, and such provisions generally need to be scrutinised carefully.

FUNDING OF R&D 1.09 The following sections outline the various funding opportunities available to public and private science-based researchers in the UK. There are three main sources of funding: •

the UK government or one of its agencies;

•

the European Union; and

•

non-commercial (mainly charitable) organisations.

The types of funding opportunities described are largely confined to the scientific field, where most R&D is carried out.

UK Government funding 1.10 The Government provides many funding opportunities to companies, universities and research centres for the advancement of scientific R&D.

UK Research and Innovation 1.11 UK Research and Innovation (UKRI) is an executive non-departmental public body, sponsored by the Department for Business, Energy & Industrial Strategy, and was established by the Higher Education and Research Act 2017 from 30 March 2018.12 Bringing together the seven research councils, Innovate UK and the research and knowledge exchange functions for the Higher Education Funding Council for England, UKRI aims to invest in and enable research and innovation across the UK.13 12 Higher Education and Research Act 2017, s 91, Sch 9. 13 Higher Education and Research Act 2017, s 92.

14

Funding of R&D 1.12

UKRI can carry out the following activities within or without the UK:14 ‘(a) carry out research into science, technology, humanities and new ideas, (b) facilitate, encourage and support research into science, technology, humanities and new ideas, (c) facilitate, encourage and support the development and exploitation of science, technology, new ideas and advancements in humanities, (d) facilitate, encourage and support knowledge exchange in relation to science, technology, humanities and new ideas, (e) collect, disseminate and advance knowledge in and in connection with science, technology, humanities and new ideas, (f) promote awareness and understanding of science, technology, humanities and new ideas, (g) provide advice on any matter relating to any of its functions, and (h) promote awareness and understanding of its activities.’ UKRI can provide financial support to carry out these activities through grants, loans or other payments.15

Committees of UKRI (formerly research councils) 1.12 As noted above, UKRI replaces separate organisations although they continue to exist as ‘committees’ of the UKRI.16 They are responsible for making decisions on scientific research and innovation matters within their own disciplines. The current committees (or councils) are as follows (with the UKRI having the power to allocated specific activities, although the remit is usually obvious from its title, but some range further than the committee’s title might suggest):17 •

Arts and Humanities Research Council (AHRC);

•

Biotechnology and Biological Sciences Research Council (BBSRC);

•

Engineering and Physical Science Research Council (EPSRC);

•

Economic and Social Research Council (ESRC);

• Innovate UK; 14 Higher Education and Research Act 2017, s 93. 15 Higher Education and Research Act 2017, s 94. 16 Higher Education and Research Act 2017, s 92(1). The Act indicates that they continue to be called ‘councils’. Their formal, separate, legal existence ceased (and their Royal Charters were revoked) from 31 October 2018: Higher Education and Research Act 2017, s 109(1), (2). See also https://www.ukri.org/about-us/our-councils/. 17 Higher Education and Research Act 2017, s 95.

15

1.13  Overview

•

Medical Research Council (MRC) (Medicine and biomedicine aimed at improving human health);

•

Natural Environment Research Council (NERC) (Environmental and related sciences);

•

Research England; and

•

Science and Technology Facilities Council (STFC) (Astronomy, particle physics, space science, nuclear physics and provision and operation of research facilities).

UKRI funding 1.13

UKRI provides its own funding opportunities for:

• fellowships; •

project and programme grants;

•

PhD studentships; and

•

investment in public engagement.18

For the year 2018/19, UKRI spent £7.5 billion, with £325m for Waves 1 and 2 of the Industrial Strategy Investment Fund,19 raising productivity and earning power in the UK, £74m for new talent schemes and fellowship programmes, £35m for the new Strategic Priorities Fund,20 to drive and increase highquality multi and interdisciplinary research and innovation, and £6m for the first year of the Fund for International Collaboration, using global partners to enhance the UK’s research excellence.21

Funding by individual committees Biotechnology and Biological Sciences Research Council 1.14 The Biotechnology and Biological Sciences Research Council (BBSRC) specifically funds research into fundamental human biology and studies into livestock and wild species to provide a wider understanding of basic biological processes.22 In the year 2017/18, BBSRC invested £498 million23 in project grants, programme grants, fellowships and new

18 https://www.ukri.org/funding/funding-opportunities/. 19 https://www.ukri.org/innovation/industrial-strategy-challenge-fund/#pagecontentid-0. 20 https://www.ukri.org/research/themes-and-programmes/strategic-priorities-fund/. 21 https://www.ukri.org/files/about/ukri-annual-report-and-accounts-2018-2019-pdf/. 22 https://bbsrc.ukri.org/research/science-remit/. 23 https://bbsrc.ukri.org/about/.

16

Funding of R&D 1.18

investigator awards.24 Applicants must be resident in the UK during the proposed project and be employed by an eligible Research Organisation.25

Engineering and Physical Sciences Research Council 1.15 The Engineering and Physical Sciences Research Council (EPSRC) is the UK’s main funding agency for research into engineering and physical sciences. It currently invests £1 billion a year in research grants and postgraduate training. Research areas covered by its funding opportunities range from information technology to structural engineering, and mathematics to materials sciences.26 Applicant investigators must be an academic employee of an eligible organisation and resident in the UK.27

Economic and Social Research Council 1.16 The Economic and Social Research Council (ESRC) supports research that has an impact on business, the public sector and civil society. The ESRC spends approximately £231m on research and training a year, supporting research grants and programmes, studentships and fellowships, international collaboration and public engagement.28

Innovate UK 1.17 Innovate UK is a government agency that is part of UKRI. It funds business and research collaborations to accelerate innovation and increase business investment into R&D. In 2017/18, it awarded £177 million of new grants in core sectors across 1,178 projects. Its total spend on live projects in these sectors was £235 million.29

Medical Research Council 1.18 The Medical Research Council’s (MRC) key mission point is to support research that improves human health. It spends around £800 million each year providing research grants and career awards to scientists. Its research interests investigate immunology, molecular medicine, neurosciences, population and systems medicine, international and global health, and translational research.30 Principal investigators of research projects should be 24 https://bbsrc.ukri.org/documents/1718-bbsrc-annual-report-accounts-pdf/. 25 https://bbsrc.ukri.org/documents/grants-guide/. 26 https://epsrc.ukri.org/newsevents/pubs/annual-report-and-accounts-2017-18/. 27 https://epsrc.ukri.org/funding/applicationprocess/fundingguide/eligibility/investigators/. 28 https://esrc.ukri.org/about-us/what-we-do/. 29 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/724846/18.1000_InnovateR_A_Web_Final_v4.pdf. 30 https://mrc.ukri.org/funding/science-areas/.

17

1.19  Overview

based at a lead organisation when applying for MRC funding. These can be any UK higher education institution, independent research organisations and NHS bodies, government-funded organisations, MRC institutes, MRC units and partnership institutes, or institutes and units funded by other research councils.31

Natural Environment Research Council 1.19 The Natural Environment Research Council (NERC) invests in environment science that underpins our understanding of how the world works and how the environment can be managed responsibly. The NERC awards programme grants, research grants, fellowships and PhD studentships.32 In the year 2017/18, it invested £220,618 in research and development grants.33

Science and Technology Facilities Council 1.20 The Science and Technology Facilities Council (STFC) financially supports around 1,700 scientists in particle physics, nuclear physics and astronomy in the UK, Europe, Japan and the United States, including a rolling cohort of more than 900 PhD students.34 It awards fellowships, studentships, public engagement funding and schemes for the facilitation of knowledge transfer between academia and industry.35 In 2017/18, it funded £263,307 worth of research grants and other research support.36

Research England 1.21 Research England oversees UKRI’s England-only functions in relation to university research and knowledge exchange.37 In 2019/20, Research England distributed £1.7 billion in research funding.38

Devolved counterparts 1.22 The research councils and Innovate UK carry out UK government activities and therefore operate across the UK. Funding of higher education institutions, however, is a devolved matter and so a similar function to Research England is carried out by Higher Education Funding Council

31 https://mrc.ukri.org/funding/guidance-for-applicants/1-who-can-apply-and-how-to-apply/#1.1. 32 https://nerc.ukri.org/funding/available/. 33 https://nerc.ukri.org/latest/publications/strategycorporate/annualreport/annualreport/. 34 https://stfc.ukri.org/about-us/what-we-do/. 35 https://stfc.ukri.org/funding/. 36 https://stfc.ukri.org/files/corporate-publications/stfc-annual-report-17-18/. 37 https://re.ukri.org/. 38 https://re.ukri.org/research/how-we-fund-research/.

18

Funding of R&D 1.26

Wales, the Scottish Funding Council, and the Department for the Economy (Northern Ireland).39

National academies 1.23 The UK’s four independent national academies (Royal Society, British Academy for the humanities and social sciences, Royal Academy of Engineering and the Academy of Medical Sciences) receive government funding for research programmes that allow the delivery of key government priorities, including the support of skilled researchers as well as distributing some of the government’s funding schemes, some of which will be discussed briefly below.40

The Royal Society 1.24 The Royal Society is an independent scientific academy dedicated to promoting excellence in science. The Society’s fundamental purpose is to recognise, promote and support science and encourage the development and use of science for the benefit of humanity.41 In 2018/19 the Royal Society awarded £84.7 million to outstanding scientists in discovery-led and applied research across the science, technology, engineering and mathematics fields.

The British Academy for the humanities and social sciences 1.25 The British Academy is the UK’s national academy for humanities and social sciences. It offers a variety of grants and fellowships to support academic research, career development and increased engagement within humanities and social sciences.42 In the year 2018/19 the British Academy spent just under £50 million on research and international funding.43

The Royal Academy of Engineering 1.26 As the UK’s national academy for engineering and technology, the Royal Academy for Engineering aims to promote and advance excellence in engineering for the benefit of society. The Academy awards a programme of grants and prizes in order to support research into engineering and promote closer collaboration between academia and industry. Grants include study

39 https://royalsociety.org/-/media/policy/projects/investing-in-uk-r-and-d/how-does-the-UKgovernment-invest-in-R-and-D-07-11-17.pdf. 40 https://royalsociety.org/-/media/policy/projects/investing-in-uk-r-and-d/how-does-the-UKgovernment-invest-in-R-and-D-07-11-17.pdf. 41 https://royalsociety.org/about-us/mission-priorities/. 42 https://www.thebritishacademy.ac.uk/about/about-our-funding. 43 https://www.thebritishacademy.ac.uk/sites/default/files/Annual-Report-2018-19.pdf.

19

1.27  Overview

bursaries, business start-up funding, research grants, knowledge transfer partnerships and public engagement prizes.44

The Academy of Medical Sciences 1.27 The Academy of Medical Sciences is an independent body in the UK representing diversity in medical science. Its mission is to advance biomedical and health research and translate this into benefits for society.45 It supports researchers through a portfolio of grants schemes, mentoring programmes and career development events totalling an expenditure of £13.28 million in 2018/19.46

Examples of government R&D funding programmes Development funding Global Challenges Research Fund (GCRF) and Newton Fund47 1.28 The Global Challenges Research Fund (GCRF) is part of the UK’s official development assistance. The fund aims to support novel research and innovation that tackles global issues affecting developing countries. GCRF was launched in 2016 and, between then and 2021, has a budgeted investment of £1.5 billion. The Newton Fund is also part of the official development assistance budget. This fund aims to develop science and innovation partnerships that enhance the economic development and social welfare of partner countries.48 The Newton Fund was launched in 2014 and will run until 2021 with a total budget of £735 million.

Industrial strategy Industrial Strategy Challenge Fund (ISCF)49 1.29 The UK government’s Industrial Strategy Challenge Fund aims to bring together research and business in order to tackle industrial and societal 44 https://www.raeng.org.uk/grants-and-prizes. 45 https://acmedsci.ac.uk/file-download/88091734. 46 https://beta.companieshouse.gov.uk/company/03520281/filing-history. 47 https://www.gov.uk/government/publications/global-challenges-research-fund/globalchallenges-research-fund-gcrf-how-the-fund-works. 48 https://www.gov.uk/government/publications/newton-fund-building-science-and-innovationcapacity-in-developing-countries/newton-fund-building-science-and-innovation-capacity-indeveloping-countries. 49 https://www.gov.uk/government/collections/industrial-strategy-challenge-fund-jointresearch-and-innovation.

20

Funding of R&D 1.32

challenges and position the UK to take advantage of future market opportunities. The fund is part of the government’s £4.7 billion R&D investment over four years that will support the delivery of its Industrial Strategy.

Capacity funding UK Research Partnership Investment Fund 1.30 The UK government allocated a total of £900 million to the UK Research Partnership Investment Fund, from its launch in 2012 to 2021. It currently has £220 million remaining which will be available in the financial year 2020/21.50 It is a competitive capital funding scheme designed to support the development of, and promote investment in, large-scale higher education research facilities.51

Other government funding 1.31 As well as the funding schemes outlined above, there are also various grants available from various government departments, such as the National Institute for Health Research (NIHR), which is primarily funded by the Department of Health and Social Care. It was established in 2006 under the government’s health research strategy ‘Best Research for Best Health’ to create a system in which the NHS would support scientists, working in world-class facilities, conducting cutting-edge research focused on the needs of patients and the public.52 In 2017/18, NIHR awarded £227 million of funding to 302 new research projects.53

EU funding Framework Programmes Introduction 1.32 The value of adopting a common strategy for research and technological development in the EU had been recognised for some time. However, it was not until the early 1980s that these ideas were given formal recognition with the creation of the first of the EU’s Framework Programmes. These are multinational, multi-annual and multi-sectoral programmes for funding scientific

50 https://re.ukri.org/documents/2019/ukrpif-round-6-guidance-research-england/. 51 https://re.ukri.org/documents/2019/ukrpif-project-booklet/. 52 https://www.nihr.ac.uk/about-us/our-mission/our-mission-and-strategic-workstreams.htm. 53 https://www.nihr.ac.uk/documents/about-us/our-contribution-to-research/researchperformance/NIHR-Annual-Report-2017-18.pdf.

21

1.32  Overview

and technological R&D.54 Throughout, the main emphasis has remained on ensuring tangible, exploitable results to benefit European industry. When material for this book was prepared, Horizon 2020 – the Framework Programme for Research and Innovation was the EU mechanism for funding research in Europe55 and ‘is the financial instrument implementing the Innovation Union, a Europe 2020 flagship initiative aimed at securing Europe’s global competitiveness’. Horizon 2020 began on 1 January 2014 and runs until 31 December 2020.56 Horizon 2020 has a number of aims, including:57 • having a ‘single common strategic framework for research and innovation’ for areas covered by the previous Framework 7 funding scheme; •

having a strategy target of raising spending on research and development to 3% of GDP by 2020;

•

making a commitment to mainstream climate change and directing at least 20% of the general budget of the EU to climate-related objectives, so that 60% of the overall budget of Horizon 2020 should be related to sustainable development; and

• a simplification of the design, rules, financial management and implementation of Horizon 2020 with ‘[s]impler funding rules [that] should reduce the administrative costs for participation and contribute to the prevention and reduction of financial errors’.58

54 These programmes have become increasingly ambitious. The budgets for FP2–Horizon 2020 are: Programme

Programme period

Budget (€) (billion)

FP2

1987–91

5.40

FP3

1990–94

7.70

FP4

1994–98

12.30

FP5

1998–2002

14.69

FP6

2002–2006

17.50

FP7

2007–2013

53.00

Horizon 2020

2014–2020

77.00

55

General information is available from https://ec.europa.eu/programmes/horizon2020/en/whathorizon-2020. 56 At the date material for this edition of the book was finalised (late 2019), there were no details on the replacement Framework Programme available from the EU. 57 Regulation 1291/2013, Recitals 3, 10. Regulation 1291/2013, Recitals 20. 58 Regulation 1291/2013, Recitals 20.

22

Funding of R&D 1.32

Horizon 2020 implements a specific programme consisting of the following parts:59 (a) Part I Excellent science; (b) Part II Industrial leadership; (c) Part III Societal challenges; (d) Part IV Spreading excellence and widening participation; (e) Part V Science with and for society; (f) Part VI Non-nuclear direct actions of the Joint Research Centre (JRC). As at the time material was prepared for this edition, the Horizon 2020 programme was nearing its end and this section does not consider various aspects of it, such as making applications, methods of making awards or details of the specific programmes – as they will soon be out-of-date.60 Among the steps that organisations applying for a grant (‘beneficiaries’) need to undertake is to enter into a grant agreement with the EU. Under Horizon 2020 there are two main types of model agreement:61 •

a Multi-Beneficiary General Model Grant Agreement which is between the EU and several beneficiaries, with one beneficiary acting as the co-ordinator who is the main contact point with the EU, and the other beneficiaries acceding to the agreement; and

• a Mono-Beneficiary General Model Grant Agreement, with one applicant for funding. Each consists of detailed terms and conditions together with several annexes. Much of the model agreement consists of provisions relating to the carrying out, administration, reporting and financing of a research programme, all of which is outside the scope of this book. The beneficiaries are also expected to enter into a consortium agreement between themselves on the arrangements they will have to implement to carry out their research programme and how they will work together, as well as dealing with various other issues, such as arrangements concerning the

59 Article 2(2) of Council Decision 2013/743/EU of 3 December 2013 establishing the specific programme implementing Horizon 2020 – the Framework Programme for Research and Innovation (2014–2020) and repealing Decisions 2006/971/EC, 2006/972/EC, 2006/973/EC, 2006/974/EC and 2006/975/EC. 60 For details on making an application, see the Horizon 2020 online manual at https://ec.europa. eu/research/participants/docs/h2020-funding-guide/. 61 The model agreements are available from https://ec.europa.eu/info/funding-tenders/opportunities/ portal/screen/how-to-participate/reference-documents;programCode=H2020. There are also specialist agreements available for particular types of research programme as well.

23

1.33  Overview

use and ownership of intellectual property.62 The EU is not a party to this consortium agreement. The provisions relating to intellectual property and the dissemination of intellectual property generated are more relevant to users of this book (and are likely to be relevant beyond 2020 as agreements entered into before the end of 2020 can run on for several years beyond that date). These are set out briefly (using the provisions from the multi-beneficiary grant agreement) below.

Definitions used 1.33 There are some key definitions regarding intellectual property used in the provisions of the model agreements concerning intellectual property: •

background which ‘means any data, know-how or information – whatever its form or nature (tangible or intangible), including any rights such as intellectual property rights – that: (a) is held by the beneficiaries before they acceded to the Agreement, and (b) is needed to implement the action or exploit the results’;

•

results which ‘means any (tangible or intangible) output of the action such as data, knowledge or information – whatever its form or nature, whether it can be protected or not – that is generated in the action, as well as any rights attached to it, including intellectual property rights’;

•

access rights which ‘means rights to use results or background under the terms and conditions laid down in this Agreement’; and

•

fair and reasonable conditions which ‘means appropriate conditions, including possible financial terms or royalty-free conditions, taking into account the specific circumstances of the request for access, for example the actual or potential value of the results or background to which access is requested and/or the scope, duration or other characteristics of the exploitation envisaged’.63

The main provisions relating to intellectual property and dissemination are:

62

A model consortium agreement is available at: http://www.desca-2020.eu/about-desca/. Grant Agreement, Art 41.1: ‘The beneficiaries must have internal arrangements regarding their operation and co-ordination to ensure that the action is implemented properly. These internal arrangements must be set out in a written “consortium agreement” between the beneficiaries, which may cover: – internal organisation of the consortium; – management of access to the electronic exchange system; – distribution of EU funding; – additional rules on rights and obligations related to background and results (including whether access rights remain or not, if a beneficiary is in breach of its obligations) […]; – settlement of internal disputes; – liability, indemnification and confidentiality arrangements between the beneficiaries’. 63 Multi-Beneficiary General Model Grant Agreement, Art 25.3.

24

Funding of R&D 1.35

Provisions relating to background 1.34 •

the beneficiaries have to enter into a written agreement as to which background is needed for the research programme;64

•

for a beneficiary to exercise access rights, they must first make a request in writing to do so;65

•

a waiver of access rights is only valid if made in writing;66

•

access rights do not include the right to sub-license;67

•

the beneficiaries have to give each other access to background which is needed to implement their own tasks under a research programme, on a royalty-free basis. This will apply unless a beneficiary, before it accedes to the agreement: has let other beneficiaries know that access to its background is subject to legal restrictions or limits; or

–

has agreed with other beneficiaries that access would not be on a royalty-free basis;68

•

–

the beneficiaries must give each other access to the background needed for exploiting their own results, on fair and reasonable conditions.69 The previous sentence applies where, before acceding to the agreement, a beneficiary who holds the background has let other beneficiaries know that access to its background is subject to legal restrictions or limits (which can include those imposed by the rights of third parties).70

Provisions relating to results 1.35 •

results are owned by the party who generates them;71

•

results are jointly owned: –

If two or more beneficiaries have jointly generated them; and

–

it is not possible to: ○

64 65 66 67 68 69 70 71

separate out their respective contributions; or

Multi-Beneficiary General Model Grant Agreement, Art 24.1. Multi-Beneficiary General Model Grant Agreement, Art 25.1. Multi-Beneficiary General Model Grant Agreement, Art 25.1. Multi-Beneficiary General Model Grant Agreement, Art 25.1. Multi-Beneficiary General Model Grant Agreement, Art 25.2. Multi-Beneficiary General Model Grant Agreement, Art 25.3. Multi-Beneficiary General Model Grant Agreement, Art 25.3. Multi-Beneficiary General Model Grant Agreement, Art 26.1.

25

1.36  Overview

○

separate out their respective contributions for the purpose of applying for, obtaining, or maintaining the protection of the results;72

•

the joint owners must enter into a written agreement (‘joint ownership agreement’) as to the allocation and exercise of their joint ownership;73

•

unless the joint owners agree otherwise, each joint owner can grant a non-exclusive licence to third parties to exploit jointly owned results (without the right to sub-license) as long as the other joint owners are given: 45 days’ advance notice;

–

fair and reasonable compensation;

•

–

after generation of the results, the joint owners can agree in writing to other forms of ownership (such as transferring ownership of the results to a single owner with access rights for the other joint owners).74

Obligation to exploit results 1.36 •

a beneficiary has to take measures to exploit its results by: –

carrying out further research with the results (outside the research programme);

–

‘developing, creating or marketing a product or process’;

–

‘creating or providing a service’;

–

‘using them in standardisation activities’;75

•

the obligation lasts for four years after the end of the agreement and the exploitation can be carried out directly or indirectly, in particular through the use of transfer of ownership or by licensing of the results;76

•

optionally, if results can contribute to European or international standards the beneficiary to whom the results relate has to inform the Commission (for a period for up to four years after the end of the agreement).77 Where results are incorporated in a standard the beneficiary has to ask the standardisation body to include wording that the results incorporated

72 73 74 75 76 77

Multi-Beneficiary General Model Grant Agreement, Art 26.2. Multi-Beneficiary General Model Grant Agreement, Art 26.2. Multi-Beneficiary General Model Grant Agreement, Art 26.2. Multi-Beneficiary General Model Grant Agreement, Art 28.1. Multi-Beneficiary General Model Grant Agreement, Art 28.1. Multi-Beneficiary General Model Grant Agreement, Art 28.2.

26

Funding of R&D 1.38

in the standard have funding from the Horizon 2020 research and innovation programme (unless the Commission agrees otherwise).78

Protection of results 1.37 •

a beneficiary has to protect its results where: –

there is a reasonable expectation they can be commercially or industrially exploited; and

– given the circumstances, protecting the results is possible, reasonable and justified;79 •

if the beneficiary decides to protect them, it must do so adequately for an appropriate period and with appropriate territorial coverage;80

•

the beneficiary concerned, in deciding whether to protect the results, must consider its own legitimate interests but also those of the other beneficiaries (in particular, the other beneficiaries’ commercial interests);81

•

the EU also has the power to protect the results if the beneficiary concerned does not do so, or stops protecting, or an extension to protection;82

•

any application for protection (including patent applications) must include wording that the research programme which has led to the application was funded by the Horizon 2020 research and innovation programme, unless the EU agrees otherwise.83

Transfer of ownership of results 1.38 •

unless a beneficiary agrees in writing for specifically identified third parties, it has to give 45 days’ advance notice that it intends to transfer ownership to the other beneficiaries who continue to have (or can request) access rights;84

78 79 80 81 82 83 84

Multi-Beneficiary General Model Grant Agreement, Art 28.2. Multi-Beneficiary General Model Grant Agreement, Art 27.1. Multi-Beneficiary General Model Grant Agreement, Art 27.1. Multi-Beneficiary General Model Grant Agreement, Art 27.1. Multi-Beneficiary General Model Grant Agreement, Art 27.2. Multi-Beneficiary General Model Grant Agreement, Art 27.3. Multi-Beneficiary General Model Grant Agreement, Art 30.1. In transferring ownership, the existing owner has to ensure that the obligations it is under will also apply to the new owner (and any subsequent owner).

27

1.39  Overview

•

the notice must contain sufficient details about the new owner so that the other beneficiaries can assess the effect on access rights;85

•

unless a beneficiary agrees in writing for specifically identified third parties, other beneficiaries can object within 30 days of receiving the notice where any of the other beneficiaries concerned can show that the transfer would have an adverse effect on access rights. The transfer will not take place until the beneficiaries can come to an agreement.86

Granting licences 1.39 •

each beneficiary can grant one or more licences to its results (or otherwise permit the exploitation of the results) as long as: –

there is no impeding of access rights to results (as set out in Article 31); or

–

there are additional exploitation obligations set out in Annex 1 to the agreement;87

•

it is only possible for a beneficiary to grant an exclusive licence if all the other beneficiaries have waived their access rights;88

•

for up to four years after the end of the agreement, the Commission has the right to object to a transfer of ownership or to the grant of an exclusive licence of the results on the following grounds:

•

85 86 87 88 89 90

–

the transfer is to a third party not established in the EU and who is not associated with Horizon 2020; and

–

the Commission considers the transfer or grant does not accord with EU interests regarding competitiveness, ethical principles or security considerations;89

a beneficiary must formally notify the Commission that it intends to transfer ownership or grant an exclusive licence before the transfer or grant takes place. The beneficiary needs to provide certain information to the Commission, and no transfer or grant can take place while the Commission is considering whether to object to the transfer or grant. The Commission has 60 days to notify the beneficiary if it intends to object. If it does object, no transfer or grant can take place.90

Multi-Beneficiary General Model Grant Agreement, Art 30.1. Multi-Beneficiary General Model Grant Agreement, Art 30.1. Multi-Beneficiary General Model Grant Agreement, Art 30.2. Multi-Beneficiary General Model Grant Agreement, Art 30.2. Multi-Beneficiary General Model Grant Agreement, Art 30.3. Multi-Beneficiary General Model Grant Agreement, Art 30.3.

28

Funding of R&D 1.41

Access rights to results 1.40 •

the beneficiaries have to give each other access to such results as are needed for implementing their own tasks under a research programme, on a royalty-free basis;91

•

the beneficiaries have to give each other access on fair and reasonable conditions to their results as are needed to exploit their own results.92 Such a request can be made up to one year after the end of the agreement;

•

the beneficiaries must also give access to EU institutions, bodies or agencies to their results, on a royalty-free basis, for the purposes of implementing or monitoring EU policies or programmes – but only for non-commercial and non-competitive use.93

Dissemination of results 1.41 •

a beneficiary must disseminate its results to the public as soon as possible, unless doing so goes against its legitimate interests.94 It has to use appropriate means including use of scientific publications (in whatever medium those publications use). The dissemination must be other than protecting or exploiting the results;95

•

where a beneficiary intends to disseminate the results, it has to:

•

–

give 45 days’ advance notice to other beneficiaries (unless otherwise agreed); and

–

provide sufficient information of the results it will disseminate;96

another beneficiary has 30 days to object after receipt of the notice. It can object if its legitimate interests in relation to results or background would be significantly harmed. The beneficiary who wishes to disseminate will not be able to do so until appropriate steps are taken to safeguard the legitimate interests;97

91 Multi-Beneficiary General Model Grant Agreement, Art 31.2. 92 Multi-Beneficiary General Model Grant Agreement, Art 31.3. Access for exploitation must be given to ‘affiliated’ entities which are established in the EU or an associated country (MultiBeneficiary General Model Grant Agreement, Art 31.4) as well as third parties if such access is foreseen in the work programme (Multi-Beneficiary General Model Grant Agreement, Art 31.6). 93 Multi-Beneficiary General Model Grant Agreement, Art 31.5. 94 Multi-Beneficiary General Model Grant Agreement, Art 29.1. 95 Multi-Beneficiary General Model Grant Agreement, Art 29.1. 96 Multi-Beneficiary General Model Grant Agreement, Art 29.1. 97 Multi-Beneficiary General Model Grant Agreement, Art 29.1.

29

1.42  Overview

•

if a beneficiary decides not to protect its results, it has to formally notify the Commission before dissemination takes place;98

•

the beneficiary has to ensure that there is open access (without charge, accessible by any user online) for all peer-reviewed scientific publications to its results;99

•

depending on the type of research programme, the beneficiaries may have to (or may not have to) deposit research data in a research data repository;100

•

any dissemination must: –

display the EU emblem and include specified text that the research programme was funded by Horizon 2020 (unless it is impossible to do so); and

–

state that it only reflects the author’s view and that the Commission is not responsible for any use made of the information it contains.101

Failure to comply with intellectual property and dissemination provisions 1.42 If a beneficiary fails to comply with its obligations concerning the above, the grant from the EU may be reduced102 or may lead to other measures (such as recovery of payments or termination of the agreement).103

Non-commercial funding bodies104 Charitable research 1.43 In the UK, charities provide a large percentage of the funding for R&D  which is made by non-commercial funding bodies. The funding of research is a major function of charities, whatever their size. Most charitable activities can be advanced by research, such as helping the physically, mentally or socially disadvantaged, providing financial aid, and advancing religion and education.  98 Multi-Beneficiary General Model Grant Agreement, Art 29.1.  99 Multi-Beneficiary General Model Grant Agreement, Art 29.2. The beneficiary also has to deposit a version of the publication in a repository for scientific publications as well as comply with other requirements concerning access, provision of bibliographic metadata which has to contain specific information. 100 Multi-Beneficiary General Model Grant Agreement, Art 29.3. 101 Multi-Beneficiary General Model Grant Agreement, Arts 29.5, 29.6. 102 Multi-Beneficiary General Model Grant Agreement, Art 43. 103 Multi-Beneficiary General Model Grant Agreement, Arts 42 to 51. 104 Contact details for the organisations mentioned in this section are set out at the end of the chapter.

30

Funding of R&D 1.45

A  charity can fund research if it meets its aims and objectives and if the research is for the benefit of the public. The Charity Commission: •

publishes guidance about charitable aims and objectives with regard to research activities; and

•

sets out requirements that the proposed research must meet in order to receive charitable funding.105

The guidance indicates that the subject matter of the proposed research must be appropriate; it must be intended that knowledge acquired as a result will be disseminated to others; and the research must be conducted for the benefit of the public or a section of the public.106 Below are examples of some charities and other non-commercial funding bodies that sponsor scientific research; many belong to the Association of Medical Research Charities (AMRC). The AMRC is one of the largest associations of charities, with 148 registered members. Membership is open to charities that concentrate on medical research and use peer review when evaluating research proposals.107

British Heart Foundation 1.44 In the year 2018/19 the British Heart Foundation invested £128.2 million on research into the prevention, diagnosis and treatment of heart and circulatory diseases.108 It supports over 550 scientists across the UK by awarding project and programme grants, fellowships and studentships.109

Cancer Research UK 1.45 Cancer Research UK (CRUK) is one of the world’s largest cancer charities. It funds medical research groups based in universities, research institutes and clinical centres. Broadly its research focuses on prevention, developing new treatments, and making already available treatments more

105 See the Charity Commission’s guidance Research by Higher Education Institutions (2009). See para 1.52 below. 106 See the Charity Commission’s general guidance on public benefit Charities and Public Benefit. 107 Based on the data collected by AMRC, the combined total expenditure of these member charities on medical research in the United Kingdom was £1.3bn in the 2017/18 financial year by 146 AMRC members. See its summary of the results of the data that it collects at: https:// www.amrc.org.uk/our-sectors-footprint. 108 https://www.bhf.org.uk/what-we-do/our-annual-review-2019. 109 https://www.bhf.org.uk/research-projects.

31

1.46  Overview

effective.110 In 2018/19, CRUK funded research totalling £546 million111 in the form of fellowships, PhD studentships, project and programme grants.112

The Gatsby Charitable Foundation 1.46 David Sainsbury set up the Gatsby Charitable Foundation in 1967. The foundation supports various research programmes in mental health, plant biology and social development. In 2018/19, grants awarded totalled just over £50 million.

The Leverhulme Trust 1.47 The Leverhulme Trust is a national grant-making foundation established in 1925 by Lord Leverhulme. On his death, Lord Leverhulme left a share of his holdings in his company to provide for charities and to offer ‘scholarships for research and education’.113 Today the trust offers funding schemes in the arts and the sciences for training and research in the form of fellowships, PhD scholarships, studentships and project grants. Grants made in 2017 exceeded £78 million.114

Nesta 1.48 Nesta was established and registered as a charity in 2011 as a successor body to the National Endowment for Science, Technology and the Arts (“NESTA”). Nesta is a company limited by guarantee and a charity registered with the Charity Commission and the Office of the Scottish Charity Regulator.115 Nesta’s five priority fields focus on health, education, arts and culture, government, and policy. Nesta achieves its charitable objectives, and the objectives of the Nesta Trust, in several ways, which include providing investment and non-financial support, grant making and carrying out research. Nesta’s programme of charitable expenditure in 2018/19 totalled £36.5 million.116

Nuffield Foundation 1.49 The Nuffield Foundation funds research, analysis and student programmes that advance educational opportunities and social well-being 110 https://www.cancerresearchuk.org/about-us. 111 https://www.cancerresearchuk.org/sites/default/files/ec1060588_cruk_ar_2019_interactive.pdf. 112 https://www.cancerresearchuk.org/funding-for-researchers/our-funding-schemes?items_per_ page=40. 113 https://www.leverhulme.ac.uk/about-us/history-trust. 114 https://leverhulme.staging.oxfordwebapps.com/sites/default/files/AR2017.pdf. 115 https://media.nesta.org.uk/documents/Nesta_Annual_Report_2018-19.pdf. 116 https://media.nesta.org.uk/documents/Nesta_Annual_Report_2018-19.pdf.

32

University research and charitable status 1.52

in the UK. Their student programmes ‘Nuffield Research Placements’ and ‘Q-Step’ provide equal opportunities for students from disadvantaged backgrounds to develop their skills and confidence in quantitative and scientific methods. In 2018 the Nuffield Foundation spent £18.3 million on charitable activities. Most of this expenditure comprises grants and awards for research, development and analysis in education, welfare, justice and cross-cutting projects.117

Versus Arthritis 1.50 In November 2017, Arthritis Research UK and Arthritis Care merged and, in September 2018, became Versus Arthritis.118 In 2017/18, Arthritis Research UK awarded project and programme grants, fellowships and PhD studentships119 that totalled £20.05 million.120

Wellcome Trust 1.51 The Wellcome Trust is the world’s largest charity and directly funds thousands of scientists and researchers globally. It encourages and supports research in any of the biosciences; and the discovery, invention, improvement, development and application of treatment, diagnostics and other medicinal agents that may relieve illness, disease, or disability in human beings, animals or plant life. In 2018 it spent £723 million on science, culture and society, innovation and priority areas of research, with the aim of spending £900 million a year over the next five years.121

UNIVERSITY RESEARCH AND CHARITABLE STATUS Introduction 1.52 Universities in the UK normally have charitable status, if they are established for one or more specified charitable purposes (such as the advancement of education) and which is for the public benefit.122 The current definition of what is deemed to be ‘charitable’ is found in the Charities Act 2011.123 Under the 2011 Act, it is no longer enough to show 117 https://www.nuffieldfoundation.org/about-the-foundation. 118 https://www.versusarthritis.org/about-us/who-we-are/history/. 119 https://www.versusarthritis.org/research/information-for-applicants/types-of-grant/. 120 https://www.versusarthritis.org/media/1404/arthritis-research-uk-annual-report-2016-17.pdf. 121 https://wellcome.ac.uk/sites/default/files/wellcome-trust-annual-report-and-financialstatements-2018.pdf. 122 Charities Act 2011, ss 1 to 4. Section 3(1) sets out a list of charitable purposes, one of which is the advancement of education. 123 Charities Act 2011, ss 2–4.

33

1.53  Overview

that a university has a purpose for the advancement of education (such as carrying out research), it is also necessary to show that the purpose is for the public benefit.124 It is particularly important to consider whether university research is charitable when that research is carried out in collaboration with a commercial sponsor. Charitable status brings both advantages (for example, universities do not pay corporation tax) and responsibilities. The Charity Commission oversees the fulfilment of those responsibilities.125 In 2009, the Charity Commission published guidance to help universities with such matters.126 In this section we summarise that guidance as it relates to: •

university research projects;

•

the role of university trustees; and

•

university technology transfer companies.

University research projects 1.53 For university research to be considered charitable, the university must carry it out: •

for a charitable purpose, such as the advancement of education; and

•

for the public benefit.127

A  university must also ensure that its activities are in furtherance of its charitable objects and in accordance with its constitutional and legal powers. The criteria used by the Charity Commission to determine whether research is a valid charitable activity are:128 •

‘Research must be in a subject, or be directed towards establishing an outcome, which is of value and calculated to promote in a meaningful and direct way the particular charitable aims indicated in the body’s objects (typically to advance or enhance knowledge and understanding in an area which education may cover for the public benefit).’

124 Charities Act 2011, s 4(2). 125 See http://www.charitycommission.gov.uk. 126 Research by Higher Education Institutions (Charity Commission, 2009), issued pursuant to Charities Act 2006 (now Charities Act 2011, s  17(1)). Available from https://www.gov.uk/ government/publications/research-by-higher-education-institutions. Although this guidance was published 10 years ago, it appears on the current version of the government’s website in an unamended form (other than a few changes in reference from the Charities Act 2006 to the Charities Act 2011). 127 Charities Act 2011, ss 1 to 4. 128 Research by Higher Education Institutions (Charity Commission, 2009), para C2.

34

University research and charitable status 1.55

•

‘Research must be undertaken with the intention that the useful knowledge acquired from the research will be disseminated (and so advance the particular charitable aims) to the public and others able to utilise or benefit from it.’

•

‘Research must be justified and undertaken for the public benefit and not solely or mainly for self- interest or for private or commercial consumption.’

The following is a summary of the Charity Commission’s guidance on how universities should approach these issues.

A charitable purpose 1.54 First, the proposed research should be calculated to promote the university’s charitable aims.129 These may be set out formally in an objects clause in the university’s charter or inferred from its practice over the years. A  suitable charitable aim for a university would be the promotion of education and the advancement of knowledge and understanding for the public benefit. A university may act only in pursuance of its charitable aims: if a collaborative project is wider in scope than those aims, then, as far as that project is concerned, the university’s resources should be used only on research that falls within those aims.130 In order to advance knowledge or understanding, the research should be in an appropriate subject or directed towards an outcome that is of value, though it does not have to be of immediate practical application.131

The public benefit 1.55 Secondly, in order to be charitable, the proposed research must be carried out for the public benefit, that is, for the benefit of the public or a section of the public, and not solely or mainly for self-interest or for private or commercial consumption.132 It should be possible to identify the public benefit that flows from the research, which should be related to the university’s educational aims and not incidental to them. Any private benefits should be incidental.133 Generally, a university will meet the public benefit requirement by disseminating the knowledge gained, for example by publishing books or

129 130 131 132 133

Research by Higher Education Institutions (Charity Commission, 2009), para C1. Research by Higher Education Institutions (Charity Commission, 2009), para C3. Research by Higher Education Institutions (Charity Commission, 2009), para C2. Research by Higher Education Institutions (Charity Commission, 2009), para C2. Research by Higher Education Institutions (Charity Commission, 2009), para D1.

35

1.55  Overview

papers based on the research, or through teaching.134 If the university needs to restrict access to the results to those who have sufficient reason to study them, the material should at least be catalogued and its existence made publicly known. Any charge for access should be reasonable and necessary (for example, to cover the costs of publication): a charge so high as to restrict the benefits of the research to those who can afford fees might call the charitable status of the research into question. Research that generates a significant profit should be handled through a non-charitable trading subsidiary.135 The results of research should be publicly disseminated within a reasonable time (normally six months) of being completed. The university should be able to show that any pre-publication access given exclusively to a sponsor is necessary, reasonable and in the interests of the university in the circumstances. If the research is intended to produce intellectual property that can be protected by registration, then registration itself may amount to adequate and appropriate dissemination.136 If the results of the research are not to be disseminated publicly, they should be applied or exploited practically for the public benefit, for example by licensing them so that they can be applied for public benefit and a financial return for the university. Where the university grants an exclusive licence which precludes publication or further dissemination of the results by the university, however, any non-charitable benefits must be legitimately incidental to the university’s charitable aims.137 Sponsored or contract research may count as charitable, even if not disseminated, if the university already undertakes related charitable research which the sponsored research might benefit. There should be appropriate arrangements to protect any intellectual property rights to be owned by the university, and adequate financial benefit.138 Any private benefits accruing to individuals or non-charitable or commercial entities should be legitimately incidental to the achievement of the university’s charitable aims for the public benefit.139 As already noted, the overall purpose of a research agreement between a university and a company may be wider than this, provided that the purpose and scope of the university’s participation in the agreement is appropriate. The private benefits of the university’s activity should be subsidiary and incidental to its charitable aims; they should be necessary (in furthering the aims by pursuing the research in question), reasonable (in relative amounts), and in the interests of the university in the circumstances.140

134 135 136 137 138 139 140

Research by Higher Education Institutions (Charity Commission, 2009), para C5. Research by Higher Education Institutions (Charity Commission, 2009), para C5. Research by Higher Education Institutions (Charity Commission, 2009), para C5. Research by Higher Education Institutions (Charity Commission, 2009), para C5. Research by Higher Education Institutions (Charity Commission, 2009), para C5. Research by Higher Education Institutions (Charity Commission, 2009), para D2. Research by Higher Education Institutions (Charity Commission, 2009), para D2.

36

University research and charitable status 1.56

This does not mean that the private benefit must always be small in absolute terms: in a multi-million-pound contract, it may be appropriate for some individuals and businesses to make a significant return in order to achieve the intended result for the public benefit. If, however, the private benefit is not a necessary and reasonable consequence of action taken for the furtherance of the university’s charitable aims, then it is a non-charitable aim in its own right.141 If non-charitable research is undertaken with the aim of raising funds to apply to the university’s charitable aims, it may constitute a trade and should normally be channelled through a separate non-charitable trading company (see para 1.57 below).142 Any research undertaken for the Government or a political party should not champion the Government or that party or discredit another party, although the university may express support for particular policies which will facilitate its charitable purposes.143

The role of university trustees 1.56 This section summarises the Charity Commission’s guidelines as they relate to the way in which university trustees should carry out their duties. University trustees should act in accordance with charity law and their constitutional powers. In deciding whether a university should undertake an activity, they should be able to make a connection between carrying out the university’s aims within their own powers on the one hand and the anticipated outcomes of the activity on the other. In the case of research, such a connection must fall within the aims of the university, be for the public benefit, and be within their powers as trustees (see para 1.53 above).144 In carrying out their responsibilities, university trustees should exercise reasonable diligence and care and act in good faith. They should ensure that any decision taken is legally sound and can be justified if challenged. They should make sure that they have adequately informed themselves in order to make the decision, taking all relevant factors into account and disregarding any irrelevant, improper or irrational factors. Any decision should be within the range of decisions that a reasonable body of trustees could have made.145 The trustees should take steps to manage any conflicts of interest that may arise, for example where a trustee’s personal interests, or interests owed to another body, may influence his or her decision-making, or appear to do so.146 141 142 143 144 145 146

Research by Higher Education Institutions (Charity Commission, 2009), para D2. Research by Higher Education Institutions (Charity Commission, 2009), para E6. Research by Higher Education Institutions (Charity Commission, 2009), para C4. Research by Higher Education Institutions (Charity Commission, 2009), para D3. Research by Higher Education Institutions (Charity Commission, 2009), paras B3, D3, D4. Research by Higher Education Institutions (Charity Commission, 2009), para D3.

37

1.56  Overview

Of course, in practice the trustees will usually delegate decisions about research contracts to staff. Nevertheless, the trustees themselves remain responsible for ensuring that the correct decisions are made.147 Hence it is important to have in place a proper procedure for delegating the authorisation of contracts: delegates, appointed by the trustees using powers available to them, should examine proposed contracts in detail and take professional advice about them as required. The procedure should ensure that contracts are authorised only if: (a) the research is in an area which furthers the aims of the university; (b) the research is for the public benefit (with any private benefit being incidental); (c) the terms agreed by the university are reasonable in relation to the circumstances that could reasonably be known to the university at the time; and (d) the university’s interests are protected. See para 1.53 above for more detail on these points.148 Proper records should be kept of the decision-making process, especially of any exceptions made to the university’s normal pricing policy or terms and conditions. Staff responsible for authorising contracts should be properly trained and supervised.149 After a contract is signed, its performance should be monitored, in order to demonstrate that the research conducted effectively furthers the university’s aims. Research proposals and results should be evaluated so as to ensure quality, and there should be a process for ensuring that the research is carried out in a way that is well managed and cost-effective.150 The trustees have a duty to secure the protection of inventions capable of protection as intellectual property (IP), through patent or other appropriate means. The contract-approval process should ensure that the university’s interests (whether in pre-existing or resulting IP) are protected, so that any IP can be used to further the university’s aims or to maximise the revenue that the university will receive.151 If the university is carrying out charitable research on behalf of a commercial body, it should share in any return on the exploitation of the resulting IP even if it does not own it. Any IP owned by the university that is not required for its own research should, where possible, be exploited for the university’s benefit, for example by licensing or selling it.152 147 148 149 150 151 152

Research by Higher Education Institutions (Charity Commission, 2009), para D3. Research by Higher Education Institutions (Charity Commission, 2009), paras D3–D5. Research by Higher Education Institutions (Charity Commission, 2009), para D5. Research by Higher Education Institutions (Charity Commission, 2009), para D3. Research by Higher Education Institutions (Charity Commission, 2009), paras C7, D3. Research by Higher Education Institutions (Charity Commission, 2009), para C7.

38

University research and charitable status 1.57

There should be procedures in place to ensure that any non-charitable research is carried out in accordance with the rules and guidelines on non-charitable trading.153 This would normally be through a non-charitable trading subsidiary of the university:154 any resulting IP to be used by the sponsor (whether by transfer or licence) should be made available in return for a proper market consideration.155 However, where the use of IP by a non-charitable company furthers the aims of the university for the public benefit, and such use is enforceable under an agreement between the parties, the university is not required to charge full, or any, value. However the use of the IP to further charitable purposes must fall within the aims and powers of the university and any private benefit should be incidental.156

University technology transfer companies 1.57 This section summarises the Charity Commission’s guidance on the relationship between a university and a subsidiary technology transfer company or spin-out. In setting up a technology transfer company, the university should first check that it has power to incorporate a non-charitable company and to invest in it.157 Secondly, in order to be able to use its charitable resources to support a spin-out in conducting research that is non-charitable, the university should ensure that the proposal fulfils one of the following criteria: • either there should be a reasonable prospect of the venture leading to wider public benefit and so furthering the university’s charitable work; •

or the use of the university’s resources for the company should be justifiable as a prudent investment in the university’s interests: the university should have a good reason to undertake the venture as a fundraising activity.158

The trustees must make a fully informed decision with the university’s best interests as their sole consideration.159 Any private benefit to the participators should be incidental to the university’s aims, the university’s interests (for example, in any resulting intellectual property) should be properly secured, and any facilities made available to the company should be at proper market value under a formal arm’s-length arrangement. Finally, the trustees should be persuaded that making research 153 154 155 156 157 158 159

Research by Higher Education Institutions (Charity Commission, 2009), para B1. Research by Higher Education Institutions (Charity Commission, 2009), para C1. Research by Higher Education Institutions (Charity Commission, 2009), para C7. Research by Higher Education Institutions (Charity Commission, 2009), para C7. Research by Higher Education Institutions (Charity Commission, 2009), para E1. Research by Higher Education Institutions (Charity Commission, 2009), para C6. Research by Higher Education Institutions (Charity Commission, 2009), para E1.

39

1.58  Overview

resources available to the spin-out would not adversely affect the university’s continuing work in pursuit of its charitable aims.160

REPRESENTATIVE BODIES161 1.58 The growth of the technology transfer sector has also led to the formation of several organisations to represent the interests of those organisations that create the relevant technology in the UK. The following is an outline of the key organisations.

The Russell Group of universities162 1.59 The Russell Group represents the 24 universities163 that carry out the most research in the UK. The Group is primarily a lobbying group aimed at ensuring that the research activities of UK universities are recognised and properly funded. The Russell Group has grown from an informal group started in 1994 to one that incorporated in 2007 and now has a small staff involved in policy and publicity work.

PraxisAuril 1.60 PraxisAuril164 is a membership organisation for organisations involved in technology transfer at UK universities and other research organisations. Its primary purpose is to develop knowledge exchange and technology transfer professionals through training, promoting best practice and networking events.165 It also carries out some representational and policy work. It is also part of an alliance of similar organisations, called the 160 Research by Higher Education Institutions (Charity Commission, 2009), para E1. 161 Contact details for the organisations mentioned in this section are set out at the end of the chapter. 162 Named after the London hotel where the representatives of the universities first met. 163 The current members of the Russell Group are University of Birmingham, University of Bristol, University of Cambridge, Cardiff University, Durham University, University of Edinburgh, University of Exeter, University of Glasgow, Imperial College London, King’s College London, University of Leeds, University of Liverpool, London School of Economics and Political Science, University of Manchester, Newcastle University, University of Nottingham, University of Oxford, Queen Mary University of London, Queen’s University Belfast, University of Sheffield, University of Southampton, University College London, University of Warwick and University of York. 164 PraxisAuril resulted from three organisations merging. UNICO and Praxis merged in 2009; Praxis was involved mainly in providing technology transfer-type training courses; UNICO stood for Universities Companies Association. In 2015, PraxisUnico and AURIL merged. AURIL work was more directed towards those involved in the creation and development of technology and intellectual property rather than the mechanics of commercialisation. 165 The information includes guides on various types of deals and agreements, with specific guidance relevant to those involved in technology transfer at universities and research organisations, written by Mark Anderson and members of Anderson Law LLP.

40

The role of lawyers in technology transfer agreements and activities 1.62

Association of Technology Transfer Professionals (ATTP),166 whose aim is to promote knowledge exchange, knowledge transfer and technology transfer, as well as being involved in providing training for a recognised qualification for persons working in the technology transfer sector (RTTP).167 PraxisAuril’s membership includes all the members of the Russell Group, most other UK universities,168 UKRI169 and relevant governmental/regulatory organisations, some overseas organisations, and organisations and companies who provide services to this sector.

Overseas organisations170 1.61 There are many non-UK organisations involved in the technology transfer sector. Two of the most notable are: •

The Association of European Science & Technology Trade Professionals (ASTP) – the primary pan-European organisation; having its headquarters in the Netherlands, it has more than 600 members in 38 countries, with most of the members working in universities and other research organisations.

•

The Association of University Technology Managers (AUTM) – the predominant US organisation; it can best be understood as the US equivalent of PraxisAuril, although on a much larger scale, with over 3,100 members working in 800 organisations such as universities, government organisations, hospitals etc, within and outside the US.

THE ROLE OF LAWYERS IN TECHNOLOGY TRANSFER AGREEMENTS AND ACTIVITIES General 1.62 Drafting, negotiating and advising on technology transfer agreements has been a niche area for lawyers. The mainstream of commercial transactions 166 There are currently 14 members of the alliance and, besides PraxisAuril, members include the Association of European Science and Technology Transfer Professionals (ASTP) and the Association of University Technology Managers (AUTM). The full list is available here: https://attp.info/learn-about-attp/. 167 Which is stated by PraxisAuril to be ‘the international professional standard for knowledge transfer and commercialisation practitioners working in universities, industry and government labs. The RTTP framework recognises demonstrated competence and experience across the breadth of knowledge exchange, from IP commercialisation through to university business collaboration and start-up company creation’ (www.praxisauril.org.uk/RTTP). 168 In this category, membership is sometimes for the university’s company(ies) involved in technology transfer rather than the university itself. 169 See para 1.11 above. 170 Contact details for the two organisations mentioned in this section are set out at the end of the chapter.

41

1.63  Overview

has been in higher-profile areas such as mergers and acquisitions, private equity or commercial property. Until the time of the third edition of this book, it was possible to say the same of published precedent material and legal texts. There have been (until recently) fewer published precedents for technology transfer agreements than for many other types of commercial agreement. There are fewer books for lawyers on the law in this area than in many other areas of law. Reported cases on the interpretation of contracts are very rarely concerned with technology transfer agreements compared with, say, shipping or insurance contracts. And many of the reported cases, particularly involving patents, involve issues concerning their validity or whether there is infringement (dealing with sometimes highly complex technical and scientific issues) rather than the interpretation of commercial provisions. The obvious reason is an economic one: until recently very few technology transfer agreements were as economically significant as eg a contract for the charter of a ship, the leasing of a fleet of aircraft or portfolio of commercial property. Nowadays, the pecking order may be changing, but it may take the law some years to catch up. In the meantime, the number of lawyers who are advising on technology transfer agreements is rapidly increasing.

Factors influencing when to use a lawyer 1.63 There is a real problem in deciding when to use lawyers in the negotiation of a technology transfer agreement. Take the example of an agreement to provide research services. With most types of commercial contract, the price to be paid under the contract may provide a rough measure of whether and when to involve lawyers in the negotiation process. It is relatively easy to decide that the sale of a business for, say, £10 million must involve the extensive use of corporate lawyers in drafting, negotiating and advising on the agreement. It is less easy to make this judgement with many technology transfer agreements. First, there may not be a direct correlation between the price to be paid under the contract (particularly any up-front payments) and the potential future value of the contract. For example, many R&D agreements, although considered important, involve a relatively modest ‘price’, eg  in the range £50,000 to £200,000, and may not be thought able to support significant legal fees. A typical example of this might be an agreement with a university to conduct a £120,000 research programme over three years. This might, inter alia, fund a post-doctoral research worker to work full time on the research programme. The payment structure will not generally provide a large profit to the university. Other R&D agreements involve much larger sums. An example of this might be an agreement to conduct large-scale, multi-centre, clinical trials of a 42

The role of lawyers in technology transfer agreements and activities 1.63

pharmaceutical drug, involving payments of tens of millions of pounds over several years. There may be a reluctance to involve lawyers, or to involve them fully, in a £10 million R&D  agreement, which would not be encountered in a £10 million business-sale agreement. There may be any number of reasons for this: perhaps R&D agreements are considered to be more ‘co-operative’ and straightforward than some types of agreement and therefore less reliant on legal advice. The negotiation of the R&D agreement may be the responsibility of a research director rather than (with some other types of agreement) a commercial director or finance director, and this may account for a rather different (and sometimes more constructive) attitude to the negotiation process. In some instances the project budget will not have been drawn up to include realistic amounts for legal advice. Perhaps more significant is the fact that so many R&D  agreements (and technology transfer agreements generally) are concerned with potential value, rather than real, present value. If the R&D  programme is successful, it may result in the generation of commercial products. If this happens, with hindsight the parties may wish to have in place a detailed, carefully worded agreement that has received the full input of specialist lawyers. However, at the time the R&D agreement is negotiated, it may be difficult to predict whether it will result in commercially valuable products, processes or intellectual property. The price to be charged for the R&D  services may not provide a useful guide to how ‘important’ the agreement is: a significant breakthrough could come from a relatively small contract. Some universities, research charities and companies enter into large numbers of research contracts, and feel they cannot justify spending large amounts of time and money in negotiating every one of those contracts. After all, only some of the contracts are likely to result in the marketing of successful, new products. Other research will ‘fall by the wayside’. Many of the above points can also be made about technology that a university or company has developed which is to be licensed. A  further complicating factor, less prominent at the time the previous edition was prepared, has been the work done to create widely available, professionally drafted precedents. Perhaps the most notable examples are: •

the Lambert toolkit and agreements, which include a range of R&D, consortium agreements, patent (and know-how) licences and confidentiality agreements, together with detailed commentary and guidance;171

171 Generally see https://www.gov.uk/guidance/university-and-business-collaboration-agreementslambert-toolkit. For the agreements themselves: https://www.gov.uk/guidance/university-andbusiness-collaboration-agreements-lambert-toolkit#model-research-collaboration-agreements.

43

1.63  Overview

•

PraxisAuril: for those primarily involved in technology transfer in universities and research organisations, PraxisAuril provides guides and precedents; and

•

clinical trials in NHS facilities: there are now model clinical trial agreements for where a sponsor (whether directly or through a clinical trial organisation) wishes to carry out a clinical trial in NHS facilities which are intended to be used without amendment.172

These can also influence the decision on whether, and the extent to which, an organisation will want to use a legal adviser (particularly on deals deemed to be of smaller scale or more speculative as to their potential value).173 In light of these factors, what level of involvement should the legal adviser propose to his client? One approach is to decide that this is a commercial decision for the client, and that it is not for his lawyer to second-guess that commercial decision. The client will seek advice when he or she is ready to do so. For some experienced clients, this approach may work, but in many cases it is not the most helpful approach to take. Technology transfer agreements can involve some complex issues, particularly in relation to the management and commercialisation of intellectual property. There is a danger of the client involving their lawyer too early or too late: too early, and legal bills may become disproportionate; too late, and the opportunity to help shape the deal to take account of intellectual property and other legal issues may be reduced or lost, particularly if negotiations with the other potential party have reached an advanced stage. Suggesting substantive changes because of concerns of the client’s lawyer about intellectual property and other legal issue could jeopardise reaching a final agreement with the other party, or sour the relationship with them (and result in the introduction of a level of mistrust both during the remaining negotiations and also later, if the parties enter into an agreement, during the life of the agreement). The following approach is suggested, based on past experience of negotiating many types of technology transfer agreement, both small and large: •

At least some involvement should be proposed right from the outset, in order to assist the client to focus on issues that are likely to arise, eg in

172 See https://www.myresearchproject.org.uk/help/hlptemplatesfor.aspx#Contracts-Agreements. See para 2.106. 173 The danger of using ‘standard’ precedents is that they are used unthinkingly or without understanding fully or properly their meaning and implications. The use of computer technology permits easy assembly of agreements drawn from different sources. The dangers of such an approach has been shown in a number of cases, and most strikingly perhaps in a case which was reported at the time material for the last edition was completed, Oxonica Energy Limited v Neuftec Limited [2009] EWCA Civ 668 (see para 10.49). In this case, the result of not thinking through the meaning of defined terms meant that a spin-out company of Oxford University was liable to pay more royalties than it envisaged.

44

The role of lawyers in technology transfer agreements and activities 1.63

relation to intellectual property.174 If the client and the other party are to sign a Heads of Agreement, Letter of Intent, Term Sheet or similar, recommend being involved in the drafting of that document. •

Advise the client on any draft agreements that are received from the other side in the negotiations. If your client is to prepare the draft agreement, make sure they are using an appropriate precedent175 or, if it is an important transaction, draft the agreement yourself.

•

You may or may not be involved directly at all stages in the negotiation of the draft agreement. ‘Behind the scenes’ drafting work may be all that is required or can be justified financially.

•

Try to make sure that you are asked to advise on the entire document, not just particular clauses (sometimes easier said than done).176

•

Be flexible about allowing the client to propose wording or keep a copy of the draft agreement on their computer. The review and compare functions on modern word-processing programmes allow the changes others (including the client) have made to be viewed. Do not do what some organisations do, and refuse to send out draft agreements by email or provide them only as pdf files (ie files that cannot be altered).

•

If the client enters (or intends to enter) into a number of similar agreements, suggest that you prepare a policy document which sets out, for important issues, the objectives for particular types of deal or agreement, the position of the client on particular issues (what are ‘deal breakers’, where the client is willing to negotiate, what is prepared to accept or not accept etc) and example wording to deal with these different situations.

Whilst it is not normally necessary for the lawyer advising on such an agreement to understand the detailed science, it is necessary for him or her to understand, in outline, what work is to be done and what is the likely outcome if the work is successful. Ideally, of course, one would use a lawyer who had a perfect understanding of the science, all relevant areas of law, and experience of the type of transaction under consideration. In practice, it is probably more important to use a lawyer who has a good understanding of commercial and 174 A modern approach is for the lawyer to prepare a detailed list of issues which is provided to the client, so that the client can be aware of and go through all the relevant issues which arise commonly in certain types of transaction or in particular types of document. Such a document can also be drafted to include the default position of the client on a number of topics, so that when a client looks at a document or an issue is raised the client can know what the default response is. Further refinements include suggested alternatives, which are in line with the client’s default position, but are responses to a point or negotiating strategy put forward by the other side. 175 Where the lawyer has prepared the precedent, a modern approach is to provide a detailed commentary to help the client understand not only the wording used but also the context in which it is used and how the specific wording relates to the rest of the precedent. 176 Or at least see the whole agreement to make sure that any advice given on a particular clause is relevant to the agreement.

45

1.64  Overview

IP law and some limited understanding of the science, rather than the other way around. Unlike in the case of IP litigation,177 understanding the detailed science is not usually so critical for the lawyer advising on a technology transfer agreement.178 It is, however, desirable that the lawyer should have some experience of advising on technology transfer agreements. Such experience should also extend to the industry sector covered by the agreement. Some of the most prestigious firms of commercial law solicitors in the UK have relatively little experience of such agreements. Or, where they do have relevant experience, are used to dealing with more complex types of agreements, where complicated corporate and financial structures are involved. That is, they cannot ‘think small’. Many technology transfer agreements are factually complex. Often, the agreement will need tailoring to meet the actual circumstances, with the result that the final document may be significantly different to the precedent on which it is based. This is not to say that precedents are not useful, but they will often need adaptation. Lawyers in this field probably spend longer getting to grips with the factual background than in some other areas of commercial law.

Drafting the agreement 1.64 There is no convention as to which party should draft a technology transfer agreement. Generally, there is much to be said for the party with the greater experience of technology transfer agreements preparing the first draft. Many universities have technology transfer or research contracts offices that are experienced in the preparation of such agreements. Some companies are highly experienced in drafting such agreements and may have in-house lawyers specialising in this area. There is a wide variation in the quality of the agreements that are encountered. Moreover, as many technology transfer agreements are between parties based in different countries, there is also wide variation in agreement styles. As with many types of commercial agreement, the North American agreements tend to be the most detailed and wordy, whilst Continental European agreements

177 Such as litigation concerning validity or infringement of a patent relating to pharmaceuticals. 178 Often it can be helpful to have a discussion with a scientist or academic who is an expert on the technical subject matter of the agreement. He or she will have the most up-to-date information not only about the technical subject matter, but usually will also know all the steps involved in getting to the point where the technical subject matter is ready for protection, licensing or assignment. Getting information direct from the scientist/academic can sometimes lead to a greater understanding than going through the lawyer’s contact at the client, who might be the contract negotiator or drafter, and may not have a detailed knowledge of the subject matter (ie a filter is removed).

46

The role of lawyers in technology transfer agreements and activities 1.65

are sometimes very brief. In some areas, more uniform types of document are emerging. Thus, simple confidentiality agreements (or CDAs) to enable scientific disclosures are often similar to one another, at least in the issues that they tend to address. Even here, though, it is surprising how often the documents that one encounters miss some key element (such as a restriction on use, as distinct from disclosure, of the information) or fail to define clearly the purpose for which the information may be used by the recipient, or the ‘wrong’ type of precedent is used as the starting point for negotiations. Using the example of CDAs, a commercial law firm used to dealing with merger and acquisitions may provide their ‘standard’ CDA with excessive detail and restrictions for where two parties are having some initial discussions about one carrying out some small-scale research and development work for the other. The provision of an agreement leads to another issue, which is that some parties (particularly some commercial companies) are only prepared to work with their own agreements – even if they are prepared to agree to change provisions at the suggestion of the other party. If the agreement is heavily one-sided or lengthy, the other party will need to have the right amount of expertise (and time) to understand, and work through, its provisions to suggest changes.

Negotiating the agreement 1.65 The negotiating teams for technology transfer agreements vary, but should generally include at least one person with understanding of the science involved, a commercial representative (who may be the same person) and a lawyer. Some routine agreements are negotiated without legal advice. Where lawyers are involved, they sometimes front all aspects of the negotiations, but it is equally common to find that the commercial representative takes the lead, particularly in the early stages of negotiations, with support from their lawyer. The areas where legal advice is most often sought are on intellectual property issues and liability issues,179 and the lawyer is often asked to lead the negotiations on these technically complex areas. As has already been mentioned, a co-operative negotiating approach will often be thought more appropriate for technology transfer agreements than a more ‘hard-nosed’ style. In the authors’ experience, the negotiations sometimes run more smoothly where senior scientists from each party take an active role and interest in the negotiations, rather than leaving it all to their commercial and legal colleagues. At the time the negotiations are taking place, the scientists will generally be enthusiastic about the proposed technology transfer and working with the other party, and this enthusiasm and spirit of co-operation 179 Such as warranties, exclusion from and restrictions on liability and indemnities.

47

1.66  Overview

may help to carry the negotiations forward. Of course, this will depend partly on the personalities of the scientists involved: some scientists prefer to stay out of commercial negotiations.

Legal costs 1.66 It is usual for each party to bear its own legal costs in relation to the drafting and negotiating of technology transfer agreements. Some occasional exceptions to this include: (a) where a company or institution enters into an agreement with an individual, wants that individual to take legal advice, and agrees to pay for that advice; and (b) where the technology transfer agreement forms part of a financing deal (eg investment in a high-tech company by a venture capitalist), and the party providing the finance has the bargaining strength to insist on its legal costs being covered by the party receiving the finance. However, these exceptions are not frequently encountered. Other costs that might be viewed as ‘legal costs’ arising in connection with a technology transfer agreement include: (a) patent prosecution, renewal and infringement costs (and the agreement may specify who is responsible for these costs); and (b) taxes on payments made under the agreement. The main tax issues that may need to be addressed include: (i) whether there will be any withholding of corporation tax on payments under the ‘withholding tax’ rules; (ii) whether payments are inclusive or exclusive of VAT; and (iii) whether stamp duty is payable and, if so, who should pay it. Stamp duty is less of an issue in the UK, with its abolition in relation to intellectual property assignments.180

180 See further Ch 17.

48

Contact information 1.67

CONTACT INFORMATION 1.67 Name

Address

Telephone

Website

Association of Medical Research Charities

Charles Darwin House 2, 107 Gray’s Inn Road, London, WC1X 8TZ, UK

020 7685 2620

https://www.amrc. org.uk

ASTP

Stationsweg 28a, 2312AV Leiden, The Netherlands

0031 71 711 3511

https://www.astp4kt.eu

AUTM

One Parkview Plaza, Suite 800, Oakbrook Terrace, IL 60181, USA

+1-847-6862244

https://autm.net

Bill and Melinda Gates Foundation

500 Fifth Avenue North, Seattle, WA 98109, USA

(206) 708-3100 https://www. gatesfoundation.org/

Cancer Research UK

Angel Building, 407 St. John Street, London, EC1V 4AD 

020 7242 0200  https://www. cancerresearchuk.org

National Institute for Health Research 

No central address

No one telephone number

https://www.nihr.ac.uk

Nesta

58 Victoria Embankment, London, EC4Y 0DS

0207 438 2500

https://www.nesta. org.uk

Nuffield Foundation

28 Bedford Square, London, WC1B 3JS

020 7631 0566

https://www. nuffieldfoundation.org

PraxisAuril

168 Cowley Road, Cambridge, CB4 0DL 

01223 659950

https://www.praxisauril. org.uk

The Academy of Medical Sciences 

41 Portland Place, London W1B 1QH 

020 3141 3200  https://acmedsci.ac.uk

The British Academy

10–11 Carlton House Terrace, 020 7969 5200 London, SW1Y 5AH

The British Heart Foundation

Greater London House, 180 Hampstead Road, London, NW1 7AW 

0300 330 3322

https://www.bhf.org.uk

The Gatsby Charitable Foundation

The Peak, 5 Wilton Road, London, SW1V 1AP

020 7410 0330

https://www.gatsby. org.uk

The Leverhulme Trust

1 Pemberton Row, London, EC4A 3BG

020 7042 9888

https://www. leverhulme.ac.uk

The Royal Academy of Engineering

Prince Philip House, 3 Carlton House Terrace, London, SW1Y 5DG

020 7766 0600

https://www.raeng. org.uk

The Royal Society

6–9 Carlton House Terrace,  London, SW1Y 5AG

44 (0)207 451 2500

https://royalsociety.org

The Russell Group of Universities

Kett House, Station Road, Cambridge, CB1 2JY 

020 3816 1300 (CEO number)

https://russellgroup. ac.uk

49

https://www. thebritishacademy.ac.uk

1.67  Overview Name

Address

Telephone

Website

The Wellcome Trust 

Gibbs Building, 215 Euston Road, London, England, NW1 2BE 

020 7611 8888

https://wellcome.ac.uk

The Wolfson Foundation

8 Queen Anne Street, London, W1G 9LD 

020 7323 5730

http://www.wolfson. org.uk/

United Kingdom Research and Innovation

Polaris House, Swindon, SN2 1FL

01793 444000

https://www.ukri.org

Universities UK

Woburn House, 20 Tavistock Square, London, WC1H 9HQ

020 7419 4111  https://www. universitiesuk.ac.uk

Versus Arthritis

Copeman House, St Mary’s Court, St Mary’s Gate, Chesterfield, S41 7TD

0300 790 0400

Covering: • Arts and Humanities Research Council (AHRC) • Biotechnology and Biological Sciences Research Council (BBSRC) • Engineering and Physical Science Research Council (EPSRC) • Economic and Social Research Council (ESRC) • Innovate UK • Medical Research Council (MRC) • Natural Environment Research Council (NERC) • Research England • Science and Technology Facilities Council (STFC)

50

https://www. versusarthritis.org

CHAPTER 2

Drafting Technology Transfer Agreements The legal framework 54 Intellectual property and other property laws 55 Contract and commercial laws 56 Competition law 57 Regulatory issues 58 Taxation and currency issues 59 Boilerplate and commercial clauses 60 Parties60 Parties outside the UK 62 Recitals63 Definitions63 Operative provisions generally 64 Work obligations 65 Payment obligations 65 Intellectual property issues 65 Warranties, liability and indemnities 66 Termination and its consequences 67 Law and jurisdiction 68 Other boilerplate clauses 70 Signing and dating the agreement 71 Schedules and attachments 72 Types of agreement 72 Heads of agreement and term sheets 73 Confidentiality agreements 75 Before drafting the agreement 75 Parties76 Consideration78 Commencement79 Subject matter of the agreement 79 Circumstances in which information is covered by the agreement80 Disclosing and receiving parties 81 Exceptions to confidentiality obligations 81 Restrictions: permitted use, copying, non-disclosure (and disclosure to employees) 83 Use83 Copying84 Disclosure to employees and representatives 84

51

Drafting Technology Transfer Agreements Duties: security measures, return of information, reporting results obtained86 Duties86 Security86 Return of information 86 Reporting results obtained 87 Duration: duration of agreement and duration of obligations 87 Duration87 Duration of the agreement 88 Duration of obligations 88 Obligations on the disclosing party: provision of information, confidentiality89 Obligations on the disclosing party 89 Provision of information 89 Confidentiality90 Implied terms: no licence or other agreement 90 Law and jurisdiction; notices 90 Competition restrictions 91 Materials transfer agreements 92 Intellectual property issues 93 Liability, disclaimers of warranties and liability, and indemnities 94 Other terms in MTAs 95 Option agreements 96 Terminology96 Option96 Right of first refusal 98 Right of first opportunity 99 Combinations of the above 99 Some other points to note 99 Intellectual property (and know-how) licences 100 Royalties and other payments for the use of licensed intellectual property103 Drafting royalty clauses 105 Warranties in licensing agreements 106 Warranties – points for consideration 106 Assignments108 Spin-out company transactions 109 Research and development agreements 111 Introduction111 Common provisions of R&D agreements 112 Intellectual property issues 113 Collaborative R&D 114 Parties114 R&D Project114 Checklist of matters to be addressed in a research agreement 115 Parties responsible for the work 115 Starting the work 115

52

Drafting Technology Transfer Agreements Location115 Amendment of research programme 115 Warranties116 Facilities116 Effort in carrying out work 117 Provision of equipment 117 Provision of materials 118 Project leaders 118 Project committee 119 Recruitment of staff 119 Exclusivity, non-competition 120 Payment terms 121 Fixing the amount to be paid 121 Types of payment 122 Factors to be considered in payment clauses 123 Intellectual property 124 Use of the terms ‘background’ and ‘foreground’ intellectual property 125 Definition of background intellectual property 125 Definition of foreground intellectual property 125 Applying the definitions 126 Administering the intellectual property 127 Publication127 Requirement to publish 127 Publication clauses 128 Charitable research 129 Warranties in R&D agreements 129 Introduction129 Disclaimers130 Reasons for disclaimers 131 Development agreements distinguished from research agreements 131 EU-funded research collaborations 132 Sub-contracting agreements – generally 133 Small-scale manufacturing agreements (eg for R&D materials) 134 Trials and testing agreements 135 Sponsored clinical trials agreements 135 Introduction135 Types of model clinical trials agreement 136 Contents of a sponsored commercial clinical trials agreement 137 Non-commercial research in the health service agreement 143 Employment and consultancy contracts 144 Consultancy contracts 144 Employment contracts 146 Agreements with students 147 Best practice 147 Who should draft the agreement? 147 Who should bear the costs of drafting the agreement? 148 Dealing with parties who are, or are not, legally represented 148

53

2.01  Drafting Technology Transfer Agreements Marking-up and circulating drafts The signing process – different methods Verifying that proper execution of the agreement has occurred Keeping and archiving original versions of the agreement

150 151 152 154

THE LEGAL FRAMEWORK 2.01 This chapter discusses some practical issues that arise when drafting technology transfer and related agreements – including legal, practice and commercial points. For this purpose, ‘technology transfer agreements’ include agreements relating to: •

the creation of intellectual property (such as the generation of information and inventions through carrying out research and development);

•

the licensing of intellectual property;

•

the testing of intellectual property (such as through clinical trials or the use of materials in intellectual property creation); or

•

the transfer of ownership (assigning) of intellectual property.

Specific types of technology transfer agreement are discussed in para 2.21 below. Drafting technology transfer agreements, and taking them through the negotiation process to final signature by the parties, requires a range of skills and experience, including: • Commercial – knowing what commercial terms to put into the agreement and what commercial risks the organisation is willing to accept. • Legal – understanding the relevant principles and provisions of law to make the agreement legally binding, ensuring appropriate legal obligations on the parties (based on instructions on deal terms and risk from a commercial colleague), knowing the legal meaning of particular expressions and wording used, and (seeking to) achieve the right interpretation by the court or arbitrator. • Drafting – knowing how to write the provisions of the contract so that they are clear, usable and say what the parties intend.1 • Negotiating – having the right blend of interpersonal skills and experience to interact with colleagues and representatives of the other 1

The case of Oxonica Energy Limited v Neuftec Limited [2009] EWCA Civ 668 is a good recent illustration of a contract which did not express the intentions that the parties intended.

54

The legal framework 2.02

party, advance the negotiations, and achieve a mutually acceptable signed agreement. People who negotiate and draft technology transfer agreements have different professional backgrounds, whether they are lawyers, patent agents, accountants, scientists, commercial executives and general managers. There is a wide variety in the level of formal training that such people have in the skills mentioned above. Some people are happy to ‘learn on the job’, which some may regard as acceptable for commercial and negotiating skills, but is certainly not appropriate for a legal adviser nor, it is suggested, for the contract drafter. Some technology transfer managers, particularly in universities and research organisations, are expected to combine all of the above skills and more, often without formal legal or drafting training.2 This chapter provides a checklist of matters that are frequently encountered in the drafting, negotiation and execution of technology transfer agreements. The list is not intended to be comprehensive as to topics or in the level of discussion.3 Negotiating and general contract-drafting techniques are outside the scope of this book. For more detailed discussion of some of the points mentioned in this chapter and general consideration of drafting and negotiating commercial contracts, readers should consult books dealing with these subjects.4 The main part of this book comprises a summary and discussion of legal issues that are relevant to technology transfer. The following sections provide a high-level overview of some legal points that often need to be considered when drafting a technology transfer agreement, and on which legal advice may need to be sought. Most of these points are covered in more detail in other chapters.

Intellectual property and other property laws 2.02 Intellectual property issues are at the heart of many technology transfer agreements; some of those issues are discussed in later sections of this chapter. In order to draft and negotiate intellectual property provisions that address those issues, it is important to be familiar with the legal framework 2 3 4

The position is changing with regard to persons working in university and research organisations. Organisations such as PraxisAuril and ARMA now offer training on such topics as negotiating, drafting and interpreting technology transfer agreements (see para 1.58). Valuation techniques and taxation are dealt with in Chs 16 and 17 respectively. For example: Anderson and Warner, Drafting and Negotiating Commercial Contracts (4thd edn, Bloomsbury Professional, 2017); Anderson and Warner, A–Z Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2017); Anderson (ed), Drafting Agreements in the Biotechnology and Pharmaceutical Industries (looseleaf, Oxford University Press); Anderson and Warner, Drafting Confidentiality Agreements (4thd edn, Law Society Publishing, 2014); and Anderson and Warner, Execution of Documents (3rd edn, Law Society Publishing, 2015).

55

2.03  Drafting Technology Transfer Agreements

of intellectual property laws, including laws that are directly relevant to commercial transactions. Examples include: •

how it is possible to license and assign intellectual property;

•

the rights of licensees and assignees;

•

the law on co-ownership of intellectual property;

•

employee rights to intellectual property;

•

who is the first owner of intellectual property, particularly where intellectual property is commissioned.

It is also important for the technology transfer lawyer to be familiar with certain aspects of general property law which underpin specific provisions of intellectual property laws, eg how more than one person owns property (eg as ‘joint tenants’ or ‘tenants in common’) and what implied binding promises a seller of intellectual property makes (eg ‘full title guarantee’) unless agreed otherwise. Separately, it may be necessary to consider personal property laws in relation to the provision of materials, eg  under a material transfer agreement (where one person has possession of the materials supplied by another person, but the other person retains ownership – the law of bailment). Despite (international) efforts at standardising intellectual property laws,5 such matters as described immediately above vary from country to country, and it is useful to have at least a general awareness of some of the differences in those laws between countries when drafting or negotiating a technology transfer agreement. For example, in the case of intellectual property generated by a German inventor, it may be necessary to undertake due diligence on whether the inventor or his employer is the owner of the intellectual property. Whilst this may be an important exercise in most countries, it is particularly important in Germany in view of the distinctive arrangements for employee ownership of inventions under German law.

Contract and commercial laws 2.03 Technology transfer agreements are examples of contracts. Contract law is of fundamental importance when determining the legal effect of a contractual document, including whether it is legally binding and how its provisions will be interpreted by a court. To take a couple of common examples: •

will the contract’s limitation of liability clause be upheld by the court, in light of the Unfair Contract Terms Act 1977; and

•

is there ‘consideration’ (that is, something of value exchanged) in the agreement, to make it a legally binding contract?

5

Eg, see para 3.11.

56

The legal framework 2.04

To draft legally effective contracts, it is important to have a solid grounding in contract law. This book assumes that the reader is already familiar with basic contract law. Other areas of commercial law (ie  other than contract law) may also be relevant. For example, when drafting an entire agreement clause, it is important to be familiar with the law on misrepresentation, which is part of the law of tort. Although not the focus of this book, if the agreement is with a consumer, consumer protection laws will need consideration; these laws may significantly affect the provisions that should or should not be included in an agreement. A large number of consumer protection laws have been introduced in the UK in recent years (such as the Consumer Rights Act 2015), most of them originating in EU Regulations or Directives. However, most technology transfer agreements are not with consumers. This book does not attempt to cover all areas of commercial law that could be relevant in a dispute over a contract, and instead focuses on features of the law that are specific to technology transfer agreements or have distinctive features when the agreement under consideration involves technology transfer. One of the most useful (and unique) parts of this book, in the authors’ opinion, is the discussion of English case law on the interpretation of intellectual property licence agreements, which appears in Chapter 10.

Competition law 2.04 It is important also that the technology transfer agreement does not contain any provisions that are likely to be in breach of Article 101, EU Treaty and equivalent domestic UK law (Competition Act 1998). In international transactions, it may also be necessary to consider other countries’ competition laws (eg US antitrust law). Competition law is one of the subjects that a technology transfer lawyer will always have in the back of the mind whenever an agreement is prepared. Some small-scale agreements that do not include any so-called ‘hardcore’ (ie particularly restrictive) anti-competitive terms may need only a cursory competition law review. Other agreements, including intellectual property licence agreements, may require more detailed analysis. Often, the most efficient way to tackle EU competition law issues is to analyse whether the terms of the agreement fit within the scope of a ‘block exemption Regulation’ (such as the Technology Transfer Agreements Regulation).6 An agreement

6

Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements.

57

2.05  Drafting Technology Transfer Agreements

that fits (or contains provisions that fit) within a block exemption Regulation is normally automatically exempted from Article 101, EU Treaty. It will generally not be possible to ‘contract out’ of a country’s competition laws, by specifying a different law of the contract. For example, in the case of an intellectual property licence agreement where the licensed territory includes the UK, the fact that the licence agreement is made between US parties and made under US law will not avoid the operation of UK competition law.7

Regulatory issues 2.05

There are many kinds of regulatory issue, including the following:

•

For UK universities, does the agreement (and the activities to be performed and payments to be made under the agreement) form part of the university’s charitable activities?8 If not, might the agreement prejudice the university’s charitable and tax-exempt status? For US universities, do the terms of the agreement comply with the Bayh-Dole Act, and with relevant state laws (particularly in the case of state universities)?

•

For pharmaceutical companies and medical research charities, are the activities under the agreement to be performed in accordance with relevant regulatory requirements, eg for the development or testing of new medicines or medical devices (such as applying for ethic committee and MHPRA approval and complying with the Clinical Trials Regulation9 and the Medical Devices Regulation)?10

•

Across many industries, is the agreement consistent with regulations concerning health and safety, the use of human and animal materials and tissue, the use of personal data, and is export of particular technologies or equipment permitted?

•

If a company is seeking investment (eg  by way of subscription for shares) as part of a technology transfer activity, regulations on the conduct of investment activities may need to be followed, eg in relation to any proposal documents that are circulated.

•

If one or more parties to the agreement are listed on a Stock Exchange, it may be necessary to comply with the regulations of that Stock Exchange or listing authority. For example, if a party is listed in the US, it will be required to provide a copy of all ‘material contracts’ to the Securities

 7 Chiron v Organon [1993] FSR 567.   8 See para 1.52.   9 Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. 10 Regulation (EU) 2017/745 of the European Parliament and of the Council of 5 April 2017 on medical devices, amending Directive 2001/83/EC, Regulation (EC) 178/2002 and Regulation (EC) 1223/2009 and repealing Council Directives 90/385/EEC and 93/42/EEC.

58

The legal framework 2.06

and Exchange Commission, which will place them on a public file that can be searched via the internet. Many technology transfer agreements concern activities in regulated industries. The drafting and negotiating team will often include someone who is familiar with the relevant regulations, and can advise on whether and how they should be reflected in the terms of the agreement. Even where the agreement concerns an activity which is regulated, it may be necessary to register the agreement, the parties or some other element of the deal or relationship between the parties if the agreement is carried out in another country.

Taxation and currency issues11 2.06 The UK government has favoured technology transfer activities with various tax incentives and concessions in recent years, including: •

R&D tax credits;

•

income tax treatment of shares held by academic inventors in spin-out companies;

•

reduced corporation tax rate for patent income (sometimes referred to as the ‘patent box’).

Less favourable to taxpayers has been the year-on-year general tightening of tax rules, to the point where many traditional tax saving schemes are no longer effective. Other areas of tax that may need to be considered when structuring technology transfer agreements include: •

in contracts with universities and other charities, whether the subject matter of the agreement is charitable and therefore tax-exempt;

•

whether VAT is chargeable on payments;

•

whether income/corporation tax on the payment must be withheld by the payer, under withholding tax rules (usually applicable mainly to licence payments);

•

particularly in intra-group agreements, the effect of transfer pricing rules.

In international technology transfer agreements, if the payer is based in a country with exchange controls, this may affect the ability of the payer to transfer contractual payments to the other party. Licence agreements often include a provision dealing with this issue.

11 Taxation issues are discussed in detail in Ch 17.

59

2.07  Drafting Technology Transfer Agreements

BOILERPLATE AND COMMERCIAL CLAUSES Parties 2.07

When drafting an agreement, it is necessary:

•

to make sure the correct parties are identified; and

•

to state the details relating to the parties correctly, with their full (legal) name, country or State of incorporation, and address.

There is a risk management question as to whether the other party has the necessary financial resources to meet its obligations and any associated liabilities, and therefore whether it is appropriate to enter into a contract with that party.12 It is usually the commercial representative’s responsibility to determine this question, although sometimes the finance department takes responsibility for financial due diligence checks. Where the other party is a member of a group of companies, and is not the parent company, another issue is whether: •

to insist on the parent company being made the (primary) contracting party, or

•

the parent company is made an additional party to give a ‘parent company guarantee’.

This assumes that the parent company is considered to have sufficient assets to meet its contractual liabilities, but the subsidiary does not. Legal status of a party: Stating the name and status of a party in detail may ‘flag up’ any issues that may arise in relation to their capacity to enter into contracts and which may need to be investigated further13 – for example, if a party is an unincorporated trust, whether it has the legal capacity to enter into a contract of the type contemplated. To avoid uncertainty, if the party has an official or registration number, it is sometimes stated as, unlike a company’s name, this will not change.14 The status of each party should be stated if not obvious from its full name; for example, whether: •

it is a company (in the UK, private limited company, public limited company or limited by guarantee);

12 Particularly with larger commercial entities who may structure their contractual relationships through a network of subsidiary companies – whereby the subsidiary which they put forward as their contracting party has few or no assets to meet any obligations, but the benefits of a contract flow through to other members of the network of companies. 13 And there is sometimes the practical issue that the person negotiating an agreement from one party may not be aware of who in the group of companies actually enters into an agreement. 14 This is certainly the position in the UK, but may not be true in all countries where companies have numbers.

60

Boilerplate and commercial clauses 2.07

•

it is a partnership (a limited liability partnership, or an ‘old’ type of unincorporated partnership, and in this latter case it is conventional to describe it as ‘a firm’ in the contract); or

•

it is incorporated by Royal Charter (as is the case for many UK universities).

Academics (or scientists): in the case of academic inventors or academics who carry out consultancy work, it is not always clear whether the academic or scientist is permitted to enter into contracts personally, or whether someone from the relevant department or section of the university or company which deals with consultancy work should sign. Sometimes, academics or scientists purport to sign agreements on behalf of the institution when they do not have authority to do so. It may be desirable to check the institution’s policy on these matters. For some types of agreement, such as for some types of clinical trials agreement or a materials transfer agreement with a hospital or university, the parties may be the hospital or university and at least the lead academic/researcher/doctor. For example, if an individual researcher is named as a party, it is done so that s/he can give some express warranty that they will comply with some requirements or undertake some confidentiality obligations. Sometimes, if an individual researcher is joined to the agreement, it is because they will receive materials under the agreement and to ensure that s/he is made aware of the obligations to keep the materials separately from others or to maintain the confidentiality of the materials. The reasons for joining someone as a party should be clearly stated in the document (as well as giving consideration to issues such as their liability if there is a breach of any obligations).15 Where an individual is a party, their home address, rather than their office address, should usually be stated. Academic departments: the name of a large organisation, whether commercial or academic, may not identify the relevant department or section. For example, a university may have a policy that only the main address of the university is used, but notices or communications sent to the central address may not reach the person or department who is actually performing the agreement or is responsible for managing the performance or operation of the agreement (or may only reach the right person or department too late). It may therefore be appropriate to include the name and address of the department or section in the parties’ clause, as in the following example:

15 Unless there is additional wording, then if a researcher is simply made a party to a clinical trials agreement, they may be equally liable for any breach of an obligation together with their employing party.

61

2.08  Drafting Technology Transfer Agreements

University of Shillingford, incorporated in the United Kingdom by Royal Charter, acting through its Department of Physics, whose address is 76 Wallingford Road, Shillingford, Oxon OX10 7EU (‘UOS’). Group companies: with many large organisations it may not be easy to identify the contracting party. For example, a pharmaceutical or biotech company may be organised into a large number of group and subsidiary companies with very similar names, or during negotiations, representatives of organisations may not indicate which subsidiary they represent. As the names of subsidiaries may change frequently, it is advisable to include the company’s registration number in the parties’ clause. Divisions of companies: large companies sometimes trade under the name of a division of the company that has no separate legal status. For example, the division may refer to itself as Mega Pharmaceuticals, and may employ thousands of people in several countries; nevertheless, it is part of Mega Corporation and has no separate legal status. Although an agreement should refer to Mega Corporation as the contracting party (including stating its legal status and any official or registration number), it may be politic to refer to the division in the parties clause, such as ‘Mega Corporation acting through its Mega Pharmaceuticals division’.

Parties outside the UK 2.08 When dealing with foreign parties, it is useful to identify their (legal) status and to understand how that status corresponds (if at all) to UK company and other structures; for example, the German ‘GmbH’ or French ‘S.A.R.L’ is equivalent to a private limited company. For UK companies, a company is incorporated in the part of the UK where it has its registered office (England and Wales, Scotland, Northern Ireland). Just as with UK companies, it is incorrect to state that a US company is incorporated in the USA, as each state has its own law as regards the incorporation of a company, and it is important to indicate the state in which a US corporation is incorporated. This may be a different state to the company’s headquarters. Many US corporations are incorporated in Delaware but have headquarters or their principal place of business elsewhere. If a US corporation does not indicate in which state it is located, and a dispute occurs, then the UK party may have difficulty locating the state in which it is registered.16 In some US states (for example, Delaware), corporations can be incorporated as limited liability companies or limited liability partnerships; the correct terminology should be used in each case. 16 Also a complicating factor is that not all US states’ registers of companies are open to public inspection (such as Delaware).

62

Boilerplate and commercial clauses 2.10

Recitals 2.09 Recitals (also known as ‘whereas’ clauses, ‘background’ clauses or ‘preamble’) are not essential in English law agreements (and are usually not binding on the parties to the agreement). They are mostly used to provide a short summary of the transaction or make factual statements. It is important not to include any substantive obligations in the recitals, or any wording that may conflict with the wording of the main agreement.17 Recitals should generally be short and confined to statements of fact. If the parties wish to state a substantive matter in a recital which is also dealt with in the main part of the agreement, it should be done so in the recital as an intention or a wish. For example, in a patent licence, if a party wishes to make a reference to the grant of the licence in the recitals, they should not use wording such as: ‘The Licensor hereby grants to the Licensee, subject to the provisions of this Agreement’ or any other positive or explicit wording, but rather: ‘The Licensee is willing to grant to the Licensee, and the Licensee is willing to accept, a licence under the Patents and a licence to use the Know-how, all in accordance with the provisions of this Agreement.’ In some countries, eg in civil code countries in Europe, recitals tend to be more detailed than they are in agreements drafted by English lawyers. Part of the function of recitals in such jurisdictions may be to explain the nature of the agreement so that it can be placed in a recognised category under the civil code. Once so categorised, terms may be implied into the agreement under the civil code.

Definitions 2.10 Technology transfer agreements often have extensive definitions clauses. For example, in a patent and know-how licence, the following are often defined: •

Intellectual Property (Background and Foreground);

• Know-How; 17 Although some Recitals contain a history of the relationship between the parties, or state how the particular agreement relates to other agreements between the parties. For example, if the parties have entered into a series of patent licences, one replacing another, then sometimes these details are included, so that a person reading the latest patent licence some time after the licence is entered into can have an idea of the history of the relationship and the contractual and other obligations entered into.

63

2.11  Drafting Technology Transfer Agreements

•

(Licensed) Patents;

•

(Licensed) Products;

• Field; •

Net Receipts;

•

Net Sales Value; and

• Territory. The drafting of technical definitions may require a collaboration between the lawyer/drafter and the relevant scientist to ensure that they are both technically accurate and clearly drafted.18 Similar considerations apply to the drafting of technical specifications and descriptions of technical work that are included in contracts. It is recommended that they are reviewed (and, if necessary, revised) by the contract drafter, as the scientist may not be skilled in contract drafting or be familiar with the principles of contractual interpretation. An important practical consideration is that definitions are used in a consistent way. Typically, a defined word or phrase (such as Net Sales Value) will be capitalised and, when it is used in the body of the agreement, it should only appear in that way. A failure to do so may, in the event of a dispute, lead a court to find a different meaning to the word or phrase (that is, if the intention is to use the defined meaning of ‘Net Sales Value’ in the body of the agreement, it should never appear as ‘net sales value’).19

Operative provisions generally 2.11 For a discussion of general drafting principles, see books dealing with the negotiating and drafting of contracts.20 Among other drafting principles, it is recommended that: •

the main commercial terms of the agreement should appear early in the agreement (eg  clauses 2 and 3, assuming clause 1 contains the definitions);

• obligations should be organised by theme (eg  work, insurance, termination, etc) rather than as a series of obligations on one party followed by a series of obligations on the other party; 18

The case of Oxonica Energy Limited v Neuftec Limited [2009] EWCA Civ 668 can be usefully mentioned here again. This is a clear example where a poorly drafted definition led to one party paying considerably more royalties then would otherwise have been the case. The case is discussed in Ch 10 under ‘On what are royalties payable?’. 19 See the section on ‘Definitions’ in Anderson and Warner, A–Z  Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2017) for a more detailed consideration of the uses of definitions, and dangers in not using definitions in a consistent way. 20 For an introduction to contract drafting, see Anderson and Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional), 2017).

64

Boilerplate and commercial clauses 2.14

•

clauses should be organised in short sentences and in short paragraphs, with plenty of headings, numbering, indentation, spacing between paragraphs, etc to assist readability;

•

Latin, legalese and old-fashioned language should be avoided;21

•

boilerplate clauses should be placed at the end of the agreement, as subclauses under a main clause headed ‘General’ or ‘Miscellaneous’.

Work obligations 2.12 If work is to be performed (eg  R&D  services), the work should be clearly defined, and it should be clear who is obliged to perform which items of work (ie avoid general wording such as ‘the Parties shall perform the Project’). Also, it should be clearly stated whether or not the outcome of the work is guaranteed; generally this will not be the case with early-stage research. Usually, except for the simplest project, the details of the project are set out in detail in a schedule or appendix to the agreement.

Payment obligations 2.13 The contract should clearly state whether the basis of payment is a fixed price or a rate for time spent and services performed. The parties should carefully and robustly check how rates are calculated and how other payment formulae operate, particularly in different situations. Where appropriate, the agreement should include examples to illustrate the operation of the formula (eg where royalties are based on net sales). Also, a payment obligation should include matters such as: •

whether payments are to have VAT or similar taxes added;

•

when payments need to be made (and the procedure for making payments, such as on the sending of an invoice etc); and

•

what is to happen if a payment is not made by a specified date.

Intellectual property issues 2.14 Much of the commercial value of technology transfer activities is based on strong intellectual property protection (particularly that provided by patents). Many technology transfer agreements address intellectual property issues, including: 21 There has been a lot of work in many areas of law to move towards the use of plain English (such an approach is now required for contracts with consumers). Although the use of plain English is good common sense, with commercial contracts it is still an ideal in particular areas. There are certain words or phrases that have particular legal meanings which sometimes do not accord with the common understandings (eg indemnity).

65

2.15  Drafting Technology Transfer Agreements

•

which party owns, controls and can use intellectual property;

•

who is to pay to maintain the (patent) protection; and

•

who is to decide what to do if there is patent infringement by a third party (and who is responsible to conduct any action).

Sometimes the agreement has different provisions for pre-existing intellectual property and intellectual property arising from the performance of the agreement, respectively. The intellectual property provisions will often require careful thought; the contract drafter may need to involve patenting, scientific and commercial colleagues in the drafting of intellectual property terms. Someone in the negotiating team should have a clear understanding of underlying intellectual property laws, particularly those relevant to commercial transactions.

Warranties, liability and indemnities 2.15 Warranties can be viewed as a method of allocating commercial risk. Technology transfer agreements have widely varying warranty terms, depending in part on how risk averse one or both parties to the agreement may be. Conventional practice varies between types of agreement, industry sector and country. For example, in commercial software licences the licensor often gives a warranty or indemnity in respect of infringement of third-party intellectual property. Such a provision would very rarely be encountered in a patent licence in respect of a biopharmaceutical compound that is at an early stage of development. In general, the more money that is being paid, and the closer to market that a technology is, the more likely it is that the agreement will contain detailed warranties.22 Various standard practices have grown up for drafting and negotiating warranties. In outline, these include: •

giving warranties that are limited to matters within the warrantor’s knowledge;

•

making exceptions to warranties for matters disclosed by the warrantor in a separate document, eg in a schedule or ‘disclosure letter’;

•

providing warranties but then limiting liability and remedies for breach of those warranties, for example:

22 Although where the drafting is being carried out by a lawyer who is not a specialist in intellectual property transactions, but comes from a mergers and acquisitions or joint-venture background, then there may be very extensive ‘standard’ warranties included.

66

Boilerplate and commercial clauses 2.16

–

limiting liability to a financial amount;

–

requiring a claim regarding any breach of a warranty to be made within a specific period; or

–

limiting liability to financial damages and excluding the right to rescind the contract.

Case law has clarified the extent of a party’s obligations under warranties, eg in some cases a warranty given to the best of the warrantor’s knowledge may cover matters that the warrantor could have discovered by some reasonable checking of its records. The drafting of warranties has developed to take account of this case law. The law in this area, as well as commercial practice, varies from country to country. For example (and to take one point of detail), it is understood that in the US it is common to state that a disclosure is only effective against a specific warranty, whereas in England and Wales the agreement will often provide that a disclosure is made against all relevant warranties. Therefore, the drafting and negotiation of warranties requires specialist legal knowledge and experience. Similarly, the drafting of clauses that limit or exclude liability, and indemnity clauses, requires an understanding of the relevant contract law. For example, if an exclusion clause is to be effective under English law it may be important to clarify that the clause does not seek to exclude liability for death or personal injury caused by negligence.23 In certain countries, it may be important to clarify that the clause does not seek to exclude liability for gross negligence or fraud (wilful misconduct). Some technology transfer agreements are negotiated without the close involvement of lawyers, usually on grounds of cost. Whatever the merits of this approach, it becomes highly risky when negotiating warranty, liability and indemnity clauses, for which an understanding of the underlying law is particularly important.

Termination and its consequences 2.16 The agreement should include a number of appropriate termination provisions. These may include:

23 Also, the way such clauses are presented in a document may be important. There have been cases in the courts where an exclusion clause contained several issues and one part of the clause has been held to be unreasonable by a court, and the whole clause has been judged ineffective (the clear implication being that if the one clause had been broken into several separate clauses, only the ‘offending’ clause would have been deemed ineffective).

67

2.17  Drafting Technology Transfer Agreements

•

an expiry date, particularly in the case of long-term agreements; this may be coupled with provisions enabling the agreement to be renewed for additional periods;

•

a right to terminate the agreement on the grounds of the other party’s breach of contract or insolvency;

•

a right for one or both parties to terminate on notice (ie where there has been no breach or insolvency);

•

other termination rights, eg  if a party is acquired by someone else (known as change of control), or if a force majeure situation continues for a defined period of time.

In most cases, it is important also to specify in detail what the consequences of termination are, through the use of a ‘consequences of termination’ clause (normally placed after the termination clause). This clause might typically cover the following points: •

actions to be taken on termination, eg provision of a final report;

•

return of materials and information, or arrangement for long-term storage of such items to comply with regulatory requirements;

•

cancellation and termination of rights, eg licences come to an end and any registrations of the licences with national patent offices must be cancelled;

• some provisions may survive for a limited period of time, eg confidentiality obligations, obligations to pay royalties and other sums due; •

some provisions may survive without limit of time, eg indemnities. It is recommended that the relevant provisions be listed in full, rather than the use of some general (and lazy) formula such as ‘clauses that are meant to survive will survive’ or similar wording.

Law and jurisdiction 2.17 In agreements between parties who are based in different countries, typically each party wishes their own country’s law and courts (jurisdiction) to govern the agreement. Often, a compromise is reached on this subject. Some points to consider in coming to a compromise include the following: •

Law and jurisdiction are not points that a party should concede lightly. In negotiations, commercial parties sometimes trade these points too readily, failing to realise how much the choice of law may affect the interpretation of the agreement or even the terms that will be included in the agreement (eg implied terms). 68

Boilerplate and commercial clauses 2.17

•

Law and jurisdiction are separate issues. Specifying English law does not guarantee that the English courts will have jurisdiction to hear the case. The clause should address both law and jurisdiction.

•

A  fundamental question is whether disputes should be heard by a court or by one or more arbitrators. Commercial parties are sometimes under the impression that arbitration is more user friendly, quick, cheap or less ‘legal’ than litigation. In fact, arbitration can be more bureaucratic, expensive, time consuming and user unfriendly than using, say, the English courts. There are some potential advantages to arbitration, including the confidentiality of the proceedings, the arbitrator can be someone who has technical/scientific expertise of the subject matter of the agreement or dispute and the fact that international treaties covering arbitration awards mean that they are more often recognised by national courts than overseas court judgments. However, if an authoritative decision is required on a point of law, it may be better to go to court. These and other factors need to be weighed up, on a case-by-case basis, before deciding whether to choose arbitration or litigation.

•

If arbitration is chosen, it is usually appropriate to agree to follow the arbitration procedures of a well-known arbitration body, eg  the London Court of International Arbitration (LCIA) or World Intellectual Property Organisation (WIPO). If the arbitration is in Sweden, the Stockholm Chamber of Commerce arbitration rules are often used.

•

Commercial parties sometimes express a preference for mediation ‘rather than’ arbitration. Whilst mediation (ie a structured negotiation involving an outside facilitator) may be considered a good way of avoiding arbitration or litigation, if the mediation fails it will still be necessary to choose between litigation or arbitration.

•

If litigation in the courts is chosen as the final dispute-resolution mechanism, it is highly desirable that the court should decide the case on the basis of a contract law with which it is familiar. For example, the English courts should decide cases under English law; French courts should decide cases under French law, etc. In the authors’ view, a compromise such as English law and the French courts (although entirely possible) would not be sensible.

•

The authors’ preferences, if the parties cannot agree on their agreement being subject to English law and jurisdiction, might include the following, depending on the circumstances: –

within Europe, a ‘north-European’ legal system of a reasonably large size, eg the Netherlands or Sweden;

–

within the US, New York or possibly Massachusetts;

–

in the Far East, Australia, New Zealand, Hong Kong or Singapore. 69

2.18  Drafting Technology Transfer Agreements

Other boilerplate clauses 2.18 ‘Boilerplate’ clauses are provisions which often appear at the end of the agreement, covering issues such as assignment, entire agreement,24 force majeure, waiver etc. Which boilerplate clauses are needed will depend on the type of the agreement. Although ‘boilerplate’ clauses are seen as routine or standard wording which appear in any commercial agreement, some of them deal with important issues, such as provisions dealing with: •

assignment (that is, whether the transferring of rights and obligations by, or the transfer of the assets of, a party to a third party is possible); and

•

change of control.25

Such provisions are particularly important in the case of smaller, technologybased companies that have outside investors. The main assets of such companies can sometimes mainly comprise their intellectual property portfolio and their trading relationships, including their technology transfer agreements. These companies sometimes need to raise money, enter into joint ventures or trade sales, or otherwise engage in corporate activity. If the company’s technology transfer agreements do not allow for assignment to a purchaser of the company’s business, or include provisions allowing for termination of the agreement in the event of a change of ownership or control of the company, these provisions may significantly reduce the value of the company to a prospective purchaser. However, if an assignment clause does not contain any restrictions then the intellectual property may end up with a (unsuitable) competitor. On the latter point, an example may be where a small technology transfer company has entered into a licensing agreement where it licenses some of its intellectual property to a pharmaceutical company. If the licensing agreement does not prohibit the assignment of the small technology transfer company’s assets and the company assigns those assets to a competitor of the pharmaceutical company, the pharmaceutical company may find that its access to the licensed technology is now controlled by the 24

Although entire agreement clauses are considered (and almost always placed) with boilerplate provisions, this type of clause has been the subject of considerable judicial scrutiny in recent years and needs particular attention. The aim of an entire agreement clause is to state that only the provisions of an agreement are those which are contained in the agreement, and that any other document or statement is not binding and does not form part of the agreement between the parties. Entire agreement clauses are considered (with recent case law) in Anderson & Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional, 2017), and Anderson & Warner, A–Z Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2017). 25 A ‘change of control’ provision deals with what is to happen if the ownership of one of the parties changes. For example, if two parties enter into a patent licence, neither of whom are competitors; but if one of the parties is taken over by a competitor of the other party, this can have important implications.

70

Boilerplate and commercial clauses 2.19

competitor. Similarly, if the pharmaceutical company has provided some of its know-how or confidential information to the small technology company, this too could be in the hands of its competitor. Both could impinge on the commercial position of the pharmaceutical company.

Signing and dating the agreement 2.19 The appropriate signature blocks will depend on the law of the contract and, in the case of English law, whether the agreement is simply signed (executed ‘under hand’) or executed as a deed.26 The question of who has authority to sign an agreement on behalf of an organisation is discussed earlier in this chapter. Assuming that the right person is signing, there should also be a check that they have signed in the right place and that they have inserted their job title and other details in the signature block. There is not any general convention in England and Wales that each page of an agreement should be initialled by both parties, although some organisations prefer to do this. Practice in other countries varies. Essentially this is an antifraud device and to ensure that both parties are agreeing identical terms. If, however, any manuscript revisions have been made to the typed text of the agreement, these revisions should be initialled by both parties (usually in the margin next to the change). The convention among English solicitors is to write in the date of the agreement once all parties have signed. But the practice does not need to be restricted to solicitors. When the last party has signed the agreement, their lawyers or the persons handling the signing can communicate and agree to insert the date (typically the date the last party signed). It is not recommended to type in the date before all the parties sign, as often the parties sign the agreement on another date (particularly when there are several parties). It is bad practice to misdate agreements, and in the worst case it could amount to a criminal offence under the Forgery and Counterfeiting Act 1981, s 9. It is usually acceptable to have an effective date or commencement date that is different to the actual date of signature. Usually this would be done by including a definition of Effective Date or Commencement Date in the definitions clause, and have a separate clause stating that the agreement

26

For examples of signature blocks that it is possible to use with various types of legal entity, see Anderson and Warner, Execution of Documents (3rd edn, Law Society Publishing, 2015).

71

2.20  Drafting Technology Transfer Agreements

comes into effect on that date.27 If the parties are insistent upon putting an effective date at the top of the first page of the agreement, the agreement should use clear wording that the date is an effective date, so as to avoid any doubt that it might be purporting to be the date of execution of the agreement.

Schedules and attachments 2.20 Traditional English practice was to put schedules before the signature blocks of the agreement. In recent years the US practice of putting the schedules after the signatures seems to be more prevalent. Whichever method is adopted, it is important to state in the agreement, if this is the intention, that the schedules form part of the agreement. Schedules are sometimes given a variety of other names, including appendices, annexes, annexures and attachments. The name is less important than clarifying whether the document forms part of the agreement. Sometimes an agreement will have two classes of attachment, eg annexes and attachments. Sometimes a different name is given to distinguish between documents that form part of the agreement and documents that are merely provided for information. Making this distinction may also make it easier to avoid disclosing certain information to regulatory authorities, eg where the terms of a material contract have to be disclosed to a national Stock Exchange.

TYPES OF AGREEMENT 2.21

This section considers the following types of agreements:

•

heads of agreement and term sheets;

•

confidentiality agreements;

•

materials transfer agreements;

•

option agreements;

•

intellectual property (and know-how) licences;

•

spin-out company transactions;

• assignments; •

research and development agreements;

•

sponsored clinical trials agreements;

•

employment and consultancy contracts; and

•

agreements with students.

27 For example, it is entirely possible to have the Commencement Date being a date sometime before the date the parties sign the written agreement.

72

Types of agreement 2.22

Heads of agreement and term sheets28 2.22 In the early stages of commercial negotiations in respect of technology transfer agreements, parties sometimes prepare a document that records the main principles of their proposed agreement or on what matters they intend to negotiate). These documents have a variety of names, including: •

heads of agreement;

•

heads of terms;

•

term sheet;

•

letter of intent;

•

memorandum of understanding.

The terminology is less important than ensuring that the status of the document is clear: •

whether the intention is that the document will be legally binding; and

•

what will happen if the parties fail to reach agreement on the terms of the full agreement.

To some extent, it is possible to address these points in the wording of the document. For the purpose of this section these documents are called ‘term sheets’. Sometimes, the term sheet states that it is not legally binding, except for clauses (x), (y) and (z), which will be legally binding. Typically, the provisions which are binding include confidentiality provisions and provisions that give an exclusive period of negotiations. It is generally desirable to state a timeframe for the operation of the term sheet. It is necessary to take particular care where one of the parties is based outside of the UK, particularly in a civil law jurisdiction. It is understood that in some countries, the signing of a term sheet may have legal consequences, for example a party may be liable to the other party if it withdraws from the negotiations without good reason, or it fails to act in good faith in the negotiations. Local legal advice should be obtained on any such consequences and on whether it is possible to avoid such consequences by the use of appropriate wording in the term sheet. Assuming that one’s client wishes to avoid such legal obligations, and subject to any specific local advice that the client has obtained, it may at least do no harm to include in the term sheet some wording along the following lines:

28 There is a more detailed consideration of term sheets in Anderson and Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional, 2017) at 1.3.

73

2.22  Drafting Technology Transfer Agreements

‘This letter of intent is not intended to be legally binding. Any negotiations between the parties are being conducted on a non-exclusive basis. Either party may withdraw from their negotiations at any time [prior to signature of a definitive agreement] without liability. To the extent that any legal issue arises in connection with this letter of intent, this letter shall be interpreted in accordance with English law and shall be subject to the exclusive jurisdiction of the English courts’. It is common to encounter two distinct approaches to the use of term sheets: •

It is short and concise, perhaps no longer than two pages. The wording of the term sheet is carefully negotiated, then it is signed by senior representatives of the parties. In subsequent negotiations (perhaps conducted by more junior people than the individuals who signed the term sheet), if a party proposes terms that deviate from the term sheet, the other party may object and refer back to what was agreed in the term sheet. This approach is encountered, for example, in the US.

•

It focuses on the main commercial terms that the parties wish to negotiate, and over time, in successive drafts, expands to deal with other issues that come up in the commercial negotiations. Often, with this approach, the term sheet is: –

amended so that it contains the main commercial provisions that the parties have agreed;

–

amended so that it becomes a draft of a full agreement; or

–

replaced at some point by an agreement draft that has been prepared by a lawyer.

A particular danger is the following situation: •

the term sheet is amended to contain the main commercial terms or a full draft of the agreement; and

•

it contains wording that the term sheet is not intended to be legally binding (or states it is ‘subject to contract’);29 and

•

the parties do not (and never) sign a final version of an agreement; but

•

the parties start performing some of the commercial provisions (and sometimes subsequently agree on different provisions to those that were in the term sheet).

29

Typically, a document labelled as ‘subject to contract’ (or such a statement made orally by one party to another) will normally cover any subsequent negotiations or documents, and mean that anything said or written will not be binding on the parties. However, the cover of ‘subject to contract’ will only operate for so long as there is nothing in the conduct of the parties (whether expressly or by implication) to make any subsequent communication or document legally binding: see, for example, Confetti Records (a firm) and others v Warner Music UK Ltd (trading as East West Records) [2003] EWHC 1274 (Ch); Proforce Recruit Ltd v The Rugby Group Ltd [2006] EWCA Civ 69.

74

Types of agreement 2.24

In the event that the parties fall out, it may be difficult to determine whether there is a contract and what are the terms and conditions. For example, are the terms and conditions those stated in the term sheet, or those subsequently agreed, or neither?30 Sometimes, the parties include in the term sheet a list of preconditions to proceeding with the transaction. These may include: •

obtaining senior management approval;

•

obtaining Board and/or shareholder approval;

•

being satisfied as to the results of a ‘due diligence’ exercise;

•

reaching agreement on detailed terms;

•

raising finance for the transaction;

•

satisfactory results coming out of an ongoing study or R&D project.

If the term sheet is stated not to be legally binding, these preconditions may not have any legal effect, but are sometimes thought to be useful as a ‘road map’ to the process for reaching a binding agreement.

Confidentiality agreements 2.23 This section considers some practical and drafting issues relating to confidentiality agreements (sometimes known as CDAs or NDAs – nondisclosure agreements).

Before drafting the agreement 2.24 A  CDA is concerned with information which will lose its value if it is not kept secret or not disclosed under obligations of secrecy.31 Some preliminary issues will need consideration and influence the provisions of a CDA and any litigation (if there is a breach of a CDA), including: •

Should a party be disclosing their information at all (do they trust the person or organisation to whom they are proposing to disclose information)?

•

What type of information should they be disclosing (has the party proposing to disclose information given sufficient thought to separating

30 RTS  Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG  [2010]  UKSC  14; Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ 536; Immingham Storage v Clear plc [2011] EWCA Civ 89. 31 For example, if the definition of a ‘trade secret’ is used as defined in the Trade Secrets Directive (and as implemented into UK) law), the person who has possession of the trade secret must take reasonable steps to keep it secret.

75

2.25  Drafting Technology Transfer Agreements

out their information between that which is confidential and that which is non-confidential information)? •

Is any distinction made between the most valuable and least valuable confidential information?

•

What security measures are in place to indicate that a party’s information is confidential (such as marking documents as confidential, using security measures etc)?

•

What ‘house-keeping’ procedures are in place concerning the disclosing of confidential information (how the disclosing party stores its confidential information, whether it records to whom it discloses that information, etc)?

Parties 2.25 Sometimes a CDA will include a reference to other group companies, affiliates, etc of a party.32 For example, a confidentiality agreement with a party who is a UK subsidiary of a multinational company may include a provision that information disclosed to that party under the CDA can be also be disclosed to the party’s affiliates anywhere in the world. This may lead to one of two problems: •

The information could be provided to an affiliate in a country: –

which gives little or no legal protection to confidential information; and/or

– where it is time-consuming, difficult and expensive to pursue legal remedies or use the court systems if the information is misused.33 •

It is not always clear that the person signing the agreement has authority to sign on behalf of all the group companies. If group companies (or their authorised agents) do not sign the agreement, then prima facie they are not bound by its terms, under the doctrine of

32 Such a reference often appears in agreements prepared by mainstream corporate parties. Templates prepared by the authors (in Anderson & Warner, Drafting and Negotiating Confidentiality Agreements (4th edn, Bloomsbury Professional, 2017)) do not include a reference to affiliates. 33 There is also a risk of disclosing information to people who are not bound by the confidentiality agreement that has been signed. For example the contracting party to a draft confidentiality agreement may be based in an offshore jurisdiction, such as Bermuda. There may be some plausible reasons for this, eg  that the intellectual property is held by this company for tax reasons. However, if information is being disclosed to individuals who are not employees of that company but of an affiliated company incorporated elsewhere, there is a risk of disclosing information to people who are not bound by the confidentiality agreement.

76

Types of agreement 2.25

privity of contract.34 It is clearly important in the case of confidentiality agreements to know who is permitted to receive the confidential information and who is bound by the terms of the agreement, and on what basis. If a provision is included in a CDA which permits disclosure to an affiliate, in some cases there may be a risk that group companies, other than the company signing the agreement, will claim not to be bound by its provisions. At a practical level, this risk may be thought to be lower where the party signing the CDA is the ultimate parent company of a group of companies, and who also undertakes to ensure that its group companies comply with the provisions of the agreement. By contrast, where a subsidiary company in an international group signs the CDA and purports to make such a commitment on behalf of its parent and sister companies, it may be more doubtful whether it has the necessary authority to make such a commitment. If the subsidiary does not have the necessary authority, it can perhaps be sued for breach of contract if it discloses the information to a company that is not bound by the confidentiality obligations. However, once the information is publicly disclosed, it may lose its value.35 Moreover, when calculating damages from breach of contract, the value of the information may be difficult to establish, particularly with early-stage technology. It may be far more important to ensure that the party who receives confidential information complies with its obligations of confidentiality, rather than have a right to claim damages. Therefore, it is important that care is taken about which company in a group of companies signs the agreement. The only clear way to ‘impose’ obligations on other members of a group of companies remains: • to explicitly make those members parties to the confidentiality agreement; and •

to carry out sufficient due diligence so that the person signing on behalf of those members in fact has the authority to do so.

Carrying out such tasks may not be possible, whether practically or at all. For example, a small biotechnology company may wish to disclose some of its confidential information to a large pharmaceutical group. The pharmaceutical group produces a CDA which allows it to disclose the biotechnology company’s confidential information to its affiliates. The pharmaceutical

34

Although this doctrine has been partly replaced by provisions of the Contracts (Rights of Third Parties) Act 1999 in relation to the rights of third parties, it remains unaltered in relation to contracts that seek to impose obligations on a person who is not a party to the contract. Also of importance is that a confidentiality agreement may not be classed as a contract and the party who claims there has to be unauthorised use of their confidential information would have to rely, at least in England, on the case-based principles governing the law of confidence. See Ch 8, and also para 2.26 below. 35 And in the case of information regarding an invention, once publicly disclosed the invention may no longer be patentable at all.

77

2.26  Drafting Technology Transfer Agreements

group could have dozens or hundreds of members in its group across the world who would come into the definition of an ‘affiliate’.36 To even get a small proportion to sign up to the CDA would take the small biotechnology company a long time and/or tie up its personnel – that is if the pharmaceutical group would agree in the first place. It is important that parties exercise caution in the area of pre-contract negotiations, where they often exchange confidential information without any formal protection.37 The surrounding circumstances may in any event be such as to give rise to an obligation of confidentiality, however it is still better to formalise the situation with properly laid-out confidentiality obligations.

Consideration 2.26 Another issue that is sometimes overlooked is consideration. Generally, for an agreement to be legally binding, consideration must be given (that is something of value, monetary or otherwise) or the parties must execute the agreement as a deed. With a confidentiality agreement, the disclosing party may ‘give’ something in return for the recipient’s undertaking to keep the information confidential; one example of this arises in the case of a two-way confidentiality agreement where each party undertakes to keep confidential information disclosed to it by the other party. In practice, even in ‘one-way’ confidentiality agreements, consideration is often found from the circumstances in which the information is disclosed. However, the rules on consideration38 will need careful consideration before concluding that this is the case. Sometimes, a disclosing party may wish to include nominal financial consideration in the agreement, eg  agreeing to pay the recipient £1 in return for the recipient undertaking the obligations of confidentiality set out in the agreement. In other cases, the agreement may be executed as a deed, thus avoiding the rules on consideration. Even where there is no consideration, the obligations of confidence may still be binding under the law of equity.39 However, parties would generally be advised not to rely on the uncertain scope of equitable (discretionary)

36 For example, to take one large such pharmaceutical group at random (GlaxoSmithKline) – a search on the public register of the UK Registrar of Companies website indicates how many companies appear to be part of the group under the names of GlaxoSmithKline or SmithKline. 37 Written or contractual documents cannot normally protect a party here – only clear procedures and instruction and training of employees will prevent the disclosure of confidential information other than under an explicit obligation of confidentiality. 38 Eg the rule that ‘past consideration is no consideration’. 39 Essentially a set of court-made rules, intended to provide justice, with the key point here being that they are discretionary. As to the scope of the law of confidence, see Ch 8.

78

Types of agreement 2.28

remedies, but instead to ensure that their agreement is binding under the law of contract. If the express provisions of a contractual CDA may provide less protection than equity would otherwise provide, there is some case law indicating that the extent of equitable principles is displaced. For instance, where the recipient agrees to an obligation not to disclose confidential information for a fixed period of time, s/he will be free from that obligation once that period has expired, even if, in the absence of a contract, equity might have restrained him or her for longer.40

Commencement 2.27 The date of commencement of the agreement may also need careful consideration. In practice, a party or the parties may have disclosed information prior to signature of the agreement, however ill-advised this may be. It is permissible for English law agreements to take effect retrospectively – that is, having a commencement date prior to the date of execution of the agreement. However, this should be done by referring in the agreement to a separate commencement date, and not by misstating the date of execution.41

Subject matter of the agreement 2.28 Sometimes parties wish to identify, in general terms, the area of technology in which one or more of the parties will be making disclosures under the confidentiality agreement. A  potential danger in this is that, if information is disclosed which relates to a topic that is outside the defined area, that information will not be subject to the provisions of the confidentiality agreement. One way in which parties deal with this danger is not to have the agreement limited in this way. On the other hand, a general description of the area of the parties’ confidential discussions can be useful, particularly where a company enters into many CDAs each year and wishes to identify briefly the subject matter of the agreement. At the other extreme, parties sometimes wish to be very secretive, extending the confidentiality obligations to cover the fact that they have entered into a confidentiality agreement and even that the parties are in discussions with one another. Sometimes there will be specific provisions governing press releases and other public statements. Another issue that sometimes arises is whether (physical) materials, as well as information, are to be subject to the provisions of the agreement. 40 See Potters-Ballotini v Weston-Baker and Others [1977] RPC 202, CA. 41 See comments on signing and dating agreements in para 2.19.

79

2.29  Drafting Technology Transfer Agreements

This issue frequently arises in relation to biological materials which are provided to enable the recipient to evaluate them. If this is the case, it is preferable to deal with materials separately, either by separate clauses in the agreement or by use of a distinct material transfer agreement. Where the definition of confidential information is simply broadened to cover physical materials, the confidentiality obligations do not always make much sense when applied to materials, rather than information. This is generally not such a problem if the materials are no more than the medium on which information is recorded, as in the case of paper or computer discs or equipment (where information may be recorded in the equipment or evident, after inspection, in the way the equipment was constructed or designed). It is preferable for the agreement to include a specific provision to state that ownership of materials (whether the materials are documents, discs or such things as biological materials) remains with the providing party (see further para 2.49 below).

Circumstances in which information is covered by the agreement 2.29

It is also possible to limit a confidentiality agreement:

•

by subject matter;

•

by its subject matter and as to the type of information; or

•

as to the type of information.

To limit a confidentiality agreement as to the type of information, it is possible to do so in a number of ways, such as: •

for information disclosed to be subject to the provisions of the confidentiality agreement, it must be in writing and marked as confidential; or

•

all information disclosed by one party, whether it is disclosed in oral, written, machine-readable or other form, will be subject to the confidentiality agreement.

It is preferable for a confidentiality agreement to be clear on this point. Attitudes vary as to whether a confidentiality agreement should include a requirement for information to be in writing. Scientists, for example, often prefer not to include a requirement that information must be reduced to writing in order to be caught by the terms of the agreement, as it is often viewed as an unrealistic and bureaucratic requirement which inhibits discussion. Others, including some business people, prefer the certainty associated with written records of disclosed material in the event of an allegation of breach of confidentiality obligations. There is no ‘right’ answer to this dilemma. In the event of litigation for breach of confidence, it may be preferable to have written records of what has been disclosed. 80

Types of agreement 2.31

Under the general (equitable) law of confidence, a ‘package’ or combination of information may be held to be confidential even though the elements of that package are publicly known, particularly if the disclosing party has expended effort putting the package together and the package itself is not public knowledge.42 In detailed confidentiality agreements, parties sometimes include a provision to clarify that the agreement covers packages of confidential information.

Disclosing and receiving parties 2.30 Another issue that sometimes arises is, who must disclose the information for the disclosure to be covered by the agreement? From a disclosing party’s point of view, it is good practice that all information disclosed, whether directly or indirectly, by the disclosing party is caught by a confidentiality agreement – for example, by its employees, agents, contractors, group companies etc, as well as information disclosed by it directly. A further subtlety is, to whom must an item of information be disclosed in order for the other party to be bound to keep it confidential? Would it be sufficient, for example, to disclose it to a consultant engaged by the other party? These issues are more likely to arise in the case of large organisations or where several parties are co-operating on a project. In suitable cases, it may be appropriate to have broad definitions of terms such as ‘disclosing party’ and ‘receiving party’.

Exceptions to confidentiality obligations 2.31 Many confidentiality agreements will have so-called ‘standard’ exceptions; these may include both: •

categories of information that are not subject to the agreement at all; and

•

circumstances in which information that is caught by the agreement may be disclosed.

Often, parties will not wish to engage in detailed negotiation of these provisions, regarding them as standard, and not worth debating. However, where the information is particularly sensitive, the terms of any such exceptions will need careful consideration, and in some cases are omitted altogether. Two of the more common issues that arise are the following: 42 This is likely to be the case also under the meaning of a trade secret under the Trade Secrets Directive (where the definition of a trade secret includes ‘it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question’ (emphasis added).

81

2.31  Drafting Technology Transfer Agreements

•

•

Should an exception be made for information which the recipient claims to have already developed or subsequently develops in a separate part of the organisation, without access to the information disclosed under the confidentiality agreement? In some situations, the disclosing party may take the view that it is not prepared to allow such exceptions, perhaps because: –

it does not believe that it is possible for the other party to develop the information independently; and/or

–

it does not trust the other party.

Should the receiving party have the onus of proving that information falls within an exception, and if so what standard of proof should be applied? For example, should he or she be required to produce written records that establish that he or she developed the information prior to its disclosure by the other party? Sometimes confidentiality agreements are specific on these matters.

The main areas where exceptions are sometimes made to the obligations arising under a confidentiality agreement are the following: •

The information is in the public domain. ‘Public domain’ can have a number of meanings, including that the information is both publicly known and freely available for use by the public; for example it is not patented, or if the information is protected by copyright, the owner of the copyright material allows it to be used without restriction or without restricting its disclosure in the way envisaged. An alternative meaning is that it is publicly known but subject to some form of restriction (such as that it is contained in a published patent application, or published but its reproduction or use is restricted by the copyright owner).

•

The information enters the public domain during the period of the confidentiality agreement, other than through breach by the recipient of his or her obligations under the agreement.

•

The information is known to the recipient prior to disclosure by the disclosing party and the recipient was free to disclose the information previously.

•

Representatives of the recipient develop the information independently, without access to the disclosing party’s information.

•

The recipient receives the same information from a third party who is entitled to disclose it to the recipient without imposing confidentiality restrictions upon the recipient.

•

The recipient of the information is under a legal or regulatory requirement to disclose the information, such as: –

by a court order;

–

to a Stock Exchange if the recipient’s shares are listed; or 82

Types of agreement 2.33

–

to some other regulatory body to which the recipient is subject (such as a party carrying out a clinical trial having to disclose information relating to the clinical trial to the regulatory body which authorised the clinical trial).

These types of exception are sometimes made subject to a condition that the recipient will attempt to ensure confidential treatment by the court or other body and/or the recipient will inform the disclosing party prior to disclosing the confidential information so it can make such attempts. Sometimes, this exception is dealt with in a separate clause, as arguably it is not a general exception to confidentiality but merely a situation where some limited disclosure may be permitted. In some cases, an agreement allows even wider exceptions, generally when the confidentiality agreement is part of a larger transaction. For example, it is possible to disclose the information: •

in an academic publication (after giving the disclosing party a right to review the proposed publication and edit out confidential information or apply for patents);

•

so that it is included in a patent application (generally, if made with the agreement of the parties); or

•

in connection with the development, manufacture, promotion or sale of products.

Restrictions: permitted use, copying, non-disclosure (and disclosure to employees) 2.32 These type of restriction are generally at the heart of the confidentiality agreement. At a minimum a confidentiality agreement will include an obligation not to disclose confidential information.

Use 2.33 A further common restriction is an obligation on a recipient not to use the confidential information, except for certain defined purposes, eg to enable the recipient to evaluate whether it wishes to enter into a further agreement with the disclosing party, eg a licence agreement.43

43 By including a definition near the top of the confidentiality agreement stating: ‘Each of us is prepared to disclose to the other information which we regard as confidential, which the Receiving Party may use for the purpose of considering whether to enter into an agreement with the Disclosing Party relating to [state purpose] (the ‘Purpose’), subject to the following terms and conditions’, and then stating that the confidential information is not used for any other purpose than the defined Purpose.

83

2.34  Drafting Technology Transfer Agreements

Parties sometimes forget to include a restriction on use, but this may be just as important as a restriction on disclosure. Without a restriction on use, the recipient will be entitled to use the information internally, for example: (1) to use it for their own financial or commercial advantage; (2) to use the ideas or data etc as the basis for development of their own products or services; or (3) to make rival products, unless a term restricting use can be implied into the agreement. Although the courts are sometimes prepared to imply such a restriction, in other cases they are not.44 A disclosing party should always include an express term in the agreement that a recipient can only use the disclosing party for a stated purpose and no other.

Copying 2.34 The agreement may also prohibit copying of materials containing confidential information. A recipient may find it difficult to comply with such an obligation, particularly if the disclosing party provides the confidential information electronically. With information provided electronically, it is easy to duplicate and copy it within an organisation, and also because of the way organisations store information, through remote servers and on the cloud, together with automatic backup software. In such cases the restriction may permit exceptions so that the recipient is entitled to make copies, but limited to making a set number of copies for specific defined purposes.45

Disclosure to employees and representatives 2.35 A  confidentiality agreement will often also address which of the recipient’s employees and representatives are to have access to the disclosing party’s confidential information. In practical terms (leaving aside legal analysis for the moment) it is not possible to disclose information to a company; a company is a legal entity which does not possess the faculties needed to perceive information. Arguably, a company can only receive, perceive and disclose information via its human representatives, eg its owners (the shareholders), those responsible for running the company (the board of directors), its employees or other nominated representative(s). 44 See Marshall (Thomas) (Exporters) Limited v Guinle [1979] 1 Ch 227 where it was held that a clause restricting disclosure did not also prohibit use, although the plaintiff was entitled to an injunction preventing use on the grounds that in the circumstances of that case the defendant owed the plaintiff a duty of good faith which was breached by use of the information. This case was referred to in Triomed (Proprietary) Ltd v Beecham Group plc [2001] FSR 583, and American Home Products Corporation v Novartis Pharmaceuticals UK Ltd (No 2) [2001] FSR 784. 45 For example, if the purpose is to discuss entering into a licence agreement, and only two people at the recipient are involved in the negotiations, then copying the disclosing party’s confidential information only to those people would be permitted.

84

Types of agreement 2.35

Equally, if a company is under a legal duty not to disclose certain information but is permitted to use the information for limited purposes, how can it use the information except through the medium of its human representatives? Common sense suggests that some disclosure within the recipient company may be necessary. In the absence of express provisions in a confidentiality agreement, in the event of a dispute reaching a court, it would be ultimately a matter for a court to determine whether disclosure of information within a company amounted to a breach of a confidentiality undertaking by that company. The court would probably attempt to interpret the provisions of the confidentiality undertaking; depending on the circumstances it might imply a term that permitted limited disclosure where necessary for the purposes of the agreement. Rather than have such uncertainties, it is preferable to include specific provision in the agreement to allow disclosure to some or all employees or other representatives. There are various ways of addressing this, including a provision permitting disclosure: •

to directors and employees who need to know the information in connection with the purposes of the agreement, and who have undertaken to comply with the terms of the confidentiality agreement in question;

•

to directors and employees who are under general confidentiality obligations towards their employer, in respect of information learnt in the course of their employment;

•

to a wider circle of persons beyond directors and employees, such as consultants and others. However, consultants and others are unlikely to be under the same level of control as directors and employees (and may have not entered into explicit confidentiality obligations with the recipient). A disclosing party, if it wishes to permit such disclosure, could require that the consultant enters into a confidentiality agreement directly with the disclosing party, or that the recipient has to state that it has entered into a confidentiality agreement with the consultant, with provisions equivalent to those between the disclosing party and the receiving party;

•

only to named individuals and have them sign individual confidentiality agreements directly with the disclosing party, if the disclosing party’s confidential information is particularly sensitive or commercially valuable; or

•

only to an external representative, eg the recipient’s lawyer or technical consultant.46

46 In some cases the named individual may only be permitted to see the confidential information in a particular location; eg the information is stored on paper or a computer (without internet access and all its interfaces and ports disabled) or in a locked room which requires prior authorisation to access. This is likely to be the situation only in the most extreme cases, but is sometimes seen implemented by large companies (or rather their lawyers) involved in highvalue merger and acquisition activities.

85

2.36  Drafting Technology Transfer Agreements

A further point is that different countries or states have different laws on the subject of an employee’s general duties to keep their employer’s information confidential; at the very least, an employer should restrict disclosure by the recipient to employees who have written confidentiality obligations to their employer.47

Duties: security measures, return of information, reporting results obtained Duties 2.36 Confidentiality agreements sometimes include positive duties upon the recipient of the confidential information, as well as restrictions on disclosure, use or copying.

Security 2.37 A  confidentiality agreement can also include obligations on a recipient to take security measures to protect the confidential information of the disclosing party. A general obligation is to require the recipient to maintain the confidentiality of the disclosing party’s confidential information, or to take the same security measures as they take to protect their own confidential information. At the risk of stating the obvious, the suitability of the latter obligation will depend on how well the recipient looks after his or her own information. If the confidential information is particularly sensitive or valuable, more detailed obligations on the recipient may be necessary, such as keeping the information in a locked filing cabinet or safe, specifying a location, limiting access to specified persons, or keeping a log of who has access to the confidential information.

Return of information 2.38 It is relatively common to include an obligation on the recipient to return any confidential information (or any copies, including documents or materials containing the information) on termination of the agreement, or on demand. It is possible to extend such an obligation to include the return or destruction of any copies, and a requirement to make no further use of the information, as well as obliging a specific person to certify these things. 47 At least for the UK, there is a distinction between an ‘employee’ and a ‘worker’, which can have different meanings (see Employment Rights Act 1996, s 230(3)(b) in contrast to s 230(3) (a)). If there is doubt as to the status of a person to whom it is proposed to disclose information, specialist employment law advice should be sought. Also the wording of the provision may need amendment.

86

Types of agreement 2.40

As noted above, such obligations are difficult to comply with where a disclosing party provides the confidential information electronically, such as contained in a file and provided to the recipient by email. The employee of the recipient may forward the email to other employees, or the computer system of the recipient may back up emails and files to other locations (whether to discs on site or onto (third party) cloud storage, etc), for example.48

Reporting results obtained 2.39 Less common, but potentially useful for the disclosing party, is an obligation on the recipient to provide the disclosing party with a report on any results obtained by the recipient when evaluating the information, eg the results of any scientific experiments.

Duration: duration of agreement and duration of obligations Duration 2.40 Confidentiality agreements are sometimes unclear on the subject of duration. In the absence of specific duration provisions, in the event of a dispute reaching court it would be for the court to determine the duration of the obligations.49 It is likely that the following terms would be implied into many confidentiality agreements: •

The agreement may be terminated on reasonable notice:50 if the agreement only contains obligations on the recipient, the required notice period may be very short, such as a few weeks or less. For example, there are no obligations on the disclosing party to provide information on a continuing basis. If there are continuing obligations on the disclosing party, and the recipient would be disadvantaged by termination, the notice period might be longer.

•

Any information disclosed after the date of termination would not be subject to the provisions of the agreement: information disclosed prior to termination might or might not continue to be subject to the restrictions contained in the agreement, depending on the

48 Backup software can be set up to keep multiple copies of documents. 49 Presumably a court would have to interpret the agreement and imply a term as to the duration of the obligations. On a slightly different point, in a case where confidential information was given under an agreement, and certain uses of the information were permitted under the agreement, it was held that there is no general proposition of law that when the agreement comes to an end, the right to use the confidential information also comes to an end. See Regina Glass Fibre Ltd v Werner Schuller [1972] RPC 229, CA. 50 By analogy with cases on termination of licences, distribution agreements etc; eg see British Leyland Motor Corporation Ltd and another v Armstrong Patents Co Ltd and another, at para 9.44.

87

2.41  Drafting Technology Transfer Agreements

circumstances. In many cases, such restrictions would continue (or a court would imply such an restriction). In some cases, such restrictions would continue: –

without limit of time;

–

until the information entered the public domain;

–

until a reasonable period after the information entered the public domain (so that the recipient did not get a head start over his or her competitors through earlier knowledge of the information);51 or

– until the information loses its value or purpose (such as the information becoming out-of-date).

Duration of the agreement 2.41 Rather than have such uncertainties, it is preferable to state the duration: •

of the agreement (or at least how it may be terminated); and

•

of any obligations of confidentiality after termination.

For example, some large corporations have a policy of providing for a one-year agreement (or until either party gives notice of termination to the other), with obligations continuing for a period of five years after termination.

Duration of obligations 2.42 Although this five-year period is commonly encountered, the logic behind it is not always apparent. Some companies have a policy that they will not accept obligations unlimited in time; arguments are sometimes made along the lines of ‘we need to know when we can finally close the files’. In the authors’ experience, such companies can sometimes be persuaded to accept a much longer period, eg 20 years. The most appropriate time limit will depend on the circumstances (such as the industry in which the parties operate, the technology involved or the type of intellectual property to which the confidential information relates). For example: •

some software will be out of date within less than five years;

51 Applying the so-called springboard doctrine as formulated in Terrapin v Builders Supply Co (Hayes) [1967]  RPC  375 at 391 (referred to in Cadbury Schweppes Inc v FBI  Foods Ltd [2000] FSR 491, and also in Sun Valley Foods Ltd v John Philip Vincent [2000] FSR 825).

88

Types of agreement 2.44

•

other technology continues to be valuable more than 30 years after it was developed;52 or

•

a company will license a package of intellectual property including patents and know-how. If the patents continue for 20 years or longer (eg  through the additional protection of improvement patents), why should know-how be treated as losing its value in a shorter period, at least if it has not entered the public domain during that period?

In summary, parties should consider, on a case-by-case basis, whether any limit should be placed on the duration of confidentiality obligations, particularly in agreements where there are detailed exceptions to those obligations, eg where the information enters the public domain.

Obligations on the disclosing party: provision of information, confidentiality Obligations on the disclosing party 2.43 In a typical, simple confidentiality agreement, all the obligations are on the recipient of the information. However, there may be circumstances in which it is appropriate to include obligations on the disclosing party.

Provision of information 2.44 It may for example be appropriate to require the disclosing party to disclose certain information, particularly if the recipient is giving something in return. It may also be appropriate to require the disclosing party to update the information. In some situations, it may be appropriate to require the disclosing party not to disclose the information to third parties, so that both parties are bound not to disclose the disclosing party’s information. For example, this might be appropriate: •

if the recipient is considering taking an exclusive licence to know-how; or

•

in any situation where discussions between the parties are to take place on an exclusive basis.

52 To give what is now a fairly old example: it concerns the arbitration and litigation in the UK and US between Pilkington and PPG, this concerned the alleged use of Pilkington’s float-glass technology by PPG. The dispute lasted 12 years and was finally settled in 1995. According to a report in The Times of 5 April 1995, the parties’ combined legal costs approached £70 million, and the dispute was settled on the basis that neither party was guilty of anything. Pilkington’s float-glass technology was first developed over 30 years ago, and the dispute related in part to a confidentiality agreement made in the early 1960s. As this example shows, confidential information is sometimes considered valuable and worth protecting more than five years after it is developed.

89

2.45  Drafting Technology Transfer Agreements

The potential application of competition laws to such restrictions should not be overlooked. Other restrictions on competition are considered below.

Confidentiality 2.45 If both parties to the agreement are to disclose information in confidence to the other, a ‘two-way’ confidentiality agreement may be required.

Implied terms: no licence or other agreement 2.46 It is relatively common to include in a detailed confidentiality agreement a statement that there is no implied licence to use the confidential information. Although sometimes an exception is made for rights expressly set out in the agreement, for example a right to use the information for evaluation purposes. More generally, there are often disclaimers of implied terms, representations, etc included as well as an exclusion of liability. In some cases, even a disclaimer as to the accuracy of any information provided under the agreement is included.

Law and jurisdiction; notices 2.47 Many technology-related agreements, including confidentiality agreements, are between companies based in different countries or jurisdictions. In such cases it is generally desirable to state the law which governs the agreement, and also to state which courts are to have jurisdiction. In the case of confidentiality agreements,53 it may be necessary to take urgent court action to obtain an interim injunction to prevent breach of the agreement (disclosure of the confidential information) or further disclosure. Generally, it is best to bring interim proceedings in a jurisdiction in which the defendant is located.54 For this reason it may be desirable either to give the courts of the recipient’s home territory sole jurisdiction, or at least to allow actions to be brought in such jurisdiction.55 53 And other types of agreement, but the issue is particularly relevant to confidentiality agreements. 54 Although it may be possible to bring proceedings in the claimant’s jurisdiction and have the judgment enforced by the courts of the defendant’s jurisdiction, this will often be a less practical option (such as taking longer and to comply with procedural steps involved in enforcing a court order from one country in another). 55 It may also be important, where there are different versions of the agreement in different languages, to state that one version is the definitive version. This not only avoids debate over bad translations, but also may help determine which courts have jurisdiction.

90

Types of agreement 2.48

Sometimes agreements include a provision to the effect that the disclosing party will be entitled to an injunction if the receiving party discloses the information. If the agreement is subject to the jurisdiction of the English courts, it is doubtful whether such a provision serves a useful purpose. Such a clause might backfire if an English court took offence at what it might perceive as an attempt by the parties to tell it that it had to grant an injunction, as injunctions are a discretionary remedy, not a right. On the other hand such a provision might prevent the defendant from opposing an application for an injunction. So far as the authors are aware, the point has not been decided in any reported English court decision. Confidentiality agreements are often relatively short agreements, and as such it may be inappropriate to include extensive ‘boilerplate’ clauses, clarifying how the agreement is to be interpreted etc. It will, though, often be worth including a notices clause.56

Competition restrictions 2.48 A  person learning of some confidential information may find it difficult or impossible to remove it entirely from her or his mind. Even an honest person, who makes no direct use of the information, is likely to find that s/he uses the information unintentionally or indirectly, as part of his or her background store of knowledge which can affect his or her judgement. For example, knowledge of a new scientific technique disclosed to a scientist under a CDA might change the scientist’s thinking about an area of science. It could lead the scientist to make other discoveries which are not directly related to the one which was disclosed. This may give a commercial advantage to the party learning of the information, or a disadvantage to the disclosing party. Yet it might be very difficult to prove that the subsequent discovery was made through use of the confidential information of the disclosing party. This type of reasoning is sometimes given as a justification for contractual restrictions which go beyond restrictions as to the use or disclosure of the confidential information. However, from the public-policy viewpoint, there is a need to balance the public interest requirement that a person should respect confidences against the public interest requirement that business affairs should be carried on without unjustifiable restraint of trade. Where confidentiality obligations merge into areas of non-competition clauses, there is a possibility of an infringement of the Competition Act 1998 (or, if there is an EU dimension to a CDA, EU competition laws), if the arrangement is not of minor significance (de minimis). 56 As to certain terms that may be implied if an express clause is not included, see para 9.13.

91

2.49  Drafting Technology Transfer Agreements

Examples of what amount to restrictions on competition include the following: •

Where confidential information is disclosed by a company to a potential purchaser of the company, the confidentiality agreement might include a provision along the following lines: ‘For one year from the date of this Agreement the Offeror shall not, without the prior written consent of the Company, directly or indirectly acquire, offer to acquire or announce an intention to acquire an interest in any ordinary shares of the Company or act in concert with any person who acquires, offers to acquire or announces an intention to acquire such an interest’.

•

Where information is disclosed in order for parties to bid jointly for a construction project, a provision along the following lines: ‘In consideration of the Partners disclosing the Confidential Information to the Company, the Company agrees that it shall not directly or indirectly, without the consent in writing of the Partners, in any way participate in the Project or any version or part of it unless one or both of the Partners is a participant’.

Competition laws may have a significant impact on provisions of this kind. As well as the possibility of fines, unenforceable provisions, and actions by third parties, there is also the possibility in some situations that a party who seeks to impose such obligations as the examples indicated above could find that its patents or other intellectual property may be unenforceable or void, particularly under foreign patent laws. Before including restrictions on competition in a confidentiality agreement, specialist competition law advice should always be sought. At the date of writing, the UK is part of the EU. When the UK leaves the EU, EU competition laws may still be relevant to commercial transactions that have an effect on trade between EU member states.

Materials transfer agreements 2.49 Materials transfer agreements (MTAs) set out the terms on which one party provides a sample of biological or chemical material to another party. They are usually fairly short documents. Typically, the purpose of providing the materials is to enable the recipient to perform some research on the materials, or use the materials in research. A few examples may illustrate some different situations in which there is a need for an MTA: (1) An academic researcher wishes to use some monoclonal antibodies, which were generated by another academic researcher at a different institution, for the purposes of non-commercial research that is unrelated to the research that generated the monoclonal antibodies. 92

Types of agreement 2.50

(2) A  company that has a drug in development wishes to provide it to another company that has developed some ‘drug-delivery’ technology. The drug-delivery technology is used to improve the ‘uptake’ of a drug in the part of the body where it is needed. The purpose of the materials transfer is to perform some initial experiments to see whether the drugdelivery technology may be suitable for use with the drug. (3) A company possesses samples of DNA obtained from patients with a particular disease, which an academic researcher wishes to test as part of a wider investigation into the genetic causes of the disease.

Intellectual property issues 2.50 In the above examples, it may be important to the parties to establish who will own, and who may use the results of, the research and on what terms. In the first example above, the provider of the materials may not have any expectation of a commercial interest in the results. If any patents are filed on inventions made during the research, he or she may not expect to be named as an inventor, although expectations differ and may depend partly on how ‘routine’ the materials are. Sometimes the provider of materials is named as a joint inventor of any patented inventions made by the recipient using the materials, even though it may be questionable whether the provider is an inventor under patent law. Academic institutions are now more aware of their commercial interests, and a consequence is that there is an increasing tendency for academic providers of materials to ask for at least an ‘equitable share’ of any royalties or other income that is derived from any patents filed by the recipient of the materials. Whilst the legal effect of such a provision may be unclear, it is sometimes regarded as sufficient for practical purposes, particularly where two UK academic institutions are involved. In the second example above: •

the provider of the drug sample will wish to ensure that it owns all intellectual property that the recipient company (the owner of the drugdelivery technology) may generate in respect of its drug; and

•

the recipient company will wish to ensure that it owns all intellectual property relating to its technology.

Sometimes there is a difficulty in negotiating terms in relation to inventions that relate to both parties’ technologies – such inventions are not an unlikely outcome. Sometimes the parties are able to agree a solution, for example, that neither party will commercialise these inventions without coming to a further 93

2.51  Drafting Technology Transfer Agreements

agreement, or that one party will have an option to commercialise resulting inventions in a particular field. If the parties’ positions prove to be too far apart, the proposed research does not take place. In the third example above, similar intellectual property issues may arise as in the second example. Sometimes, the recipient institution will be willing to grant an option to the providing company to negotiate commercial terms for a licence to any resulting inventions. On other occasions, the providing company’s terms and conditions may be too unattractive for the academic institution and the academic institution has to decline the opportunity of receiving the materials. With larger academic institutions focused on scientific research (as well as medical research charities), there are often procedures for agreeing to requests for materials, whether coming into the institution or going out from it (together with a statement of the position of the institution on the terms and conditions of any agreement concerning the materials that are acceptable). But this depends on the academic/scientist who needs or wishes to provide materials adhering to the procedures, which does not always occur.57

Liability, disclaimers of warranties and liability, and indemnities 2.51 Often materials are provided free of charge and for research that does not involve use in human patients.58 Providers of materials tend to be reluctant to offer any warranties as to the condition or toxicity of the materials, or indeed any warranties at all. Instead they seek indemnities from the recipient against any liability arising from the recipient’s use of the materials and warranties that the recipient will comply with applicable laws and regulations.59 Usually, recipients accept such terms, although problems sometimes arise with organisations that claim to have a policy of never giving indemnities.60 Much will depend on the background to the material transfer, but where the materials are provided as a ‘favour’ to the recipient, or in a spirit of academic collegiality, it seems not unreasonable that the recipient should take the risk of problems arising through use of the materials.

57 See, for example, Imperial College’s process for agreeing to the receipt or provision of materials, as well as their preferred terms and conditions (and those which are unacceptable): www.imperial.ac.uk/research-and-innovation/research-office/contracts/mta/. 58 Other than packaging, carriage, insurance and like costs of transporting the materials. 59 For example, if the materials are derived from or come from humans then the provider and recipient will have to comply with the obligations imposed by the Human Tissue Act 2004 and other laws. See Ch 11 for discussion on these issues. 60 For example, some US universities apparently have arranged for state laws to be passed, preventing them from accepting certain terms and conditions in contracts.

94

Types of agreement 2.52

Other terms in MTAs 2.52 Usually, the other terms in MTAs (ie other than intellectual property and liability issues) do not require much input from lawyers, particularly if a standard MTA is being used. Points that come up from time to time include the following: •

whether the recipient can only use the materials for a specific project or a specific purpose and no other; sometimes there is also a specific condition, particularly where the recipient is an academic institution or a charity, that the materials are not for use for any commercial purpose or in research which is funded by a commercial organisation;

•

whether the recipient of the materials has the right to publish the findings or results that come from the use of the materials; this will be particularly important where the recipient is an academic institution;61

•

whether any payment is required for supply of the materials;

•

who is responsible for arranging, and paying for, packing, carriage and insurance of the materials (ie when they are transported from the provider’s to the recipient’s premises);

•

who is liable for any loss of the materials in transit (occasionally the parties get involved in discussion of which Incoterms62 are to apply, but usually the cost of production of the sample is small, so if it is lost in transit another sample can easily be supplied);63

•

compliance with regulations on the transportation of human, animal and biological materials (eg  if genetically modified organisms or human tissue are involved);

•

obligations on the provider to provide any safety information known to it concerning the materials;

•

limitations on the use that may be made of the materials, eg not using them in humans (sometimes the MTA allows only a defined programme of research using the materials);

•

restrictions on the supply of the materials to third parties;

•

obligations on the part of the recipient not to reproduce living materials and to destroy all materials or return them to the provider on completion of the research;

61 See further para 2.95 below. 62 Incoterms are a set of terms and conditions implied into contracts (where the parties wish to be implied) which govern such matters as who is responsible/liable for the delivery and transportation of goods. They are published by the International Chamber of Commerce, see http://www.iccwbo.org/incoterms/id3045/index.html. 63 Where human and animal tissue is involved, there may be regulatory requirements as to how such tissue is transported as well as notification requirements, at least in England.

95

2.53  Drafting Technology Transfer Agreements

•

obligations on the recipient to provide data and results obtained from using the materials;

•

confidentiality obligations;

•

choice of law and jurisdiction, particularly if the parties are based in different jurisdictions.

Option agreements Terminology 2.53 Options are: •

a clause (or sometimes a number of clauses) contained in an agreement whose main subject involves some other matter, such as a research and development or licence agreement; or

•

a stand-alone option agreement.

The same issues arise in each case. References to ‘option clauses’ below should be understood as applying equally to ‘option agreements’. Different terms are used, such as: • option; •

right of first opportunity; or

•

right of first refusal.

Sometimes, these terms are used loosely to refer to a number of different arrangements; there is no official definition of what an option is.64 The authors understand the terms to refer to the following types of arrangement.

Option 2.54 Example: an academic institution and a commercial company enter into a research agreement, where the commercial company funds a research project that the academic institution will carry out. The academic institution will be the owner of any intellectual property generated by the research project, including any patents (or patent applications) which have resulted from the research project. One of the provisions of the research agreement is that the academic institution grants the commercial company the right 64 What the parties call their agreement or clause is not determinative; a court will normally interpret the document or clause to establish whether it is an option or right of first refusal: Woodroffe v Box [1954]  ALR  474, 28  ALJ  90 (Australian High Court); Fraser v Thames Television Ltd [1984] 2 All ER 101.

96

Types of agreement 2.54

(usually, the exclusive right) to acquire a licence to those patent applications or patents.65 Typically: •

during the period of the option, the owner of the patent cannot grant a licence under the patent to anyone else;

•

the option is exercised by the company when it notifies the owner of the patent that it wishes to acquire a licence (or when a certain event occurs, or at a particular time);

•

the option clause requires the parties to negotiate the terms of the licence;

•

if the parties cannot agree on the terms, the option lapses (ie  the commercial company no longer has the right to acquire a licence under the patent and the owner can grant licences under the patent to third parties);

•

there is, or should be, a time limit on the option, both for: –

the time for exercise of the option; and

–

the time for negotiation of the terms;

if the option is exercised.66 Under patent owner’s standard wording, the option clause does not ensure that the commercial company will get a licence under the patent, but the option: •

merely stops a third party obtaining it for period; and

•

allows the commercial company the right to negotiate the terms of the licence for a defined period of time.

Variants on this approach that are sometimes encountered include the following terms: •

if the parties cannot agree the provisions of an agreement, they refer the matter to an independent third party to settle it;

•

all the licence terms are agreed at the outset, and attached to the option agreement; all that has to be done when the option is exercised is for the parties to sign the licence agreement;

•

some of the key terms are agreed at the outset, eg royalty rates, length of the licence, and what activities the licence will cover.

65 Usually the option will become operational at a specific time or when a certain event occurs (which is called ‘exercising’ the option). 66 If a date is stated for the exercise of an option, then unless there is wording otherwise, it must be strictly complied with: Millichamp v Jones [1983] 1 All ER 267; Haugland Tankers AS v RMK Marine Gemi Yapim Sanayii ve Deniz Tasimaciligi Isletmesi AS [2005] EWHC 32 (Comm); Re Kawasaki Kisen Kabushiki Kaisha and Belships Co Ltd [1939] 2 All ER 108.

97

2.55  Drafting Technology Transfer Agreements

Right of first refusal 2.55 A right of first refusal is less commonly encountered than options. A typical right of first refusal might say: •

the owner of a patent is free to negotiate licence terms (eg in relation to a named patent) with anyone (third party); but

•

the right of first refusal will only come into operation when the owner decides to negotiate licence terms with third parties; but

•

before signing a licence agreement with any third party, the commercial company will have a right of first refusal to enter into a licence on the terms that the owner has agreed with the third party (that is, the owner of the patent must offer the sponsor the same terms that have been agreed with the third party); and

•

if the sponsor agrees to match the third-party terms, the owner of the patent must license the sponsor rather than the third party.

A key distinguishing feature of a right of first refusal is that it will only arise if the owner of the patent decides to offer or negotiate licences to a third party, and the offer or negotiations have reached a stage so that the provisions that the owner is prepared to accept are sufficiently certain that the other party with the right of first refusal can accept them and enter into a contract with the owner of the intellectual property.67 This type of arrangement might work well in other areas of business, eg  on the sale of a building, where personal considerations may be less important. But it is problematic in the area of technology transfer. In the above example, the owner of the patent would have to tell the third party at the outset of negotiations that, even if terms are agreed, the owner of the patent may have to license elsewhere (ie  to the sponsor). Being told this might: •

discourage the third party from entering into licence negotiations; or

•

mean that it enters into the negotiations but it might only be prepared to pay a lower price than the patent is worth.

If the right of first refusal is not disclosed to the third party until the sponsor exercises the right, at that point the third party may be very unhappy and think it has been ‘strung along’.

67 Astrazeneca UK Ltd v Albemarle International Corporation and another [2011] EWHC 1574 (Comm). The terms of the right of first refusal have to be sufficiently certain so that the party having the right can accept them and enter into a contract (even if not all the detailed provisions are settled and there is still a requirement to negotiate them).

98

Types of agreement 2.58

Right of first opportunity 2.56 This is a rather general expression, but would include the following arrangement: •

the owner of the patent is obliged to tell the sponsor if the owner of the patent decides actively to seek licensees for the patent;

•

if the sponsor expresses interest in acquiring a licence, the owner of the patent must give the sponsor an ‘opportunity’ to propose terms for such a licence;

•

usually, this opportunity would be on a non-exclusive basis, ie the sponsor gets ‘a seat at the table’ and is treated no worse than any other bidder.

Combinations of the above 2.57 Sometimes sponsors request a combination of two or more of the above arrangements, eg: •

the owner of the patent must tell the sponsor if it intends to license the patents;

•

the sponsor can then demand that it has the exclusive right to negotiate the provisions of a licence for a specified period of time;

•

if the parties cannot agree on terms, the owner of the patent is free to license elsewhere, but cannot grant a licence on terms and conditions that are more favourable to any licensee than the best terms offered by the sponsor (or before granting such a third-party licence must offer the same terms to the sponsor).

The owner of the patent will usually wish to limit any clause to a simple option to negotiate a licence for a limited period of time.

Some other points to note 2.58 •

An option clause should always indicate how long it will run for, eg for the period of a research programme. If not, then the sponsor could argue that the option could run beyond the termination of any research agreement and seek to exercise the option at some point convenient to it. This may be some time after the termination of the research agreement and the owner of the patent may have licensed or assigned the patent to a third party.

•

An option clause should always indicate for how long the period for negotiation should last. If it is not specified, then the sponsor could 99

2.59  Drafting Technology Transfer Agreements

argue that the negotiation period should be for an unlimited period, which could prevent the owner of the patent exploiting it (or responding to opportunities to license it to third parties). In effect, the option either could continue without limit of time or would only come to an end when the sponsor chooses. •

It is also necessary to take care over the wording of any obligation to negotiate. Whilst some wording (eg an obligation to negotiate in good faith) may not be legally enforceable unless bad faith is proved,68 other wording may be (more) enforceable against an owner of a patent. It is usually best to spell out exactly what the procedure is, including the time limit for the negotiations, in the option clause.

Intellectual property (and know-how) licences 2.59 Intellectual property licence agreements are central to any discussion of technology transfer. Intellectual property licences are inherently more complex than some of the types of agreement mentioned above, and the commercial arrangements in IP licences are often ‘bespoke’. Accordingly, it is likely that every term of an IP licence agreement will require careful scrutiny and negotiation. By contrast (if a standard template is used), for the parties to enter into a confidentiality agreement, typically only one issue is under consideration – the purpose for which one or more of the parties will be disclosing confidential information – as most of the other provisions are normally ‘standard’. A prerequisite starting point for the licensing of intellectual property of the type which is the focus of this book – that intellectual property which is based on scientific research and development – is an understanding of the science of the invention or subject matter which a party is to license, together with how it fits into the industry, market or sector to which relates, its stage of development (early stage needing further development, ready for use in the making of products), as well as the owner’s goal or strategy. Issues to consider include: •

Which intellectual property (and know-how) is the subject of the licence (patent applications, patents, intellectual property protected by copyright, such as software, etc).

68 While an obligation to negotiate in good faith is, generally, unenforceable under English law, this may not be the position in other countries, particularly those which have a civil law system, eg many European countries and in Latin America. In Astrazeneca UK Ltd v Albemarle International Corporation and another [2011] EWHC 1574 (Comm), an obligation of good faith was enforceable, where the court held that the grantor of the right of first refusal had to act in good faith to the person in receipt of the right of first refusal, and the grantor had to disclose all the terms of the proposed deal with a third party which the grantor proposed to enter into.

100

Types of agreement 2.59

•

What acts is the licensor licensing, including: –

whether the licensee can use, make or sell products, carry out research, etc;

–

in which (technical) field(s) can the licensee operate;

–

in which territory(ies) can the licensee operate;

–

other restrictions.

•

Whether the licence is exclusive or non-exclusive.

•

Which products or services are being licensed.

•

Whether the licensee can grant sub-licences, and the conditions on which the licensee can grant sub-licences and how the sub-licensee can operate.

•

Who should, and whether to, register a licence with the appropriate patent offices.

•

Whether there are any provisions dealing with improvements and other technologies, and who is to own any improvements.

•

Payment provisions, including: –

type of payments that a licensee is to make (one-off payments, milestone payments, royalties, etc);

–

timing of payments;

–

method for calculating payments (if relevant);

– record-keeping; – auditing; –

reports; and

–

whether a licensee should have a reduction in the royalty it pays if it must take a licence from a third party in order to use the licensed intellectual property (royalty stacking).

•

Diligence obligations on the licensee (such as obligations to develop products and bring them to market, together with milestones and timescales), including consequences of failure to commercialise the licensed products or services.

•

Confidentiality obligations.

•

Warranties and indemnities (whether the licensor is prepared to offer any and, if it does, what should they cover, such as the state of the intellectual property, whether the licensed intellectual property will infringe any third party intellectual property, etc).

•

Provisions dealing with the maintenance and protection of the licensed intellectual property, including: 101

2.59  Drafting Technology Transfer Agreements

•

–

for patents, who is to pay the fees to the relevant patent office to maintain the patents in force; and

–

who has responsibility for suing infringers and defending actions by third parties.

Termination and its consequences.

• Boilerplate provisions, including law and jurisdiction, rights of assignment, entire agreement and notices clauses. Points that particularly arise in practice include the following: •

•

It is necessary to take particular care over the drafting of: –

definitions for such matters as licensed products,69 field, net sales value, etc; and

–

the grant clause (whether the licence is exclusive or non-exclusive, whether the licensee can grant sub-licences, in which territories the licensee can work the licensed intellectual property, and what activities the licensee is permitted to undertake with the licensed intellectual property (make, sell, develop, etc)).

A  common complaint made by licensors (particularly in the case of academic licensors and technologies licensed at an early stage in their development) is that the licensee loses interest in developing licensed products but does not quickly agree to terminate the licence. The reasons for this are varied, but include: –

that the technology is under review within the licensee company, and it may take a year or more for that review to be complete;

–

the technology is no longer a priority for the licensee and is being developed but at a very slow rate; or

–

that the licensee is developing a competing technology and prefers to keep the licence rather than allow it to go to a competitor.

Clear and effective diligence obligations, that enable the licensor to recover the licensed intellectual property in these situations, are important. •

Licensors of early-stage technology will generally wish to be indemnified by the licensee against product liability claims.

•

Parties will often try to keep within the terms of the EU  Technology Transfer Agreements Block Exemption Regulation,70 so as to avoid any potential breach of Article  101 of the EU  Treaty or Chapter I  of the Competition Act 1998.71

69

It is useful to mention the case of Oxonica Energy Limited v Neuftec Limited [2009] EWCA Civ 668 again here, particularly because of the poor drafting of a definition (of ‘Licensed Products’). See para 10.49. 70 See Ch 13. 71 See further Ch 15.

102

Types of agreement 2.60

•

The tax treatment of up-front and milestone payments may depend in part on how they are described. This may be an issue particularly in international transactions and where the double tax treaty between the countries of the licensor and licensee does not allow for complete relief from double taxation. Advice should be sought from the parties’ tax advisers where appropriate.72

The following paragraphs will provide a review of royalty clauses and warranties in licence agreements.

Royalties and other payments for the use of licensed intellectual property 2.60 •

The payment for the use of licensed intellectual property in technology transfer-type transactions typically falls into two main categories: fixed payments; and royalties (or a mixture of the two).

•

Fixed payments typically can include: –

an initial, upfront, amount payable by a licensee on the signing of a licence agreement;

–

further fixed amounts payable on the licensee achieving stated goals or milestones – such as on achieving stages in the development of a product using the licensed intellectual property;

–

a provision whether the above two types of payment may be offset against royalties or are non-refundable payments (depending on the terms of the commercial deal that the licensor and licensee negotiate).

For example, the licensor may have some early-stage technology which has commercial promise which, after development by the licensee, might be used in the treatment of patients. The licensee may need: –

to make a payment on signature of the licence agreement; and

–

to make further payments on achieving certain milestones, such as successfully developing the intellectual property into a product, and then on successfully going through the three phases of clinical trials, and then finally on achieving market authorisation to sell a product using the licensed product.

In this example the licensee would not pay any royalties until it starts selling licensed products to patients. If the technology is licensed at an early stage and its potential is still unknown as to whether it will prove useful or safe to use, then for the licensor having upfront and 72 See further the discussion of this point in Ch 17.

103

2.60  Drafting Technology Transfer Agreements

staged payments may be attractive if it is uncertain there will ever be a saleable product to sell. However, a knock-on consequence may be that the licensee may wish to pay a lower royalty if a saleable product results. For the licensor, without the fixed payments, it may receive no income for many years (if it takes several years to develop a product) or no income at all (if no saleable products results). •

The term ‘royalty’ is commonly used to refer to payments made under a licence agreement for use of intellectual property, particularly (but not exclusively) payments that are based on the number of licensed products that are sold, supplied or used, or the amount of income received from sales etc of licensed products. The most frequently encountered types of royalty are: –

royalties that are calculated as a percentage of the price at which the licensee sells licensed products or provides licensed services (for example, 5 per cent of the net sales price of licensed products);

–

royalties of a fixed amount on each licensed product sold by the licensee (for example, a royalty of 10 cents on each widget sold);

–

royalties calculated as a percentage of income received by the licensee from its sub-licensees (for example, a royalty of 25 per cent of the licensee’s net receipts from sub-licensees).

•

To deal with the situation where a licensee has to obtain a licence to the intellectual property of a third party to work the licensed intellectual property, the agreement can include a provision that the licensee pays a lower royalty (typically called a ‘royalty sharing’ or ‘royalty stacking’ clause).

•

Payment provisions in intellectual property licences will often include a form of ‘anti-avoidance’ measure to stop the licensee reducing or avoiding paying royalties – for example: –

by claiming that the expenses of making and selling products are so high that the licensee is not making any money on a sale. Typically the payment provision will make use of a definition (often called ‘net sales value’) stating that only certain items may be deducted from the sales price; or

–

by claiming that no sales were made at all. For example, the licensee transfers licensed products by means of an inter-company transaction or provides the licensed products to a customer without charge, but charges for other things outside the licence agreement, such as the provision of services. Typically, the definition of net sales value will state that, if there is no sale, the price of each licensed product would be the price that would have been invoiced if there had been a sale at arm’s length.

The term ‘royalty’ is also used in other contexts, for example licence fees paid for working a mine. The term is occasionally considered controversial in 104

Types of agreement 2.61

some countries that have ceased to have a monarchy, for example the Republic of Ireland, even though, when used in intellectual property agreements it now has no connection with royalty, in the sense of hereditary rulers. One could just refer to a ‘periodic payment’ and avoid ‘royalty’ altogether.

Drafting royalty clauses 2.61 Matters which need consideration when drafting a clause dealing with royalty issues, include: •

Amount or rate.

•

Application to types of intellectual property: whether the same level of royalty is payable for all the intellectual property licensed under the agreement, or should each type of intellectual property have a different royalty rate, for example one for products covered by the licensed patents, and another (generally lower) for products that are (only) covered by the licensed know-how?

•

Application of royalty: what should the royalty be applied to? For example, the price of the product. Should the licensee be allowed to deduct some costs, for example delivery charges, from the price of each licensed product before the royalty is applied?

•

Who should pay the royalty? Should the royalty be applied only to sales by the licensee or also to sales made by a sub-licensee?

•

Calculation: if the licensed product is incorporated in another product, and the combined product has a single price, ie there is no separate price for the licensed product element, are royalties calculated on the price of the combined product or a proportion of this, and if a proportion, how is this proportion calculated?

•

Due date: at what point will the royalty become due from the licensee? For example, in the case of royalties on the sale of products, is the royalty due when the price is invoiced or when it is actually paid or when the product is installed or delivered to a third party? When will such royalties actually be payable to the licensor? For example within 30 days of the end of each successive quarterly period, such as 1 October, 1 January, 1 April and 1 July?

•

VAT: is the royalty payment VAT (or other similar tax) exclusive or inclusive?

•

Tax: confirmation that withholding tax, if applicable, will be deducted from payments to persons whose usual place of abode is not within the UK or, where a double taxation agreement is applicable, the payer will obtain authority from the tax authority not to deduct tax.

•

Interest: is interest payable for any late payment, and if so at what rate and on what basis (for example on a daily basis)? 105

2.62  Drafting Technology Transfer Agreements

Warranties in licensing agreements 2.62 Generally, very few warranties will be implied into a licence agreement (if made under English law). Licence agreements often include express warranties or disclaimers that address the following subjects, among others: •

whether the licensor is the proprietor of, or has title to, the intellectual property or the right to grant a licence;

•

whether the intellectual property to be licensed is free of, or subject to, any encumbrance;

•

the freedom, right or authority of the licensor to enter into the licensing agreement;

•

whether or not any rights or licences granted by the licensor to third parties conflict with the rights and licences granted in the present licensing agreement;

•

whether any of the intellectual property is useful or efficacious;

•

whether any materials, products or information provided under the licence by the licensor to the licensee comply with a set specification;

•

whether the intellectual property to be licensed is valid or, if a patent application, whether it will proceed to the grant of a patent.

Warranties – points for consideration 2.63 The following are some of the main points that should be considered when warranties are to be included: •

Title: the licensee should consult the relevant patent office registers (in the UK, the UK Intellectual Property Office) concerning the licensor’s title or right to licence the intellectual property in question and as warranted (if so warranted).

•

Multiple owners of the intellectual property and title: where there are joint owners, a potential licensee should ensure that all the owners of a patent have given their consent to the licensing of the patent to the licensee (unless the owners have agreed otherwise).

•

Freedom from encumbrances: the licensee may require, in addition to a warranty that the intellectual property to be licensed is free from encumbrances,73 covenants74 that:

73 A type of restriction or obligation. 74 A  type of binding promise or obligation. For example, where intellectual property is sold (assigned), unless the parties agree otherwise, certain ‘covenants’ are implied into the assignment. See para 9.06.

106

Types of agreement 2.63

•

–

the licensor will not act inconsistently with the licensee’s enjoyment of the licence;

–

the licensor will not assign the intellectual property (especially if the licensee requires technical assistance or improvements from the licensor);

–

any proposed assignment, transfer or encumbrance must be notified to the licensee;

–

the licensor will obtain the prior written consent of the licensee before so doing.

Validity: it is unlikely that the licensor will wish to warrant that the intellectual property as expressed through a patent is valid or what the scope of the patent is, as it is always open to third parties to challenge the validity of the patent. If an unrestricted warranty is given concerning its validity, and the licensee later finds that the patent is not valid, then the licensor may be liable in damages. If the licensee insists on a warranty of validity, the licensor may be prepared to warrant that: –

it has not done anything; or

–

as far as it is aware (but without searches or investigations) there is nothing;

which would invalidate the intellectual property. •

•

Validity warranties for confidential information/trade secrets: unlike, for example, patents, which once published are a matter of public record, know-how and other confidential information developed by the licensor cannot be independently assessed or quantified until provided. If the licensee is to carry out manufacturing or other such activities with the licensed intellectual property, then it may require access to such (technical) information throughout the lifetime of the licence to assist in the manufacturing process. The licensor might be asked to warrant, for example: –

that the disclosure of such confidential information to the licensee will not breach a duty of confidence that the licensor has to a third party;

–

that the confidential information has not entered into the public domain at the date of the agreement; or

–

that the confidential information has in the past proved of use in the manufacture of products based on or using the intellectual property that is to be licensed.

Exclusion of, and knowledge, warranties: Typically a licensor will wish to give as few warranties as possible (from the matters listed in para 2.62 above) – particularly if the technology which is the subject matter of the licence agreement is at an early stage and its commercial potential is unknown or the effects of its use or its uses are unknown, or whether its 107

2.64  Drafting Technology Transfer Agreements

use in products, or the exercise of any licensed rights etc, will infringe any other intellectual property owned by third parties. The position may well be different if the technology is proven and the intellectual property rights and know-how have been successfully licensed without challenge over a number of years. Many academic institutions or research institutions will have a default position that they simply do not give warranties on the intellectual property (and know-how) that they license. Where a licensor has to give a warranty, it may try to limit its extent. For example: –

it is giving a warranty that the intellectual property it is licensing does not infringe the rights of any third party, as far as it is aware. This could carry an implication that it has carried out some checks;

–

alternatively, it could try to limit the warranty further by stating it is giving a warranty that the intellectual property it is licensing does not infringe the rights of any third party, but it has not carried out any searches or investigations to determine the veracity of the warranty.

Assignments 2.64 An assignment (in the sense this term is being used here, whether as a provision in an agreement dealing with other matters or as an agreement by itself) concerns the formal transfers of title (ownership) to intellectual property. Generally an assignment has to be in writing, and those involving patents have to be registered with the UK Intellectual Property Office.75 The transfer of ownership of intellectual property can appear in a number of situations, for example: •

research and development: a commercial sponsor of a research project, which an academic institution is to carry out, may have an option, when the research project is completed, to have the resulting intellectual property transferred to it – for example, if the results are sufficiently promising (sometimes in return for a further payment), while allowing the academic institution to use the resulting intellectual property for its further (often non-commercial) purposes;

•

intellectual property licensing: a licensor (owner) of intellectual property may decide it no longer wishes to be in the business to which the intellectual property relates. A provision of the licensing agreement may provide that the licensee can have the ownership transferred to it; or

75 See further para 3.41.

108

Types of agreement 2.65

•

sale of the assets of a business: if a party is to sell some or all of its assets (and part of the assets are various items of intellectual property) to a new owner, it will need to transfer ownership of the intellectual property to the new owner.

In these situations a practice point arises, where typically parties agree to assign intellectual property in the agreements which cover the above type of situations. It is important to distinguish between the agreement to assign and the formal assignment. Wording such as ‘agrees to assign’ is typically used where an immediate assignment is not intended; ‘hereby assigns’ works better where the parties intend an immediate assignment. For example, in the sale of the assets of a business, there is often the intention that the sale of all of the assets will take place on a particular day, which is usually some other day than the date the parties signed their agreement, so only an agreement to assign will be appropriate.76

Spin-out company transactions 2.65 Universities are now frequently involved in setting up ‘spin-out’ companies. These usually involve the university assigning or licensing a package of intellectual property (and sometimes know-how) to a new or existing company, usually in return for shares in the company. Some of these arrangements also include provisions, for example: •

that the university will have the right to put its nominated representatives on the board of directors (who are usually university employees, but can also include academics);

•

to allow the academics involved in the creation of the intellectual property to own shares in the spin-out;

•

requiring or permitting the continued involvement of the academics in the development of products and services using the intellectual property.

Investors then subscribe for shares in the company for cash, which is used to fund the company’s operations and further development of the technology. The corporate aspects of such transactions are outside the scope of this book.77

76 Typically, an agreement to sign provision will often include wording which states that the parties will execute formal (assignments) transfers of title on or after the date the sale of the assets of the business takes place. 77 For further information, see the authors’ UNICO  Guides to University Commercialisation Agreements, and in particular the Guide to Spin-out Transactions, published by (what is now) AurilUnico.

109

2.65  Drafting Technology Transfer Agreements

Spin-out transactions may involve a number of technology transfer agreements, including some or all of the following: •

An assignment or licence of intellectual property into the spin-out company.

•

An option agreement or ‘pipeline agreement’ to enable the spin-out company to obtain rights to future intellectual property generated in the relevant department or group of the university.

•

A  research agreement under which the spin-out company sponsors further research by the university.

•

Funding by the spin-out company for research studentships or other activities by the university.

•

Personal consultancy agreements between the key academics and the spin-out company.

•

Provision for when the spin-out company needs to raise further finance at particular stages (for example when the R&D reaches a defined stage, and when a product or service has been developed to a certain stage), and also to deal with such issues as how the finance is to be raised, who from, and whether existing shareholdings will be diluted.

(See the separate discussion of most of these types of agreement elsewhere in this chapter.) Spin-out transactions raise a number of specific legal and policy issues for the university and other participants, including: •

How will the university’s revenue-sharing policy operate in relation to income generated from shares owned by the university which were acquired in return for an assignment or licence of intellectual property? Does the academic inventor get a share of that revenue, or does the academic get a return through shares in the spin-out company? Has the university agreed this with the academic, and in writing?

•

Are there are any conflicts of interest arising from the spin-out transaction – for example, if an academic retains his or her academic post yet becomes a director of the company? Many universities now have policies and procedures in relation to conflicts of interest, such as the academic having a positive obligation to notify potential conflicts to the university, and in certain cases the university may wish to prevent the academic from participating in activities (for example, private consultancies) if they are perceived as conflicting with the academic’s duties to the university.

•

Whether the university is required to treat the issue of shares to the academic as a benefit of employment for which an immediate income tax liability arises (deductible via the PAYE system), even though the 110

Types of agreement 2.66

academic has not realised any financial benefit from the shareholding. For example, if intellectual property is licensed to a spin-out company, and it is necessary to carry out considerable further research and development before a product is ready for sale, it can take several years before the academic receives any financial benefit from the shareholding (and if the research and development does not result in a saleable product, or the product does not sell, the academic may receive no financial benefit at all). There are various methods of avoiding such an income tax liability, either by statutory exemption or by HM Revenue & Customs concession, but the issue generally needs to be looked at carefully.

Research and development agreements Introduction 2.66 Research and development (R&D) agreements are primarily concerned with the creation of inventions and the generation and use of scientific information and, particularly where they include intellectual property provisions, the creation of commercial value from that information. Many R&D  agreements are primarily agreements for the provision of services. The detailed nature of R&D  services is sometimes very different to other types of service, but certain core elements are the same as for other professional services. Typically, work will be done for a price. There may be provisions dealing with the preparation of reports, the exchange of information, and, in some cases, the operation of a project review committee. There may also be issues over the level of warranties to be given and over limitations and exclusions of liability. Unlike some other services agreements, R&D  agreements often also focus on intellectual property issues (such as who will own the resulting intellectual property, what uses can be made of the resulting intellectual property by the generator or funder of the intellectual property), confidentiality obligations and whether the parties can publish the results of the research. Unsurprisingly, some of the terms of R&D agreements depend on the subject matter of the R&D. For example, in the area of R&D  agreements which include trials and testing (such as clinical trials agreements), the provisions are very different from the provisions of agreements for the beta-testing of software. Some types of R&D agreement are an example of commercial agreements that concern an ongoing relationship between parties, for example: •

where the parties are engaged in a long-term R&D  project lasting a number of years, or 111

2.67  Drafting Technology Transfer Agreements

•

where the parties contemplate carrying out a series of research projects (in effect entering a master services agreement), but wishing that the mechanisms are put in place to agree and carry out each of the research projects, as well as dealing with issues such as the ownership, protection and exploitation of resulting intellectual property in one document (rather than through a series of negotiations, each time the parties wish to carry out a specific research project).

They are therefore closer in spirit to, say, a joint-venture agreement than to an agreement for the sale of a business, where the parties may not have any ongoing relationship once the sale is completed. For the latter type of R&D agreement, the work the parties will carry out is normally of a more limited duration or more focused, such as: •

carrying out testing of an invention or information created during previous R&D activity;

•

commercial development of intellectual property created or generated during previous R&D activity.

Common provisions of R&D agreements 2.67 At its simplest, one of the most common types of R&D agreement is a two-party agreement under which one party, the researching party, carries out a defined R&D  project and the other, the funding party, pays certain agreed costs of that R&D project. The funding party receives a report from the researching party when the project is completed. These agreements often include provisions for: •

participation of the funding party in the conduct of the R&D  project, or in a project committee which reviews the progress of the R&D project;

•

periodic reports by the research party to the funding party;

•

change in content or direction of the R&D project;

•

renewal of the agreement, eg annually;

•

confidentiality obligations;

•

a procedure for the prior review of intended publications;

• ownership, protection, use and commercialisation of intellectual property arising from the project (and, in some cases, intellectual property brought to the project). Such agreements may also include warranty, liability and indemnity, exclusivity and non-compete provisions. In practice, the intellectual property provisions, and for academic clients the publications and liability clauses, often require the most attention from lawyers. 112

Types of agreement 2.68

Intellectual property issues 2.68 Intellectual property issues are dealt with in many different ways in R&D agreements, including the following: •

Funding party owns and controls intellectual property: intellectual property resulting from the R&D  project may be owned by the funding party, with the research party retaining no interest or right to receive royalties from its use and having no say in how it is protected. This type of arrangement is most commonly found in consultancy agreements between a company and an academic scientist, for example where the scientist is being paid to assist the company to solve a particular technical problem related to the company’s technology or where the research party is carrying out the research as a commercial contract to generate funds. It is less common in contracts to fund a programme of R&D, where the research party will generally wish to retain some interests in the intellectual property resulting from the project.

• Funding party receives licence to intellectual property: the research party may own the intellectual property resulting from the R&D  project, but the funding party receives an automatic licence to use and commercialise it. This licence might be non-exclusive, sometimes with an option to negotiate or convert it into an exclusive licence (or exclusive in a particular field or territory) or an assignment. The funding party may be required to pay royalties or other payments to the research party for use or exploitation of the intellectual property. In some cases (for example in R&D  agreements between two biotech companies) it may be agreed that both parties will have commercialisation rights, with territories or fields of applications being divided between them. •

Funding party receives option on licence: often, the preferred solution for a research party is to retain ownership of the intellectual property generated by the project and grant an option to the funding party to acquire a licence on commercial terms. Depending on the subject matter of the R&D  project, the licence may be exclusive or nonexclusive. If the R&D project involves the use of the research party’s pre-existing technology, and that technology can be applied to a wide range of applications, the licence may be non-exclusive or limited to areas that are of direct interest to the funding party, leaving the research party free to license other applications to other parties.

The are many possible variations on how it is possible to deal with intellectual property matters, although many R&D agreements now are based on standard templates, some of which in the UK derive from templates (such as the Lambert Toolkit).78 78 See www.gov.uk/guidance/university-and-business-collaboration-agreements-lambert-toolkit.

113

2.69  Drafting Technology Transfer Agreements

Collaborative R&D 2.69 Some R&D  agreements do not involve a funding party paying for R&D to be conducted by a research party. Instead: •

two or more parties collaborate on an R&D project and each funds its own R&D activities; or

•

each party obtains some or all of its funding from an external source. For example, funding may be obtained from the European Commission under its ‘Framework’ research programmes or one of the sources of funding available from the UK government.79

In the case of EU-funded research projects, it is also necessary for the parties who wish to participate in the R&D to enter into a consortium agreement to comply with the detailed (and rather complex) requirements of the European Commission’s standard contract terms. The complex intellectual property provisions deal with each party’s rights to use and commercialise intellectual property brought to, and arising from, a project.

Parties 2.70 As with other types of agreement, the parties to an R&D agreement should be clearly identified in the parties’ clause. With many research-type organisations, the party’s name, legal status, and place of incorporation are sometimes not clear from their stationery or other papers. For example, multinational drug companies are often based in several countries in the world. Whilst negotiations may be conducted with a subsidiary in one country, the contract may be, according to the drug company, with its parent company in another country.

R&D Project 2.71 Each R&D  agreement should include a clause defining the R&D project: it should outline or specify the work that one or more of the parties will be doing under or in the course of the agreement. The detailed specification of the services and/or research that the party or parties are to carry out under the agreement is usually, but not always, contained in a separate schedule to the agreement. Usually set out in the main body of the agreement are general details about when the work is to start, deadlines, the amount of effort or resources to be used, and who is to carry out the work (and sometimes their qualifications and experience). Other topics that are often addressed include when the work is to be completed and the role of project managers/directors or a project committee. 79 See further para 1.09.

114

Types of agreement 2.75

This section outlines, in the form of checklists, the key matters which the parties should address in drafting clauses relating to the work to be carried out under the agreement.

Checklist of matters to be addressed in a research agreement Parties responsible for the work 2.72 Which party or parties are to carry out the work? For example, the agreement might state: (a) party A is to carry out the research programme; or (b) each party shall perform their respective duties in the research programme.

Starting the work 2.73

When is the work to start?

(a) On a commencement date? (b) On the date of the agreement? (c) Promptly or immediately after a certain date?

Location 2.74

Where will the party or parties carry out the work?

(a) At a particular location for the party carrying out the work, eg  at the (specific) laboratories of a university? (b) In a particular department or section, for example department of medicine? The importance of choosing a particular location and/or department can be reflected in other parts of the agreement, for example in confidentiality provisions. If information provided under the agreement is later found outside that department and/or location, then it can be easier to establish that there has been a breach of the agreement.

Amendment of research programme 2.75 (a) Can the parties amend the research programme? (i) By mutual agreement between the parties? (ii) By one party specifying the change? 115

2.76  Drafting Technology Transfer Agreements

For longer-term projects, or where the research is more experimental or involves untried and little-known materials, it is often advisable to include a provision which allows the parties to amend the research project to take account of changing circumstances. (b) If amendment is allowed: (i) Who shall agree it? For example project leaders or the project committee or someone more senior? Or do different types of changes require persons at different levels of seniority to approve the amendment? (ii) In what circumstances will it be possible for the parties to do so? For example when deemed necessary, or because of a specific result being achieved or not achieved. (iii) How shall it be recorded? For example by written amendments to an agreement incorporated in a schedule. (iv) If changes can be agreed or recommended by the project leaders, can the parties withhold approval of those changes? (v) Can the price be altered and by whom? Do changes in price need agreement before the revised work programme is implemented? (vi) Whether external approval is needed? If the R&D  project is funded by an external body (such as an EU Framework research programme), will it be necessary to obtain the external body’s approval or to comply with notification procedures?

Warranties 2.76 Do the parties, or one party, warrant or undertake that the research programme will achieve a particular result, be completed by a certain date or will be successful? The usual provision found in most R&D agreements is that such provisions are expressly excluded and no such warranty etc is provided in regard to such matters.

Facilities 2.77 (a) Is the party carrying out the work required to provide facilities? (i) If so, to what standard? For example adequate facilities. (ii) And to use what effort? For example to use reasonable endeavours to provide them. 116

Types of agreement 2.79

(b) What specific facilities are to be provided by the party carrying out the work? (i) Who is to provide (specific) materials? (ii) What (specific) equipment will be used and who will provide it (and, in appropriate cases, on what terms)? (iii) Who are the (named) personnel who will be carrying out and be responsible for the research project?

Effort in carrying out work 2.78

What effort is to be used by the party carrying out the work?

(a) Reasonable endeavours (or variations such as ‘all reasonable endeavours’ or ‘reasonable commercial efforts’)? (b) Best endeavours? (c) According to the terms and conditions of the agreement (ie  specific results or timings that a party needs to achieve as set out in the agreement, and the party carrying out the work is expected to meet them)?

Provision of equipment 2.79 Is one party (providing party) required to provide equipment to the party performing the work? (a) Is the providing party to loan the equipment to the other party? (b) What are the provisions for use of the loaned equipment? (Usually specified, if at all, in a separate loan document attached to the agreement, for example governing issues like insurance and risk and use of the equipment for other purposes.) (c) Is the party performing the work to buy the equipment but using funds of the providing party? (d) Is the party performing the work to own the equipment they buy or which is provided to them (or will the providing party own it)? (e) What is to happen to the equipment at the end of the research project? Will the party performing the work: (i) have to return any equipment loaned to them; (ii) get an option to buy the equipment; or (iii) if they purchased the equipment with the funds of the providing party, have to give the equipment to the providing party, keep it or sell it? 117

2.80  Drafting Technology Transfer Agreements

Provision of materials 2.80 (a) If materials are to be provided to the party carrying out the work: (i) What are they? (ii) When will they be provided (for example within a certain number of days of the agreement or commencement date)? (iii) Are they to be provided in sufficient quantities to allow the party to carry out the work? For example, the agreement may specify the exact quantities that will be supplied. A  further issue that sometimes arises is who should be responsible (and at whose cost) for providing additional quantities of materials if the first batch is wasted, for example because the experiments did not work. (b) Can the party who is to work on the materials: (i) Only use them for the purposes of the research programme? (ii) Use them only as expressly permitted by the provisions of the agreement? (iii) Perform any tests other than those specified in the research programme? (iv) Modify the materials? (v) Make derivatives of the materials? (c) Is property in the materials provided to remain with the party providing them? (d) Are any materials not used to be returned to the party providing them (on request?) or destroyed?

Project leaders 2.81

Who are they and what is their precise role?

(a) Is the work to be carried out under their personal direction? (b) Do they have the responsibility and authority to manage and direct the work? (c) Can they agree the further direction, goals and timelines of the research programme? (d) Can they agree changes in the research programme or the work to be carried out? (e) What is their role on any project committee (for example to chair it)? 118

Types of agreement 2.83

Project committee 2.82

What is the composition and role of the project committee? For example:

(a) How many members will there be and how many of them for each party? (b) What is the role of the project leaders on the project committee? (c) What is the method of selection (for example nominated by each party from time to time)? (d) Who are to be the members at the date of the agreement or commencement date? (e) What will be the frequency of meetings (for example meet periodically, meet on the achievement or a milestone, and/or confer by telephone or via a conference facility as needed)? (f) What is the role of the project committee? For example: (i) To review and discuss the progress and direction of the research programme? (ii) To agree the further direction, goal and timelines for the research programme? (iii) To maintain informal dialogue throughout the course of the research programme in addition to (i)? (iv) To freely and fully exchange information obtained and/or used in the research programme? (v) To make recommendations to the contracting parties to amend the research programme, but not have authority as the project committee to make such changes (or, sometimes, not have such authority if it would alter the contract price or timescale)? (g) Will the (reasonable) costs of attending project committee meetings incurred by one party be paid by the other?

Recruitment of staff 2.83 (a) Is it necessary to second or recruit specific staff? (b) What will be their specific role? (c) Who is to be responsible for the selection of the specific staff (for example the party carrying out the work)? (d) Who is to be responsible for the (reasonable) costs of recruiting? (e) Is the party carrying out the work to report when staff are recruited and provide other details as requested by the other party (such as qualifications, experience etc)? 119

2.84  Drafting Technology Transfer Agreements

(f) Are the terms of appointment of staff to include provision that: (i) if the main agreement is terminated early, the staff appointment will also terminate early (or alternatively will continue for the remainder of a fixed term); and/or (ii) will the staff be assigned other duties by the party carrying out the work?

Exclusivity, non-competition 2.84 Where one organisation commissions or funds (funding party) another to carry out R&D work, it may wish to influence and/or control some of the following elements relating to the research being undertaken: •

access rights (licence or user rights) to, or outright ownership of, the results and any intellectual property in those results (sometimes called foreground intellectual property); or

•

access rights to other intellectual property owned by the other party and needed to exploit the results (sometimes called background intellectual property).

The funding party may also wish to restrict or control other work that the contractor may wish to undertake, for example: • activities: restricting the contractor’s ability to conduct R&D activities in the same field with third parties or on its own; •

use by the contractor of its own intellectual property: whether the contractor can use or license the same research methodologies and techniques (for example background or foreground intellectual property) outside the scope of the contract with the funding party;

•

restrictions on use of the funding party’s intellectual property: for example, whether the contractor can carry out experimental work (outside the scope of its contract with the funding party) relating to the subject matter of a patented invention owned by the funding party, because ownership of such patents may not give the funding party any right to prevent such work, especially under the exemption provided by Patents Act 1977, s 36.

In principle, such restrictions might apply: •

during the term of the research programme;

•

during the term of the agreement under which that research was conducted (which may be a longer period than the research programme); or

•

during and after the agreement has come to an end. 120

Types of agreement 2.86

However, the last two restrictions are much more likely to be contentious and to raise competition law issues than the first. The more restrictive the clause is, the more likely it is to be subject to EU Treaty, Article 101 or the Competition Act 1998.

Payment terms 2.85 Most agreements concerning R&D activities relate to the provision of some form of service or combination of goods and service by one organisation or person to another organisation or person. Such agreements often do not demand especially difficult or complex provisions for payment. The more involved provisions are usually encountered where an R&D  agreement includes provisions concerning the commercialisation of the results of the R&D, for example licence fees and royalties.

Fixing the amount to be paid 2.86 It is unlikely that parties will enter into an agreement without at least agreeing a price or determining some method of arriving at a price. However, if the parties do fail, for example where a researcher at a university agrees verbally to carry out some research or testing, then statute law can provide some help. Both the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 provide that, if: •

a price is not fixed by the parties to the agreement;

•

there is no method of calculation provided for in the agreement; or

•

it is not possible to determine the price from previous dealings between the parties;

there is an implied term that the paying party is to pay the supplier of the services or goods a ‘reasonable charge’, which is a question of fact.80 However, if the other provisions are not certain, the agreement may be invalid or there is no contract. The fundamental problem is that, if the price is not fixed, or there is no provision to adequately or with certainty calculate the price, the parties to the agreement may argue over what is a ‘reasonable charge’. If the agreement provides that the parties will agree charges at a future date, and does not include a mechanism for resolving any failure to agree, the agreement may be no more than an ‘agreement to agree’ and is probably not enforceable. In this situation it will probably not be possible to 80 Although who is to decide that fact will be open to interpretation and, if the question of what can be charged cannot be agreed, it will be for a judge to decide. Also many universities and other organisations carrying out research have set rates for the amount they charge or the costs they need to recover.

121

2.87  Drafting Technology Transfer Agreements

fall back on the implied term of a ‘reasonable charge’ because the parties’ ‘agreement to agree’ may be held to override and replace the implied term.

Types of payment 2.87 •

•

The main types of payment include: Single or split payments: Fixed-price contracts can consist of either: –

one payment; or

–

several payments split in a number of ways, such as a payment on signature of the agreement, various staged payments at identifiable points in the contract, or at the end of the contract.

Combination of fixed-price and price-adjustment mechanism: It is possible to use this combination to allow for: –

increases in salary costs: the agreement may provide that the organisation carrying out the research will employ a researcher at a fixed price but allow for increases in salary costs based on an agreed formula. For example, if the agreement is with a university and the university is employing the researcher, it is common to include a clause requiring the sponsor to pay any increases in salary in line with increases in national pay scales for academics.

–

increases in other costs: such as the cost of materials if they are used in the agreement – for example if the research organisation needs to use disposable laboratory or medical equipment such as test tubes. The parties may either use increases in the Retail Prices Index (RPI) as the basis for price increases or use an index that is more closely linked to the industry or products in question, for example the Producer Prices Index.

–

increases in price where the work to be performed under the agreement is changed during the lifetime of the agreement.

•

Allocation of contributions: If the funding of the R&D  programme comes from more than one source (such as from one party and an external funder) and more than one party is carrying out work, it will be necessary to allocate who will receive the external funding (and, where relevant, what proportion of the external funding).

•

Price by reference to a rate: For example: –

if an agreement provides for testing of compounds, a price per compound;

–

for the time spent by personnel working on the subject matter of the agreement; or

–

by reference to a separate current pricelist provided by the supplier of the good or service. 122

Types of agreement 2.88

•

Royalties: Based on a percentage of sales revenue, as with a patent royalty.

•

Option payment: A payment may be due if a party to an agreement wishes to exercise an option. For example, R&D agreements often include an option for the party funding the research to acquire an exclusive licence to foreground intellectual property, subject to payment of an option fee.

• Royalties: Royalties are discussed in the section on intellectual property licences, below.

Factors to be considered in payment clauses 2.88 The following issues should be considered when drafting a payment clause: •

Timing: when are payments to be made? If payments are made periodically, how frequently should the payment period be? For example, payment may be made within 30 days of a specified event or date, such as the delivery of goods or the issue of an invoice.

•

Method of calculation: if payment is calculated by reference to a rate (for example a rate per task, or for time spent or as a percentage of sales revenue – as with patent royalties), the method of calculation of the rate should be clearly specified, for example using a suitable definition of net sales value.

•

VAT: does the price stated include VAT? Usually prices are stated to be exclusive of VAT which will be charged in addition. If this is not stated, it may be implied that the price includes VAT. If the agreement involves a non-UK party, then VAT may not be payable or may need to be calculated at a different rate. The VAT issues may be different depending on whether one or both parties are (a) based in the UK, (b) based in another EU country, or (c) based outside the EU.

•

Payment method: how are the payments to be made (direct bank transfer, letter of credit, or even by accessing the site of the provider of the research and using their online payment method through the use of credit and debit cards, etc)?

•

Late payment: is interest payable on late payments?81 Is time of payment ‘of the essence’, ie  can the contract be terminated if any payment is made late?

•

Currency: the currency in which payments are to be made (in contracts with an international element), any currency conversion method, and who bears any exchange risk.

81 The provisions of the Late Payment of Commercial Debts (Interest) Act 1998 should be considered (see para 10.99).

123

2.89  Drafting Technology Transfer Agreements

•

Deductions, set-offs: whether deductions or setoffs are allowed.

•

Refundable payments: whether any payments are refundable or to be treated as an advance against future payments, for example initial licence payments or option payments are sometimes creditable against future royalties.

•

Ancillary costs: who bears any ancillary costs (for example packing, carriage, insurance)?

•

Supporting documents: whether any statements, receipts or other documents are required to be provided in support of payment claims.

•

Records: whether any, and what type of, records need to be maintained, for example for the number of products sold, if a royalty statement has to be calculated, and whether it is available for inspection by the agent of the other party.

Intellectual property 2.89 The aim of many R&D  agreements is the creation of intellectual property (patents, copyright, design rights) or know-how and confidential information, whether: •

by the creation of something; or

•

testing previously created intellectual property which is now to be the subject matter of further R&D.

In addition, the parties will often bring to the R&D  agreement a previous R&D track record and will therefore have inventions, information, technical know-how, methods of working, documentation and software programs, for example. These may be of use in carrying out the R&D agreement or may be the basis for further R&D work that one or more of the parties will carry out. There is often a need to distinguish between the intellectual property created: •

before the start of the R&D agreement;

•

during the R&D agreement by one or more of the parties arising from the research project; and

•

during the period of time when the R&D agreement is in force by one or more of the parties, but not arising from the research project.

The main purpose of distinguishing between the three circumstances is to indicate which of the parties (singularly or jointly) is to own the intellectual property and in what circumstances and what use they can make of it (subject to the provisions of their agreement). The party commissioning the R&D will normally wish to own the intellectual property that arises from the research project as well as retaining ownership of 124

Types of agreement 2.92

intellectual property it brings to the R&D agreement. The party carrying out the R&D will normally wish to retain ownership of any intellectual property it brings to the R&D agreement and any intellectual property that arises from the research project.

Use of the terms ‘background’ and ‘foreground’ intellectual property 2.90 The terms ‘background’ and ‘foreground’ intellectual property are sometimes found in R&D  agreements. These are convenient labels to distinguish between different types of intellectual property. Such (or similar) terms are used in the standard contract terms for the EU’s Horizon 2020 research funding programme.82

Definition of background intellectual property 2.91 The definition of background intellectual property (‘background’) often comprises the following: •

background information: consisting of confidential information, technical know-how and other information known and owned by a party or over which a party has rights to at the date or commencement of the agreement; and

•

background intellectual property: consisting of patents, copyrights and other similar rights including applications etc owned by or over which a party has rights at the date or commencement of the agreement.

These defined terms are sometimes expanded to include information or intellectual property that is generated after the commencement of the agreement but which is not part of foreground information and foreground intellectual property, for example because it is developed outside the scope of the R&D agreement. In many commercial agreements, the information and intellectual property definitions are combined in a single definition (usually a definition of ‘intellectual property’). However, some research agreements used in universities split the two definitions.

Definition of foreground intellectual property 2.92 The definition of foreground intellectual property (‘foreground’) often comprises: 82

See para 1.32. The terminology used by the EU for the funding schemes changes, and currently it is ‘background’ and ‘results’ in their ‘Multi-beneficiary General Model Grant Agreement’.

125

2.93  Drafting Technology Transfer Agreements

•

foreground information: consisting of confidential information, technical know-how and information which is generated by a party in working on or performing the defined research programme; and

•

foreground intellectual property: consisting of patents, copyrights and other similar rights including applications etc which are generated (or conceived, first reduced to practice or writing or developed, in whole or in part) by a party in working on, or performing the defined research programme.

Applying the definitions 2.93 The two most basic applications of the definitions of foreground intellectual property (‘foreground’) and background intellectual property (‘background’) are that: •

‘background’ belongs to the party who introduces it; and

•

‘foreground’ belongs to the party commissioning the research or the party carrying out the research.

The first bullet point is in essence no more than a statement of what is normally the default position. It is included usually for the sake of avoiding doubt. The second bullet point is of key importance, as it determines ownership of the intellectual property generated by the research programme. Without such a clause, under English intellectual property laws ownership of intellectual property would normally be with the creator, instead of the commissioner. Depending on the provisions of the R&D agreement, it may not specify that the commissioner should be the owner of foreground. In some instances, ownership of the foreground arising from the research programme remains with the creator. For example, many universities and non-commercial research organisations require or request ownership. The (commercial) commissioners of the research may resist this type of provision (particularly those who are not used to dealing with universities and other non-commercial research organisations). If the university or non-commercial research organisation will not give up ownership, the commissioner may need (or may only be able) to obtain: •

a licence in respect of the foreground, sometimes (particularly in the case of non-exclusive licences) on a royalty-free basis so that the commissioner can pursue its commercial activities making use of the research that it has funded; or

•

an option to obtain such a licence (particularly but not always an exclusive licence) on to-be-determined financial and other terms.

Another common variation is that ownership is retained by the creator of the foreground, but the creator will assign the foreground if it decides not to file or prosecute a patent application with the creator retaining or obtaining a licence to use the foreground. This licence, depending on the creator and the commissioner, may: 126

Types of agreement 2.95

•

be limited to research only;

•

be limited to research only within a certain field; or

•

exclude research which would lead to commercial exploitation.

A further issue concerning the use of the background intellectual property of the creator is where the commissioner needs it to exploit the foreground so that the commissioner can pursue its commercial activities. The commissioner may need to obtain a licence to the creator’s background, usually on a non-exclusive basis – otherwise the creator would not be able to use the background for its own purposes or when carrying out other R&D for other commissioners.

Administering the intellectual property 2.94 Ownership of intellectual property requires that it should be properly administered, so that its value is not lost. This is particularly so where the intellectual property is a patent – for example, through missing filing dates for patent applications, or failure to pay renewal fees for granted patents. As indicated above, universities often require that they retain ownership of the intellectual property created during an R&D agreement, with the agreement specifying, for example, that they are responsible for patent filings and prosecution, with the costs of doing so being paid by the commissioner of the foreground. A commissioner who has obtained a licence will require that it is managed and maintained properly. The administrative and cost burden of maintaining a portfolio of patents and other intellectual property can be high, even if some of the costs are reimbursed at some stage. Patent applications require fees to be paid at certain stages, there are dates to be met in order to prosecute the application, and once granted the patent must be maintained via the payment of fees on a regular basis during its life. With copyright, the position is different, but can be just as onerous. Although there are no formal requirements for registration, it is still a requirement that proper documentation is kept of when a copyright comes about and what it is. Proper record-keeping to support an action for breach of copyright can be onerous.

Publication Requirement to publish 2.95 Agreements with academic research organisations, whether universities, research-based charities (such as medical charities) or national 127

2.96  Drafting Technology Transfer Agreements

or international funding organisations, often require the publication of the results of any R&D. The requirement may arise because: •

the organisation carrying out the R&D has charitable status, and charity law requires publication;83

•

the funding organisation requires that the results of a project are made available (such as agreements made under EU Framework programmes);

•

the organisation carrying out the R&D, such as a university, has a policy of publishing the results of the research (as well as it having charitable status); or

•

the ability of academic researchers to progress in their careers is measured primarily through their publications.

These requirements to publish have to be offset against the risks of publication concerning a new discovery. If publication is not controlled: •

the patenting of such a new discovery may be prevented; or

•

it may not be possible to protect or develop information relating to the new discovery as a commercial secret, under confidentiality laws.

If some form of publication is required, the contractual document should provide a method for publication, subject to certain controls and restrictions. That is, allow the organisation carrying out the research to publish the results of the research, but also allow the organisation commissioning or paying for the research the opportunity first to protect any intellectual property developed.

Publication clauses 2.96 Publication clauses, particularly in an agreement with a university, will usually include some or all of the following: • an acknowledgement by the commissioner/payer of the research recognises that the results of the project should be publishable, subject to safeguards; •

a description of who should be able to publish, for example the project director and other researchers involved in the project;

•

a description of who should not be able to publish, such as undergraduate students;

•

a list of the media in which results can be published, for example seminars, symposia, national or regional professional meetings, journals, theses or dissertations;

83 See para 1.52.

128

Types of agreement 2.98

•

a description of the material that it is possible to publish, for example results only or research methods;

•

a control or restriction placed by the commissioner of the research on the organisation carrying out the research, usually a notice requirement, for example:

•

–

that the organisation carrying out the research has to send a copy of any paper or presentation to the commissioner within a specified period before the paper or presentation is submitted to a third party for publication or the presentation is made;

–

that the commissioner has a specified period from the receipt of these copies to object or require modifications to the paper or presentation;

–

that, if the commissioner objects to the paper or presentation (or any modifications are not made), the researcher shall not publish or present for a specified period (for example up to six months to allow the commissioner to carry out any measures to protect the results of the research, such as by making patent applications);

the grounds on which the commissioner may object to publication or presentation, for example to file patent applications; what universities find more contentious is a clause that allows publications to be vetoed altogether, or gives the commissioner a right to delete from proposed publications material that it wishes to keep confidential.

Charitable research 2.97 If research undertaken by a charitable organisation is to be considered to be charitable, it must be both within the objects and powers of the charity and carried out for the public benefit. The Charity Commission has published guidance for higher education institutions on when the research they carry out is in furtherance of a charitable aim, as well as the points that they should consider before agreeing to proceed with a research agreement.84

Warranties in R&D agreements Introduction 2.98 The usual desire of the party carrying out work under an R&D agreement is to exclude to the fullest extent permissible all warranties

84 See note 83.

129

2.99  Drafting Technology Transfer Agreements

relating to the results of the research. This contrasts with the position found in some patent licences or in more mainstream commercial agreements, such as relating to the sale of a business or the setting up of a joint venture, where warranties are normally required and found; for example that the seller is the owner of the intellectual property used in the business being sold (subject to any explicit exclusions stated in a separate document, often called a ‘disclosure letter’). Warranty statements made or excluded concerning R&D usually concern issues relating to: •

the materials or the subject matter of the research;

•

the use of the resulting intellectual property, services or materials;

•

the ownership of any intellectual property brought to or created by an R&D project;

•

the validity of any intellectual property.

Disclaimers 2.99 The creation of intellectual property or the further development of intellectual property is usually at the heart of an R&D agreement. Most of the warranties that are found or disclaimed in such agreements relate to intellectual property, or in some cases physical property such as biological materials. For convenience, the following are framed as disclaimers, but they could be turned round to be positive warranties: •

that the agreement provides for the carrying out of experimental research, and accordingly specific results cannot be guaranteed;

•

that experimental materials shall be used, whose safety or known properties are not established;

•

that any materials, information (including advice) or intellectual property provided by the party carrying out the R&D under the agreement are provided ‘as is’, and accordingly no warranty is given that: –

they do not infringe third party rights;

–

they are of merchantable or satisfactory quality (the expression ‘merchantable quality’ is still used in other jurisdictions, including the US);

–

they are fit for any purpose;

–

they conform with any sample or description;

–

they are viable, safe, uncontaminated or non-toxic;

–

they should be relied on;

–

they are accurate; or

–

any registrable intellectual property will be valid. 130

Types of agreement 2.101

Reasons for disclaimers 2.100 A  party carrying out an R&D  project under an agreement would wish to make some or all of the above disclaimers because such research can involve using: •

experimental, untried or not fully tried methods and techniques;

•

experimental or fully or partially unknown materials or substances, whose properties or safety is not fully known;85

•

pre-existing intellectual property (background intellectual property) whose provenance is not fully known (for example, the background intellectual property may be subject to a patent application which is being examined by the Patent Office; it could therefore be challenged, or someone else may also have made the same discovery and has already filed a patent application and/or been granted a patent).

An R&D project can result in the creation of intellectual property where new inventions or discoveries are made, but the creator will not wish to warrant that it will lead to a valid patent application or that it will not infringe thirdparty rights etc, as to make such a statement may require extensive, costly and lengthy investigation. Universities and other research organisations may not have sufficient resources to carry out such investigations on all the intellectual property generated by their researchers. The value or safety of the intellectual property may be unknown or difficult, costly or impossible to determine. For example, it may be only possible to determine the true value, safety, etc by further R&D or by the intellectual property being licensed or combined with other intellectual property.

Development agreements distinguished from research agreements 2.101 The term ‘development’ is sometimes distinguished from ‘research’. Usually, development refers to bringing a specific product or service to market, whereas research refers to an earlier stage – for example, it may involve identifying potential products that are suitable for development. The dividing line between research and development is sometimes hazy. The terms of research agreements and development agreements respectively tend to have many features in common. Issues such as ownership, protection and use of intellectual property may be addressed in similar ways in each 85 With some technologies or materials, particularly those at a very early stage, it is simply not possible for anyone to know their properties or the likely consequences of their use (whether alone or in combination with other things). A related issue can be that an insurer to a party may not be prepared to cover that party for the safety or otherwise of some materials and technologies.

131

2.102  Drafting Technology Transfer Agreements

type of agreement. As development implies bringing a product or service closer to market, so the terms of development agreements will often include provisions dealing with issues that arise when a product is brought to market. Examples may include: •

registration of trade marks;

•

appointment of manufacturing sub-contractors;

•

co-promotion and co-marketing rights;

•

beta testing of software; and

•

diligence obligations that are specific to a product in development, eg appointment of a sales director prior to product launch and investment in a marketing infrastructure.

A development agreement is also likely to include more provisions relating to the payment for the use of licensed intellectual property and on sale of products or services.

EU-funded research collaborations 2.102 The European Commission makes available funding for collaborative research projects under various funding schemes, including its Framework Programmes, such as the current programme, Horizon 2020.86 In the case of Framework funding, successful applications for EU research funding will typically involve parties from different EU member states and will involve at least one commercial organisation. It is common to find EU research collaborations involving, say, six to twelve participants. Each party is required to accede to a contract known at present as a grant agreement. Currently the grant agreement is signed by the European Commission and one of the participants, and then the remaining participants sign a document in a specified form to agree to the grant agreement. However the grant agreement does not establish any contractual relationship between the collaborating parties. Attached to the grant agreement is Annex II, which includes some standard contract terms dealing with issues such as communications with the European Commission, the preparation of reports on the collaborative research, and perhaps most importantly the ownership of results and the access rights that each participant has to results generated by the other collaborators. The provisions of Annex II that deal with ownership of intellectual property generated and access rights need to be considered fully to understand what 86 See para 1.32.

132

Types of agreement 2.103

the default position is, and what the participants agree to regarding varying the default position. Annex II anticipates that the collaborating parties will enter into a further agreement, known as a consortium agreement, to supplement the provisions of Annex II. Sometimes, where the participants are mostly academic parties and there is one commercial party, the commercial party will prepare what is described as a consortium agreement. Sometimes, this so-called consortium agreement covers only one issue – that the commercial party is to be granted all commercial rights to the results of the collaboration. Subject to the need to be consistent with the terms of the grant agreement, the issues to be addressed in an EU research consortium agreement are the same as those arising in any research contract, as discussed above.

Sub-contracting agreements – generally 2.103 An R&D  programme will sometimes call for third parties to provide services, products or materials needed by a party or parties involved in carrying out the research. Often the term ‘contractor’ would be just as accurate as ‘sub-contractor’ – the latter expression is sometimes used where specific services are being provided as part of a larger project. Examples of services and products that a sub-contractor might provide include: •

performing technical tests on materials;

•

providing quality assurance services;

•

writing software;

•

designing a website;

•

performing research on a specific aspect of a larger R&D programme;

•

manufacturing drugs for clinical trials;

•

putting drug into vials for the purposes of clinical trials; and

•

conducting or managing clinical trials.

Some R&D agreements (between a commissioner and the party carrying out the research, service provider), where it is envisaged that some sub-contracting will be necessary, will address specifically what services etc are to be subcontracted. Where an R&D agreement does so, it may state what the service provider can sub-contract, whether it needs the consent of the commissioner, etc. Whether or not the R&D agreement does so, sub-contracting agreements often address the following issues: •

with whom the sub-contractor is entering into a contract, usually the service provider; 133

2.104  Drafting Technology Transfer Agreements

• what products or services the sub-contractor will provide; •

that the sub-contractor has to keep confidential any results, and any information provided to it, either by the service provider or the commissioner;

•

that any intellectual property the sub-contractor generates or creates belongs to the service provider and/or the commissioner;

• intellectual property relating to the sub-contractor’s underlying technology (if any) belongs to the sub-contractor, perhaps with a licence to the service provider and/or the commissioner to enable either or both of them to use the results; •

what, if any, limitations of liability the sub-contractor can include;

•

indemnities to be given by the service provider to the sub-contractor in respect of liability arising from use of the results, unless caused by some default by the sub-contractor;

•

termination provisions, including whether, if the commissioner can terminate the research agreement early, the sub-contract between the sub-contractor and the service provider also terminates;

•

consequences of termination, particularly whether the sub-contractor is paid for work done prior to termination;

•

whether the sub-contractor is paid if the service provider is not paid by the commissioner; and

•

whether the commissioner can directly enforce any provision of the subcontract.

Where the sub-contracting agreement is sufficiently largescale and involves parties in different member states for Article 101, EU Treaty to have potential application, it will be necessary to consider the provisions of the EU Notice on Sub-Contracting Agreements.87 Nor should UK competition law be overlooked.88

Small-scale manufacturing agreements (eg for R&D materials) 2.104 Small-scale manufacturing agreements are an example of subcontracting agreements, discussed above. Depending on the product being manufactured, the agreement may need to address regulatory issues, for example, that the manufacturer should comply with GMP (Good Manufacturing Practices) and other regulatory requirements.

87 See para 12.77. 88 See Ch 14.

134

Types of agreement 2.106

Trials and testing agreements 2.105 There are many different types of trial and testing agreement, in different industries, including the following examples: •

beta testing of software;

•

agreements to conduct clinical trials;

•

testing the qualities of materials, eg strength and durability.

Trial and testing services are often provided by sub-contractors; subcontracting agreements are discussed generally, above. Whilst there is a wide variation in the terms encountered, some agreements include provisions dealing with the following: •

technical standards that must be met in the course of the testing;

•

liability and insurance issues, particularly in the case of trials on humans.89

Sponsored clinical trials agreements Introduction 2.106 A  clinical trials agreement is a form of research and development agreement or research services agreement, which typically concerns the testing of medicines and medical devices. It is not primarily designed for or concerned with the generation of new intellectual property. In the UK, over the last 15 years much work has been undertaken to develop model agreements for use where clinical trials and clinical trials research are undertaken in the UK, particularly where a clinical trial takes place in NHS hospitals. One reason is that clinical trials: •

are subject to extensive legal and regulatory control; as well as

•

having to comply with detailed regulatory requirements;

before it is possible to carry them out, so the use of a model agreement can help to properly address these controls and requirements, particularly where the sponsor is a pharmaceutical company. Another reason is that the sponsoring organisations and the organisation carrying out the clinical trials are not the only organisations involved; before conducting most clinical trials, it is necessary to obtain approval from: 89 See paras 11.72 onwards and 11.86 onwards.

135

2.107  Drafting Technology Transfer Agreements

•

a research ethics committee (organised by the NHS  Health Research Authority); and then

•

the Medicines and Healthcare Products Regulatory Agency, if involving clinical trials of medicines or studies on medical devices;90

and, for clinical trials carried out in NHS facilities, the NHS Health Research Authority expects that the model agreements are used, preferably without modification.91 A  third reason is that the development of model agreements should avoid lengthy negotiations over the provisions of a clinical trials agreement, leading to a clinical trial being started more quickly.

Types of model clinical trials agreement 2.107 The main model clinical trial agreements are:92 (1) (Commercial) Clinical Trial Agreement (mCTA) between a sponsor and an NHS organisation that will carry out the clinical trial. (2) (Commercial) Clinical Research Organisation model Clinical Trial Agreement  (CRO-mCTA) between a sponsor, a clinical research organisation (CRO) with which the sponsor has a contract and where the CRO will be responsible for managing trials at various sites, and an NHS organisation that will carry out the clinical trial.

90 For an outline of the necessary steps, see www.cancerresearchuk.org/about-cancer/find-aclinical-trial/how-clinical-trials-are-planned-and-organised/how-clinical-trials-are-approved. 91 See www.myresearchproject.org.uk/help/hlptemplatesfor.aspx#mCTA-CROmCTA and www. hra.nhs.uk/planning-and-improving-research/best-practice/model-agreements/. As the HRA put it: ‘Where it is expected that there be an agreement between the sponsor and the site (including all commercially sponsored studies), it is strongly recommended that an unmodified model agreement is used. These agreements should be used as set out in their accompanying guidance. Use of the unmodified model agreement simplifies and speeds up the study setup process. The UK Clinical Research Collaborations (UKCRC) model agreements have been negotiated with English law and governance arrangements at their core and modified versions are available for use under the legal systems and administrative arrangements of Scotland, Wales and Northern Ireland. Using a modified model agreement, or an agreement not based on a model template is possible, but the sponsor should be aware of potential difficulties that can often be encountered such as prolonged negotiation periods, and the risk that the study may not be able to go ahead if certain terms cannot be agreed with participating organisations. Where a template based on the model agreement is submitted but includes modifications, the sponsor should explain the rationale.’ And as material was being prepared for this book, the NHS HRA was changing its guidance as to the use of model agreements so that NHS Trusts would not be permitted to accept a modified version of a commercial clinical trials agreement unless a waiver has been granted from HRA to the sponsor – effective 1 October 2019. 92 Agreements (1), (2) and (3) were last revised in 2018 and are all available from www. myresearchproject.org.uk/help/hlptemplatesfor.aspx#Contracts-Agreements. See also www. ukcrc.org/regulation-governance/model-agreements/.

136

Types of agreement 2.108

These agreements are designed for use in all phases of clinical trials (including phase I trials, other than phase I trials on healthy volunteers). However, they are not designed for use for non-commercial research which is funded by charities, government departments or Research Councils, whether or not they take place in NHS hospitals or involve NHS patients. Such research should use the following type of agreement: (3) Model Agreement for Non-Commercial Research in the Health Service (mNCA). Model agreements (1) and (2) are also not designed for use: (a) where there is a collaborative clinical trial; (b) in contract clinical trials (between a sponsor and a private organisation that will carry out the clinical trial using patients recruited separately from any treatment they receive at the NHS); (c) in primary care studies; or (d) in investigator-initiated trials. For (a), (c) and (d), the following model agreements are available: (4) Model Agreement for Collaborative Commercial Clinical Research Conducted by Companies in the Pharmaceutical and Biotechnology Industries, Universities and NHS Organisations (MICRA).93 (5) Primary Care Model Clinical Trial Agreement (such as for use in a GP’s practice) between a sponsor, the primary care organisation and the principal investigator.94 (6) Model agreement (3) in the above list should be used.

Contents of a sponsored commercial clinical trials agreement 2.108 The development of the sponsored commercial clinical trials agreement has provided for a detailed, prescriptive set of provisions which seeks to balance the interests and requirements of both commercial sponsors and the NHS organisations carrying out a clinical trial. Many of the provisions are declaratory, in the sense that, irrespective of whether or not they appear within the agreement, the subject matter to which the provisions relate would apply to one or more of the parties. For example, statements that parties will comply with various laws, regulations and guidance or the obligation to report adverse events. However, setting out the requirements may be considered useful so that the commercial sponsor (particularly one not familiar with UK practice) is aware of the requirements and obligations of conducting a clinical trial. 93 Available from NIHR Office for Clinical Research Infrastructure (NOCRI). 94 Available from www.ukcrc.org/regulation-governance/model-agreements/primary-care-mcta/.

137

2.108  Drafting Technology Transfer Agreements

Each commercial model clinical trial agreement ((1) and (2) in the above list) is drafted in the same way, consisting of a set of guidance notes, the main provisions of the agreement and several appendices (concerning the timelines and responsibilities of the parties, the model ABPI clinical trial compensation guidelines, the ABPI form of indemnity, financial arrangements, conditions applicable to the principal investigator and, if relevant, provisions relating to the use of clinical biological sample material and equipment). The main relevant details are set out here to illustrate the detailed industryspecific provisions in place for the conduct of a form of research and reflect the balanced and nuanced provisions on such matters as intellectual property: 1.

principal investigator as party to the agreement: the principal investigator (that is, the person who will have primary responsibility for the conduct of the clinical trial) is not a party to the agreement;

2.

participation of principal investigator: statement that the participating organisation will secure the services of the principal investigator, as well as stating that the principal investigator is able to carry out the clinical trial, and has the necessary registrations and resources to do so. Other provisions typically include the procuring of staff to carry out the clinical trial, attendance at meetings, and what is to happen if it is necessary to replace staff or the principal investigator.95

3.

clinical trial governance: 3.1 declaratory statements that the parties will comply with relevant laws and guidance;96 3.2 sponsor to comply with compensation guidelines: that the sponsor will undertake to compensate any clinical trial subject participating in a clinical trial who is injured where the injury is attributable to participating in the clinical trial. For members of the Association of

95 The agreement (or a schedule) should include a set of conditions which the principal investigator agrees to or with which the principal investigator will be complying, such as s/he is free to participate in the clinical trial, that if the principal investigator is not employed by the participating organisation s/he has notified her/his employer and obtained their consent, that the principal investigator is not subject to any regulatory or misconduct investigations or proceedings, that the principal investigator is satisfied with the facilities and that the persons working on the clinical trial can carry out the clinical trial, that there is a contract for services between the participating organisation and the principal investigator, and that the participating organisation has medical liability insurance to cover the principal investigator etc. 96 The templates referred to above state that the parties will comply with the following laws: laws of the European Union if directly applicable or of direct effect; the Human Rights Act 1998; the Data Protection Act 1998; the Human Tissue Act 2004 or the Human Tissue (Scotland) Act 2006; the Medicines Act 1968; the Human Medicines Regulations 2012; and the Medicines for Human Use (Clinical Trial) Regulations 2004; and they will comply with the following guidance relating to medicines and clinical trials: the ICH GCP; GMP; GVP; the World Medical Association Declaration of Helsinki entitled ‘Ethical Principles for Medical Research Involving Human Subjects (1996)’; the Research Governance Framework; and the Medical Research Council Guidelines entitled ‘Human Tissue and Biological Samples for Use in Research’.

138

Types of agreement 2.108

the British Pharmaceutical Industry (ABPI), there is the expectation they will follow the guidelines issued by the ABPI;97 3.3 training: that the principal investigator and the staff carrying out the clinical trial will undertake appropriate training that the sponsor considers necessary; 3.4 adverse event reporting: that the sponsor and the participating organisation will comply with regulations concerning the collection and reporting of adverse events;98 4.

obligations of the parties and the principal investigator concerning the conduct of the clinical trial: the parties, whether individually or together, are given specific responsibilities before and during the conduct of the clinical trial, including: 4.1 the responsibility of the sponsor to obtain and maintain regulatory approval and a favourable opinion from a research ethics committee; 4.2 the principal investigator has the responsibility to get an informed consent form for every participant in the clinical trial (the consent being in a form approved by the sponsor and the ethics committee) and to declare any financial interests; 4.3 the sponsor to put details of the clinical trial on a freely accessible clinical trial registry within a defined period; 4.4 the parties to conduct the clinical trial in accordance with: 4.4.1 their agreement; 4.4.2 the protocol;99 4.4.3 marketing authorisation for the investigational medicinal product (IMP)100 or clinical trial authorisation granted by the MHRA; and 4.4.3 the favourable opinion of a research ethics committee;

 97 The guidelines are available from www.abpi.org.uk/publications/ct-compensation.  98 The Clinical Trials Regulations, arts 40–46 impose a direct obligation on the principal investigator to record and document adverse events (unless the protocol states otherwise) and report them to the sponsor, usually within 24 hours. The sponsor has an obligation to keep records of the adverse events reported to it, as well as reporting them to the European Medicines Agency Eudravigilance database.  99 That is a description of the clinical trial that the parties will undertake. See NHS  Health Research Authority website for further details at www.hra.nhs.uk/planning-and-improvingresearch/research-planning/protocol/. 100 An investigational medicinal product (IMP) is ‘any medicinal product which is being tested within a trial or any product, including placebo, used as a reference in a clinical trial’; see http://forums.mhra.gov.uk/showthread.php?32-MHRA-produced-FAQs-for-InvestigationalMedicinal-Product-(IMP), which also outlines the conditions in which it is possible to use an IMP.

139

2.108  Drafting Technology Transfer Agreements

4.5 the sponsor is not to provide any medicines to the participating organisation, and the participating organisation is not to supply any medicines to a clinical trial subject until all approvals are obtained; 4.6 the participating organisation is only to permit the principal investigator to use medicines for the purpose of the clinical trial and to return any unused medicines to the sponsor (or as otherwise directed by the sponsor); 4.7 a best endeavours obligation on the participating organisation that the principal investigator enrols a specified number of subjects on the clinical trial. Also there are provisions as to what is to happen if there is under- or over-enrolment of clinical trial subjects and, where the sponsor is conducting multi-site trials, a right to adjust numbers of clinical trial subjects between sites; 4.8 representations from the participating organisation that everyone involved in carrying out the clinical trial is not restricted or prevented by law from taking part in clinical research or is not subject to any current or past regulatory action or investigation (unless previously notified to the sponsor); 4.9 each party to notify the other if there is a series breach of the protocol or any conditions or principles of ICH GCP (or other rules, guidance or principles). The sponsor has to report a serious breach to the regulatory authority (as well as others); 4.10 the participating organisation is to permit auditing or inspections, whether by the sponsor or a regulator, and if the inspection is by a regulator then the participating organisation has to inform the sponsor; 5.

liabilities and indemnities: besides normal provisions limiting or excluding liability: 5.1 if a clinical trial subject brings a claim for personal injury against the participating organisation, the sponsor is to indemnify the participating organisation (using the ABPI standard form of indemnity); 5.2 the participating organisation limits its liability to the sponsor to the amount of fees payable by the sponsor, but for breaches relating to data protection, confidential information, publications and intellectual property, the amount that the participating organisation will pay to the sponsor is limited to two times the value of the agreement;

6.

intellectual property: 6.1 background intellectual property (and know-how) belongs to the party who owns it, whether created before or after the start of the clinical trial if not arising from the clinical trial; 140

Types of agreement 2.108

6.2 intellectual property (and know-how) arising from or relating to the clinical trial, the IMP or the protocol belong to the sponsor, but not including any clinical procedure and improvements which are clinical procedures of the participating organisation; 6.3 the intellectual property provisions are not to stop the participating organisation using know-how that it has gained during the performance of the clinical trial in carrying out its normal activities, as long as the confidential information of the sponsor is not disclosed or its intellectual property is infringed. The sponsor can use the know-how gained during the performance of the clinical trial to allow it to further the development of the IMP. 7.

publication: there is an acknowledgment by the sponsor that the participating organisation and the principal investigator can appropriately publish results which are of scientific interest arising from the clinical trial, under an NHS Health Research Authority policy.101 The contents of a publication clause are similar to the points made in para  2.96, except where the clinical trial takes place across several sites so that it is possible to delay publication until all sites have completed their trials. In addition: 7.1 the sponsor has the right to publish the method and results of the clinical trial; 7.2 the sponsor will publish the results of the clinical trial on a database which is accessible by the public without charge within one year after the IMP is first approved and made commercially available in any country or for a post-approval clinical trial; 7.3 the participating organisation and principal investigator have to disclose the financial support of the sponsor in publications or presentations;

8.

confidentiality: there are provisions to keep the confidential information of the other party confidential, subject to standard exceptions (see para  2.31 above). However, a party can disclose the confidential information of the other if required by law, a regulatory authority or because of a Freedom of Information Act request, subject to letting the other party know a reasonable time before disclosure needs to be made. If a party makes a visit to the other party’s facilities then if the first party learns any further confidential information it shall be subject to the obligations of confidentiality. The obligations of confidentiality remain in force for 10 years following the termination of the clinical trials agreement;

9.

freedom of information: the sponsor will acknowledge that:

101 See NHS HRA UK policy framework for health and social care research, available from www.hra.nhs.uk/planning-and-improving-research/policies-standards-legislation/uk-policyframework-health-social-care-research/.

141

2.108  Drafting Technology Transfer Agreements

9.1 the participating organisation is subject to the Freedom of Information Act; and 9.2 the decision to disclose any information is a decision solely for the participating organisation; But if the participating organisation receives a request under the Freedom of Information Act then it will notify the sponsor no later than five days after receipt of the request and the parties will consult. If the participating organisation requests the assistance of the sponsor, the sponsor shall use reasonable endeavours to respond within 10 working days. If the sponsor releases the information, it will notify the sponsor in writing, giving at least two working days’ notice of the intended disclosure; 10. financial provisions: the financial and payments provisions in the agreement itself are fairly brief, with the detail set out in an appendix. It appears that NHS organisations adopt the NIHR cost template.102 Main points from the provision are that: 10.1 if there is a change to the protocol, the financial arrangements will also change; 10.2 the sponsor can make public the support it has provided to the participating organisation, including identifying the participating organisation; 10.3 there is a longstop date for payments, where the sponsor does not need to make payment where the participating organisation fails to notify the sponsor within 60 days of the sponsor providing final invoicing information (if requested), or 60 days from completion of the clinical trial if invoicing information is not requested; 11. materials and equipment: optionally, if the participating organisation is to carry out analysis of material (clinical biological sample), it will do so at a laboratory approved by the sponsor. If the sponsor is to carry out the analysis, it and the participating organisation have to comply with an appendix setting out various conditions. The participating organisation warrants that the material is collected with appropriate informed consent, and is collected and handled in accordance with the Human Tissue Act 2004 and the protocol. But the participating organisation does not provide any warranty as to the material’s properties, merchantable quality, fitness for any particular purpose or freedom from infection. There is also an exclusion of liability for the consequences of supply to or use by the sponsor (or by any third party that the sponsors passes the material to). If, optionally, the sponsor is to provide equipment and resources, an appendix to the agreement sets out the details on the equipment and resources, the permitted uses, and what is to happen after conclusion of the clinical trial (return, retention, etc). 102 See www.nihr.ac.uk/partners-and-industry/industry/run-your-study-in-the-nhs/faster-costingand-contracting.htm.

142

Types of agreement 2.109

12. protocol: this is incorporated by reference to the agreement, but is not attached as an appendix to the agreement.

Non-commercial research in the health service agreement 2.109 The model agreement for non-commercial research is shorter, and less detailed in its obligations, on the basis, it appears, that all the parties are noncommercial organisations who will already be working in the field of clinical trials and who will understand what is required for carrying out a clinical trial in the UK. For example, there are no provisions relating to the principal investigator and none which concern the reporting of adverse events. It is for use where: 1. the sponsor is a charitable organisation (for example, a university, a research funder), a public sector body (for example, government department, research council) or an NHS organisation, or any mixture of these organisations (that is, that the agreement permits there to be cosponsors, which can have different levels of responsibility); but 2.

the party carrying out the clinical trial will also be an NHS organisation, or other healthcare or research site service or nationally registered charity or government agency where there is recruitment of clinical trial subjects.

As with the commercial model clinical trials agreement, the aim of the noncommercial research in the health service agreement is not the generation of intellectual property for commercial exploitation, although it is recognised that the sponsor itself may receive funding from a commercial entity. For example, a pharmaceutical company is funding a medical research charity to carry out research and development on one of its drugs, which requires testing on patients, and the medical research charity then sponsors clinical trials in an NHS hospital using the drug of the pharmaceutical company. Like the commercial model clinical trials agreements, there is a set of guidance notes, the main provisions of the agreement, and a set of appendices (the study protocol, the division of responsibilities, financial arrangements). A significant area of difference concerns the issue of liability and indemnities, the main provisions of which are set out here: 1.

there are no specific provisions in the agreement requiring the sponsor to indemnify the participating organisation against any claim for personal injury brought against the participating organisation by a clinical trials subject;

2.

the form of indemnity is different, according to whether both the sponsor and the participating organisation are NHS organisations or only the participating organisation is an NHS organisation; 143

2.110  Drafting Technology Transfer Agreements

3.

where the sponsor is not an NHS organisation, the sponsor is to indemnify the participating organisation against claims, expenses, losses, damages and demands to the extent they arise or result from the participating organisation: 3.1 undertaking the clinical trial in accordance the protocol; and/or 3.2 preparing, manufacturing or assembling a medicinal product, medical device or other equipment in accordance with the protocol or written instructions from the sponsor;

4. where both the sponsor and participating organisation are NHS organisations, there will normally be reliance on the indemnity scheme that covers NHS bodies. However, if the indemnity scheme does not cover the loss that a party suffers, they will recover the loss from the other party; 5. liability by a participating organisation to a sponsor for any contractual liability that the sponsor may or does incur to a third party is limited to all fees paid by the sponsor to the participating organisation. Otherwise, there is exclusion of all liability by both parties; 6. the provision of the indemnity is subject to conditions (that the sponsor is notified of a claim as soon as reasonably practical, that the sponsor can take control of the claim or proceedings, and that there are no admissions except with written consent of the sponsor). Also the indemnity does not apply to claims, proceedings etc that arise or result from wrongful acts or omissions or negligence or breach of statutory duty of the participating organisation (or its students, consultants and sub-contractors and researchers), or a treatment routinely undertaken as part of NHS treatment.

Employment and consultancy contracts Consultancy contracts 2.110 ‘Consultancy’ is an imprecise term. Some consultancy agreements: •

are very close to employment contracts;

•

are more like sub-contracting agreements or contracts to provide research services; or

•

cover situations where an academic or scientist is either giving oneoff advice or assistance or is available to give advice and assistance when needed (such as where an academic or scientist is paid a retainer for a period and, when s/he is needed, s/he will give such advice and assistance as required).

Universities often permit academic (research) staff to conduct private consultancy work, as long as the time commitment does not exceed a defined 144

Types of agreement 2.110

level, for example 40 days per year. In some universities the academic has a choice: either enter into the consultancy arrangement: •

privately with the client; or

•

through the university’s research or consultancy office.

In the latter case, the academic is given support in contract negotiations and the university’s professional liability insurance policy may cover the consultancy work Whilst consultancies vary, one model stands out: the annual (retainer type) contract with an academic scientist, providing for a fixed payment in return for general advice and assistance in a defined area. Usually the client company will ask the academic to sign its standard consultancy agreement. From the point of view of the academic and his or her university, the agreement may need to be looked at carefully, particularly on the following issues: •

sometimes the intellectual property provisions are one-sided in favour of the company, and purport to transfer to the company all intellectual property used by the academic in performing the consultancy services (as distinct from the intellectual property that the academic generates).103 The academic may not be in a position to assign such intellectual property;

•

the consultancy should be limited to a defined field or set of tasks; a consultancy covering all of the academic’s areas of interest may be dangerous both in terms of leakage of intellectual property and because the agreement may be used as a cheap way of having the academic perform research services;

•

the agreement may provide for the academic to be liable (or may fail to limit liability) in respect of negligence or breach of contract; however, the academic may not be properly insured against such liabilities.

The term ‘consultancy agreement’ also covers other types of agreement, not involving academic scientists. For example a company that is involved in technology transfer may engage a business development consultant to find potential licensees. Sometimes the client agrees to pay the consultant a commission on any income generated from agreements negotiated by the consultant. The provisions of commission arrangements require careful drafting. Where the consultancy is very close to being an employment contract, except that the consultant is self-employed, provisions similar to those found in executive service agreements may be more appropriate. 103 Ie the agreement prepared by the company may claim ownership of all intellectual property used by the academic, including all of the intellectual property of the academic’s employing institution.

145

2.111  Drafting Technology Transfer Agreements

An issue that sometimes arises in consultancy agreements is conflicts of interest. Where the consultant is advising more than one company in the same field, eg  a field of technology, it may be appropriate to include terms addressing that possibility, eg  a right for the client to terminate the agreement and an obligation on the consultant to inform the client about other consultancies. Similar issues arise with part-time employees.

Employment contracts 2.111 For many technology-based companies and organisations, the most valuable intellectual property they have is contained in the brains of their employees. It is important to have in place appropriate terms of employment. Provisions dealing with issues such as inventions, creation of copyright and designs, confidentiality, non-competition and what work they can undertake for third parties, may be particularly important. In the case of employment contracts between a university and its academic research staff, it may be unclear what duties such an employee has, indeed whether he or she has any formal duties.104 This makes it difficult to apply the tests in Patents Act 1977, s  39.105 In practice, where the academic institution licenses or assigns such inventions, it will first obtain a written assignment from the inventor. Practice points to watch out for include the following: •

A provision that states that the employer owns all inventions made by the employee may not be enforceable under Patents Act 1977, ss 39– 43.106 This is only an issue in relation to inventions and patents; there is no equivalent limitation on the provisions that can be included in an employment contract in relation to copyright, designs or database rights. Obligations in relation to inventions should be suitably qualified. Some universities now have policies which lay out the circumstances when an academic will own the intellectual property s/he creates or generates and when they will not (such as when the academic takes part in a sponsored research project where they will be expected to assign any intellectual property to the university).

•

Post-termination obligations in relation to confidentiality and noncompetition are notoriously difficult to draft and enforce. If in doubt, keep the obligations focussed on what the employer really needs and can justify as needing to protect its interests.

•

Contracts with employees working overseas should take into account local employment laws, which may affect provisions dealing with intellectual property etc.

104 And, in particular, whether they have any duty or responsibilities to create intellectual property. 105 See further para 4.09. 106 See note 105.

146

Best practice 2.114

Agreements with students 2.112 Students sometimes work on research projects at universities. Sometimes they make, or contribute to, inventions that are made in the course of those projects. Usually, the student is not an employee of the university, and therefore is not bound by any employment contract that gives ownership of his or her inventions to the employer. Universities are gradually becoming aware of this issue and some are addressing it, for example by: •

including intellectual property ownership provisions in the student regulations, and making the student agree in writing to comply with those regulations as a condition of admission to the course of study;

•

making it a condition of admission to a research project that they agree in writing to assign any intellectual property generated in the project.

Although most students are adults (that is, at least 18) when they start attending university, a practice point to consider is whether the student is a minor (in which case, any contract may not be enforceable against him or her). Even if he or she is an adult, there may be a risk that the university would be regarded as having special responsibilities towards its students, such that normal rules of freedom of contract might not apply. An analogy might be drawn with the line of cases on unfair terms in contracts between record companies and young pop musicians.107 In any case, a student is likely to be treated as a consumer for the purposes of English law of education services. Accordingly, the provisions of the contract between the student and the academic institution are likely to be interpreted accordingly. Perhaps the university would be expected to take extra care not to act in an unfair way to its students. In the absence of higher court authority on the point, these comments must be speculative.

BEST PRACTICE 2.113 The following paragraphs discuss some small, but important, practice points that are not always observed but which are recommended as ‘best practice’.

Who should draft the agreement? 2.114 There is no general convention as to who should draft a technology transfer agreement. By contrast, contracts for the sale of land or companies

107 Eg see Panayiotous v Sony Music Entertainment (UK) Ltd [1994] EMLR 299 and para 15.15.

147

2.115  Drafting Technology Transfer Agreements

are usually drafted by the buyer, and financing agreements are usually drafted by the lender. In many situations, it may be preferable for the more experienced party to undertake the drafting of a technology transfer agreement. If a party is constrained by policy considerations (eg  a US university under the BayhDole Act, or an NHS organisation, because of the expectation that a model agreement should be used), it may be sensible for that party to prepare a draft that reflects such considerations. However, a counter argument to the above point is the view that the party who puts forward their draft of an agreement as the one to be negotiated controls the agenda of the matters to be discussed. For example, a proposed deal between a large pharmaceutical company and a university based on the company’s ‘standard’ agreement may contain many provisions (perhaps very detailed and very one-sided) not suitable for the deal but ideal for the company’s protection and commercial interest. The university negotiators will be faced with the task of negotiating many points and catching all those points which need to be removed or amended. In such a situation, suggesting that much of the agreement needs to be removed or drafted in a completely different way may not be seen as a negotiating strategy likely to foster harmonious relations.

Who should bear the costs of drafting the agreement? 2.115 Usually, each party bears its own (legal and other) costs in drafting and negotiating a technology transfer agreement; there is no general convention that one party or the other will bear both parties’ costs. Sometimes, it is explicitly stated in the agreement that each party will bear its own costs, although such provisions are more often seen in situations where there may be a commercial convention (or at least a preference, supported by bargaining power) that one party will bear the other’s costs. For example, a party providing finance may require the borrower to bear the lender’s legal costs. Or in spin-out or joint-venture types of agreement the party which is to provide finance etc will expect its legal, accountancy and other costs to be paid through an increased royalty, set charges at specific times or may wish to implement other creative strategies for recovering those costs.

Dealing with parties who are, or are not, legally represented 2.116 If one party is legally represented, and the other party is not, the represented party and its lawyer should be careful not to suggest, by words or actions, that it is recommending that the other party execute an agreement or is 148

Best practice 2.116

advising the other party to do so. Best practice is to state in a communication to the unrepresented party that they should consider seeking their own legal advice.108 In some situations (for example, in agreements to settle disputes with ex-employees) the represented party may wish to offer to pay some or all of the other party’s legal costs in obtaining such advice. However, where a party is represented by a solicitor, and that solicitor knows that the other party is legally represented, English solicitors’ protocol requires that the first solicitor should communicate with his or her opposite number, and not with the client directly, unless otherwise agreed.109 This point is reinforced by the Solicitor’s Code of Conduct: ‘Outcomes You must achieve these outcomes: O(11.1) you do not take unfair advantage of third parties in either your professional or personal capacity; […] Indicative behaviours Acting in the following way(s) may tend to show that you have achieved these outcomes and therefore complied with the Principles: […] IB(11.4) ensuring that you do not communicate with another party when you are aware that the other party has retained a lawyer in a matter, except: (a) to request the name and address of the other party’s lawyer; or (b) the other party’s lawyer consents to you communicating with the client; or (c) where there are exceptional circumstances;’110 In the authors’ view, this issue is one to be aware of so as to avoid falling into obvious traps, but is probably not one to get too exercised about when dealing

108 This is perhaps less necessary where negotiations are taking place between two commercial organisations or an academic institution and a commercial party as it is likely each will have easy access to either in-house or external lawyers, or the parties’ representatives will be experienced in negotiating contracts and will know when to take advice. However, it is best practice where the other party is an individual (such as an inventor or academic acting on his or her own). 109 This will apply to solicitors who are external to a party but also to those who are employees of a party (ie ‘in-house solicitors’). This latter point which can sometimes be overlooked by commercial negotiators in their use of lawyers (whether in-house or not); that lawyers have a separate code they must abide with. 110 Solicitor’s Code of Practice, Version 21 of the Handbook, 6 December 2018.

149

2.117  Drafting Technology Transfer Agreements

with sophisticated commercial parties, particularly if the other party chooses to involve its legal advisers on a limited basis to save costs.

Marking-up and circulating drafts 2.117 When proposing revisions to a draft agreement, it is conventional to mark-up the changes on the draft. This can be done either by using the review functions of most modern word processing software, or by using a document comparison function or third-party software which will produce a version which shows the changes made. If the review function is used, the drafter should be very careful to ensure that all changes have been made with this function switched on. Sometimes drafts are circulated which highlight only some of the changes that have been made.111 In the authors’ view, this is very bad practice. Although the side receiving the reviewed document has a responsibility for checking what they receive, because of the modern realities of negotiating agreements the time available to a drafter is limited and he or she will usually rely on what is received. Although often done carelessly rather than deliberately (for example, if several people within an organisation have been involved in making changes to a draft), it can lead to very bad feeling between the negotiating parties if discovered, and extra care should be taken to ensure this does not happen. Sometimes a party will send out a draft in a format where it is not possible for the receiving party to easily mark-up or revise the draft (such as a PDF).112 This can be done deliberately to discourage changes to the draft, or the party circulating the draft simply wishes to control the process of making changes.113 In the authors’ view this is a short-sighted approach, and the authors’ practice when faced with this is to request the original word-processed version of the document, which is rarely if ever refused.114

111 Unless a word-by-word comparison is carried out, such changes are in effect hidden, or the party receiving the marked-up draft has to carry out a word-by-word comparison (if they do not have electronic tools to do so). 112 It is possible to disable the ability to add comments etc to a PDF file with a password. 113 Some PDF software allows comments (as annotations rather than as track changes) to be put on them. This is not ideal as the comments, if accepted, have to be manually entered into the original word-processing document. There are some parties who, still, wish to control the process of making changes so that they only circulate drafts on paper, or provide the draft as a series of poor-quality images. 114 Even if the party circulating the draft refuses to provide a word-processing version of the agreement, it is still possible to turn it into a word-processing document – such as copying the text in the PDF, or if the PDF is password-protected to stop text being copied, printing the PDF so that it becomes another PDF, which removes the password protection. Some PDF software and online tools also allow the export of the PDF straight into a variety of word-processing document formats.

150

Best practice 2.118

The signing process – different methods 2.118 The most secure method of signing an agreement is to have both parties physically present at the same location at the same time, and have them sign the agreement there. In practice this now rarely takes place, even more so if the parties are located in different countries or places in a particular country or where there are multi-party agreements. However, many agreements are signed by parties where they are at different locations. In such cases, the parties may wish the agreement to be executed quickly, and without waiting for copies to be sent by post or courier between them so that each party can sign. Different methods are used to enable the agreement to be executed in a short space of time. Common methods include, either before or once the full terms are agreed, having the parties scan and email the signed signature pages to one another. Under English law, this is generally an acceptable method of executing an agreement. Where the signature pages are exchanged prior to the parties reaching final agreement, the parties will subsequently agree they have explicitly entered into a contract (such as indicating that a version of the agreement is the final version and wish to be bound by it, and then the signed signature pages are attached to the final version of the agreement each party holds), and then they each will attach the signature page they hold to the final version of their copy of the agreement.115 However, if the agreement is to be signed as a deed, sending anything (by whatever method) other than as a complete document must always be avoided.116 Nowadays, parties sometimes choose to enter into contracts by means of electronic signatures, including digital signatures. The term ‘electronic signature’ covers a wide range of types of signature and, for certain purposes, has been held to include a typed name at the bottom of an email. Digital signatures are a specific, more secure example of electronic signatures. In the authors’ experience, for most technology transfer or other commercial 115 If the intention is to send signed signatures pages separately from the full text of the agreements, a procedure should be agreed by the parties. If lawyers are involved, the lawyers should consider the Law Society’s Practice Note, Execution of a document using an electronic signature, 2016, which sets out a procedure that parties should follow where there is an exchange of signatures separately from the other provisions of an agreement. 116 The signing of a document as a deed requires an extra level of formality because of the requirements of the Law of Property (Miscellaneous Provisions) Act 1989, and particularly of relevance are the words in s 1(2) which state ‘An instrument shall not be a deed unless – […] (b) it is validly executed as a deed’. This provision was interpreted in a case as meaning that a document has to be signed as a complete document: R (on the application of Mercury Tax Group) v Revenue and Customs Commissioners [2008]  EWHC  2721 (Admin). For further information on signing documents as a deeds, see Anderson & Warner, Execution of Documents (3rd edn, Law Society Publishing, 2015).

151

2.119  Drafting Technology Transfer Agreements

agreements they encounter, the use of electronic or digital signatures is still not common.117 The authors’ preference is to see a traditional signature (even if scanned and emailed or faxed), which may be more difficult to forge than some types of electronic signature that rely on use of passwords and email accounts; the latter may be at risk of access by third parties who are given the relevant passwords. For the benefit of readers who are not experienced in English contract law, many agreements, including many technology transfer agreements, can be binding under English law without having a formal written agreement signed.118 The above comments assume that the parties intended that their agreement would only become binding once both parties had signed and sent the agreement (or at least the signature page) to the other party. Legal advice should be sought on all proposed methods of signature, particularly if they are unusual, or if an agreement is to become legally binding other than at the time the parties sign the agreement.

Verifying that proper execution of the agreement has occurred 2.119 Each party should consider whether the individuals signing the agreement (on both sides of the transaction) have the necessary authority to do so. For English companies, this may raise questions of agency law and whether the individual has ‘apparent authority’ to sign the agreement. A party may need to seek advice from its lawyers as to what degree of due diligence is appropriate in an individual case to ensure that the individual is authorised. In very large or important transactions involving English companies, a party may require the other party to produce a certified copy of a board of 117 Such as through the use of DocuSign (www.docusign.com). Use of such a method, besides allowing parties to sign their documents, also provides a process to indicate who has signed the agreement, together with reminders and notifications. DocuSign also states it provides a full audit trail and complies with EU and USA laws concerning services that ‘help verify the identity of individuals and businesses online or the authenticity of electronic documents’ (from the ICO website, www.ico.org.uk/for-organisations/guide-to-eidas/what-is-the-eidasregulation/). For member states in the EU the relevant law is Regulation (EU) 910/2014 on electronic identification and trust services for electronic transactions in the internal market, in force from 1 July 2016 (known at the eIDAS Regulation), and the Electronic Identification and Trust Services for Electronic Transactions Regulations 2016 (SI 2016/696) makes necessary amendment to UK law). The DocuSign site (at www.docusign.com/how-it-works/legality/ global) provides a country-by-country guide to whether it is possible to use electronic or digital signatures, the local laws concerning electronic and digital signatures, and the documents it is not possible to sign using such technology. DocuSign is one among a range of similar methods available; the authors only mention it, as one of the authors has had to sign publishing contracts using it. 118 It is possible, as in most contracts made in England, to have a verbal technology transfer agreement (although, of course, this is never recommended or suggested as ever being desirable or practical!).

152

Best practice 2.119

directors’ resolution, authorising the signing of the agreement and giving a named individual authority to sign it on the company’s behalf.119 Although, if the company is formed under or regulated by UK company law, a party who has entered into a contract with the company can find it hard to challenge any agreement signed by a director of the company (or a person authorised by a director).120 There is a separate issue as to whether the organisation has the legal capacity to enter into the type of agreement contemplated. It is extremely rare for an English corporate entity to be able to avoid contractual obligations by arguing that it lacked the necessary legal capacity.121 The position in other countries may vary. This point is often covered by warranties, particularly in agreements based on US templates, although the legal effectiveness of such warranties may be doubted if the agreement in which they are contained is ultra vires. In the UK, some academic and research institutions are incorporated by Royal Charter, where rather than directors there is a governing body (often called a council). But the governing body does not have the same role as directors in the day-to-day management or running of their institution (although they have decision-making powers). The running of the institution will be delegated to officers. How agreements and other documents are signed will be set out in the constitutional document (the Royal Charter). For documents such as deeds, it may be necessary to use the institution’s seal in the presence of council members and/or certain officers. Many of the institutions will have regulations where the signing of contracts and other documents are delegated to certain council members together with officers, or officers alone (or their staff), and also when and how the seal of the institution is used.122 If there is doubt whether an employee at an academic or research institution which is incorporated by Royal Charter has the authority to sign an agreement, it will be necessary to check the regulations of the institution concerned. 119 However, sometimes, almost irrespective of the size of the deal it may not be possible to do so. Obtaining a board resolution from a large multinational pharmaceutical company whose head office is based in another country is unlikely to be achieved other than for the most substantial deal; or within a timescale which is realistic, ie  the pharmaceutical company’s procedure may require that a request for a board resolution needs to go through several stages of management in different countries and it could take several months before it reaches the top. Or to take another example, a commercial organisation has a standard procedure that all deals it enters into above a certain value require the other party to demonstrate that the person signing has authority to do so via a specially passed board resolution; but if the other party is a university, the procedures and timing of meeting of its council simply cannot accommodate such as request. 120 Companies Act 2006, s 40 which provides ‘In favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, is deemed to be free of any limitation under the company’s constitution’. 121 Sometimes known by the Latin expression ‘ultra vires’. 122 For example, a university may have in its regulations that a specified officer has authority to sign contracts up to a value of £X, but above that value it requires the signature of a council member together with the officer.

153

2.120  Drafting Technology Transfer Agreements

Keeping and archiving original versions of the agreement 2.120 Even today, with the widespread use of the internet for the purchase of items using electronic funds, and the absence of a conventional signature, commercial agreements of any value are routinely still signed with a physical signature. Partly this is convention (and perhaps old-fashioned), but also, a physical signature is much easier to test as being related to a particular person than an electronic or a digital signature on a document sent electronically from one computer through the internet (through many different computers/ servers located around the world) and received at another computer or the use of digital (encrypted) signature technology, such as DocuSign.123 The parties should keep the signed original of an agreement in a safe place, and in addition to scan the signed original and keep an electronic copy of it or make a photocopy and store that separately from the original. If the original is lost, the English court is likely to accept the scanned copy or photocopy as evidence of the agreement’s existence. But there may be situations in which the original version is much more useful, for example if forgery is alleged or there is doubt as to what is the final (agreed) version of the agreement. The position in other countries may vary. To facilitate review of existing agreements, all related agreements, including amendments, termination agreements, etc, file notes, emails and letters should be kept in one place. This is now much easier with various software available to organisations, including specialist case management software, where it is possible to store all of the documents together as a project or matter under a reference number, as well as being searchable. If advice is sought on an agreement, it is very important to provide the signed version (or a scanned or photocopied reproduction of the signed version) rather than an unsigned document that ‘we are pretty sure is the final version’ (more often than one would like, it turns out that last-minute changes were made or that the agreement was never fully signed). These housekeeping points are often overlooked.124 123 See note 117 concerning DocuSign. At least in the English courts, the calling of expert evidence to establish whether a particular signature is that of a particular person is tried and tested over many centuries. That of an electronic signature (ie  a typed name on an email accepting a contract) requires much more evidence that the person who bears the typed name actually typed it, and the email containing the signature was actually sent by that person, and so on. For an understanding of the complexities in establishing the provenance, see Mason (ed), Electronic Evidence: Disclosure, Discovery and Admissibility (LexisNexis Butterworths, 2007). 124 In addition, a company which has poor housekeeping procedures for its documentation could have its case undermined in the event of a dispute. The other side in the dispute could argue that poor housekeeping procedures (ie not knowing which document is definitive or not having versions of an agreement which support the company’s arguments) are demonstrative of the weaknesses in the company’s case.

154

CHAPTER 3

Overview of Intellectual Property Introduction156 Ways in which intellectual property laws affect technology-related agreements156 Ways in which intellectual property laws can affect commercial transactions159 Meaning of the term ‘intellectual property’ 161 Statutory definitions of intellectual property 162 ‘Industrial property’ 164 No general protection of intellectual property 164 Sources of UK intellectual property law 165 National and international intellectual property laws: current laws and proposals166 Current laws 166 Patents167 Domestic UK patent applications 167 Applications under the European Patent Convention 167 Applications under the Patent Co-operation Treaty 168 Application for a European Patent with Unitary Effect 168 Supplementary protection certificates and patent term extension 168 Patent term extension generally 169 Patents for biotechnological inventions 169 Utility models 170 Copyright171 Semiconductor topographies 174 Designs174 Proposals for (further) harmonisation of intellectual property laws 175 Europe-wide patent 175 Utility models 176 Other means of protecting technology 176 Other intellectual property rights 176 Protection as trade secrets or under obligations of confidentiality in respect of know-how 177 ‘Data exclusivity’ for medicinal products 177 Orphan drug status 177 Compulsory licensing regime (for pharmaceutical products) 178 Regulatory measures 178 Traditional property laws, and contractual rights 178 Plant breeders’ rights 179 Trade marks 179 Passing off 179

155

3.01  Overview of Intellectual Property Commercial transactions and intellectual property law Which intellectual property? Who owns, or has other rights in, the intellectual property? Which rights are to be transferred? Possible ways to divide up intellectual property rights Exclusive, sole or non-exclusive Other ways to divide up intellectual property rights How may/must these rights be transferred? Methods of transfer of rights Formalities for the transfer of rights What restrictions are there on the transaction? What rights will the parties have under intellectual property laws? Must the transaction be registered? Is registration possible? Advantages of registration The registration process Pitfalls under intellectual property law

179 179 180 182 182 183 183 184 184 185 186 187 188 188 188 189 189

INTRODUCTION Ways in which intellectual property laws affect technology-related agreements 3.01 It is possible to draft a legally enforceable technology transfer agreement with little knowledge of intellectual property law. Ignorance of intellectual property law may damage a party’s commercial and legal interests, but the basic agreement may still ‘work’ as a legally binding contract. A few examples illustrate how this can happen: •

Commercial parties enter into an agreement under which one party grants manufacturing rights to the other. Neither party considers in detail the intellectual property rights that protect the manufacturing technology, the assumption being that the licensor is licensing all relevant rights that it owns. A vague statement is included in the agreement to this effect. Perhaps a patent number is mentioned, or there is a passing reference to copyright in a licensed (software) product, or a paragraph is included which describes relevant know-how. Otherwise, little attention is given to intellectual property issues.

•

Development of computer software. A company wishes to commission a software developer to write a specialist business computer program. The company wishes to automate part of its business and spends a considerable amount of time specifying what the computer program is to do and how it will interact with other programs it owns. But the agreement does not address the issue of who is to own the resulting computer program (because the company assumes that since it is paying 156

Introduction 3.01

for the computer program, it will own it). On that assumption, the company believes others can use it on its behalf (for example because the company wishes to out-source part of its operations). •

A company owns a portfolio of patents. The company’s assets are made the subject of a fixed and floating charge in favour of a bank, as security for providing the company with an overdraft. The bank’s standard form of charge creates a mortgage over the patents,1 as part of its charge over all the company’s assets. The bank fails to register this mortgage at the UK Intellectual Property Office, relying instead on the protection given by registration of the charge with the Registrar of Companies,2 and it does not specifically address the legal issues which arise out of the fact that the assets over which it has a charge include patents.

In these examples the parties may be fortunate: no harm may result from their failure to take account of intellectual property law issues. Transactions involving intellectual property are often legally effective despite the parties’ ignorance of intellectual property laws. This is partly because much of the law governing transactions in intellectual property is the same as for transactions in other kinds of personal property.3 A party who is familiar with the general requirements of commercial law, and the ways in which personal property may be traded,4 may apply its understanding to intellectual property transactions, sometimes without adverse consequences. However, the parties may be unlucky. Through failure to take account of intellectual property laws, they may find that their transaction is not legally effective or, more commonly, they may not be able to take advantage of protection that would have been available if appropriate steps had been taken, such as registration of the transaction with the UK  Intellectual Property Office.5 Or they may simply have failed to address in their agreement issues which arise in the context of intellectual property transactions.6 The laws governing intellectual property transactions are a mixture of general laws governing commercial transactions in personal property – intellectual 1 2 3 4 5

6

Assuming the mortgage is in writing and signed on behalf of the mortgagor: see Patents Act 1977, s 30(6). See Companies Act 2006, ss 860, 861 and 874. In essence, the term ‘personal property’ covers virtually all types of property, eg anything from Mars bars to complex machinery, but not land and buildings, which are ‘real property’. See further Ch 9. Eg the protection given under Patents Act 1977, s 68 if an assignment or exclusive licence is registered within six months of the transaction taking place. If registration is not made within six months, a court cannot award damages for any infringement before the transaction is in fact registered. See para 4.61. Eg in the case of a licence, who should be responsible for taking action against infringers of the licensed intellectual property. In the example of the commissioned software, who will own it because, if this issue is not addressed, the company who commissioned it may not be able to use it as they wish, as the default position is likely to be they will not be the owners, but only have the right to use it.

157

3.01  Overview of Intellectual Property

property being (for most purposes) a type of personal property7 – and specific laws which are mostly to be found in the intellectual property legislation. To take one example: under English law it is possible to transfer title to most kinds of personal property under an oral contract – no writing is required.8 By contrast, most UK intellectual property laws provide that an assignment (transfer) of title (ie ownership) is void unless it is in writing and signed by or on behalf of the assignor.9 In other areas, the laws governing transactions are the same whether one is dealing with intellectual property or other subject matter. For example, the requirement under English law that each party should give consideration (ie something of value) in order for a contract to be legally binding on that party10 applies equally to contracts involving intellectual property as to other types of personal property.11 To be sure of fully protecting rights arising from an intellectual property transaction, it is necessary to be familiar with both the laws governing commercial transactions generally (particularly transactions involving personal property) and the specific laws that apply to the type of intellectual property under consideration, and in some cases override the general law.12 Issues of contract law of particular relevance to intellectual property transactions are considered in Chapter 10. This chapter will provide an overview of intellectual property laws that are relevant to technology transfer. Later chapters will consider those laws in more detail. A third strand affecting intellectual property transactions is competition law (whether EU or UK), whether general competition law or only that part of competition law affecting intellectual property transactions. For example, a party without knowledge of the competition law regime and who fails to take account of it may include provisions which it is only possible to include in certain circumstances, such as including price fixing or limitations on output. Doing so can take an agreement outside of the ‘safe harbour’ of the Technology Transfer Block Exemption.13 In such a situation, the parties   7 See Ch 9. In broad terms, personal property comprises all types of property other than real property (ie land and buildings). This is a different issue as to whether intellectual property is considered to be ‘goods’ or ‘services’ (see para 10.73).   8 This contrasts with the position under US law, where contracts for the sale of goods over a certain value must be in writing.  9 See Patents Act 1977, s  30(6); Copyright, Designs and Patents Act 1988, s  90(3); and Registered Designs Act 1949, s 15B(3). 10 Unless, of course, the contract is executed as a deed. See Anderson and Warner, Drafting and Negotiating Contracts (4th edn, Bloomsbury Professional, 2017). 11 Although, in the absence of consideration under a licence agreement, the licensee might still have what is known as a ‘bare licence’ under the intellectual property. 12 Not to mention the other areas of English law that may be relevant. 13 Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements.

158

Introduction 3.02

could be subject to investigation and fines by the EU or UK competition authorities.14 Some of the laws governing intellectual property transactions are concerned with the fact that title to the property in question is registrable. A party who fails to take this into account when negotiating the terms of an intellectual property transaction may be prejudiced. Consider this example: •

if the purchaser of a UK patent fails to register the transfer of title to the patent (ie the assignment) within six months of the date of the assignment, the right to claim costs and expenses for infringements which take place between the date of the assignment and the date on which it is registered are lost;15 but

•

if the purchaser fails to register the assignment at the UK Intellectual Property Office at all, and the original seller purports to sell the patent a second time to another person who does register her/his assignment, the second purchaser may acquire better rights to the patent than the original purchaser.

Ways in which intellectual property laws can affect commercial transactions 3.02 Some of the main ways in which intellectual property laws affect commercial transactions relating to technology are as follows: •

Ownership of rights. The intellectual property legislation defines who will be the first owner of an item of intellectual property, and deals specifically with the position of employees, employers and persons commissioning works. The rules are different for each type of intellectual property and include traps for the unwary.16 Some legislation also addresses some of the rights of co-owners,17 but in this area co-

14 See Chs 11–14 for consideration of competition law. 15 See Patents Act 1977, s 68. 16 For example, the commissioner of a design consisting of a semiconductor topography will be the first owner of design right in the design, unless there is a written agreement in place between the designer and commissioner which provides otherwise. For other types of design (whether for the design right or registered designs), the person who makes the design will always be the first owner of design right – although legislation does not appear to allow the parties to agree otherwise (see Copyright, Designs and Patents Act 1988, s 215, and Registered Designs Act 1949, s 2), although there is nothing in the legislation to prevent the first owner agreeing to assign her or his rights to the commissioner, and in most cases it is unlikely to be important whether one is the first or second owner. In the case of copyright, the commissioner will not own the copyright in the commissioned work unless this is specifically agreed with the author or his employer (see Copyright, Designs and Patents Act 1988, s 11). Thus, where the author and commissioner of a work fail to address the question of ownership in an appropriate form of agreement, the parties’ rights will differ depending on the type of right in question. 17 In reality, only the Patents Act 1977 has any meaningful provisions regarding co-owners (limited as they are).

159

3.02  Overview of Intellectual Property

owners are well advised to agree their rights and obligations to one another specifically, rather than rely on the statutory provisions. •

Methods of transferring rights. The main methods of transfer of intellectual property rights under English law are: –

assignment: ie transfer of title/ownership, eg by way of contract or as gift;18

–

licence: ie  one person is giving permission to another to use the intellectual property – analogous in some ways to a lease of a building – only limited rights are granted by the owner, such as the right to use the building for a particular period of time or indefinitely, but not to own the (freehold of the) building; and

–

mortgage: ie lending money to the owner of the intellectual property, with the lender having the right to own or sell the intellectual property if the owner fails to make payments.

These methods of transfer are specifically provided for in, or recognised by, intellectual property legislation.19 •

Formalities for transferring rights. Unlike the position for transactions in most other types of personal property, it is in some cases necessary for the transaction (eg an assignment) to be in writing.20 In most cases such transactions can be simply signed by one or more of the parties, although by convention the transaction may also be executed as a deed according to general contract law principles.21

•

Registration of rights. Although generally not compulsory,22 there are often advantages, as described in the intellectual property legislation, in registering the transaction with the appropriate intellectual property

18 In reality, an ‘assignment’ has two meanings: one is the document whose only function is to record the transfer of title (similar to the formal document which formally notifies the Land Registry in England that one person has transferred title in a house to another); and a second meaning whereby there is an agreement which records the details on which the property is sold or gifted. In the second meaning the word is merely used, by convention, instead of ‘sell’, ‘sale’ or ‘gift’ etc. An example of the first meaning will be where there is a sale of all of the assets of a business (including any intellectual property). The agreement will record all the assets which are the subject of the sale, and for the intellectual property there will be annexed to the agreement one or more formal assignments to transfer ownership from the seller to the purchaser. 19 See paras 4.04, 5.05, 7.07 and 7.91 onwards. 20 See paras 4.04, 5.05, 7.07 and 7.91 onwards. 21 See para 9.16 onwards. Assignments of intellectual property are often signed as deeds, usually as a precautionary measure. Ie if there is any doubt that anything of value is being provided by the party who is to become the owner (assignee) of the assigned intellectual property. 22 Strangely, Registered Designs Act 1949, s  19(1) (as amended) requires the assignee of a registered design to register the transaction (‘Where any person becomes entitled by assignment … he shall apply to the registrar in the prescribed manner for the registration of his title as proprietor …’). This is discussed in Chs 4, 5 and 6.

160

Introduction 3.03

authority (eg  UK  Intellectual Property Office)23 where available.24 Registration with Registrar of Companies may also be appropriate in some cases (eg in the case of a mortgage over intellectual property rights owned by a company). •

Rights provided by statute. In some cases the legislation describes certain rights that the transferee of the intellectual property right will have. For example, the Patents Act 1977 describes certain rights of coowners of a patent,25 and provides for specific rights for an exclusive licensee.26 Generally, these rights may be overridden by contract, but they will operate in the absence of contract terms to the contrary. Where the legislation is silent as to the rights and duties of parties to a transfer of intellectual property rights, the contract may specify particular rights and duties of the parties, or it may be possible for a term to be implied, in accordance with normal contract law rules.27

•

Contractual issues arising from the nature of intellectual property. The transfer of intellectual property rights raises a number of issues that may not arise when other types of personal property are transferred. It may be desirable to address these issues in the contract (although not all will be relevant in all situations). For example: –

who may/must register the transaction;

–

who is responsible for maintaining the intellectual property in force (eg by paying renewal fees);

–

who may/must deal with infringers;

–

who may/must deal with challenges to the intellectual property (eg applications for revocation); and

–

(in the case of assignments particularly) who may sue in respect of infringements which occurred prior to the date of the assignment.

Meaning of the term ‘intellectual property’ 3.03 There is no universally accepted meaning for the term ‘intellectual property’. It is generally understood to refer to: •

patents (including supplementary protection certificates);

•

registered designs;

•

the separate protection known as design right;

23 See para 4.50 onwards. 24 It is not possible to register any form of transaction at the UK  Intellectual Property Office where copyright or the design right is involved. 25 See para 4.05 onwards. 26 See para 4.86. 27 See para 10.03 onwards.

161

3.04  Overview of Intellectual Property

•

community registered and unregistered designs;

• copyright; •

database right;

•

trade marks (whether registered or not);

•

community trade marks; and

•

similar property, including applications for registered intellectual property.

In other countries there are other forms of protection for intellectual property, particularly utility models (a lesser form of patent protection). Know-how (or trade secrets or, perhaps more properly, confidential information) is sometimes treated as a type of intellectual property – it is commonly licensed and sold in the same way as the above types of intellectual property. However, it is not, strictly speaking, a form of property; it may be more accurate to describe know-how as information (particularly technical information) which may be protected under the law of confidence or as a trade secret.28 The law of confidence and trade secrets are considered in Chapter 8.

Statutory definitions of intellectual property 3.04 In the UK there is no single statutory definition of intellectual property, and none which apply to intellectual property transaction. There are definitions which are for a specific purpose in a particular Act or statutory instrument,29 as set out in the following paragraphs.

Companies Act 2006 3.05 Intellectual property is defined for specific purposes in the Companies Act 2006 as meaning: ‘(a) any patent, trade mark, registered design, copyright or design right; ‘(b) any licence under or in respect of any such right’.30 28 See eg the analysis of the nature of know-how in para 8.06 and the meaning of a ‘trade secret’ following the implementation of the Trades Secrets Directive into UK law (Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) against their Unlawful Acquisition, Use and Disclosure). 29 Since the previous edition of this book, several significant pieces of legislation have been enacted, none of which include a definition of ‘intellectual property’, including the Intellectual Property Act 2014, Digital Economy Act 2017, and the Intellectual Property (Unjustified Threats) Act 2017. 30 Companies Act 2006, s 861(4). This definition does not appear to include some of the newer intellectual property, eg  community designs or the database right and is being used in the specific context of the type of charges that a company can create (and what the company must do once it has created one).

162

Introduction 3.07

This definition seems to confuse types of intellectual property (patents, trade marks etc) with licences under intellectual property.

Corporation Tax Act 2009 3.06 Peculiar definitions of intellectual property feature in other nonintellectual property legislation. For example, a repealed provision in the Corporation Tax Act 2009 defines intellectual property as: ‘(a) industrial information or techniques likely to assist in–– (i) the manufacture or processing of goods or materials, or (ii) the working of a mine, oil well or other source of mineral deposits or the winning of access to them, or (iii) the carrying out of any agricultural, forestry or fishing operations, (b) a patent, trade mark, registered design, copyright, design right or plant breeder’s right, and (c) a right under the law of a country outside the United Kingdom which corresponds or is similar to any of those falling within paragraph (b)’.31 This definition includes a (very narrow) description of know-how (relating to products or extraction and does not cover the use of know-how where services are provided). The definition also does not cover a licence under the forms of intellectual property stated.

Finance (No 2) Act 2017 3.07 Another definition which seeks to encompass intellectual property outside the UK as well is found in the Finance (No 2) Act 2017: ‘“intellectual property” means— (a) any patent, trade mark, registered design, copyright or design right, plant breeders’ rights or rights under section 7 of the Plant Varieties Act 1997, (b) any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a), (c) any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or

31 Corporation Tax Act 2009, s 1139.

163

3.08  Overview of Intellectual Property

(d) any licence or other right in respect of anything within paragraph (a), (b) or (c);’32 In this provision, know-how is described in wider terms and not restricted to particular industries or sectors, and it purports to cover intellectual property outside of the United Kingdom. This ‘lumping together’ of intellectual property and rights in or under intellectual property is not uncommon in legislation which is not primarily concerned with intellectual property, reflecting, in part, the absence of a generally recognised definition.

‘Industrial property’ 3.08 The term ‘industrial property’ is sometimes used, although this term has largely been superseded by the term ‘intellectual property’. Industrial property is sometimes understood to mean patents and industrial designs and models, trade marks, and designations of origin, but not copyright (or, at least, not copyright for non-industrial items, such as literary works).33

No general protection of intellectual property 3.09 The law does not protect intellectual property as a general category. It is necessary to consider: •

the specific protection given for each type of intellectual property (patent, copyright etc); and then

•

how each type of intellectual property is protected country-by-country.

However, there is an element of harmonisation for some types of intellectual property, where international treaties set out the provisions for protection etc, which have been translated into local laws, such as for patents and copyright. Within the EU there are also EU-wide forms of protection for trade marks (European Union Trade Mark),34 designs (Registered and Unregistered

32 Finance (No 2) Act 2017, s 16, Sch 2, Pt 2, amending the Income Tax (Trading and Other Income) Act 2005. 33 The EU, at the time of the previous editions of this book, divided intellectual property into two categories: industrial property (covering patents, utility models, designs, trade marks etc); and copyright and related rights. There are still some references to industrial property on the EU websites, such as at http://www.europarl.europa.eu/factsheets/en/sheet/36/intellectualindustrial-and-commercial-property. 34 Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trade mark.

164

Introduction 3.10

Community Designs)35 and, if the legislation is brought into effect, patents (European Patent with Unitary Effect).36 The rules governing transactions in each type are not uniform; this may be a consequence of the fact that the legislation governing the different types of property was drafted at different times – sometimes decades apart. The rules will be considered in the following chapters.

Sources of UK intellectual property law 3.10 The main sources of the UK intellectual property laws37 which directly protect technology are statutes and statutory instruments, including: • Patents. Patents Act 1977. • Supplementary protection certificates. Section 128B of, and Schedule 4A to, the Patents Act 1977.38 •

Copyright (including copyright protection for computer programs and databases and measures to prevent removal, or circumvention, of copy-protection devices). Part I  of the Copyright, Designs and Patents Act 1988.

•

Database right. Copyright and Rights in Databases Regulations 1997.39

•

Design Right (including semi-conductor right). Part III of the Copyright, Designs and Patents Act 1988. In relation to design right protection for semi-conductor topographies (where special rules apply), see also particularly the Design Rights (Semiconductor Topographies) Regulations 1989.40

•

Registered designs. Registered Designs Act 1949.

Main sources of EU intellectual property law which directly protect technology: •

Unregistered and registered community design. Council Regulation (EC) 6/2002.41

35 Council Regulation (EC) 6/2002 ([2002] OJ L3/1) on Community designs. 36 Regulation (EU) 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection. 37 Despite the devolving of many powers to Scotland and Wales, intellectual property legislation still covers, with some minor exceptions, the whole of the UK. 38 Implementing Regulation (EC) 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certificate for medicinal products and Regulation (EC) 1610/96 of the European Parliament and of the Council of 23  July 1996 concerning the creation of a supplementary protection certificate for plant protection products. 39 SI 1997/3032. 40 SI 1989/1100. 41 Council Regulation (EC) 6/2002 ([2002] OJ L3/1) on Community designs.

165

3.11  Overview of Intellectual Property

•

European Patent with Unitary Effect. Regulation (EU) 1257/2012 – if brought into force.42

This book does not consider other types of intellectual property, such as trade marks and several types of copyright protection, such as sound recordings, performance or broadcasting rights, nor the non-statutory law of ‘passing off’. These areas of law do not directly protect technology, although they are part of the larger subject of intellectual property. Confidential information is considered in Chapter 8.

NATIONAL AND INTERNATIONAL INTELLECTUAL PROPERTY LAWS: CURRENT LAWS AND PROPOSALS43 Current laws 3.11 Transactions in relation to technology are often international in nature. For example, a party will often grant a licence to exploit its technology in more than one country, but most of the rights that protect the technology are national (or at best pan-European), rather than international, rights.44 Licence agreements are frequently concerned with a portfolio of national intellectual property rights which protect the licensed technology in different countries. An agreement may need to take account of separate legal requirements governing transactions in intellectual property, in each country of the licensed territory. The fact that the agreement is stated to be made under one country’s laws may not override national laws in other countries.45 Particularly in cases where such national laws concern matters of public policy (for example competition or tax law), it may not be possible to override those laws by private agreements. In order to be certain that the agreement complies with the legal requirements of all parts of the territory covered by the transaction, it may be necessary to 42 Regulation (EU) 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection. 43 For developments in intellectual property laws in the European Union, consult the following websites of the EU: http://europa.eu/internal_market/indprop/index_en.htm and http://europa. eu/internal_market/copyright/index_en.htm. Also, a useful summary table of the current status of all EU laws and proposals for new laws is provided on a monthly basis in European Intellectual Property Review. 44 Although there may be an international treaty or law underlying the national laws. The point being is that although many countries have signed up to a treaty, the implementation of the treaty will be on a country by country basis. 45 See eg Chiron v Organon Teknika Ltd (No 2) [1993] FSR 567 where the court held that the provisions of then in force Patents Act 1977, s 44 applied to a patent licence covering both UK and non-UK patents even though the agreement was expressed to be made under US laws. (s 44 has since been repealed (see para 4.20).

166

National and international intellectual property laws 3.13

take legal advice on the transaction in more than one jurisdiction, particularly if it is intended to register the transaction, for example with national patent offices.46 Where the cost of doing so is not thought to be justified, the agreement is sometimes drafted so that it is merely an agreement to execute a transfer or to license rights, rather than an immediate transfer or licence of those rights. The parties may then agree that they will execute further documents for each part of the contract territory, which may need modification to comply with any local legal requirements.47 The main areas in which there is currently a degree of international harmonisation of intellectual property systems in respect of technology are considered below.

Patents Domestic UK patent applications 3.12 The application for and granting of patents in the UK48 are subject to the same basic regime as patents applied for under the European Patent Convention.

Applications under the European Patent Convention 3.13 Where a person wishes to make applications for a patent for the same invention in several countries, as an alternative to making applications to each individual national patent office (for a ‘European Patent’), it is possible to make a single application to the European Patent Office (EPO) in Munich.49 A successful application leads to a ‘bundle’ of national patents in identical form. The consideration of an application and procedure up to grant is dealt with by the EPO not by each country’s patent office. Most European countries are members of the European Patent Convention (EPC), but membership is distinct from membership of the European Union; 46 Which often will involve the use of local agents, if the parties do not have a sufficiently large presence in a particular jurisdiction to be able to handle such activities themselves. In practice, a party will usually have a patent/trade mark agent who will handle their registrable intellectual property, and the patent/trade mark agent will instruct a local agent to deal with such matters as formal registrations, etc. In many jurisdictions it is a requirement that specific forms are used when making a registration (ie the parties cannot use something of their own devising). 47 Although such steps will not guarantee that the agreement is legally enforceable in all parts of the licensed territory, they may help to ensure that the form of licence executed is appropriate for registration in the relevant jurisdiction. 48 Those that are not applied for under the European Patent Convention or the Patent Cooperation Treaty. 49 See http://www.epo.org/patents/law/legal-texts/epc.html for the latest version of the EPC (currently in its 16th edition as at June 2016) for details on making applications and the procedure used by the EPO, etc.

167

3.14  Overview of Intellectual Property

there are some notable differences in the respective membership of these organisations.50 If the UK is designated by the applicant as one of the countries in which the applicant wishes the EPC application to take effect, the UK patent resulting from the application is known as a European patent (UK), and is then governed by the Patents Act 1977.51

Applications under the Patent Co-operation Treaty 3.14 It is also possible to make an application under the Patent Co-operation Treaty (PCT)52 to which most countries of the world are party. The application is processed through its early stages by the World Intellectual Property Organisation (WIPO) in Geneva,53 and then converts to national applications which are processed to grant or rejection in national patent offices.54 Membership of the PCT currently extends to 152 countries and includes the countries of the EU, the United States of America, many Latin American countries, China and Japan.55

Application for a European Patent with Unitary Effect 3.15 On the assumption that the legal difficulties concerning this form of protection are resolved during the life of this edition of the book (whether or not the UK continues to participate in it), applications will be made to the EPO for a European Patent where an applicant can request, instead of a bundle of national patents in identical form, a ‘European Patent with Unitary Effect’ (that is a patent which applies across member states). For further details, see Chapter 4.

Supplementary protection certificates and patent term extension 3.16 Supplementary protection certificates (SPC)56 are, for practical purposes, but not in law, a type of patent term extension. As they were 50 51 52 53 54 55 56

There are currently 38 members of the EPC, but 9 are not members of the European Union (for example, Norway, Switzerland and Turkey). See Patents Act 1977, ss 77–81 for how a European patent (UK) takes effect under UK law. See http://www.wipo.int/pct/en/texts/articles/atoc.htm for the text of the PCT. It is also possible for an application to be made to an applicant’s national patent office (or in some cases the EPO). The circumstances in which an application can be made to a particular patent office (national or international) can be found at http://www.wipo.int/pct/en/treaty/about.htm. Patents Act 1977, ss  89, 89A and 89B concern the application of the Patents Act to PCT applications. The current membership list can be found at http://www.wipo.int/treaties/en/ShowResults. jsp?lang=en&treaty_id=6. Reference was made above to Norway, Turkey and Switzerland not being members of the EPC – they are all members of the PCT. See para 4.82 onwards.

168

National and international intellectual property laws 3.18

introduced under EU  Regulations the substantive law creating them is the same throughout the EU.57 These are available for pharmaceutical products and plant protection products which have also received government approval for marketing in the country in which the SPC is sought. The period of time a SPC is granted for is limited to five years.

Patent term extension generally 3.17 Patent term extension laws exist in other countries, including the USA, Australia, New Zealand and Japan. However, there is currently no harmonisation as to how and when a patent term may be extended (for example an international treaty or law such as for the application of a patent under PCT). The basic idea behind patent term extension law is to allow an additional period of protection for certain inventions (particularly pharmaceuticals) which in practice do not enjoy the full period of patent monopoly. For example, in the case of a pharmaceutical drug it can take eight or more years to obtain regulatory approval to market the drug (in addition to the lengthy period which is necessary for the research, development and testing of it, which can often last ten to twenty years). As a result, the effective period of monopoly of a patent covering such a drug can often be reduced to under ten years. Patent term extensions seek to bring the effective monopoly period up towards the full twenty-year patent period.58

Patents for biotechnological inventions 3.18 Legal protection for biotechnological inventions has been in place for nearly 20 years through the implementation of the EU Directive on the legal protection of biotechnological inventions.59 The principal aim of the Directive is to provide an indication of what, in relation to biotechnological inventions, is considered to be patentable. As such, the scheme of patent protection within the UK is not altered, but merely refined to take account of the increasing importance of biotechnology and genetic engineering in a wide range of industries within the EU, and the need to establish clear indications for protection.

57 Regulation (EC) 469/2009 of the European Parliament and of the Council of 6  May 2009 concerning the supplementary protection certificate for medicinal products; Regulation (EC) 1610/96 of the European Parliament and of the Council of 23  July 1996 concerning the creation of a supplementary protection certificate for plant protection products. 58 The life of a European patent being generally 20 years from the application date; the life of a US patent is also now 20 years from the date of grant. 59 Directive 98/44/EC ([1998]) OJ L213/13) on the legal protection of biotechnological inventions; implemented into law in the UK by the Patents Regulations 2000 (SI 2000/2037). This is considered in para 4.91.

169

3.19  Overview of Intellectual Property

Utility models60 3.19 In addition to the protection provided by patents for inventions there is also a lesser form of protection available, the utility model. The protection available to patents (and most other major forms of intellectual property) is now based to a large extent on detailed international treaties. The same is not yet true for that of utility models. The procedures for the application for protection of an invention by a utility model, and the criteria by which such an invention can be protected, vary from country to country.61 However, some generalisations can be made: •

a utility model provides protection for an invention for a shorter period than a patent (often for a period of between six and ten years, rather than the 20-year period for a patent);

•

an application for a utility model is not examined as exhaustively by a patent office as for a patent (the substance of the application is often not examined prior to registration of the utility model);

•

the length of time it takes to register a utility model is often significantly quicker than for a patent (taking an average of six months) and the costs involved are often substantially less;

•

the criteria for inventiveness of a utility model are less than for a patent (while there is usually a requirement for ‘novelty’ in an invention, the requirement for the invention to contain an inventive step or be nonobvious is sometimes not required at all or is of a lower standard than for an application for a patent);

•

a utility model is not always available for every type of invention or technology; it is often only available for products but not processes; and

•

utility models appear to be confined to situations where there are improvements made to an existing product, or where an invention is minor or there is an adaptation.

The utility model is available in many EU countries (including France, Germany, Italy and Spain but, significantly, not in the UK or Sweden for example). It is also not available in the US. However it is available in other countries which are now more likely to be encountered where mainstream commercial transactions involving technology transfer are involved, such as several Latin American countries, Russia, China, Japan and South Korea (but apparently not India).

60 A useful outline of utility models is on the WIPO website: https://www.wipo.int/patents/en/ topics/utility_models.html. 61 This lack of harmonising also extends to the name chosen. Other names sometimes used are: ‘innovation patent’ (Australia), ‘short term patent’ (Ireland, South Korea, Netherlands), ‘utility model patent’ (China), or ‘petty patent’ (Indonesia).

170

National and international intellectual property laws 3.20

In practice, the use of a utility model is therefore not usually encountered in the UK where intellectual property transactions are involved, particularly where the licensed territories are the UK or the US and only a significant intellectual property is being licensed, such as a patent. However, a utility model could be useful in a number of situations. For example, a company has developed a product which is protected by one or more patents. The company has licensed the patent(s) to a manufacturer to make and sell the product throughout the EU. The company then makes a minor improvement to the product, which its patent agent indicates is not significant enough to be patentable. If not patentable then the company would normally license this improvement to the product as know-how to the manufacturer (whether under an existing obligation under the patent agreement or under a further agreement entered into by the parties). The danger with know-how is that it is only enforceable where it is supplied under obligations of confidentiality and those obligations have not been breached.62 However, the company could apply in certain European countries for protection for the improvement as a utility model and therefore not have to ensure the improvement is disclosed or used only under obligations of confidentiality. A utility model would be a more secure form of protection. On the downside, just as with patents, the company would have to go through the process of making one or more applications, country by country, for protection together with the costs involved in making such applications.63

Copyright 3.20 International treaties, most notably the Berne Convention,64have led to a degree of consistency between national copyright laws as well as reciprocal protection for copyright created in other countries, although there are still wide divergences in some respects. Most of the major economies, including the countries of the EU (including of course the UK), the US, China, Japan, Korea and India are members of the Berne Convention. Another treaty, the Universal Copyright Convention (UCC),65 also provides protection for copyright and was instigated by the United Nations Educational, Scientific and Cultural Organisation (UNESCO) as an alternative to the

62 Once the know-how is revealed, in breach of an obligation of confidentiality its value is lost, even where the licensor, in this example, takes prompt legal action. See Ch  8 for further consideration of this topic. 63 Another negative factor with utility models is that the licensor would not be making one application to the EPO for example, specifying several countries, in the same way as for patent applications. 64 Berne Convention for the Protection of Literary and Artistic Works (https://wipolex.wipo.int/ en/treaties/textdetails/12214). 65 See http://portal.unesco.org/en/ev.php-URL_ID=15241&URL_DO=DO_TOPIC&URL_ SECTION=201.html.

171

3.20  Overview of Intellectual Property

Berne Convention. It was created for countries which did not agree with certain provisions of the Berne Convention but wished to have a form of international protection available for copyright material. These countries included developing countries and the now former Soviet Union and took the view that the Berne Convention was designed to favour developed Western countries that exported their copyright material. The UCC is of less significance now, as many of the countries that are signatories of it are now also contracting states to the Berne Convention. The requirements for copyright notices, for example ‘all rights reserved’ under UCC rules, are generally not necessary to obtain protection in Berne Convention countries.66 EU legislation is making increasing attempts to harmonise intellectual property law within the EU member states. In the copyright field, of most relevance for this book are the following: •

Computer programs: the Computer Program Directive providing that computer programs are protected as literary works.67

• Databases: the Database Directive providing that databases are protected as copyright works and also under a new right, the database right (the latter right, which provides a lesser but distinct form of protection than copyright, and which recognises the ‘substantial investment in obtaining, verifying or presenting the contents of the database’).68 •

Standardising length of protection offered by copyright: the Term Directive harmonises the length of protection that copyrights provide, a period of the life of the author plus 70 years.69

•

Removal of copy protection devices etc: the Information Society Directive70 has: –

restricted the ‘fair dealing’ provisions for research, so that they will only apply when research is done for a non-commercial purpose;

–

introduced measures to prevent the circumvention of anti-copying devices;

66 As to copyright statements for computer programs, see para 5.44 onwards. 67 Council Directive 91/250/EEC  [1991]  OJ L122/42 on the legal protection of computer programs. It was implemented in the UK by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 68 Directive 96/9/EC on the legal protection of databases. It was implemented by the Copyright and Rights in Databases Regulations 1997(SI 1997/3032). 69 Council Directive 93/98/EEC of 29  October 1993 harmonizing the term of protection of copyright and certain related rights. 70 Directive 2001/29//EC ([2001]  OJ L167/10) on the harmonization of certain aspects of copyright and related rights in the information society. It was implemented by the Copyright and Related Rights Regulations 2003 (SI 2003/2498). The Directive has made far-reaching changes to the Copyright, Designs and Patents Act 1988, the most important of which are set out in Ch 5.

172

National and international intellectual property laws 3.20

– introduced measures to prevent the removal of digital rights information; and –

introduced a number of optional exceptions to the exclusive right of an author to authorise the reproduction of the author’s work (as implemented into UK law): ○

it is a permitted act to quote from a copyright work for the purposes of criticism, review or otherwise;71

○

it is fair dealing with a work if it is for the purpose of caricature, parody or pastiche;72

○

it is fair dealing of a work to use it for the sole purpose of giving and receiving instruction (as long as for a non-commercial purpose);73

○ there is an expanded right of libraries to make and issue copies;74 ○

there is the right of certain public bodies (such as libraries etc) to make available and reproduce orphan works;75 and

○ there is the introduction of a licensing scheme for orphan works.76 •

Text and data mining: the Digital Single Market Directive77 provides that: –

research organisations (and cultural heritage institutions) can carry out text and data mining on copyright works for the purpose of scientific research (provided such organisations and research institutions have lawful access to the copyright works) – both for commercial and non-commercial purposes;78

71 Section 30(1Z) of the 1988 Act, inserted by the Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 (SI 2014/2356) 72 Section 30A of the 1988 Act, inserted by the Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 (SI 2014/2356). 73 Amending Section 31 of the 1988 Act by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). 74 Amending and inserting provisions of the 1988 Act by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). 75 Inserting a number of provisions into the 1988 Act (ss 40A–43) by the Copyright and Rights in Performances (Certain Permitted Uses of Orphan Works) Regulations 2014 (SI 2014/2861). 76 Inserting a number of provisions into the 1988 Act (s 44B, Sch ZA1) by the Copyright and Rights in Performances (Licensing of Orphan Works) Regulations 2014 (SI 2014/2863). 77 Directive (EU) 2019/790 of the European Parliament and of the Council of 17  April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/ EC and 2001/29/EC. Parts of this Directive, at the time it was a proposal, have proved highly controversial and were subject to substantial and ongoing debate and change. What was changed in the final stages before the Directive was passed are summarised at this website: http://www. eblida.org/news/final-stretch-for-the-digital-single-market.html. For further details, see Ch 5. Member states are required to transpose the Directive into national law by 7 June 2021. 78 Directive 2019/790, art  3. There is a more limited exception for organisations other than research organisations and cultural heritage institutions: Directive 2019/790, art 4.

173

3.21  Overview of Intellectual Property

–

educational institutions can make digital and cross-border use of works and other subject matter protected by copyright for the sole purpose of illustration for teaching for non-commercial purposes;79 and

–

cultural heritage institutions can make copies of works and other subject-matters permanently in their collections. The copies can be made in any format or medium.80

There have been a considerable number of other EU-wide copyright-related measures, including European Council Directives on rental rights,81 on satellite broadcasting and cable transmission, on electronic commerce,82 on broadcasts, (electronic) communications to the public and rights in performances,83 on resale rights of authors of works of art,84 on the enforcement of intellectual property rights,85 on the use of orphan works,86 and permitting the use of copyright works by the ‘print-disabled’.87 These laws sometimes affect technology-related transactions, but are not relevant in most cases.

Semiconductor topographies 3.21 EU member states were required to harmonise the protection given to semiconductor topographies by an EU Directive.88

Designs 3.22 Many countries protect industrial designs, although there is not the same degree of international harmonisation of design laws as there is in the case of patents. In most countries little searching is carried out and registration of the design is virtually automatic. However, in the US applications for ‘design 79 80 81 82 83 84 85 86 87

88

Directive 2019/790, art 5. Directive 2019/790, art 6. Directive 92/100/EEC. Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market. Directive 2001/29//EC ([2001]  OJ L167/10) on the harmonization of certain aspects of copyright and related rights in the information society. Directive 2001/84/EC ([2001] OJ L272/32) on the resale right for the benefit of the author of an original work of art. Directive 2004/48/EC ([2004] OJ L195/16) on the enforcement of intellectual property rights. Directive 2012/28/EU of the European Parliament and of the Council of 25 October 2012 on certain permitted uses of orphan works. Directive (EU) 2017/1564 of the European Parliament and of the Council of 13 September 2017 on certain permitted uses of certain works and other subject matter protected by copyright and related rights for the benefit of persons who are blind, visually impaired or otherwise print-disabled. Directive 87/54/EEC; implemented in the UK by what is now the Design Right (Semiconductor Topographies) Regulations 1989 (SI  1989/1100) as a modified form of design right: see para 7.38 onwards.

174

National and international intellectual property laws 3.23

patents’ are processed in a similar way to patents, making such applications more costly than in many other countries. A measure of harmonisation has now been achieved in the EU through: •

a Directive89 which has harmonised the law in relation to what can be a registered design;90 and

•

a Regulation91 which has created a Community-wide registered and unregistered design right, which in terms of what is protected as a design is almost identical to the Directive. Registered Community designs receive greater protection than unregistered Community designs.

There is also a separate UK-only (unregistered) design right.

Proposals for (further) harmonisation of intellectual property laws Europe-wide patent92 3.23 As noted above, there is now EU legislation which permits an applicant to make an application for an EU-wide patent (‘European Patent with Unitary Effect’) to the EPO.93 Together with the legislation for the EUwide patent are: •

a Regulation dealing with the language regime for the EU-wide patent (essentially a regime to reduce the number of languages into which the resulting patent documentation is translated);94 and

•

an agreement between member states to set up a court (Unified Patent Court) to have exclusive jurisdiction concerning proceedings for European Patents and European Patents with Unitary Effect (and any supplementary protection certificates concerning these two forms of patent protection).95

89 Directive 98/71/EC on the legal protection of designs. 90 Implemented by Registered Designs Regulations 2001 (SI 2001/3950), extensively modifying the Registered Designs Act 1949. The Act has subsequently been further amended following the adoption of the Directive on the enforcement of intellectual property rights (2004/48/EC), implemented by the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974), the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) and the Intellectual Property Act 2014. 91 Council Regulation (EC) 6/2002 on Community designs. 92 The previous edition of this book outlined, in summary, the stage that the proposals had reached just before the legislation was passed. 93 Regulation (EU) 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection. See also https://www.epo.org/law-practice/unitary.html. 94 Council Regulation (EU) 1260/2012 of 17  December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrangements. 95 Agreement on a Unified Patent Court.

175

3.24  Overview of Intellectual Property

At the date when the material for this edition of this book was finalised, the agreement had not been ratified by a sufficient number of countries to bring it into force (and there are also legal challenges).96 However, a considerable amount of preparatory work has been undertaken,97 including prospective amendments to the Patents Act 1977.98 Whether, once the legal challenges are overcome and a sufficient number of countries have ratified it, the agreement will apply in the UK after it has left the EU remains unknown when this edition of the book was finalised.

Utility models 3.24 Utility models are considered above. The EU has put forward proposals either to harmonise national protection procedures regarding utility models or to create a Community protection right. The European Commission published a proposal for a Directive on approximating the legal arrangements for the protection of inventions by utility model as long ago as 1997, which was revised in 1999,99 with a further consultation in 2001,100 and finally withdrawn in 2006.101 The principal reason appears to be that the EU was not able to obtain agreement and the European Commission wished to give priority to the European Patent with Unitary Effect. The previous edition of this book outlines the proposals up to the time when they were withdrawn.

Other means of protecting technology Other intellectual property rights 3.25 Some countries give legal protection to varieties of intellectual property which have no direct equivalent under UK law.102 For example under Italian law, protection is given to ‘industrial models’, a type of design protection.103 Local advice should be obtained on the ways in which the technology is, or can be, protected under the relevant laws of other countries.  96 See para  4.02, note 12 for a summary of the state of play, as well as https://www.epo.org/ law-practice/unitary/unitary-patent/start.html and https://www.consilium.europa.eu/en/ documents-publications/treaties-agreements/agreement/?id=2013001.  97 Such as setting up the infrastructure, locations and rules of procedure for the Unified Patent Court. See https://www.unified-patent-court.org.  98 By the Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016 (SI 2016/388).  99 12 December 1997 (COM(97)691). 100 Consultations on the impact of the Community utility model to update the Green Paper on the Protection of Utility Models in the Single Market (SEC(2001)1307). 101 See https://ec.europa.eu/growth/industry/intellectual-property/patents/utility-models_en. 102 The utility model which is described above is a common example of one. 103 See Italian Industrial Models Act, Royal Decree No 1411 of 25/8/40, Royal Decree No 1354 of 31/10/41, and Arts 2592–2594 of the Civil Code.

176

National and international intellectual property laws 3.28

Protection as trade secrets or under obligations of confidentiality in respect of know-how 3.26 Technology is often protected by keeping it secret. If this route is chosen (rather than patenting, which involves public disclosure of the technology), it may be necessary to disclose it to employees and others under obligations of confidentiality. Such disclosures may be protected under the laws relating to trade secrets104 and confidence.105 This is not a ‘safe’ method, as this form of protection will only last as long as everyone who is under an obligation of confidence continues to keep to the obligation.

‘Data exclusivity’ for medicinal products 3.27 Under EU laws relating to applications to regulatory bodies for approval to market medicinal products (market authorisation), it is generally necessary to submit the results of pre-clinical and clinical trials on the product with the market authorisation application. If a person (‘new producer’) wishes to make and sell a medicinal product which has already been put on the market by another producer then the new person, in certain circumstances, does not need to provide new pre-clinical and clinical trial results; he or she can use the data which has already been provided by the producer who originally put the medicinal product on the market. However the new producer cannot do so for a period of ten years from when the original medicinal product was first approved for marketing in the EU.106 This ten-year period is known as the period of ‘data exclusivity’ and may provide valuable protection to the producer that originally submitted the data, particularly if patent protection is weak or absent. Although a new producer may not be able to use existing data, there is nothing to stop it generating its own pre-clinical and clinical data if it wishes to obtain market authorisation within the ten-year period mentioned above.

Orphan drug status 3.28 The US Orphan Drug Act of 1983 established a means of obtaining, from the United States’ Food and Drug Administration (FDA), the exclusive 104 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against their Unlawful Acquisition, Use and Disclosure. 105 See Ch 8. 106 See Directive 2004/27/EC amending Directive 2001/83/EC on the Community code relating to medicinal products for human use. In some circumstances the period can be 11 years. This Directive harmonised the law throughout the EU (where previously until 2004 the period in some countries was six years, while in others it was ten years).

177

3.29  Overview of Intellectual Property

right to market a medicinal product for a period of seven years from the date of the FDA’s approval to market it. ‘Orphan drug status’ is available for products which treat rare conditions or diseases, defined as affecting less than 200,000 people in the US (with some exceptions). The intention behind the legislation is to give drug manufacturers an incentive to develop products which would otherwise be uneconomic to produce, because the market for the product is too small. Similar orphan drug protection has become available in the EU (where the number of persons affected is not more than 5 in 10,000 in the Community).107

Compulsory licensing regime (for pharmaceutical products) 3.29 In particular circumstances a person can acquire the right to manufacture and sell pharmaceutical products protected by the patent of another. This can occur under the compulsory licensing regime for the manufacture and licensing of pharmaceutical products in countries with public health problems.108 There are extensive provisions as to when this is permitted and what level of royalty needs to be paid for such a licence.109

Regulatory measures 3.30 In some areas of technology, regulatory approval can have the effect of giving the holder of the approval a form of monopoly, as in the case of the data exclusivity provisions referred to in para  3.27 above. The telecommunications field is also extensively regulated.

Traditional property laws, and contractual rights 3.31 Some protection is given to the products of technology, for example genetically modified organisms, under traditional property laws.110 Contractual rights can also protect technology.111

107 Regulation (EC) 141/2000 on orphan medicinal products. 108 Regulation (EC) 816/2006 on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. The Regulation is directly applicable. The Compulsory Licensing Regulation also covers supplementary protection certificates (Regulation (EC) 816/2006, Art 1). It was implemented into UK law by Patents (Compulsory Licensing and Supplementary Protection Certificates) Regulations 2007 (SI 2007/3293), reg 2, which inserted s 128A into the Patents Act 1977. 109 See Ch 5. 110 See Ch 9 for whether such material can amount to and be owned as material; and Ch 11, which describes some of the regulatory regimes affecting such material. 111 See Ch 10.

178

Commercial transactions and intellectual property law 3.35

Plant breeders’ rights 3.32 Protection is given to plant varieties under, for example, the Plant Varieties and Seeds Act 1964 and the Plant Varieties Act 1997, and similar legislation in other countries. There is also EU legislation on Community plant variety rights, which allows for protection throughout the EU, following an application to the Community Plant Variety Office.112

Trade marks 3.33 Trade marks do not protect technology as such. Instead, they provide a form of protection for the symbols and names under which the products of technology are marketed and sold (and in some cases the services that the industry is reliant on). A  trade mark can be a very effective means of protection, and in some cases may be more valuable than patents or other rights protecting the technology as such.113

Passing off 3.34 The laws of passing off (in the UK) and unfair competition (in some European countries in particular) can prevent an organisation from getting a ‘free ride’ on the reputation of another organisation. As with the law of trade marks, such laws do not protect technology as such, but may protect the products of technology when they are marketed and sold.

COMMERCIAL TRANSACTIONS AND INTELLECTUAL PROPERTY LAW Which intellectual property? 3.35 The following paragraphs consider some practical aspects of intellectual property law which are relevant to commercial transactions concerned with or relating to technology transfer. An important first step in any intellectual property transaction is to identify the intellectual property and other rights which are to be subject to the agreement. Often the technology is protected or protectable by a variety of

112 Regulation (EC) 2100/94 on Community plant variety rights. See https://cpvo.europa.eu/en. 113 Eg it is understood that when the patents for the sugar substitute aspartame expired, the patent owners were able to continue to maintain their favourable position in the market by continuing to license manufacture of aspartame under their trade mark ‘Nutrasweet’, which by this time was well known.

179

3.36  Overview of Intellectual Property

different rights in different countries, and which may be owned by different persons. For example: •

a pharmaceutical preparation may be protected by patents and patent applications in some countries, by utility models in those countries which have that form of protection, by orphan drug laws in other countries, by data exclusivity provisions in Europe and Japan, and some aspects may also be protected by trade secrets laws;

•

a computer software product for the retail market (for example a computer game) may incorporate a number of different copyright works: a computer program, one or more musical works, artistic designs (such as icons which are displayed on the screen), and a separate literary work in the manual or any written description; it may also incorporate one or more design works, such as protection of any icons (in addition to qualifying as artistic works) being suitable for protection under the Registered Designs Act 1949, or as a registered and/or unregistered Community design; and it may also incorporate one or more trade secrets, depending on the way in which the program is provided. Furthermore, if the computer program consists of a large number of interconnected programs, then the database right and copyright may also be relevant for that. Lastly, its name (or phrases relating to it or any symbols under which it is marketed and sold) may be protected by registered or unregistered trade marks.

Each of these is a separate item of property, and the parties to the transaction should be clear as to which properties are covered by the agreement.

Who owns, or has other rights in, the intellectual property? 3.36 Having identified the relevant intellectual property and other property, it is necessary to establish who the owners of rights in these properties are. Some of the questions needing consideration are listed below. In some cases, the transferee (assignee or licensee) under the agreement may be content to rely on warranties from the transferor (assignor or licensor) on some of these issues. In others, the transferee will wish to check the position itself and may require further steps to be taken, such as requiring the transferor’s employees to execute confirmatory assignments in favour of their employer or by making checks with relevant regulatory or government organisations (eg patent offices), to ensure that the transferor owns the relevant rights. The main issues are the following: •

Who created or developed the rights? Was it the party who is transferring rights under the present agreement (transferor), or some other person? 180

National and international intellectual property laws 3.36

•

If the transferor created the rights. Did the transferor do so under any contract of employment or other contract or arrangement which might cause the rights to be owned by some other person (such as a subcontractor or consultant)?

•

If another person developed the rights. Where another has created the rights, what rights does the transferor have?

•

As employer. If the transferor is the employer of the developer, is he or she clearly the owner under relevant intellectual property laws for the right in question? For example, in the case of an invention made by an employee where Patents Act 1977, s 39 is applicable, does the invention belong to the employer or employee? If an agreement is in existence which would override the position under the relevant intellectual property legislation (for example an assignment from the developer to the transferor under the present agreement), is that agreement legally effective?114

•

As commissioner. If the transferor commissioned work which led to the creation of the rights, does he or she own those rights under relevant intellectual property laws or under any agreement with the creator? The position across most of the main types of intellectual property is that the person who invents, makes or creates the intellectual property is the first owner (unless under a contract of employment). However, if someone other (commissioner) than the person who invents, makes or creates the intellectual property is to be the owner, there should be a written agreement which sets out that the commissioner is the owner. This point is likely to be particularly important where: –

a right, when registered, gives its owner a monopoly position concerning it; or

–

particular forms of copyright, particularly literary copyright (which includes computer programs), make it entirely possible to create, for example, a computer program which operates and does almost exactly the same as another computer program without infringing the intellectual property rights of the owner of the other computer program (as long as no code has been copied and/or there has not been any access to the code of the other computer program).115

Thus, the ownership position must be established for each type of intellectual property right. •

As assignee, licensee etc. If the transferor has acquired the rights under an agreement, does that agreement enable the transferor to enter into the present transaction? For example, if the transferor is an exclusive licensee and proposes to grant a sub-licence in the present transaction, does the agreement with the rights owner permit sub-licensing?

114 Eg in relation to patents, in the light of Patents Act 1977, s 42. 115 See para 5.56 onwards.

181

3.37  Overview of Intellectual Property

•

If the transferor is the owner of the relevant rights, has he or she entered into any agreement which might prevent him or her from entering into the present agreement? For example, has he or she already licensed the rights to another, or granted an option over the rights to another?

•

Are there any third-party rights which may affect the transferee’s ability to exploit the transferred rights?

•

–

For example, does the transferee need to obtain a licence to third party intellectual property to exploit the transferred rights?

–

Are the transferred rights the original work of the transferor or did he or she copy or draw inspiration from someone else’s work, such that a third party may own rights in the transferred technology?

–

Irrespective of whether plagiarising has occurred, does any third party own rights which may be infringed when the transferred rights are exercised (for example, a dominating patent)?

–

Have any allegations to this effect been made?

How much protection do the transferred rights give to the transferee? If they are only applications for rights, how likely is it that they will be granted? Are the rights valid and enforceable, or are they likely to be revoked or held invalid by a court? Is there any pending or threatened litigation which might have that result? Are the transferred rights proving to be a deterrent to competitors, or are infringing articles already available in the marketplace?

Which rights are to be transferred? Possible ways to divide up intellectual property rights 3.37 It is possible to divide up intellectual rights in a number of different ways. The owner of an item of intellectual property (for example, the owner of a patent): •

has the right to prevent others from doing infringing acts, such as making, disposing of, using and importing the product;116

•

may wish to license another to do some, but not all, of the things mentioned in the previous bullet point;

•

may wish to go further and may wish to grant an exclusive, sole or nonexclusive licence and whether to permit sub-licensing; and

•

in the case of a licence covering more than one country, may wish to reserve different rights in different territories, for example restricting

116 Patents Act 1977, s 60(1).

182

National and international intellectual property laws 3.39

the licensee’s right of manufacture to one country, but permitting sale in several countries. 117

Exclusive, sole or non-exclusive 3.38 The rights to be granted may be exclusive, sole or non-exclusive. The terms ‘exclusive’ and ‘sole’ are sometimes confused. Although there is no general statutory definition of them, the following are the normally understood meanings: •

an exclusive licence is one where only the licensee is entitled to exploit the subject matter of the licence, ie even the licensor is excluded from doing so;

•

while by contrast, under a sole licence, the licensor merely undertakes not to appoint any other licensee in respect of such subject matter; the licensor may exploit the licensed technology directly himself or herself;118

•

however, a non-exclusive licence allows the licensor both to license others and to exercise the licensed rights himself or herself, within (and, for that matter, outside) the scope of the licensee’s licence.

Other ways to divide up intellectual property rights 3.39 The transferor of the rights may also wish to reserve rights to itself in particular technical fields or applications of the technology, for example granting rights to a chemical compound for human but not animal healthcare applications. There may be improvements or new uses of the original technology that were not envisaged when the agreement was made, which may be included in the package of transferred rights or not, as appropriate. The parties may also wish to divide up particular product markets or customers between them. The transferor may wish also to allow the transferee to sublicense some or all of the licensed rights to others, for example, permitting a sub-licence to make products using the licensed rights but not sell them. 117 Which follows the statutory wording found in Patents Act 1977, s 60(1). The patent owner may, however, be prevented from doing this under competition laws: see Ch 12. 118 There are definitions of ‘exclusive licence’ in the intellectual property legislation which are consistent with the above explanation (Patents Act 1977, s 130; Copyright, Designs and Patents Act 1988, s  92), but those definitions have no general application; they only have statutory force in relation to their use in the relevant parts of the legislation. The definition for Patents Act 1977, s 130 reads: ‘“exclusive licence” means a licence from the proprietor of or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), and right in respect of the invention to which the patent or application relates, and “exclusive licensee” and “non-exclusive licence” shall be construed accordingly;’.

183

3.40  Overview of Intellectual Property

In all cases (but particularly in relation to product or customer sharing), their ability to do so may be constrained (or prohibited) by competition law. In some areas of technology, there are even more ways to ‘slice the cake’. For example, in the area of computer games software, a successful game may lead to merchandising opportunities, sequel products, and film and broadcasting opportunities. The owner of rights in the games software may wish to license one company to publish the game and another to make a film based on the characters in the game. As new technology becomes available and affordable, it may be desirable to produce an ‘interactive’ or other version of the original game. Accordingly, it is possible to grant different rights in different industries, or in the same industry at different times, under the same basic intellectual property. Intellectual property is a relatively flexible commodity that can accommodate many sophisticated types of commercial arrangement. The important point for the drafter of a contract is that the contract should clearly identify the scope and extent of the rights granted.

How may/must these rights be transferred? Methods of transfer of rights 3.40 The main types of transaction in intellectual property which are recognised under intellectual property law in the UK (and most other industrially developed countries) are: •

assignments (including partial assignment);

• licences; •

mortgages; and

•

vesting by operation of law (for example, on the dissolution of a UK company its property and rights normally belong to the Crown119 or on transfer under a will).

Where there is a partial grant of rights, for example the exclusive right to manufacture and sell articles for a limited period of time, the more conventional method of giving effect to such an arrangement is by means of a licence. However, it is possible to make a partial assignment of rights – this method should not be overlooked in appropriate cases. Other types of transaction may, in effect, lead to one of the above types of transaction. For example, the ‘sale’ of a patent might, depending on the form and content of the sale agreement, be interpreted as an assignment, 119 See Companies Act 2006, s 1012.

184

National and international intellectual property laws 3.41

or as imposing a legally enforceable obligation on the parties to execute an assignment (in effect, an agreement to assign). Also, under the Patents Act 1977120 and the Registered Designs Act 1949121 no notice of any trust, whether express, implied or constructive, may be entered in the registers of patents or designs.

Formalities for the transfer of rights 3.41 Some intellectual property transactions must be in writing. However, they need not be executed as deeds. Assignments of intellectual property (and mortgages of patents) must be in writing, as must some exclusive licences122 if they are to benefit from certain statutory rights.123 Where there is no legal requirement for an intellectual property transaction to be in writing it will, nevertheless, always be desirable for the transaction to be recorded so as to provide evidence that it has taken place. The most obvious way of doing this is by a written agreement. Where it is intended to register the transaction in the relevant intellectual property register, some form of written evidence of the transaction is generally needed to persuade the comptroller or registrar to register the transaction. In some cases, registration is compulsory; in other cases merely highly desirable. The requirements as to who must sign the document which executes or records the transaction also vary from one type of intellectual property to another. In most cases, at least the assignor/transferor must sign it.124 In some situations, failure to comply with the statutory requirements as to writing may not be fatal to the intended transaction if a court can be persuaded to use its discretion to provide a remedy.125 However, such remedies are discretionary, and recent cases in the real property field suggest that the courts are reluctant to use their discretionary jurisdiction to (effectively) override statutory requirements as to writing formalities. It is therefore recommended that intellectual property transactions are made in writing and signed by both parties to the transaction. In the case of non-UK intellectual property (for example, a foreign patent), the formalities for executing and recording transactions vary from country to 120 Patents Act 1977, s 32(3). 121 Registered Designs Act 1949, s 17(2). 122 See eg the definition of ‘exclusive licence’ in respect of copyright in Copyright, Designs and Patents Act 1988, s 92. 123 Principally the right to sue an infringer for most forms of intellectual property. 124 Eg in respect of copyright assignments: see Copyright, Designs and Patents Act 1988, s 90(3); and in respect of patent assignments, see Patents Act 1977, s 30(5). 125 The person making an application to a grant does not have a right to the remedy it is seeking, but is relying on the discretionary remedies that a court has, ie the court will apply the rules of equity.

185

3.42  Overview of Intellectual Property

country, and local legal advice should be sought as to the required form of any transaction. Often, parties to an agreement concerned with the intellectual property of more than one country include a provision in the agreement under which they agree that they will execute further documents if they are subsequently advised that this is necessary to comply with local laws.

What restrictions are there on the transaction? 3.42 There are relatively few constraints on the scope and content of intellectual property transactions under UK intellectual property law itself. Such constraints are more likely to arise under: • competition law,126 particularly under EU  Treaty, Art 101; UK competition law (principally the Competition Act 1988) or other national competition law (for example, in the case of a licence in respect of that country) may also be relevant; or •

regulatory law affecting use of certain materials which sometimes feature in technology transfer agreements (such as that which controls the use of human and animal tissue);127 or

•

regulatory law affecting the use of products resulting from the exploitation of technology, such as pharmaceuticals (controls on the testing of and sale of pharmaceuticals) and particular technology (controls on the export of certain technology);128 or

•

regulatory law affecting the use of material generated from the creation or exploitation of technology, particularly data protection provisions, such as data concerning individuals who are subject to a clinical trial.129

In the special case of an agreement with an employee inventor, where the agreement might diminish the rights of the inventor in the invention, it is important to consider the provisions concerning enforceability of contracts relating to employees’ inventions.130

126 See Ch 12. 127 Such as the Human Tissue Act 2004 and the Human Fertilisation and Embryology Act 1990. See Ch 11. 128 Such as items which have a dual use (eg which are capable of both military and non-military uses). See para 11.97. 129 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC; Data Protection Act 2018; Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. See Ch 11. 130 Patents Act 1977, s 42.

186

National and international intellectual property laws 3.43

What rights will the parties have under intellectual property laws? 3.43 UK intellectual property legislation addresses the rights and obligations of parties who have interests in intellectual property (for example, there are provisions governing the rights of an exclusive licensee under copyright to bring infringement proceedings)131. Some of these provisions are concerned with the mutual rights and obligations of the holders of rights in the same item of intellectual property. In most cases, it is possible to override by contract between the parties holding the rights in the intellectual property, for example between the co-owners of a patent.132 In many cases this is desirable for the following reasons: •

The statutory provisions are not always appropriate or do not address the important commercial issues in a transaction. For example, the Patents Act 1977 provides that each co-owner of a UK patent may manufacture products in accordance with the patented invention, but neither may grant a licence under the patent without the consent of the other co-owners.133 Where an academic institution and a manufacturing company are co-owners of a UK patent, in practice only the company is in a position to manufacture and sell products in accordance with the patent. Thus the company is able to exploit the patent without paying the institution a royalty. This inequality of opportunity may not be what one or both of the parties would have intended had they considered the point. Or, a copyright owner and a licensee may wish to make special arrangements as to how any litigation over the patents is to be handled and funded, and therefore may wish to modify the statutory provisions concerning the rights of the licensee to sue infringers.134

•

The statutory provisions vary as between different types of intellectual property and as between the same type of intellectual property in different countries. For example, it is apparently the case that under some countries’ laws a co-owner of intellectual property may grant a non-exclusive licence under the intellectual property without the consent of the other co-owner, but must obtain the other co-owner’s consent before granting an exclusive licence. Thus, in an agreement concerned with the intellectual property of more than one country, relying on the provisions of national intellectual property legislation may lead to the parties having different rights in each country.

131 132 133 134

Copyright, Designs and Patents Act 1988, s 101. Patents Act 1977, s 36(2). Patents Act 1977, s 36. Copyright, Designs and Patents Act 1988, ss 101, 102.

187

3.44  Overview of Intellectual Property

Must the transaction be registered? Is registration possible? 3.44 There are registers of patents (including supplementary protection certificates), registered designs, registered Community designs (and registered trade marks and Community trade marks). Most types of transaction in such forms of intellectual property are registrable, including assignments, licences and mortgages. As there is no register of copyright or design right, it is not possible to register transactions in these rights in the UK. (Registers of copyright do exist in some other countries, most notably in the US.)

Advantages of registration 3.45 There are several potential advantages in registering a transaction (such as an assignment or licence): •

in the event of conflicting claims to an interest in the property, for example two parties claiming to have an exclusive licence under the same patent, the registered party often has superior rights to the unregistered party;135

•

registration of an interest, for example a patent licence, acts as public notice of that interest. Thus, where a patent owner registers a patent licence: –

a subsequent purchaser of the patent could not disclaim the licence under general contract law principles on the ground that he was a ‘bona fide purchaser without notice of the interest’; or

–

a potential licensee could check whether the potential licensor has granted other licences to other parties, and thus may make a better evaluation as to the likelihood of it being able to successfully exploit any licence it is granted;

•

in some cases, registration gives the registered party positive rights – for example, registration of an exclusive patent licence within six months of the grant of the licence gives the licensee the right, in certain cases, to claim costs and expenses in respect of infringements which took place before the date of registration;136

•

in the case of registered designs, registration of transactions such as assignments and licences would seem to be compulsory.137

Registration of title of or interest in intellectual property does not guarantee that it will remain registered. There are provisions enabling rectification of the register in appropriate cases. 135 Patents Act 1977, s 33. 136 Patents Act 1977, s 68. 137 Registered Designs Act 1949, s 19(1).

188

National and international intellectual property laws 3.47

The registration process 3.46 The procedures for registration with the UK  Intellectual Property Office of transactions concerning patents and registered designs in the UK are set out in regulations.138 These procedures normally include forms which need completion, often with a requirement to pay fees.

Pitfalls under intellectual property law 3.47 One major pitfall arises in the case of old intellectual property which came into existence before the passing of the current legislation for that type of property. The law in force at the time the old intellectual property came into existence may still apply to it. This is most likely to apply in relation to works protected by copyright. For example, it is possible that a work created in 1914 but whose author died after 1940 would still be protected by copyright in 2019.139 In that case, the work may originally have attracted copyright under the Copyright Act 1911 on terms which may be significantly different to those which apply in the case of new works created after 1 August 1989 (when the current Copyright, Designs and Patents Act 1988 came into force). (The Patents Act 1977 and the Copyright, Designs and Patents Act 1988 contain transitional provisions dealing with the legal position for old patents and old copyright works in existence before the commencement of these Acts.)

138 See eg Patents Rules 2007 (SI 2007/3291) and Registered Designs Rules 2006 (SI 2006/1975). 139 Copyright for literary (including computer programs), dramatic, musical or artistic works lasts for 70 years after the death of the author. There are numerous complications and details, which means that the statement in the previous sentence must be treated with caution and each work needs careful consideration as to when it was created, its type, when it was published etc to establish whether it is protected by copyright. To add to the complication, in 1995 the terms of protection for literary and some other forms of copyright were extended from 50 to 70 years in the European Union. There are complex transitional measures for works which had lost their copyright protection at 50 years but would qualify for protection under the new 70-year period.

189

CHAPTER 4

Patents Historical background and overview of legislation 194 Some recent developments in patent law 195 Provisions of UK patent law which are directly relevant to commercial transactions199 Introduction199 Nature of patents and patent applications 200 Co-ownership of patents and patent applications 202 Rights of co-owners – basic position 202 Aspects of multi-ownership of intellectual property 204 Agents and subcontractors 204 When the consent of a co-owner is required 205 Concluding points: provisions relating to co-ownership 206 Employee inventions 207 Ownership of employee inventions 207 Rights of employee to claim compensation for making invention 209 Employer-owned inventions 209 Employee-owned inventions 210 Collective agreements 212 Amount of compensation 212 Assignment or licensing of patent by employer to a connected person 212 Where the employer is the Crown or a Research Council 213 Enforceability of contracts which remove employee’s rights of ownership or compensation 213 Extent of UK law on employee inventions 214 Summary of the law illustrating how entitlement is determined 215 Anti-competitive provisions in agreements relating to patents 217 Licences of right 218 Compulsory licences 219 General219 Time at which the grant of a compulsory licence etc can be sought and grounds for licence 219 WTO proprietor 221 Non-WTO proprietor 221 Restrictions on grant of licence where the proprietor of the patent in question is a World Trade Organisation (‘WTO’) proprietor 222 Purpose of powers to grant compulsory licences proprietor is a non-WTO proprietor 223 EU compulsory licences 224 Countries which may receive pharmaceutical products 224 Precondition to applying for a compulsory licence 224

191

Patents Conditions for grant 225 Application procedure 226 Other points 226 Competition and Markets Authority report 227 Rights of the Crown to use patented inventions 228 Other fundamental provisions of UK patent law which may affect parties to a patent transaction 229 Introduction229 Applications for patents and other procedural matters 229 What is a patentable invention? 229 Established criteria for a new invention 234 Prior disclosures which do not invalidate a patent 235 Capable of industrial application 236 Biological material 237 Who may apply for and obtain a patent 239 Grant of patent 240 Mention of inventor 240 Disputes241 How to apply for a patent 242 Processing of applications to grant (or refusal) 242 Restrictions on applications: for the defence of the realm or public safety243 Post-grant procedural matters 245 Registration of patents and interests in patents 245 Register245 Effect of non-registration of transactions etc 246 Rectification of the register 247 Disputes over entitlement to patents 247 Determination of right to patent 247 Effect of transfer of patents on licences 247 Opinion as to validity or infringement of a patent 248 Infringement of patents 249 Meaning of infringement and exceptions 249 Substantive infringement 249 Contributory infringement 250 Exceptions to the infringing acts 250 Reform of the research exemption 253 Proceedings for infringement 255 Effect of non-registration of interests on infringement proceedings 256 Non-infringement, revocation, invalidity and amendment of patents 257 Application of UK patent law to European applications, Community patents etc 257 Criminal offences 258 Falsification of register 258 Unauthorised claim that product is patented 258 Unauthorised claim that application has been made 259 Misuse of the words ‘Patents Office’ etc in documents etc 259

192

Patents Personal liability of officers, managers etc for offences committed by company 259 Miscellaneous and administrative provisions 260 Unjustified threats of infringement proceedings 260 Introductory point 260 The making of a threat of infringement proceedings 261 How it is possible to communicate the threat of infringement proceedings?262 The right to bring proceedings for a threat of infringement proceedings 262 Situations when a threat of infringement proceedings is not actionable 262 Communications which do not contain express threats 263 Permitted purpose 264 Necessary information 265 Remedies265 Defences265 Professional advisers 266 Supplementary Protection Certificates 266 Introduction266 Types of product for which an SPC is available 268 Who may apply for an SPC? 271 How to apply for an SPC; procedural provisions 271 When must the application be made? 271 Protection given by an SPC 272 Duration of the SPC 272 Commencement and transitional provisions 273 Commercial transactions involving Supplementary Protection Certificates273 Patents for biotechnological inventions 274 General274 Summary of changes made to implement the Biotechnology Directive into UK law 274 Meaning of biotechnological inventions and biological material 275 Biotechnological inventions containing biological materials 275 Inventions not capable of being patentable 276 Applications for patents involving biotechnological inventions and other provisions of the 1977 Act made under the 1977 Act 276 Additional information to be provided when making an application for a patent involving or concerning a sequence or partial sequence of a gene 277 Extension of protection to patents 277 Patenting and software 278 Patenting software inside the EU and the UK 278 Why patent software? 278 What does the Patents Act 1977 provide for computer software? 279 The current position 279 European position 279 Current UK case law 281

193

4.01  Patents

HISTORICAL BACKGROUND AND OVERVIEW OF LEGISLATION 4.01 It is possible to trace modern UK patent law from 1883,1 with the establishment in that year of the UK  Patent Office (now known as the Intellectual Property Office) and a number of other changes to patent law, including the abolition of jury trials for patent cases.2 The present law is found in Patents Act 19773 (‘the 1977 Act’ in this chapter). The 1977 Act has been subject to extensive revision. It was passed, in part, to bring the law in the UK in line with the provisions of: •

the European Patent Convention;4

•

the Patent Co-operation Treaty;5 and

•

the European Patent with Unitary Effect (following the UK leaving the EU, this may not be being implemented in the UK).6

This chapter will discuss the relevant provisions from the 1977 Act of direct relevance to commercial transactions. At the end of the chapter, there are separate sections discussing two areas which have become of increasing importance to industry, research organisations and universities and the economy in general: biotechnology; and computer software.7 1

2 3 4 5 6 7

Until the passing of the most recent Patents Act, in 1977, patents were officially known as ‘letters patent’, a name that had been in use for centuries. This name was originally used for any type of trading monopoly awarded by the English monarch. The award was confirmed by the issue of letters patent, literally an ‘open’ letter bearing the royal seal. The grant of letters patent formed part of the monarch’s prerogative powers. Concern at abuses of this royal prerogative, as well as the increasing power of the House of Commons, led to the passing of the Statute of Monopolies in 1624. The monarch’s powers to grant letters patent were largely removed. One major exception remained: by s 6 of that statute, letters patent could be granted for a period of 14 years for ‘any manner of new manufacture’. This exception was designed to encourage the introduction of new technologies into Britain, by giving the person introducing the new technology a monopoly over its commercial application. The original term of 14 years is thought to equate to the period it took to train up two apprentices in the technology, one after another. Patents, Designs, and Trade Marks Act 1883. Previous Patents Acts were passed in 1907, 1919, 1932 and 1949. All patents granted under the Patents Act 1949 have now expired. See para 3.13. See para 3.14. See below and para 3.23. Biotechnology and biotechnological innovations have been subject to an EC  Directive (Directive 98/44/EC ([1998]  OJ L213/13) on the legal protection of biotechnological inventions). Computer software, although almost always protected by copyright, can also, in certain circumstances, be protected by patents. At the time of the 2nd edition of this book (2003), the European Commission had proposed a Directive aimed at harmonising the law as to the patentability of software. The then proposed Directive has not in reality progressed further in the form originally proposed, and appears stalled at the time material for this edition is being prepared. See para 4.99 onwards below for an outline of the current position regarding when software can be protected by patent law, based on the case law.

194

Some recent developments in patent law 4.02

Traditionally, for technology transfer, patent law is the form of protection that has been the form of intellectual property which is of most importance, and which is why it is the focus of more extensive treatment. This is for a number of reasons, including: •

It is still true that most transactions involving intellectual property and which it is possible to define as ‘technology transfer’ involve the licensing of patents, or less often the assignment of patents. Other forms of intellectual property have traditionally played more of a ‘supporting’ role.

•

Patent law is perhaps the oldest form of intellectual property, and has a formal procedure in place for obtaining its protection. Therefore it has had longer to build up detailed commentary and case law as to how it works in practice.

•

At least in the UK, it is the form of intellectual property, as expressed in its statutory form, which has the most detail concerning provisions which are most likely to be relevant to commercial transactions.8

SOME RECENT DEVELOPMENTS IN PATENT LAW 4.02 •

The Intellectual Property (Unjustified Threats) Act 20179 – This 2017 Act has reformed the provisions in the 1977 Act relating to the making of threats of infringement proceedings (last revised in 2004), including: – refining the provisions where a recipient in receipt of a communication threating infringement proceedings can or cannot take action;

8 9

–

clarifying and extending the provisions where a person wishes to communicate with a recipient (who is someone other than a person who makes or disposes of a product), such as a retailer. There are now provisions in the 1977 Act which more clearly state the circumstances when it is possible to send, and specify the contents of, such a communication without the risk of action for doing so; and

–

harmonising the provisions relating to communications concerning threats among three forms of intellectual property: patents, the various forms of designs, and trade marks.

Also, the provisions (which are not reflected in the statutory law) of commercial agreements which have come before the courts for interpretation have most often involved patents. In force from 30 October 2017. See para 4.71 below for an outline of the provisions introduced by this Act.

195

4.02  Patents

•

The European Patent with Unitary Effect (or ‘Unitary Patent’)10 and the Unified Patent Court11 – these provide,12 respectively: –

a new form of patent protection which has application in all the member states of the EU which have ‘signed up’ to the European Patent with Unitary Effect (a ‘participating member state’). Essentially, in making an application to the European Patent Office for a European Patent,13 the applicant can also request the grant of a European Patent with Unitary Effect,14 instead of the granting of a set of national patents (for the countries that the applicant has specified in her/his application).15 The main features are: ○

a European Patent can have unitary effect (that is, it will apply in all participating member states), as long as it has the same set of claims for all of the participating member states. If this is the case, it will provide the same level of protection with equal effect in all the participating member states;16

○

a European Patent with Unitary Effect has a ‘unitary character’, meaning – besides providing uniform protection and having equal effect in all participating member states – that it will be only possible to transfer, revoke or lapse a European Patent with Unitary Effect in all participating member states.17

10 Regulation (EU) 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection, and Council Regulation (EU) 1260/2012 of 17  December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrangements. 11 Agreement on a Unified Patent Court. 12 At January 2020 it is not in force, dependent on the outcome of a legal challenge in the German courts, and also the outcome of negotiations between the EU and the UK, following the exit of the UK from the EU after 31 January 2020. The Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016 makes many changes to the Patents Act 1977 to give effect to the Unitary Patent and the Unified Patent Court, but only comes into effect on the date that the Agreement on a Unified Patent Court comes into force. It is possible to check on ratification at www.consilium.europa.eu/en/documents-publications/treatiesagreements/agreement/?id=2013001&DocLanguage=en. Articles 84 and 89 of the Agreement on a Unified Patent Court govern the UPC’s implementation. Also see the EU Parliament’s opinion, ‘EU Patent and Brexit’ (prepared in November 2019), as to whether it is possible for the UK to continue to participate in the UPC. A key issue is that, if the UK does participate, it will still be subject to the decisions of the ECJ (in relation to UPC). Articles 20 and 21 of the Agreement on a Unified Patent Court indicate that EU law applies and that the UPC has to apply it. For an analysis of the position in the UK, see the following: http://ipkitten.blogspot. com/2019/11/can-uk-become-and-stay-member-of-upc.html. 13 That is ‘a patent granted by the European Patent Office … under the rules and procedures laid by the EPC’: art 2(b), Unitary Patent Regulation. 14 That is ‘a European patent which benefits from unitary effect in the participating Member States by virtue of this Regulation’: art 2(c), Unitary Patent Regulation. 15 For further details, see www.epo.org/law-practice/unitary/unitary-patent.html. 16 Art 3(1), Unitary Patent Regulation. 17 Art 3(2), Unitary Patent Regulation.

196

Some recent developments in patent law 4.02

Accordingly, it will not be possible, for example, to let it lapse in five member states only; ○

however, it will be possible to license a European Patent with Unitary Effect other than in all of the participating member states – for example, the owner of a European Patent with Unitary Effect could license it in France, Italy and Spain only;18

○ a European Patent with Unitary Effect takes effect in participating member states on the date of publication by the EPO of the grant of the European Patent;19

–

○

other provisions provide that a patent proprietor will have to pay renewal fees,20 is willing to allow the grant of licences of right21 and to have the right to take action to prevent infringement;22 and

○

the law which shall apply to a European Patent with Unitary Effect as an ‘object property’ shall be that of where the applicant has her/his residence or principal place of business (or, if neither of these apply, the place of business of the applicant at the time s/he made the application for a European Patent);23

a new Unified Patent Court (‘UPC’),24 which once operating will have exclusive jurisdiction concerning proceedings for European Patents and European Patents with Unitary Effect (and any supplementary protection certificates concerning these two forms of patent protection).25 The main features include: ○

the court will consist of: •

a Court of First Instance;

•

a Court of Appeal; and

•

a Registry;26

18 Art 3(2), Unitary Patent Regulation. The wording of this article speaks of ‘territories’ rather than ‘member states’: ‘It may be licensed in respect of the whole or part of the territories of the participating Member States’. This would appear to imply that it would be possible, for example, to license a European Patent with Unitary Effect for part of a member state. 19 Art 4, Unitary Patent Regulation. 20 Art 11, Unitary Patent Regulation. 21 Art 8, Unitary Patent Regulation. 22 Art 5, Unitary Patent Regulation. 23 Art 7, Unitary Patent Regulation. There are rules for where there are two or more applicants and also where no applicant has a residence, principal place or business or no place of business in a member state. In the latter case where the EPO has its headquarters (ie Germany). 24 Although, as noted above, the UPC is not yet operational, it is carrying out extensive preparatory work, including recruitment of judges, developing rules of procedure and obtaining locations for its operations in London and Munich. Readers should consult the UPC’s website for developments: www.unified-patent-court.org. 25 Recital 7, Agreement on a Unified Patent Court. 26 Art 6(1), Agreement on a Unified Patent Court.

197

4.02  Patents

○ the Court of First Instance will have a central and local divisions, with the central division in Paris and sections in London and Munich;27 ○ the division of work between the central division and the sections will be as follows: •

Paris: performing operations, transporting, textiles, paper, fixed constructions, physics, electricity;

•

London: human necessities, chemistry, metallurgy;

•

Munich: mechanical engineering, lighting, heating, weapons, blasting;28

○

a panel of the Court of First Instance will consist of three judges and shall have a multi-national composition;

○

the Court of Appeal will sit in Luxembourg, and panels will consist of five members. It will be possible to appeal decisions of the Court of First Instance on points of law and on matters of fact29 within two months of a decision by the Court of First Instance;30

○ the UPC shall apply EU law (which shall have primacy) and, in deciding cases, will base its decisions on EU law, the Agreement on a Unified Patent Court, the Convention on the Grant of European Patents (EPC) and national law;31 ○

there are provisions which set out the circumstances when the proprietor of a patent subject to the jurisdiction of the UPC can take action to prevent infringement,32 as well as exceptions for acts which would not amount to an infringement.33 These exceptions replicate those found in the 1977 Act34 but with the addition of two new exceptions: these relate to biological materials used for plant breeding, and the uses that a person can make of a computer program (such as for decompilation, for interoperability etc);35

27 Art 7(1), (2), Agreement on a Unified Patent Court. It is possible that further divisions may be set up according to the formula set out in the agreement: Art 7(3), (4), Agreement on a Unified Patent Court. 28 Art 7(2) and Annex II, Agreement on a Unified Patent Court. 29 Art 73(3), Agreement on a Unified Patent Court. 30 Art 73(1), Agreement on a Unified Patent Court. 31 Arts 20, 24, Agreement on a Unified Patent Court. 32 Arts 25, 26, Agreement on a Unified Patent Court. 33 Art 27, Agreement on a Unified Patent Court. 34 Section 60(5) of the 1977 Act. 35 Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016, art 2(3). These new exceptions are set out at para 4.59 below.

198

Provisions of UK patent law 4.03

○ decisions and orders of the UPC will be enforceable in contracting member states, and the decision of the UPC will include an order for enforcement.36 The law of a contracting member state shall govern the procedures for enforcement;37 and ○

the UPC can award damages.38

If the legal provisions concerning the European Patent with Unitary Effect and the Unified Patent Court come into force, there will be two substantive changes to the 1977 Act: •

adding two further acts which will not amount to an infringement of a patent (as noted above); and

•

disputes concerning a European Patent will now be dealt with by the Unified Patent Court rather than a domestic court. A European Patent is one where a person makes her or his application for a patent to the European Patent Office under the EPC. The person can specify a number of different countries in his application for which s/he wishes to obtain a grant of patents. On grant of the European Patent, s/he then has a set of national patents, with disputes handled by the courts of the countries for which s/he has obtained a grant. On the Unified Patent Court starting to operate, those disputes will be dealt with only by the Unified Patent Court rather than domestic courts.39

PROVISIONS OF UK PATENT LAW WHICH ARE DIRECTLY RELEVANT TO COMMERCIAL TRANSACTIONS Introduction 4.03 The first part of this chapter considers provisions of UK patent law which are directly relevant to commercial transactions (particularly ss 30–59 of the 1977 Act). These sections deal with: •

the nature of patents as personal property and the types of transactions in patents which are recognised by the 1977 Act;

•

the rights of owners and co-owners and the effect of registration of rights;

•

ownership of employees’ inventions and the statutory right of employees to receive compensation from their employers;

36 37 38 39

Art 82(1), Agreement on a Unified Patent Court. Art 82(3), Agreement on a Unified Patent Court. Art 68, Agreement on a Unified Patent Court. Art 32, Agreement on a Unified Patent Court; Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016, reg 2(6), which will insert s 83A and Sch A4 into the 1977 Act.

199

4.04  Patents

•

the effect of including certain anti-competitive provisions in patent agreements;

•

licences of right and compulsory licences; and

•

rights to use patented inventions for the services of the Crown, the socalled Crown user provisions.

For other provisions of UK patent law which are not so directly relevant to commercial transactions but which are nevertheless important for an understanding of the nature of UK patents, see 4.36 onwards.

Nature of patents and patent applications 4.04 Section 30 of the 1977 Act describes the nature of patents as personal property.40 In summary, the position in England and Wales and in Northern Ireland is as follows: (a) Patents are personal property: a patent or patent application is personal property but is not a ‘thing in action’ (also known as a ‘chose in action’).41 For practical purposes, the issue of whether or not a patent is a ‘chose in action’ is unlikely to be significant in commercial transactions. Of greater significance is that a patent is personal property; the effect of this is that the law of personal property will generally apply to patents, except where overridden by specific laws which apply to patents.42 (b) Assignment, mortgage, etc of patents: a patent or patent application, or any right in it:43

40 Section 31 (as modified by the Requirements of Writing (Scotland) Act 1995) describes the equivalent position in Scotland, modified to reflect Scots law and practice. The differences between ss 30 and 31 arise because the systems of property law and contract law are, in some respects, fundamentally different in (1) England and Wales, and (2) Scotland respectively, and the law relating to patent transactions must fit within the overall legal structure in each jurisdiction. This may be contrasted with most of the other provisions of the 1977 Act which apply equally to England and Wales and Scotland (and Northern Ireland). For Northern Ireland, see s 131 of the 1977 Act. 41 Section 30(1) of the 1977 Act. For a definition of a chose in action: ‘The meaning of the expression “chose in action” or “thing in action” has expanded over time, and it is now used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. It is used in respect of both corporeal and incorporeal personal property which is not in possession’ (13 Halsbury’s Laws of England (5th edn, LexisNexis, 2009) para 1). 42 See further para 9.03. 43 The phrase ‘or any right in it’ does not to refer to a licence under a patent, not least because licences under patents are dealt with in a later subsection (section 30(4)). See also Insituform v Inliner [1992] RPC 83. The phrase would, presumably, cover the rights of a co-owner of a patent, which are further dealt with in s 36.

200

Provisions of UK patent law 4.04

(i) may be assigned (ie the transfer of ownership) or mortgaged;44 (ii) will vest by operation of law in the same way as other personal property (eg on death or bankruptcy);45 and (iii) may vest by an assent of personal representatives (eg by executors of the will of an owner of a patent who has died, where an owner is an individual).46 However, any assignment, mortgage or assent will be void unless it is in writing and is signed by or on behalf of the assignor or mortgagor to the transaction47 or, in the case of an incorporated party (‘body corporate’ as defined), is signed by that party or is under the seal48 of that party. Where an assignment complies with the statutory requirements of section 30(6) of the 1977 Act, it ‘is effective as a legal assignment without any additional requirement for consideration’.49 However, in practice an assignment of intellectual property often either includes a token amount of consideration or it is executed as a deed. (c) Licences: it is possible to grant licences under a patent or patent application.50 A licence need not be in writing. 44 Subject to the rights of co-owners, where the patent is jointly owned – see further para 4.05 onwards below. 45 Section 90(3); it may also vest by an assent of personal representatives (ie following death). 46 Section 30(3) of the 1977 Act. 47 Section 30(6) of the 1977 Act. In the case of companies, it is important that a director (or directors) who sign(s) the assignment on behalf of the company are correctly appointed (see European Environmental Recycling’s International Application (SRIS O/316/99)). The word ‘assignment’ does not need to appear in the document, as a court would look at the reality of a transaction (Thorn Security Limited v Siemens Schweltz AG [2008] EWCA Civ 1161). This case is also authority for the proposition that an assignment can include an assignment by operation of law. Section 30(6) of the 1977 Act also applies to assignments signed prior to the filing of a patent application (Hartington Conway Ltd’s Patent Applications [2004] RPC 6, a case concerning a right to make a future patent application). Prior to the amendment of the 1977 Act in 2004 (in force from 1 January 2005, amended by Regulatory Reform (Patents) Order 2004), assignments had to be signed by all the parties to the transaction. An assignment executed only by the assignor has been held to pass the equitable ownership to the assignee (when the law required both parties to sign the assignment): Baxter International Inc v Nederlands Produktielaboratorium [1998]  RPC  250. In the case of an assent by personal representatives, by or on behalf of the personal representative, a failure to follow all the requirements may not be fatal to the assignment, etc of a patent. 48 Under Companies Act 2006, s 45, a company is no longer required to have a company seal; documents which are stated to be executed by the company and which are signed by a director in the presence of a witness, two directors, or by a director and the secretary (if the company has one), take effect as if executed under seal. A  body corporate will include a company formed or regulated by one of the Companies Acts (2006, 1985, 1948), and other organisations which are not governed by the Companies Act 2006, such as universities (particularly those in the Russell Group), NHS trusts, government departments, and regulatory authorities (eg the Human Tissue Authority). Some of these are important players in the technology transfer sector. 49 Wright Hassall LLP v Horton Jr & Anor [2015] EWHC 3716 (QB). 50 Section 30(4) of the 1977 Act.

201

4.05  Patents

(d) Sub-licences: to the extent that a patent licence provides, it is possible to grant a sub-licence under the patent licence.51 This normally means that a licensee cannot grant sub-licences unless there is a specific provision in a licence to permit the granting of sub-licences. (e) Assignment, mortgage, etc of licences and sub-licences: to the extent that a licence provides, it is possible to assign or mortgage a licence or any permitted sub-licence, and it will vest by operation of law in the same way as other personal property.52 (f) Rights of assignee or exclusive licensee: an assignment of a patent or patent application, or a share in it, and any exclusive licence under a patent or patent application, may confer on the assignee or licensee the right to bring proceedings for infringements which occurred prior to the date of the assignment or licence.53 It is a common practice in UK intellectual property assignments to state (where appropriate) that the assignee shall have the right to bring proceedings in respect of past infringements54 and to retain any damages awarded in respect of such infringements.

Co-ownership of patents and patent applications Rights of co-owners – basic position 4.05 Section 36 of the 1977 Act defines the rights of co-owners of a UK patent or patent application. It is possible to override these rights by a contract between the co-owners. The contract can provide for different arrangements than under section 36.55 The section also considers the rights of third parties who have dealings with one or more of the co-owners. The main elements of section 36 are as follows: (a) Property: each of the co-owners is entitled to an equal, undivided share in the patent, unless otherwise agreed.56

51 Section 30(4)(a) of the 1977 Act. 52 As to whether a licence under intellectual property amounts to a property interest, see para 10.05. 53 The section specifically refers to the right to bring proceedings under section 58, 61 or 69 of the 1977 Act. 54 Although it is uncertain whether such assignments are effective to assign past causes of action; each case will depend on its merits and the factual situation involved. 55 Note: the phrases ‘subject to any agreement to the contrary’ which appears in sub-ss (1), (2), and ‘subject … to any agreement for the time being in force’ in sub-s (3). Subsections (4) and (5), which deal with the rights of third parties, are not affected by an agreement between the co-owners, as one might expect. 56 The phrase ‘equal, undivided share’ is otherwise known as ‘ownership in common’. For the legal implications of this phrase and possible alternatives under UK property law, see Ch 9. Although, if the co-owners hold the patent as trustees, they may/will hold as joint tenants; this is allowed for by s 36(6) of the 1977 Act.

202

Provisions of UK patent law 4.05

(b) Use of invention by co-owner: each of the co-owners is entitled, by her/ himself or through that co-owner’s agents,57 for his or her own benefit to do any act which would otherwise infringe the patent,58 without the consent of or the need to account to the other co-owners. In other words, the co-owner may exploit the patent directly. For example, the co-owner will not need the permission of the other coowners where the co-owner itself manufactures, uses or sells products which are within the scope of the patent. Nor will that co-owner have to, for example, share any profits it obtains from the sale of such products (unless the co-owners agree otherwise). However, the licensing of any rights under the patent to third parties will require the consent of the other co-owners (see the following paragraph). (c) Licensing, assignment and mortgaging by co-owner: a co-owner may not, without the consent of the other co-owners, grant a licence under the patent or assign or mortgage a share in the patent.59 (d) Supply of items to co-owner which would otherwise infringe patent: it is not an infringement of the patent to provide one of the co-owners with the means, relating to an essential element of the invention, for putting the patented invention into effect.60 Such an act would otherwise amount to contributory infringement.61 This provision is consistent with the principle described in (b) above, that each coowner is entitled to exploit the patent directly without the consent of the other co-owners. (e) Dealing in patented products supplied by a co-owner: where a patented product is disposed of by a co-owner of the patent, the co-owner and any person claiming through him or her is entitled to deal with the product as if it had been disposed of by a sole registered proprietor.62 Thus, a purchaser of a patented product from a co-owner will generally not infringe the rights of the other co-owners. (f) Amending the specification of a patent: one co-owner cannot, without the consent of the other co-owner:

57 Section 36(2) of the 1977 Act. The expression ‘agent’ does not include subcontractors, partners, or companies formed by the co-owner, unless they act strictly as agents (see Howard & Bullough v Tweedale & Smalley (1895) 12 RPC 519). In Henry Bros (Magherafelt) Ltd v Ministry of Defence [1997] RPC 693, the court held that the word ‘agent’ in s 36(2) of the 1977 Act does not have a strict legal meaning, but a co-owner may have the patented product made for that co-owner, to protect home use. This point is also explored in more detail in para 4.06 below. 58 Section 36(2) of the 1977 Act; the subsection is made subject to s 55 of the 1977 Act, which concerns Crown use of inventions. 59 Section 36(3)(b) of the 1977 Act; the subsection is made subject to sections 8, 12 and 37 of the 1977 Act, which broadly concern disputes over entitlement. 60 Section 36(4) of the 1977 Act. 61 Section 60(2) of the 1977 Act. 62 Section 36(5) of the 1977 Act.

203

4.06  Patents

(i) amend the specification of a patent; or (ii) apply for an amendment of the specification; or (iii) apply for the patent to be revoked.63

Aspects of multi-ownership of intellectual property Agents and subcontractors 4.06

Section 36 of the 1977 Act provides: Where two or more persons are proprietors of a patent […] each of them shall be entitled by himself, or his agents, to do in respect of the invention concerned, for his own benefit and without the consent of or the need to account to the other or others, any act which would apart from this subsection and section 55, amount, an infringement of the patent concerned …’.

‘Any act’ would mean such an activity as making or selling a patented article by an agent of one co-owner. How far exactly this provision ranges is not entirely clear,64 but what is clear is that the right to appoint an agent does not allow a co-owner the right to grant a commercial licence to a third party to exploit a patent.65 There is very limited case law as to the meaning of an ‘agent’. It appears that the use of the term ‘agent’ in the 1977 Act is not that of its normal legal meaning of an agent.66 However, when the word ‘agent’ is used in this context, it can include subcontractors, partners or companies formed by a co-owner, unless any of them was acting in the strict legal sense of an agent of the co-owner.67 The question of whether a co-owner can appoint a subcontractor is not expressly mentioned or prohibited in the 1977 Act,68 although it is possible to argue that: 63 Section 36(3)(a) of the 1977 Act. 64 See CIPA Guide to the Patents Acts (7th edn, Sweet & Maxwell, 2011), para 36.04. 65 As to what acts require the permission of the other co-owners, see para 4.07 below, as well as Hughes v Paxman [2006] EWCA Civ 818, [2006] All ER (D) 279 (Jun) at para 7. It is possible for a co-owner to apply to the comptroller of patents so that the comptroller will exercise her/ his discretion to grant a licence. The co-owner seeking the licence will need to set out the reasons why s/he needs a licence: Hughes v Paxman [2006] EWCA Civ 818, [2007] RPC 34. 66 Howard Bros (Magherafelt) Ltd v Ministry of Defence and Northern Ireland Office [1997] RPC 693, [1999] RPC 442, CA. 67 Howard & Bullough Ltd v Tweedales and Smalley (1895) 12 RPC 519, but decided under the former common law. For what amounts to manufacturing by a licensee, see 79 Halsbury’s Laws of England (‘Patents and Registered Designs’) (5th edn, LexisNexis, 2008) para 382. 68 Such as a co-owner appointing a subcontractor and the subcontractor manufacturing a product which is to be sold by a co-owner.

204

Provisions of UK patent law 4.07

•

the appointment of a subcontractor would in effect be the granting of a licence, one of the activities that requires the consent of the other coowner or co-owners;69

•

the activities of a subcontractor would constitute infringement of the patent. Although a person who supplies an ‘essential element’ of an invention to a co-owner is protected from an action for infringement,70 the protection would not cover the subcontractor making the whole of a product.

Where there might be the involvement of an agent or sub-contractor, it is possible to make the following points: •

if a co-owner makes a product, and uses a commercial agent to sell the product and any sales are made in the name of the co-owner, the coowner’s action is likely to fall within the protection of section 36(2) of the 1977 Act; and

•

if a co-owner has the product made by a subcontractor and the subcontractor supplies the product only to the co-owner in order for the co-owner to sell the product, the making of the product may also have the protection of section 36(2) of the 1977 Act.

What is necessary is to look at the substance of the arrangement between the co-owner and its agent or contractor. The wording of section 36(2) clearly permits the use of an ‘agent’ to do any act, but as long as the act is for the benefit of the co-owner.71 Accordingly, a co-owner who genuinely has an ‘agent’ make a product for the co-owner to sell or for the agent to sell in the name of the co-owner is likely to come within the provisions of section 36(2).

When the consent of a co-owner is required 4.07 For the sake of completeness, the full list of what a co-owner cannot do without the agreement of the other co-owner(s) (unless the co-owners agree otherwise) is as follows: •

grant a licence under a patent;

•

assign a share in a patent;

•

mortgage a share in a patent;

•

amend the specification of a patent;

•

apply for an amendment to the specification of a patent to be allowed;

•

apply for a patent to be revoked.

69 Under s 36(3)(b) of the 1977 Act. 70 Under s 36(4) of the 1977 Act. 71 Howard Bros (Magherafelt) Ltd v Ministry of Defence and Northern Ireland Office [1997] RPC 693, [1999] RPC 442, CA.

205

4.07  Patents

The courts have considered whether a co-owner has given consent or whether it is possible to imply consent (mere knowledge of the use or acquiescence is not likely to be sufficient).72 The effect of section 36(2) of the 1977 Act can mean that unless the co-owners agree otherwise, then the co-owner which has the resources (whether financial or physical) in place or can obtain them, could manufacture and sell products without the permission or knowledge of the other co-owner(s), and also keep any financial returns that derive from such exploitation of the patent. In this situation the other co-owner which did not have the resources and was not able to obtain the resources (eg through borrowing), would lose out financially. This second co-owner would also be unable to licence or otherwise exploit the patent (if it could not obtain the consent of the first co-owner). For example, a university which is the co-owner of a patent with a commercial organisation would be unlikely to have the resources to make or sell the product protected by the patent. The university could appoint an agent to make the product and another agent to sell the product; both in its name, in order to come with the meaning of section 36(2). However, a university, as a charitable organisation, will have restrictions on its ability to trade directly (to maintain its charitable status). If the other co-owner challenged such activities, a court might find that the reality of such arrangements by the university is that they are not for the benefit of the university but a sham and, in effect, the university was licensing the patent for commercial exploitation (without the required consent of the other co-owner). However, a co-owner without the resources to exploit the patent can apply to the comptroller for a licence to be granted.73 However, if both parties cannot exploit a patent themselves and also cannot agree on how it should be exploited then there will be deadlock.74

Concluding points: provisions relating to co-ownership The provisions found in the 1977 Act regarding co-ownership have attracted criticism in cases which have been before the courts.75 72 Whitehead & Poole Ltd v Sir James Farmer & Sons Ltd (1918) 35 RPC 241. In this case an earlier Patents Act was under consideration: Patents and Designs Act 1907, s 37. 73 Under s 37(1) of the 1977 Act. See Hughes v Paxman [2006] EWCA Civ 818, [2006] All ER (D) 279 (Jun). 74 As happened in Hughes v Paxman [2006]  EWCA  Civ 818, [2006]  All ER (D) 279 (Jun), Jacobs LJ noting: ‘I cannot imagine for a moment that Parliament could have intended it to be possible that exploitation of an invention could be frustrated by a deadlock situation. The whole point of the patent system was and is to encourage innovation and the exploitation of invention. That is indeed why, where patented inventions have not been exploited, subject to certain conditions, there is a provision for compulsory licences’. 75 See Henry Bros (Magherafelt) Ltd v Ministry of Defence [1997] RPC 693, and most recently Hughes v Paxman [2006] EWCA Civ 818, [2006] All ER (D) 279 (Jun), where the drafting of s 36 of the 1977 Act was labelled ‘turgid’.

206

Provisions of UK patent law 4.09

Regardless of the quality of the drafting used in the 1977 Act regarding coowners, the provisions do not cover all the commercial issues which coowners should include in an agreement.

Employee inventions 4.08 Sections 39–43 of the 1977 Act provide a code for determining: • when an employee will own an invention made by him; • the circumstances in which he will be entitled to compensation from his employer for patented inventions made by him which are of ‘outstanding benefit’ to his employer; and • the limited circumstances in which it is possible to ‘contract out’ of these ownership and compensation provisions.

Ownership of employee inventions 4.09 Section 39 of the 1977 Act provides, in effect, three alternative circumstances in which an invention made by an employee will belong to his employer. If none of these circumstances exists, the invention will belong to the employee.76 An invention77 made by an employee78 will, as between him and his employer,79 belong to his employer80 if: 76 The language of s 39 of the 1977 Act is more complex than the equivalent test for copyright ownership (ie  was the work made in the course of the employee’s employment?). In some situations the more complex language of s 39 of the 1977 Act may lead to a different ownership position than if the ‘course of employment’ test were applied. This is tacitly recognised by s 39(3) of the 1977 Act (as amended) which provides, inter alia, that the working of an employee-owned invention will not be taken to infringe any copyright or design right owned by the employer in any model or document relating to the invention. 77 The term ‘invention’ is not defined, although the requirements for a patentable invention are described in s  1 of the 1977 Act (as amended by SI  2000/2037). By implication, s  39 applies also to unpatentable inventions. However, to say that an invention ‘belongs’ to someone would appear to be meaningless unless an enforceable property right attaches to the ownership, eg through patents or some other form of property, including the right to apply for such property. In additional, only the person who is the actual deviser of an invention will be entitled to a grant of a patent (see s 7(3) of the 1977 Act). It must be the ‘natural person who “came up with the inventive concept” […] the contribution must be the formulation of the inventive concept’ (Yeda Research v Rhone-Poulenc Rorer [2007] UKHL 43, [2008] RPC 1, at para 20). The meaning of an ‘invention’ means an invention which ‘might reasonably be expected to result from the carrying out of his duties’ by an employee. 78 The provisions relating to employee inventions, sections 39–42 of the 1977 Act (as amended), will not apply unless, at the time the employee made the invention, he was mainly employed in the UK, or he was not mainly employed anywhere, or his place of employment could not be determined, but his employer had a place of business in the UK to which the employee was attached, whether or not he was also attached elsewhere. 79 Ie the invention could belong to a third party if, for example, the employee sold it; but see para (c) in relation to the enforceability of an agreement by the employee to assign his inventions. 80 Section 39(1) of the 1977 Act.

207

4.09  Patents

(a) it was made in the course of his normal duties;81 or (b) it was made in the course of duties specifically assigned to him, even though these fell outside his normal duties; and in either case the circumstances were such that an invention might reasonably be expected to result from the carrying out of his duties;82 or (c) it was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer’s undertaking.83 Any other invention made by an employee in any other circumstances will, as between him and his employer, belong to the employee.84 Clearly, it will be easier to apply the first of these three tests – the normal duties test85 – if the employee’s normal duties are recorded, for example in the employee’s contract of employment.86 However, contracts of employment are apt to change as the employee’s job changes, and there is no legal requirement for a contract of employment to contain a list of the ‘normal duties’ of the employee. It is possible, during the course of an employee’s employment, by either the actions of the employer and/or the employee, for the duties of the employee to expand or contract, as described in one case, ‘by a continuous process of subtle variation’, and for an employee to be given extra or different tasks, which would have been duties which are ‘specially assigned’ but in time become ‘normal duties’.87

81 Section 39(1)(a) of the 1977 Act. See Szewczyk’s Application BL 0/301/04 for a case which considered the meaning of ‘normal duties’. The inventor was both an employee as well as a director. One of his duties was labelled ‘product development’. The inventor made an invention while working on an on-going project. In this case it was held that the invention belonged to the employer under s 39(1)(a) of the 1977 Act. An invention can also belong to an employer even if the normal duties which an employee carries out are not of the type where an invention is likely to be made (Paul Auckland and Enderby Construction Ltd BL 043/06). In this case the invention made belonged to the employee. 82 Section 39(1)(a) of the 1977 Act. 83 Section 39(1)(b) of the 1977 Act. If the invention is made by a director (who is not an employee) then any invention made will normally not fall within this provision of the 1977 Act. 84 Section 39(2) of the 1977 Act. 85 Ie the actual duties he or she is employed to do (see Harris’s Patent [1985] RPC 19). 86 Eg where research facilities were made available to a clinical hospital registrar, it was held that his normal duties were limited to clinical responsibilities and not to inventorship, such as the modifying of existing equipment he used (see Greater Glasgow Health Boards Application [1996] RPC 207). 87 LIFFE  Administration & Management v Pinkava [2007]  RPC  30. In determining what an employee’s normal duties are, a court is not limited to seeing what an employee does day-byday. An invention could still belong to the employer even if it was made by an employee in the course of work which was a departure from what the employee normally did: ‘As between the employer and employee the primary sources of a duty are the terms of the contract. What is it that he is employed to do must be the key question. That is not the same thing

208

Provisions of UK patent law 4.11

Similarly, it will be a matter of evidence as to what duties were specifically assigned to the employee. Item (c) may be more difficult to apply. Scientific staff, senior management or directors88 who make inventions may be more likely to be caught by item (c) than junior administrative staff. It may be difficult to predict whether this test applies to a particular individual unless there is a detailed review of their duties and responsibilities; much will depend on the circumstances of each case. For example, item (c) might apply to a works manager even though he had been instructed not to involve himself in his employer’s R&D activities.89

Rights of employee to claim compensation for making invention 4.10 An employee who has made an invention for which a patent has been granted may be awarded compensation where: (a) the invention initially belongs to the employer; or (b) it initially belongs to the employee but the employee has assigned or exclusively licensed the invention to the employer.90 The employee must apply to the court or comptroller91 for compensation within a prescribed period (normally from the date of grant of the patent until one year after it has expired).92

Employer-owned inventions93 4.11 In summary, for a claim to succeed, it is necessary to establish that: (a) the employee has made an invention belonging to the employer, for which a patent has been granted;

87 contd as […] what his day-to-day work [is]. Take for instance a research chemist working on a cancer cure for the last 10 years. Suppose he came up with a cure for arthritis. He could not seriously contend that he owned the invention because he was day-to-day working on a cancer cure. His duty as a research chemist is clearly wider than his day-to-day work’. 88 Directors also have fiduciary duties to their company, as directors, which may in some cases affect their rights to exploit their inventions. 89 See Peart’s Patent (SRIS O/209/87) cited in CIPA Guide to the Patents Acts (8th edn, Sweet & Maxwell, 2016), para 39.11. 90 Section 40 of the 1977 Act. 91 The head of the UK Intellectual Property Office. 92 See s 40(2) of the 1977 Act; Pt 7, Rule 91, the Patents Rules 2007 and Civil Procedure Rules, r 63.12. The application must be made to the employee’s employer, not to the owner of the patent (eg the employer may have assigned the patent to which the invention relates to a third party): Price v Elf Print Media Ltd [2001] EWCA Civ 622. 93 Section 40(1) of the 1977 Act, as substituted by the Patents Act 2004, from 1 January 2005.

209

4.12  Patents

(b) the invention and/or the patent is (having regard among other things to the size and nature of the employer’s undertaking)94 of outstanding benefit to the employer; and (c) by reason of those facts, the court or comptroller finds that it is just that the employee should be awarded compensation to be paid by the employer.

Employee-owned inventions95 4.12

In summary, for a claim to succeed, it is necessary to establish that:

(a) the employee has made an invention which belongs to him, for which a patent has been granted; (b) he has assigned, or exclusively licensed, his rights in the invention or patent to the employer;96 (c) the benefit derived by the employee from the assignment or licence or any ancillary contract (‘the relevant contract’) is inadequate in relation to the benefit derived by the employer from the patent; and (d) by reason of those facts, the court or comptroller finds that it is just that the employee should be awarded compensation to be paid by the employer in addition to the benefit derived from the relevant contract. In practice, very few awards have been made to employees under section 40, partly because of the high hurdles which the wording of the section imposes.97 Prior to the coming into force of section 40 of the Patents Act 2004, the 1977 Act required that the patent (rather than the invention) must benefit the employer (a much narrower entitlement for an employee),98 and that (in the case of employer-owned inventions) the benefit to the employer should 94 In simple cases an undertaking will be the business or company (or a unit or entity which carried on a business activity) which employers the inventor (Shanks v Unilever plc and others [2019] UKSC 45, para 41). But in this case the position was different as the company (CRL) which employed the inventor was part of a large group of companies, and its work was exploited by the group of companies. The employer argued that CRL did not generate the revenues resulting from the employee’s patent, did not receive such revenues and was merely a service company within the group of companies. For the court, the correct approach was to look at the commercial of a situation, from the perspective of the inventor’s employer. 95 Section 40(2) of the 1977 Act. 96 And this took place after 1 June 1978 – see reference in s 40(2)(b) of the 1977 Act to the ‘appointed day’. 97 It was not until 2009 that an award was made by the UK courts to compensate employee inventors: Kelly & Anor v GE Healthcare Ltd [2009] EWHC 181 (Pat). 98 The change that the Patents Act 2004 introduced applies only to inventions the patent for which is applied for after 1 January 2005. Patent applications made prior to that date will still be subject to the more restrictive version of section 40 of the 1977 Act, that the patent must be of benefit to the employer.

210

Provisions of UK patent law 4.12

be outstanding, that is exceptional and ‘something more than one would normally expect to arise from the duties for which the employee is paid’.99 The change introduced by the Patents Act 2004 removed the limitation that it is only the patent which must benefit the employer, so that the employee can include not only the benefit from the patent but also the benefit obtained from the invention (or just the invention if the employee wishes). This change provided a simplification for employees, as they no longer need to establish whether the benefit that the employer has derived relates just to the invention or to the patent (or determine what amount of benefit relates to the invention or the patent). However, the requirement that the benefit has to be outstanding to the employer remained. Practically, the meaning of ‘outstanding’ is a relative and qualitative term, which requires the court to take a number of factors into account, including the size and nature of the employer’s undertaking,100 but these are not necessarily the only factors. Whether the changes introduced make a substantial difference is not yet clear.101 Irrespective of any legal entitlement under the 1977 Act, many academic institutions in the UK have policies in place to share any revenue obtained by those academic institutions for inventions commercially exploited with the academic responsible for the invention.102

 99 Kelly and another v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] All ER (D) 114 (Feb), Shanks v Unilever plc and others [2019] UKSC 45. 100 In Shanks v Unilever plc and others [2019] UKSC 45, concerning the size and nature of an employer’s business it is necessary to look at a number of factors. It is not enough simply to look at the revenue generated by the employee’s patent or invention against the total generated by the employer as a whole. The factors the court found relevant to consider included ‘the benefit may be more than would normally have been expected to arise from the duties for which the employee was paid; it may have been arrived at without any risk to the business; it may represent an extraordinarily high rate of return; or it may have been the opportunity to develop a new line of business or to engage in unforeseen licensing opportunities’. Although the court found it possible simply to find that a patent is of outstanding benefit to an employer by looking at the size and profitability of the whole business where a company is small. In effect it is necessary to separate out the profits generated by the employee’s patent or invention from those generated from products which are unrelated to the employee. Paragraphs 79–82 provide a summary of the findings of the court applied to the facts. 101 Shanks v Unilever plc and others [2019] UKSC 45 points to a court (or tribunal) taking a more nuanced approach than simply looking at the size of the benefit generated by an employee’s patent or invention, but its decision is based on Patents Act 1977, s 40 before its amendment (so that it is possible to take the invention and patent into account). 102 Although academic institutions may have revenue-sharing schemes in place, following the change made by the Patents Act 2004 as noted above, they still may wish to review such schemes so that they cover both the invention and patent and not just the patent. Of interest, in Kelly and another v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] All ER (D) 114 (Feb) reference is made to an academic benefiting under a revenue-sharing scheme operated by his university and the method of calculating the reward.

211

4.13  Patents

Collective agreements 4.13 The above sections do not apply where there is a ‘relevant collective agreement’103 which provides for the payment of compensation in relation to such inventions.104

Amount of compensation 4.14 The amount of any compensation awarded by the court or comptroller is governed by section 41 of the 1977 Act. The wording of section 41 is complex, but the main requirement is that the employee should receive a fair share of the benefit which the employer derives from the patent.105 The court or comptroller must take certain matters into account, including:106 •

the nature of the employee’s duties;

•

the benefits the employee derives from his employment or from the invention;

•

the effort and skill the employee contributed to making the invention;

•

the effort and skill that others contributed;

•

the employer’s contribution (for example in providing facilities or commercial skills);

•

in the case of a claim for additional compensation where the employee has previously assigned or licensed the invention to his employer, any conditions in any licences granted in respect of the invention or patent.107

Assignment or licensing of patent by employer to a connected person 4.15 There are special provisions to deal with the situation where the employer assigns or licenses the patent to a connected person (eg, in the case of a company employer, a company which is under common control with the employing company).108

103 Ie within the meaning of the Trade Union and Labour Relations (Consolidation) Act 1992, made between the employee’s trade union and the employer or employers’ association. 104 Section 40(3) of the 1977 Act. 105 Section 41(1) of the 1977 Act. There are special provisions to deal with the situation where the employer assigns or licences the patent to a connected person: s 41(2) of the 1977 Act. 106 Section 41(4) of the 1977 Act. 107 The wording of sub-ss 41(4) and (5) of the 1977 Act expands on these matters and mentions other matters that need taking into account. 108 See s 43(8) of the 1977 Act, which applies the definition of ‘connected person’ set out in s 839 of the Income and Corporation Taxes Act 1988.

212

Provisions of UK patent law 4.17

Where the employer is the Crown or a Research Council 4.16 There are also special provisions for calculating the benefit to the employer where it is the Crown, United Kingdom Research and Innovation or a Research Council109 and it has assigned the invention for no consideration or only nominal consideration to ‘a body having among its functions that of developing or exploiting inventions resulting from public research’.110

Enforceability of contracts which remove employee’s rights of ownership or compensation 4.17 The provisions of section 42 of the 1977 Act are designed to prevent employees from signing away their rights to future inventions. The section provides that in certain situations a term in a contract, which would diminish an employee’s rights to his inventions, will be unenforceable against him. Without such a provision, it could be easy for an employer to circumvent section 39 of the 1977 Act (which determines when an employee will own an invention made by him). All that the employer would need to do would be to include in the contract of employment a term providing that all employeeowned inventions would be assigned to the employer. It is possible to summarise the circumstances in which section 42 of the 1977 Act applies as follows: •

the section applies to any contract entered into by the employee, a term of which relates to inventions made by him. The contract could be with the employer, or with some other person at the employer’s request or as required by the contract of employment (eg an obligation to assign inventions to the employer’s parent company);

•

the section applies only to inventions, patent applications or patents made by the employee after the date of the contract111 (referred to below as ‘Future Inventions’). Thus, the section will not prevent an employee, for example, from assigning to his employer a patent which is already in existence at the date of the assignment;

•

the section provides that any term in such a contract which diminishes the employee’s rights in or under Future Inventions will be unenforceable against him. The term may be enforceable for other purposes, depending on its wording;112

109 Ie for the purposes of the Science and Technology Act 1965 (see s 41(3) of the 1977 Act). 110 This provision was designed to deal with inventions assigned to the NRDC, then the British Technology Group, and now 3i. The extent of its application today, given the abolition of 3i’s automatic right to certain inventions and the privatisation of 3i, may be uncertain. 111 Note that under s 42(2) of the 1977 Act the invention must also be made after the ‘appointed day’ (ie 1 June 1978). 112 See the wording of s 42(2) of the 1977 Act, and the general law of contract on severability, including the ‘blue pencil test’.

213

4.18  Patents

•

any duty of confidentiality which the employee may owe to his employer will not be affected by the above provisions.113

Whilst on the subject of unenforceable provisions in contracts, section 40(4) of the Act should be borne in mind. This provides that the provisions of section 40(2) of the Act, under which the court or comptroller may award additional compensation to an employee who has assigned or exclusively licensed his invention to his employer, shall have effect notwithstanding anything in the relevant contract or any agreement applicable to the invention.114 Thus it is not possible to contract out of section 40(2) of the Act. However, there is no equivalent provision in relation to compensation awarded under section 40(1) of the Act (ie in respect of employer-owned inventions).115

Extent of UK law on employee inventions 4.18 Section 43 of the 1977 Act sets out some supplementary provisions which define the extent to which the code on employee inventions, set out in sections 39–42 of the 1977 Act, will apply. The main points116 are: (a) sections 39–42 of the 1977 Act do not apply to inventions made before 1 June 1978;117 (b) sections 39–42 of the 1977 Act will not apply unless, at the time the employee made the invention, either: (i) he was mainly employed in the UK, or (ii) he was not mainly employed anywhere or his place of employment could not be determined, but his employer had a place of business in the UK to which the employee was attached, whether or not he was also attached elsewhere; (c) references in sections 39–43 of the 1977 Act to the making of an invention apply to both sole and joint inventions, but do not refer to merely contributing advice or other assistance in the making of an invention by another employee; (d) references in sections 39–42 of the 1977 Act to a patent and to a patent being granted refer to a patent or other protection and its being granted in the UK or elsewhere. Thus foreign patents and similar rights (eg petty patents and supplementary protection certificates) are covered; 113 Section 42(3) of the 1977 Act. 114 There is an exception in the case of collective agreements, as to which see para 4.13. 115 See the discussion on this point in CIPA Guide to the Patents Acts (6th edn, Sweet & Maxwell, 2009) para 40.11. It is unlikely, in the author’s view, that any attempt to contract out of s 40(1) of the 1977 Act would be legally enforceable. 116 There are also important provisions clarifying that ‘benefit’ means benefit in money or money’s worth, and dealing with the situation where the employee dies. 117 For the position prior to that date, see Schs 1–4 to the 1977 Act.

214

Provisions of UK patent law 4.19

it is debatable whether this extends sections 39–42 to other types of intellectual property which might be said to protect inventions, such as trade marks.118

Summary of the law illustrating how entitlement is determined 4.19 One case has provided a convenient summary of the law concerning the employee’s entitlement under the 1977 Act. It is worth quoting in full:119 ‘i) Section 40 is available to an inventor in the sense of the ‘actual deviser’ of the invention, but not to those who merely contribute to the invention without being joint inventors; ii) Section 40 is available to an employee who makes an invention (which is subsequently patented by the employer) in the ordinary course of his employment or in the course of duties specifically assigned to him; iii) Under the section prior to its amendment, it is the patent (as opposed to the invention) which must be of outstanding benefit to the employer, having regard to the size and nature of the employer’s undertaking; iv) ‘Outstanding’ means ‘something special’ or ‘out of the ordinary’ and more than ‘substantial’, ‘significant’ or ‘good’.120 The benefit must be something more than one would normally expect to arise from the duties for which the employee is paid; v) On the other hand it is not necessary to show that the benefit from the patent could not have been exceeded; vi) Section 40 is not concerned with whether the invention is outstanding, although the nature of the employee’s contribution may fall to be considered at the section 41 stage, if it is reached; vii) It will normally be useful to consider what would have been the position of the company if a patent had not been granted, and compare this with the company’s position with the benefit of the patent; viii) The patent must have been a cause of the benefit, although it does not have to be the only cause. The existence of multiple causes for a benefit does not exclude the benefit from consideration, although the benefit may have to be apportioned to isolate the benefit derived from the patent; 118 See the discussion of this point in CIPA Guide to the Patents Acts (8th edn, Sweet & Maxwell, 2016), para 43.05. 119 Kelly and another v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] All ER (D) 114 at para 60. 120 Shanks v Unilever [2019]  UKSC  45, which is a later decision, quotes this meaning of ‘outstanding’ from Kelly also more simply stating: ‘This is an ordinary English word meaning exceptional or such as to stand out and it refers here to the benefit (in terms of money or money’s worth) of the patent to the employer rather than the degree of inventiveness of the employee’.

215

4.19  Patents

ix) “Patent” in section 40 does not include regulatory data exclusivity [“RDE”].121 Thus the scenario without patent protection is one where RDE nevertheless exists; x) It must be “just” to make an award: the consideration of what is just is not limited to the facts set out in section 40; xi) It is not a requirement of obtaining compensation that the employee can prove a loss (for example by reference to inadequate remuneration for his employment) or by the expenditure of effort and skill beyond the call of duty. These are nevertheless factors to take into account under section 41; xii) The valuation of any benefit is to be performed ex post and in the light of all the available evidence as to benefit derived from the patent: not “ex-ante”; xiii) Where the employee shows that the invention has been of outstanding benefit, the amount of compensation is to be determined in the light of all the available evidence in accordance with section 41 so as to secure a just and fair reward to the employee, neither limiting him to compensation for loss or damage, nor placing him in as strong a position as an external patentee or licensor’. This case was decided on the version of the 1977 Act prior to its amendment.122 Only the benefit derived from the patent was available for consideration by the court (and not from the invention). The court awarded the two claimants £1.5 million. When considering whether the patents were of outstanding benefit to the employer, the judge considered the size and nature of the employer’s undertaking (amongst other factors). He found that the patents were of outstanding benefit to the employer of the claimants, having regard to all the circumstances: ‘I  have come to the conclusion that the patents were of outstanding benefit to Amersham having regard to all the circumstances, including the size and nature of its undertaking: The benefits went far beyond anything which one could normally expect to arise from the sort of work the employees were doing’. Of particular interest is the judge’s analysis: ‘The first and most obvious contribution the patents have made to [the drug company] is in protecting the business against generic competition and reduced profits after the expiry of RDE. The expiry of the patents in 121 RDE ‘guarantees additional market protection for originator pharmaceuticals by preventing health authorities from accepting applications for generic medicines during the period of exclusivity’ (from the European Generic Medicines Association website: http://www. egagenerics.com/gen-dataex.htm). 122 See para 4.10 above.

216

Provisions of UK patent law 4.20

about 2008 and the advent of generic competition was one of the major issues facing the [drug] company from 2000 onwards. If the patents had not existed in 2000, and [the drug company] had been facing the expiry of RDE in 2002, this would not simply have been a major issue, it would have been a crisis for [the drug company]. The benefit of patent protection is not limited to profits from sales. As I have held, the fact that [the drug company] had a patented blockbuster radiopharmaceutical has been a major factor in achieving the corporate deals. In this way the patents have helped transform [the drug company]. Considering the totality of the evidence I had no difficulty in recognising that the patents were of outstanding benefit to [the drug company]’.

Anti-competitive provisions in agreements relating to patents 4.20 The Competition Act 1998 repealed the competition law provisions, ie  sections 44 and 45, in the 1977 Act.123 Under these provisions, certain types of tying clauses and post-patent expiry restrictions were void. Those provisions still apply to agreements124 and applications125 made before 1  March 2000. Contract provisions which breach these sections may also breach EC and UK competition law.126 There are no provisions equivalent to section 44 in any of the other UK intellectual property statutes. Under Article  81 of the EC  Treaty and the Competition Act 1998, tying clauses are just one example of a large number of types of contract clause which may be void if included in agreements concerned with intellectual property.127 123 Perhaps as a consequence, the wording of ss 44, 45 of the 1977 Act (repealed by ss 70, 74 of the Competition Act 1998) was relatively intricate. The scope of s 44 of the 1977 Act was considered in Chiron v Murex [1996] RPC 535 which should be considered when drafting any tying clause, particularly if the agreement relates to both UK and non-UK activities. 124 Section 44 of the 1977 Act still applies to agreements entered into before 1  March 2000 (where the agreements contain conditions or terms for the supply of a patented product or of a licence to work a patented invention, or of a contract relating to any such supply or licence): Competition Act 1998 (Transitional, Consequential and Supplemental Provisions) Order 2000 (SI 2000/311), Art 3(a). Section 44 is dealt with in more detail in the first edition of this book. 125 Section 45 of the 1977 Act continues to apply to: ‘(a) notices to terminate an agreement relating to patents on three months’ notice after the expiry or revocation of those patents notwithstanding anything to the contrary in the agreement (the types of agreements are those described in section 44); or (b) applications made to a court to vary the terms of an agreement of the type envisaged by (a) where the patents have ceased to be in force and it would be unjust to require the applicant to continue to comply with the existing terms’. Where the notice was given and/or application was made before 1 March 2000: Competition Act 1998 (Transitional, Consequential and Supplemental Provisions) Order 2000 (SI 2000/311), Art 3(b). Section 45 is dealt with in more detail in the first edition of this book. 126 See Ch 14. 127 Competition law is considered in greater detail in Chs 14 (Guidelines and Regulation on R&D Agreements) and 15 (UK Competition Law).

217

4.21  Patents

Licences of right 4.21 At any time after the grant of a patent, the proprietor may apply to the comptroller for an entry to be made in the register to the effect that licences under the patent are to be available to the public as of right.128 If the comptroller is satisfied that the proprietor is not precluded by contract from granting licences (eg, because there is already a grant of an exclusive licence), the comptroller usually makes such an entry in the register. Where an entry is made, any person is entitled, as of right, to the grant of a licence under the patent on terms to be agreed with the proprietor. If the person and the proprietor cannot reach agreement, the licence will be on such terms as settled by the comptroller following an application by either the potential licensee or the proprietor.129 Existing licensees and defendants in infringement proceedings can also apply for such licences.130 For example, an existing licensee who has been granted its licence prior to a patent being endorsed (so that licences under it are available as of right) may apply to the comptroller to swap its existing licence for a licence of right, so that the licensee is bound by the terms on which a licence of right is settled by the comptroller.131 The main advantages to the proprietor of having the patent made subject to licences of right are that the renewal fees are halved, and the entry in the register provides some limited advertising of the fact that the proprietor is willing to grant licences under the patent.132 The licensee under a licence of right may request the proprietor to take proceedings against an infringer, and if he fails to do so the licensee may do so in his own name.133 The proprietor may apply to cancel the licence of right designation at any time, provided there are no current licensees, or all licensees consent to the cancellation.134 In addition, a person can apply for the cancellation of a licence of right, if that person can satisfy the comptroller that

128 Section 46(1) of the 1977 Act. 129 Section 46(3)(a) of the 1977 Act. If the proprietor and the proposed licensee cannot settle the terms of the licence, then the application must be made on Patents Form 2 with two copies of the terms of the draft licence. The comptroller must notify the proprietor and provide a copy of the application and proposed draft licence, with the proprietor having the right to file a statement. Thereafter the new procedure for applications before the comptroller is followed. See Patents Rules 2007 (SI 2007/3291), r 89 and Pt 7. 130 Section 46(3) of the 1977 Act. 131 Section 46(3)(b) of the 1977 Act. 132 Section 45(3)(d) of the 1977 Act. There may be other advantages in having the patent made subject to licences of right in some situations, eg where there is a risk of a compulsory licence being ordered by the comptroller (eg under s 51 of the 1977 Act). 133 Section 46(4), (5) of the 1977 Act. 134 Section 47 of the 1977 Act.

218

Provisions of UK patent law 4.23

the proprietor had entered into a contract with that person and the contract precludes the proprietor granting licences.135 There have been many reported cases in which the terms of licences of right have been contested. As well as being of relevance to licences of right under patents, these cases are likely to be of particular interest in future years in relation to design right and copyright in designs, as licence of right provisions were introduced for those rights in the Copyright, Designs and Patents Act 1988.136

Compulsory licences General 4.22 The Act sets out grounds for granting compulsory licences. The procedure, and grounds for obtaining a compulsory licence, underwent heavy revision in 1999 in order to comply with the TRIPS (the Trade-Related Aspects of Intellectual Property Rights) agreement.137 The provisions are now different depending on whether the patent in question has a proprietor who is a ‘WTO proprietor’ or not. A proprietor of a patent is a WTO proprietor if: (a) he is a national or is domiciled in a country which is a member of the World Trade organisation; or (b) he has a real and effective industrial or commercial establishment in such a country.138

Time at which the grant of a compulsory licence etc can be sought and grounds for licence 4.23 Any person, at any time after the expiration of three years from the date of the grant of a patent, may apply on the prescribed form139 to the comptroller:140 135 Section 47(3) of the 1977 Act. Such an application has to be done within two months of an entry in the register that licences under the patent are to be available to the public as of right. 136 Copyright, Designs and Patents Act 1988, s 237 (in relation to design right – applicable for the last five years of the design-right term); Copyright, Designs and Patents Act 1988, Sch 1, para 19 (in relation to copyrights existing before 1 August 1989). After that date copyright is not available for most industrial designs. 137 Section 48 of the 1977 Act, as substituted by SI 1999/1899 with effect from 2 July 1999. These Regulations replaced ss 48, 51, 52 of the 1977 Act, added two new sections, ss 48A and 49B to the 1977 Act, and made revisions to other sections and several changes to the rules made under the Patents Rules 1995 (SI 1995/2093) (which are now revoked and replaced by the Patents Rules 2007 (SI 2007/3291)). 138 Section 48(5) of the 1977 Act, as substituted by SI 1999/1899. The UK is a member of the World Trade Organisation. Most other countries are also members. 139 Patents Form 2. The application will need to comply with the procedure for applications in Patents Rules 2007 (SI 2007/3291), Pt 7. 140 Section 48(1)(a)–(c) of the 1977 Act. The applicant can be an existing holder of a licence under the patent, section 48(3) of the 1977 Act.

219

4.23  Patents

(a) for a licence under the patent; or (b) for an entry to be made in the register to the effect that licences under the patent are available as of right; or (c) if the applicant is a government department, for the grant to any person specified in the application of a licence under the patent. If the comptroller is satisfied that the relevant grounds are satisfied141 then the comptroller may (i) for (a) above, grant a licence to the applicant on such terms as the comptroller considers fit; (ii) for (b) above, make an entry in the register that licences are available of right; and (iii) for (c) above, grant a licence on such terms as the comptroller considers fit to the government department (or any person specified in the government department’s application). Where the comptroller is satisfied the use of items is unfairly prejudiced by conditions placed by the proprietor of a patent on the grant of a licence (or other disposal of the items) then the comptroller can grant a licence to an applicant or to the applicant’s customers. This is subject to two conditions: (a) the items are not protected by the patent; and (b) the patent is the subject of application for a compulsory licence or entry of a licence of right.142 Where a person makes an application for a compulsory licence or entry of a licence of right concerning a patent, but that person already has a licence under the patent, the comptroller can cancel the existing licence and grant another or amend the provisions of the existing licence.143 A licensee under a compulsory licence or a licence by virtue of a compulsory entry ‘licences of right’ has the same power to require the proprietor to take infringement proceedings, and in default to take proceedings in his own name, making the proprietor a defendant, as has a licensee under a voluntary entry.144

141 The relevant grounds are (i) if the application is made where the proprietor of a patent is a WTO proprietor, the relevant grounds are those set out in s  48A(1) of the 1977 Act (see para 4.24 below ; (ii) in any other case, the relevant grounds set out in s 48B(1) of the 1977 Act (see para 4.25 below (s 48(4) of the 1977 Act, as amended by SI 1999/1899 with effect from 2 July 1999). 142 Section 49(1) of the 1977 Act. ‘Items’ means ‘the manufacture, use or disposal of materials’. 143 Section 49(2) of the 1977 Act. 144 Section 46(4), (5) of the 1977 Act are applied to compulsory licences by s  49(4) of the 1977 Act.

220

Provisions of UK patent law 4.25

WTO proprietor 4.24 For an application in respect of a patent whose proprietor is a WTO proprietor, the relevant grounds are: (a) where the patented invention is a product, that a demand for the product in the UK is not being met on reasonable terms; (b) that by reason of the refusal of the proprietor of the patent concerned to grant licence(s) on reasonable terms; and (i) the exploitation in the UK of any other patent which involves an important technical advance of considerable economic significance in relation to the invention for which the patent concerned was granted is prevented or hindered;145 or (ii) the establishment or development of commercial or industrial activities in the UK is unfairly prejudiced; (c) that by reason of conditions imposed by the proprietor of the patent: (i) on the grant of licence(s) under the patent; or (ii) on the disposal or use of the patent product; or (iii) on the use of the patented process. The manufacture, use or disposal of materials not protected by the patent, or the establishment or development of commercial activities in the UK is unfairly prejudiced.146 Before an applicant can make an application the applicant has to have made efforts to obtain a licence from the proprietor of the patent on reasonable commercial terms and conditions and has been unable to do so within a reasonable period.147

Non-WTO proprietor 4.25 For an application in respect of a patent whose proprietor is a nonWTO proprietor the relevant grounds are: (a) the patented invention is not being commercially worked in the UK, or not to the fullest extent that is reasonably practicable;

145 This ground will not apply if the comptroller is satisfied that the proprietor of the patent for the other invention is able and willing to grant to the proprietor of the patent concerned and his licensees a licence under the patent for the other invention on reasonable terms (s 48A(4) of the 1977 Act, as inserted by SI 1999/1899). 146 Section 48A(1) of the 1977 Act, as inserted by SI 1999/1899. 147 Section 48A(2) of the 1977 Act, as inserted by SI 1999/1899.

221

4.26  Patents

(b) demand for a patented product in the UK is not being met on reasonable terms, or is being met to a substantial extent by importation from a country which is not a member state; (c) the patented invention is being prevented from being commercially worked in the UK by importation of the patented product from a country which is not a member state, or where the invention is a process, by importation of the product produced by the process from such a country of a product obtained directly by means of the process or to which the process has been applied; (d) by reason of the refusal of the proprietor of the patent to grant licence(s) on reasonable terms: (i) a market for the export of any patented product made in the UK is not being supplied; (ii) the working in the UK of any other patented invention which makes a substantial contribution to the art is prevented or hindered; or (iii) the establishment or development of commercial or industrial activities in the UK is unfairly prejudiced; or (iv) by reason of conditions imposed by the proprietor on the grant of licences, or on the disposal or use of the patented product or on the use of the patented process, the manufacture, use or disposal of materials not protected by the patent, or the establishment or development of commercial or industrial activities in the UK is unfairly prejudiced.148 The comptroller must exercise his powers with a view to securing, inter alia, the prompt and full working of inventions in the UK, and reasonable remuneration for the proprietor of the patent, and with a view to not unfairly prejudicing the interests of any person developing or working a patented invention.149

Restrictions on grant of licence where the proprietor of the patent in question is a World Trade Organisation (‘WTO’) proprietor 4.26 Certain restrictions are placed on the type of licence that can be granted in pursuance of an order in respect of a patent whose proprietor is a WTO proprietor: (a) it shall not be exclusive; (b) it can only be assigned to a person to whom there is also assigned the part of the enterprise that enjoys the use of the patented invention or the part of the goodwill that belongs to that party; 148 Section 48B(1) of the 1977 Act, as inserted by SI 1999/1899. 149 Section s 50(1) of the 1977 Act, as amended by SI 1999/1899.

222

Provisions of UK patent law 4.27

(c) it shall be predominantly for the supply of the market in the UK; (d) it shall allow the proprietor adequate remuneration, taking into account the economic value of the licence; and (d) it shall be limited in scope and duration to the purpose for which the licence was granted.150

Purpose of powers to grant compulsory licences proprietor is a non-WTO proprietor 4.27 The comptroller must, when deciding whether to make an order for the grant of a compulsory licence or an entry ‘licences of right’, where the proprietor is a non-WTO proprietor, seek to achieve the following general purposes: ‘(a) that inventions which can be worked on a commercial scale in the United Kingdom and which should in the public interest be so worked shall be worked there without undue delay and to the fullest extent that is reasonably practicable; (b) that the inventor or other person beneficially entitled to a patent shall receive reasonable remuneration having regard to the nature of the invention; (c) that the interests of any person for the time being working or developing an invention in the United Kingdom under the protection of a patent shall not be unfairly prejudiced.’151 The comptroller shall take the following matters into account whether to grant a compulsory licence or make a licence available of right: (a) the nature of the invention, the time which has elapsed since the patent was granted and the measures already taken by the patent owner or any licensee to make full use of his invention; (b) the ability of any person to whom a licence would be granted under the order concerned to work the invention to the public advantage; and (c) the risks to be undertaken by that person in providing capital and working the invention if the application for an order is granted.152 Once an application has been made, the comptroller is not required to take account of any matters which have arisen after the date of the making of the application although he may do so if he wishes.153

150 151 152 153

Section 48A(6) of the 1977 Act, as inserted by SI 1999/1899 with effect from 2 July 1999. Section 50(1) of the 1977 Act, as amended by SI 1999/1899 with effect from 2 July 1999. Section 50(2) of the 1977 Act, as amended by SI 1999/1899 with effect from 2 July 1999. Section 50(2) of the 1977 Act, as amended by SI 1999/1899 with effect from 2 July 1999.

223

4.28  Patents

EU compulsory licences 4.28 In addition to the main provisions for compulsory licensing set out above, there is a further, more limited, compulsory licensing scheme. This scheme is set out in Regulation (EU) 816/2006 (‘EU Compulsory Licensing Scheme’),154 which provides a procedure for the grant of compulsory licences for patents and supplementary protection certificates where: •

a person wishes to make and sell pharmaceutical products for export to importing countries; and

•

those products will tackle public health problems.155

Regulation (EU) 816/2006 is not implemented into UK law (being directly applicable), but the 1977 Act was amended to apply certain of the 1977 Act’s provisions to it (such as those provisions concerning applying for a patent also apply to an application for a licence under the EU Compulsory Licensing Scheme).156

Countries which may receive pharmaceutical products 4.29 The countries who may receive an import of pharmaceutical products under the EU Compulsory Licensing Scheme include: (1) a least-developed country which appears in the United Nations list; (2) a WTO member who is not a least-developed country but wishes to be an importer (whether in whole or in part) and has notified its intention of so doing to the Council of TRIPS; (3) a country which is not an WTO member, but is a low-income country (with a gross national product of less than USD745 per person) and is listed as such with the OECD Development Assistance Committee, but it wishes be an importer (whether in whole or in part) and has notified its intention of so doing to the EU Commission.157

Precondition to applying for a compulsory licence 4.30 When a person applies for a licence under the EU  Compulsory Licensing Scheme, they have to provide evidence that:

154 Regulation (EC) 816/2006 of the European Parliament and of the Council of 17 May 2006 on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. 155 Regulation (EC) 816/2006, art 2. 156 Patents (Compulsory Licensing and Supplementary Protection Certificates) Regulations 2007 (SI 2007/3293), reg 2, which inserts s 128A into the Patents Act 1977. 157 Regulation (EC) 816/2006, arts 4, 5.

224

Provisions of UK patent law 4.31

(1) they have tried to obtain authorisation from the rights holder; (2) that they have not been able to do so; and (3) a period of 30 days has passed since trying to do so.158 This precondition will not apply if: (1) there is a situation of national emergency; (2) there are other circumstances of extreme urgency; or (3) there is a case of public non-commercial use (under Article 31(b) of the TRIPS Agreement).159

Conditions for grant 4.31 The grant of a compulsory licence is subject to certain conditions and limitations, whether expressed generally or as contained in the grant of licence:160 (1) it is not possible to assign the licence161 and the licence is non-exclusive; (2) the amount of products it is possible to manufacture under the compulsory licence ‘shall not exceed what is necessary to meet the needs of the importing country or countries cited in the application’, taking into account the amount of product which is manufactured under other compulsory licences; (3) the duration of the licence must be stated; (4) the licence is limited only to those acts which are necessary to enable the licensee to manufacture the product for export and distribution to the country(ies) specified in the application; (5) the products produced under a compulsory licence shall be clearly marked or labelled as such (so it is possible to distinguish them from normal products); (6) before the licensee ships the products to an importing country, the licensee shall post on a website: (a) the quantities supplied and the countries to which they are supplied; (b) the distinguishing features of the products; 158 Regulation (EC) 816/2006, art 9.1. TRIPS, art 31 contains provisions when it is possible to use a patent without the authorisation of the owner of the patent. 159 Regulation (EC) 816/2006, art 9.2. 160 Regulation (EC) 816/2006, art 10. Items 2 to 9 in the list are to be contained in the licence itself. 161 Except ‘with that part of the enterprise or goodwill which enjoys the licence’: Regulation (EC) 816/2006, art 10.1. This meaning of this phrase is not immediately clear but is likely to mean that it is possible to assign the licence within a group of companies.

225

4.32  Patents

(7) if the products are also subject to patent protection in the importing country, the products may only be imported if the importing country has granted a compulsory licence for the import, sale and distribution of the product; (8) the authority issuing the compulsory licence, on request (and if its national law permits), can inspect the records of the licensee, to see if the licensee is complying with the provisions of the licence; (9) the licensee must pay adequate remuneration to the right holder (as the national authority determines): (a) in cases of national emergency, extreme urgency or non-commercial use: up to 4% of the total price paid by the importing country (or on its behalf); (b) otherwise, taking into account the economic value of the licensed use to the importing country as well as the humanitarian or noncommercial circumstances which relate to the issue of the licence.

Application procedure 4.32 The Regulation sets out the steps involved in making an application, which include: (1) the detail of what must go into the application, including which countries the products are going to, amounts of product, evidence of a request from the country to which the products will be exported, the non-proprietary name the applicant will use, which other countries the applicant is also applying for a compulsory licence, etc;162 (2) the national authority handling an application will verify that the country (if a WTO member) to which the products are going has notified the WTO; or, if the country is not a WTO member, the national authority will contact the European Commission to see if the country has made a notification to the European Commission.163 The national authority has the power to refuse an application if the conditions for application are not fulfilled, subject to a right to rectify an application.164

Other points 4.33 The national authority has the authority to terminate or review a licence (whether by the rights-holder or the licensee, upon either of them making a reasoned request).165 If a licence is terminated, the Council of 162 163 164 165

Regulation (EC) 816/2006, art 6. Regulation (EC) 816/2006, art 8. Regulation (EC) 816/2006, art 11. Regulation (EC) 816/2006, art 16.1.

226

Provisions of UK patent law 4.34

TRIPS will be informed (via the European Commission).166 If a licence is terminated, the licence holder can, within a specified reasonable period, dispose of the products to another country which needs the products or as directed by the national authority.167 If an importing country notifies the national authority that the amount of products it is receiving under the licence is not sufficient, and the national authority receives an application from the licence holder, then the national authority can amend the licence to permit additional quantities to be manufactured and exported (under a simplified application procedure).168 There is also a right to appeal against any decision of the national authority, with disputes regarding complying with a licence to be heard in bodies existing under national law.169

Competition and Markets Authority report 4.34 If the Competition and Markets Authority has produced a report and provided it to Parliament: (a) ‘on a competition reference, that a person was engaged in an anticompetitive practice which operated or may be expected to operate against the public interest, or (b) on a reference under section 11 of the Competition Act 1980 (reference of public bodies and certain other persons), that a person is pursuing a course of conduct which operates against the public interest’, then a minister can make an application to the comptroller asking the comptroller to take action under section 51 of the 1977 Act.170 If the comptroller considers that the matters appearing in the Authority’s report which (in the opinion of the Authority) operate (or are likely to operate) against the public interest include: (a) conditions in a licence granted under a patent and those conditions restrict: (i) the licensee’s use of the invention; or (ii) the power of the patentee to grant other licences; or (b) the proprietor refusing to grant licences on reasonable terms; 166 167 168 169 170

Regulation (EC) 816/2006, art 16.2. Regulation (EC) 816/2006, art 16.3. Regulation (EC) 816/2006, art 16.4. Regulation (EC) 816/2006, art 17. Section 51(1) of the 1977 Act, as substituted by SI 1999/1899. Before making the application the minister has to consult, including publishing a notice which sets out the proposed application, and consider any representations: see s 51 of the 1977 Act.

227

4.35  Patents

then the comptroller has the power to remove or modify such conditions or enter a licence of right in the register of patents.171 There is similar procedure involved and powers provided to the comptroller following market and merger investigations.172

Rights of the Crown to use patented inventions 4.35 Any government department, and any person authorised in writing by a government department,173 may ‘use’ a patented invention ‘for the services of the Crown’.174 It is thought that such authorisation may be express or implied. Use: the term ‘use’ is defined175 to include manufacture, importation and keeping of patented products, including products produced by patented processes, and some sales of patented products, but including all sales of ‘specified drugs and medicines’.176 For the services of the Crown: the term ‘for the services of the Crown’ is defined177 to include: (a) the supply of anything for foreign defence purposes; (b) the production or supply of specified drugs and medicines; and (c) such purposes relating to the production or use of atomic energy or research into matters connected therewith as the Secretary of State thinks necessary or expedient. These items are further defined178 and need reading in conjunction with the Defence Contracts Act 1958 (as amended). Separate powers exist for a government department and its nominees to use inventions during times of emergency.179 Compensation is generally payable by the relevant government department to the proprietor or the proprietor’s exclusive licensee in respect of Crown use of his invention. In some cases the compensation is calculated by reference to the loss of profit the proprietor suffers as a result of not being awarded a contract to supply the patented product or perform the patented

171 172 173 174 175 176 177 178 179

Section 51(3) of the 1977 Act, as substituted by SI 1999/1899. Section 50A of the 1977 Act, inserted by the Enterprise Act 2002. Such persons may include, for example, companies supplying goods or services to the Government. Section 55 of the 1977 Act. See note 174. As defined in s 56(4) of the 1977 Act. Section 56(2) of the 1977 Act. Section 56(3), (4) of the 1977 Act. Section 59 of the 1977 Act.

228

Other fundamental provisions of UK patent law 4.37

process.180 Third parties who are adversely affected by the Crown’s use of the invention (eg  a licensee under the patent, a person who assigned the patent to the proprietor in return for royalties, or the owner of related copyright or design right) may also be entitled to compensation.181 Disputes over Crown user provisions may be referred to the court.182

OTHER FUNDAMENTAL PROVISIONS OF UK PATENT LAW WHICH MAY AFFECT PARTIES TO A PATENT TRANSACTION Introduction 4.36 The following sections consider provisions which are important for an understanding of UK patents, including obtaining, registering, infringing, challenging and revoking UK patents. As already mentioned, the following sections will not consider aspects which are unlikely to affect commercial transactions (for example, the detailed procedures for obtaining or challenging patents, which are more likely to be of interest to drafters of patent specifications or litigators).183

Applications for patents and other procedural matters What is a patentable invention?184 4.37 The word ‘invention’ is not defined in the 1977 Act. Although the 1977 Act does provide a way of identifying what is a particular invention for the purposes of the 1977 Act by way of how it is described: ‘invention for a patent for which an application has been made or for which a patent has been granted shall, unless the context otherwise requires, be taken to be that specified in a claim of the specification of the application or patent, as the case may be, as interpreted by the description and any drawings contained in that specification, and the extent of the protection conferred by a patent or application for a patent shall be determined accordingly’.185

180 Section 57A of the 1977 Act; subject to detailed criteria set out in this section, eg that the contract could have been fulfilled from his existing manufacturing capacity. See also the separate compensation provisions of ss  55(4), 57(4) of the 1977 Act and the criteria for compensation in s 58 of the 1977 Act. 181 Section 57 of the 1977 Act. 182 Section 58 of the 1977 Act. 183 Much of which is contained in the Patents Rules 2007 (SI 2007/3291). 184 See ss 1–6 of the 1977 Act. 185 Section 125(1) of the 1977 Act.

229

4.37  Patents

Instead of attempting a definition which might have a restrictive effect on the granting of patent protection to inventions or processes resulting from changes in technology, the 1977 Act sets out criteria, in general terms, by which an invention is to be tested in order that it should be patentable. The Act also specifically excludes certain things from being inventions for the purposes of the 1977 Act. To be patentable, an invention must satisfy three positive requirements186 and must not fall within a category excluded from patentability187 by the 1977 Act: (a) it is new (‘novelty’); (b) it involves an inventive step (‘inventiveness’); (c) it is capable of industrial application (‘utility’); and (d) it is not excluded on account of its falling within the specified exceptions, prohibitions on grant.188 In more detail: (a) Novelty: the invention must be new, that is to say it must not form part of the state of the art (as defined).189 The state of the art includes all matter which has been made available to the public anywhere in the world before the invention’s priority date.190 The priority 186 Section 1(1) of the 1977 Act. 187 Section 1(2) of the 1977 Act. 188 The conditions which an invention needs to satisfy in order to be patentable (that is, s 1(1) of the 1977 Act) require separate consideration from whether the invention is excluded by one of the exceptions (that is, s 1(2) of the 1977 Act). That fact that an invention is new and involves an inventive step may still not qualify for protection by a patent if it falls within an excluded category under s 1(2) of the 1977 Act. See Lantana Ltd v Comptroller General of Patents, Design and Trade Marks [2014]  EWCA  Civ 1463: ‘There is no inconsistency between an acceptance that an invention embodied in a claim is new and inventive and a finding that the contribution it makes falls solely within excluded subject matter. The former requires a consideration of the claimed invention and an assessment of whether it forms part of the state of the art or is merely an obvious step away from it. The latter requires a consideration of whether the contribution made by the invention falls solely within one or more of the exceptions to patentability’. 189 Section 2 of the 1977 Act. 190 Section 2(2) of the 1977 Act. A disclosure made in confidence is not likely to be considered as being made available to the public: PLG Research v Ardon International Ltd [1993] FSR 197, ‘thus to form part of the state of the art, the information given by the use must have been made available to at least one member of the public who was free in law and equity to use it’. In EPO Decision T 300/86, a report made available to licensees on loan, with the report having ‘confidential’ marked on it, was held as not being published to the public. Where confidentiality is raised as an issue, then it is for the party who is arguing that the information in question is subject to confidentiality obligations to argue that the recipient was bound by those obligations (whether in law or in equity): see Kavanagh Balloons v Cameron Balloons [2004] RPC 97[5] (decision of the Patents County Court). The UKIPO in the Manual of Patent Practice (at 2.37–2.38) indicates that the obligations are on an applicant if s/he wishes to argue that an earlier disclosure is not forming part of the prior state of art: ‘The onus is on

230

Other fundamental provisions of UK patent law 4.37

date is also defined; this is generally the date of filing of the patent application, or in some limited cases is the date of filing by the same person of an earlier application claiming the same invention. It is only possible to disregard disclosures made prior to the priority date in limited circumstances.191 There is not, however, a one-year grace period equivalent to that which has traditionally been available in the US. Thus, in order to obtain patent protection it is generally essential that the invention should not be publicly disclosed prior to making the patent application. (b) Inventiveness: the invention must involve an inventive step, that is to say it must not be obvious to those skilled in the art (technical field) to which it relates, as defined,192 having regard to any matter which forms part193 of the known technical field of the invention (the prior art).194 Thus an invention has to be more than simply new to justify the grant of a patent. Under the 1977 Act the UK Intellectual Property Office has to consider whether the invention involves an inventive step in addition to examining for novelty. (c) Utility: the invention must be capable of industrial or agricultural application.195 Methods of treatment of humans or animals by surgery, therapy or diagnosis are excluded.196 However, substances or compositions invented for use in such methods of treatment may be capable of industrial application.197

190 contd the applicant to make out a case with sufficient evidence that the disclosure comes within s  2(4) of the 1977 Act’. Such an application ‘must be fully particularised (possibly with evidence made by affidavit) and ‘the examiner should disregard the disclosure only if he is convinced by the applicant’s submissions that, on the balance of probabilities, s 2(4) applies’. 191 See s  2(4) of the 1977 Act – some disclosures made in breach of confidence during a sixmonth grace period are disregarded, as are disclosures made at a very limited number of major international exhibitions (see s 130(2) of the 1977 Act and Patents Rules, r 5(3), (4)). 192 Section 3 of the 1977 Act. 193 Ie by virtue of s 2(2) of the 1977 Act, and ignoring s 2(3) of the 1977 Act. 194 Section 3 of the 1977 Act. Matter in a concurrent application, treated as published, does not form part of the prior art for this purpose (s 3 of the 1977 Act). 195 Section 4(1) of the 1977 Act. In Chiron Corpn v Murex Diagnostics Ltd [1996] RPC 535, the Court of Appeal held that the invention had to be capable of being used in any kind of industry. The court went on to say that the word ‘industry’ had to be useful: that industry ‘does not exist to make or use that which is useless for any known purpose’, and intellectual property rights should be restricted to those inventions which are useful, and industrial application does not necessarily mean that a profit should be achieved or desired. 196 Section 4(2) of the 1977 Act. 197 Section 4(3) of the 1977 Act.

231

4.37  Patents

(d) Excluded categories:198 in addition to the above three positive requirements, the invention must also not be within any of the excluded categories.199 Patents are not available200 for: (i) a discovery, scientific theory or mathematical method;201 (ii) a literary, dramatic, musical or artistic work or any other aesthetic creation; (iii) a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer; (iv) the presentation of information; Items (i) to (iv) are only excluded ‘as such’ from being granted patent protection.202 These four categories of excluded things are not a closed list.203 It is possible for other categories of inventions not to be patentable for the purpose of the 1977 Act.

198 The method that the UKIPO uses to establish whether an invention falls within one of the excluded categories is set out in Aerotel Ltd v Telco Holdings Ltd and others; Re Macrossan’s Application [2006]  EWCA  Civ 1371 and consists of four steps: ‘(1) properly construe the claim; (2) identify the actual contribution; (3) ask whether it falls solely within the excluded subject matter; and (4) check whether the actual or alleged contribution is actually technical in nature’. The first step will involve determining what monopoly is claimed by the applicant. The second step involves ‘… an exercise in judgment probably involving the problem said to be solved, how the invention works, what its advantages are. What has the inventor really added to human knowledge perhaps best sums up the exercise. The formulation involves looking at substance not form … the test must be what contribution has actually been made, not what the inventor says he has made’. It is up to the UKIPO to determine what the contribution made is known or obvious and not necessarily accept what the inventor states the contribution is, and can involve the search of prior art: Patent Application No GB 0311200 in the name of IGT/ Acres Gaming Inc [2008] EWHC 568 (Pat). The third step involves whether the contribution of the invention which is identified ‘consists of excluded subject matter as such’, and how the Intellectual Property Office does this is to a large extent governed by the extensive prior case law covering one of the specific exclusions. The fourth step involves ‘”what technical contribution the invention makes to the known art”. There must be … some technical advance on the prior art in the form of new result’: Merrill Lynch’s Application [1989] RPC 561. Often if an invention fails step 3 there is no need to go on to step 4.’ 199 Sections 1–4 of the 1977 Act. 200 See s 1(2) of the 1977 Act. See note 188 regarding how an invention must receive separate consideration as to whether it falls within s  1(1) of the 1977 Act and also s  1(2) of the 1977 Act. 201 In crude terms, a discovery which has no practical effect or result comes within this exclusion. 202 Section 1(2) of the 1977 Act. 203 Section 1(2) of the 1977 Act states the categories listed are ‘among other things’ which are not inventions for the purpose of the 1977 Act. It appears that to date the courts have only considered one type of invention which comes within the category of ‘among other things’: Lux Traffic Controls Ltd v Pike Signals Ltd and Faronwise Ltd [1993] RPC 107 (a method of controlling traffic regardless of whether it was also excluded as a business method). The Intellectual Property Office (in a decision made by a hearing officer) decided that a method of developing a golf swing without employing a golf club was also in the category of ‘among other things’ although it did not clearly fall within other categories of exclusion: Kostuj’s Application (BL 0/28/12).

232

Other fundamental provisions of UK patent law 4.37

(e) Treatment or diagnosis of/on human or animal body: a patent will not be granted for an invention for:204 (i) a method of treatment of the human or animal body by surgery or therapy; or (ii) a method of diagnosis practised on the human or animal body. The exclusion from patentability of (i) and (ii) will not apply to an invention consisting of substances or compositions for use in such methods.205 The excluded items are capable of variation; the Secretary of State may by order vary these exclusions for the purposes of maintaining them in conformity with developments in science and technology.206 In addition, it is not possible to obtain grant of a patent for an invention where the commercial exploitation of the invention would be contrary to public policy or morality.207 This phrase is not explained further in section 1 of the 1977 Act, but the exploitation of an invention shall not be regarded as contrary to public policy or morality only because it is prohibited by any law of the UK or any part of it.208

204 Section 4A(1) of the 1977 Act (inserted by the Patents Act 2004, in force from 13 December 2007, SI 2007/3396). Prior to the Patents Act 2004, these provisions were considered to be inventions not capable of industrial application (under s 4 of the 1977 Act). 205 Section 4A(2) of the 1977 Act, inserted by the Patents Act 2004 from 13  December 2007 (SI 2007/3396). However, if the invention consists of a substance or composition in one of these excluded methods (whether generally or for a specific use), although the substance or composition may be part of the state of the art, the invention may still be considered new if the substance’s or composition’s use in such a method is not part of the state of the art (s 4A(2), (3) of the 1977 Act). 206 Section 1(5) of the 1977 Act. 207 Section 1(3) of the 1977 Act, as amended by SI 2000/2037. Article 6(2) of the Biotechnology Directive states what is considered to be contrary to ordre public or morality: 1. processes for cloning human beings; 2. processes for modifying the germ-line genetic identity of human beings; 3. use of human embryos for industrial or commercial purposes; and 4. processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such processes. These four items are also found in para  3(b)–(f), Sch A2 to the 1977 Act; they are in that Schedule held not to be patentable inventions, together with: ‘… the human body, at the various stages of its formation and development and the simple discovery of one of its elements, including the sequence or partial sequence of a gene’ (Sch A2, para 3(a)). The invention per se may be innocuous; it is what it may encourage that is considered to be the reason for not making it a patentable invention. What is offence under this provision may change with the attitudes of future times; thus in 1926 a patent was refused in respect of contraceptive invention as being against public policy, but contraceptive inventions have been granted patent protection since 1956. 208 Section 1(4) of the 1977 Act, as amended by SI 2000/2037.

233

4.38  Patents

The exclusion of computer programs prevents computer programs ‘as such’ from being patented.209 However, an invention which includes the use of a computer program may be patentable, normally because the computer program has some technical effect outside of its simply running on a computer, such as affecting the computer itself or something else. Thus a method or process satisfying other requirements for patentability and carried out under control of a computer program may be granted a patent.210 If an applicant for a patent describes a method of applying a new idea to a manufacture, then it may be possible to protect the idea when related to the manufacture. Biological material211 and other products, which are produced by biological techniques, are not excluded from patentability.212 Biotechnological inventions are now specifically addressed in the 1977 Act.213 An invention is not considered unpatentable solely on the ground that it concerns a product consisting of, or containing, biological material or a process by which biological material is produced, processed or used.214 A biotechnological invention215 can be patentable whether it is obtained from the natural environment or by means of a technical process216 and can include elements obtained from a human body, including the sequence or partial sequence of a gene (even identical to that of a natural element).217

Established criteria for a new invention 4.38 Whilst the enactment of requirements for an invention to be patentable, set out above,218 clarifies the statute law, it is thought that the 209 The patentability of computer programs is discussed in more detail in para  4.99 onwards below. 210 See Merill Lynch Inc’s Application [1988]  RPC  1 and more recent cases (eg  Fujitsu Ltd’s Application [1996] RPC 511) with regard to the exclusion under s 1(2)(c) of the 1977 Act, in general, and ‘schemes for doing business’ in particular. The UK courts continue to regard many software-related inventions as unpatentable by virtue of s 1(2)(c) of the 1977 Act, taking a stricter view than either the European Patent Office or the US patent authorities. 211 Biological material (formerly micro-organism) is any material containing genetic information and capable of reproducing itself or being reproduced in a biological system (s 130 of the 1977 Act, as inserted by SI 2000/2037). 212 But is subject to s 76A, Sch A2 of the 1977 Act (as inserted by SI 2000/2037). 213 Section 76A and Sch  2A of the 1977 Act (inserted by the Patents Regulations 2000 (SI  2000/2037)) to give effect to Directive 98/44/EC ([1998]  OJ L213/13) on the legal protection of biotechnological inventions. 214 Sch 2A, para 1 of the 1977 Act, as inserted by the Patents Regulations 2000 (SI 2000/2037). Biological material is defined in s 130(1) of the 1977 Act. 215 A biotechnological invention is defined as meaning an invention which concerns a product consisting of or containing biological material or a process by means of which biological material is produced, processed or used: s 130(1) of the 1977 Act. 216 Sch A2, para 2 of the 1977 Act. 217 Sch A2, para 5 of the 1977 Act. 218 See para 4.37.

234

Other fundamental provisions of UK patent law 4.39

general principles for patentable inventions established by the courts under previous patent legislation still apply under the 1977 Act. The statutory criteria mentioned above are sometimes difficult to apply, but the following principles have been established under the previous law, which, it is submitted, remain the same under the 1977 Act: (a) smallness or apparent simplicity does not render an improvement unpatentable, as long as invention is involved; (b) the actual history of the mental process of the inventor is not material, the product of the inventor’s mind being judged upon its merits in the light of the prior art; (c) the application of a well-known thing in a manner or to a purpose analogous to that in or to which it has previously been applied is not invention, unless that application involves the exercise of ingenuity in overcoming some difficulty; (d) where the perception of the idea which is at the basis of a patent involves ingenuity, it does not matter that the application of the idea involves no difficulty; (e) commercial success or the fulfilment of a long-felt want may indicate ingenuity, but does not necessarily do so; commercial success may be due to other causes;219 (f) a combination of known integers arranged so that they produce a new result may involve invention, but this is not so if the result produced is merely the duplication of the several results which the integers used separately were previously known to produce. These pre-1977 Act principles are summarised here to give a general flavour of some of the issues which may be considered by the courts when assessing whether an invention is patentable. The formal criteria for patentability are those set out in the 1977 Act, as interpreted by court decisions.220

Prior disclosures which do not invalidate a patent 4.39 There are certain cases where disclosure of the subject matter relating to an invention is held not to be part of the state of the art, and thus invalidate any patent application. If a patent application is made not later than six months after the disclosure, the disclosure must be disregarded, provided that:

219 See Technograph Printed Circuits Ltd v Mills and Rockley (Electronics) Ltd [1972]  RPC 346, HL. 220 See further CIPA Guide to the Patents Act (6th edn, 2009), particularly paras 1.02–5.21, for a detailed review of the UK law as to patentability.

235

4.40  Patents

(1) the disclosure was made in breach of confidence221 or information concerning it was obtained unlawfully;222 or (2) the disclosure was made at an international exhibition and the applicant states, on filing the application, that the invention has been so displayed and also, within four months of filing the application, files written evidence in support.223 The number of international exhibitions qualifying is very limited.224

Capable of industrial application 4.40 As noted above, for an invention to be patentable it must be capable of ‘industrial application’ which according to the 1977 Act means that the invention is capable or susceptible to be made or used in any kind of industry or agriculture. In a recent case the meaning of industrial application was set out at some length and is worth quoting in full as it illustrates how the meaning of ‘industrial application’ can be understood in practice (and is a convenient summary of other case law on this point):225 ‘i) The notion of industry must be construed broadly. It includes all manufacturing, extracting and processing activities of enterprises that are carried out continuously, independently and for commercial gain […]. However, it need not necessarily be conducted for profit […] and a product which is shown to be useful to cure a rare or orphan disease may be considered capable of industrial application even if it is not intended for use in any trade at all […]. ii) The capability of industrial exploitation must be derivable by the skilled person from the description read with the benefit of the common general knowledge […]. 221 The UKIPO’s Manual of Patent Practice (at 2.38) indicates that it is not necessary for there to be a breach of contract to establish that there is a breach of confidence; what constitutes a breach of confidence is that set out in Coco v A N Clark (Engineers) Ltd [1969] RPC 41. See Ch 8. 222 See s 2(4)(a), (b) of the 1977 Act. The six-month period is calculated from the actual filing date of the application, and not any claimed priority date. The corresponding European Patent Convention (EPC) provision appears to be less restrictive (EPC, Art 55(1)): the sixmonth period is calculated from the priority date rather than the filing date (PASSONI/Strand Structure [1992] EPOR 79). In a later case the European Patent Office (EPO) Enlarged Board of Appeal agreed with the PASSONI decision (Decision T 3777/95). 223 See s 2(4)(c) of the 1977 Act and the Patents Rules 2007 (SI 2007/3291). The written evidence consists of a certificate issued by the authority responsible for the international exhibition as well as a statement duly authenticated by that authority. The statement must identify the invention as being the invention displayed at the exhibition and the certificate must include the opening date of the exhibition (or the date on which the invention was first displayed if this date is later): see Patents Rules 2007, r 5(4), (5). 224 See s 130(1), (2) of the 1977 Act. The Bureau des Exhibitions lists the international exhibitions which qualify (www.bie-paris.org) and the EPO publishes upcoming exhibitions in its official journal. 225 Eli Lilly & Co v Human Genome Sciences Inc [2008] EWHC 1903 (Pat), [2008] All ER (D) 410 (Jul), from para 226.

236

Other fundamental provisions of UK patent law 4.41

iii) The description, so read, must disclose a practical way of exploiting the invention in at least one field of industrial activity […]. iv) More recently, this has been re-formulated as an enquiry as to whether there is a sound and concrete basis for recognising that the contribution could lead to practical application in industry. Nevertheless, there remains a need to disclose in definite technical terms the purpose of the invention and how it can be used to solve a given technical problem. Moreover, there must be a real prospect of exploitation which is derivable directly from the specification, if not already obvious from the nature of the invention or the background art […]. v) Conversely, the requirement will not be satisfied if what is described is merely an interesting research result that might yield a yet to be identified industrial application […]. A  speculative indication of possible objectives that might or might not be achievable by carrying out research is not sufficient […]. Similarly, it should not be left to the skilled reader to find out how to exploit the invention by carrying out a research programme […]. vi) It follows that the purpose of granting a patent is not to reserve an unexplored field of research for the applicant […] nor to give the patentee unjustified control over others who are actively investigating in that area and who might eventually find ways actually to exploit it […]. vii) If a substance is disclosed and its function is essential for human health then the identification of the substance having that function will immediately suggest a practical application. If, on the other hand, the function of that substance is not known or is incompletely understood, and no disease has been identified which is attributable to an excess or a deficiency of it, and no other practical use is suggested for it, then the requirement of industrial applicability is not satisfied. This will be so even though the disclosure may be a scientific achievement of considerable merit […]. viii) Using the claimed invention to find out more about its own activities is not in itself an industrial application […]’.

Biological material 4.41 Since 1945, the science of biotechnology has become one of the major features of the chemical and pharmaceutical industry. Today, many medicines are devised with the use of biotechnology (which may involve the use of biological material). These biological materials, being living matter, are bred in certain material, and the whole is known as ‘material’. An invention may require for its performance the use of biological materials, which is capable of forming the 237

4.41  Patents

subject of patent protection provided that it is not available to the public at the date of filing of the application. A specification disclosing use of biological material will be treated for the purposes of the 1977 Act as disclosing the invention in such a manner as to enable the invention to be performed by a person skilled in the art226 only if two requirements are met in the specification of the application as filed:227 (a) The first requirement: on or before the date of filing the application biological material has been deposited in a depositary institution which is able to furnish a sample of the biological material. (b) The second requirement: on or before the relevant period: (i) the name of the depositary institution, the date when the culture was deposited and the accession number of the deposit are given in the specification of the application; and (ii) where the biological material has been deposited by a person other than the applicant: (A) a statement is provided which identifies the name and address of the depositor; and (B) a statement is filed which authorises the applicant to refer to the biological material in his application and authorises the making available to the public of the biological material.228 The information referred to in (b) above may be added to the application within 16 months of the declared priority date or, if none, the date of filing.229 The comptroller can issue an authorisation certificate following a request from any person.230 With the application, there must be given undertakings: (a) not to make the material, or any material derived from it, available to any other person; and (b) not to use the material, or any material derived from it, otherwise than for experimental purposes relating to the subject matter of the invention.231

226 Section 125A of the 1977 Act. 227 See Patents Rules 2007, r 13(1), Sch 1, para 2(2). The application is to contain such information as is available to the applicant on the characteristics of the biological material. 228 Patents Rules 2007, r 13(1), Sch 1, para 3(1), (2). The second requirement is also met with application being filed properly with the European Patent Office or the Patent Co-operation Treaty (Patents Rules 2007, r 13(1), Sch 1, para 3(2)). 229 See SI 1995/2093, r 17, Sch 2, para 1(3) as substituted by Patents Rules 2007, r 13(1), Sch 1, para 3(3). Other periods are also specified under s 16(1) of the 1977 Act and r 52(2) of the Patents Rules 2007. (Patents Rules 2007, r 13(1), Sch 1, para 3(3)). Other periods are also specified under s 16(1) of the 1977 Act and r 52(2) of the Patents Rules 2007. 230 Patents Rules 2007, r 13(1), Sch 1, para 4. An ‘authorisation certificate’ authorises a depositary institution to make available samples of biological material (Patents Rules 2007, r 13(1), Sch 1, para 1). 231 Patents Rules 2007, r 13(1), Sch 1, para 5(1).

238

Other fundamental provisions of UK patent law 4.42

Both these undertakings shall cease to have effect when an application for a patent is terminated or has been withdrawn or the patent ceases to have effect.232 It is possible to restrict the availability of biological materials to experts as long as certain conditions, including that such a request is made to the comptroller and that the request is made prior to preparations for the publication of the patent application, are met.233 Any person can also apply for biological materials to be made available to an expert. The comptroller is required to notify the applicant and can decide whether the materials are released (even if the applicant objects) or not.234 There are rules as to when fresh biological material should be deposited to replace biological material already deposited under the Patents Rules in particular circumstances, such as where it is no longer viable, or for any other reason the institution is unable to supply samples, or the institution has transferred the material to another depositary institution.235

Who may apply for and obtain a patent236 4.42 The Act makes a distinction between the ownership and inventorship of a patent. Both owner and inventor are named on a UK patent. Being named as inventor does not imply that one has any rights over the patent. Most patents are applied for, and owned, by companies, with the companies’ employees making the inventions.237 Where an invention is made by someone who is not an employee, the inventor will often be the first owner. Any person may apply for a patent either alone or jointly with another.238 The UK operates a ‘first to file’ principle for inventions, so that if two persons, separately, make the same invention then the first person to file will be entitled to the patent.239

232 Patents Rules 2007, r 13(1), Sch 1, para 5(3). If a government department (or a person authorised by a government department) makes a request (for the purpose of using the invention) for the service of the Crown, an undertaking does not need to be given (and if given, will have no effect) (Patents Rules 2007, r 13(1), Sch 1, para 3(4)). 233 Patents Rules 2007, r 13(1), Sch 1, para 6. A second condition is in relation to an international application for a patent (UK): the applicant needs to make a reference to the deposited biological material in accordance with the Patent Co-operation Treaty (Patents Rules 2007, r 13(1), Sch 1, para 6). 234 Patents Rules 2007, r 13(1), Sch 1, para 7. 235 Patents Rules 2007, r 13(1), Sch 1, para 8. 236 See ss 7–13 of the 1977 Act. 237 As to employee inventions, see para 4.08 onwards above. 238 Section 7(1) of the 1977 Act. This contrasts with the position in the US where the initial application is generally made by the inventor and assigned to the employer where appropriate. 239 If a person wished to show that he was entitled to a grant of a patent arising from an application of another person, he had to indicate his entitlement arose other than from the provisions of s 7 of the 1977 Act, such as from a breach of contract or confidence (see Markem Corporation and another v Zipher Ltd [2005] EWCA Civ 267, [2005] All ER (D) 377 (Mar), paras 77–79).

239

4.43  Patents

The applicant need not be the inventor, and is commonly the employer rather than the inventor who does so.

Grant of patent 4.43

A patent may only be granted to:240

(a) the inventor(s);241 (b) any person other than the inventor(s) who is entitled to the whole of the property in it (for example the inventor’s employer); or (c) any successor in title to a person within (a) or (b) above. ‘Inventor’ means the actual deviser of the invention, and it is necessary to interpret ‘joint inventor’ accordingly.242

Mention of inventor 4.44 The inventor(s) of an invention have the right to be mentioned in any patent granted in respect of their invention, and have similar rights in respect of applications.243 An inventor may apply to the comptroller for her/his name to be mentioned where it is omitted.244 The applicant is required to identify the inventors in the application.245 A  person who considers that another person is wrongly identified as inventor may apply to the comptroller for a certificate to that effect.246 Whether the patent or patent application is valid is not a relevant issue as far as these types of

240 Section 7(2) of the 1977 Act. 241 It seems that only the person or persons making the invention should be named on the patent application. In Xaar’s International Application (BL  O/257/98) patent agents were cautioned to name only the true devisers of the invention, and not name persons who did not make any contribution to devising the inventive concept for which a patent is sought. In BNOS Electronics Ltd (BL O/270/98) it was held that a patent agent merely naming a research team was too casual, if regard was not given to who had actually made the invention. 242 Section 7(3) of the 1977 Act. Henry Bros (Magherafelt) Ltd v Ministry of Defence [1997]  RPC  693, [1999]  RPC  442, CA provided some guidance as to the meaning of an inventor. Inventorship was held to be carried out by the person who contributed the underlying inventive concept. In IDA Ltd and others v University of Southampton and others [2006] EWCA Civ 145 the CA applied Markem and Henry Bros (Magherafelt) Ltd. Where a person carried out tests to determine whether another’s invention would work, such testing ‘was a matter of simple routine experimentation – mere verification’ (from para  32 of the judgment). The testing was a contribution which amounted to no more than adding to the common general knowledge in the art. 243 Section 13(1) of the 1977 Act. 244 Section 13 of the 1977 Act. 245 Section 13(2) of the 1977 Act. 246 Section 13(3) of the 1977 Act.

240

Other fundamental provisions of UK patent law 4.45

proceedings are concerned.247 The courts have emphasised that only the true inventors should be identified, and that particular responsibility lay with patent agents to ensure that all employees (current and past) who contributed to the actual devising of the claimed subject matter should be named as inventors.248 The main advantage of being named as inventor is probably the kudos that this brings; there may also be career advantages, particularly for academic inventors. In the special case of employees who are entitled to financial compensation for their inventions249 (for example under specific provisions of their contracts of employment), being named as an inventor may be a prerequisite to participate in such schemes.250 It is also possible for an inventor not to be named on (or have their address mentioned in) a patent application.251

Disputes 4.45 It is possible to refer disputes over entitlement to a patent (including any entitlement arising by virtue of a commercial agreement)252 at any time before grant253 or after the grant254 of the patent to the comptroller, who has wide powers to determine such entitlement.255 Alternatively, he may refer the matter to the court.256 Where there are disputes between joint applicants over how their application should be pursued, it is also possible to refer the dispute to the comptroller.257

247 See Monk Constructions Patent (SRIS 0/119/98). 248 See Xaars International Application (SRIS 0/257/98). 249 Eg employees of universities, most of whom are entitled to receive a share of any royalties or other payments received by their employing institution from the exploitation of their inventions. In BNOS  Electronics Patent (SRIS  0/270/98) it was held that naming an entire research team without identifying who actually carried out or was responsible for the invention was too casual an approach. 250 As to statutory compensation for employee inventors, see para 4.10. 251 Patents Rules 2007 (SI 2007/3291), r 11. 252 The comptroller does not have the power to deal with contractual or breach of confidence disputes as such, but if there is a dispute arising under s 8 of the 1977 Act concerning entitlement and there are issues relating to breach of contract or confidence then the comptroller will have the power to deal with them. If there is a dispute under s 8 of the 1977 Act, parties cannot issue separate proceedings to deal with the other legal disputes between them where they could all be dealt with under s 8 proceedings. If they do so then such separate proceedings may be struck out as an abuse of process (Markem Corporation and another v Zipher Ltd [2005] EWCA Civ 267, [2005] All ER (D) 377). 253 Section 8 of the 1977 Act. 254 Sections 8, 37 of the 1977 Act for disputes arising after grant may be referred under the 1977 Act; see also s 9 of the 1977 Act, where the dispute straddles the date of grant. 255 Section 8(2) of the 1977 Act. 256 Section 8(7) of the 1977 Act. 257 Section 10 of the 1977 Act.

241

4.46  Patents

How to apply for a patent 4.46 Detailed rules exist on the form in which the application must be made, the fees payable, time limits for filing documents etc. Every application must include a specification containing a description of the invention, a claim or claims, any drawing referred to in the description or any claim, and an abstract. There are broadly three types of claim: •

apparatus (or device) claims;

•

process (or method) claims; and

•

product claims.

It is possible to include more than one claim, and more than one type of claim, in a single application, provided that they claim inventions which are so linked as to form a single inventive concept. Where the invention requires the use of a biological material for its performance, the applicant is required to make samples of biological material available to the public. In most cases, it is necessary to deposit a sample with a depositary institution (ie an authorised culture collection) on terms which will allow the institution to make the culture available to third parties.

Processing of applications to grant (or refusal) 4.47 Once an applicant has filed an application and has complied with various procedures, the applicant is given a date of filing.258 Unless it is withdrawn or refused in the meantime, the application is published 18 months after the declared priority date or (if there is no declared priority date) the date of filing.259 Once the application has a date of filing, the applicant may request a preliminary examination and search.260 If the application survives this stage of the procedure, an application may be made for a substantive examination.261 At the end of the substantive examination stage, a patent is either granted or refused. At any time before a patent is granted, the applicant may amend the application, for example to take account of objections raised by the examiner.262 There is however a maximum period within which an application must be put in order, failing which it is deemed to be refused.263 It is possible 258 Section 15 of the 1977 Act, as substituted by the Patents Act 2004, from 1  January 2005 (SI 2004/2357). 259 Section 16 of the 1977 Act. 260 Sections 15A and 17 of the 1977 Act; s 15A inserted by the Patents Act 2004 from 1 January 2005 (SI 2004/2357), and s 17 as amended by the Patents Act 2004 and other legislation. 261 Section 18 of the 1977 Act, as amended by the Patents Act 2004 and other legislation. 262 Section 19 of the 1977 Act. 263 Section 20 of the 1977 Act.

242

Other fundamental provisions of UK patent law 4.48

for an application to be reinstated if it is refused (or withdrawn) where the refusal is caused by the applicant not complying with the 1977 Act or the Rules.264 Where a patent application has been published but not yet granted, any person other than the applicant may make observations in writing to the comptroller on whether the application is a patentable invention.265

Restrictions on applications: for the defence of the realm or public safety 4.48 The Act includes two provisions designed to protect the defence of the realm and public safety: (a) Secrecy orders: the first of these provisions gives the comptroller the power to make orders (sometimes known as ‘secrecy’ or ‘prohibition’ orders) to prohibit or restrict the publication of any information contained in a patent application which might be prejudicial to the national security or public safety.266 The comptroller can prevent publication for specified periods or indefinitely depending on the circumstances. Breach of the terms of a secrecy order is a criminal offence. (b) Restrictions on applications abroad by UK residents: it is a criminal offence, in certain circumstances, for a person resident in the UK to file a patent application, or cause one to be filed, outside the UK.267 In view of the importance of this section, it is worth repeating it virtually in full: ‘(1) Subject to the following provisions of this section, no person resident in the United Kingdom shall, without written authority granted by the comptroller, file or cause to be filed outside the United Kingdom an application for a patent for an invention [if subsection (1A) below applies to that application,] unless– (a) an application for a patent for the same invention has been filed in the UK Intellectual Property Office (whether before, on or after the appointed day) not less than six weeks before the application outside the United Kingdom; and (b) either no directions have been given under section 22 above [ie no secrecy order has been made] in relation to the application in the United Kingdom or all such directions have been revoked. 264 Sections 20A, 20B of the 1977 Act, inserted by the Patents Act 2004, from 1 January 2005 (SI 2004/2357). 265 Section 21 of the 1977 Act. 266 Section 22 of the 1977 Act. 267 Section 23 of the 1977 Act, as amended principally by the Patents Act 2004, from 1 January 2005 (SI 2004/3205).

243

4.48  Patents

(1A) This subsection applies to an application if– (a) the application contains information which relates to military technology or for any other reason publication of the information might be prejudicial to national security; or (b) the application contains information the publication of which might be prejudicial to the safety of the public. (2) Subsection (1) above does not apply to an application for a patent for an invention for which an application for a patent has first been filed (whether before or after the appointed day) in a country outside the United Kingdom by a person resident outside the United Kingdom. (3)  A  person who files or causes to be filed an application for the grant of a patent in contravention of this section shall be liable– (a) on summary conviction, to a fine not exceeding the prescribed sum [; or (b) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine, or both. (3A) A person is liable under subsection (3) above only if– (a) he knows that filing the application, or causing it to be filed, would contravene this section; or (b) he is reckless as to whether filing the application, or causing it to be filed, would contravene this section. (4) In this section– (a) any reference to an application for a patent includes a reference to an application for other protection for an invention; (b) any reference to either kind of application is a reference to an application under this Act, under the law of any country other than the United Kingdom or under any treaty or international convention to which the United Kingdom is a party’. Applications for clearance to file a foreign application are made to the UK Intellectual Property Office.268 It is recommended that a UK resident (or anyone who considers he might arguably be a UK resident – the term is not defined for present purposes) take professional advice before making a foreign application, so as to avoid committing a criminal offence.

268 The current address for applications for clearance and enquiries is: The UK  Intellectual Property Office, Room GR 70, Concept House, Newport, Gwent (tel: 01633 813588). Website: http://www.ipo.gov.uk.

244

Other fundamental provisions of UK patent law 4.50

Post-grant procedural matters 4.49

On grant of a patent the comptroller is required to:

(a) publish a notice to this effect in the Official Journal and also publish the specification and the names of the proprietor and inventor; and (b) send a certificate in the prescribed form to the proprietor.269 On the date on which notice of its grant is published in the Official Journal, the patent is treated as granted and from which it takes effect. The proprietor’s rights to bring proceedings against infringers are then, in effect, backdated to the date on which the application was published, subject to some qualifications. The term of the patent is 20 years from the date of filing.270 If the proprietor does not pay the renewal fees, that patent will cease to have effect, subject to certain rights of the former proprietor to apply to restore the lapsed patent.271 The proprietor may apply to the comptroller to amend the specification272 or offer to surrender the patent at any time.273 A third party may give notice of objections to the proposed amendment or offer to surrender.274 The decision as to whether to accept the offer is for the comptroller.

Registration of patents and interests in patents Register 4.50 The comptroller maintains the register of patents.275 The Act includes provisions describing how the comptroller will maintain the register, what information is placed in the register, and the extent of the public’s right of access to it.276 Of particular interest in relation to commercial transactions in patents are the following provisions: (a) The Patents Rules 2007277 set out the detailed requirements for registration of various matters relating to patents, including details of the patent or patent application, and any transactions or interests in the patent, as well as various other matters including the correction of any errors in the register. The Rules specify, for example, which forms it is 269 Section 24 of the 1977 Act. The information to be included will be the name of the proprietor of the patent and the inventor (if different), unless the inventor has waived his right to be named (s 24(4) of the 1977 Act, as inserted by the Patents Act 2004 from 1 October 2005 (SI 2005/2471)). 270 Section 25(1) of the 1977 Act. 271 Sections 25(3), 28 of the 1977 Act, as amended. 272 Section 27 of the 1977 Act. 273 Section 29 of the 1977 Act. 274 See note 273. 275 Section 32(1) of the 1977 Act. 276 Section 32 of the 1977 Act. 277 Section 32(2) of the 1977 Act. The rules are found in the Patents Rules 2007 (SI 2007/3291).

245

4.51  Patents

necessary to complete when applying to register a transaction, which documents must accompany the application, and which documents will appear on the public file. There are provisions allowing for confidential treatment of some documents and information. (b) It is not possible to enter a notice of any trust, whether express, implied or constructive in the register and the comptroller will not be affected by any such notice.278 (c) As well as giving the public the right to inspect the register,279 the section enables any person to apply to the comptroller for a certified copy of an entry in the register, subject to detailed rules.280 It is possible to produce these certified copies in evidence in Court.281

Effect of non-registration of transactions etc 4.51 The Act includes provisions relating to conflicting claims to a patent or an interest in a patent, by virtue of conflicting ‘transactions, instruments or events’282 (eg  an assignment, mortgage, licence or sub-licence).283 Such a situation might arise, for example, where the original owner of a patent purports to sell it twice, and the first purchaser fails to register the assignment before the second sale takes place. The provisions describe the circumstances in which, to take the above example, the second purchaser’s rights to the patent would take priority over the first purchaser’s. Under the 1977 Act, the second person claiming the rights (the section is not limited to acquisition by purchase) will be entitled to those rights as against the first person if, at the time of the later transaction, the earlier transaction was not registered and the second person did not know of the earlier transaction.284 The section applies both to acquisitions of the property in a patent or patent application, and acquisitions of any right in or under a patent or patent application, including a licence. In view of these provisions it is highly desirable to register transactions immediately.285 278 279 280 281 282

Section 32(5) of the 1977 Act. Section 32(5) of the 1977 Act. Section 32(6) of the 1977 Act. Section 32(11) of the 1977 Act. The types of conflicting ‘transaction, instrument or event’ to which the section applies include assignments and mortgages of patents, the grant, assignment or mortgage of patent licences or sub-licences, transfers on death and transfers by order of a court. 283 Section 33 of the 1977 Act. 284 See further the wording of s 33 (including provision dealing with the position in respect of unpublished applications). 285 As to the effect of non-registration on infringement proceedings, see s 68 of the 1977 Act, referred to in para 4.62.

246

Other fundamental provisions of UK patent law 4.54

Rectification of the register 4.52 Any ‘person aggrieved’ may apply to the court for the court to order rectification of the register by making, varying or deleting any entry in it.286 It is also possible to apply to the comptroller to correct any error in the register,287 and to refer to the comptroller any dispute over entitlement to a patent (see below).

Disputes over entitlement to patents Determination of right to patent 4.53 After grant of the patent, any person who claims a proprietary interest in or under the patent may refer to the comptroller the following questions:288 (a) who is (are) the true proprietor(s) of the patent; (b) whether the patent should have been granted to the person(s) to whom it was granted; or (c) whether any right in or under the patent should be transferred to any other person or persons. The comptroller may order, inter alia, a transfer of ownership of the patent, the grant of a licence or other rights in or under the patent, the registration of transactions, and such orders may be coupled with the revocation of the patent in some circumstances.289 An order may not be made after the second anniversary of the date of the grant of the patent unless it is shown that the registered proprietor knew at the time of the patent (or time of transfer of the patent to him) that he was not entitled to the patent.290 The comptroller may decline to deal with the matter if he considers it would more properly be dealt with by the court.291

Effect of transfer of patents on licences 4.54 The effects on licences of an order by the comptroller transferring ownership of patents may be summarised as follows:292

286 287 288 289 290 291 292

Section 34 of the 1977 Act. Section 32(2)(d) of the 1977 Act. Section 38(1)–(3) of the 1977 Act. Section 37(2)–(4) of the 1977 Act, and the powers for revocations under s 72 of the 1977 Act. Section 37(5) of the 1977 Act. Section 37(8) of the 1977 Act. Section 38(1)–(3) of the 1977 Act.

247

4.55  Patents

(a) Any licences or other rights granted or created by the old proprietor(s) continue in force as if granted by the new proprietor(s),293 provided at least one of the new proprietor(s) was also one of the old proprietor(s), so that there is some continuity of ownership. (b) Where ownership of the patent is transferred to a completely new proprietor, none of whom was an old proprietor,294 any licences or other rights lapse on the registration of the new proprietor, subject to (c) below. (c) Where the old proprietor or a licensee, acting in good faith, worked the invention in the UK or made effective and serious preparations to do so before the entitlement dispute was referred to the comptroller, the old proprietor or the licensee is entitled to be granted a licence (but not an exclusive licence) by the new proprietor to continue working or to work the invention. (d) Any such licence must be granted for a reasonable period and on reasonable terms.295 (e) Disputes over the entitlement to, or the terms of, such licences may be referred to the comptroller for determination.296

Opinion as to validity or infringement of a patent 4.55 The comptroller has the power to provide an opinion (non-binding) on a prescribed matter in relation to a patent as set out in the Patents Rules 2007. Before amendment, the 1977 Act specified the following matters on which it was to obtain an opinion: (a) an act constitutes (or, if not done, would constitute) an infringement of patent; (b) an invention is not patentable (or the extent to which an invention is not patentable).297 The proprietor or any other person can request the opinion.298 The comptroller is required to notify interested parties of the request, including the patent holder, exclusive and other (sub-)licensees (if the exclusive and other

293 Subject to s 33 of the 1977 Act and the provisions of the comptroller’s order. 294 Ie on the ground that the patent was granted to a person not entitled to be granted the patent – see wording of the section 38 of the 1977 Act. 295 Section 38(4) of the 1977 Act. 296 Section 38(5) of the 1977 Act. 297 Section 74A(1), (4) of the 1977 Act, as last amended by section 16 of the Intellectual Property Act 2014. The Patents Rules 2007 appear not to contain any list of prescribed matters at present. 298 Section 74A(1), inserted by the Patents Act 2004 from 1 October 2005 (SI 2005/2471).

248

Other fundamental provisions of UK patent law 4.57

(sub-)licensees have registered their interest in the register of patents).299 The comptroller has to note that an opinion has been requested, refused or provided.300

Infringement of patents Meaning of infringement and exceptions 4.56 Section 60 of the 1977 Act defines the acts which infringe a UK patent, subject to the limitations and exceptions provided in that section and elsewhere in the 1977 Act. There are two main types of infringement: •

direct, also known as substantive, infringement; and

•

indirect, also known as contributory, infringement. The infringing acts will be considered below.

Examples of substantive infringement are manufacture, use or sale of a patented product. An example of contributory infringement is selling an essential ingredient for making a patented product, intending that the ingredient will be used by the purchaser to make the patented product. Noninfringing acts under this section include private, non-commercial use and use for experimental purposes.

Substantive infringement 4.57 It is an infringement of a UK patent to do any of the following things in the UK301 without the consent of the proprietor while the patent is in force: (a) Product patents:302 where the invention is a product, to make, dispose of, offer to dispose of, use, or import the product or keep it whether for disposal or otherwise. (b) Process patents:303 where the invention is a process: (i) Use etc of the process itself: to use the process or offer it for use when one knows, or it is obvious to a reasonable person in the circumstances, that its use there without the consent of the proprietor would be an infringement of the patent; or

299 Patents Rules 2007 (SI 2007/3291), r 95(1). 300 Patents Rules 2007 (SI 2007/3291), r 44(5). 301 As to the extent of the UK for these purposes, see s 132 – it includes England and Wales, Scotland, Northern Ireland, Isle of Man, territorial waters, designated Continental Shelf and some other designated areas. 302 Section 60(1)(a) of the 1977 Act. 303 Section 60(1)(b), (c) of the 1977 Act.

249

4.58  Patents

(ii) Use etc of products obtained by the process: to dispose of, or offer to dispose of, use or import any product obtained directly by means of that process or keep any such product whether for disposal or otherwise.

Contributory infringement 4.58 It is also an infringement of a UK patent to do the following in relation to the patented invention, without the consent of the proprietor, while the patent is in force: •

supply or offer to supply in the UK;

•

a person other than a licensee or other person entitled to work the invention;

•

with any of the means, relating to an essential element of the invention, for putting the invention into effect;

•

when one knows, or it is obvious to a reasonable person in the circumstances, that those means are suitable for putting, and are intended to put, the invention into effect in the UK.304

It is not, however, a contributory infringement to supply or offer to supply a staple commercial product (not defined in the 1977 Act; it may mean a generally available raw product or commodity of commerce suitable for uses some of which (perhaps) must be non-infringing), unless this is done for the purpose of inducing the recipient to (substantively) infringe the patent.305

Exceptions to the infringing acts 4.59 Certain acts will not infringe a patent.306 It is convenient to repeat the provisions of the 1977 Act which deal with the permitted acts in full (with added headings): ‘(5) An act which, apart from this subsection, would constitute an infringement of a patent for an invention shall not do so if– private and non-commercial (a) it is done privately and for purposes which are not commercial;307 304 Section 60(2) of the 1977 Act. 305 Section 60(3) of the 1977 Act. 306 Section 60(5) of the 1977 Act, as amended by SI 2000/2037 and SI 2005/2759. There are also additional exceptions (set out below) which will take effect when the legislation concerning the Unitary Patent and the Unified Patent Court come into force (see Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016 (SI 2016/388)). As at late 2018, this had not occurred because of various legal challenges in some European countries or the effect that Brexit would have. 307 Section 60(5)(a) of the 1977 Act.

250

Other fundamental provisions of UK patent law 4.59

experimental (b) it is done for experimental purposes relating to the subject-matter of the invention;308 extemporaneous preparation in pharmacy (c) it consists of the extemporaneous preparation in a pharmacy of a medicine for an individual in accordance with a prescription given by a registered medical or dental practitioner or consists of dealing with a medicine so prepared;309 use on ship temporarily in UK waters (d) it consists of the use, exclusively for the needs of a relevant ship, of a product or process in the body of such a ship or in its machinery, tackle, apparatus or other accessories, in a case where the ship has temporarily or accidentally entered the internal or territorial waters of the United Kingdom;310 use on aircraft, hovercraft or vehicle temporarily in UK (e) it consists of the use of a product or process in the body or operation of a relevant aircraft, hovercraft or vehicle which has temporarily or accidentally entered or is crossing the United Kingdom (including the air space above it and its territorial waters) or the use of accessories for such a relevant aircraft, hovercraft or vehicle;311 308 Section 60(5)(b) of the 1977 Act. See Monsanto Co v Stauffer Chemical Co and Another [1985] RPC 515 where the limits of what would constitute an experiment were set out: ‘Trials carried out in order to discover something unknown or to test a hypothesis or even in order to find out whether something which is known to work in specific conditions can fairly, in my judgment, be regarded as experiments. But trials carried out in order to demonstrate to a third party that a product works or, in order to amass information to satisfy a third party, whether a customer or a [regulatory] body […], that the product works as its maker claims are not, in my judgment, to be regarded as acts done “for experimental purposes”’ (from p 542 of the judgment). Anything done in or for the purposes of a medicinal product assessment which would otherwise constitute an infringement under this section is regarded as done for an experimental purpose relating to the subject matter of the invention: section 60(6D) of the 1977 Act, inserted by the Legislative Reform (Patents) Order 2014, in force from 1 October 2014. Section 60(6E) defines a ‘medicinal product assessment’ as meaning ‘any testing, course of testing or other activity undertaken with a view to providing data’ for a number of specific purposes. These purposes include obtaining authorisation to sell or supply medicinal product, complying with regulatory requirements and allowing a government or public authority to assess the suitability of the medicinal product for human use. A medicinal product being one for human or veterinary use within the meaning given by Article 1 of Directive 2001/82/EC of the European Parliament and of the Council on the Community code relating to veterinary medicinal products, as amended by [Directive 2004/28/EC] of the European Parliament and of the Council. These additional provisions do not affect the meaning of section 60(5)(b) of the 1977 Act where the act does not fall within that set out in section 60(6D) of the 1977 Act. 309 Section 60(5)(c) of the 1977 Act. 310 Section 60(5)(d) of the 1977 Act. As to the meaning of ‘relevant’ ship, aircraft, hovercraft or vehicle, and ‘exempted aircraft’, see section 60(7) of the 1977 Act. 311 Section 60(5)(e) of the 1977 Act. See note 310.

251

4.59  Patents

use of exempted aircraft (f) it consists of the use of an exempted aircraft which has lawfully entered or is lawfully crossing the United Kingdom as aforesaid or of the importation into the United Kingdom, or the use or storage there, of any part or accessory for such an aircraft;312 use of plant propagating material (g) it consists of the use by a farmer of the product of his harvest for propagation or multiplication by him on his own holding, where there has been a sale of plant propagating material to the farmer by the proprietor of the patent or with his consent for agricultural use;313 use of animal or animal reproductive material (h) it consists of the use of an animal or animal reproductive material by a farmer for an agricultural purpose following a sale to the farmer, by the proprietor of the patent or with his consent, of breeding stock or other animal reproductive material which constitutes or contains the patented invention;314 permitting clinical or veterinary trials of medicinal products (i) it consists of … an act done in conducting a study, test or trial which is necessary for and is conducted with a view to the application of paragraphs 1 to 5 of article 13 of Directive 2001/82/ EC or paragraphs 1 to 4 of article 10 of Directive 2001/83/EC’.315 In practice, the most common are the first two exceptions. There is case law on the extent of the exceptions;316 before relying on an exception it is recommended that advice be sought as to whether the particular activities under consideration fall within the exception. If the Unified Patent Court begins to operate, there will be two further exceptions available (which, as above, are set out in full here): ‘use of biological material for plant breeding (j) it consists of a use referred to in Article 27(c) of the Agreement on a Unified Patent Court;’317 312 313 314 315 316

Section 60(5)(f) of the 1977 Act. See note 310. Section 60(5)(g) of the 1977 Act. Section 60(5)(h) of the 1977 Act. Section 60(5)(i) of the 1977 Act. See eg Smith Kline & French v Evans Medical [1989] FSR 513; Monsanto v Stauffer (No 2) [1985] RPC 515, CA. 317 Section 60(5)(j) of the 1977 Act. Section 60(6H) of the 1977 Act indicates that this exception only applies to European Patents and European Patents with Unitary Effect. A patent applied for and granted in the UK will not have the benefit of this exception. This will create an anomaly, between purely UK patents (applied for at the UKIPO) and those UK patents which are applied for at the EPO under the EPC and are translated on grant in UK patents.

252

Other fundamental provisions of UK patent law 4.60

Article 27(c) provides that the rights conferred by a patent does not extend to ‘the use of biological material for the purpose of breeding, or discovering and developing other plant varieties’; ‘computer programs (k) subject to subsection (6H), it consists of an act or use referred to in Article 27(k) of the Agreement on a Unified Patent Court.’ Article 27(k) of the Agreement provides that the rights conferred by a patent do not extend to ‘the acts and the use of the obtained information as allowed under Articles 5 and 6 of Directive 2009/24/EC, in particular, by its provisions on decompilation and interoperability’.318

Reform of the research exemption 4.60 The Gowers Review319 had criticised the wording of the first two exemptions (section 60(5)(a), (b) of the 1977 Act). The criticisms included: •

difficulty in describing what uses of a patent fall within the scope of the experimental use exception;

•

the exemption would cover a use within the scope of the subject matter, but not uses of different subject matter;

•

section 60(5)(b) does not contain a defined meaning of ‘relating to the subject-matter’;

•

that because of the uncertainty of the scope of the exception, smaller research groups are not able to carry out research work in case they have to defend expensive litigation regarding alleged infringement by the research group;

•

that seeking a licence to carry out research is often refused or a licence is only available at too great a cost;

318 Articles 5 and 6 of Directive 2009/24/EC contain provisions concerning the right of a person to make a backup of a computer program, to observe, study or test function of a computer program, and the right to reproduce a computer program’s code etc to obtain the information necessary to achieve interoperability of an independent computer program with other programs subject to conditions. These exceptions are not available under the Patents Act 1977 for patents and the Directive deals with protecting computer programs by copyright. In effect this provision will be providing a new form of exception for computer programs which are protected by a patent granted by the EPO, which will be consistent with computer programs protected by copyright. As noted in note 317 above, this new exception will not be available to domestic patents. The provisions of Directive 2009/24/EC were implemented into UK law by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233) (see Ch 6). 319 The Gowers Review of Intellectual Property, November 2006, http://webarchive. nationalarchives.gov.uk/20100407181602/http://www.hm-treasury.gov.uk/gowers_review_ index.htm (last accessed October 2018). See, in particular, paras 4.3–4.12.

253

4.60  Patents

•

if it is not possible to disclose research publicly so that for the research to come within section 60(5)(a) of the 1977 Act) (that is, the research is ‘private’): –

such a practice is not in tune with the modern practice at universities, where research is increasingly done in collaboration with private research organisations; and

–

it would not be possible for a research organisation or researcher to undertake any publicly funded research which has a condition of its funding that there is disclosure would not come within the exception.

The Gowers Review suggested that in order to facilitate experimentation, innovation and education the research exception in section 60(5) of the 1977 Act is amended in line with the research exception used in Switzerland: ‘The effects of a patent do not extend: (a) to acts undertaken in the private sphere for non-commercial purposes (b) to acts undertaken for experimental and research purposes in order to obtain knowledge about the object of the invention, including its possible utilities; in particular all scientific research concerning the object of the invention is permitted (c) to acts necessary to obtain a marketing authorisation for a medicament according to the provisions of the law of 15 December 2000 on therapeutic products (d) to the use of the invention for the purpose of teaching in teaching establishments (e) to the use of biological material for the purposes of selection or the discovery and development of a plant variety (f) to biological material obtained in the field of agriculture which was due to chance or which was technically unavoidable’. To date, the government has not sought to change the exemptions as suggested by the Gowers Review, except that there was, in 2014, a limited extension to the use of a patent for experimental purposes: for the purpose of carrying out medicinal product assessments.320 But otherwise it appears that the government has no plans to implement the Gowers Review suggestion.

320 See note 308 above.

254

Other fundamental provisions of UK patent law 4.61

Proceedings for infringement321 4.61 In England and Wales, proceedings for infringement may be brought in the Intellectual Property Enterprise Court (IPEC)322 (part of the Chancery Division of the High Court, and presided over by one or more specialist judges).323 The work is divided between ‘multi-track’ and ‘small claims track’ – the former dealing with larger intellectual property cases. However, patents can only be heard in the multi-track, never in the small claims track.324 In such proceedings325 a claim may be made:326 (a) for an injunction (including an interlocutory (ie interim) injunction); (b) for an order requiring the defendant to deliver up or destroy any infringing product or any article in which that product is ‘inextricably comprised’; (c) for damages; (d) for an account of the profits derived by the defendant from the infringement;327 (e) for a declaration that the patent is valid and has been infringed by the defendant. There are restrictions on the recovery of damages or an account of profits where the infringement was innocent, ie the infringer was not aware and had no reasonable grounds for supposing that the patent existed.328 Marking the patented product with the word ‘patented’ is insufficient to make the infringer aware of the patent; the number of the patent or a relevant internet link should also be stated.329

321 As to the right to bring proceedings in respect of the period between publication of the application and grant of the patent, see s 69 of the 1977 Act. 322 See ss 61(1), 130(1) of the 1977 Act. 323 See the Intellectual Property Enterprise Court Guide (www.gov.uk/government/publications/ intellectual-property-enterprise-court-guide) and the Guide to the Intellectual Property Enterprise Court Small Claims Track (www.gov.uk/government/publications/intellectualproperty-enterprise-court-a-guide-to-small-claims) which supplement the normal court rules for conducting litigation. 324 Rules 63.2 and 63.27 of the Civil Procedure Rules. 325 Parties may by agreement refer the case to the comptroller instead of the court, although the comptroller may decline to deal with the case if he considers it should be dealt with by the court (s 61(3), (5) of the 1977 Act). 326 Section 61(1) of the 1977 Act. 327 However, the proprietor cannot be awarded both damages and an account of profit – s 61(2) of the 1977 Act. 328 Section 62 of the 1977 Act. 329 See s 62(1) of the 1977 Act as amended by the Intellectual Property Act 2014. An internet link means an address of a posting on the internet which the public can access free of charge and which clearly associates the product with the number of the patent: section 62(1A), inserted by the Intellectual Property Act 2014. Amendments in force from 1 October 2014.

255

4.62  Patents

Where a patent is jointly owned, any of the joint owners may bring infringement proceedings without the consent of the others. The others must be joined as parties to the proceedings, but will not be liable for any costs or expenses if made defendants unless they take part in the proceedings.330 In principle, the joint owners may agree different arrangements amongst themselves as to how they will bring infringement proceedings. An exclusive licensee331 under a patent may bring infringement proceedings in the same way as the proprietor of a patent.332 The proprietor must be joined as a party to the proceedings but will not be liable for any costs or expenses if made a defendant unless the proprietor takes part in the proceedings. In principle, the proprietor and licensee may agree different arrangements between them as to how proceedings will be brought.

Effect of non-registration of interests on infringement proceedings 4.62 Section 68333 deals with the consequences of failing to register an assignment, licence or other ‘transaction, instrument or event’334 (referred to below as a transaction) with the UK  Intellectual Property Office within six months of the date of the transaction.335 The section provides that where a person becomes the proprietor, joint proprietor or exclusive licensee of a patent by virtue of a transaction, that person will not be entitled to costs or expenses in respect of infringements which occurred before the date of registration of the transaction with the UK  Intellectual Property Office, unless: (a) the transaction is registered within six months of its date; or (b) the court or comptroller is satisfied that it was not practicable to register the transaction within that period and it was registered as soon as practicable thereafter. Thus one may register the transaction with the UK Intellectual Property Office at any time and claim costs and expenses profits in respect of infringements which take place after the date of registration. But in order to obtain costs and expenses in respect of infringements which take place before the date 330 Section 66 of the 1977 Act; as to the position of joint proprietors generally ,see s 36 of the 1977 Act, discussed in para 4.50 above. 331 For definition of exclusive licensee, see s  130(1) of the 1977 Act, referred to in para  4.70 below. 332 Section 67(1) of the 1977 Act. 333 As amended from 29 April 2006 by SI 2006/1028. 334 As defined in s 33 of the 1977 Act – the relevant transactions include assignments, licences and mortgages of patents. 335 As to other possible consequences of failure to register, see s 33 of the 1977 Act discussed in para 4.51.

256

Other fundamental provisions of UK patent law 4.64

of registration, it is generally necessary to register the transaction within six months of its date. There is therefore every incentive for registering such transactions promptly.

Non-infringement, revocation, invalidity and amendment of patents 4.63 The Act includes provisions under which a person may apply to the comptroller or court for an order or declaration (as applicable): (a) that an act or proposed act does not infringe a patent;336 (b) to revoke the patent;337 (c) that the patent is invalid;338 or (d) to allow the proprietor to amend the specification of the patent in the course of proceedings in which the validity of the patent is challenged.339

Application of UK patent law to European applications, Community patents etc 4.64 Part II (sections 77–95) of the 1977 Act includes provisions which, inter alia: (a) Give effect under UK patent law to patent applications which are made under the European Patent Convention (EPC)340 and which designate the UK as a country in respect of which the application is made. In many situations the UK element of such an application is treated as if it were an application made under the 1977 Act. However, many of the powers which are vested in the comptroller in the case of domestic UK applications are, in the case of EPC applications, vested in the European Patent Office (EPO). (b) Give effect under UK patent law to patent applications made under the Patent Cooperation Treaty (PCT) to the extent they designate the UK. 336 Section 71 of the Act. 337 Section 72(1) of the 1977 Act, as amended by the Patents Act 2004 from 1  October 2005 (SI 2005/2471). Key grounds are: on one or more of a number of grounds, including that the invention is not a patentable invention, or was granted to a person not entitled to be granted that patent, or the invention is not sufficiently disclosed in the specification. The comptroller also has powers to revoke a patent on his own initiative (s 73 of the 1977 Act). 338 Section 74 of the 1977 Act, as amended by the Patents Act 2004 from 1  October 2005 (SI 2005/2471); but only in the circumstances described in this section. 339 Section 75 of the 1977 Act; in relation to amendment other than in the course of such proceedings, see ss 27, 19 of the 1977 Act, discussed at para 4.49 and para 4.47 respectively. 340 As to which, see para 3.12 onwards.

257

4.65  Patents

(c) Would give effect to the Community Patent Convention (CPC) in the UK. The Community Patent Convention has yet to come into force.341 If it does, it will enable a single patent to be applied for which will have effect throughout the European Community.

Criminal offences Falsification of register 4.65

Three offences are created by section 109 of the 1977 Act. These are:

(a) to make (or cause to be made): (i) a false entry in the register [of patents]; or (ii) a writing falsely purporting to be a copy or reproduction of an entry in any such register; or (b) to produce or tender (or cause to be produced or tendered) in evidence any such writing, knowing the entry or writing to be false. The maximum penalty on summary conviction is ‘the prescribed sum’; on conviction on indictment the maximum penalty is imprisonment for up to two years or an unlimited fine, or both.342

Unauthorised claim that product is patented 4.66 It is an offence for a person falsely to represent that anything disposed of by him for value is a patented product. Where a person disposes of a product for value and the product has stamped, engraved or impressed upon it or otherwise applied to it the word ‘patent’ or ‘patented’ or anything expressing or implying that the article is a patented product, that person is taken to represent that the article is patented.343 Such an offence is only triable summarily (ie in the Magistrates’ Court) and attracts a fine. Such a false representation is not an offence where: (a) it is made after expiry or revocation of the patent but ‘before the end of a period which is reasonably sufficient to enable the accused to take steps 341 However, in December 2009 the EU brought forward new proposals for a Europe-wide patent (see para 3.23). 342 Section 109 of the 1977 Act. The ‘prescribed sum’ for the fine on summary conviction is currently £1,000. This amount can change from time to time. 343 Section 110 of the 1977 Act.

258

Other fundamental provisions of UK patent law 4.69

to ensure that the representation is not made (or does not continue to be made)’;344 (b) the accused proves that he used due diligence to prevent the commission of the offence.345

Unauthorised claim that application has been made 4.67 It is an offence346 for a person to represent that a patent has been applied for in respect of an article disposed of by him for value, where no such application has been made or any such application has been refused or withdrawn. The offence is very similar to that of making an unauthorised claim that a product is patented, with the same maximum penalty (see previous paragraphs), and with equivalent defences to those indicated above. Use of the words ‘patent applied for’ or ‘patent pending’ is taken to be a representation that a patent has been applied for, in the same way that the words ‘patent’ or ‘patented’ are in respect of the latter offence.

Misuse of the words ‘Patents Office’ etc in documents etc 4.68 It is an offence347 for a person to use on his place of business, or on any document issued by him, or otherwise, the words ‘Patents Office’ or any other words suggesting that his place of business is, or is officially connected with, the Patents Office. The offence is only triable summarily and attracts a fine.

Personal liability of officers, managers etc for offences committed by company 4.69 Where an offence has been committed under the Patents Act by a body corporate (ie a limited company and certain other incorporated bodies) and it is proved that the offence was committed: ‘… with the consent or connivance of, or [was] attributable to any neglect on the part of, a director, manager, secretary or other similar officer of the body corporate, or anyone who was purporting to act in any such capacity, he, as well as the body corporate, shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly’.348 344 345 346 347

Section 110(3) of the 1977 Act. Section 110(4) of the 1977 Act. Section 111 of the 1977 Act. Section 112 of the 1977 Act. As stated at the beginning of this chapter, the Patents Office is now known as the UK Intellectual Property Office, but its official name is, and continues to be, the Patents Office, which is reflected in this section of the 1977 Act. 348 Section 113 of the 1977 Act.

259

4.70  Patents

Note that the category of persons who may commit the offence extends beyond directors and the company secretary, to include a ‘manager’.

Miscellaneous and administrative provisions 4.70 The Patents Act includes a number of administrative provisions including such matters as the immunity of UK Intellectual Property Office officials,349 the correction of errors in patents350 and inspection of documents on the patent register.351 Section 130 of the 1977 Act defines a large number of terms used in the 1977 Act, including for example ‘exclusive licence’ which is defined for the purposes of the 1977 Act as: ‘[A] licence from the proprietor of or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), any right in respect of the invention to which the patent or application relates, and ‘exclusive licensee’ and ‘non-exclusive licence’ shall be construed accordingly’.

Unjustified threats of infringement proceedings Introductory point 4.71 The provisions under the 1977 Act as originally enacted made it difficult for intellectual property rights holders to notify others of their rights and for the rights holder not to face action that such notification was a ‘threat’. An apparently neutrally worded document, which contained no overt threat that the intellectual property rights holder would take infringement proceedings, could be held to be an implied threat and entitle the receiver to taking legal action on the basis that it was an unjustified threat of legal action for alleged infringement of the rights holder’s intellectual property. From the perspective of a recipient, a rights holder who is able to issue threats of infringement proceedings without restriction could have a chilling effect on recipients – such as a retailer who sells the product of a competitor to the rights holder where the retailer does not have the resources to challenge the rights holder. The Act (and its predecessors) have had provisions which limit the ability of rights holders to issue threats of infringement proceedings to others in particular circumstances. There were significant amendments made in 2004 so that: 349 Section 116 of the 1977 Act. 350 Section 117 of the 1977 Act. 351 Section 118 of the 1977 Act.

260

Other fundamental provisions of UK patent law 4.72

•

it was possible for a person to issue a threat of infringement proceedings but not face action from the recipient of such a communication if the threat concerned the making or disposing of a product;

•

it was possible for a person to make certain factual enquiries without those enquiries constituting a threat.

However, those changes made the provisions relating to threats more divergent as between patents, designs and trade marks. The Law Commission published a report in 2012 and, after extensive consultation, the Intellectual Property (Unjustified Threats) Act 2017 (‘the 2017 Act’) was passed and came into force from 1  October 2017 and replaced the provisions in the 1977 Act affecting patents, designs and trade marks from 1 October 2017.352 The provisions relating to these three forms of intellectual property are now consistent (many of the provisions introduced in 2004 for patents are now replicated to designs and copyright). This section sets out the provisions affecting patents. Although the changes made by the 2017 Act for patents are less extensive than for designs and trade marks, the 2017 Act rewrites and extends the provisions.

The making of a threat of infringement proceedings 4.72 For there to be a ‘threat of infringement proceedings’, a person353 has to send a communication that states: •

a patent exists;354 and

•

the person intends to bring proceedings355 against another person for infringement of the patent by: –

an act done in the UK;

–

an act that, if done, would be done in the UK.356

There is an objective test as to whether such a communication would amount to a threat of infringement proceedings – that is, would a ‘reasonable person’ understand that the communication contains both elements above?

352 Transitional measures are not considered. 353 The wording here does not indicate that the sender has to be the owner of a patent (or anyone who has a right under the patent). However, only the patent owner or an exclusive licensee has the right to bring proceedings (sections 61, 67 of the 1977 Act). 354 Section 70(1)(a) of the 1977 Act. References to a patent also mean an application for a patent which has been published under section 16 of the 1977 Act: section 70E(1) of the 1977 Act. 355 The proceedings may be brought within or outside the UK: section 70(1)(b) of the 1977 Act. 356 Section 70(1)(b) of the 1977 Act. These provisions represent a change in the law to create a closer link between the threat to bring proceedings for infringement and the UK.

261

4.73  Patents

How it is possible to communicate the threat of infringement proceedings? 4.73

It is possible for a person to communicate the threat either by:

•

a communication addressed directly to a specific recipient; or

•

generally, such as to the public (or a specific section of the public).357

The right to bring proceedings for a threat of infringement proceedings 4.74 Where a person makes a threat of infringement proceedings, a person who is aggrieved by the threat can take action in respect of the threat.358 This right to take action is subject to a number of exceptions.

Situations when a threat of infringement proceedings is not actionable 4.75 A  threat of infringement proceedings is not actionable where the allegation of infringement consists of:359 Primary acts of infringement (1) making or disposing of a product;360 (2) using a process;361 (3) an intention to make or dispose of a product;362 357 Section 70(2) of the 1977 Act. UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance provides an example of what would constitute a communication to the public: A patent owner puts on its website a notice that products of a particular type which are manufactured by a manufacturer will infringe the patent owner’s patent. Also the notice states that the patent owner will take steps to prevent further infringement of the patent. It is possible for potential purchasers of the product to read this notice. The guidance indicates that there is an ‘inference […] that a purchaser of [the manufacturer’s] product might be infringing by buying it. The test would be whether a reasonable person in the position of a potential purchaser of that type of product would understand the webpage text to contain a threat to sue them. Recent case law suggests that the test would be satisfied in these circumstances’. 358 Section 70A(1) of the 1977 Act. UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates that a ‘person aggrieved’ means any person whose commercial interests have been or might be affected by the threat in a real rather than a fanciful way’. This meaning is not found itself in the 1977 Act or the 2017 Act. 359 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates that those that make or dispose of a product (or use a process) are ‘primary actors’, and others who do not fall into these categories are ‘secondary actors’. 360 Section 70A(2)(a) of the 1977 Act. 361 Section 70A(2)(b) of the 1977 Act. 362 Section 70A(3) of the 1977 Act.

262

Other fundamental provisions of UK patent law 4.76

(4) an intention to use a process;363 or (5) either (1), (2), (3) or (4) and a secondary act of infringement, which would consist of a threat of infringement proceedings where the allegation consists of doing anything else in relation to the product or process.364 Exceptions (1) and (2) were present prior to the bringing into force of the 2017 Act, but (3), (4) and (5) are new exceptions to the right of an aggrieved person to take action if in receipt of a threat of infringement proceedings. Exception (5) would allow a person to threaten infringement proceedings only where the allegation consists, for example, of the alleged infringer making and selling a product. The wording of the section appears to mean that the person making the threat has to allege both that the alleged infringer is making the product and also is selling it. If the allegation only consists of selling a product then the available exceptions would not apply.365 One implication is that a person cannot send a communication threatening infringement proceedings to another person where the other person does not make or dispose of a product or does not use a process – unless the person sending the communication wishes to run the risk of an action.

Communications which do not contain express threats 4.76 A  communication which does not contain an express threat of infringement proceedings is also not actionable by the recipient but only if it is a ‘permitted communication’.366 For a communication to be a ‘permitted communication’ it has to fulfil the following conditions: •

the communication must be made for a ‘permitted purpose’, to the extent the communication contains information relating to a threat;367 and

•

all of the information that relates to a threat is ‘necessary information’ for that purpose and the person sending the communication has a reasonable belief in its truth.368

363 Section 70A(3) of the 1977 Act. 364 Section 70A(4) of the 1977 Act. 365 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance provides an example where a manufacturer makes and sells a patented product but also sells the same product which is made by another manufacturer. The examples goes on to indicate that a threat made by the patent owner threatening legal action for infringement against the first manufacturer for making and selling the product is not actionable, but a threat for selling the other manufacturer’s product is actionable. It is not clear from the guidance whether this is just an example or is meant to illustrate the meaning of exception (5). 366 Sections 70A(5), 70B(1) of the 1977 Act. 367 Section 70B(1)(a) of the 1977 Act. 368 Section 70B(1)(b)(i) and (ii) of the 1977 Act.

263

4.77  Patents

‘Permitted purpose’ is defined and the 1977 Act gives examples of what constitutes ‘necessary information’.

Permitted purpose369 4.77

The Act states what is and what is not a permitted purpose.

A permitted purpose is: •

a statement that the patent exists;

•

to discover whether a primary act of infringement has infringed a patent, and who has infringed the patent;

•

a person notifying a recipient that the person has a right in (such as the patent owner) or under (such as a licensee) a patent where the recipient’s awareness of the right is relevant to any proceedings.370

It is possible for a court to make another purpose a permitted purpose if the court considers it is in the interest of justice to do so.371 What is not a permitted purpose is a request that a person: •

stops doing, for a commercial purpose, anything in relation to a product or process;

•

delivers up or destroys a product;

•

gives an undertaking relating to a product or process.372

369 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates the policy reasons for allowing ‘permitted communications’: the introduction of ‘a “safe harbour” of “permitted communications” […] allows parties to communicate disputes without running the risk of triggering litigation. The provisions allow rights holders to attempt to identify the source of infringement by engaging those further down the supply chain under a clear framework’. The principle of such communications is that the rights holder should be attempting to identify the source of the infringement (a person who is carrying out a primary act of infringement). 370 Section 70B(2)(a)–(c) of the 1977 Act. UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance gives an example of what would and would not amount to a permitted communication: The patent owner sends a communication to a shop indicating that the shop is selling a product which the patent owner believes infringes its patent. The communication asks for details of the manufacturer or importer of the product. The communication then goes on to state that there is attached a transcript of a case the patent owner brought for infringement concerning an unrelated product and is provided to the shop as information. The part of the communication relating to asking details of the manufacturer or importer would be for a permitted purpose (as long as the patent owner can show it reasonably believed that the information in the communication was true) and would not be actionable. But the statement about the transcript would not be for a permitted purpose and would be actionable. 371 Section 70B(3) of the 1977 Act. 372 Section 70B(4)(a)–(c) of the 1977 Act.

264

Other fundamental provisions of UK patent law 4.80

Necessary information 4.78 If the following information is included in a communication which is made for a permitted purpose, it is considered necessary information that relates to a threat: •

a statement that a patent exists and is in force (or an application has been made);

•

details of a patent (or a right in or under it), but the details must be accurate in all material respects and must not be misleading in all material respects;

•

information that enables the identification of the products or process which are the subject of the alleged acts of infringement of the patent.373

Remedies 4.79 Where there is an actionable threat, it is possible to bring proceedings against the person who made the threat for the following remedies: •

a declaration that the threats are unjustifiable;

•

an injunction against the continuance of the threats; and

•

damages in respect of any loss sustained by the aggrieved person because of the threat.374

Defences 4.80 •

A person who makes a threat has two defences available: s/he can show that the act which is mentioned in the threat infringes (or would infringe) the patent;375 or

• s/he: – cannot identify anyone who has carried out a primary act of infringement despite taking reasonable steps; and –

373 374 375 376

notified the recipient of the threat of the steps that s/he took (whether before making the threat or at the time of making the threat).376

Section 70B(5)(a)–(c) of the 1977 Act. Section 70C(1)(a)–(c) of the 1977 Act. Section 70C(3) of the 1977 Act. Section 70C(4) of the 1977 Act.

265

4.81  Patents

Professional advisers 4.81 It is not possible to bring proceedings against a professional advisor377 for an actionable threat, subject to the following conditions:378 •

the professional advisor acted on the instructions of another person when the professional advisor has sent the communication with the threat of infringement proceedings; and

• the communication identifies the person who has instructed the professional advisor.379 The person who has instructed the professional advisor remains liable for a threat even if the person has a professional advisor acting on the person’s behalf.380

SUPPLEMENTARY PROTECTION CERTIFICATES Introduction 4.82 A Supplementary Protection Certificate (SPC) provides an extended period of protection for a medicinal product or a plant protection product protected by a patent after the patent expires. It is similar to patent term extension under US and Japanese laws. The common view is that SPCs extend the life of patents, but technically they are a new form of intellectual property. However, the practical effect of having an SPC is that certain patent rights continue after the patent has expired. SPCs were initially introduced for medicinal products in 1993, and in 1996 further provision was made for SPCs for plant protection, both directly into the laws of all EC member states by EC Regulations.381

377 A professional advisor is a person who is acting in a professional capacity of providing legal services or the services of a patent or trade mark attorney, and is regulated as concerns the provisions of those services by a regulatory body: section 70D(2). 378 Section 70D(1) of the 1977 Act. 379 Section 70D(3)(a), (b) of the 1977 Act. 380 Section 70D(4) of the 1977 Act. 381 For medicinal products: Regulation (EC) 469/2009 of the European Parliament and of the Council of 6  May 2009 concerning the supplementary protection certificate for medicinal products replacing Regulation (EEC) 1768/92 ([1992]  OJ L182/1) (the latter Regulation introduced SPCs). For plant protection: Council Regulation (EC) 1610/96 ([1996]  OJ L198/30) concerning the creation of a supplementary protection certificate for plant production products.

266

Other fundamental provisions of UK patent law 4.82

SPCs are available on a country-by-country basis in all the countries of the EU. In the UK, the 1977 Act was amended to apply certain of its provisions to SPCs.382 The official reasoning behind the introduction of SPCs is given in the recitals to the Regulation. Essentially: •

pharmaceutical research is important to improving public health;

•

it can take a long time to research and develop medicinal products, as well as being costly to do so;

•

without sufficient protection, such research and development will not continue to take place in the EU; and

•

the period between when a patent application is filed for a medicinal product and when it receives market authorisation is too short a period to provide protection sufficient for the investment necessary to research and develop medicinal products.

In effect the SPC seeks to balance various economic interests present in the pharmaceutical industry: (1) extension of the length of patent protection (whether under initial term or through an SPC): (a) provides protection and incentives to institutions and companies which carry out research and development; (b) prevents others from producing and marketing generic medicines; (2) expiry of patent protection: (a) allows for the sale of generic medicines, usually sold at a lower price than when the medicine is subject to patent protection; (b) prevents slight modifications to existing ingredients of a medicine which allows for continuation of patent protection through SPCs (without involving genuine innovation by those carrying out the modification).383 The structure and wording of the EU Regulations are complex, not helped by the political negotiations which led to their introduction, as well as difficulties

382 Section 128B, Sch 4A of the 1977 Act, inserted by the Patents (Compulsory Licensing and Supplementary Protection Certificates) Regulations 2007 (SI 2007/3293) from 17 December 2007. Regulations (EC) 469/2009 and 1610/96 are not incorporated into the 1977 Act, and in any case as Regulations they are directly applicable into national law. 383 See opinion of Advocate General in Trstenjak in Neurim Pharmaceuticals (1991) Ltd v Comptroller-General of Patents, C-130/11.

267

4.83  Patents

over the meaning of certain definitions and phrases.384 The main provisions of the Regulations will now be summarised.

Types of product for which an SPC is available 4.83 SPCs are available for certain types of medicinal and plant protection products which: •

are protected by a patent; and also

•

have received government approval for marketing in the country in which the SPC is sought.

An SPC will cover only a product for which marketing approval has been obtained. Thus, if a patent covers more than one product, then it may be necessary to obtain several SPCs in order to ‘extend’ the patent in respect of all those products. Moreover, in view of the definitions of ‘basic patent’ and ‘product’ (referred to below), it appears that some patented products may not qualify for SPC protection. The EC  Regulations provide that an SPC may be obtained for a ‘product’ which at the date of application for the SPC: (a) is protected by a ‘basic patent’ which is in force in the country of application;385 and 384 The extent of the difficulty, and problem in understanding, the meaning of the Regulations has led to extensive litigation, and multiple referrals by the UK courts on essentially the same issues. The case law is explored in detail in the CIPA Guide to the Patents Acts (8th edn, 2016, Sweet & Maxwell), para 128B and the IPO Manual of Patent Practice, pp 928–989. As at late 2018, the most relevant case illustrating the difficulty that UK judges have in interpreting the judgments of the CJEU concerning provisions of the Regulations is Teva UK Ltd and Others v Gilead Sciences Inc [2017] EWHC 13 (Pat). 385 Regulation (EC) 469/2009, art 3(a). This provision in particular has been subject to multiple referrals to the CJEU as to its meaning and the criteria by which it is possible to determine whether or not a product is protected by a basic patent (most recently in Teva UK Ltd and Others v Gilead Sciences Inc [2017]  EWHC  13 (Pat)). What does appears to be the case is that: (a) a patent is protected by its claims (from EPC, art 69(1), implemented by Patents Act 1977, s  125(1)) rather than whether there has been an infringement (under Patents Act 1977, ss 60(1), (2)); (b) an SPC is not available where the active ingredients are not specified in the wording of a claim of the basic patent (Medeva BV v Comptroller-General of Patents, Designs and Trade Marks C-322/10); (c) an SPC is not available where ‘a patent claims a product is composed of two active ingredients but does not make any claim in relation to one of those active ingredients individually … on the basis of such a patent for the one active ingredient in isolation’ (Medeva BV v Comptroller-General of Patents, Designs and Trade Marks C-322/10); (d) an SPC is not available where an active ingredient is identified in the claims of a basic patent in combination with another active ingredient, but is not identified alone in any claim (Yeda Research and Development v Comptroller-General of Patents, Designs and Trade Marks C-519/10).

268

Other fundamental provisions of UK patent law 4.83

(b) is validly authorised386 for marketing387 as a ‘medicinal product’ or a ‘plant protection product’;388 and (c) has not already been covered by an SPC;389 and 385 contd In Teva UK Ltd and Others v Gilead Sciences Inc [2017] EWHC 13 (Pat) the judge held that the reasoning in Medeva BV  v Comptroller-General of Patents, Designs and Trade Marks C-322/10 was ‘difficult to follow’, including that the conclusion that the CJEU (stated in (b) immediately above) does not follow from the reasoning set out by the CJEU in that case, and the CJEU swaps one problem for another: ‘in place of the problem of what is meant by the word “protected” [as found in Regulation (EC) 469/2009 art 3(a))] we are faced with the problem of what is meant by “specified in the wording of the claims”’. This case is the most authoritative and recent on the interpretation of Regulation (EC) 469/2009 in the UK. Until there is further guidance from the CJEU, the way the Regulation (EC) 469/2009 is interpreted in the UK courts is likely to be uncertain based on the comments in Teva. Besides the difficulty the court had in following the reasoning of the CJEU, the court found: (i) that the test to be applied to determine whether a product is protected by a basic patent (within Regulation (EC) 469/2009, art 3(a)) is not clear; (ii) that what is reasonably clear is that: (a) it is not enough that dealings in a product would infringe a claim by applying the provisions of the 1977 Act dealing with infringement (ie  Patents Act 1977, s  60). Rather the extent of protection is determined that specified in a claim of the specification of the patent or patent application (ie Patents Act 1977, s 125(1), (3)). (b) it is necessary that the product falls within at least one claim of the product. (iii) that, based on the CJEU case law, these two factors are not sufficient. More is required to decide whether a product is protected by a basic patent, but it is not clear what more is in fact required. (iv) The court suggested in establishing that more that is required in order to determine whether a product is protected by a basic patent in force (under Regulation (EC) 469/2009, art 3(a)) is as follows: (a) ‘the product must infringe because it contains an active ingredient, or a combination of active ingredients, which embodies the inventive advance (or technical contribution) of the basic patent’; (b) if there is a combination of active ingredients, the combination must ‘embody the inventive advance of the basic patent’ (ie it is not enough if only one of the active ingredients embodies the inventive advance). 386 Ie pursuant to Directive 65/65/EEC ([1965] OJ 022/369) or Directive 81/851/EEC ([1981] OJ L317/1) for medicinal products and Directive 91/414/EEC ([1991]  OJ L230/1) for plant protection products. It appears that the wording of the Regulations does not actually require the marketing authorisation to be in force when an application for an SPC is made: Medeva BV v Comptroller-General of Patents, Designs and Trade Marks C-322/10. 387 For medicinal products the marketing authorisation has to be full marketing authorisation – permission to conduct clinical trials is not sufficient (British Technology Group Ltd’s SPC  Application [1997]  RPC  118). For plant protection products, a provisional marketing authorisation may be acceptable if it is followed directly ‘by a definitive authorisation concerning the same product’ (Council Regulation (EC) 1610/96 art 13(3)). 388 Regulation (EC) 469/2009, art 3(b). 389 Regulation (EC) 469/2009, art 3(c). Successive cases have clarified the meaning of this article, including: (a) it is possible, where a patent protects several products, to obtain SPCs for each of those products as long as the basic patent protects each of those products (Georgetown University and Octroolcentrum Nederland (C-484/12); (b) It is not possible to obtain an SPC where the product contains the principle active ingredient which is protected by the basic patent (and containing the core inventive ingredient) with another active ingredient, which is not protected by the basic patent (Actvus Group PTC HER etc (C-443/12);

269

4.83  Patents

(d) the authorisation referred to in (b) above is the first authorisation to place the product on the market as a medicinal product or a plant protection product as the case may be.390 The Regulations define ‘medicinal product’, ‘plant protection product’, ‘product’ and ‘basic patent’ as follows: • ‘Medicinal product’ means any substance or combination of substances presented for treating or preventing disease in human beings or animals and any substance or combination of substances which may be administered to human beings or animals with a view to making a medical diagnosis or to restoring, correcting or modifying physiological functions in humans or in animals.391 • ‘Plant protection product’ means active substances and preparations containing one or more active substances, put up in the form in which they are supplied to the user, intended to: – protect plants or plant products against all harmful organisms or prevent the action of such organisms, in so far as such substances or preparations are not otherwise defined below; – influence the life processes of plants, other than as a nutrient (eg plant growth regulators); – preserve plant products, in so far as such substances or products are not subject to special Council or Commission provisions on preservatives; – destroy undesirable plants; or – destroy parts of plants, check or prevent undesirable growth of plants.392 385 contd (c) it is also not possible to obtain an SPC ‘where a basic patent includes a claim to a product comprising an active ingredient which constitutes the sole subject-matter of the invention, for which the holder of that patent has already obtained an SPC, as well as a subsequent claim to a product comprising a combination of that active ingredient and another substance, that provision precludes the holder from obtaining a second SPC for that combination’ (Actavis Group PTC and Actavis UK (C-577/13). 390 Regulation (EC) 469/2009 and Regulation (EEC) 1768/92 are both expressed in the same terms except for the use of the different type of products. The wording is found at Art 3 for both. 391 Regulation (EC) 469/2009, Art 1(a). 392 Council Regulation (EC) 1610/96, Art 1(1). Further definitions based on this definition are provided in Article  1: ‘“substances”: chemical elements and their compounds, as they occur naturally or by manufacture, including any impurity inevitably resulting from the manufacturing process; “active substances” means substances or micro-organisms including viruses, having general or specific action: (a) against harmful organisms; or (b) on plants, parts of plants or plant products; “preparations”: mixtures or solutions composed of two or more substances, of which at least one is an active substance, intended for use as plant protection products; “plants”: live plants and live parts of plants, including fresh fruit and seeds; “plant products”: products in the unprocessed state or having undergone only simple preparation such as milling, drying or pressing, derived from plants, but excluding plants themselves as defined in “plants”; “harmful organisms”: pests of plants or plant products belonging to the animal or plant kingdom, and also viruses, bacteria and mycoplasmas and other pathogens’.

270

Other fundamental provisions of UK patent law 4.86

•

‘Product’ means, for a medicinal product, the active ingredient or combination of active ingredients of a medicinal product,393 and for a plant protection product, the active substance as defined in the definition of active substances or combination of active substances of a plant protection product.394

•

‘Basic patent’ means a patent which protects a product395 (as the case may be) as such, a process to obtain a product or an application of a product, and which is designated by its holder for the purpose of the procedure for grant of an SPC.396

Who may apply for an SPC? 4.84 An SPC may be granted only to ‘the holder of the basic patent or his successor in title’.397 Although it is necessary to have market authorisation, the proprietor of the patent and the person who has the market authorisation do not need to be the same.398

How to apply for an SPC; procedural provisions 4.85 The Regulations set out certain procedural requirements for the making and processing of applications for an SPC.399 In the UK these procedures are supplemented by the application of the 1977 Act and the Patents Rules 2007 to SPCs, which specify matters such as the forms that must be completed in applications made to the UK Intellectual Property Office.400 In situations where neither the Regulation nor the Rules make specific provision, the procedural provisions of national patent law are generally to apply, but it is specifically provided that there will be no opposition procedure for SPCs.401

When must the application be made? 4.86 The application for an SPC must be made within six months of the date on which authorisation was given to place the product on the market as a 393 394 395 396 397 398 399 400

401

Regulation (EC) 469/2009, Art 1(b). Regulation (EC) 469/2009, Art 1(1). Whether the product be a medicinal or plant product as the case may be. The definition of a basic patent is the same for both medicinal or plant protection products, but both definitions are predicated on the individual definitions for ‘products’. Regulation (EC) 469/2009, Art 6, and Regulation (EC) 1610/96, Art 6. Eli Lilly & Company v Human Genome Sciences Inc [2012] EWHC 2290 (Pat). See Regulation (EEC) 1768/92, Arts 7–10, and Regulation (EC) 1610/96, Arts 7–10. Certain provisions of the 1977 Act are to include a reference to an SPC – for example, a reference to a proprietor of a patent shall also be a reference to a holder of an SPC (para 1(1), Sch 4A to the 1977 Act). For the list of which sections of the 1977 Act apply to SPCs, see Sch 4A to the 1977 Act. See Regulation (EEC) 1768/92, Art 18, and Regulation (EC) 1610/96, Art 18.

271

4.87  Patents

medicinal product or a plant protection product, unless this took place before the basic patent was granted, in which case the application must be made within six months of the date of grant of the basic patent.402

Protection given by an SPC 4.87 The protection given by an SPC is limited in two respects. First, it is limited to the product for which marketing approval was given, and for any use of the product as a medicinal or plant protection product (as the case may be) that was authorised before the expiry of the SPC. Secondly, it is limited to the protection given by the basic patent. Only if the product meets both these tests will it be protected by the SPC.403 Subject to these limitations, an SPC ‘shall confer the same rights as conferred by the basic patent and shall be subject to the same limitations and the same obligations’.404 In this respect at least, an SPC can be considered as an extension of the term of the basic patent.

Duration of the SPC 4.88 The question of the duration of SPCs was the subject of considerable political debate. The final compromise position, as provided for by the Regulations, limits the duration of SPCs to a maximum of five years. The rather complicated formula for determining the duration is as follows:405 ‘The [SPC] shall take effect at the end of the lawful term of the basic patent for a period equal to the period which elapsed between the date on which the application for a basic patent was lodged and the date of the first authorisation to place the product on the market in the Community reduced by a period of five years. Notwithstanding [the above] paragraph, the duration of the [SPC] may not exceed five years from the date on which it takes effect’. Thus, to take some examples: if the application for a basic patent was lodged in 1990, and the first marketing authorisation is granted in 1996, the SPC will last for one year (six years less five years) from the expiry of the basic patent. If the first marketing authorisation is granted in 1999, the SPC will last for four years (nine years less five years). If the first 402 403 404 405

Regulation (EEC) 1768/92, Art 7, and Regulation (EC) 1610/96, Art 7. See Regulation (EEC) 1768/92, Art 4, and Regulation (EC) 1610/96, Art 4. See Regulation (EEC) 1768/92, Art 5, and Regulation (EC) 1610/96, Art 5. See Regulation (EEC) 1768/92, Art 13. Regulation (EC) 1610/96, Art 13 is expressed in exactly the same terms.

272

Other fundamental provisions of UK patent law 4.90

marketing authorisation is granted in 2002, the SPC will last for five years (twelve years less five years equals seven years, but this is subject to the five-year maximum).

Commencement and transitional provisions 4.89 For medicinal products, SPCs were available from 2 January 1993 and for plant protection products from 8  February 1997. The latest set of rules governing both medicinal and plant protection products came into force on 17 December 2007.406 Implementation for other EC states has taken place on different dates. In addition there have been transitional provisions resulting in different provisions applying to different member states. In some EC countries, such as France and Italy, there were already SPCs in place prior to the introduction of the Medicinal Product Regulations.

Commercial transactions involving Supplementary Protection Certificates 4.90 There are no specific provisions concerning dealings with SPCs in either the Regulations or the UK  Rules. It can therefore be assumed that the dealing provisions of UK patent law apply to UK SPCs. The effects of SPCs on patent licences have not been finally established. For example, does a licence which is stated to continue for the life of the licensed patent continue for the duration of the corresponding SPC? It is understood that the UK  Intellectual Property Office’s intention is to treat such licences as continuing on the same terms until expiry of the SPC. In other words, at least in the context of UK Intellectual Property Office practice, SPCs will be regarded as extensions of the basic patent, even though technically a separate right. Whether such an approach will be upheld by the courts has yet to be finally decided. It has been held that an SPC is subject to licences of right in the same way as the underlying patent.407 The judge commented that an SPC gives no more and no less rights than those which existed under the basic patent. 406 Patents (Compulsory Licensing and Supplementary Protection Certificates) Regulations 2007 (SI 2007/3293), r 1(2). 407 Research Corpn’s Supplementary Protection Certificate [1994]  RPC  387 and 667. The CIPA  Guide to the Patents Acts (8th edn, 2016) suggests at para  128B.75 that by analogy, based on this case, a licence agreement ‘which grants a licence under a patent should be construed as extending to an SPC which becomes effective upon expiry of that patent’, unless there are clear words to the contrary. If this view is not taken, they suggest, a licensee would become an infringer of the SPC upon expiry of the patent and the expiry of the licence.

273

4.91  Patents

PATENTS FOR BIOTECHNOLOGICAL INVENTIONS408 General 4.91 One main purpose of the 1998 Biotechnology Directive was that member states should protect biotechnological inventions under their national laws.409 Another purpose of the Directive was to harmonise national patent laws as to the protection of biotechnological inventions. If an invention is new, involves an inventive step and is capable of industrial application, it is patentable, although the invention concerns: (1) a product consisting of, or containing, biological material; or (2) a process by means of which biological material is produced, processed or used. The new provisions introduced by the Biotechnology Directive provide a series of criteria of what is and what is not patentable in terms of biological material. The Biotechnology Directive made explicit what was implicit and what it was possible to derive from other sources. The Biotechnology Directive was implemented into UK patent law by amendment to the 1977 Act (and the Patents Rules), principally in 2001.

Summary of changes made to implement the Biotechnology Directive into UK law 4.92 The implementation of the Biotechnology Directive into the UK introduced a new section and a new Schedule410 in the 1977 Act regarding biotechnological inventions. It also made certain other amendments to the 1977 Act, including changing the meaning of the general prohibition on the granting of patents, as well as indicating that all patents and patent applications are subject to this new Schedule. Despite the changes introduced by the Biotechnology Directive, the general requirements for patentable inventions described earlier in this chapter have not changed (that is, the invention is new, involves an inventive step and is capable of industrial application).411

408 This section provides an outline of the law regarding biotechnological inventions as found in the Patents Act 1977. For background on the introduction and controversy of this matter, see previous editions of the book. 409 Council Directive 98/44/EC ([1998] OJ L213/13) on the legal protection of biotechnological inventions. 410 Section 76A and Sch 2A, inserted by SI 2000/2037, from 28 July 2000. 411 See para 4.37 above.

274

Other fundamental provisions of UK patent law 4.94

Meaning of biotechnological inventions and biological material 4.93

The Act provides definitions for:

(a) A biotechnological invention: which is an invention which concerns a product consisting of or containing biological material or a process by means of which biological material is produced, processed or used;412 and (b) Biological material: which is any material containing genetic information and capable of reproducing itself or being reproduced in a biological system.413

Biotechnological inventions containing biological materials 4.94 Biotechnological inventions are not unpatentable solely on the grounds that they concern: (a) a product consisting of or containing biological materials; or (b) a process by which biological material is produced, processed or used.414 Biological materials which are isolated from their natural environment or produced by a technical process may be subject of an invention, even if the biological material previously occurred in nature.415 Although the human body, plants and animals are generally not patentable inventions (see section below), they may constitute a patentable invention if: (a) For a human body: an element is isolated from the human body or otherwise produced by means of a technical process. This can include the sequence or partial sequence of a gene.416 The element can constitute a patentable invention if the structure of that element is identical to that of a natural element. (b) For a plant or animal: the technical feasibility (of the invention) is not confined to a particular plant or animal variety.417

412 Section 130 of the 1977 Act. 413 Section 130 of the 1977 Act. 414 Paragraph 1, Sch A2 to the 1977 Act. Biological material which is isolated from its natural environment or produced by means of a technical process may be the subject of an invention if it previously occurred in nature (para 2, Sch A2 to the 1977 Act). 415 Paragraph 2, Sch 2A to the 1977 Act. 416 Paragraph 5, Sch A2 to the 1977 Act. 417 Paragraph 4, Sch A2 to the 1977 Act.

275

4.95  Patents

Inventions not capable of being patentable 4.95

The following inventions are not capable of being patentable:418

(a) the human body, at the various stages of its formation and development, and the simple discovery of one of its elements, including the sequence or partial sequence of a gene; (b) processes for cloning human beings; (c) processes for modifying the germ-line genetic identity of human beings; (d) uses of human embryos for industrial or commercial purposes; (e) processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such processes; (f) any variety of animal or plant or any essentially biological process for the production of animals or plants, not being a micro-biological or other technical process of the product of such a process.419 The extent to which inventions are patentable which touch on any of the above, besides often being contentious, invariably requires a high level of scientific knowledge. A consideration of the many cases which involve the above matters is beyond the scope of this book.420

Applications for patents involving biotechnological inventions and other provisions of the 1977 Act made under the 1977 Act 4.96 All patent applications and patents (and other provisions of the 1977 Act) involving biotechnological inventions are subject to the 1977 Act.421

418 Paragraph 3, Sch A2 to the 1977 Act. 419 See Leland Stanford/Modified Animal [2002] EPOR 2, European Patent Office (Opposition Division). A European patent held by an American University, for a mouse implanted with human tissue. It was stated to have potential significance in relation to human transplants and the development of anti-AIDS remedies. The opponent in these proceedings attacked the patent on the grounds that it was unethical and against the general moral principles of Western society to grant patents on life. In particular it was unethical to use human foetal cells, which would cause suffering to animals and posed an ethical risk. 420 For consideration of the type of biotechnological inventions and materials for which it is possible to obtain patent protection, see the CIPA Guide to the Patents Acts (8th edn, 2016), particularly the commentary for section 76A. Also, for the practice of the UKIPO, see Examination Guidelines for Patent Applications relating to Biotechnological Inventions in the Intellectual Property Office, 2016 which provides a more explanatory outline of what is patentable and not-patentable. 421 Section 76A of the 1977 Act.

276

Other fundamental provisions of UK patent law 4.98

Additional information to be provided when making an application for a patent involving or concerning a sequence or partial sequence of a gene 4.97 The industrial application of a sequence or partial sequence of a gene must be disclosed in the patent application as filed.422

Extension of protection to patents 4.98 The protection provided by a patent on a biological material processing specific characteristics as a result of the invention shall extend to any biological material derived from that biological material through propagation or multiplication in an identical or divergent form and possessing those same characteristics.423 Also protected are the biological material and its progeny directly obtained through a process that enables a biological material to be produced processing specific characteristics as a result of the invention.424 This protection is extended to products which contain or consist of genetic information and all material in which the patented product is incorporated and in which the genetic information is contained and performs its function.425 This particular protection does not extend to the human body at its various stages of formation and development, and the simple discovery of one of its elements, including the sequence or partial sequence of a gene.426 In relation to a farmer, an act that would otherwise constitute an infringement of a patent for an invention shall not do so if:427 (a) it consists of the use by a farmer of the product of the farmer’s harvest for propagation or multiplication by him on his own holding, where there has been a sale of plant-propagating material to the farmer by the proprietor of the patent or with his consent for agricultural use; and (b) it consists of the use of an animal or animal reproductive material by a farmer for an agricultural purpose following a sale to the farmer, by the 422 423 424 425

Paragraph 6, Sch A2 to the 1977 Act. Paragraph 7, Sch A2 to the 1977 Act Paragraph 8, Sch A2 to the 1977 Act. Paragraph 9, Sch A2 to the 1977 Act. The CIPA Guide to the Patents Acts (8th edn, Sweet & Maxwell, 2016) states at 125.25 that paras 8 and 9 mean: ‘… that, if the claimed invention is directed to biological material (or the production of biological material) which is characterised by having a particular amino acid protein sequence, or is a material replicated by a particular DNA sequence, then (if that sequence is specified in the patent) the extent of protection provided by such a patent extends to any material which continues to possess that same sequence data’. 426 Paragraphs 9, 3(a), Sch A2 to the 1977 Act. 427 SI 2000/2037, reg 4.

277

4.99  Patents

proprietor of the patent or with his consent, of breeding stock or other animal reproductive material which constitutes or contains the patented invention.

PATENTING AND SOFTWARE Patenting software inside the EU and the UK 4.99 The patenting of software is a topic which has caused and continues to cause confusion, uncertainty and difficulty: •

confusion as to whether patent law covers computer software;

• uncertainty as to the extent to which patent law will allow the patenting of computer software; and • difficulty as to understanding the current law (and in particular the case law which has grappled with the issue of the patenting of software). The importance of computer software is without question, whether as the principal aim of development of commercial products or as a tool in other activities such as research and development. This section addresses whether it is possible to patent computer software (as inventions). At the time of the previous edition of this book, the method for courts and for the UKIPO to decide on applications was largely settled in one case of 2006.428 Further decisions of the courts have followed this decision, but with continuing attempts to revise and provide further detail on the criteria as to what types of claim regarding applications for patents are acceptable. Such attempts have focused on determining how it is possible to establish whether the invention claimed in an application for a patent makes a technical contribution which goes beyond the mere running of the software on a computer. What follows can be no more than a snapshot of the current position, which may well change during the lifetime of this edition of the book.

Why patent software? 4.100 The main form of intellectual property which protects computer software is copyright.429 A patent provides protection for the idea and principles behind the software. Generally, copyright only prevents copying,430 but does 428 In Aerotel Ltd v Telco Holdings Ltd and others; Re Macrossan’s Application [2006] EWCA Civ 1731, [2006] All ER (D) 346 (Oct). This case is considered below. 429 Copyright, Designs and Patents Act 1988, ss 1, 3. 430 And the other prohibitions and restrictions provided for under the Copyright, Designs and Patents Act 1988.

278

Other fundamental provisions of UK patent law 4.103

not protect the ideas and principles behind the software. As long as the code or the structure of the software is not copied (or is not copied too closely), another person can recreate the idea and principles behind the software using different programming code. The copyright owner of the original software may be able to do little about this.431 However, if the copyright owner also held a patent, he or she would be able to restrict such activity. The principal benefit for patenting software will be the creation of a time-limited monopoly for the owner of the software which incorporates the ideas and principles behind the software.

What does the Patents Act 1977 provide for computer software? 4.101 The 1977 Act indicates that a program for a computer is not considered to be an invention but only to the extent that a patent or application for a patent relates to a computer program ‘as such’.432 The meaning and extent of ‘as such’ has been the subject of extensive discussion, interpretation and doubt (both in the UK and the EU).

The current position 4.102 Besides the normal criteria for a patent to be granted for invention,433 the software invention must also have a ‘technical character’ or make a ‘technical advance/contribution’. These phrases are not found in the 1977 Act or the Patents Rules 2007 (or indeed the European Patent Convention). Whether (and the extent to which) a computer program can be patentable is largely a creation of European Patent Office and UK case law.

European position 4.103 The position in cases decided in Europe comes from two key cases: • Vicom,434 where it was held that a claim directed to a technical process which is carried out under the control of a program (whether by means 431 The extent to which copyright protects all aspects of a computer program is considered in para 5.56. 432 Section 1(2) of the 1977 Act: ‘It is hereby declared that the following (among other things) are not inventions for the purposes of this Act … a program for a computer … but the foregoing provisions shall prevent anything from being treated as an invention for the purposes of this Act only to the extent that a patent or application for a patent relates to that thing as such’. 433 That the invention is new, it involves an inventive step, it is acceptable of industrial application and that the grant of a patent is not in an excluded category (s 1(1) of the 1977 Act). A program for a computer being one of the excluded categories, for example (s 1(2) of the 1977 Act). 434 Re Vicom [1987] 2 EPOR 74.

279

4.103  Patents

of hardware or software) cannot be regarded as relating to a computer program as such; and • IBM,435 where a computer program can itself be claimed if it is running on a computer where it brings about a technical effect going beyond the normal interactions between the computer program and the computer. The requirement for an invention to have a ‘technical character’ is found, other than in case law, in the Guidelines for Examination in the European Patent Office.436 That the presence or absence of a ‘technical character’ or ‘technical contribution’ is often key in determining whether or not an invention is excluded from patentability, particularly under EPC, Art 52(2), (3), has been adopted by the European Office Board of Appeal437 and been approved by the Court of Appeal.438 Subsequent to these decisions there has been a significant amount of case law, and this has emphasised the need for a computer program invention to make a technical contribution in order to be eligible for protection by a patent.439 The relevant principles in the EPO guidelines and case law appear to be as follows: (a) a contribution to the art by what is inside a computer program itself: that contribution, or its subject matter, is not patentable; (b) a computer program which merely runs on a computer (such as a wordprocessing program or a spreadsheet) and which does not make any changes or improvements to the computer (hardware or other software) is also not patentable; (c) where the computer program is able to bring about a further technical effect, when running on a computer, which goes beyond the normal physical effect, the further technical effect will not be excluded from patentability; 435 IBM Computer programs (EPO Decision T935/97), [1999] RPC 861. 436 At para 3.6, ‘Programs for Computers’, in the November 2017 edition of the Guidelines. 437 Re Vicom [1987] 2 EPOR 74: ‘Generally speaking, an invention which would be patentable in accordance with conventional patentability criteria should not be excluded from protection by the mere fact that for its implementation modern technical means in the form of a computer program are used. Decisive is what technical contribution the invention as defined in the claim when considered as a whole makes to the known art’. 438 Merrill Lynch’s Application [1989]  RPC  561; Fox LJ said at p  569: ‘… it seems to me to be clear … that it cannot be permissible to patent an item excluded by section 1(2) [of the 1977 Act] under the guise of an article which contains that item – that is to say, in the case of a computer program, the patenting of a conventional computer containing that program. Something further is necessary. The nature of that addition is, I think, to be found in the Vicom case where it is stated: “Decisive is what technical contribution the invention makes to the known art”. There must, I think, be some technical advance on the prior art in the form of a new result (eg a substantial increase in processing speed as in Vicom)’. 439 Such as Merrill Lynch’s Application [1989] RPC 561; Gale’s Application [1991] RPC 305; and Fujitsu Ltd’s Application [1997] RPC 608.

280

Other fundamental provisions of UK patent law 4.104

(d) a computer program which is provided on a physical carrier or loaded into the computer or the computer’s memory is not patentable (if the computer program merely loads and runs the program); (e) however, if the computer program as regards its subject matter as claimed does make a technical contribution to the known art, then patentability should not be denied merely on the ground that a computer program is involved in its implementation. The decisions of the EPO Board of Appeals are persuasive for cases decided in the UK and will be followed where it is considered that they reflect a settled view of European patent law.440 However, the UK courts have decided that there is not a settled position for European patent law and that the approach as set out below is the one that the courts in the UK should follow.441

Current UK case law 4.104 The current approach by the courts to establishing whether a computer program is patentable was the Court of Appeal decision in Aerotel,442 which has developed a new, structured way of establishing whether a computer program can be protected by a patent:443 440 See UKIPO Manual of Patent Practice, 1.09. 441 HTC Europe Co Ltd v Apple Inc [2013] EWCA Civ 451. The EPC Board of Appeals have considered the UK approach irreconcilable with the EPC. The differences are too detailed to set out here but are summarised in Symbian Ltd v Comptroller General of Patents [2008] EWCA Civ 1066, para 9 and HTC Europe Co Ltd v Apple Inc [2013] EWCA Civ 451, paras 39 to 44. 442 Aerotel Ltd v Telco Holdings Ltd and others; Re Macrossan’s Application [2006] EWCA Civ 1731, [2006]  All ER (D) 346 (Oct). Recent decisions have followed or applied this case, including Symbian Ltd v Comptroller General of Patents [2008] EWCA Civ 1066, [2008] All ER (D) 75 (Oct), Patent application in the name of Halliburton Energy Services Inc, Re [2011] EWHC 2508 (Pat), HTC Europe Co Ltd v Apple Inc [2013] EWCA Civ 451 and Lantana Ltd v Comptroller General of Patents, Design and Trade Marks [2014] EWCA Civ 1463. 443 The Court of Appeal indicated that their approach in this case was merely re-ordering the questions to be asked as to whether a computer program invention was patentable from Fujitsu Ltd’s Application [1997]  RPC  608: ‘Fujitsu Ltd’s Application asks first whether there is a technical contribution (which involves two questions: what is the contribution? Is it technical?) and then added the rider that a contribution which consists solely of excluded matter will not count as a technical contribution’. (see para 46). The Court of Appeal based their judgment not on section 1 of the 1977 Act but on the provisions of Art 52, EPC (which the Patents Act 1977 aims to be the equivalent of). The relevant wording from Art 52: ‘(1) European patents shall be granted for any inventions, in all fields of technology, provided that they are new, involve an inventive step and are susceptible of industrial application. (2) The following in particular shall not be regarded as inventions within the meaning of paragraph 1: (a) discoveries, scientific theories and mathematical methods; (b) aesthetic creations; (c) schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers; (d) presentations of information. (3) Paragraph 2 shall exclude the patentability of the subjectmatter or activities referred to therein only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such’.

281

4.104  Patents

(a) properly construe the claim; (b) identify the actual contribution made (examining what problem is being solved by the computer program, how the invention works, what its advantages are and what has the inventor really added to human knowledge); (c) ask whether it fell solely within the excluded subject matter (whether the contribution made by the computer-program invention falls within the ‘as such’ exclusion); and (d) check whether the actual or alleged contribution was actually technical in nature (in effect applying the earlier English case law as to the technical nature of the contribution that needs to be made).444 In the case where this four-step approach was approved it was not decided whether a computer program (whether on its own or on a disc (carrier)) can be claimed in a patent application. The four-step approach was subsequently applied in further English cases: (a) In a case applying the four-step approach it was held, in principle, that a computer program could be claimed by itself. However, the claim made in the patent application ‘must be drawn to reflect the features of the invention which would ensure the patentability of the method which the program is intended to carry out when it is run’.445 (b) It was held in another case that a computer program which solved a problem in a computer (reducing the likelihood of the unreliability of a computer’s file system) did make a technical contribution by solving a technical problem. The court, applying the third step of the four-step approach, found that the computer program was not solely excluded matter, as it had a knock-on effect by making the computer on which it ran work better as a matter of practical reality.446 The effect of the latter decision is to widen the meaning of what constitutes a technical contribution, by potentially allowing claims for where a computer program improves the running or stability of a computer through programming, but which has not directly appreciable effect outside the computer or directly affects other parts of the computer hardware.447

444 The court held that this step may not be necessary if the claim failed at the third stage (see para 46 of the judgment). 445 Astron Clinica Ltd and others v Comptroller General of Patents, Designs and Trade Marks [2008] EWHC 85 (Pat), [2008] 2 All ER 742, from para 54. 446 Symbian Ltd v Comptroller General of Patents [2008] EWCA Civ 1066, [2008] All ER (D) 75 (Oct). The patent application in this case concerned a computer program which provided a method for better accessing other electronic (dynamic link library) files. The computer program could be used on conventional computers as well as a range of electronic, communication and digital devices. 447 See the UK Intellectual Property Office Practice Note of 8 December 2008 for more on this. In essence an invention which either solved a technical problem external to a computer or inside

282

Other fundamental provisions of UK patent law 4.104

The most recent UK case,448 besides following the four-step approach in Aerotel, has considered whether invention claimed in an application makes a technical contribution. It used a set of signposts decided in other cases to do so: i) whether the claimed technical effect has a technical effect on a process which is carried on outside the computer; ii) whether the claimed technical effect operates at the level of the architecture of the computer, that is to say whether the effect is produced irrespective of the data being processed or the applications being run; iii) whether the claimed technical effect results in the computer being made to operate in a new way; iv) whether the program makes the computer a better computer in the sense of running more efficiently and effectively as a computer; v) whether the perceived problem is overcome by the invention as opposed to merely being circumvented.’ To help in determining whether an invention makes a technical contribution, the court relied on the following parts from an earlier judgment:449 ‘45 How then is it to be determined whether an invention has made a technical contribution to the art? A  number of points emerge from the decision in Symbian and the earlier authorities to which it refers. First, it is not possible to define a clear rule to determine whether or not a program is excluded, and each case must be determined on its own facts bearing in mind the guidance given by the Court of Appeal in Merrill Lynch and Gale and by the Boards of Appeal in Case T 0208/84 Vicom Systems Inc [1987] 2  EPOR  74, [1987]  OJ EPO  14, Case T 06/83 IBM Corporation/Data processing network [1990] OJ EPO 5, [1990]  EPOR  91 and Case T  115/85  IBM  Corporation/Computerrelated invention [1990] EPOR 107. 46 Second, the fact that improvements are made to the software programmed into the computer rather than hardware forming part of the computer does not make a difference. As I have said, the analysis must be carried out as a matter of substance not form. the computer would not be excluded from patentability, and in particular: ‘The Intellectual Property Office has previously recognised that an invention which either solves a technical problem external to the computer or solves “a technical problem within the computer” is not excluded. What Symbian has now shown is that improving the operation of a computer by solving a problem arising from the way the computer was programmed – for example, a tendency to crash due to conflicting library program calls – can also be regarded as solving “a technical problem within the computer” if it leads to a more reliable computer. Thus, a program that results in a computer running faster or more reliably may be considered to provide a technical contribution even if the invention solely addresses a problem in the programming’. 448 Lantana Ltd v Comptroller General of Patents, Designs and Trade Marks [2014]  EWCA Civ 1463. 449 HTC Europe Co Ltd v Apple Inc [2013] EWCA Civ 451.

283

4.104  Patents

47 Third, the exclusions operate cumulatively. So, for example, the invention in Gale related to a new way of calculating a square root of a number with the aid of a computer and Mr Gale sought to claim it as a ROM in which his program was stored. This was not permissible. The incorporation of the program in a ROM did not alter its nature: it was still a computer program (excluded matter) incorporating a mathematical method (also excluded matter). So also the invention in Macrossan [Aerotel] related to a way of making company formation documents and Mr Macrossan sought to claim it as a method using a data processing system. This was not permissible either: it was a computer program (excluded matter) for carrying out a method for doing business (also excluded matter). 48 Fourth, it follows that it is helpful to ask: what does the invention contribute to the art as a matter of practical reality over and above the fact that it relates to a program for a computer? If the only contribution lies in excluded matter then it is not patentable. 49 Fifth, and conversely, it is also helpful to consider whether the invention may be regarded as solving a problem which is essentially technical, and that is so whether that problem lies inside or outside the computer. An invention which solves a technical problem within the computer will have a relevant technical effect in that it will make the computer, as a computer, an improved device, for example by increasing its speed. An invention which solves a technical problem outside the computer will also have a relevant technical effect, for example by controlling an improved technical process. In either case it will not be excluded by Art 52 as relating to a computer program as such.’

284

CHAPTER 5

Copyright Introduction287 Current statutory basis for copyright law 287 International legislative basis for modern copyright law 287 Some recent developments in copyright law 289 Commercial transactions involving copyright works 294 Nature of copyright 294 Transfer of copyright 295 Assignments295 Licences297 Other fundamental aspects of UK copyright law which may affect the parties to commercial transactions, including ‘moral rights’ provisions 298 Types of work protected by copyright 298 Qualifications for protection by copyright 301 Author301 Publication302 Authorship of copyright 302 Ownership305 Works produced on or after 1 August 1989 305 Works produced before 1 August 1989 307 Duration of copyright 308 Infringement308 Restricted acts (‘primary infringement’) 308 Secondary infringement 312 Computers and computer programs 313 Permitted acts 315 Research or private study 317 Computational analysis 317 Computer programs 319 Other points 320 Criticism, review 320 Meaning of ‘fair’ 321 Temporary copies 322 Abstracts323 Designs323 Designs which are not artistic works 323 Designs which are derived from artistic works 323 Works in electronic form 323 Lending324 Computer programs 324 Back-up copies 324

285

Copyright Decompilation of computer programs 325 Observing, studying and testing of computer programs 326 Other lawful uses of computer programs 327 Databases327 Other exceptions 327 Moral rights 328 General328 Paternity right 328 Integrity right 330 Provisions applicable to moral rights 331 Resale right 332 Liability and remedies for infringement 332 Presumptions as to authorship and ownership 334 Copyright works other than computer programs 334 Computer programs 335 Inclusion of copyright statements 335 Devices designed to circumvent copy-protection 335 Generally335 Computer programs 336 Copyright works other than computer programs 337 Copyright licensing schemes and licensing bodies 338 Competition and Markets Authority report 338 Copyright tribunal 339 Qualification for copyright protection 339 General339 Qualification by reference to author 340 Qualification by reference to country of first publication 340 Protecting the ideas or concepts contained in computer programs with copyright 341 The requirement for originality 341 Computer software 342 First principles 343 Key facts 345 Digital Single Market Directive 348 The reasons for the introduction of a text and data mining exception 348 The legal issues 349 Specific exception – for research organisations and cultural heritage institutions carrying out scientific research 350 General exception 352 Key definitions 352 Research organisation 352 Cultural heritage institutions 354 Text and data mining (TDM) 354 ‘Lawful access’ 354 Commercial or non-commercial purposes and extent of the exception 354

286

Introduction 5.02

INTRODUCTION Current statutory basis for copyright law 5.01 The most relevant UK copyright law for this book is Part I  of the Copyright, Designs and Patents Act 1988 (referred to in this chapter as ‘the 1988 Act’).1 There are important Schedules to the 1988 Act which deal with, among other things, the legal position for works which were in existence prior to the coming into force of the Act. Given the very long duration of copyright protection (unlike the much shorter duration period for patents and designs), these provisions are sometimes still relevant.

International legislative basis for modern copyright law 5.02 •

Some of the 1988 Act’s provisions reflect the requirements of: the Berne Convention;2

• WIPO Treaties,3 TRIPS;4 and •

several EU Directives and Regulations.

Since the first edition of this book, the UK government has implemented various international obligations, EU  Directives and Regulations, adding provisions to the 1988 Act on matters such as: •

providing copyright protection for computer programs;5

•

extending copyright protection to databases;6

•

creating a separate, new form of protection, the database right (which is a lesser right than copyright);7

•

permitting various mandatory and optional exceptions to the rights of copyright owners by users of works and materials protected by copyright (such as the recently introduced right to carry out computational analysis);

1

The remainder of the 1988 Act (Pts II–VII) is concerned with other matters: performance rights, design rights (see Ch 6), registered designs (see Ch 6), provisions relating to patent agents and trade mark agents, provisions relating to the setting up of the Patents County Court, amendments to the licence of right provisions under UK patent law, and other miscellaneous matters. To which the UK is a party. Countries, which are parties to the Convention, undertake to implement copyright laws which reflect the requirements of the Convention, thus ensuring a degree of international harmonisation of national copyright laws. For example, WIPO Copyright Treaty (1996), WIPO Performances and Phonograms Treaty (1996). Agreement on Trade-Related Aspects of Intellectual Property Rights (see www.wto.org/ english/docs_e/legal_e/27-trips_01_e.htm). Council Directive 91/250/EEC ([1991]  OJ L122/42) on the legal protection of computer programs. Directive 96/9/EC ([1996] OJ L077/20) on the legal protection of databases. See note 6. The database right is considered in Ch 6.

2 3 4 5 6 7

287

5.02  Copyright

•

restricting the circumvention of anti-copying devices;8 and

•

preventing the removal of copyright information placed in works and material protected by copyright.9

In summary, UK law provides a system of copyright protection where: •

protection is given to literary works (which includes computer programs and databases), dramatic, musical and artistic works, sound recordings and films, broadcasts, cable programmes, and the typographical arrangement of published editions;

•

registration is not required to protect a literary work by copyright, merely that it be expressed in a permanent form (which can include an electronic form, such as in a computer file);10

•

copyright protection normally lasts for the life of the author plus an additional 70-year period;11

•

the protection offered by copyright relates to the form or expression of the work, rather than any ideas or concepts which are contained in the work. It is normally possible to copy the ideas or concepts contained in a work without infringing copyright;12

• the owner of copyright may bring civil proceedings to prevent infringement of his or her copyright and claim other relief, particularly damages. There are also criminal offences associated with copyright infringement; •

certain authors of copyright works (whether or not they own the copyright) have ‘moral rights’. A moral right includes the right to be identified as the author and to object to ‘derogatory treatment’ of the work;13

 8 Directive 2001/29/EC ([2001]  OJ L167/10) on the harmonisation of certain aspects of copyright and related rights in the information society.   9 The Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003 and implementing Directive 2001/29/EC (see note 8). This Directive implements the 1996 World Intellectual Property Organisation treaties on copyright and performances and phonograms. 10 There is no general register of copyright works in the UK. Compare the position in the US, for example, where it is possible to register copyright works at the Library of Congress, with certain legal benefits resulting from such registration. In the UK, there are commercial companies who, for a fee, maintain a register of copyright works. But this is purely voluntary. One of the proposals of the Gowers Review was that the UK IPO should maintain a voluntary copyright register. This has not been implemented yet. 11 Changed from life of the author plus 50 years, pursuant to the EC Copyright Term Directive (SI  1995/3297), by the Duration of Copyright and Performers Rights Regulations 1995 Directive 93/98, OJ L77/20. 12 Unlike the idea contained in an invention, which once protected by a patent, cannot be copied while the patent is in force. That the ideas or concepts cannot normally be protected by copyright has been emphasised repeatedly by the courts in England in relation to computer programs (see para 5.56 onwards below, which sets out case law on this point). 13 It is possible to waive moral rights. Authors who are employees do not have moral rights; also moral rights do not arise where a work is created by a computer program.

288

Some recent developments in copyright law 5.03

•

a person who is not the copyright owner (or having permission from the copyright owner) can use a copyright work without the permission of the copyright owner. Such use can be for such purposes as non-commercial research, private study, carrying out of computational analysis, criticism and review and educational purposes.14

SOME RECENT DEVELOPMENTS IN COPYRIGHT LAW 5.03 (1) The Hargreaves Report 201115 followed the government’s request to conduct a review of ‘intellectual property and growth’. The Report made 10 recommendations, including the following which are most relevant to this chapter: •

the introduction of limits to copyright: so that the ‘Government should deliver copyright exceptions at national level to realise all the opportunities within the EU framework, including format shifting, parody, non-commercial research, and library archiving. The UK should also promote at EU level an exception to support text and data analytics. The UK should give a lead at EU level to develop a further copyright exception designed to build into the EU framework adaptability to new technologies. This would be designed to allow uses enabled by technology of works in ways which do not directly trade on the underlying creative and expressive purpose of the work. The Government should also legislate to ensure that these and other copyright exceptions are protected from override by contract’;

•

the enforcement of IP rights: ‘to pursue an integrated approach based upon enforcement, education and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP protected fields … In order to support rights holders in enforcing their rights the Government should introduce a small-claims track for low monetary value IP claims in the Patents County Court’;16

•

the introduction of a licensing scheme for orphan works; and

14 Sections 28–76 of the 1988 Act, as amended. 15 Digital Opportunity: an Independent Review of Intellectual Property and Growth. 16 Subsequent to the Hargreaves Report, the EU carried out a consultation on Directive 2004/48/ EC of the European Parliament and of the Council of 29  April 2004 on the enforcement of intellectual property rights. The UK  Government’s response (UK  Government response to EU public consultation on the evaluation of the legal framework for the enforcement of intellectual property rights, April 2016) broadly indicated that UK law already provided all the remedies required by the Directive – the content and recommendations of the response are outside the scope of this book. The other proposal in the recommendation for a ‘small claims track for low monetary value IP claims’ has been implemented with the creation of the Intellectual Property and Enterprise Court in 2013, including a small-claims track.

289

5.03  Copyright

•

the provision of IP advice to small firms: where the UKIPO develops plans to improve access to the IP systems to small companies.

The Government’s response, in relation to the Hargreaves Report recommendation for copyright exceptions, was that it would ‘make changes to widen existing or introduce new exceptions for private copying; parody; education; quotation and news reporting; text and data mining; research and private study; preservation; disabilities; public administration and reporting’.17 In 2014 the Government made a number of amendments to the 1988 Act to implement various optional exceptions to the exclusive right of an author to authorise the reproduction of the author’s work as set out in the Information Society Directive.18 The amendments included:

17 18 19 20 21 22 23

•

that the permitted acts of research or private study are no longer limited to particular types of works protected by copyright; they now apply to all types of work protected by copyright;19

•

that a new permitted act was introduced for computational analysis of anything recorded in a copyright work (as long as carried out for the sole purpose of research for a non-commercial purpose);20 and

•

generally, that a contractual provision is unenforceable which attempts to restrict or exclude the making of a copy of a work protected by copyright under one of the permitted acts;21

•

a number of other amendments or additions to the 1988 Act were also made which are of lesser relevance to this work, including: –

a new permitted act to quote from a copyright work for the purposes of criticism, review or otherwise;22

–

that it is fair dealing with a work if it is for the purpose of caricature, parody or pastiche;23

Ministerial statement on 20 December 2012 by the Secretary of State for Business, Innovation and Skills. Article 5 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. Section 28 of the 1988 Act, as amended by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Section 29A of the 1988 Act, inserted by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Sections 28(4B), 29A(5), inserted by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Section 30(1Z) of the 1988 Act, inserted by the Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 (SI 2014/2356) Section 30A of the 1988 Act, inserted by the Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 (SI 2014/2356).

290

Some recent developments in copyright law 5.03

–

it is fair dealing of a work to use it for the sole purpose of giving and receiving instruction (as long as it is for a noncommercial purpose);24

–

expanding the right of libraries to make and issue copies;25

–

the right of certain public bodies (such as libraries etc) to make available and reproduce orphan works;26 and

–

the introduction of a licensing scheme for orphan works.27

(2) In 2016 the European Commission presented proposals for the modernisation of copyright law, one of which was a proposed Digital Single Market Directive (‘DSM  Directive’). The DSM  Directive was adopted in 2019 by the EU Parliament and with member states having until June 2021 to transpose its provisions into their national laws.28 The DSM  Directive has a number of objectives, but two of them are to deal with newer technologies now available and newer forms of use of works protected by copyright. One of the newer forms of use for example, and particularly relevant for this book, is the carrying out of large-scale automated analysis of data. The DSM Directive introduces three exceptions to copyright protection:

24 25 26 27 28

29 30 31

•

research organisations can carry out text and data mining (‘TDM’) on copyright works for the purpose of scientific research (provided that research organisations have lawful access to the copyright works) – both for commercial and non-commercial purposes. There is also a more limited exception available for where TDM is not for the purpose of scientific research;29

•

educational institutions can make digital and cross-border use of works and other subject matter protected by copyright for the sole purpose of illustration for teaching for non-commercial purposes;30

•

cultural heritage institutions can make copies of works and other subject-matter permanently in their collections. The copies can be made in any format or medium.31

Amending section 31 of the 1988 Act by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Amending and inserting provisions of the 1988 Act by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Inserting a number of provisions into the 1988 Act (sections 40A to 43) by the Copyright and Rights in Performances (Certain Permitted Uses of Orphan Works) Regulations 2014 (SI 2014/2861). Inserting a number of provisions into the 1988 Act (section 44B, Schedule ZA1) by the Copyright and Rights in Performances (Licensing of Orphan Works) Regulations 2014 (SI 2014/2863). As the date by which the Directive has to be transposed into UK law is after the date when the UK is to leave the EU (31 January 2020), the UK government, as of 21 January 2020, has no plans to do so. See www.parliament.uk/business/publications/written-questions-answers-statements/ written-question/Commons/2020-01-16/4371. DSM Directive, Arts 3, 4 and 7. DSM Directive, Arts 5 and 7. DSM Directive, Arts 6 and 7.

291

5.03  Copyright

Two provisions of the DSM Directive have proved highly controversial: –

a right for press publishers to control reproduction of, or access to, their press publications made available through online use by ‘information society service providers’ for a two-year period (such as by news aggregators). But the right does not apply: •

to private or non-commercial uses of press publications by individual users;

•

to hyperlinking;

•

to uses of individual words or very short extracts of a press publication;32 and

– a requirement on ‘online content sharing service providers’33 (such as YouTube) who store content uploaded by users (and which allows others to access that content) to obtain authorisation from rightholders of that content.34 If the service provider fails to obtain authorisation then it shall be liable for unauthorised acts of communication to the public including ‘making available to the public, of copyright-protected works and other subject matter’.35 The service provider can escape liability (where there is no authorisation) if it can demonstrate that it has: •

made ‘best efforts’ to obtain authorisation, and

32

DSM Directive, Art 15. This provision is to provide publishers of press publications which are established in a member state with the rights provided in the Information Service Directive, Arts 2 and 3(2), which concern giving, eg, authors and others the ‘exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part’ of their works protected by copyright, and giving, eg, broadcasting organisations ‘the exclusive right to authorise or prohibit the making available to the public, by wire or wireless means, in such a way that members of the public may access them from a place and at a time individually chosen by them’ of fixation of their broadcasts. An ‘information service’ means ‘any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services’ (from Directive (EU) 2015/1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services (codification), Art 1(1)(b)). 33 DSM Directive, Art 2(6) defines an ‘online content-sharing service provider’ as ‘a provider of an information society service of which the main or one of the main purposes is to store and give the public access to a large amount of copyright-protected works or other protected subject matter uploaded by its users, which it organises and promotes for profit-making purposes’. But an ‘online content-sharing service provider’ will not include the following: ‘not-for-profit online encyclopedias, not-for-profit educational and scientific repositories, open source software-developing and-sharing platforms, providers of electronic communications services as defined in Directive (EU) 2018/1972, online marketplaces, business-to-business cloud services and cloud services that allow users to upload content for their own use’. 34 DSM  Directive, Art 17(1). Authorisation can be by means of a licence agreement with a rightholder, with the authorisation covering communications to the public or making available to the public works or other subject matter, and permitting users to carry out acts where the users are not acting on a commercial basis or where the users’ activities do not generate significant revenues: DSM Directive, Art 17(1), second paragraph, and 17(2). 35 DSM Directive, Art 17(4).

292

Some recent developments in copyright law 5.03

• made, ‘in accordance with high industry standards of professional diligence, best efforts’ to make unavailable specific works and other subject matter where the rightholder has provided the service provider with the necessary information; and in any event •

acted expeditiously to remove from its websites, or disable access, to works or other subject matter on receiving a ‘sufficiently substantiated’ notice from a rightholder, as well as preventing further uploads.36

There are also provisions: –

which limit some of the liability for newly established online contentsharing service providers for a limited period whose annual turnover is less than EUR 10 million as long as with other requirements;37

–

that online content sharing service providers and member states are to co-operate to ensure that the availability of works will not be prevented which do not infringe copyright and related rights or are covered by an exception or limitation to the rights of a rightholder, such as quoting, criticising, or reviewing a work or the use of the work is for the purpose of caricature, parody or pastiche;38 and

–

requiring online content-sharing service providers to put in place an ‘effective and expeditious’ complaint and redress mechanism where access to a work is disabled or the work is removed for a user who has uploaded a work.39

The provisions relating to TDM are set out at the end of this chapter. On their coming into force they will provide an important method of analysis of data for research purposes by universities and other research organisations for countries remaining within the EU – even though it may not be available to universities and research organisations in the UK. Such organisations in the UK may be able only to rely on the more limited exception introduced for ‘computational analysis’ for a noncommercial purpose introduced in 2014 (see immediately above). (3) Although 18 years have passed since the Information Society Directive40 became law, it still remains a pivotal piece of legislation despite its implementation into UK law.41 The UK government cited it 36 37 38 39 40

DSM Directive, Art 17(4). DSM Directive, Art 17(6). DSM Directive, Art 17(7). DSM Directive, Art 17(9). Directive 2001/29/EC ([2001]  OJ L167/10) on the harmonisation of certain aspects of copyright and related rights in the information society. Previous editions of this book have outlined the main provisions of the Directive. 41 The Information Society Directive was implemented by the Copyright and Related Rights Regulations 2003 (SI 2003/2498). The Regulations made extensive changes to the 1988 Act, but many of the changes related to matters which are not relevant to the subject matter of this book, such as broadcasts, (electronic) communications to the public and rights in performances.

293

5.04  Copyright

as the source for several legislative measures as recently as 2014 (see above), as well as being the source (through ECJ case law) for how fundamental aspects of basic copyright law are addressed, such as what is the correct test to apply to determine whether a work attracts the protection of copyright.42 (4) Also remaining of note is which form of intellectual property can protect computer programs in England and Europe. Primarily, the issue relates to the extent to which a patent can protect a computer program (in particular, whether and the extent to which a computer program has a ‘technical effect’). Where copyright is concerned, the issue in question is different. Although a computer program will be protected by copyright, it does not protect the ideas and principles contained in a computer program. A section at the end of this chapter explores the implications of this, particularly in regard to the latest case law.

COMMERCIAL TRANSACTIONS INVOLVING COPYRIGHT WORKS 5.04 The 1988 Act addresses a number of issues of direct relevance to transactions in copyright, some of them of a technical legal nature, which are discussed in this section. In addition, there are many other aspects of copyright law that it is necessary to take into account when advising upon a copyright transaction, and which are summarised in later sections of this chapter.

Nature of copyright 5.05 Copyright is treated as ‘personal or moveable property’. Thus, the general law of (personal) property applies to copyright and transactions

42 For example: one of the provisions (Art 2) concerning the right of authors to authorise or prohibit reproduction of their works, including in whole or part, has led the ECJ in Infopaq International A/S  v Danske Dangbaldes Forening (Case C-5/08) to determine that reproduction of part of a work will only enjoy the protection of that provision if it ‘contains elements which are the expression of the intellectual creation of the author of the work’. This interpretation is different to the view expressed by the English courts that, for infringement to occur, a ‘substantial’ part of a work must be copied (judged by quality rather than quantity) (Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273, HL). In the Infopaq case a phrase of 11 words extracted from a larger work was entitled to protection, and the Information Society Directive made no distinction between a whole and part of a work (as long as the part was the expression of the intellectual creation of the author). The Information Society Directive and a case such as Infopaq have had an impact on UK courts’ consideration on whether a work qualifies for protection by copyright (see Newspaper Licensing Agency Ltd v Meltwater Holding BV [2010] EWHC 3099 (Ch)).

294

Commercial transactions involving copyright works 5.07

in copyright,43 except where overridden by specific provisions in the 1988 Act.

Transfer of copyright44 5.06 The 1988 Act provides for three methods of transfer of the ownership of copyright: •

by assignment;45

•

by testamentary disposition;46 or

•

by operation of law.47

In a commercial transaction, transfer of copyright will generally be by means of an assignment. Transfer of copyright should be distinguished from the more limited grant of rights under copyright by means of a licence. Where a licence is granted, the person granting the licence retains ownership of the copyright and gives the licensee permission to do certain of the acts restricted by copyright.

Assignments 5.07 An assignment of copyright is not effective unless it is in writing signed by or on behalf of the assignor.48 It is not necessary to use any particular form in the assignment document, such as making the assignment a deed49 nor is there any need to mention the word ‘copyright’.50 As the requirements for a valid assignment are set out in the statute, it seems that it is not strictly necessary for the assignment to be a contract. Thus, the absence of one or more elements of a binding contract (eg  consideration) 43

Section 90(1) of the 1988 Act. See Ch 9 for further consideration of the law relating to personal property. 44 The provisions relating to the transfer of copyright as detailed below equally apply to databases and the database right: Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 23. 45 Section 90(1) of the 1988 Act. 46 Copyright passes under the will with an unpublished work, unless the will provides otherwise: s 93 of the 1988 Act. 47 Section 90(1) of the 1988 Act. 48 Section 90(3) of the 1988 Act. 49 See eg London Printing and Publishing Alliance Ltd v Cox [1891] 3 Ch 291, CA. There are a number of old cases on this point. The obvious danger if there is not clear wording that there is an assignment of copyright then a court may decide to interpret the wording as not providing for an assignment. 50 In Murray v King [1986] FSR 116 where it was held that the assignment of ‘interest, property, benefit’ of the seller plus the goodwill in the business being sold was sufficient to transfer the copyright.

295

5.07  Copyright

should not invalidate the assignment.51 In practice, though, many assignments include additional terms going beyond a formal transfer of title (eg further assurances clauses or warranties) and for those provisions to be binding they would need to form part of a binding contract. Therefore, the drafter will typically be concerned to ensure that the assignment document is a legally effective contract. Under English law, a key requirement for a binding contract is that consideration (eg payment) should pass, or alternatively the contract may be executed as a deed. An assignment which is defective – eg is not signed by or on behalf of the assignor – (a) may be considered to be an agreement to assign rather than an assignment, and (b) this may result in the assignee being treated in law as the equitable, not the legal, owner of the work protected by copyright, provided that the defective assignment allows the assignee to specifically enforce the assignment, and consideration is present.52 An equitable assignment does not need to be in writing.53 Alternatively, if the wording of the assignment is not clear, it may, in reality, also be an agreement to assign. It is possible to limit the scope and duration of an assignment, or other transmission, of copyright; the assignment or other transmission may apply: •

to one or more, but not all, of the things the copyright owner has the exclusive right to do; or

•

to part, but not the whole, of the period for which the copyright is to subsist.54

An assignment of future copyright55 (for example an assignment which relates to a literary work which has yet to be written) is often legally effective, such that no further assignment is required to transfer title when the copyright comes into existence. The 1988 Act provides as follows: 51 See the decision of Wright Hassall LLP  v Horton Jr & Anor  [2015]  EWHC  3716 (QB), concerning the assignment of a patent, that an assignment which complies with the statutory requirements of Patents Act 1977, s  30(6) ‘is effective as a legal assignment without any additional requirement for consideration’. The statutory requirement being: ‘(6) Any of the following transactions, that is to say-- (a) any assignment or mortgage of a patent or any such application, or any right in a patent or any such application; […] shall be void unless it is in writing and is signed by or on behalf of [the assignor or mortgagor] (or, in the case of an assent or other transaction by a personal representative, by or on behalf of the personal representative).’ The wording in s 90(3) of the 1988 Act is similar: ‘An assignment of copyright is not effective unless it is in writing signed by or on behalf of the assignor.’ By analogy, the same principle should apply to copyright as for patents. 52 It seems to be a condition of obtaining a remedy for specific performance of a contract that consideration be given – in other words, simply making the contract as a deed is not sufficient to get round the issue of consideration. 53 Lakeview Computers plc v Steadman (unreported, 26  November 1999, CA), Bookmakers’ Afternoon Greyhound Services Ltd v Wilf Gilbert (Staffordshire) Ltd [1994] FSR 723. 54 Section 90(2) of the 1988 Act. 55 Future copyright is copyright which will or may come into existence in respect of a future work or class of works or on the occurrence of a future event: s 91(2) of the 1988 Act.

296

Commercial transactions involving copyright works 5.08

‘Where by an agreement made in relation to future copyright,56 and signed by or on behalf of the prospective owner of the copyright,57 the prospective owner purports to assign the future copyright (wholly or partially) to another person, then if, on the copyright coming into existence, the assignee or another person claiming under him would be entitled as against all other persons to require the copyright to be vested in him, the copyright shall vest in the assignee or his successor in title by virtue of this subsection.’58

Licences 5.08 (a) There is no general requirement that licences must be in writing;59 although, for an exclusive licensee to obtain the benefit of certain statutory rights, the licence has to be in writing and be signed by (or on behalf of) the copyright owner.60 In practice, most licences are in writing. (b) Licences generally continue when copyright in the licensed work is transferred (ie  assigned); that is, they are binding on the new owner of the copyright; the only exception to this is that a licence is not binding upon: ‘… a purchaser in good faith [of the copyright owner’s interest in the copyright] for valuable consideration and without notice (actual or constructive) of the licence, or a person deriving title from such a purchaser.’61 As there is no official register of copyright in the UK (in the same way as for patents and certain types of licence granted under a patent), a licensee under copyright is not able to register his or her licence and thereby give notice to the world of his or her interest. There is therefore an increased risk of a licensee losing his or her rights under a copyright licence if the copyright is sold to a purchaser who comes within the category described above.62 56 57 58 59

As defined in s 91(2) of the 1988 Act. See note 56. Section 90(2) of the 1988 Act. Ie a grant of a licence can be implied, or arise from a course of conduct: see Clearsprings Management Limited v Businesslinx Limited and another [2005] EWHC 1487 (Ch) for a case where the court considered this point. 60 Section 92 of the 1988 Act. 61 Section 90(4) of the 1988 Act. 62 There is no failsafe way of dealing with this situation, except for carrying out adequate due diligence prior to entering a deal (which assumes the copyright owner is willing to tell the complete truth; or if willing to do so, has adequate records, which is not always the case). Other methods to deal with this situation are: to include warranties in an agreement (so that if a licence is discovered after the deal is signed, then the party in breach can be sued); or making the party in breach deposit a sum of money (sometimes for a limited period of time) against such an eventuality.

297

5.09  Copyright

(c) Similarly, a licence granted by a prospective owner of copyright is binding on persons to whom s/he transfers their interest in the copyright, except for a purchaser in good faith.63 An exclusive licensee has the same rights against a successor in title to the copyright who is bound by the licence, as he or she does against the person who originally granted the licence to him or her.64 The question of whether a successor in title is bound by the licence is dealt with in paragraphs (b) and (c) above. The special rights of an exclusive licensee are referred to below. An exclusive licence is defined as follows: ‘In this Part [ie Part I of the Act, which sets out the new law on copyright] an ‘exclusive licence’ means a licence in writing signed by or on behalf of the copyright owner authorising the licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by copyright owner.’65

OTHER FUNDAMENTAL ASPECTS OF UK COPYRIGHT LAW WHICH MAY AFFECT THE PARTIES TO COMMERCIAL TRANSACTIONS, INCLUDING ‘MORAL RIGHTS’ PROVISIONS Types of work protected by copyright 5.09 •

Copyright subsists in various kinds of original work:66

original literary works. This is defined67 as meaning any work which is written, spoken or sung, including: –

a table or compilation68 (other than a database),69

–

a computer program;

–

the preparatory design material for a computer program;

–

a database;

63 64 65 66 67 68

Section 91(3) of the 1988 Act. Section 90(4) of the 1988 Act. Section 92(1) of the 1988 Act. Section 1(1) of the 1988 Act. Section 3(1) of the 1988 Act. For example, a complex software program which comprises many individual programs which are linked together can be protected by a separate copyright as a compilation: Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275. 69 Although a database is considered a literary work, it has its own definition: a database is a collection of independent works, data or other materials which: (a) are arranged in a systematic or methodical way, and (b) are individually accessible by electronic or other means: s 3A(1) of the 1988 Act. It is possible that each of the independent works have their own copyright protection, while the database itself is a separate, distinct, copyright.

298

Other fundamental aspects of UK copyright law 5.09

but not a dramatic or music work; • original: – dramatic; –

musical; or

–

artistic works;

•

sound recordings, films or broadcasts;70 and

•

the typographical arrangement of published editions.71

This section of the book focuses mainly on the provisions of copyright law which apply to literary and artistic copyright. In practice, literary and artistic copyright are usually the most relevant to transactions involving technology transfer and research and development, rather than other types of copyright.72 Copyright will not subsist in a literary, dramatic or musical work unless and until it is recorded, in writing or otherwise.73 For a literary or artistic work to receive the protection of copyright, it must be ‘original’.74 This does not mean that any ideas contained in the work must be original or inventive.75 Rather, the work itself must not have been copied from any other work and must pass a relatively low threshold of creativity, in the sense that the author(s) must expend a degree of skill and labour in creating the work, regardless of the level of quality or style.76 70 Section 1(1)(b) of the 1988 Act. 71 Section 1(1)(c) of the 1988 Act. 72 Although, with the increasing importance of software in itself being the focus of research and further development work, as well as the increasing importance of graphical, sound and video aspects of software, it is more likely that the types of copyright likely to come under consideration will include sound recordings, film and possibly broadcasting copyright. 73 Section 3(2) of the 1988 Act. ‘“Writing” means “any form of notation or code, whether by hand or otherwise and regardless of the method by which, or medium in or on which, it is recorded”; and “written” is to be construed accordingly’ (s 178 of the 1988 Act). 74 This is considered further in para  5.56 onwards below, particularly in relation to computer programs. 75 Bookmakers’ Afternoon Greyhound Services Ltd v Wilf Gilbert (Staffordshire) Ltd [1994] FSR 723. 76 University of London Press Ltd v University Tutorial Press [1916] 2 Ch 601 at 608. This point has been subject to extensive case law. Many types of works have been held to be literary works, however ‘mundane’ they appear or lacking in creativity. The following have all been considered literary works by the courts: business letters (Tett Bros Ltd v Drake & Gorham Ltd [1928-35] Mac CC 492); a booklet of instructions for use of a toy (Meccano Ltd v Anthony Horden & Sons [1918] SR (NSW) 696); rules of a trade association (Co-operative Union Ltd v Kilmore, etc Ltd (1912) 47 ILT 7); formulas which use symbols and numbers (Bookmakers’ Afternoon Greyhound Services Ltd v Wilf Gilbert (Staffordshire) Ltd [1994] FSR 723) but not the results produced by using the formulas. A single word is generally not capable of protection (Exxon Corpn v Exxon Insurance Consultants International Ltd [1982] Ch  119, [1981] 3 All ER 241, CA), nor a collection of words where there was no skill in assembling them (unless they qualify as a compilation) (eg Libraco Ltd v Shaw Walker Ltd (1913) 30 TLR 22;

299

5.09  Copyright

There is a slightly different, and higher, test for originality concerning copyright in databases (not the database right). A  database is original if the selection or arrangement of its contents constitute the author’s own intellectual creation.77 Although of less direct relevance to the purpose of this book, a person may still create an ‘artistic work’ in the course of, for example, a scientific research project, once it is understood that the 1988 Act definition of an ‘artistic work’ covers a wide range of different types of works. The types of works covered include: •

graphic works,78 photographs, sculptures79 or collages, irrespective of artistic quality;

76 contd Forensic Telecommunications Services Ltd v West Yorkshire Police [2011] EWHC 2892 (Ch)), words which are merely descriptive (ie  it is not possible for the material or product to be described otherwise, such as ‘The Lawyer’s Diary’ was not capable of protection, Rose v Information Services Ltd [1987] FSR 254, or a title for a book, a song or a film will also not be capable of having the protection of copyright unless there is sufficient skill etc in creating the title so that the title can amount to a literary work (Exxon Corpn v Exxon Insurance Consultants International Ltd [1982] Ch 119, [1981] 3 All ER 241, CA) although a heading for a newspaper story can be a literary work (Meltwater v Newspaper Licensing Agency [2013] UKSC 18). However, a single word could be capable of protection as a trade mark. 77 Section 3A(2) of the 1988 Act, as inserted by the Copyright and Rights in Databases Regulations 1997 (SI  1997/3032). The individual items can be subject to protection by copyright (and possibly owned by others), which would not affect whether a person who creates a database would own his or her own copyright for the database. 78 A graphic work can include: ‘(a) any painting, drawing, diagram, map, chart or plan, and (b) any engraving, etching, lithograph, woodcut or similar work’: section 4(2) of the 1988 Act. 79 A  sculpture includes a cast or a model which is made for the purpose of the sculpture: section 4(2) of the 1988 Act. Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch) (appealed to the Supreme Court ([2011] UKSC 39), which did not overturn the judgment on this point) held that the making of copies of a helmet used in a film was utilitarian and not a sculpture because, while it had interest as an object and expressed an idea, its creation was only as part of the process of portraying a character in a film. The judge set out a number of (non-rigid) guidelines on how to recognise a sculpture: ‘(i) Some regard has to be had to the normal use of the word. (ii) Nevertheless, the concept can be applicable to things going beyond what one would normally expect to be art in the sense of the sort of things that one would expect to find in art galleries. (iii) It is inappropriate to stray too far from what would normally be regarded as sculpture. (iv) No judgment is to be made about artistic worth. (v) Not every three dimensional representation of a concept can be regarded as a sculpture. Otherwise every three dimensional construction or fabrication would be a sculpture, and that cannot be right. (vi) It is of the essence of a sculpture that it should have, as part of its purpose, a visual appeal in the sense that it might be enjoyed for that purpose alone, whether or not it might have another purpose as well … (vii) The fact that the object has some other use does not necessarily disqualify it from being a sculpture, but it still has to have the intrinsic quality of being intended to be enjoyed as a visual thing. Thus the model soldier in Britain might be played with, but it still, apparently, had strong purely visual appeal which might be enjoyed as such … (viii) I support this analysis with an example. A pile of bricks, temporarily on display at the Tate Modern for 2 weeks, is plainly capable of being a sculpture. The identical pile of bricks dumped at the end of my driveway for 2 weeks preparatory to a building project is equally plainly not. One asks why there is that difference, and the answer lies, in my view, in having regard to its purpose. One is created by the hand of an artist, for artistic purposes, and

300

Other fundamental aspects of UK copyright law 5.11

•

a work of architecture (meaning a building or a model for a building);80

•

a work of artistic craftsmanship.81

In turn, some of the different types of artistic works cover a number of elements, such as a graphic work, which can include a map, diagram, or plan. Much of the 1988 Act applies equally to artistic works as to literary works, and those provisions which do not are not directly relevant to this book.

Qualifications for protection by copyright 5.10 For a work to qualify for protection, certain conditions need fulfilling in regard to the author (the actual person creating the work) or the publication of the work.82

Author 5.11 A work will qualify for protection by copyright if the author, at the material time, is: •

a British citizen or a national of another EEA state;

•

an individual domiciled in the UK or another EEA state or a country to which the 1988 Act applies; or

79 contd the other is created by a builder, for building purposes. I appreciate that this example might be criticised for building in assumptions relating to what it seeks to demonstrate, and then extracting, or justifying, a test from that, but in the heavily subjective realms of definition in the artistic field one has to start somewhere … (ix) The process of fabrication is relevant but not determinative. I do not see why a purely functional item, not intended to be at all decorative, should be treated as a sculpture simply because it is (for example) carved out of wood or stone.’ 80 A  work of architecture will include a ‘fixed structure, and a part of a building or fixed structure’: section 4(2) of the 1988 Act. 81 The meaning of this type of work is not further explained in the 1988 Act. In George Hensher Ltd v Restawhile Upholstery (Lancs) Ltd [1976] AC 64, HL the court offered different opinions as to its meaning. The opinions included that an item had to be handmade, that it was not mass produced, and to make the item has to require training, skill and knowledge for its making. The court held that a prototype for a mass-produced item was not a work of artistic craftsmanship. A later, New Zealand, case (Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216) held ‘for a work to be regarded as one of artistic craftsmanship it must be possible fairly to say that the author was both the craftsman and an artist. A craftsman is someone who makes something in a skilful way and takes justified pride in their workmanship. An artist is a person with creative ability who produces something which has aesthetic appeal’. This description was found helpful in the UK decision of Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch) (the case was appealed ultimately to the UK Supreme Court ([2011] SC 39) but did not consider further the exact meaning of a work of artistic craftsmanship). 82 Sections 1(3), 153–164 of the 1988 Act.

301

5.12  Copyright

•

a body incorporated in the UK, another EEA state or a country to which the 1988 Act applies.83

The ‘material time’ means: •

if the work is not published, when the work was made (or, if the making of the work takes place over a period, a substantial part of that period);

•

in the case of an unpublished work, when the work was made or, if the making of the work extended over a period, a substantial part of that period; or

•

if the work is published, on its first publication, or if the author died before publication, the material time is immediately before the author’s death.84

Publication 5.12

A work also qualifies for copyright protection if it is first published:

•

in the UK or another EEA state; or

•

in a country to which the 1988 Act applies.

Authorship of copyright 5.13 The 1988 Act makes a distinction between authorship and ownership of copyright. The author is defined as the person who actually creates the work.85 The 1988 Act recognises that some works have more than one author and includes provisions which deal with the rights of joint authors,86 although not all the authors need to have collaborated to the same extent87 or in the same way88 to the creation of a work.89 A work of joint authorship means: 83 Section 154(1) of the 1988 Act. Other types of person who have a connection with the UK also come within this definition. The references to a ‘national of another EEA state’ or ‘another EEA state’ will be removed on the day that the UK leaves the EU (31 January 2020): SI 2019/605, regs 2, 14. 84 Section 154(4) of the 1988 Act. 85 Section 9 of the 1988 Act. 86 Section 10 of the 1988 Act, as amended by the Copyright and Related Rights Regulations 1996 (SI 1996/2967). 87 Levy v Rutley (1871) LR 6 CP. 88 Godfrey v Lees [1995] EMLR 307. 89 It will be a matter of fact and degree whether a person’s contribution was large enough to allow him or her to be a joint author: Stuart v Barrett [1994] EMLR 448; Fylde Microsystems v Key Radio Systems [1998] FSR 449. The contribution needs to be significant and original: Godfrey v Lees [1995] EMLR 307. In Hadley v Kemp [1999] EMLR 589 the contribution required was divided into four parts: 1. the claimant must make a contribution of some sort; 2. it must have been significant; 3. it must have been original; and 4. it must have been a contribution to the creation of the work.

302

Other fundamental aspects of UK copyright law 5.13

‘… a work produced by the collaboration of two or more authors in which the contribution of each author is not distinct from that of the other author or authors’.90 Some works are sometimes referred to as works of joint authorship, when in fact the work is a collection of separate works, with each work created by a separate author (such as each author making a distinct contribution, or in which works or parts of works of different authors are incorporated into one larger work, and each would be the author of the part they create).91 For example: (1) in a book consisting of several chapters, each of which is written by a different person, each person would be the author of their chapter; (2) in a report which is made up of separate sections each prepared by a different person, each person would be the author of their section; or (3) in the findings of a research project, where each section is prepared by a different person (such as the person carrying out the work on the research project writing up the findings, a second person preparing a section comparing the findings against the literature, and the project leader writing a section summarising the results and the next steps), each would be the author of their section. In these situations, each author would be the first owner of their chapter or section, unless they were employees or, pursuant to an agreement, ownership would belong to someone else. One case summarised other case law as to the meaning of what amounts to joint authorship:92 •

for a person to be joint author of a work, his or her contribution to the creation of the work has to be significant and original, although it does not have to be of equal magnitude to the contribution of the other joint author.93 A  slight contribution is unlikely ever to be sufficient as the effect of a person being a joint author is that the person has an equal share in the copyright;94 and

•

the contribution which is made must be a contribution to the creation of the work. A significant contribution of a different kind will not make the person a joint author. For example: –

extensive and technically sophisticated testing by one person of software written by another would not make the first person a joint author of the software;95 or

90 Section 10(1) of the 1988 Act. 91 Each author making a distinct contribution, or in which works or parts of works of different authors are incorporated into one larger work. 92 Brighton and another v Jones [2004] EWHC 1157 (Ch); [2004] All ER (D) 247 (May). 93 Held in Godfrey v Lees [1995] EMLR 307 at p 325. 94 Held in Hadley v Kemp [1999] EMLR 589. 95 Eg in Fylde Microsystems v Key Radio Systems [1998] FSR 449.

303

5.13  Copyright

–

the performance of a musical work, however skilful or inventive, would not be contributing to the creation of the musical work;96 or

–

a person who puts forward the idea for, or the contents of, a work;97 or a person who amends or adds to a work in order to improve the work, would not be a joint author of the work.98

It is necessary to use the ‘right kind of skill and labour’, which in the examples was not the case. A person can be a joint author even if he or she does not actually write or create the work itself. For example, a second person writing what the first person has created. However, there has to be a very close relationship between the creation and its expression, such as the person who is claiming to be a joint author having to instruct the person who is writing or creating the work. The first person has to have a direct responsibility for what appears on paper. However, this situation, where a person who will be considered a joint author but has not been involved in the actual creation of the copyright work, is likely to arise only in exceptional situations.99 If each person has used the ‘right kind of skill and labour’ and what they have created was distinct from another person’s contribution, it will be not be a work of joint authorship, although it will be necessary to determine what share of the copyright belongs to each part of the work.100 In the case of a computer-generated work where there is no human author, the author is taken to be ‘the person by whom the arrangements necessary for the creation of the work are undertaken’.101 ‘Computer-generated’ means more than, for example, simply printing out a document which is stored in a computer. For example, where a computer is programmed to interpret data from weather satellites and generate maps of weather patterns using such data without direct human intervention, the maps are computer-generated works.  96 Eg in Hadley v Kemp [1999] EMLR 589.  97 Eg Ashmore v Douglas-Home [1987] FSR 553.  98 Eg Brown v Mcasso Music Production Ltd [2005] FSR 846; case appealed but not relating to this point: [2005] EWCA Civ 1546.  99 Based on the judgments in Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995]  FSR  818, and Robin Ray v Classic FM plc [1998]  FSR  622. In the former case an employee of one the parties prepared a detailed technical specification for the design of houses. The specification was very detailed, including the type of materials that contractors would use in the construction of the houses. The specification was provided to a specialist company who draw the plans for the houses. The court held that the employee had contributed a significant part of the skill and labour to be protected by copyright and was a joint author with the specialist company. 100 See Fisher v Brooker [2009] UKHL 41, [2009] 4 All ER 789, where the court held that the introductory part of a song belonged to one member of a musical group, and then went on to assess that share at 40% of the copyright. 101 Section 9(3) of the 1988 Act.

304

Other fundamental aspects of UK copyright law 5.14

In addition to joint authorship, there is now co-authorship, which applies to: ‘a work produced by the collaboration of the author of a musical work and the author of a literary work where the two works are created in order to be used together.’102 Although of less relevance to this book, co-authorship may be important where some element of the intellectual property created involves an interactive element such as words accompanied by music.

Ownership Works produced on or after 1 August 1989 5.14 The first owner of the copyright in a work is generally the author,103 except for: •

Employee works: where a literary, dramatic, musical or artistic work is made by an employee in the course of his or her employment,104 his or her employer is the first owner of any copyright in the work subject to any agreement to the contrary;105

• Crown copyright etc: special rules apply to Crown copyright, Parliamentary copyright and copyright in works produced by some international organisations.106 If the work was produced in the course of employment, the employer owns it unless there is an agreement to the contrary. Accordingly, a work produced in the personal time of the employee will not belong to the employer, subject to the provisions of the contract of employment. A contract of employment may provide that all works created during the employment of an employee belong to the employer, regardless of whether they are created during the course of employment or not (or whether during or outside of the normal working hours of the employee). A provision such as the latter may be more appropriate for senior staff or those involved in areas of activity which are particularly sensitive or competitive. 102 Section 10A of the 1988 Act. Prior to this section (introduced from 1  November 2013, by SI 2013/1782), the creator of the music would be the author of the music, and the creator of the words would be the author of the words if they worked together. Now they would be coauthors. Although, based on the wording of this provision, where the words are written at one time by one person but the music for them is written at a different time by another and there is no collaboration between the two, they would not be co-authors. 103 Section 11(1) of the 1988 Act. 104 The ‘standard’ test for whether a person is an employee, ie  whether there is a ‘contract of service’, in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2  QB  497, will usually apply: see Ultraframe (UK) Ltd v Fielding [2003] EWCA Civ 1805, [2004] RPC 24. 105 Section 11(2) of the 1988 Act, as amended by SI 1996/2967. 106 Sections 11(3), 163 and 165 of the 1988 Act.

305

5.14  Copyright

For example, there might be such a provision in the contract of employment of a senior scientist working for a biomedical company. Anything the scientist writes relating to his or her field may be commercially valuable to others or may indirectly provide information on the areas on which his or her employer is or is not concentrating. In such a case the employer may wish to control what the scientist produces through ownership of such works, as well as with contractual confidentiality provisions. However, the contract should set out explicitly such matters rather than relying solely on the statutory test of works created by the employee during the course of the employee’s employment.107 A party who commissions the creation of a copyright work is not entitled to own the work unless the contract provides otherwise. However, in relation to contracts where one person commissions (the commissioner) another to create a copyright work, the commissioner will sometimes claim that it will own the copyright. The trend of case law in this area is usually against such a proposition, although much will depend on the facts of each case. The following cases indicate how courts have considered this issue: •

In a case concerning the commissioning of computer software, the court held that the commissioner did not have equitable title to the copyright in the software by virtue of any implied term.108

•

A case concerning the commissioner contracting with a supplier for the creation of documents which the commissioner would incorporate into its database, but the contract contained no provisions as to the ownership of the documents, confirmed the view in the previous bullet point. This case indicates that, if parties have not explicitly dealt with the issue of ownership of copyright, a term will be implied only to the extent necessary to close the gap left by the express terms of the contract.109 That is, a licence will usually be sufficient, rather than an assignment of the copyright, and the licence will be limited to only the necessary uses of the commissioner of the software.

•

In a case concerning software, all that was necessary to imply was a nonexclusive, perpetual, irrevocable royalty-free licence (but with no right to sub-licence but with the right to repair the software code). A  nonexclusive licence was all that was necessary to give ‘business efficacy’ to the contract and to protect the commissioner’s operating procedures from being used by the software developer.110

107 Or leave it to a court to decide whether a work is created during the course of employment (eg Noah v Shuba [1991] FSR 14). 108 Saphena Computing Ltd v Allied Collection Agencies Ltd [1995] FSR 616, CA. 109 Robin Ray v Classic FM plc [1998] FSR 622. 110 Clearsprings Management Ltd v BusinessLinx Ltd [2005] EWHC 1487 (Ch), [2005] All ER (D) 172 (Jul).

306

Other fundamental aspects of UK copyright law 5.15

•

In another case concerning software,111 a software developer was commissioned to write code in return for a royalty. The court held that all that was necessary to imply was an exclusive licence into the contract, as an outright assignment to the commissioner would leave the software developer with no rights,112 whereas it is possible with an exclusive licence to terminate it on an accepted repudiation.

There are also decisions the other way: •

In a case where a designer created a logo for a well-known brand of shoes which was silent as to the ownership of the copyright in the logo, the court held it was necessary to imply a beneficial assignment of the copyright to the commissioner. This was to give business efficacy to the contract, as the designer of the logo will have no further interest in the design and also it cannot be correct to assume that the designer would be free to assign the copyright to a competitor of the commissioner.113

•

In a case involving a software developer developing software, the commissioner and the software developer had negotiated the provisions of a consultancy agreement. The consultancy agreement provided that the software would belong to the commissioner, but the software developer did not sign the agreement but nevertheless performed the agreement’s obligations and accepted the payments specified in the (draft) agreement.114

Works produced before 1 August 1989 5.15 Given the very long duration of copyright protection, it is sometimes necessary to consider the provisions of earlier legislation in respect of older works for determining who is the author or owner of them.115 In respect of works in existence before 1 August 1989, the question of who was the first owner of copyright in the work is determined in accordance with the law in force at the time the work was made.116 In most cases, the position is the same as under the 1988 Act, but it may be necessary to check the earlier legislation. 111 Wrenn v Landamore [2007] EWHC 1833 (Ch), [2007] All ER (D) 361 (Jul), and upheld on this point on appeal: [2008] EWCA Civ 496. 112 Ie if there is a further assignment. The judgment referred to Barker v Stickney [1919] 1 KB 121 in support of this proposition. 113 R Griggs Group Limited and others v Evans and others [2005] EWCA Civ 11, [2005] All ER (D) 213 (Jan). Other cases involving logos have also allowed the commissioner to obtain an assignment rather than a limited licence, see Fresh Trading Ltd v Deepend Fresh Recovery Ltd [2015] EWHC 52 (Ch). 114 Destra Software Ltd v Comada (UK) LLP and others [2013] EWHC 1575 (Pat). 115 For example, a research programme that was carried out in the 1970s which led to an invention later subject to patent protection. By now the patent protection may have expired but any reports, manuals, technical documents or other documentation would still be subject to copyright protection and, if created before 1  August 1989, would still be subject to the previous version of the 1988 Act. 116 Schedule 1 to the 1988 Act.

307

5.16  Copyright

Duration of copyright 5.16 Copyright in a literary, dramatic, musical or artistic work117 generally expires 70 years after the end of the year in which the author dies.118 The main exceptions and qualifications to this general position which are likely to be relevant to technology transfer are:119 •

if the work is of unknown authorship, copyright expires 70 years after the end of the year in which the work was first made available to the public;

•

if the work is computer generated, copyright expires 50 years after the end of the year in which the work was made. However, the copyright in computer programs which have a known human author continues for the life of the author plus 70 years, as above;

•

if there was more than one author of the work or co-author, copyright expires 70 years after the end of the year of death of the last of them to die.

The above provisions do not apply to Crown copyright, Parliamentary copyright or the copyright of certain international organisations. Copyright protection in respect of articles produced to designs is in some cases abolished altogether and in other cases reduced to a maximum period of 25, 15 or 10 years.120

Infringement Restricted acts (‘primary infringement’) 5.17 The 1988 Act gives the owner of copyright in a work the exclusive right to do certain ‘acts restricted by the copyright’.121 117 There are separate rules for sound recordings, films, broadcasts, cable programmes and the typographical arrangement of published editions. In the last of these cases, the copyright lasts for a period of 25 years. For the database right (rather than copyright in databases) the protection afforded by the right lasts for 15 years. 118 Section 12(1) of the 1988 Act. The Duration of Copyright and Rights in Performances Regulations 1995 (SI 1995/3297) extended the period from 50 years after the end of the year in which the author dies. This increase in the length of protection resulted from UK compliance with the EU harmonisation of the length of protection among its Directives from 50 to 70 years. International conventions, such as the Berne Convention, provide for a minimum period of 50 years. It is not clear what, if anything, will be the effect on the length of protection once the UK leaves the EU. 119 Section 12(2)–(4) of the 1988 Act. 120 Sections 51–53 of the 1988 Act. 121 Sections 2(1) and 16–27 of the 1988 Act. These sections have been amended at various points by the Copyright (Computer Programs) Regulations 1992 (SI  1992/3233), the Copyright and Related Rights Regulations 1996 (SI 1996/2967), the Copyright and Rights in Database Regulations 1997 (SI  1997/3032) and the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003.

308

Other fundamental aspects of UK copyright law 5.17

Infringement of copyright takes place when a person does any of these acts, or authorises another to do them, without the licence of the copyright owner.122 The restricted acts are: •

to copy the work;123

•

to issue copies of the work to the public.124 This would include, for example, where a copyright owner grants a manufacturing licence to a company, terminable on liquidation and the company goes into liquidation with unsold stocks. Although manufactured under licence, sale of such stocks would be an infringement of the right to issue copies to the public.

•

to rent or lend the work to the public;

•

in the case of literary, dramatic or musical works, to perform, show or play the work in public;

•

to communicate the work to the public;125

•

to make an adaptation (including a translation)126 of the work or do any of the above in relation to an adaptation.

122 Section 16(2) of the 1988 Act. For example, in all of the following situations a person will not have a defence to an action for infringement: (i) where the person who makes a copy thought they had permission; (ii) where a third party carried out the act of copying for the person (eg a contractor such as a web designer); or (iii) where the person copied the work from a place where it was implied or stated that it was not clear as to who was the owner of the work. See Hoffman v Drug Abuse Resistance Education (UK) Ltd [2012] EWPCC 2. 123 In relation to a literary, dramatic, musical or artistic work, copying means reproducing the work in any material form, including storing the work in any medium by electronic means: s 17(2) of the 1988 Act. Such copying can include making permanent copies or copies which are transient or are incidental to some other use of the work: s 17(6) of the 1988 Act. An email received containing information, and which is stored on a computer, would constitute an act of infringement where the information was provided by another person, and that other person had obtained the information without authorisation, including clicking on a link: Newspaper Licensing Agency Ltd and other companies v Meltwater Holding BV and other companies [2010] EWHC 3099 (Ch), affirmed on appeal [2011] EWCA Civ 890. The copies made would not come within the exception provided by section 28A of the 1988 Act or Art 5(1) of the Computer Program Directive as to transient copies, as the transient copy in such circumstances would ‘exceed what is necessary for the proper completion of the technological process and … the storage and deletion must not be dependent on human intervention; it must be automated’. 124 Section 18 of the 1988 Act. The section was amended in relation to computer programs only by the Copyright (Computer Programs) Regulations 1992, SI 1992/3233 to accommodate EC ‘exhaustion of right’ principles as required by the EC Software Directive. 125 Section 20 of the 1988 Act. ‘Communication to the public’ means ‘communication to the public by electronic transmission, and in relation to a [copyright] work includes: (a) the broadcasting of the work; (b) inclusion of the work in an on-demand service or other interactive service’ (from s 20(2) of the 1988 Act); ‘on-demand service’ means an ‘interactive service for making a work available to the public by electronic transmission in such a way that members of the public may access the work from a place and at a time individually chosen by them’ (s 20(3) of the 1988 Act). 126 Section 21(3) of the 1988 Act.

309

5.17  Copyright

Infringement done without authorisation means more than merely providing the means for the infringement to take place, for example providing a tool, product or method which permits others to infringe a copyright work,127 or the sale or advertising of such things.128 That is, distinguishing between the facilitating of copyright infringement and procuring the infringement of copyright works.129 Infringement takes place when any of the restricted acts are done in relation to the whole of the work, or any substantial part of it, whether the act is done directly or indirectly.130 What is substantial will very much depend on what a person copies.131 Generally, until recently, the UK courts in determining whether the copying of a part of a work will amount to a substantial part would place more weight on the quality of what is taken than the quantity,132 and one way of determining this was whether what was copied was ‘sufficient of the author’s skill and labour to attract copyright protection’.133 The ECJ has formulated an alternative approach (which it appears that the UK courts should now follow)134 as to whether a part of a copyright work attracts the protection of copyright, which is as follows:135 (1) The Information Society Directive provides that the authors are given the exclusive right to authorise or prohibit reproduction of their work in whole or in part (art 2, Information Society Directive): 127 Belegging- en Exploitatiemaatschappij Lavender BV  v Witten Industrial Diamonds Ltd [1979] FSR 59, CA. 128 CBS  Songs Ltd and others v Amstrad Consumer Electronics plc and another [1988] 2  All ER 484. 129 The cases referred to in this paragraph considered the position before the widespread use of the internet to copy copyright works. The use of computer technology in the creation and use of copyright works can involve a number of restricted acts, such as copying of the work protected by copyright (eg  by putting it on a local or remote storage, such as to an ISP), downloading, as well as public performance (if the copyright work consists of audio-visual material) or communication to the public (putting copyright work onto a server and allowing members of the public to access it). Copyright law and the courts have struggled to keep to up with the rise of the variety of electronic methods for making available, storing, copying and using copyright works. One is the use of peer-to-peer software, which enables persons to download works protected by copyright held by others, without the peer-to-peer software itself copying the copyright work. By analogy with the earlier case law, such software could be a method of facilitating rather than procuring an act restricted by copyright. There are some judgments in other jurisdictions which have held that such software in effect authorises persons to perform unauthorised copying of copyright works, eg Universal Music Australia v Sharman License Holdings [2005] FCA 1242 (5 September 2005), a case in the Australian Federal Court. 130 Section 16(3) of the 1988 Act. 131 And which will also depend on the type of copyright work as well. 132 See Ladbrokes (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273, [1964] 1 All ER 465. 133 Designers Guild v Russell Williams [2001] FSR 113, [2000] All ER (D) 1950, HL, Newspaper Licensing Agency Limited v Marks & Spencer plc [2001] UKHL 38. 134 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482. 135 In Infopaq International A/S v Danske Dagblades Forening (Case C-5/08).

310

Other fundamental aspects of UK copyright law 5.17

‘Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part: (a)  for authors, of their works;’. (2) There is a requirement to give a broad interpretation of the scope of protection provided by article 2. This requirement provides the possibility that isolated sentences or parts of a sentence in a work ‘may be suitable for conveying to the reader the originality of a publication such as a newspaper article, by communicating to that reader an element which is, in itself, the expression of the intellectual creation of the author of that article. Such sentences or parts of sentences are, therefore, liable to come within the scope of the protection provided for in Article 2 (a) of that directive’. (3) The Information Society Directive does not further consider the meaning of a part of the work but there is nothing in the Information Society Directive which requires a part of a work to be treated differently from the work as a whole, consequently a part ‘is protected by copyright, since, as such, they share the originality of the whole work’. (4) Whether reproduction of an extract of a work which is subject to protection by copyright comes within the meaning of a ‘part’ set out in the Information Society Directive will depend on whether the extract of work ‘expresses the author’s own intellectual creation’. A UK court explained the meaning of ‘intellectual creation’ as: ‘The essence of the term is that the person in question has exercised expressive and creative choices in producing the work. The more restricted the choices, the less likely it is that the product will be the intellectual creation (or the expression of the intellectual creation) of the person who produced it.’136 This formulation by the ECJ does not distinguish between the whole or a part of a work but focuses on whether the work (or part of the work) expresses the intellectual creation of the author, and does not consider what is copied is ‘substantial’, and as noted above, the ECJ formulation is now the correct approach for the courts to follow.137 However, the difference between the UK and EU approaches may not be that different. The UK approach starts from whether what is copied is ‘substantial’ but does so in terms of quality not quantity, with later case law indicating that what is copied is ‘sufficient of the author’s skill and labour to attract copyright protection’, which does focus on a form of intellectual creation. There is also case law concerning whether a person who has made the infringing copy has used or incorporated a substantial part of the independent 136 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482. 137 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482.

311

5.18  Copyright

skill and labour of the author of the original work protected by copyright.138 The latter type of copying deals with the situation where a person is not making an exact copy of another work, but is altering the original in some way (or that is the result). It appears that, in such cases, the extent and nature of the similarities between the original and the copied work will be an important factor, and also whether what is copied is sufficient to attract copyright protection.139

Secondary infringement 5.18 Certain acts amount to secondary infringement of copyright in a work. These include: •

importing an infringing copy into the UK, knowing or having reason to believe it is an infringing copy.140 In the case of computer programs, the definition of infringing copy was amended141 to exclude copies which had previously been sold in another member state of the European Union with the consent of the copyright owner;

•

possessing in the course of business or dealing with (selling, hiring etc) an infringing copy, knowing or having reason to believe it is an infringing copy;142

•

manufacturing, importing, possessing in the course of business or dealing with an article specifically designed or adapted for making copies of the work, knowing or having reason to believe they are infringing copies;143

•

transmitting the work by means of a telecommunications system (other than by communication to the public), knowing or having reason to believe that infringing copies will be made by the recipient of the transmission.144

For secondary infringement, the copyright owner needs to show that the infringer had knowledge, or had reason to believe, that he or she was dealing in an infringing copy,145 and the test to establish whether the infringer had knowledge is likely to be objective.146

138 Designers Guild v Russell Williams [2001] FSR 113, [2000] All ER (D) 1950, HL, approving the lower courts’ definition of the problem. 139 Designers Guild v Russell Williams [2001] FSR 113, [2000] All ER (D) 1950, HL. 140 Section 22 of the 1988 Act. 141 By the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 142 Section 23 of the 1988 Act. 143 Section 24 of the 1988 Act. 144 Section 24(2) of the 1988 Act, as amended by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. For the meaning of ‘communicating to the public’ see note 125. 145 Section 22 of the 1988 Act. 146 LA Gear Inc v Hi-Tech Sports plc [1992] FSR 121, CA.

312

Other fundamental aspects of UK copyright law 5.19

Computers and computer programs 5.19 The 1988 Act explains what is meant by some restricted acts in relation to computer programs. The meaning of a ‘computer program’ is not defined in the 1988 Act, the Information Society Directive147 or the Computer Program Directive.148 One definition is: ‘A set of instructions which, when incorporated in a machine-readable medium, is capable of causing a machine having information-processing abilities to indicate, perform, or achieve a particular function.’149 Of particular interest in this context are the following provisions: •

The 1988 Act confirms that the term ‘literary work’ means a work (other than a dramatic or musical work) which is written, spoken or sung, and accordingly, includes a computer program and preparatory design material for a computer program.150 Although the term ‘computer program’ is not defined, the term ‘writing’ includes ‘any form of notation or code, whether by hand or otherwise and regardless of the method by which, or the medium in or on which, it is recorded’.151 Direct keying of a work into a computer would therefore seem to be ‘writing’ for the purposes of the Act.

•

The restricted act of copying includes ‘storing the work in any medium by electronic means’.152 This would include storing a computer program or document on a hard disk, USB key or a server, and would include running a program, as doing so will involve copying the software (or parts of it) into the memory of a machine to do so, resulting in temporary storage of the program in the computer’s central memory in the course of running the program. Copying also includes ‘the making of copies which are transient or are incidental to some other use of the work’.153

147 Council Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 148 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs, replacing Council Directive 91/250/EEC ([1991] OJ L122/42) on the legal protection of computer programs. 149 WIPO Model Provisions on the Protection of Computer Programs, s 1. 150 Section 3(1)(b) and (c) of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 151 Section 178 of the 1988 Act. As stated above, a ‘computer program’ is not defined in the Act, but Council Directive 2009/24/EC on the legal protection of computer programs (with its predecessor (Council Directive 91/250/EEC) implemented by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233)) does provide some further guidance as indicating that protection is afforded a computer program which is expressed in any form. Article 1(2) also goes on to indicate that ‘ideas and principles which underlie any element of a computer program, including those which underlie its interfaces’ are not to be protected by copyright. 152 Section 17(2) of the 1988 Act. 153 Section 17(6) of the 1988 Act.

313

5.19  Copyright

•

In the case of computer programs, the restricted act of issuing copies to the public includes rental of copies of the program to the public, subject to the right of the Secretary of State to order that licences will be available as of right.154

•

The restricted act of adaptation of a work includes making any arrangement or altered version of the program or a translation of it.155 In the case of computer programs, a translation includes ‘a version of the program in which it is converted into or out of a computer language or code or into a different computer language or code’.156 Such translation is likely to occur when the program is run.

•

Certain acts are, for computer programs only, specifically permitted, so that a lawful user can:157 (i) decompile a program in order to allow another program to operate with it; (ii) observe, study or test the functioning of a computer program in order to determine the ideas and principles which underlie any element of the computer program; (iii) copy or adapt a computer program to correct errors in it.

As for copyright generally, in order for copyright infringement to occur, what is copied must be substantial. It has been held that copyright protects the skill and labour of the author used in creation of the work and what is substantial will need to be considered against what was copied.158 A starting point will be examining the entirety of what has been copied and then assessing whether what has been copied is a substantial part, and regard can be taken of the program structure as well as design features.159 However, ideas, principles or functions (rather than their implementation) are not protected,160 which will include the functionality of a program.161 Although for such matters as the overall structure (architecture, even at a very high level of abstraction),

154 155 156 157 158

Sections 18A(2) and 66 of the 1988 Act, as amended by SI 1996/2967. Section 21(3) of the 1988 Act. Section 21(4) of the 1988 Act. See para 5.23 below for further consideration of these points. Cantor Fitzgerald International and another v Tradition (UK) Ltd and others [2000] RPC 95, [1999] All ER (D) 389. 159 See eg John Richardson Computers v Flanders [1993] FSR 49; Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275; and Cantor Fitzgerald International and another v Tradition (UK) Ltd and others [2000] RPC 95, [1999] All ER (D) 389. 160 This point is considered further in para 5.23 below. 161 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482, [2013] All ER (D) 254 (Nov). The defendants copied from the claimant’s manuals the description of the claimant’s computer program in order to create the defendant’s own computer program created with their own code. The court held that the functionality of a computer program amounts to intellectual creation and not a form of expression. If the defendants had copied the words used in the manual, then there would be infringement of the copyright in the manual (which did not occur here).

314

Other fundamental aspects of UK copyright law 5.20

algorithms or sequences of operations decided on by a programmer to achieve the object of the program are all capable of protection.162 The source code used for a computer program will be protected163 as well as, most probably, the object code. A  large number of programs collected together as a suite, or where it is necessary for all of them to be present in order to create a functioning unit, may qualify as a compilation.164 Consequently, loading a program from a disk into the memory of a computer, saving the program to disk165 or running the program without the permission of the owner are all likely to infringe copyright, and all of these acts generally require a licence from the copyright owner.

Permitted acts 5.20 The 1988 Act permits persons166 to carry out acts which in certain circumstances would otherwise infringe copyright. Each permitted act is considered separately from each other because, although the use of a work protected by copyright may not come within the protection provided by one of the permitted acts, it may nevertheless come within the protection of another.167 The permitted acts only relate to acts which would otherwise infringe copyright. Such acts may breach some other obligation or right which restricts such acts, such as a contract between the copyright owner and a licensee, which might have a provision not permitting the licensee to copy the work concerned for the purposes of research. In 2014, changes were introduced to the 1988 Act which affected the provisions concerning permitted acts, but much of the detail is beyond the scope of this book.168 The changes implement a number of the optional exceptions contained in the Information Society Directive. The most significant changes, relevant to this book, were:

162 Cantor Fitzgerald International and another v Tradition (UK) Ltd and others [2000] RPC 95, [1999] All ER (D) 389; Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275. 163 John Richardson Computers v Flanders [1993]  FSR  49; Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275. 164 Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275. 165 Ocular Sciences Ltd v Aspect Vision Care Ltd, Geoffrey Harrison Galley v Ocular Sciences Ltd [1997] RPC 289 at 418. 166 Other than the copyright owner or a person permitted by him or her. 167 Section 28(4) of the 1988 Act. 168 To implement various provisions of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society.

315

5.20  Copyright

•

that the permitted acts of research or private study are no longer limited to particular types of copyright work; these permitted acts now apply to all copyright works;169

•

that a new permitted act was introduced for computational analysis of anything recorded in a copyright work (for the sole purpose of research for a non-commercial purpose);170 and

•

that contractual provisions are unenforceable which attempt to restrict or exclude the making of a copy of a copyright work under one of the permitted acts.

There are also a number of other changes which are not directly relevant to this book, such as: where a person is disabled and has lawful access to a copy, s/he can make (or have made) a copy in an accessible format without infringing copyright if for the disabled person’s own use;171 that fair dealing with a copyright work will not infringe the copyright in that work if carried out for the purpose of caricature, parody or pastiche;172 and libraries have greater freedom to make copies of copyright works to preserve them or for the purpose of private study and non-commercial research.173

169 Section 28 of the 1988 Act, as amended by reg 3 of the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372). Prior to the amendment, the copying was restricted to ‘literary, dramatic, musical or artistic’ works only. 170 Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372), in force from two minutes past midnight, 1 June 2014. 171 Section 31A of the 1988 Act, as inserted by the Copyright and Rights in Performances (Disability) Regulations 2014 (SI  2014/1384), in force from one minute past midnight, 1 June 2014. For information of the scope and effect, see UKIPO’s Exceptions to copyright: Accessible formats for disabled people (October 2014). 172 Section 30A of the 1988 Act, as inserted by the Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 (SI  2014/2356), in force from 1  October 2014. There is case law on what constituted parody, acceptable or otherwise, before the 2014 change, but its relevance now is not clear and is In any case outside the scope of this book. However, the provision of Directive 2001/29/EC relating to caricature, parody or pastiche has received consideration by the ECJ in Deckmyn and another v Vandersteen and others C-201/13: ‘33. Article 5(3)(k) of Directive 2001/29 [the provision dealing with caricature, parody or pastiche] must be interpreted as meaning that the essential characteristics of parody are, first, to evoke an existing work, while being noticeably different from it, and secondly, to constitute an expression of humour or mockery. The concept of “parody”, within the meaning of that provision, is not subject to the conditions that the parody should display an original character of its own, other than that of displaying noticeable differences with respect to the original parodied work; that it could reasonably be attributed to a person other than the author of the original work itself; that it should relate to the original work itself or mention the source of the parodied work’. The ECJ went on to indicate it has to strike a fair balance between the interests and rights of authors and ‘the freedom of expression of the user of a protected work who is relying on the exception for parody, within the meaning of Article 5(3)(k)’. 173 Amendments and insertions in sections 32 to 43 of the 1988 Act by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI  2014/1372). For the practical effect of these amendments and insertions, see UKIPO’s Exceptions to copyright: Libraries, archives and museums (October 2014).

316

Other fundamental aspects of UK copyright law 5.22

Research or private study174 5.21 ‘Fair dealing’ of a work protected by copyright for the purposes of research for a non-commercial purpose and with sufficient acknowledgement being given175 does not generally infringe copyright. In addition, ‘fair dealing’ of a work protected by copyright for the purposes of private study does not infringe any copyright in the work.176 If the copying of a work protected by copyright is done by someone other than the person who is carrying out the research or engaging in the study, such copying will not be fair dealing, including if the copying is done by a librarian other than in certain circumstances.177 The distinction between ‘research’ and ‘private study’ is not spelt out in the 1988 Act, and the distinction is hard to understand as both have to be for a non-commercial purpose.178

Computational analysis 5.22 A  person can copy a copyright work to carry out ‘computational analysis’ of anything contained in a copyright work as long as: •

the sole purpose is research for a non-commercial purpose;

174 The UKIPO has published a series of guidance documents following the passing of the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014. 175 Section 29(1) of the 1988 Act, as amended by SI 1997/3032, SI 2003/2498 and the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372), in force from two minutes past midnight, 1 June 2014. An acknowledgement is not required if it is not possible practically to do so (s 29(1B) of the 1988 Act). The wording before 1 October 2003 did not have the restriction that the research had to be for a non-commercial purpose. The change from that date represented a significant reduction in what it was possible to do under the heading of ‘research’. Before the change, arguably a commercial research and development company might be able to ask one of its researchers to use the copyright material of another for a commercial research project (subject to the use being ‘fair dealing’) in the preparation of a report for a commercial purpose. 176 Section 29(1C) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI  2003/2498) in force from 31  October 2003. Unlike the case of research, an acknowledgement is not required; however, as in the case of research it cannot be done for any commercial purpose, whether directly or indirectly (s 178 of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003). 177 Section 29(3) of the 1988 Act, as amended by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014. 178 Particularly so as the 1988 Act provides a negative definition of ‘private study’ that does not include ‘any study which is directly or indirectly for a commercial purpose’ (section 178 of the 1988 Act). There is no corresponding definition of ‘research’ or ‘non-commercial’, and it leaves open the possibility that research could be for an indirect commercial purpose.

317

5.22  Copyright

•

the person has lawful access to the copyright work; and

•

the copy is accompanied by sufficient acknowledgment.179

This exception allows the person copying to carry out automated text and data mining of the content of the copyright work.180 This exception is different to exception for research or private study, as the person: •

is allowed to copy all of the work (the previous exception only permits ‘fair dealing’); and

•

must have lawful access to the work, such as obtaining a licence from the copyright holder of the work (the previous exception is silent on this topic).

In essence, this is a very limited exception, as it does not require any copyright owner to make its copyright work available in a form to enable such analysis or require the owner to license its work on any less restrictive basis then it currently does so. What this exception is likely to mean in practice is that:181 •

where a person has lawful access to a copyright work, s/he can make a copy of the whole of the copyright work, without obtaining the specific permission of the copyright owner;

•

the copyright owner can still control via a contract the amount of copyright material it will make available, but if a person can under the contract read the copyright material s/he has the right to copy the copyright material;

•

the copyright owner can: –

employ technical measures on a network to control access to the copyright work for such purposes to ensure that all users can access the copyright material; or

–

impose reasonable limits on download speeds, or

–

control the number of users who can access the copyright material within a particular time period.

179 Section 29A(1) of the 1988 Act, inserted by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372), in force from two minutes past midnight, 1 June 2014. 180 To facilitate such activity, the Publishers’ Licensing Services provides a ‘digital clearing house for researchers’ requests, leading researchers through a simple request form developed by a group of leading publishers. This gathers basic information about the text mining project (including the content to be mined and the format for reuse). The form is then forwarded to the appropriate manager within the publishing company’. See www.pls.org.uk/services/text-anddata-mining. 181 Drawn from the UKIPO’s Exceptions to copyright: Research (October 2014).

318

Other fundamental aspects of UK copyright law 5.23

However, these measures must not unreasonably stop or restrict the lawful user from being able to access the copyright material for the purpose of the exception. A  person will infringe the copyright in a work protected by copyright if the copy is made for the purpose of this exception and then is transferred to another person or is used for any other purpose than the purpose of this exception.182 The DSM Directive also provides a right to copy a copyright work for the purpose of carrying out computational analysis (called ‘text and data mining’ (TDM) in the DSM Directive), but the grounds on which it is possible to do so are markedly different: (1) only a research organisation such as a university can do so; (2) the research organisation can only copy the copyright work if it is to carry out TDM and for the purposes of scientific research (ie  a more limited form of research activity than under the current UK law); (3) the DSM Directive does not restrict the carrying out of TDM to noncommercial purposes but (like the UK  version described above) the research organisation must have lawful access to the works protected by copyright in question; and (4) a commercial partner of the research organisation can actually carry out the TDM – but no commercial organisation would have the benefit of the exception for ‘free standing’ TDM (unrelated to work with a research organisation) – nor would any research organisation if it was carrying out non-scientific research.

Computer programs 5.23

In regard to computer programs, it is not fair dealing:

•

in relation to a computer program, to convert it from a low-level language to a higher-level language or, incidentally in the course of so doing, to copy the program;183 or

•

in order to determine the ideas and principles which underlie any element of a computer program, to observe, study or test the functioning of a computer program.184

182 Section 29A(2) of the 1988 Act. Any subsequent dealing with the copy of the work (such as sale, letting for hire etc) will also make the copy an infringing copy, see section 29A(3), (4). 183 Section 29(4) of the 1988 Act, inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). These acts can be done if done for the purpose of ‘decompilation’ in accordance with section 50B of the 1988 Act. 184 Section 29(4A) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. However, these acts can be done if done in accordance with s 50BA of the 1988 Act.

319

5.24  Copyright

Other points 5.24

The fair dealing exception is generally understood:

•

to allow copying of a limited extract from a publication;

•

not to allow copying of the whole of a work;185

•

not to allow the making of multiple copies. As noted above, copying for research is not possible for a commercial purpose.

Criticism, review 5.25 Fair dealing with a work186 for the purposes of criticism187 or review, provided that it is accompanied by a sufficient acknowledgement and that the work has been made available to the public, does not infringe copyright.188 Copyright in a work is not infringed if a person uses a quotation from the work.189 The use of the quotation can be for the purposes of criticism, review or otherwise.190 The right to use a quotation is subject to a number of conditions: •

the work has been made available to the public;

•

the use of the work is fair dealing with the work;

•

the person using the quotation is using no more than is required for the specific purpose; and

•

the work is accompanied by sufficient acknowledgment.

185 The position until October 2003 was, at least by implication, that the fair dealing provision probably allowed limited copying for the purposes of commercial research in commercial organisations. 186 The work which is being criticised or reviewed must be a work in which copyright subsists: Fraser-Woodward Ltd v British Broadcasting Corpn [2005] EWHC 472 (Ch), [2005] FSR 762. 187 For criticism or review to come within this exception, the person undertaking it does not need to engage in a particular type or form of criticism or review. 188 Section 30(1) of the 1988 Act, as amended by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. Prior to the amendment, it was possible to engage in criticism of a copyright work even if it had not been issued to the public. 189 Section 30(1ZA) of the 1988 Act, inserted by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372), in force from two minutes past midnight, 1 June 2014. 190 The change made in 2014 is to allow a person to make a greater use of quotations. Before the change, the right to use a quotation was far more limited, restricted only to criticism, review or news reporting. However, what has not changed is that there must be ‘reasonable and fair’ use (and the use cannot normally be in the context where there is a commercial sale): UKIPO’s Exceptions to copyright: Research (October 2014), page 11, and is unlikely to apply at all to the use of a photograph: ‘Whilst the exception applies to all types of copyright work, it would only be in exceptional circumstances that copying a photograph would be allowed under this exception. It would not be considered fair dealing if the proposed use of a copyright work would conflict with the copyright owner’s normal exploitation of their work. For example, the ability to sell or license copies of photographs for inclusion in newspapers would be a normal exploitation’ (ibid, page 11).

320

Other fundamental aspects of UK copyright law 5.26

The requirement that the work be made available to the public includes that the copies have been issued to the public, that they are available by means of an electronic retrieval system, or that copies have been rented by or lent to the public.191 This exception may be relevant to research and development, for example where a scientific paper quotes from another scientific paper for the purposes of criticism or review.

Meaning of ‘fair’ 5.26 ‘Fair dealing’ does not have a statutory definition in the 1988 Act.192 However, in one case a court held193 that it is necessary to consider three factors to determine whether a particular use is fair: 191 Section 30(1A) of the 1988 Act, as inserted by SI 2003/2498 from 31 October 2003 and amended by the Copyright and Rights in Performances (Research, Education, Libraries and Archives) Regulations 2014 (SI 2014/1372), in force from two minutes past midnight, 1 June 2014. 192 In contrast, the meaning of fair dealing is spelt out under US law in Copyright Act 1976, s 107: ‘… the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include— (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors’. 193 Hubbard v Vosper [1972] 2 QB 84 at 92–95. Alternative formulations exist as well, such as in a later case (Ashdown v Daily Telegraph [2001] EWCA Civ 1142, [2002] RPC 235) where the court treated a leading book – Laddie, Prescott and Vitoria, the Modern Law of Copyright and Designs, at para 2016) – as an accurate summary of the law, and it is worth quoting the passage, given its judicial approval: ‘It is impossible to lay down any hard-and-fast definition of what is fair dealing, for it is a matter of fact, degree and impression. However, by far the most important factor is whether the alleged fair dealing is in fact commercially competing with the proprietor’s exploitation of the copyright work, a substitute for the probable purchase of authorised copies, and the like. If it is, the fair dealing defence will almost certainly fail. If it is not and there is a moderate taking and there are no special adverse factors, the defence is likely to succeed, especially if the defendant’s additional purpose is to right a wrong, to ventilate an honest grievance, to engage in political controversy, and so on. The second most important factor is whether the work has already been published or otherwise exposed to the public. If it has not, and especially if the material has been obtained by a breach of confidence or other mean or underhand dealing, the courts will be reluctant to say this is fair. However this is by no means conclusive, for sometimes it is necessary for the purposes of legitimate public controversy to make use of “leaked” information. The third most important factor is the amount and importance of the work that has been taken. For, although it is permissible to take a substantial part of the work (if not, there could be no question of infringement in the first place), in some circumstances the taking of an excessive amount, or the taking of even a small amount if on a regular basis, would negative fair dealing’.

321

5.27  Copyright

•

the number and extent of the quotations and the extracts used (or, to put in another way, the amount and importance of what is copied);194

•

the use made of the quotations and the extracts (if used for a rival purpose then they may be unfair, such as if the use is competing commercially with the work that is copied);195

•

the proportion of the quotations and extracts compared to the proportion of the work consisting of comment and analysis (not relevant for private study and research).

An objective standard is used to determine whether the copying of a copyright work is fair.196 Each case will turn on its own facts, and also the courts have found it hard to provide a definitive meaning.197

Temporary copies 5.27 The copyright in a literary work198 will not be infringed where a temporary copy is made. This will only apply where the temporary copy: •

is incidental and transient;

•

is an integral and essential part of a technological process;

•

has a sole purpose that is:

•

–

to enable a transmission in a network between third parties by an intermediary; or

–

a lawful use of the work;

has no independent economic significance.199

This exception from infringement does not apply to computer programs or databases. This exception will apply where, for example, a person accesses a web page and some elements of that page are stored (cached) temporarily on the person’s computer. 194 See Ashdown v Telegraph Group Ltd [2001]  EWCA  Civ 1142, [2002]  RPC  235, In some circumstances, it may be permissible to take a substantial amount of a work but, in others (such as the taking of small amounts on a regular basis), it would not be fair dealing. 195  Ibid. 196 See Hyde Park Residence v Yelland [2001] Ch 257: ‘… Thus the court must judge the fairness by the objective standard of whether a fair minded person would have dealt with the copyright work in the manner that [defendant] did …’ (from para 38). 197 See eg IPC Media Ltd v News Group Newspapers Ltd [2005] All ER (D) 367 (Feb). 198 Including dramatic, artistic, musical works or typographical arrangements of published works, plus sound recordings and films. 199 Section 28A of the 1988 Act.

322

Other fundamental aspects of UK copyright law 5.31

Abstracts 5.28 The copying of an abstract (or issuing copies of it to the public) from articles on scientific or technical subjects is permitted. The exception does not apply if, or to the extent that, there is a certified licensing scheme in place.200 None of these factors by itself is conclusive of the question of fairness. In certain circumstances it may be fair to quote a whole work (especially if short).

Designs Designs which are not artistic works 5.29 There are important exceptions in relation to designs, which strictly limit the copyright protection available. It is not an infringement of copyright in a design document, or in a model recording, or in embodying a design for anything other than an artistic work or a typeface, to make an article to the design or copy an article made to the design.201 This exception should be read in conjunction with the provisions of the 1988 Act which create the new design right;202 design right largely replaces copyright protection for nonartistic designs.

Designs which are derived from artistic works 5.30 This exception applies where an artistic work has been exploited, by or with the licence of the copyright owner, by making in an industrial process articles which are copies of the work, or by marketing such articles.203

Works in electronic form 5.31 There is an important exception in the case of a work in electronic form204 (such as a computer program, DVDs etc) which a person has purchased on terms which allow the person to copy or adapt the work in connection with his or her use of it.205 Such terms may be express or implied, or arise by virtue 200 201 202 203

Section 60 of the 1988 Act. Sections 51–53 of the 1988 Act. Sections 213–235 of the 1988 Act. Section 52 of the 1988 Act. In such cases, copyright protection in respect of such articles expires 25 years after the end of the year in which the articles are first marketed. 204 Section 178 of the 1988 Act provides a definition for ‘electronic’: ‘actuated by electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy, and “in electronic form” means in a form usable only by electronic means’. 205 Section 56 of the 1988 Act.

323

5.32  Copyright

of any rule of law.206 The purchaser of a computer program generally comes within this category as, in order to use the program, s/he needs to copy it from a computer’s hard disk into the computer’s memory. Where such a purchaser transfers his or her purchased copy to another person, the transferee has the same rights to copy or adapt the work as the original purchaser had. However, any copies which the purchaser does not transfer are treated as infringing copies after the transfer. This is, in effect, a resale right. This exception does not apply where there are express contractual terms which: •

prohibit transfer;

•

impose obligations which continue after transfer;

•

prohibit the assignment of any licence;

•

terminate any licence on a transfer; or

•

provide for the terms on which a transferee may do the things which the purchaser was permitted to do.207

Lending 5.32 The Secretary of State may order that lending to the public of copies of literary, dramatic, musical or artistic works, sound recordings or films shall be treated as licensed by the copyright owner subject to payment of a reasonable royalty.208

Computer programs Back-up copies 5.33 It is not an infringement of copyright for a lawful user (for example a licensee or purchaser directly or indirectly from the copyright owner)209 of a copy of a computer program to make any back-up copy of it which is

206 Eg the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 207 Section 56(2) of the 1988 Act. 208 As may be agreed or determined in default of agreement by the Copyright Tribunal: s 66 of the 1988 Act, as substituted by the Copyright and Related Rights Regulations 1996 (SI 1996/2967). ‘Literary work’ includes a computer program: s 3 of the 1988 Act, as amended. 209 A lawful user of a computer program is one who has the right to use the program (whether under a licence to do any acts restricted by copyright in the program or otherwise): s 50A(2) of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233).

324

Other fundamental aspects of UK copyright law 5.34

necessary for him or her to have for the purposes of his or her lawful use.210 Any contract provision which conflicts with this right is void.211

Decompilation of computer programs 5.34 The lawful user212 of a computer program has the right to decompile a computer program in order to obtain information which would enable the user to write another program which would work with the first program (the right to achieve inter-operability). This right is subject to certain conditions, including that the user does not have ready access to the necessary information without decompiling the program. Any contract provision which conflicts with this right is void.213 In view of the complexity of this subject, it is useful to quote the section of the 1988 Act which defines the scope of the decompilation right:214 ‘(1) It is not an infringement of copyright for a lawful user of a copy of a computer program expressed in a low level language— (a) to convert it into a version expressed in a higher level language, or (b) incidentally in the course of so converting the program, to copy it, (that is, to “decompile” it), provided that the conditions in subsection (2) are met. 210 Section 50A of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). The meaning of a ‘back-up’ is not further defined in the Act, or in the Directive on which this section (and others) are based. The Commission, in its communication on the effect of the Software Directive 91/250 (now replaced by Directive 2009/24/EC) has indicated its opinion that the relevant Art 5(2) (in both versions of the Directive) contains wording relating to, and with the objective of, allowing only one copy being made, and that the purpose of the back-up is to ensure that the normal use of the program can continue in the event of loss or defect of the original. The making of unauthorised copies for private use would not be permitted, and amount to software privacy. See also Kabushiki Kaisha Sony Computer Entertainment Inc and others v Ball and others [2004]  EWHC  1738 (Ch) at paras 29–30, where the judge considered whether a back-up was ‘necessary’ where a computer program is provided in a robust form such as a DVD or CD and where the supplier of the computer program is willing to provide a replacement DVD or CD. The case was decided before the now common way of distributing software, via downloading a copy from a website But the same principle is likely to apply, where, for example, a copy of the software is downloaded and then installed on a computer and subsequently becomes defective, as the user can download a further copy at any time. In such a situation, the need to make or keep backup copies is unlikely to be ‘necessary’ and therefore to do so may fall outside of Section 50A of the 1988 Act. However, would it be ‘necessary’ to make a back-up if the user can only download a copy for a limited time after purchase of a licence, and thereafter the user would have to pay a further licence fee in order to download a further copy? 211 Section 296A of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 212 For the meaning of ‘lawful user’ in s 50A(2) of the 1988 Act, see note 209. 213 Section 296A of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 214 Section 50B of the 1988 Act, as inserted by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233).

325

5.35  Copyright

(2) The conditions are that— (a) it is necessary to decompile the program to obtain the information necessary to create an independent program which can be operated with the program decompiled or with another program (“the permitted objective”); and (b) the information so obtained is not used for any purpose other than the permitted objective. (3) In particular, the conditions in subsection (2) are not met if the lawful user— (a) has readily available to him the information necessary to achieve the permitted objective; (b) does not confine the decompiling to such acts as are necessary to achieve the permitted objective; (c) supplies the information obtained by the decompiling to any person to whom it is not necessary to supply it in order to achieve the permitted objective; or (d) uses the information to create a program which is substantially similar in its expression to the program decompiled or to do any act restricted by copyright. (4) Where an act is permitted under this section, it is irrelevant whether or not there exists any term or condition in an agreement which purports to prohibit or restrict the act (such terms being, by virtue of section 296A, void).’

Observing, studying and testing of computer programs 5.35 A lawful user will not infringe copyright where he or she copies a computer program and his or her purpose for so doing is to ‘observe, study or test the functioning’ of the computer program.215 The lawful user can only copy the computer program where s/he wishes to determine the ideas and principles which underlie any element of the computer program – and then only while the lawful user is doing acts which he or she is permitted to do (such as loading, displaying, running, transmitting or storing the computer program). Any contract provision which conflicts with this right is void.216 215 Section 50(BA) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. For the meaning of a ‘lawful user’ in s 50A(2) of the 1988 Act, see note 209. This right does not permit the user to use the computer program for ‘fair dealing’ purposes (see para 5.23 above). 216 Section 50BA(2) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003.

326

Other fundamental aspects of UK copyright law 5.38

Other lawful uses of computer programs 5.36 A  lawful user can copy a computer program or adapt it without infringing the copyright in the computer program, provided that, in copying or adapting the computer program: •

it is necessary for the user’s lawful use; and

•

there is no prohibition in the agreement regulating the circumstances in which the user’s use is lawful.217

A lawful user can also copy or adapt the computer program for the purpose of correcting errors where it is necessary for the user to lawfully use the computer program.218 This type of permitted copying does not apply for the purposes set out in paras 5.33 (Back-up copies), 5.34 (Decompilation of computer programs) and 5.35 (Observing, studying and testing of computer programs).219

Databases 5.37 A lawful user of a database will not infringe the database’s copyright by using the database (or any part of it) and doing anything, in exercise of a right, if it is necessary to do so for the purposes of access to, and use of the contents of, the database (or any part of it)220 – for example, if a lawful user is forbidden from copying the database but needs to do so in order to use the database and access the contents. In addition, any act permitted by this provision cannot be excluded by any term or condition in a contract.221

Other exceptions 5.38 The 1988 Act sets out the circumstances in which acts done for the purposes of education222 and public administration223 do not infringe 217 218 219 220

Section 50C(1) of the 1988 Act, as inserted by SI 1992/3233. Section 50C(2) of the 1988 Act. That is, sections 50A, 50B and 50BA of the 1988 Act. Section 50D of the 1988 Act, as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). The meaning of ‘lawful use’ can include where the user has a licence or has the right to use the database by means other than through licensing. 221 Section 50D(2) of the 1988 Act, as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). 222 Sections 32–36 of the 1988 Act, as amended. Following the introduction made by the Copyright and Related Rights Regulations 2003 (SI  2003/2498), in force from 31  October 2003, these and the following categories of exceptions to infringement of copyright have been restricted. If the copyright material is likely to be used for any of these uses, the wording of the 1988 Act should be examined and advice taken. 223 Sections 45–50 of the 1988 Act.

327

5.39  Copyright

copyright. It also provides for copying by libraries and archives.224 There is a further exception in the case of works of unknown authorship and where it is reasonable to assume that the copyright has expired.225

Moral rights General 5.39 The 1988 Act introduced for the first time into UK law two new rights which have become known as: •

the ‘paternity right’ (the right to be identified as the author of a copyright work); and

•

the ‘integrity right’ (the right of the author not to have his or her work subjected to derogatory treatment).226

These rights are independent of ownership of copyright and may exist even where copyright has been transferred to another person. The rights cannot be assigned or licensed (they are ‘inalienable’) but they may be waived. In addition, the 1988 Act continues to provide that a person has the right not to have a work falsely attributed to him and provides for a right of privacy of certain privately commissioned photographs and films. Together these rights are described in the 1988 Act as ‘moral rights’, although some people use the term ‘moral rights’ to refer only to the paternity and integrity rights. Moral rights are sometimes of less importance in the case of copyright works concerned with technology than they are in the case of other copyright works. There are two main reasons for this: •

employees have considerably fewer moral rights in works produced by them in the course of their employment, and technology is often developed by employees, whether in industry or at academic establishments; and

•

the paternity and integrity rights do not apply to computer programs.

Nevertheless, moral rights remain relevant to many copyright works concerned with technology and should not be overlooked.

Paternity right 5.40 The author of a copyright literary, dramatic, musical or artistic work has the right (the paternity right) to be identified as the author, in certain 224 Sections 37–44 of the 1988 Act. 225 Section 57 of the 1988 Act. 226 Sections 77–89 of the 1988 Act.

328

Other fundamental aspects of UK copyright law 5.40

circumstances.227 The author of a literary or artistic work has the right to be identified whenever the work is published commercially, and whenever an adaptation of the work is published.228 The paternity right is not infringed unless the right has been asserted (either generally or in relation to any specified act or description of acts) in one of the following ways:229 •

on an assignment of copyright in the work, by including in the assignment a statement that the author asserts his or her right to be identified as the author of that work; or

•

by instrument in writing signed by the author.

Once assertion is made by a person then the identification made in the copyright work must be sufficient to identify the person as the author230 (ie not as something else in relation to the work). The persons bound by an assertion of the paternity right are:231 •

where the assertion is made in an assignment, the assignee and anyone claiming copyright through the assignee;

•

where the assignment is made by instrument in writing, anyone to whose notice the assertion is brought.

Paternity right does not apply to •

a computer program;

•

the design of a typeface; or

•

any computer-generated work.232

Where the work was produced in the course of the author’s employment, such that copyright in the work originally vested in the author’s employer, the paternity right does not apply to anything done by or with the authority of the copyright owner.233 Thus, the right is not abolished entirely for employees, and applies in the case of acts done without the authority of the copyright owner. 227 Section 77(1) of the 1988 Act. The right of a person is to be identified as the author of the work, not to be identified as, eg  the source of the ideas which is contained in the literary work, see Anya v Wu [2004] All ER (D) 413 (Feb). An author wrote two scientific papers. He assigned the copyright in them to the publishers. The claimant claimed that the defendants had published three scientific papers which exploited his work and there was failure to recognise that he was the source of the ideas in the three papers and such failure amounted to an infringement of his moral rights under this section. Held, that section 77 of the 1988 Act concerned authorship and not the ideas which are contained in a work. 228 Section 77(2) of the 1988 Act. 229 Section 78 of the 1988 Act. 230 Sawkins v Hyperion Records Ltd [2005] EWCA Civ 565, [2005] 3 All ER 636. 231 Section 78 of the 1988 Act. 232 Section 79(2) of the 1988 Act. 233 Section 79(3) of the 1988 Act, as amended by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003.

329

5.41  Copyright

In some limited cases,234 the paternity right is not infringed by an act which would not infringe copyright in the work; for example, the right is not infringed by an act which would be fair dealing for the purpose of reporting current events by means of a sound recording, film, broadcast or cable programme, for use in judicial proceedings or in examinations. The right does not apply to the publication, in some periodicals and collective works of reference, of works made for the purposes of such a publication or made available for such publication with the consent of the author.235

Integrity right 5.41 The author of a copyright literary, dramatic, musical or artistic work has the right (the integrity right) not to have his or her work subjected to derogatory treatment, in certain circumstances.236 It is perhaps easier to understand the need for such a right in the arts than the sciences; for example a film director whose film is altered by the film studio before it is released to such an extent that the director wishes to disown it as his or her work. In the field of technology an example may be the scientific paper which is written under a commission from a company, and the company alters the conclusions of the paper before it is published without the permission of the author. The main aspects of integrity right which are most likely to be relevant to works concerned with technology may be summarised as follows: •

Derogatory treatment is defined as treatment which amounts to distortion or mutilation of the work or is otherwise prejudicial to the honour or reputation of the author.237 Treatment means any addition to, deletion from or alteration to or adaptation of the work, other than (in relation to literary works) a translation of the work.238

•

The integrity right is infringed, inter alia, by the commercial publication of a derogatory treatment of the work.239 It is not enough that the author must be aggrieved by any alterations to his or her work, there must be prejudice to the author’s reputation.240

•

The integrity right does not apply to:241 –

a computer program or computer-generated work;

–

any work made for the purpose of reporting current events;

234 Section 79(4), (4A) of the 1988 Act. Section 79(4A) was inserted by SI 2014/1372, from two minutes after midnight, 1 June 2014. 235 Section 79(6) of the 1988 Act. 236 Sections 77–79, 80–83 of the 1988 Act. 237 Section 80(2)(b) of the 1988 Act. 238 Section 80(2)(a) of the 1988 Act. 239 Section 80(3) and (4) of the 1988 Act. 240 Pasterfield v Denham [1999] FSR 168. 241 Section 81 of the 1988 Act.

330

Other fundamental aspects of UK copyright law 5.42

–

publication in certain periodicals and collective works of reference, of a work made for the purposes of such publication, or made available with the consent of the author for such publication.

•

Where the work was created by the author in the course of his or her employment, the right is not infringed by anything done by or with the authority of the copyright owner, unless the author is identified at the time of the infringing act, or has previously been identified in or on published copies of the work and there is not a sufficient disclaimer.242 A sufficient disclaimer is a clear and reasonably prominent indication that the work has been subjected to treatment to which the author has not consented.243

•

It is also an infringement of the integrity right to possess or deal with an infringing article.244

Provisions applicable to moral rights 5.42 The paternity right and the integrity right continue as long as the copyright exists in the work.245 The rights are not infringed where the author has consented to the acts in question246 and may be waived by an instrument in writing signed by the author.247 A  waiver may relate to a specific work, works of a specified description, works generally, or to existing or future works; it may be conditional or unconditional.248 If made in favour of the owner or prospective owner of the copyright in the work or works to which it relates, it is presumed to extend to his or her licensees and successors in title unless a contrary intention is expressed.249 Although the 1988 Act requires waivers to be in writing, the possibility of informal (ie non-written) waivers being binding under the general law of contract or estoppel is specifically not excluded.250 In the case of works which have more than one author, the general position is that each joint author has his or her own rights, and assertion or waiver of the right by one of the joint authors does not affect the rights of the other joint authors.251 The integrity right applies in relation to the whole or any part of the work.252 By contrast, the paternity right applies only to the whole or any substantial part of the work in question. Thus, the paternity right is not infringed by failure to acknowledge the author of an insubstantial part of that author’s work. 242 243 244 245 246 247 248 249 250 251 252

Section 82(2) of the 1988 Act. Section 178 of the 1988 Act. Section 83 of the 1988 Act. Section 86 of the 1988 Act. Section 87(1) of the 1988 Act. Section 87(2) of the 1988 Act. Section 87(3) of the 1988 Act. Section 87(3) of the 1988 Act. Section 87(4) of the 1988 Act. Section 88 of the 1988 Act. Section 89 of the 1988 Act.

331

5.43  Copyright

Moral rights are not assignable.253 The intention is that moral rights are a personal right for the author, rather than an economic right, the latter of which it is possible to trade (as in the case of copyright). On the death of the author, the rights pass to whomever the author directs in his or her will; there are detailed provisions in the 1988 Act which address the position on death, including what happens if the author’s will makes no mention of his or her moral rights, or if there is no will.254 Infringement of a person’s moral rights is actionable as a breach of statutory duty.255 In the case of a breach of the integrity right, a court may grant an injunction prohibiting the breach unless a disclaimer is made in terms approved by the court.256

Resale right Liability and remedies for infringement 5.43 As noted above, the person (infringer) who is liable for copyright infringement is the person who carries out one or more of the acts which the copyright owner has the exclusive right to carry out but where the infringer does not have a licence from the copyright owner.257 Liability is normally strict, so that it is not relevant: •

what is the intention of the person carrying out the copying;

•

that s/he was aware that, in copying the material, s/he was infringing another person’s copyright;258

•

that the copying is done unconsciously (eg the person is aware of the original work and is influenced by it so that, in creating her or his own work, it is substantially similar to the original);

•

whether the person carrying out the restricted act copies all of the work or only a substantial part of the work; or

•

whether s/he does so directly or indirectly.259

253 254 255 256 257 258

Section 94 of the 1988 Act. Section 95 of the 1988 Act. Section 103(1) of the 1988 Act. Section 103((2) of the 1988 Act. Section 16(2) of the 1988 Act. See eg Francis Day & Hunter v Bron [1963] 2 All ER 16, CA; Sony Music Entertainment (UK) v EasyInternetcafe Ltd [2003] EWHC 62. 259 Section 16(3) of the 1988 Act. Copying indirectly can arise where the person copying has not seen the original work at all, such as copying a work which the person has the right to use, and that work is a copy of another. For example, making a play from a book, where the book was prepared from another play (Schlesinger v Turner (1890) 63 LT 764), or a book written in English which is translated into German, and then a person who was not aware that the book existed in English prepared a translation into English using the German language version (Murray v Bogue (1852) 1 Drew 353).

332

Other fundamental aspects of UK copyright law 5.43

However, if it is possible to show that there is no causal connection between an original work and another, there will be no infringement because (in effect) it is by coincidence that the two works are the same or very similar.260 The provisions of the 1988 Act do not require the copyright owner to show that the person carrying out one of the restricted acts has caused any damage, although the remedies that are available to the copyright owner (and the amount of damages) will depend on the damage or harm caused to the copyright owner by the infringer. The main general remedies for infringement of copyright are:261 •

an injunction (ie an order of the court prohibiting further infringement, breach of which would be a contempt of court);

• damages; •

as an alternative to damages, an account of profits. That is an award of the amount of profits the defendant received from his or her infringing acts;

•

an order for delivery up to the claimant of infringing copies (or articles used to make infringing copies) in the possession of the defendant. It is also possible to apply to the court for destruction or forfeiture to the copyright owner of infringing goods in some circumstances;

•

seizure and detention of infringing goods which are being offered for sale (eg by a street trader).262

Further consideration of remedies falls outside the scope of this title, except for the following points: (1) There is a limited defence available to a person (the infringer) who infringes a copyright work if the infringer can show (at the time s/he infringed the work) that s/he did not know (and had no reason to believe) that copyright subsisted in the work. However, the onus is on the infringer to show this. S/he will need to meet an objective standard (ie  that a reasonable person who had the knowledge of the infringer would believe that the work in question is subject to copyright protection).263 This defence concerns whether the work in question is subject to copyright, and not whether the person carried out any of the infringing acts. 260 See eg Francis Day & Hunter v Bron [1963] 2 All ER 16, CA. 261 Sections 96–100 of the 1988 Act, as amended by the Copyright (Computer Programs) Regulations 1992 (SI 1992/3233). 262 This remedy is in addition to the relief known as the search order whereby a court will sometimes grant an intellectual property owner what is in effect a civil search warrant, entitling his or her solicitors to search a defendant’s premises without prior warning, for evidence of infringement. 263 LA Gear Inc v Hi-Tec Sports plc [1992] FSR 121. In effect the person who wishes to make use of a work by carrying out one of the restricted acts which might infringe copyright if copyright subsists in the work is under obligation to find out if the work is subject to copyright: Infabrics Ltd v Jaytex Ltd [1980] FSR 161.

333

5.44  Copyright

(2) The infringer can pay higher damages if the conduct of the infringer is ‘flagrant’264 (such as a deliberate act of infringement which leads to the infringer obtaining a financial benefit in excess of the damages the infringer would pay).265 (3) In addition to the above civil remedies, an infringer may also be subject to criminal penalties.266 An exclusive licensee has, in general, the same remedies against infringers as the copyright owner.267 Where a non-exclusive licensee has a written licence which is signed by or on behalf of the copyright owner, and the licence expressly grants a right of action, then the licensee may bring an action for infringement.268

Presumptions as to authorship and ownership Copyright works other than computer programs 5.44 In connection with proceedings there are some statutory presumptions, such as where a person is named as the author on a copyright literary, dramatic, musical or artistic work (if the author’s name appears on copies of the work as published or on the work when it was made). Accordingly, if the name of the author appears on the work, there is a statutory presumption that s/he: •

is the author of the work; and

•

did not produce the work in the course of employment;

unless the contrary is proved.269 The same presumption applies to works of joint authorship.270 If no person is named as the author, but: 264 Section 97(2) of the 1988 Act. 265 It appears that the conduct that comes within section 97(2) can range widely, see eg  Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995] FSR 818, where the court held that flagrant conduct is not limited to cases were the infringer knew or believed there was a breach of copyright, or that the infringer has benefited financially. The court can also indicate its objection to the acts of the infringer (such as on moral grounds). 266 Section 107 onwards of the 1988 Act. It is for a local authority trading standards department to enforce the various offences set out in section 107: section 107A of the 1988 Act, inserted by Criminal Justice and Public Order Act 1994, s 165(2), in force from 6 April 2007. 267 Section 101 of the 1988 Act. 268 Section 101A of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI  2003/2498) in force from 31  October 2003. The phrase ‘non-exclusive licensee’ means ‘the holder of a licence authorising the licensee to exercise a right which remains exercisable by the copyright owner’ (s 101A(6) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003). 269 Section 104(1), (2) of the 1988 Act. 270 Section 104(3) of the 1988 Act.

334

Other fundamental aspects of UK copyright law 5.47

•

the work qualifies for copyright protection; and

•

a person is named as the publisher and the name appears on the work on its first publication,

that named person is presumed to be the owner on the work’s first publication, until the contrary is proved.271

Computer programs 5.45 In proceedings concerning computer programs, if copies of the program are issued to the public bearing a copyright statement (name of owner on issue date, or year of first publication in a specified country or issue of copies), the statement is admissible as evidence of the facts stated and is presumed to be correct until the contrary is proved.272

Inclusion of copyright statements 5.46 Given the presumptions that the inclusion of a statement affords, the author/owner should always include a copyright statement on their work, including (in the case of a computer program) on the screen when the program is run (as well as within the source code, and any configuration files).273 Failure to do so does not prevent a copyright owner from bringing infringement proceedings, but it means that the owner has to prove ownership rather than relying on the statutory presumption. The advantage for the author/owner of including the statement is that the party to the proceedings who is not the author/owner has the burden of disproving ownership. There are further presumptions which apply in the cases of unknown or dead authors, and in the case of other types of copyright work (for example, sound recordings and Crown copyright), which are beyond scope of this book.

Devices designed to circumvent copy-protection Generally 5.47 Where a copyright work is published in electronic form, the 1988 Act contains a number of provisions concerning it where it is ‘copy-protected’ (or protected by ‘technological measures’, to use current terminology). These 271 Section 104(4) of the 1988 Act. 272 Section 105(3) of the 1988 Act. 273 Such a statement also helps to counter an argument by a defendant to infringement proceedings that he or she was an innocent infringer.

335

5.48  Copyright

provisions are designed to stop a person who markets a device which can be used to by-pass the copy-protection of a work (where the use of such devices makes it possible to make infringing copies of the work). The latest version of these provisions provides one set of them for computer programs and another set for works other than computer programs (such as a document published in an electronic format and which is protected from being opened or copied unless a password or similar is provided).

Computer programs 5.48 A  copyright owner, an exclusive licensee and certain others (‘Owner’)274 have rights to take action against a person (‘Infringer’) who carries out certain actions designed to remove or circumvent technical devices which are applied to computer programs. The actions which an Infringer carries out and which incur liability are: ‘(i) manufactures for sale or hire, imports, distributes, sells or lets for hire, offers or exposes for sale or hire, advertises for sale or hire or has in his possession for commercial purposes any means the sole intended purpose of which is to facilitate the unauthorised removal or circumvention of the technical device; or (ii) publishes information intended to enable or assist persons to remove or circumvent the technical device.’275 The Infringer must know or have reason to believe that the technical device will be used to make infringing copies of the computer program to which the technical device has been attached.276 The wording used in this part of the 1988 Act does not suggest that: •

the means or information need to actually have been used; or

•

the technical device has to be contained within the computer program (ie it could be located on or in a computer itself).277

274 Section 296(2) of the 1988 Act, as substituted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. These include a person who issues to the public copies of (or communicates to the public) the computer program to which a technical device has been attached, or the owner or exclusive licensee of any intellectual property right in a technical device applied to a computer program. Each of them have concurrent rights (s  296(3) of the 1988 Act, as substituted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003). 275 Section 296A of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. 276 Section 296A(1) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. 277 See Sony Computer Entertainment Inc v Ball [2004] EWHC 1738 (Ch).

336

Other fundamental aspects of UK copyright law 5.49

Copyright works other than computer programs 5.49 If ‘effective technological measures’278 are applied to a copyright work an Infringer will face civil liability if he or she does anything which circumvents them knowing or having reasonable grounds to know that he or she is pursuing that object. An Infringer will not face liability where he or she circumvents the effective technological measure when conducting research into cryptography. This exception will not apply if when carrying out the research he or she affects prejudicially the rights of the copyright owner (including if he or she issues information derived from the research and it creates such prejudice). The rights of an Owner who is entitled to take action against such an Infringer are similar to those where a computer program is involved.279 The Owner who is entitled to take action can also take action where technological measures have been applied to a copyright work other than a computer and where an Infringer: ‘… manufactures, imports, distributes, sells or lets for hire, offers or exposes for sale or hire, advertises for sale or hire, or has in his possession for commercial purposes any device, product or component, or provides services which— (i) are promoted, advertised or marketed for the purpose of the circumvention of, or (ii) have only a limited commercially significant purpose or use other than to circumvent, or (iii) are primarily designed, produced, adapted or performed for the purpose of enabling or facilitating the circumvention of, those measures’.280

278 ‘Technological measures’ means ‘any technology, device or component which is designed, in the normal course of its operation, to protect a copyright work other than a computer program’ (s 296ZF(1) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003). A measure is effective if ‘the use of the work is controlled by the copyright owner through – (a) an access control or protection process such as encryption, scrambling or other transformation of the work, or (b) a copy control mechanism, which achieves the intended protection’ (s 296ZF(2) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003). 279 Section 296ZA of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. See para 5.23 and note 274 above. 280 Section 296ZD(1) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. The procedure outlined appears timeconsuming and is likely to involve lengthy delay for someone who has lawful access to a work subject to the technological measures. The Gowers Review suggested that it should be easier to make a complaint, via the UK Intellectual Property Office website (para 4.106, p 73).

337

5.50  Copyright

The ‘fair dealing’ provisions, on the whole, equally apply to copyright works to which technological measures have been applied but those technological measures prevent a person from carrying out a permitted act281 in relation to that work. A person who cannot exercise a permitted act will need to issue a complaint to the Secretary of State, who can, in appropriate circumstances, require the copyright owner (or his/her exclusive licensee, etc) to allow the person to access the copyright work which is the subject of the complaint.282 This procedure does not apply to copyright works provided ‘on-demand’.283 In addition to civil liability it is also possible for an Infringer circumventing a technological measure to face criminal sanctions including fines, imprisonment and forfeiture.284

Copyright licensing schemes and licensing bodies 5.50 The 1988 Act provides for the setting up of statutory licensing schemes and licensing bodies, and the resolution of disputes (generally by the Copyright Tribunal) in relation to such schemes and bodies.285 A licensing body would typically enter into agreements with individual authors permitting it to offer licences on the author’s behalf. The licensing body would have a portfolio of copyright works which it made available for licence, and would collect royalties on the author’s behalf.

Competition and Markets Authority report286 5.51 The 1988 Act enables the relevant Government Minister to make certain orders where the Competition and Markets Authority has reported that either of the following matters are against the public interest:287 281 These are listed in Sch 5A to the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003, and include most of the acts which are listed, eg, in para 5.21 above. 282 See s 296ZE of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. 283 Section 296ZE(9) of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003: ‘This section does not apply to copyright works made available to the public on agreed contractual terms in such a way that members of the public may access them from a place and at a time individually chosen by them.’ This would mean that interactive use of the internet (such as accessing a TV programme at the time a consumer wished to access it) would not be covered by s 296ZE of the 1988 Act, but a user of a non-interactive service would be covered. 284 Sections 296ZB, 296ZC of the 1988 Act, as inserted by the Copyright and Related Rights Regulations 2003 (SI 2003/2498) in force from 31 October 2003. 285 Section 116 of the 1988 Act. 286 Competition law relating to intellectual property transactions is dealt with generally in Chs 12 and 15. 287 Section 144 of the 1988 Act, as amended by the Competition Act 1998, the Enterprise Act 2002 and SI 2014/892.

338

Other fundamental aspects of UK copyright law 5.53

•

conditions in licences granted by the owner of copyright in a work restricting the use of the work by the licensee or the right of the copyright owner to grant other licences; or

•

a refusal of a copyright owner to grant licences on reasonable terms.

The Government Minister may cancel or modify those conditions and, instead or in addition, provide that licences in respect of the copyright shall be available as of right. The last power may provide a disincentive to copyright owners who wish to include very onerous conditions in their licences. However, the power only arises in cases where the Competition and Markets Authority has issued a report in relation to the copyright owner’s activities – a rare event in practice. These provisions bolster existing powers under the Competition Act 1998 in relation to anti-competitive behaviour; it remains to be seen whether these provisions have much effect on copyright licensing activities. The 1988 Act introduces similar powers in relation to other intellectual property rights.

Copyright tribunal 5.52 The 1988 Act establishes a constitution and jurisdiction for the Copyright Tribunal. The function of the Tribunal is to hear and determine proceedings in relation to statutory licensing schemes and licensing bodies, and the settling of licence terms in relation, inter alia, to licences of right, rental right and other matters.288

Qualification for copyright protection General 5.53 In order for a literary or artistic work to qualify for copyright protection, either: •

the author must be a ‘qualifying person’ (ie having a defined connection with the UK or another specified country); or

•

the work must be first published in the UK or in another qualifying country.289

The rules on qualification for copyright protection are detailed and complex, particularly in respect of the protection given to works first published outside the UK or whose author was not a British citizen at the

288 Sections 145–153 of the 1988 Act. 289 Section 153 of the 1988 Act.

339

5.54  Copyright

‘material time’.290 The most common examples of qualifying persons and countries are discussed below. Foreign, existing, works can be brought into protection for the first time by a country joining the Berne Convention. Some works whose copyright has expired may be brought back into copyright protection for the remainder of the ‘life of the author plus 70 years’ copyright period previously mentioned.291

Qualification by reference to author 5.54 A  work qualifies for copyright protection if the author was at the material time a qualifying person.292 The most common examples of a qualifying person are: •

a British citizen or a national of another EEA state;293

•

an individual domiciled or resident in the UK or another EEA state;

•

a body incorporated under the law of a part of the UK or another EEA state.

The above provisions can also apply to works of joint authorship, but there are special rules where not all of the authors are qualifying persons.294 Material time, in relation to literary, dramatic, musical and artistic works,295 is: •

in the case of an unpublished work, when the work was made or, if the making of the work extended over a period, a substantial part of that period;

•

in the case of a published work, when the work was first published or, if the author had died before that time, immediately before his or her death.

Qualification by reference to country of first publication 5.55 A literary, dramatic, musical or artistic work, and some other types of work, qualifies for copyright protection if it is first published in the UK, 290 Sections 153–162 of the 1988 Act, as amended to determine any such entitlement to copyright protection, and the statutory instruments made pursuant to the 1988 Act which, inter alia, list qualifying countries for the purposes and reflect, inter alia, the reciprocal protection given to citizens of other countries under the Berne Convention as well as the position of former British colonies. 291 Duration of Copyright and Rights in Performances Regulations 1995 (SI 1995/3297). 292 Section 154(1) of the 1988 Act, as amended by the Intellectual Property Act 2014, in force from 6 April 2017 (SI 2016/1139). 293 The current members of the EEA are the current member states of the EU plus Iceland, Liechtenstein and Norway. 294 Section 154(3) of the 1988 Act, as amended by the Duration of Copyright and Rights in Performances Regulations 1995 (SI 1995/3297). 295 Section 154(4) of the 1988 Act.

340

Other fundamental aspects of UK copyright law 5.57

in another EEA state or in another country which meets special criteria.296 Where the work is first published outside a qualifying country, but within 30 days of that publication is published in a qualifying country, protection under the above provisions is still available.297

Protecting the ideas or concepts contained in computer programs with copyright 5.56 A  question which is frequently asked is whether it is possible to stop one person ‘copying’ another person’s computer program. In reality, the question is ‘can I stop you using the ideas or concepts I have regarding my computer program as well as stop you using my code?’. The aim, like with patents, is to create a monopoly position in regard to the idea or concept of the person who has created or written a computer program. If a patent can protect a computer program, the answer will be ‘yes’.298 But in the current position where a computer program is protected ‘only’ by copyright then the answer will be ‘no’, based on the current case law, at least in the UK (which follows EU Directives, in particular the Information Society Directive and the Software Directive). Therefore, one person can lawfully obtain a copy of a computer program developed by another person, study, examine and run the computer program and thereafter create an exact functional copy. In such a case, the other person will normally have no remedy against the first person for copyright infringement.299

The requirement for originality 5.57 Any literary work (which will include a computer program) must be ‘original’ in order to receive protection by copyright. The word ‘original’ is not defined or explained in the 1988 Act as such; however, there has been considerable case law on this point, both in the UK courts as well as in the ECJ. The essential point is that the cases which have come before the courts in the UK have emphasised the current position in law, ie the dichotomy between: 296 Section 155(1) of the 1988 Act, as amended by the Intellectual Property Act 2014, in force from 6 April 2017 (SI 2016/1139). The special criteria refer to the relevant provisions of the 1988 Act being applied to a country, following the making of an Order in accordance with section 159 of the 1988 Act. 297 Section 155(3) of the 1988 Act. 298 See para 4.99 onwards on the current position regarding the patenting of computer software. 299 As long as the first person does not have access to the software code or if he or she does not make any use of it.

341

5.58  Copyright

•

intellectual creation: the ideas or thoughts which are contained in a literary work; and

•

expression of the intellectual creation: the expression of those ideas and thoughts.

It is only the latter which is protected, or is capable of being protected, by copyright. Only the ‘original skill or labour in execution of the work’,300 that is the expression of the thought and/or idea in printing and writing, will be protected.301 This point is perhaps best expressed in a judgment from a recent case: ‘29. The important point is that copyright can be used to prevent copying of a substantial part of the relevant form of expression, but it does not prevent use of the information, thoughts or emotions expressed in the copyright work. It does not prevent another person from coincidentally creating a similar work by his own independent efforts. It is not an intellectual property monopoly in the same sense as a patent or a registered design. There is no infringement of copyright in the absence of a direct or indirect causal link between the copyright work and the alleged copy. […] 31. The policy of copyright protection and its limited scope explain why the threshold requirement of an “original” work has been interpreted as not imposing objective standards of novelty, usefulness, inventiveness, aesthetic merit, quality or value. A  work may be complete rubbish and utterly worthless, but copyright protection may be available for it, just as it is for the great masterpieces of imaginative literature, art and music. A work need only be ‘original’ in the limited sense that the author originated it by his efforts rather than slavishly copying it from the work produced by the efforts of another person.’302

Computer software 5.58 There will generally be no problem in establishing that a computer program is not ‘original’ if a substantial part of the code of another program is copied. In most cases, the direct copying of code can be easily identified (with the right tools), just as it is possible to compare text in one written report to another. However, software authors look to copyright protection for things other than 300 From Copinger & Skone James on Copyright (17th edn, Sweet & Maxwell, 2017) Vol 1 at 3-231 to 3-232. 301 University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 at 608. 302 Sawkins v Hyperion Records Ltd [2005] EWCA Civ 565, [2005] 3 All ER 636.

342

Other fundamental aspects of UK copyright law 5.59

just whether their code is copied. For example, a software programmer may design and seek protection for the following things: •

the way a computer program looks, how its interface operates or how a user interacts with it;

•

the structure and implementation of the structure of the software program; or

•

the particular functions it carries out.

All of these are likely to involve substantial investment on the part of a software programmer, in some cases more so than the actual writing of code.303 A key area of difficulty concerning computer programs is what exactly in, or relating to, them constitutes ‘ideas’ (and is not capable of protection) and the expression of those ideas (which is capable of protection). For example, a manual may set out the functions of a computer program. The words used in the manual (whether recorded in a computer file or in a print out) would normally qualify for protection as a literary work, but should the functions as described in the manual attract the protection of copyright? In other words, can a person who has possession of the manual use the description of the functions to create her/his own program replicating the functions without copying the text of the manual? In one case,304 the defendants copied from the claimant’s manuals the description of the claimant’s computer program in order to create the defendants’ own computer program with their own code. The court held that the functionality of a computer program amounts to intellectual creation and not a form of expression. If the defendants had copied the words used in the manual, then there would be infringement of the copyright in the manual (which did not occur here).

First principles 5.59 The requirement for originality is, in principle, no different for a computer program than for any other literary work, in order for the work to be capable of protection by copyright. It is perhaps useful to start with what treaties and legislation there are specifically in place regarding computer programs; the Berne Convention and the TRIPS agreement (which form the background to EU legislation) indicate that a computer program (whether in source or object code) is capable of protection as a literary work and that copyright protection: 303 There are now software programs which can write, once various parameters and settings are entered, the actual code for another software program (or at least parts of it). 304 SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482, [2013] All ER (D) 254 (Nov).

343

5.59  Copyright

‘shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.’305 The Software Directive is the principal piece of EU legislation setting out in more detail how copyright law should apply to computer programs:306 •

computer programs are capable of protection by copyright as literary works;307

•

the protection is only for the expression of the computer program;308

•

it is not possible to protect by copyright the ideas and principles which underlie any element of a computer program. This exclusion from protection includes:

•

–

a computer program’s interface;

–

logic, algorithms and programming languages to the extent that they comprise ideas and principles;309

a computer program will be protected by copyright if it is original. ‘Original’ means that the computer program is the author’s own intellectual creation.310

A key problem has been where to set the dividing line between what is an idea or principle and what is its expression. For example, in one case it was held that, by analogy with a novel (where its plot may sometimes be protected), it is possible to protect the architecture of a computer program if ‘a substantial part of the programmer’s skill, labour and judgement went into it’,311 the judge finding that in a computer program the algorithms or sequences of operations decided on by the programmer to achieve the programmer’s object are closest to the plot of a novel. But the same judge in a later case decided that the analogy with the plot of a novel was unhelpful, primarily because it is possible to write a computer program which performs the same functions as another computer program without having any access to the code of the first. The judge compared a computer program to a book of instructions which: ‘… has no theme, no events, and does not have a narrative flow. Nor does a computer program, particularly one whose behaviour depends upon the history of its inputs in any given transaction. It does not have a plot, merely a series of pre-defined operations intended to achieve the desired result in response to the requests of the customer’.312 305 TRIPS Agreement, article 9(2). 306 Directive 2009/24/EC on the legal protection of computer programs, replacing Council Directive 91/250/EEC. The amendments are not substantive. 307 Directive 2009/24/EC, recital 6. 308 Directive 2009/24/EC, recital 11. 309 Directive 2009/24/EC, recital 11, art 1(2). 310 Directive 2009/24/EC, art 1(3). 311 Cantor Fitzgerald International v Tradition (UK) Ltd [2000] RPC 95 at p134. 312 Navitaire Inc v Easyjet Airline Co and another [2004] EWHC 1725 (Ch), [2004] All ER (D) 162 (Dec) at para 125.

344

Other fundamental aspects of UK copyright law 5.60

There has only been a limited amount of case law regarding computer software, which has focussed on the dichotomy between thought/ideas and expression. The current leading case considered whether the ‘reproduction’ of one computer program by another amounted to infringement even though no code was copied (and there was no suggestion that there was any access to the code of the first, allegedly, infringed computer program). It is worth examining this case in a little detail as it illustrates the boundaries of what can and cannot be ‘copied’ from a computer program.

Key facts 5.60 •

the claimant had developed a computer reservation system which was used by the first defendant;

•

the first defendant wished to replace the claimant’s computer program with another company’s computer program (developed by the second defendant);

• the first defendant wanted the new software to be substantially indistinguishable from the claimant’s computer program, in terms of its functions, how they were carried out and in respect of the new software ‘user interface’. This was achieved although none of the new computer program’s code resembled the claimant’s computer program in any way, except that it acted upon identical or very similar inputs and produced very similar results; •

the claimant alleged that the copyright in its computer program was infringed by what was called ‘non-textual copying’;

•

the alleged infringement consisted of three aspects: –

the use of the ‘business logic’ of (ie the functions carried by) the claimant’s computer program;

–

the copying of the commands (keystrokes) which a user needed to type in order to get the new computer program to perform its functions;

–

the copying of reports and screen displays including graphical elements.

The judge found no infringement in each of these cases,313 for the following reasons: 313 Except in one respect of the last aspect, and then there was no infringement in relation to the computer program itself (as a literary work), but concerning icons which were considered to be graphical works (ie protected by copyright as artistic, not literary, works).

345

5.60  Copyright

•

Copying of commands. There were three elements to this point:

•

Individual keystrokes: copyright was found not to subsist in the individual command names as literary works. They did not have the necessary qualities of a literary work.314

•

Complex commands: there was also a category of keystrokes which amounted to complex commands to operate or use the computer program.315 These were also not protected by copyright as they in effect represented a programming language and thus were excluded from protection by the Software Directive.316

•

Combination of commands being a compilation: also considered was whether if all the commands were put together in the form of a compilation they were capable of protection. It was held that they were either a computer programming language or not a compilation in the sense envisaged by the 1988 Act.

•

Screen displays and graphic elements. it was held that certain graphic elements when displayed during the operation of the software were capable of protection not as literary but as artistic works.317 This was the sole ground on which the claimant succeeded. However, those screens which were text-based were considered to be tables and ‘are properly to be viewed as tables and so literary in character for the purposes of copyright (s  3(1)(a), [the Act]). They are, in my view, “ideas which underlie its interfaces” in the sense used in Article 1(2) of the Directive: they provide the static framework for the display of the dynamic data which it is the task of the software to produce’.

•

‘Business logic’: the argument here that the functions (‘business logic’) of the claimant’s software and the second defendant’s software were identical318 and amounted to infringement was rejected by the judge, as the business logic was the ideas and principles of the computer program and therefore not capable of protection by copyright: ‘129. The questions in the present case are both a lack of substantiality and the nature of the skill and labour to be protected. Navitaire’s computer program invites input in a manner excluded from copyright

314 As single words normally cannot be a work of copyright, the case cites Exxon Corporation Insurance Consultants International v Control Systems Technology Ltd [1982]  RPC  69 in support of this proposition. 315 That is, commands that had a syntax; ones which have one or more arguments that must be expressed in a particular way. 316 See Council Directive 250/90/EEC ([1991] OJ L122/42) on the legal protection of computer programs, recital 14. 317 Screen displays which were more than the display of textual elements were capable of protection as artistic works, ie  they would be protected by copyright as artistic works (but not as literary works), and thus not within the provisions of the Software Directive (Council Directive 250/90/EEC ([1991] OJ L122/42) on the legal protection of computer programs). 318 In this case concerning such functions as checking availability of flights, making reservations, obtaining passengers’ details and taking payments for tickets.

346

Other fundamental aspects of UK copyright law 5.60

protection, outputs its results in a form excluded from copyright protection and creates a record of a reservation in the name of a particular passenger on a particular flight. What is left when the interface aspects of the case are disregarded is the business function of carrying out the transaction and creating the record, because none of the code was read or copied by the defendants. It is right that those responsible for devising [the claimant’s software] envisaged this as the end result for their program: but that is not relevant skill and labour. In my judgment, this claim for non-textual copying should fail. 130. I do not come to this conclusion with any regret. If it is the policy of the Software Directive to exclude both computer languages and the underlying ideas of the interfaces from protection, then it should not be possible to circumvent these exclusions by seeking to identify some overall function or functions that it is the sole purpose of the interface to invoke and relying on those instead. As a matter of policy also, it seems to me that to permit the “business logic” of a program to attract protection through the literary copyright afforded to the program itself is an unjustifiable extension of copyright protection into a field where I am far from satisfied that it is appropriate.’ This approach in this case has been followed in a later case.319 The latter case concerned a computer game owned by the claimant. The defendant had developed a similar game. Again there was no copying of the software code of the claimant, but the features were similar, and in particular the defendant had used the claimant’s game as inspiration for its game. The court held that literary features did not protect the features of one game which inspired the use of them in another as being too general to amount to a substantial part of the claimant’s game and quoted with approval a passage from the lower court’s judgment: ‘They are ideas which have little to do with the skill and effort expended by the programmer and do not constitute the form of expression of the literary works relied upon.’320 The court went on to state that a written description of the features/functions of the game would be protected by copyright, but the features/functions themselves were in effect ideas and were not protected: ‘[51] … a written work consisting of a specification of the functions of an intended computer program will attract protection as a literary work. But the functions themselves do not. Of course to someone familiar with the prior English law it is self-evident that copyright could subsist 319 Nova Productions Ltd v Mazooma Games Ltd and others [2007] EWCA Civ 219, [2007] IP & T 899. 320 See Nova Productions Ltd above, at para 44.

347

5.61  Copyright

in such a description. The fact that a work can get copyright even if mundane, is old and familiar to an English lawyer. But the [Software] Directive needed to say that protection as a literary work should be provided for preparatory design work because not all member states under their existing laws necessarily provided that. That is the whole point of the Directive – and the clear reason for it is recited in art 1. [52] … The reasoning in [Navitaire Inc v Easyjet Airline Co [2004] EWHC 1725 (Ch), [2006] RPC 111] provides a second reason for dismissing this appeal. [The judge in that case] was quite right to say that merely making a program which will emulate another but which in no way involves copying the program code or any of the program’s graphics is legitimate.’

Digital Single Market Directive 5.61 The Digital Single Market (DSM) Directive was adopted and came into force in June 2019, with member states having until 7  June 2021 to transpose its provisions into their national laws.321 This section provides an outline of the most important exception in the DSM Directive for the purposes of this book – that ‘research organisations’ can carry out text and data mining on work protected by copyright (for the purpose of scientific research). One of the reasons for the DSM Directive is that the newer digital technologies permit new uses of works which existing EU laws may not cover at all or there is uncertainty that they do in such fields as research, education and the preservation of cultural heritage. A  concern expressed by the EU in their proposals was whether the existing optional exceptions and limitations to rightholders in the Information Society Directive,322 the Database Directive323 and the Computer Programs Directive324 were sufficient to cover the new digital technologies, and a failure to do so may impact the internal market as well as affecting cross-border use.

The reasons for the introduction of a text and data mining exception 5.62 The reasons for this new mandatory exception are set out in the recitals to the DSM Directive and include the following points:

321 DSM Directive, Art 29. 322 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 323 Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases. 324 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs.

348

Other fundamental aspects of UK copyright law 5.63

•

new technologies allow users to carry out automated computational analysis of information in a digital form (known as text and data mining (TDM)). It allows for the processing of text, sounds, images and data;325

•

researchers can gain new knowledge and discover trends by using this technology to process large amounts of information;

•

the TDM exception will particularly benefit the research community and foster innovation;

•

research organisations are not certain whether carrying out TDM will involve actions which are protected by copyright (such as reproducing a work or extracting data from a database);

•

without a TDM exception, a research organisation would need to obtain a licence from the rightholders to carry out TDM;

• existing EU law already contains exceptions and limitations to rightholders’ rights for TDM uses that the DSM  Directive envisages, but:326 –

those exceptions and limitations are optional and not fully adapted to the use of technologies in scientific research; and

–

where the scientific institutions have lawful access to the required content (such as through subscriptions to publications or open access licences), the licences may not permit TDM.

The legal issues 5.63 The TDM exception is a limited one, in that it provides for exceptions or limitations from specific provisions only of other Directives: •

article 2 of the Information Society Directive, which provides for ‘the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part: (a) for authors, of their works; …’;327

325 One author has described what it is possible to do with TDM: ‘Big data analysis allows the development of new products and services with important added value. The deduction of patterns and trends from complex data can yield deeper insights and enable new combinations of available information in various fields – from the prediction of consumer behaviour and economic developments to the more efficient use of scientific knowledge’ from EU Copyright Reform and Startups – Shedding Light on Potential Threats in the Political Black Box, Martin Senftleben, Professor of intellectual Property, Vrije Universiteit Amsterdam, www. innovatorsact.eu/wp-content/uploads/2017/03/Issues-Paper-Copyright-Directive-2.pdf, last accessed 3 October 2018. 326 An example of this would be the introduction into UK law of a new permitted act for computational analysis of any recorded in a copyright work, but only for the sole purpose of research for a non-commercial purpose – which provides a very limited exception and then precludes any use of a copyright work in any commercial research (see para 5.22 above). 327 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society.

349

5.64  Copyright

•

•

articles 5(a) and 7(1) of the Database Directive:328 –

where the expression of a database is subject to protection by copyright, the author has the exclusive right to carry out or authorise temporary or permanent reproduction in whole or part; and

–

where the database right is involved, the maker of a database has the right to prevent extraction and/or re-utilisation of the whole or a substantial part;

articles 4(1)(a) and 4(1)(b) of the Computer Programs Directive:329 the exclusive right of the rightholder to authorise: –

‘the permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole; in so far as loading, displaying, running, transmission or storage of the computer program necessitate such reproduction, such acts shall be subject to authorisation by the rightholder’; and

–

‘the translation, adaptation, arrangement and any other alteration of a computer program and the reproduction of the results thereof, without prejudice to the rights of the person who alters the program’.

The act of carrying out TDM will involve, eg, interrogating, carrying out analysis etc of an author’s work and to do so will involve copying (reproduction) of a work or extracting it from a database.

Specific exception – for research organisations and cultural heritage institutions carrying out scientific research 5.64 This specific exception to the Information Society Directive and the Database Directive is as follows:330 •

it is an exception from the exclusive right of authors etc to permit or prohibit reproduction or extraction of the authors’ work;

•

only a ‘research organisation’ or a ‘cultural heritage institution’ (‘Permitted Organisations’) can take advantage of this exception;

•

the Permitted Organisations, under this exception, are permitted to reproduce, or make an extraction from, a work to carry out TDM of works and other subject-matter;

328 Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases. 329 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (Codified version). 330 DSM Directive, Art 3(1). The meanings of phrases such as ‘research organisation’, ‘text and data mining’, ‘lawful access’ etc are set out further below.

350

Other fundamental aspects of UK copyright law 5.64

• •

the Permitted Organisations must have lawful access to the works on which they wish to carry out TDM;331 and the TDM must be for the purpose of scientific research.

A rightholder is not able to contract out of the TDM exception.332 However, a rightholder can apply measures ‘to ensure the security and integrity of the networks and databases where the works or other subject-matter are hosted. Such measures shall not go beyond what is necessary to achieve that objective’.333 The Permitted Organisations who make copies of works and other subjectmatter as a result of carrying out TDM must store the copies with an appropriate level of security.334 The copies can be stored for the purposes of scientific research, including the verifying of the results of the research.335 Although the exception may permit a research organisation to copy an author’s work, the research organisation can only do so for a particular purpose, that of TDM inside the more general purpose of scientific research. In other words, the right to copy must be only to carry out analysis on the work, and would not include (unless the research organisation had a licence to do so), for example: • the right to make further copies of the work which has been the subjectmatter of the analysis; • the right to provide it to third parties; • the right to include it together with reports or findings using TDM; or • the right to include copies of parts of the work used within a report or findings made using TDM. 331 That is, the research organisation must have a licence to access the works on which they wish to carry out the TDM, but according to the recitals of the DSM Directive there is no need to provide compensation to rightholders for allowing research organisations to carry out TDM ‘given that in view of the nature and scope of the exception the harm should be minimal’: DSM Directive, recital 17. 332 DSM Directive, Art 7(1). 333 DSM Directive, Art 3(3). The aim of the measures is to prevent a high number of user requests to and downloads of the rightholder’s works impacting on the rightholder’s systems etc: DSM Directive, recital 12. 334 DSM Directive, Art 3(2). 335 DSM Directive, Art 3(2). DSM Directive, recital 15 provides some limited guidance as to the extent of, and limitation on, the right to store copies: ‘Research organisations and cultural heritage institutions could in certain cases, for example for subsequent verification of scientific research results, need to retain copies made under the exception for the purposes of carrying out text and data mining. In such cases, the copies should be stored in a secure environment. Member States should be free to decide, at national level and after discussions with relevant stakeholders, on further specific arrangements for retaining the copies, including the ability to appoint trusted bodies for the purpose of storing such copies. In order not to unduly restrict the application of the exception, such arrangements should be proportionate and limited to what is needed for retaining the copies in a safe manner and preventing unauthorised use. Uses for the purpose of scientific research, other than text and data mining, such as scientific peer review and joint research, should remain covered, where applicable, by the exception or limitation provided for in Article 5(3)(a) of Directive 2001/29/EC’.

351

5.65  Copyright

General exception336 5.65 This general exception to the Information Society Directive, the Database Directive and the Computer Programs Directive is as follows:337 •

it is an exception from the exclusive right of authors etc to permit or prohibit reproduction or extraction of the authors’ work;

•

it is not limited to a ‘research organisation’ or a ‘cultural heritage institution’;

•

under this exception, it is possible for a person to carry out TDM of works and other subject-matter; and

•

the person must have lawful access to the works on which they wish to carry out TDM.338

A rightholder is not able to contract out of the TDM exception,339 but this exception is subject to the right of rightholders being able to expressly forbid the use of works and other subject matter by ‘appropriate means’ (including through machine-readable means where the content is made publicly available online).340 Unlike the specific exception a person making a reproduction or extraction under this general exception may only retain them as long as necessary for the purposes of the TDM. As this exception is not limited to research organisations who are conducting scientific research, research organisations not conducting scientific research as well as commercial organisations can have the benefit of this exception.

Key definitions Research organisation 5.66 A research organisation has to meet three requirements in order to benefit from the exception:341 336 This was originally to be an optional exception until the final negotiations which led to the adoption of the DSM Directive. 337 DSM Directive, Art 3(1). The meanings of phrases such as ‘research organisation’, ‘text and data mining’, ‘lawful access’ etc are set out further below. 338 That is, the research organisation must have a licence to access the works on which they wish to carry out the TDM, but according to the recitals of the DSM Directive there is no need to provide compensation to rightholders for allowing research organisations to carry out TDM ‘given that in view of the nature and scope of the exception the harm should be minimal’: DSM Directive, recital 17. 339 DSM Directive, Art 7(1). 340 DSM Directive, Art 4(3). 341 DSM Directive, Art 2(1).

352

Other fundamental aspects of UK copyright law 5.66

First requirement The research organisation must be a specific type of organisation: •

a university;

•

a university’s library;

•

a research institute; or

•

any other type of entity.342

A research organisation can also include: •

other education institutes; or

•

hospitals which carry out research.343

Second requirement The research organisation must have as its primary goal:344 •

the carrying out of scientific research; or

•

the provision of the educational services which involves the conduct of scientific research (‘Services’).

The Services must be carried out: •

on a non-for-profit basis or, if the Services are provided for a profit, then the research organisation will be reinvesting all the profits in its scientific research; or

•

pursuant to a ‘public interest mission recognised by a Member State’.

Third requirement There must be access to the results of the scientific research, but an undertaking which has a ‘decisive influence’ upon the research organisation cannot have access to the results on a preferential basis. The meaning of a ‘decisive influence’ is not further defined as such.345 342 343 344 345

DSM Directive, Art 2(1). DSM Directive, recital 12. DSM Directive, Art 2(1). The recitals provide some guidance as to the meaning of ‘decisive influence’: ‘At the same time, organisations upon which commercial undertakings have a decisive influence allowing them to exercise control because of structural situations such as their quality of shareholders or members, which may result in preferential access to the results of the research, should not be considered research organisations for the purposes of this Directive’: DSM Directive, recital 12. The precise meaning is not entirely clear, but the recital seems to indicate that the research organisation has to be under the control of one or more commercial undertakings. However, the recital uses the phrase ‘such as’ in relation to the way a commercial undertaking exercises control (that is shareholding and membership), which might mean that other forms of control may be possible. What is not clear is whether the situation where a research organisation enters into a research contract with a commercial organisation, and where the commercial organisation is allowed to restrict access to the results, would come within the meaning of a commercial organisation having a decisive influence over the research organisation.

353

5.67  Copyright

Cultural heritage institutions 5.67 A  cultural heritage institution is a publicly accessible library or museum, an archive or a film or audio heritage institution.346

Text and data mining (TDM) 5.68 Text and data mining is any ‘automated analytical technique aimed at analysing text and data in digital form in order to generate information which includes but is not limited to patterns, trends and correlations’.347

‘Lawful access’ 5.69 Lawful access for the purposes of the DSM Directive does not mean that an organisation or person will have any greater right to access any work than before the DSM Directive comes into effect (or to call for any greater access). However, if it does obtain a licence to the work, it will have the right to carry out TDM. The access can be because the rightholder has an open access policy or provides access through licensing or subscription models.348 Where there is use of such models, they will also cover any persons ‘attached’ to a research organisation.

Commercial or non-commercial purposes and extent of the exception 5.70 This exception is similar to that introduced in the UK in 2014 for computational analysis. However, there are some significant differences. The computational analysis exception introduced in the UK will only apply where it is carried out for a non-commercial purpose, the person has lawful access and any copy of the work accessed is accompanied by sufficient acknowledgment. The TDM exception in the DSM Directive is not framed in such a restrictive way. The definition of a ‘research organisation’ does permit the carrying out of the TDM for a profit, as long as the profits are reinvested in the scientific research of the research organisation, and that an organisation which has decisive influence over the research organisation does not have preferential access to the data. 346 There is no specific requirement for a cultural heritage institution to make accessible the results of any scientific research. DSM Directive, recital 13 provides further information as the meaning of a ‘cultural heritage institution’ so that it will cover a publicly accessible library or museum ‘regardless of the type of works or other subject matter that they hold in their permanent collections, as well as archives, film or audio heritage institutions. They should also be understood to include, inter alia, national libraries and national archives, and, as far as their archives and publicly accessible libraries are concerned, educational establishments, research organisations and public sector broadcasting organisations’. 347 DSM Directive, Art 2(2). 348 DSM Directive, recital 14.

354

Other fundamental aspects of UK copyright law 5.70

The recitals to the DSM Directive clearly envisage that a research organisation (but not, apparently, a heritage and cultural organisation) can benefit from the exception if their research activities are within ‘the framework of publicprivate partnerships’. Not only can the research organisation itself carry out the TDM, but the private partner can itself do so using the private partner’s technological tools.349 This specific exception as drafted will exclude a commercial organisation from having the benefit of that exception – unless it is a party to a research project for a scientific purpose with a not-for-profit type of research organisation. The specific exception will not apply to, for example: •

any commercial undertaking which wishes to carry out TDM unless it is able to secure licences under the general exception; or

•

any commercial undertaking which provides a service based on the use of TDM to any other commercial or non-commercial organisation; or

•

any sub-contractor or subsidiary of a private partner.

For example, a research organisation enters into a research contract with a commercial company to carry out scientific research, both of which can carry out TDM with the benefit of the specific exception (as long as they have lawful access to the works on which the TDM is carried out). However, if the research organisation needed to buy in the services of a third party company to carry some TDM services, but the third party was not a party to the research contract, then the third party might not be able to take advantage of the specific exception. Another example might be that of an academic at a university who develops new software or new methods to carry out TDM. The university may have a policy of allowing academics to retain ownership of intellectual property they develop while working at the university. As long as the academic continues to allow use of the software through contracts into which the university enters (and in the name of the university) with commercial organisations and to carry out a research project with a scientific purpose, the academic and the university would have the benefit of the specific exception. However, if the academic formed a start-up company which licensed use of the TDM software developed by the academic or the start-up company, or where the start-up company offered TDM services to others, then in these situations it would not be able to have the benefit of the specific exception, regardless of the nature of the project or contract in which the TDM services will be of use.

349 DSM Directive, recital 11. The latest draft of the DSM Directive made a significant change in the recitals on this point – in an earlier draft, it was only the research organisation which could carry out the TDM.

355

CHAPTER 6

Protection of Databases Generally357 Meaning of a database 359 Legal definition of a database 359 Forms that a database can take 360 The contents of a database 361 Database as a copyright work 362 Database right 362 Assignment and licensing of the database right 362 Qualification for protection 362 Qualification and ownership 364 Ownership364 Default position 364 Particular situations 364 Who qualifies for ownership 365 Database right and non-EU nationals etc 365 Duration of the database right 366 Initial duration of database right 366 On a change in the contents of the database 366 Infringement367 Meaning of ‘extraction’ and ‘re-utilisation’ 367 Meaning of ‘substantial parts of the contents of that database’ 368 Meaning of ‘repeated and systematic extraction or re-utilisation of insubstantial parts’ 369 Re-utilisation need not be direct or actually substantial 369 Fair dealing 370 Avoidance of certain terms 371 Transfer of database right 371 Remedies371

GENERALLY 6.01

There are two forms of protection available to databases:

•

copyright, and

•

a separate form of protection, the database right.

357

6.01  Protection of Databases

Prior to 1997 it was sometimes possible to protect databases by copyright only, as a table or compilation.1 With the coming into force of the Copyright and Rights in Databases Regulations2 (the ‘Database Regulations’), which implemented Directive 96/9/EC of the European Parliament and of the Council of 11  March 1996 on the legal protection of databases (the ‘Database Directive’), two distinct rights were created in regard to databases: • Copyright: the extension of copyright protection to some types of databases, ie those that meet the test of originality for databases.3 In order for the database to receive the protection of copyright, the definition of ‘originality’ has a particular meaning which is slightly different to that for other material protected by copyright: the database must constitute the author’s own intellectual creation in regard to the selection of the contents of the database;4 and •

Database right: the creation of a database right occurs if the database has been the result of ‘a substantial investment in obtaining, verifying or presenting the contents of the database’.5

The meaning of a ‘database’ is the same for both the database right and for copyright.6 It is possible for both copyright and the database right to protect a database.7 The database right is a separate, new additional form of right to copyright. It is a property right. The Database Regulations amended the Copyright, Designs and Patents Act 1988 by extending copyright protection to databases (as another form of literary work). However, the provisions regarding the database right are only found in the Database Regulations. The policy reason behind the creation of the database right was to protect the investment that a party makes in creating a database (as it is easy to copy the database).8

1

2 3 4 5 6 7 8

For example, material such as football-fixture listings (Football League v Littlewoods [1959] Ch  637), listings of information (Blacklock v Pearson [1915] 2 Ch  376), trade directories (Morris v Ashbee (1868–69) LR 7 Eq 34), a compilation of music tracks (Robin Ray v Classic FM plc [1998] FSR 622) or a directory of solicitors and barristers (Waterlow Publishers Ltd v Reed Information Services Ltd [1992] FSR 409). All these cases have indicated that copyright protection is available. The Copyright and Rights in Databases Regulations 1997 (SI  1997/3032) implementing Directive 96/9/EC ([1996]  OJ L077/20) on the legal protection of databases (‘Database Directive’). Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 5. Copyright, Designs and Patents Act 1988, s 3A(2), as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 13(1). Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 12(1). Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 13(4). For example, Innoweb BV v Wegener ICT Media, Case C-202/12, para 36; Football Dataco Limited v Sportradar GmbH [2013] EWCA Civ 27, para 44.

358

Meaning of a database 6.02

MEANING OF A DATABASE Legal definition of a database 6.02 For the purposes of both copyright and the database right, a ‘database’ needs to satisfy two requirements: •

consist of a collection of independent works, data or other materials (the ‘collection’); and

•

the collection is arranged in a systematic or methodical way.

The ECJ has explained the meaning of a database as follows:9 ‘… any collection of works, data or other materials, separable from one another without the value of their contents being affected, including a method or system of some sort for the retrieval of each of its constituent materials’.10 The court also provided more detail as to what would constitute a database for the purposes of the Database Directive: •

The size of the database is not relevant (as to the number of data, works or other materials collected together in the database) in deciding whether it is a database for the purposes of the Database Directive.

•

It is not relevant whether the collection of data, works or other materials in the database: –

is made by the person who created the database;

–

comes from sources other than from that person; or

–

is a mixture of the above two sources.

•

None of the provisions of the Database Directive lead to the ‘conclusion that a database must be its maker’s own intellectual creation to be classified as such’. Whether a database is original is only relevant if there is consideration of whether a database qualifies for copyright protection.

•

The meaning of a ‘database’ must have a wide interpretation – but within terms of its function as set out in the recitals to the Database Directive: –

that there is a large increase in the amount of information generated and processed in all sectors of the economy which requires member states to invest in advanced information processing systems (recital 10); and

  9 Database Directive, Art 1, implemented as Copyright, Designs and Patents Act 1988, s 3A(1), as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). 10 Fixtures Marketing Ltd v Organismos Prognostikon Agonon Podosfairou, Case C-444/02, [2004] ECR I-10549, [2005] ECDR 3.

359

6.03  Protection of Databases

–

•

such investment will only take place if there is a stable and uniform legal protection regime which protects the rights of makers of databases (recital 12).

The classification of a database as a database is dependent on there being a ‘collection of “independent” materials, that is to say, materials which are separable from one another without their informative, literary, artistic, musical or other value being affected’.11

Forms that a database can take 6.03 The database right is a new distinct right, which is not comparable to copyright. The recitals to the Database Directive provide a useful list of what the database right covers and does not cover, as well as the meaning of a database: •

the Database Directive protects collections of work, data or other material which are arranged, stored and accessed by means which include electronic, electromagnetic or electro-optical processes or analogous means;12

•

protection extends to electronic and non-electronic databases;13

•

an electronic database may include devices such as CD-ROM and CDI;14

•

the meaning of a ‘database’ includes: –

literary, artistic, musical or other collections of works; or

–

collections of other material such as text, sound images, numbers, facts and data; or

–

collections of independent works, data or other materials which are systematically or methodically arranged and can be individually accessed;

but would not include a recording or an audiovisual, cinematographic, literary or musical work itself;15

11 In Fixtures Marketing Ltd v Organismos Prognostikon Agonon Podosfairou the court held that a database of football league fixtures was of interest because ‘of the overall result of the various matches in that league, the fact remains that the data concerning the date, the time and the identity of the teams in a particular match have an independent value in that they provide interested third parties with relevant information’. The court held that the details of dates, times and the identity of particular matches were independent works for the purposes of the Database Directive ‘in that they have autonomous informative value … in that they provide interested third parties with relevant information’. 12 Database Directive, Recital 13. 13 Database Directive, Recital 14. 14 Database Directive, Recital 22. 15 Database Directive, Recital 17.

360

The contents of a database 6.04

•

protection will extend to the materials necessary for the operation or consultation of certain databases such as thesaurus and indexation services;16

•

works, data, or other materials comprised in a database which are arranged systematically or methodically, do not have to be physically stored in an organised manner;17

•

the term ‘database’ does not extend to computer programs used in the making of or operation of a database;18

•

the compilation of several recordings of musical performances on a CD, as a rule, does not come within the scope of the Database Directive, because as a compilation, it does not meet the conditions for copyright protection and because it does not represent a substantial enough investment to be eligible as a database right.19

Recent case law has indicated that document formats such as: •

a PDF; and

•

an XML file;

can both qualify for protection by the database right.20

THE CONTENTS OF A DATABASE 6.04 A database can or will include or contain a series of other copyright or non-copyright works (whether they be documents, software code, film, recordings of sound, etc). The legal status of the database itself (not its contents) is a separate right (whether protected by copyright and/or the database right) and is distinct from the copyright position of each of the contents. Also, the copyright position of the contents of the database will remain unaffected by the copyright in a database.21 Consequently, before a licensor can license a database, the licensor may need to acquire licences to all of the contents.

16 17 18 19

Database Directive, Recital 20. Database Directive, Recital 21. Database Directive, Recital 23. Database Directive, Recital 19. Presumably, by analogy, using a more recent example, would be the creation of a playlist on a computer of tracks purchased online. 20 Technomed Ltd and another v Bluecrest Health Screening Ltd and another [2017] EWHC 2142 (Ch). 21 See Database Directive, Art 3(2).

361

6.05  Protection of Databases

Database as a copyright work 6.05 As noted above and in Chapter 5, a database is protectable as a copyright work, being a literary work.22 An adaptation of a database is also protectable as a copyright work.23 As such it will be subject to the same provisions regarding the protection of other literary works as set out in Chapter 5, including those concerning assignment and licensing, creation, authorship, ownership and duration, infringement and fair dealing.24 For other literary works the test of whether they qualify for copyright protection is whether they are ‘original’ (which is not further explained in the Copyright, Designs and Patents Act 1988). However, a database, in order for it to qualify for copyright protection, is only ‘original’: ‘… if, and only if, by reason of the selection or arrangement of the contents of the database the database constitutes the author’s own intellectual creation’.25

DATABASE RIGHT Assignment and licensing of the database right 6.06 The provisions which apply to copyright concerning assignment and licensing in the Copyright, Designs and Patents Act 1988 equally apply to the database right (as well as copyright in databases).26

Qualification for protection 6.07 A  database right will subsist in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database.27 The investment can be financial, human or technical. ‘Substantial’

22 Copyright, Designs and Patents Act 1988, s 3(1)(d), as amended by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). 23 Copyright, Designs and Patents Act 1988, s  21(2). ‘Adaptation’ means an arrangement or altered version of the database, or a translation of it. 24 The provisions relating to copyright in databases are set out in Ch 5, together with the small amount of amendments to the Copyright, Designs and Patents Act 1988 where the copyright position of databases is different compared to other literary works. 25 Copyright, Designs and Patents Act 1988, s 3(2) as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). 26 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 23, which applies certain provisions of the Copyright, Designs and Patents Act 1988 to the database right. Concerning the provisions regarding assignments and licensing found in the Copyright, Designs and Patents Act 1988, see para 5.04. 27 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 13(1).

362

Database right 6.07

in relation to any investment means substantial in terms of quantity or quality or a combination of both.28 It is the economic value rather than the originality which the database right protects. A  database will need to be original to qualify for copyright protection. Guidance has been provided as to the meaning of certain words used in relation to the law applying to the database right,29 in particular: • Obtaining means the ‘resources used to seek out existing independent materials and collect them into the database’. Obtaining will not mean the resources which are used to create the independent materials which make up the contents of the database. • Verification means the use of resources to ensure ‘the reliability of the information contained in the database, to monitor the accuracy of the materials collected when the database was created and during its operation’. However, verification will not mean those resources used for verifying the independent materials at the stage they are created. The courts have also considered the purpose of the investment – the investment must be ‘to the resources used to seek out existing independent materials and collect them in the database, and not to the resources used for the creation as such of independent materials’ (emphasis added).30

28 Copyright and Rights in Databases Regulations 1997 (SI  1997/3032), reg  12(1). In Fixtures Marketing Ltd v Organismos Prognostikon Agonon Podosfairou, Case C-444/02, [2004] ECR I-10549, [2005] ECDR 3, the meaning of ‘quantity’ and ‘quality’ were further elaborated: ‘Investment in the creation of a database may consist in the deployment of human, financial or technical resources but it must be substantial in quantitative or qualitative terms. The quantitative assessment refers to quantifiable resources and the qualitative assessment to efforts which cannot be quantified, such as intellectual effort or energy, according to the 7th, 39th and 40th recitals of the preamble to [Directive 96/6/EC]’. 29 Case C-203/002 Reference for a preliminary hearing under Article  234  EC, from the Court of Appeal on the case of British Horseracing Board Ltd and others v The William Hill Organisation Ltd. The case is based on the wording of the Directive rather than the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). Article 7(1) provides: ‘Member States shall provide for a right for the maker of a database which shows that there has been qualitatively and/or quantitatively a substantial investment in either the obtaining, verification or presentation of the contents to prevent extraction and/or re-utilization of the whole or of a substantial part, evaluated qualitatively and/or quantitatively, of the contents of that database.’ The decision of the Court of Appeal was set out in detail in the previous edition of this book. 30 Case C-203/002 Reference for a preliminary hearing under Article 234 EC, from the Court of Appeal on the case of British Horseracing Board Ltd and others v The William Hill Organisation Ltd. This decision was made on the basis that the purpose of the Database Directive ‘is to promote and protect investment in data “storage” and “processing” systems which contribute to the development of an information market against a background of exponential growth in the amount of information generated and processed annually in all sectors of activity. It follows that the expression “investment in … the obtaining, verification or presentation of the contents” of a database must be understood, generally, to refer to investment in the creation of that database as such’.

363

6.08  Protection of Databases

In practice, it may not always be a clear distinction between the creation of the data in a database, the obtaining of data from other sources and the creation of the database itself. However, what is clear is that, if there is a further substantial investment in the systematic or methodical arrangement and verification of the data’s accuracy, the database will be protected by the database right. If the investment is directed merely to the creation of the data, that investment will not lead to the protection of the database right. There may be both simultaneous creation of the database and its contents and, where this occurs, it is still possible that part of the activity which concerned the creation of the database (ie obtaining, verifying or presentation of the actually created or pre-existing data) will attract the protection of the database right.31

Qualification and ownership Ownership Default position 6.08 The person who makes the database is the first owner of the database right in that database.32 The maker of the database is the person who: • ‘takes the initiative in obtaining, verifying or presenting the contents’; and • ‘assumes the risk of investing in that obtaining, verification or presentation’.33

Particular situations 6.09 •

Joint ownership: A  database is made jointly if two or more persons acting in collaboration take the initiative in obtaining, verifying or presenting the contents of the database and assume the risk of investing in that obtaining, verification, or presentation.34

31 See Football Dataco Limited v Sportradar GmbH [2013] EWCA Civ 27, paras [50]–[55]. The court in this case rejected the proposition that, in order to obtain protection of the database right, the maker of the database can only use pre-existing data. 32 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 15. 33 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 14(1). 34 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 14(6).

364

Database right 6.11

•

Course of employment: Like copyright works, an employer will be the maker of a database which is made by an employee in the course of the employee’s employment (unless they agree otherwise).35

•

Other: databases made by servants or officers of the Crown, or under the direction or control of the House of Commons or House of Lords, belong to those bodies.36

Who qualifies for ownership 6.10 For the database right to subsist in a database, at the material time the maker needs to be:37 •

an individual who is a national of, or habitually resident within, an EEA38 state; or

•

a body incorporated under the laws of an EEA state, provided:

•

–

its principal place of business or its central administration is within an EEA state; or

–

its registered office is within an EEA state and its operations are linked on an ongoing basis with the economy of an EEA state;

a partnership or other unincorporated body formed under the law of an EEA state, with its principal place of business or its central administration within an EEA state.

Database right and non-EU nationals etc 6.11 A  person who is a maker of a database will not qualify for the database right if that person: •

is not an EU national or is not habitually resident in an EU member state, or

•

is a legal person, and is not established in an EU member state;

35 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 14(2). This point was considered in Cureton v Mark Insulations Ltd [2006]  EWHC  2279 (QB), [2006]  All ER (D) 85 (Mar), where a database was created by the sales agent claimant to enable it to sell products for the defendant. The database contained details of the defendant’s customers, orders made or not made, telephone calls made by the claimant, etc. The court held that the database belonged to the sales agent claimant and rejected the defendant’s argument, that a database made by an employee belongs to the employer, and therefore, in accordance with the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 14, by analogy, a database made by agent should also be owned by the principal. See also PennWell Publishing (UK) Limited v Isles and others [2007] EWHC 1570 (QB), [2007] All ER (D) 180 (Jun). 36 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 14(3), (4). 37 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 18. 38 For the meaning of EEA, see para 12.05.

365

6.12  Protection of Databases

unless that person’s country offers ‘comparable protection to databases produced by nationals of a Member State or persons who have their habitual residence in the territory of the Community’.39

Duration of the database right Initial duration of database right 6.12

The database right lasts for 15 years from the end of the year after:40

•

the database was made; or

•

the database was made available to the public (as long as this is within 15 years of the database being made).

On a change in the contents of the database 6.13 Any substantial change to the contents of the database, where the database has been subject to substantial new investment, will mean that the resulting database qualifies for its own term of protection.41 A  substantial change can include the ‘accumulation of successive additions, deletions or alterations’. For a change to be ‘substantial’, it must be ‘substantial in terms of quantity or quality or a combination of both’ and can include a substantial modification or verification to the contents.42 A  database may undergo constant revision with the addition, deletion or checking of its contents. Should each revision constitute a new database attracting its own protection? It appears that such a database is considered a single database subject to constant revision (not a set of separate databases on each revision), although each revision attracting a new term of protection.43 Otherwise, a database which is subject to a series of amendments, each of which would create a separate database, might lead to the situation where a person who took a little from each of these databases could then argue that s/he had engaged in only taking an insubstantial part of each database, and thus not infringe the rights of the database maker.

39 40 41 42 43

Directive 96/9/EC ([1996] OJ L077/20) on the legal protection of databases, Recital 56. Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 17. Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 17(3). Directive 96/9/EC ([1996] OJ L077/20), recitals 54, 55. British Horseracing Board Ltd and others v William Hill Organisation Ltd [2001] All ER (D) 111 (Feb).

366

Database right 6.15

Infringement 6.14 The database right in a database is infringed if a person extracts or re-utilises all or a substantial part of the contents of the database without the consent of the owner of the right.44 Repeated and systematic extraction or re-utilisation of an insubstantial part of the contents of a database may also amount to the extraction or re-utilisation of a substantial part of those contents.45

Meaning of ‘extraction’ and ‘re-utilisation’ 6.15 Extraction is the ‘permanent or temporary transfer of those contents to another medium by any means or in any form’, while re-utilisation is ‘making those contents available to the public by any means’.46 The leading case referred to above also provided guidance as to the meaning of ‘extraction’ and ‘re-utilisation’.47 The words: •

are to be given a wide definition;

•

are to be taken as referring to any act of appropriating and making available to the public without the consent of the maker of the database the contents of the whole or a part of the contents of the database, the result of the maker’s investment which deprives the maker of revenue;

•

will not imply direct access to the database concerned;

•

will include extraction and re-utilisation by a third party which is carried out from a source other than the database, just as much as such acts carried out directly from that database, which prejudice the investment of the maker of the database;

•

do not cover consultation of the database; if the maker makes the content of the database available (or a part of it) to the public, his or her sui generis right does not allow the maker to prevent third parties consulting the database.

44

Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 16(1). The equivalent wording in the Database Directive indicates that the extraction/re-utilisation of the contents must be evaluated qualitatively and/or quantitatively (Database Directive, Art 7(1)). 45 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 16(2). The Database Directive indicates that the extraction/re-utilisation of insubstantial parts implies that ‘acts which conflict with a normal exploitation of that database or which unreasonably prejudice the legitimate interests of the maker of the database shall not be permitted’ (Database Directive, Art 7(5)). See also Innoweb BV v Wegener ICT Media, Case C-202/12, which is considered below. 46 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 12(1). 47 Case C-203/002 Reference for a preliminary hearing under Article 234 EC, from the Court of Appeal on the case of British Horseracing Board Ltd and others v The William Hill Organisation Ltd.

367

6.16  Protection of Databases

And: •

the fact that the contents of a database were made accessible to the public by its maker or with his or her consent does not affect the right of the maker to prevent acts of extraction and/or re-utilisation of the whole or a substantial part of the contents of a database.

Another case considered the meaning of ‘extraction’, which is found where a person transfers: ‘… material from a protected database to another database following an on-screen consultation of the first database and an individual assessment of the material contained in that first database is capable of constituting an “extraction’’.’48

Meaning of ‘substantial parts of the contents of that database’ 6.16 The leading case also provided guidance as to the meaning of ‘substantial part of the contents of that database’: •

whether there has been extraction or re-utilisation of a substantial part must be evaluated qualitatively or quantitatively;

•

to decide whether the part which has been extracted or re-utilised is substantial quantitatively it is necessary to refer to the volume of the data extracted from the database or re-utilised, and that must be assessed against the total volume of the contents of the database;

•

to decide whether the part which has been extracted or re-utilised is substantial qualitatively reference needs to be made to the scale of the investment in the obtaining, verification or presentation of the contents of what has been extracted or re-utilised; this is regardless of whether the extract or re-utilised contents represent a quantitatively substantial part of the total database;

•

the intrinsic value of the independent parts of the database which are affected by the act of extraction and/or re-utilisation does not constitute a relevant criterion for the assessment of whether the part at issue is substantial.

48 Directmedia Publishing GmbH  v Albert-Ludwigs-Universitat Freiburg Case C-304/07, [2009] IP & T 69, [2008] All ER (D) 88 (Oct). In this case, the database consisted of a number of verse titles and was published on the internet (it was based on statistical analysis of the most popular German poetry, using more than 20,000 poems to select the verse titles, with the project taking 2½ years and costing some 35,000 Euros). A commercial company (who published a CD-Rom under the title ‘1000 poems everyone should have’) consulted the internet database as a guide for poems to put on its CD-Rom, but the commercial company used the actual text of the poems which it obtained from its own resources. There was an overlap in the poems included on the internet database and the CD-Rom. All the poems appear to have been out of copyright. No poetry appeared to have been written later than 1900. The claim before the court was for copyright infringement and infringement of the database right.

368

Database right 6.18

If the part of the database which is extracted or re-utilised does not fall within the definition of being quantitatively or qualitatively substantial then it will fall within the definition of an insubstantial part of the contents of the database.

Meaning of ‘repeated and systematic extraction or re-utilisation of insubstantial parts’ 6.17 The case also provided guidance as to where there is repeated and systematic extraction or re-utilisation of insubstantial parts of the contents of the database, which will be taken to mean: •

unauthorised acts of extraction or re-utilisation;

•

the cumulative effect of which is to reconstitute and/or make available to the public the whole or a substantial part of the contents of the database;

•

where the reconstitution and/or making available to the public is done without the authorisation of the maker of the database; and

•

which seriously prejudice(s) the investment of the maker in the database.

Re-utilisation need not be direct or actually substantial 6.18 A further case has indicated that the re-utilisation need not be direct or actually substantial (but can be potentially so) and provides an illustration of how a court will interpret the meaning of ‘substantial’ and ‘re-utilisation’:49 •

In this case, the operator of a website provided a (meta) search engine, which allowed end-users to type in queries.

•

The operator’s meta search engine then translated the queries into the search engines of databases provided by others.

•

The court found that the purpose of the operator’s search engine was to provide access to the entire contents of those databases, with the result that the ‘end user no longer has any need, when researching data, to go to the website of the database concerned, or to its homepage, or its search form, in order to consult that database, since he can consult the contents of that website “in real time” through the website of the dedicated meta search engine’.

•

The ability to access the databases of others in this way would create a risk that the maker of the database ‘will lose income, in particular the income from advertising on his website, thereby depriving that maker of revenue which should have enabled him to redeem the cost of the investment in setting up and operating the database’.

49 Innoweb BV v Wegener ICT Media, Case C-202/12.

369

6.19  Protection of Databases

•

The court noted that a database made available for public access means that the maker cannot stop third parties consulting it (an act not covered by Article 7 of the Database Directive).50 However, the operator of the meta search engine does not amount to consultation of the database, as the operator ‘provides the end user with a form of access to that database and to that information which is different from the access route intended by the database maker, whilst providing the same advantages in terms of searches. By contrast, it is the end user keying in a query in the dedicated meta search engine who consults the database by means of that meta search engine’.

•

The operator, by making the search engine available, is making available the contents of the database (for the purposes of Article 7(2)(b) of the Database Directive)51 to the public, since anyone can use the search engine (and the number that can do so is indeterminate). The operator is re-utilising parts of the contents of the database (for the purposes of Article 7(2)(b)). Consequently, the ‘re-utilisation involves a substantial part of the contents of the database concerned, if not the entire contents, since a dedicated meta search engine such as that at issue in the main proceedings makes it possible to search the entire contents of that database, like a query entered directly in that database’s search engine. Accordingly, the number of results actually found and displayed for every query keyed into the dedicated search engine is irrelevant’.

Fair dealing 6.19 There are no specific fair dealing provisions as such for the database right in the same way as for copyright (for example for criticism, (noncommercial) research, private study etc). However, if a database qualifies as a copyright work, fair dealing is permitted (as modified).52 But if the database only qualifies for the lesser database right, a (very) limited fair dealing exception applies if a substantial part of the database is extracted and:53 •

the database has been issued to the public; and

•

that part has been extracted by a person who is otherwise a lawful user (has a licence from the maker of the database); and

50 Database Directive, Art 7(1) provides the right of the database maker ‘to prevent extraction and/or re-utilization of the whole or of a substantial part, evaluated qualitatively and/or quantitatively, of the contents of that database’. 51 Database Directive, Art 7(2)(b) provides ‘“re-utilization” shall mean any form of making available to the public all or a substantial part of the contents of a database by the distribution of copies, by renting, by on-line or other forms of transmission. The first sale of a copy of a database within the Community by the rightholder or with his consent shall exhaust the right to control resale of that copy within the Community’. 52 Copyright, Designs and Patents Act 1988, s 29(1A), as inserted by the Copyright and Rights in Databases Regulations 1997 (SI 1997/3032). 53 Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 20.

370

Database right 6.22

•

the extraction is for illustration in teaching or research; and

•

is not for any commercial purpose; and

•

the source is indicated.

In addition, the database right is not infringed if anything is done for the purposes of public administration (such as judicial or parliamentary proceedings, communication to the Crown in the course of public business, etc).54 There is no infringement by extraction or re-utilisation of a substantial part of the database if it is not possible to identify the maker (by making reasonable enquires) or it is reasonable to assume that the database right has expired.55

Avoidance of certain terms 6.20 Any term or condition which prevents a person who has a right to use a database (or part of a database) from extracting or re-utilising insubstantial parts of the contents of the database (or of that part of the database) for any purpose is void.56

Transfer of database right 6.21 A  database right can be dealt with in the same way as copyright works, such as by assignment and licence.57

Remedies 6.22 The same remedies are available for database right infringement as for copyright infringement.58 Exclusive licensees of the database right have the same remedies available to them as for copyright.59 There appear to be no criminal sanctions or remedies in regard to the database right.

54 55 56 57 58 59

Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 20(2). Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 21. Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 19. Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 23. See Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 23. See Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 23.

371

CHAPTER 7

Designs General376 Summary of changes made in 2014 377 Unregistered design (1988 Act) 377 Registered design (1949 Act) 378 Design right 379 Introduction379 Design right and copyright 379 Provisions of design right law of direct relevance to commercial transactions380 Fundamental aspects of design right law which may affect the parties to a commercial transaction 381 Nature of design right 81 Design81 Original382 Excluded types of design: method of construction/must fit/must match/surface decoration 382 Subsistence of design right 383 Commencement of design right law 383 Transfer of design right 383 Assignments383 Licences384 First owner of design right: designer/commissioner/employer/first marketer?385 Designer as first owner 386 Employer as first owner 386 First marketer as first owner 386 Duration of design right 387 Qualification for design right 387 Infringement of design right 388 Primary infringement 389 Secondary infringement 389 Remedies for infringement 390 Exceptions to rights of design right owner 390 Private acts, experiments and teaching 390 Infringement of copyright 391 Licences of right in last five years of design right 391 Powers exercisable following Competition and Markets Authority report391 Undertaking to take licence in infringement proceedings 392 Crown use of designs 392

373

Designs Other exceptions 392 Terms of licences of right 393 Miscellaneous393 Licensees of right not to claim connection with design right owner 393 Articles in kit form 393 Opinions393 Semiconductor topographies: special provisions of design right law 394 Background to legislation 394 Scope of topography right 395 Qualification for topography right 395 Ownership of topography right 396 Duration of topography right 396 Marketing of products subject to confidentiality obligations 397 Infringement397 Licences of right 398 Transitional provisions 398 Dealing with topography right 398 Registered designs 398 Introduction398 Background398 Provisions of registered design law which are of direct relevance to commercial transactions 400 Registered designs as personal property 401 Transmission of registered designs 401 Licences401 Exclusive licensees 402 Aspects of registered design law which may affect the parties to commercial transactions 403 Registrable designs 403 Appearance403 Definition of a ‘design’ 403 Points to note from this definition 404 Novelty and individual character 405 Novelty405 Individual character 405 Making available to the public before the relevant date 406 Grounds for refusal of registration 408 Ownership of designs 408 Author as owner 409 Employer of author as owner 409 Subsequent owners and formalities of transfer 409 Applications for registration or cancellation of registration 410 Exclusive rights given by registration 410 Infringement411 Activities which do not infringe the right in a registered design 412 Right to prior use 412 Exhaustion of rights 413

374

Designs ‘Must-match’ spare parts 413 Duration of rights 414 Crown user provisions 414 Register of designs 414 Obligation on transferee or licensee to register transaction 414 Transferor may register 414 Duties of the registrar 415 Deemed assignment of design right 415 Consequences of failure to register 415 Rectification of the register 415 Miscellaneous provisions 416 Groundless threats of infringement proceedings 416 Criminal offences 416 Intentional copying of a registered design and putting on the market a product where a registered design is copied 416 Intentional copying of a registered design to make a product 416 Putting on the market a product which is made by use of a registered design 417 Breach of secrecy orders for defence purposes 418 Falsification of the register 418 False representations that a design is registered 418 Liability of directors, officers etc 419 Community Design 419 General419 Provisions of a Community Design which are of direct relevance to commercial transactions 422 Nature of Community Design 422 Licensing422 Transfer422 Actions against a licensee 423 Applications423 Unjustified threats of infringement proceedings 423 Introductory point 423 The making of a threat of infringement proceedings 423 How it is possible to communicate the threat of infringement proceedings424 The right to bring proceedings for a threat of infringement proceedings 425 Situations when a threat of infringement proceedings is not actionable425 Communications which do not contain express threats 426 Permitted purpose 426 Necessary information 427 Remedies428 Defences428 Professional advisers 429 Comparison of features of the various forms of design protection 429

375

7.01  Designs

GENERAL 7.01 This chapter considers the legislation covering the protection of designs. Previous editions of this book noted that the legal protection afforded to designs had undergone substantial transformation. The changes made appeared to make the protection offered for designs more complex with the introduction of two new forms of protection available for designs, due to EU legislation (the ‘Design Directive’ and the ‘Design Regulation’).1 Although there are now a plethora of ways that it is possible to protect a design (which other forms of intellectual property do not have), the reality is that the criteria for protection are now more uniform as regards: •

the existing protection offered to UK-registered designs; and

•

the protection offered to registered Community Designs and unregistered Community Designs.

Until 2014 there were a number of anomalies between the law concerning UK registered designs and unregistered design right compared with EU design law as well as with copyright. The Intellectual Property Act 2014 has substantially reduced them (the most relevant to this book are noted, in summary below, and in the relevant places in this chapter). In summary: there are now up to four possible protections available for a design: Name of right

Legislative measure

(Unregistered) design right

Copyright, Designs and Once the design is Patents Act 1988 (‘1988 Act’) recorded in a design document Registered Designs Act 1949 On registration (‘1949 Act’) (incorporated into the 1988 Act) following implementation of the Design Directive Design Regulation On registration

UK

Design Regulation

EU

Registered designs

Registered Community Design Unregistered Community Design

How obtained/comes into being

On making design available to the public

Area of protection

UK

EU

It appears that there is a confusing number of overlapping design rights available to a person making a design, but the reality is different: 1

Directive 98/71/EC ([1998] OJ L289/28) on the legal protection of designs (in this chapter, the ‘Design Directive’); and Council Regulation (EC) 6/2002 ([2002] OJ L3/1) on Community designs (in this chapter, the ‘Design Regulation’).

376

General 7.03

•

UK only: If the person will, for example, make a product using a design for sale only in the UK, that person would need only to apply for a registered design under the Registered Designs Act 1949 or make use of the unregistered design right.

•

Two or more EU countries: If the person hopes to sell the product in several countries in the EU, they should apply for the registered Community Design, which would provide protection throughout the EU including the UK.

The following sections consider, separately: •

UK (unregistered) design right;

•

UK registered designs; and

•

Community Designs (both unregistered and registered together).

At the end of these sections, there is a table summarising the main provisions regarding each of these protections available for design.

Summary of changes made in 2014 7.02 In 2014 there were further changes to (principally) UK design law.2 They do not fundamentally change the scope or types of protection available for designs, but there are a number of changes over the previous version of the law. The main changes are as follows.

Unregistered design (1988 Act) 7.03 •

Ownership: The person who makes the design is the now the first owner3 (rather than, prior to the amendment, the party who commissioned the design). There is no change in the position where a design is created in the course of employment.

•

Meaning of a design: The meaning of a design has changed to ‘the design of the shape or configuration (whether internal or external) of the whole or part of an article’4 from ‘the design of any aspect of the shape or configuration (whether internal or external) of the whole or part of an

2

Following implementation of the Intellectual Property Act 2014, with most of the provisions in force from 1 October 2014. The changes follow the report of the Hargreaves Review of IP and Growth in 2011 and the subsequent work of the Intellectual Property Office. Section 215(1) of the 1988 Act, as amended by the Intellectual Property Act 2014, in force from 1 October 2014. Section 213(1) of the 1988 Act, as amended by the Intellectual Property Act 2014, in force from 1 October 2014.

3 4

377

7.04  Designs

article’ (emphasis added). The effect of the change is that is it no longer possible to protect trivial features of a design. It will be still possible to protect the whole of a design or a (likely significant) part of a design, but not a small part of a design. •

Original: Protection by unregistered design right is only available if the design is original, and not commonplace. Prior to amendment, this meant that a design ‘is not “original” for the purposes of this Part if it is commonplace in the design field in question at the time of its creation’ and, after amendment, a design ‘is not “original” for the purposes of this Part if it is commonplace in a qualifying country in the design field in question at the time of its creation’ (words added emphasised).5

•

Who can qualify: Prior to 2014 the 1988 Act provided for two different types of person, a ‘qualifying individual’ and a ‘qualifying person’. The former is removed, and only the latter is used (the aim is to simplify as to who qualifies). Also prior to 2014 a person who was not the designer of a design qualified for design protection if they were a ‘qualifying person’ who ‘was exclusively authorised to put such articles on the market in the UK’, together with other requirements. The italicised wording was removed.

Registered design (1949 Act) 7.04 • Ownership: The person who makes the design is the now the first owner6 (rather than, prior to the amendment, the party who commissioned the design). There is no change in the position where a design is created in the course of employment. •

Prior use: A  person who uses a registered design (in good faith) can continue to do so, where the use commenced before another person applies to subsequently register it.7 This right of prior use is subject to exceptions, including: –

that the person who uses the design cannot have copied that design from the design that is subsequently registered;

–

the person cannot license the design and there are limitations on the right to assign the design.

•

Intentional copying: A  person who intentionally copies a registered design or puts a product onto the market (and copies a registered design) commits a criminal offence in certain circumstances (such as acting

5

Section 213(3) of the 1988 Act, as amended by the Intellectual Property Act 2014, in force from 1 October 2014. See para 7.21 for the meaning of a qualifying country. Section 2 of the Registered Designs Act 1949, as amended by the Intellectual Property Act 2014, in force from 1 October 2014. Section 7B of the Registered Designs Act 1949, inserted by the Intellectual Property Act 2014, in force from 1 October 2014. Use can mean actual use or preparations to start using the design.

6 7

378

Design right 7.05

without the consent of the proprietor of the registered design and acting in the course of business).8

DESIGN RIGHT Introduction Design right and copyright 7.05 The design right was introduced by the Copyright, Designs and Patents Act 1988. It provides protection against the copying of industrial designs for commercial purposes. Many aspects of design right law are similar, or identical, to copyright law, and were made further so following the changes introduced in 2014. A design can be protected by both copyright and, separately and in addition to copyright, by design right. It is perhaps not surprising that the design right, as an unregistered right, replaces some of the protection given by copyright to designs before the passing of the Act. However, there are still some important differences between design right and copyright including the following: • Duration: Design right normally lasts for a period of between 10 and 15 years, with slightly different provisions in the special case of design right in semiconductor topographies. There is a minimum 50- or 70-year period for copyright protection.9 •

Licences of right: In the last five years of design right protection for an article, licences are available (for example to the competitors of the design right owner) as of right on commercial terms.10 (These provisions do not apply to design right in semiconductor topographies.) There are automatic licence of right provisions which apply in the case of copyright (as distinct from the provisions enabling licences of right to be ordered following a Competition and Markets Authority report).

•

Must fit/intended to match exceptions: Although design right is available for functional (ie  non-aesthetic) designs, it is not available in certain cases for designs which are pre-determined by the need for the designed article to fit with another article (for example the design of an electrical plug and socket) or to match with another article so as to form an integrated whole (for example, some car body parts). The scope of these exceptions is becoming clearer as litigation over design right reaches the courts. There are also some further complex exceptions to design right in the special case of semiconductor topographies, particularly those relating to ‘reverse engineering’.

  8 Registered Designs Act 1949, s 35ZA, inserted by the Intellectual Property Act 2014, in force from 1 October 2014.   9 See para 5.16. 10 Copyright, Designs and Patents Act 1988, s 237.

379

7.06  Designs

•

Qualification for design right protection: The first owner of copyright in a work may qualify for UK copyright protection on the basis of a defined connection with the UK or other qualifying country, or on the basis of where the copyright work is first published. These rules are complex and different to those which apply in the case of design right; for example in the case of design right, protection may also be available on the basis of where the design is first marketed. However, in general, foreign designs are less likely to receive protection under UK law than foreign copyright works. It should be pointed out that the international treaties providing for international recognition of copyright (for example the Berne Convention) do not apply to design right; indeed relatively few countries have design right as such. Some countries (the EU and the US) give protection to semiconductor topographies, which are protected in the UK by a special category of design right, and mutual recognition provisions are in place between a number of such countries.

Provisions of design right law of direct relevance to commercial transactions 7.06 As is mentioned further below, design right is defined as being a property right, which is consistent with the position of other types of intellectual property.11 The provisions of the 1988 Act concerned with dealings12 in design right are in most cases identical to the equivalent provisions in respect of copyright.13 These include recognised methods of transfer (assignment, testamentary disposition or by operation of law), requirements for an assignment to be in writing, provision for assignments to be limited in scope or duration, assignment of future design right, the lack of a general requirement for licences to be in writing, and the rights of a licensee against subsequent owners of design right. Other provisions of design right law which may directly affect the parties to a commercial transaction involving design right, and which are discussed in more detail later in this chapter, include the following: •

the licence of right provisions which apply in the last five years of design right protection, including the special provisions that apply if a defendant in design right infringement proceedings undertakes to take a licence;

•

the provisions relating to Crown use of designs;

•

in addition to the general exceptions to the design right (eg  must fit, must match etc), the special exceptions that apply only to design right in semiconductor topographies, eg in relation to ‘reverse engineering’.

11 See para 9.04. 12 Copyright, Designs and Patents Act 1988, ss 222–225. 13 Copyright, Designs and Patents Act 1988, ss 90–92; but s 93 (where copyright to pass under will with an unpublished work) is not reproduced in ss 222–225.

380

Design right 7.08

Fundamental aspects of design right law which may affect the parties to a commercial transaction Nature of design right 7.07 Design right is a property right which subsists in an ‘original design’ in accordance with the provisions of the 1988 Act.14 The terms ‘original’ and ‘design’ are defined and the circumstances in which design right subsists are explained in the 1988 Act as follows.15

Design 7.08

‘Design’ means the: ‘design16 of the shape or configuration17 (whether internal or external) of the whole or part of an article’.18

14

Copyright, Designs and Patents Act 1988, s 213(1). ‘Original’ is defined in s 213(1), except as noted below, but it has the same meaning as ‘original’ in Copyright, Designs and Patents Act 1988, s 1(1) (that is the requirement for a copyright to subsist in a literary or artistic work) and must be ‘namely not copied but the independent work of the designer’: C & H Engineering v Klucznik & Sons [1992] FSR 421. This case went on to note that ‘original’ had to be contrasted with ‘novelty’ which is a requirement of registration of a registered design. A design does not need to be novel in the sense used by patent law in order to attract protection by the unregistered design right: Dyson Ltd v Qualtex (UK) Ltd [2006] EWCA Civ 166, [2006] All ER (D) 101 (Mar). ‘Original’ in the copyright sense means that the work in question is the author’s own intellectual creation (the phrase appears in several EU Directives, and is used in ECJ cases such as Infopaq International A/S v Danske Dagblades Forening [2009] ECR I-6569 and Case C-406/10 SAS Institute Inc v World Programming Ltd [2012] 3 CMLR 55, [2012] IP & T 727, ECJ, the latter applied by the English courts in SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482. 15 Copyright, Designs and Patents Act 1988, s 213. 16 Prior to its amendment by the Intellectual Property Act 2014, the meaning of a design as set out in the 1988 Act read: ‘design of any aspect of the shape or configuration (whether internal or external) of the whole or part of an article’ (emphasis added). The aim of the removal of these words was to stop claims for infringement for the copying of trivial part of a part of a design; see UKIPO’s note Business guidance on changes to the law on designs (June 2014): ‘This effectively means that, while a whole design and parts of a design can still be protected, a “part of a part” cannot … a designer should not find themselves on the receiving end of a claim against them for copying a very small and trivial part of someone else’s design … If you are a design owner believing someone has copied your design: you cannot base a claim for copying by selecting a cropped part of your design (a “part of a part”) as the basis for action’. 17 An article which is merely coloured in a new way will not amount to ‘shape or configuration’: Lambretta Clothing Co Ltd v Teddy Smith (UK) Ltd and another [2004]  EWCA  Civ 886, [2004] All ER (D) 269 (Jul). 18 Copyright, Designs and Patents Act 1988, s 213(2). This has been held to mean that an article ‘may and generally will embody a multitude of “designs” – as many “aspects” of the whole or part of the article as can be’: Dyson Ltd v Qualtex (UK) Ltd [2006] EWCA Civ 166, [2006] All ER (D) 101 (Mar).

381

7.09  Designs

This has been held to include an individual part, combinations of parts and the parts made up into a whole ‘machine’.19

Original 7.09 ‘A design is not “original” … if it is commonplace in the design field in question at the time of its creation.’20

Excluded types of design: method of construction/must fit/must match/ surface decoration 7.10 ‘Design right does not subsist in– (a) a method or principle of construction, (b) features of shape or configuration of an article which– (i) enable the article to be connected to, or placed in, around or against, another article so that either article may perform its function, or (ii) which are dependent upon the appearance of another article of which the article is intended by the designer to form an integral part, or (c) surface decoration.’21

19 Farmers Build Ltd v Carier Bulk Materials Handling Ltd and others [1999] RPC 461: ‘The definition of “design” in Section 213(2) is wide enough to include the shape or configuration of the individual parts of the [machine in question in this case] and of the [machine in question in this case] as a whole: the individual parts, combinations of parts and the parts made up into a whole machine are all “articles” with a shape and a configuration’. (from the judgment of Mummery LJ). 20 Copyright, Designs and Patents Act 1988, s  213(4). ‘Commonplace’ has been interpreted as meaning ‘any design which is trite, trivial, common-or-garden, hackneyed or of the type which would excite no peculiar attention in those in the relevant art’: Ocular Sciences Ltd v Aspect Vision Care Ltd [1997]  RPC  289 at 429, and adopted in Parker & Parker v Tidball [1997] FSR 680 at 793. In Farmers Build Ltd v Carier Bulk Materials Handling Ltd [1999] RPC 461, CA, a two-step test was developed for originality: first, originality should be considered like copyright, ie whether the design was copied from another design; secondly, if it was not, then the court has to decide whether it is ‘commonplace’. For the second step, the design in consideration has to be examined to see how similar it is to other designs of similar articles in the same field of design made by persons other than the parties or persons unconnected with the parties. 21 Copyright, Designs and Patents Act 1988, s 213(3).

382

Design right 7.14

Subsistence of design right 7.11 Design right does not subsist unless and until the design has been recorded in a design document or an article has been made to the design. ‘Design document’ is defined as: ‘… any record of a design, whether in the form of a drawing, a written description, a photograph, data stored in a computer or otherwise’.22

Commencement of design right law 7.12 ‘Design right does not subsist in a design which was recorded, or to which an article was made, before the commencement of this Part [ie before 1 August 1989].’

Transfer of design right 7.13

The 1988 Act provides for three methods of transfer of design right:

•

by assignment;

•

by testamentary disposition; or

•

by operation of law.23

In a commercial transaction, the transfer of design right will generally be by means of an assignment. Transfer of design right should be distinguished from the more limited grant of rights under design right by means of a licence. Where a licence is granted, the person granting the licence retains ownership of the design right and gives the licensee permission to do certain of the acts restricted by design right.

Assignments 7.14 An assignment of design right is not effective unless it is in writing signed by or on behalf of the assignor.24 It need not be in the form of a deed, 22

Copyright, Designs and Patents Act 1988, s 263(1). The categories of design document defined in this section are examples of possible ways in which the record of an aspect of design can be made, and are not to be limiting: Mackie Designs Inc. v Behringer Specialised Studio Equipment (UK) Ltd [1999] RPC 717 at 721. 23 Copyright, Designs and Patents Act 1988, s 222(1). 24 Copyright, Designs and Patents Act 1988, s 90(3).

383

7.15  Designs

but if there is no consideration for the assignment, then under the law of contract a deed may be necessary to make the transaction legally effective. An assignment which is defective, ie is not signed by or on behalf of the assignor, is usually considered to be an agreement to assign. The assignee in a defective assignment is the equitable, not the legal, owner of the design right work, provided that the defective assignment allows the assignee to specifically enforce the assignment, and consideration is present. Alternatively, if the wording of the assignment is not clear, it may, in reality, also be an agreement to assign. An assignment, or other transmission of design right, may be of limited scope and duration; it may apply to one or more, but not all, of the things the design right owner has the exclusive right to do; or to part, but not the whole, of the period for which the design right is to subsist.25 An assignment of future design right26 (for example, an assignment which relates to a design right which the designer has not yet created) is often legally effective, such that no further assignment is required to transfer title when the design comes into existence. The 1988 Act provides as follows:27 ‘Where by an agreement made in relation to future design right, and signed by or on behalf of the prospective owner of the design right, the prospective owner purports to assign the future design right (wholly or partially) to another person, then if, on the design right coming into existence, the assignee or another person claiming under him would be entitled as against all other persons to require the design right to be vested in him, the design right shall vest in the assignee or his successor in title by virtue of this subsection.’

Licences 7.15 (a) There is no general requirement that licences must be in writing, although for an exclusive licensee to obtain the benefit of certain statutory rights the licence should be in writing. In practice, most licences are in writing.28 (b) Licences generally continue when ownership in the design right in the licensed work is transferred (ie assigned); the only exception to this is that a licence is not binding upon: 25 Copyright, Designs and Patents Act 1988, s 222(2). 26 Future design right means design right which will or may come into existence in respect of a future design or class of designs on the occurrence of a future event: Copyright, Designs and Patents Act 1988, s 223(2). 27 Copyright, Designs and Patents Act 1988, s 223(1). 28 Copyright, Designs and Patents Act 1988, s 225.

384

Design right 7.16

‘… a purchaser in good faith [of the design right owner’s interest in the design right] for valuable consideration and without notice (actual or constructive) of the licence, or a person deriving title from such a purchaser’.29 As there is no official register of design right in the UK, a licensee under design right is not able to register his or her licence and thereby give notice to the world of his or her interest (unlike the position in relation to registered designs or patents). There is therefore an increased risk of a licensee losing its rights under a design right licence if the design right is sold to a purchaser who comes within the category described above.30 (c) Similarly, a licence granted by a prospective owner of design right is binding on persons to whom he or she transfers his or her interest in the copyright, except for a purchaser in good faith.31 (d) An exclusive licensee has the same rights against a successor in title to the design right who is bound by the licence, as he or she does against the person who originally granted the licence to him or her.32 The question of whether a successor in title is bound by the licence is dealt with in (b) and (c) above. The special rights of an exclusive licensee are referred to below. An exclusive licence is defined as follows: ‘In this Part [ie Part III of the Copyright, Designs and Patents Act 1988] an “exclusive licence” means a licence in writing signed by or on behalf of the design right owner authorising the licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by the design right owner’.33

First owner of design right: designer/commissioner/ employer/first marketer? 7.16 The provisions of design right law as to who is the first owner of design right are now more consistent with other design legislation and copyright. Until 1 October 2014 where a design was commissioned the first owner was the person who commissioned the design and not the designer.34 29 Copyright, Designs and Patents Act 1988, s 222(4). 30 There is no failsafe way of dealing with this situation, except for carrying out adequate due diligence prior to entering a deal (which assumes the provider of the information will tell the complete truth), or adding warranties to the agreement (so that if a licence is discovered after the deal is signed then the party in breach can be sued), or making the party in breach deposit a sum of money (for a limited period of time) against such an eventuality. 31 Copyright, Designs and Patents Act 1988, s 223(3). 32 Copyright, Designs and Patents Act 1988, s 225(2). 33 Copyright, Designs and Patents Act 1988, s 225(1). 34 Copyright, Designs and Patents Act 1988, s 215(1), as amended by the Intellectual Property Act 2014, in force from 1 October 2014. This change only applies to designs made after 1 October 2014. The previous provisions continue to apply if a design is made before 1 October 2014, or where a contract was entered into prior to 1 October 2014 but the design made after that date.

385

7.17  Designs

From 1 October 2014 the designer (analogous to the author in copyright law) will be the first owner, unless: •

the work was produced in the course of the designer’s employment; or

•

the work benefits from design right protection only because it was first marketed in a relevant country.

The ‘designer’ is defined in very similar terms to the definition of ‘author’ under copyright law: ‘(1) In this Part the “designer”, in relation to a design, means the person who creates it. (2) In the case of a computer-generated design the person by whom the arrangements necessary for the creation of the design are undertaken shall be taken to be the designer’.35

Designer as first owner 7.17 The designer is the first owner of any design right in a design which is not created in the course of employment.36

Employer as first owner 7.18 ‘Where, in a case not falling within subsection (2) [ie  where the design is not commissioned], a design is created by an employee in the course of his employment, his employer is the first owner of any design right in the design.’37

First marketer as first owner 7.19 ‘If a design qualifies for design right protection by virtue of section 220 [of the 1988 Act] (qualification by reference to first marketing of articles made to the design), the above rules do not apply and the person by whom the articles in question are marketed is the first owner of the design right.’38 The circumstances in which a design qualifies for design right protection are discussed below.39 It should perhaps be emphasised that the first marketer will 35 Copyright, Designs and Patents Act 1988, s 214. 36 Copyright, Designs and Patents Act 1988, s 215(1), as amended by the Intellectual Property Act 2014, in force from 1 October 2014. 37 Copyright, Designs and Patents Act 1988, s 215(3). 38 Copyright, Designs and Patents Act 1988, s 215(4). 39 See para 7.21 below.

386

Design right 7.21

be the first owner only where the design benefits from design right protection solely because the article was first marketed in a qualifying country, ie neither the designer, employer nor commissioner was a qualifying person.

Duration of design right 7.20 The provisions on duration of design right are complicated; they provide for a maximum 15 years of protection, with a reduced period (down to a minimum of ten years) where articles made to the design are first put on the market within five years of the design right in that design coming into existence.40 Separate provisions apply in the case of design right in semiconductor topographies.41 The relevant section of the 1988 Act reads as follows: ‘(1) Design right expires– (a) fifteen years from the end of the calendar year in which the design was first recorded in a design document or an article was first made to the design, whichever first occurred, or (b) if articles made to the design are made available for sale or hire within five years from the end of that calendar year, ten years from the end of the calendar year in which that first occurred. (2) The reference in subsection (1) to articles being made available for sale or hire is to their being made so available anywhere in the world by or with the licence of the design right owner.’42 To put it another way, if articles made to a design are made available in the same calendar year as the year in which the design right came into existence (which for convenience is referred to below as the Commencement Year), the period of design right protection is ten years from the end of the Commencement Year. If such articles are first made available in the year after the Commencement Year, the period of protection is 11 years from the end of the Commencement Year, and so on, subject to a maximum period of 15 years from the end of the Commencement Year.

Qualification for design right 7.21 A  design may qualify for design right protection in a number of different ways. It is possible to summarise the ways as follows:

40 See Copyright, Designs and Patents Act 1988, s 216. 41 See para 7.38 below. 42 Copyright, Designs and Patents Act 1988, s 216.

387

7.22  Designs

(a) Qualifying designer: if the design was not made in the course of the designer’s employment, and the designer was a ‘qualifying person’.43 (b) Qualifying employer: if the design was made in the course of the designer’s employment, and the employer was a ‘qualifying person’.44 (c) Qualifying first marketer: if the design does not qualify for design right protection under (a) or (b) above, it will still qualify for design right protection if the first marketing of articles made to the design: (i) is by a qualifying person; and (ii) takes place in the UK or elsewhere in the EU or in certain other countries.45 (d) Further categories of qualification: the 1988 Act enables Orders in Council to be made to extend the categories of qualification for design right protection ‘with a view to fulfilling an international obligation of the United Kingdom’. This might, for example, occur if the UK enters into a treaty with one or more other countries to provide for reciprocal protection to each other’s nationals, as occurs under copyright laws.46 The terms ‘qualifying person’ and the accompanying phrase ‘qualifying country’ are defined in the 1988 Act.47 A ‘qualifying person’ means: •

where the person is an individual, a person who is habitually resident in a ‘qualifying country’;

•

where the person is a body corporate, one which: –

is formed under the law of the UK or another qualifying country; or

–

has a place of business in a qualifying country and at which it carries out substantial business.

A ‘qualifying country’ includes: • the UK; •

another member of the EU;

•

a country to which the relevant Part of the 1988 Act relating to designs has been extended under section 255 of the 1988 Act.

Infringement of design right 7.22 There are two categories of infringement of design right: primary infringement and secondary infringement. Each type of infringement is 43 Copyright, Designs and Patents Act 1988, s 218. 44 Copyright, Designs and Patents Act 1988, s 219; the section also deals with the position of joint commissioners and joint employers. 45 Copyright, Designs and Patents Act 1988, s 220(1). That is countries included by virtue of an Order in Council under s 255; s 220 also addresses the question of joint first marketing. 46 See eg SI 1989/1294 and more recent SIs. 47 Copyright, Designs and Patents Act 1988, s 217.

388

Design right 7.24

concerned with acts done for ‘commercial purposes’ or in the course of a business.48 Acts done for commercial purposes are defined49 as acts done ‘with a view to the article in question being sold or hired in the course of a business’.50 Acts which are not done for commercial purposes do not infringe design right. The infringing acts are also subject to the exceptions described below.51

Primary infringement 7.23

The owner of a design which is subject to protection by design right: ‘has the exclusive right to reproduce52 the design for commercial purposes–53 (a) by making articles to that design; or (b) by making a design document recording the design for the purpose of enabling such articles to be made’.54

Primary infringement occurs when a person does, or authorises another to do, any of the immediately above acts without the licence of the design right owner.55 Reproducing a design by making articles to that design means ‘copying the design so as to produce articles exactly or substantially to that design, and references in this Part to making articles to a design shall be construed accordingly’.56

Secondary infringement 7.24 Secondary infringement occurs57 when a person, without the licence of the copyright owner: ‘(a) imports into the United Kingdom for commercial purposes, or (b) has in his possession for commercial purposes, or (c) sells, lets for hire, or exposes for sale or hire, in the course of a business, 48 49 50 51 52 53 54 55 56 57

See wording of Copyright, Designs and Patents Act 1988, ss 226(1), 227. Copyright, Designs and Patents Act 1988, s 263(3). See wording of Copyright, Designs and Patents Act 1988, ss 226(1), 227. At ‘Exceptions to rights of design right owner’. The reproducing can be direct or indirect, and it is not relevant if there is an intervening act which infringes design right: Copyright, Designs and Patents Act 1988, s 226(4). ‘Commercial purposes’ means that the act done in relation to an article is ‘being done with a view to the article in question being sold or hired in the course of a business’: Copyright, Designs and Patents Act 1988, s 263(3). Copyright, Designs and Patents Act 1988, s 226(1). Copyright, Designs and Patents Act 1988, s 226(3). Copyright, Designs and Patents Act 1988, s 226(2). Copyright, Designs and Patents Act 1988, s 227.

389

7.25  Designs

an article which is, and which he knows or has reason to believe is, an infringing article’.58

Remedies for infringement 7.25 The remedies for infringement of design right are similar, but not always identical, to those for infringement of copyright.59 The provisions of the 1988 Act should be consulted concerning the detailed circumstances in which the remedies are available.60

Exceptions to rights of design right owner 7.26 The 1988 Act provides for a number of exceptions to the rights of the design right owner. Some of these exceptions are similar to those which apply in the case of copyright; others (eg  the Crown user provisions) are similar to the exceptions which apply under UK patent law; some are unique to design law.

Private acts, experiments and teaching 7.27 The changes made in 2014 introduced the right to make or use a design protected by design right for certain purposes without infringing the design right of the owner, which are:61 •

an act which is done for a private purpose and which is non-commercial;

•

an act which is done for experimental purposes;62 or

•

an act of reproduction for the purposes of teaching or making citations as long as: –

the act is compatible with fair trade practice;

–

the act does not unduly prejudice the normal exploitation of the design; and

–

there is mention of the source.63

58 Infringing article being defined in Copyright, Designs and Patents Act 1988, s 228; design documents are excluded from the definition. 59 As to which, see para 5.17. 60 See Copyright, Designs and Patents Act 1988, ss 226–235. 61 Copyright, Designs and Patents Act 1988, s 249A, inserted by the Intellectual Property Act 2014, in force from 1 October 2014. 62 The explanatory notes to the Intellectual Property Act 2014 (para 21) state that the purpose of this exception is ‘to allow inspiration from existing designs to encourage innovation’. 63 The explanatory notes to the Intellectual Property Act 2014 (para 21) provide an example of the type of activity which is permitted under this exception: A carpentry teacher in a school can ‘demonstrate how to produce design protected features without infringing the design right’.

390

Design right 7.30

The first two exceptions are clearly modelled on the wording on the equivalent provisions found in the Patents Act 1977 (rather than those in the 1988 Act).64

Infringement of copyright 7.28 The 1988 Act seeks to ensure there is no overlap between copyright and design right protection. In some situations, a copyright work may include or consist of a design in which design right also subsists. It is expressly not an infringement of design right under the 1988 Act65 to do anything which is an infringement of copyright in that work.66

Licences of right in last five years of design right 7.29 In the last five years of design right for a design, licences are available as of right. The comptroller of designs settles the terms of the licence if the parties cannot agree upon them. The licence of right provisions for patents, and the reported cases on patent licences of right, may provide some guidance as to the approach the comptroller will take in exercising these powers.67 The relevant provisions of the 1988 Act68 read as follows: ‘(1) Any person is entitled as of right to a licence to do in the last five years of the design right term anything which would otherwise infringe the design right. (2) The terms of the licence shall, in default of agreement, be settled by the comptroller’. The Act also includes powers for the Secretary of State to remove the licence of right provisions for particular types of design in certain circumstances, eg to comply with international treaty obligations.69

Powers exercisable following Competition and Markets Authority report 7.30 The 1988 Act includes powers similar to those applicable in the case of patents and copyright,70 for the protection of the public interest, including: 64 See para 4.59. The explanatory notes indicate that these exceptions are similar to those in the Copyright, Designs and Patents Act 1988 (in particular, s 32). 65 Copyright, Designs and Patents Act 1988, s 236. 66 There are also provisions in the Part of the Act dealing with copyright works which provide that in certain circumstances it is not an infringement of copyright in, inter alia, a design document, to copy an article made to the design: see Copyright, Designs and Patents Act 1988, s 51. 67 See para 4.21. 68 Copyright, Designs and Patents Act 1988, s 237. 69 Copyright, Designs and Patents Act 1988, s 237(3), (4). 70 See para 4.21 and para 5.50.

391

7.31  Designs

‘(a) conditions in licences granted by a design right owner restricting the use of the design by the licensee or the right of the design right owner to grant other licences, or (b) a refusal of a design right owner to grant licences on reasonable terms’.71 The power includes the power to cancel or modify those conditions and/or to provide that licences in respect of the design right shall be available as of right.

Undertaking to take licence in infringement proceedings 7.31 Where a person is sued for infringement of design right (infringer), and where licences of right are available in respect of that design, as described in the two previous paragraphs, the infringer may undertake to take a licence under that design. If the infringer does so, it will not be possible to obtain an injunction or an order for delivery. Also the maximum damages for the past infringements during the period in which licences of right were available will be twice the amount which would have been payable if the infringer had held a licence of right throughout that period.72

Crown use of designs 7.32 There are detailed provisions concerning the rights of a government department, or a person authorised in writing by a government department, to do the following without the licence of the design right owner: (a) do anything for the purpose of supplying articles for the services of the Crown; or (b) dispose of articles no longer required for the services of the Crown. The Crown user provisions in relation to design right are similar to those which apply in the case of patents.73 The reader should consult the relevant provisions of the 1988 Act if a question of Crown user in relation to design right arises.74

Other exceptions 7.33 The 1988 Act enables the Secretary of State to introduce further exceptions to design right by statutory instrument, if necessary in the context of international treaty or other arrangements.75 71 Copyright, Designs and Patents 1988, s 238, as most recently amended by SI 2014/892, in force from 1 April 2014. 72 Copyright, Designs and Patents Act 1988, s 239. 73 As to which, see para 4.35. 74 Copyright, Designs and Patents Act 1988, ss 240–244. 75 Copyright, Designs and Patents Act 1988, s 245.

392

Design right 7.37

Terms of licences of right 7.34 The 1988 Act includes provisions which determine how applications may be made to the comptroller to settle the terms of a licence of right, and how such terms will be determined, as well as how appeals may be brought against the comptroller’s decision. The powers of the comptroller in other proceedings are also described.76

Miscellaneous Licensees of right not to claim connection with design right owner 7.35 The 1988 Act prohibits a licensee of right from applying to licensed goods, or using in an advertisement, a trade description that he or she is the licensee of the design right owner, without the consent of the design right owner.77

Articles in kit form 7.36 The 1988 Act confirms that the design right provisions of the Act apply: ‘in relation to a kit, that is, a complete or substantially complete set of components intended to be assembled into an article, as they apply to the assembled article’.78

Opinions 7.37 It is possible to seek an opinion from the comptroller on matters relating to designs of such other description as may be specified, including: ‘(a) designs in which design right subsists in accordance with this Part, and (b) designs in relation to which there is a question whether design right so subsists.’79

76 Copyright, Designs and Patents Act 1988, ss 247–252. 77 Copyright, Designs and Patents Act 1988, s 254. 78 Copyright, Designs and Patents Act 1988, s 260. This section also allows for the possibility that design right might subsist in the design of components of the kit as well as the complete article. 79 Copyright, Designs and Patents Act 1988, s 249A, inserted by the Intellectual Property Act 2014, in force from 1 October 2014.

393

7.38  Designs

Semiconductor topographies: special provisions of design right law Background to legislation 7.38 Since 1987, UK law has provided specific protection against the copying of semiconductor topographies. Originally, these laws were introduced in the UK by a statutory instrument80 which was designed to implement an EU  Directive.81 These laws were free-standing, in the sense that they were not based on any traditional form of intellectual property protection. One reason for the passing of the underlying EU Directive was to ensure reciprocal protection for EU citizens under US laws for protection of semiconductors; the US Government had threatened not to give reciprocal protection to EU citizens under such laws unless equivalent laws were introduced throughout the EU which also gave protection to US citizens. The UK laws initially protected, inter alia, citizens of the EU and US. When the 1988 Act introduced the design right as a new form of protection for designs,82 the protection given to semiconductor topographies was reformulated as a modified version of design right.83 This change was largely a matter of re-categorising the topography right as a form of design right. The substance of the law protecting semiconductor topographies remained similar to what it had been previously, albeit extended to give reciprocal protection to a larger number of countries. However, there are some significant differences between design right law for semiconductor topographies and design right law for other types of designs, which will be referred to below. For convenience, the design right applicable to semiconductor topographies will be referred to in the following paragraphs as ‘topography right’. The most recent amendments to the law in respect of semiconductor topographies have extended this reciprocal protection to a larger number of countries (most notably Japan, Australia and most non-EC western European countries), as the EC has negotiated reciprocal arrangements with other countries.84 The Regulations are notoriously difficult to understand, and their precise scope remain unknown (even though they have now been in force for many years).85 The following paragraphs will attempt no more than a brief summary of what is covered by the Regulations and how the protection differs from design right law for other types of design. They should therefore be read together with the above paragraphs which describe design right generally. 80 81 82 83 84 85

Semiconductor Products (Protection of Topographies) Regulations 1987 (SI 1987/1497). Directive 87/54/EEC ([1987] OJ L24/36). With effect from 1 August 1989. By the Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100). See SI 1989/2147, SI 1990/1003, SI 1991/2237, SI 1992/400, SI 1993/2497 and SI 2006/1833. For example, the volume of Halsbury’s Laws concerning designs does not list a single case relating to semiconductor topographies.

394

Design right 7.40

Scope of topography right 7.39 The topography right legislation86 (which for convenience is referred to below as ‘the Regulations’) takes the form of a series of amendments to the design right provisions of the 1988 Act (ie Part III of that Act). The Regulations give protection under Part III of the Act to designs which are semiconductor topographies (as defined) and articles made to such designs which are semiconductor products (as defined), subject to the amendments set out in the Regulations. Thus in principle (subject to the amendments which will be summarised below), references in Part III of the 1988 Act to designs can be read as including semiconductor topographies, and references to articles in Part III can be read as including semiconductor products. These terms are defined87 as follows: •

‘semiconductor product’ means an article the purpose, or one of the purposes, of which is the performance of an electronic function and which consists of two or more layers, at least one of which is composed of semiconducting material and in or upon one or more of which is fixed a pattern appertaining to that or another function; and

•

‘semiconductor topography’ means a design within the meaning of s 213(2) of the Act which is a design of either of the following: (a) the pattern fixed, or intended to be fixed, in or upon– (i) a layer of semiconductor product, or (ii) a layer of material in the course of and for the purpose of the manufacture of a semiconductor product, or (b) the arrangement of the patterns fixed, or intended to be fixed, in or upon the layers of a semiconductor product in relation to one another.

The definition of semiconductor product makes clear that mainstream chips will be covered by the Regulations, as will many other types of product which contain a semiconducting layer and perform an electronic function. Products which are not covered by the Regulations (eg possibly some types of optoelectronic product) may be covered by the general law of design right.

Qualification for topography right 7.40 The Regulations amend the definitions of ‘qualifying individual’, ‘qualifying person’ and ‘qualifying country’ set out in Part III of the 1988 Act.88 In effect, the Regulations establish a separate set of rules on qualification for

86 Ie the Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100). 87 Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100), reg 2. 88 As to which, see para 7.21 above.

395

7.41  Designs

protection, reflecting the fact that there have been international negotiations on reciprocal protection for semiconductor topographies which have not been concerned with other types of design right. The number of countries which are recognised is increasing from year to year; at the date of writing, reciprocal protection is given to individuals and companies in other EC countries, the US, Japan, Australia and most other western European countries.89

Ownership of topography right 7.41 The provisions governing ownership of designs of topographies are similar to those governing other types of designs.90 The main differences are the addition of the phrase ‘subject to any agreement in writing to the contrary’91 in the provisions which provide for ownership by: (i) the commissioner of the design; or (ii) the designer’s employer;92 and amendment of the provisions which provide for ownership by the ‘first marketer’ to take account particularly of regulation 7 which is concerned with the marketing of articles in confidence (as to which see below).

Duration of topography right 7.42 The duration of topography right is ten years from the end of the year in which the semiconductor topography or articles made to it were first made available for sale or hire, but the right expires if such ‘making available’ does not take place within 15 years of the right coming into existence.93 The provisions differ from those which apply to other types of design (and generally provide for a longer period of protection), but are no less complex. The modified wording reads as follows: ‘216. The design right in a semiconductor topography expires– (a) ten years from the end of the calendar year in which the topography or articles made to the topography were first made available for sale or hire anywhere in the world by or with the licence of the design right owner, or

89 The most recent extension was in 2008 (Design Right (Semiconductor Topographies) (Amendment) (No 2) Regulations 2008, SI 2008/1434), extending the Regulations to Tonga, Ukraine and Vietnam. See the Schedule to the 1989 Regulations for the full list of countries. 90 As to which, see para 7.31 above. 91 It seems surprising that this phrase was not included in the general design right provisions concerned with ownership, particularly as equivalent wording has for a long time been included in the closest equivalent copyright law provision – see Copyright, Designs and Patents Act 1988, s 11(2) which provides for ownership by the author’s employer but states this to be ‘subject to any agreement to the contrary’ (note this wording does not require the agreement to be in writing, unlike the rules for semiconductor topographies). 92 See Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100), regs 5, 6. 93 Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100), reg 6.

396

Design right 7.44

(b) if neither the topography nor articles made to the topography are so made available within a period of fifteen years commencing with the earliest of the time when the topography was first recorded in a design document or the time when an article was made to the topography, at the end of that period. The [above provisions are] … subject to regulation 7 below. [see paragraph (f)]’.

Marketing of products subject to confidentiality obligations 7.43 Regulation 7 provides, in effect, that marketing which is done subject to confidentiality obligations will not be considered for the purposes of determining when articles were first marketed or made available for sale or hire. Thus it may be possible to extend the duration of the right by marketing products subject to confidentiality obligations. Regulation 7 should be treated with caution until its scope has been more clearly established by case law.

Infringement 7.44 The Regulations amend the provisions of design right law to make additional exceptions to the infringing acts in the case of semiconductor topographies. The exceptions are difficult to understand. The main ones94 are: •

the reproduction of a design privately for non-commercial aims;

•

the reproduction of a design for the purpose of analysing or evaluating the design or analysing, evaluating or teaching the concepts, processes, systems or techniques embodied in it.

The rules on secondary infringement are also amended to provide for an ‘exhaustion of rights’ where the article has been sold by or with the consent of the right-holder in the EU.95 There is also a kind of reverse engineering exception96 which is expressed as follows: ‘It is not an infringement of design right in a semiconductor topography to– 94 Design Right (Semiconductor Topographies) Regulations 1989 (SI  1989/1100), reg  8, substituting a new s 226(1A) of the 1988 Act. 95 Design Right (Semiconductor Topographies) Regulations 1989 (SI  1989/1100), reg  8, amending s 227 of the 1988 Act. 96 Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100), reg 8(4).

397

7.45  Designs

(a) create another original semiconductor topography as a result of an analysis or evaluation of the first topography or of the concepts, processes, systems or techniques embodied in it, or (b) reproduce that other topography’.

Licences of right 7.45 The licence of right provisions which apply to other types of design right in the last five years of the right97 do not apply to semiconductor topographies.98

Transitional provisions 7.46 The Regulations amend the complex transitional provisions set out in Schedule 1 to the 1988 Act in respect of any continuing copyright protection99 for designs produced prior to commencement of the Regulations (ie 31 July 1989).

Dealing with topography right 7.47 The rules governing dealing in topography right are identical to those for other types of design in which design right subsists.100

REGISTERED DESIGNS Introduction Background 7.48 Relatively few applications for registration of designs under the Registered Designs Act 1949 (in this section referred to as ‘the 1949 Act’) were made over the years, compared to patents. The reasons for this may be partly historical: the law was changed by the 1988 Act, extending the maximum duration of registered designs from 15 years to 25 years.101 Another reason may have been lack of uniformity in protection of designs throughout the EU. This lack of uniformity is reduced by the coming into  97 Copyright, Designs and Patents Act 1988, s 237.  98 Design Right (Semiconductor Topographies) Regulations 1989 (SI 1989/1100), reg 9.  99 Although it is doubtful whether, in most cases, there would have been any copyright protection for topographies. 100 As to which see para 7.06 above. 101 Five years initially, and renewal for further periods of five years up to a maximum of 25 years.

398

Registered designs 7.48

force of the Design Directive,102 aiming to harmonise the law among member states, and the Design Regulation to provide a community-wide registered and unregistered design,103 together with the changes introduced by the Intellectual Property Act 2014. Historically, copyright protection was available for some industrial designs, and was the preferred route for protection in many cases. The main alternative to registration of designs under the new law is the unregistered design right (in the UK only), which lasts for between 10 and 15 years, or the unregistered Community design right (across the whole EU), which lasts for three years. The 1949 Act has seen considerable amendment to its provisions, principally: •

in 1989 by the 1988 Act;

•

in 2001 following implementation of the Design Directive;104

•

in 2006 following the introduction of the Design Regulation 2006;105 and

•

in 2014 with the implementation of provisions of the Intellectual Property Act 2014.106

In the same way as the Patents Act 1977, the 1949 Act provides a form of monopoly protection to the owner of a registered design for a period of up to 25 years.107 To be registrable, a design must, among other things, be new

102 Directive 98/71/EC ([1998] OJ L289/28) on the legal protection of designs (‘Design Directive’), implemented in the UK by the Registered Designs Regulations 2001 (SI 2001/3949), as from 9 December 2001. 103 Council Regulation (EC) 6/2002 ([2002]  OJ L3/1) on Community designs (‘Design Regulation’). 104 Implemented to harmonise the protection offer to designs (which are protected by registration); implemented in the UK by the Registered Designs Regulations 2001 (SI  2001/3949). This led to a number of amendments as to what constitutes the definition of a design, including expanding the definition so that it covers non-aesthetic products as well as component products. Other changes included expanding the list of infringing and permitted acts, a revised concept of novelty as well as a new concept of ‘individual character in making an application. 105 These changes followed the introduction of the Design Regulation (which appears to have led to a substantial drop in applications for registered designs) and Directive 2004/48/EC ([2004] OJ L157/32; [2004] OJ L195/16) on the enforcement of intellectual property rights, implemented in the UK by the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974) and the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028). The changes aimed to reduce the complexity of making an application for a registered design, including simplifying the criteria for protection, allowing one application to cover more than one design, making it easier to restore a registered design if the renewal fee is not paid and allowing an applicant to delay publication and registration for a period of up to 12 months. The other changes included setting out more modern provisions relating to the nature of a registered design (as personal property) and the transmission of registered design. 106 The changes made following the implementation of the Intellectual Property Act 2014. See summary of changes at para 7.02 above. 107 The text that follows in this section deals only with the Act as amended by the Directive. The 1949 Act, as amended by the Copyright, Designs and Patents Act 1988, is still of relevance to those applications for a registered design made up to 8 December 2001.

399

7.49  Designs

and have individual character, and applies to the appearance of the whole or a part of a product (whether an industrial item or individual, handicraft item). A product can include packaging, get-up, graphics symbols (including computer desktop icons), and typographic typefaces. The design itself is protected, and need not be associated with some physical item,108 although it is not possible to protect the design if it is dictated solely by a product’s technical function. It is also not possible to protect a computer program by a registered design, as computer programs are specifically excluded. However, elements of what appear on a computer screen may be protectable, such as computer desktop icons. In view of the emphasis in the 1949 Act on the appearance aspects of designs, it is at least arguable that the registration of a design does not protect technology as such but may overlap with copyright protection and unregistered design right.

Provisions of registered design law which are of direct relevance to commercial transactions 7.49 The Act until 2006 contained few references to commercial transactions in registered designs.109 This historically may be related to the fact that the 1949 Act originates from the late 1940s, much earlier than any of the other current versions of intellectual property legislation. As noted above, the 1949 Act is now extensively amended, but its basic structure remains unchanged. Although now containing more provisions concerning commercial transactions, they are still relatively ‘light’ compared to the provisions found in the Patents Act 1977.110

108 Guidance issued by the UK Intellectual Property Office at the time the law was amended to take account of the Directive provided as follows: ‘(1) It will be the design which is protected, not an article bearing a design. Currently [under the Act before the implementation of the Directive] a plate bearing a floral pattern would be protected, and if at a later date that floral pattern were applied to table linen or curtains, a new registration would be required. Under the new regime [following implementation of the Directive] it is the floral pattern itself which is protected, irrespective of the product to which it is applied. Even graphic (computer desktop icons) will now be registrable’. (UKIPO, Protecting your Designs – the Law is Changing, no longer available on the UKIPO website). 109 Before the amendment by the Directive, the Registered Designs Act 1949 provided that a person could apply to the registrar for the grant of a compulsory licence in respect of a registered design (Registered Designs Act 1949, s 10, before amendment). This has now been removed by Registered Designs Regulations 2001 (SI 2001/3949), reg 6(1). 110 For example, the Registered Designs Act 1949 has nothing to say about sub-licences or the right of co-owners, although by implication, rather than explicit provision, it appears that a registered design can be owned by co-proprietors and in shares (although not stated as whether as tenants in common or joint tenants): see Registered Designs Act 1949, s 19(1).

400

Registered designs 7.52

Registered designs as personal property 7.50 A  registered design (and an application for a registered design) is personal property.111

Transmission of registered designs 7.51 It is possible to assign a registered design (or an application for a registered design) or to vest the registered design by assent or by mortgage. However, such an assignment or assent will not be effective unless it is in writing and is signed by or on behalf of the assignor (or the personal representative).112

Licences 7.52 It is possible for the proprietor of a registered design to grant a licence under a registered design.113 However, there is no specific mention of whether it is possible to grant: •

a licence where there is an application for a registered design; or

•

a sub-licence.114

Despite these omissions, it seems likely that similar rules apply to commercial transactions in registered designs as apply to transactions in other types of UK intellectual property but are not stated explicitly in the 1949 Act. The other main provisions of the 1949 Act which are likely to affect commercial transactions, and which are discussed further below, are: •

normally it is necessary to register transactions in registered designs;

•

the registration of designs will last for an initial five-year period; thereafter it is possible to renew registration up to a maximum total period of 25 years;

•

damages may not be awarded against an innocent infringer, as defined. There are advantages in this context in including a statement on articles

111 Registered Designs Act 1949, s 15A, inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 1 October 2006. 112 Registered Designs Act 1949, ss  15B(3), (5), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 1 October 2006. Where the assignor is a body corporate, the requirement for signing is satisfied by the application of the corporate seal of the body corporate: Registered Designs Act 1949, s 15(4), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 1 October 2006. 113 Registered Designs Act 1949, s 15(7), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 1 October 2006. 114 Contrast the position with the Patents Act 1977, s 30(4).

401

7.53  Designs

produced according to a registered design, stating that the design is registered and the number of the registration; •

there are Crown user provisions;

•

a person who uses a design, which is subsequently registered by another person, may continue to use that design after registration in limited circumstances, as long as such use is in good faith.

Exclusive licensees 7.53 A  licensee under an exclusive licence has the same rights as a successor in title where the successor is bound by the licence as the exclusive licensee has against the person who grants the licence,115 with an exclusive licence being: ‘… a licence in writing signed by or on behalf of the proprietor of the registered design authorising the licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by the proprietor of the registered design.’116 An exclusive licensee has the same rights and remedies as the owner for matters which occur after the grant of the licence (other than against the registered proprietor) as if the licence was an assignment.117 The rights and remedies available to the exclusive licensee are concurrent with the registered proprietor.118 In an action brought by the registered proprietor or exclusive licensee (whether wholly or in part) for the infringement of the right in a registered design for which they have concurrent rights, it is necessary to join both of them to the action, unless the court provides otherwise.119 The provisions regarding court proceedings for registered designs are more extensive than for patents, and include (in addition to those mentioned immediately above) such matters as:

115 Registered Design Act 1949, s 15C(2), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006. 116 Registered Design Act 1949, s 15C(1), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006. 117 Registered Design Act 1949, s 24F(1), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006. 118 Registered Design Act 1949, s 24F(2), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006. 119 Registered Design Act 1949, s 24F(4), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006.

402

Registered designs 7.56

(1) a registered proprietor or exclusive licensee who is added as a defendant is not liable for costs if they do not take part in the proceedings;120 (2) where the registered proprietor or exclusive licensee have concurrent rights of actions, then in the event of proceedings, the court has to consider the provisions of the licence and any previous money awarded, or which is available to them etc;121 (3) the registered proprietor has to notify an exclusive licensee who has a concurrent right of action that the registered proprietor will be applying for an order for such matters as delivery up of infringing articles.122

Aspects of registered design law which may affect the parties to commercial transactions Registrable designs 7.54 The Act describes the criteria that a design must satisfy in order to qualify for registration. The main criteria are as follows.

Appearance 7.55 The Act permits registration of certain features of design relating to the appearance of a product or part of a product.

Definition of a ‘design’ 7.56

‘Design’ is defined in the 1949 Act123 as follows: ‘(2) In this Act, “design” means the appearance of the whole or a part of a product resulting from the features, of, in particular, the lines, contours, colours, shape, texture or materials of the product or its ornamentation’.

A ‘product’ (and the related definition of ‘complex product’) are defined in the 1949 Act124 as follows: 120 Registered Design Act 1949, s 24F(5), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006. 121 Registered Design Act 1949, s 24F(7), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 1 October 2006. 122 Registered Design Act 1949, s 24F(8), as inserted by the Intellectual Property (Enforcement, etc) Regulations 2006 (SI 2006/1028) from 29 April 2006 – that is, matters under Registered Design Act 1949, s 25C. 123 Registered Designs Act 1949, s 1(2), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). 124 Registered Designs Act 1949, s 1(3), as substituted by the Registered Design Regulations 2001 (SI 2001/3949).

403

7.57  Designs

‘(3) In this Act– “complex product” means a product which is composed of at least two replaceable components permitting disassembly and reassembly of the product; and “product” means any industrial or handicraft item other than a computer program; and in particular, includes packaging, get-up, graphic symbols, typographic type-faces and parts intended to be assembled into a complex product’.

Points to note from this definition 7.57 •

a design can apply to an industrial item (ie where a number of items are to be produced) or a handicraft item (ie where individual, one-off, items are to be produced);

•

a design can relate to a complete product or part of a product;125

•

it is possible for the design to be the product or the ornamentation of that product;

•

it is the design itself which receives protection, and the protection will extend to any product in which the design is incorporated;126

•

the design need not relate to one particular product or item, but to different products.127

125 In 2001 the UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 provided guidance as to the meaning of this: ‘As indicated by the European Commission in an Explanatory Memorandum accompanying their 14 March 1996 proposal for a Directive, “part” in this context means an individual feature which may be an integral piece of a product, as distinct from a “component part”, which is an item which, although intended as a constituent of a larger product which can be removed or replaced within that product, is treated as a separate product in its own right. Consequently, it will remain the case that a registration may, for example, protect specifically the design of the head of a toothbrush even though that head may be integral with the handle’. 126 In 2001 the UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 provided guidance as to the meaning of this: ‘It is a design itself which may be registered, not features of a design as applied to a specified article or set of articles. The protection will extend to any product in which the design is incorporated. In many cases the design will be the product itself’. 127 In 2001 the UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 provided guidance as to the meaning of this: ‘However some designs, for example some forms of ornamentation, will be applicable to many different types of product. Furthermore some products are specifically intended to look like a different type of product (eg novelty goods or models, eg of vehicles). In these cases the protection should now extend to any product which incorporates that design’.

404

Registered designs 7.60

Novelty and individual character 7.58 A design may be protected by a right in a registered design to the extent that the design is new and has individual character.128

Novelty 7.59 A design is new if no identical design (or no design whose features differ only in immaterial details) is made available to the public before the relevant date.129

Individual character 7.60 A design has individual character if the overall impression it produces on the informed user130 is different to the overall impression produced on that user by another design made available to the public before the relevant date.131 In determining the extent to which a design has individual character, 128 Registered Designs Act 1949, s 1B(1), as substituted by Registered Design Regulations 2001 (SI 2001/3949), reg 2. 129 Registered Designs Act 1949, s 1B(2), as substituted by Registered Design Regulations 2001 (SI  2001/3949), reg  2. The ‘relevant date’ being the date on which the application for the registration was made or is being treated as having been made by other sections of the Act: s 1B(7), as substituted by reg 2 of the Registered Design Regulations 2001. 130 Concerning what the informed user can or cannot consider when forming her/his overall impression, the informed user ‘will automatically disregard elements “that are totally banal and common to all examples of the type of product in issue” and will concentrate on features “that are arbitrary or different from the norm”.’ (quoted in Samsung Electronics (UK) Ltd v Apple Inc [2012]  EWHC  1882 (Pat) and affirmed by CA at [2012]  EWCA  Civ 1339). Neither the Registered Designs Act 1949 (nor the Design Regulation) specifies the knowledge or capability of an informed user. However, the ECJ in PepsiCo Inc v Grupo Promer Mon Graphic SA [2011], Case C-281/10 has interpreted the concept of the informed user as ‘lying somewhere between that of the average consumer, applicable in trade mark matters, who need not have any specific knowledge and who, as a rule, makes no direct comparison between the trade marks in conflict, and the sectoral expert, who is an expert with detailed technical expertise. Thus, the concept of the informed user may be understood as referring, not to a user of average attention, but to a particularly observant one, either because of his personal experience or his extensive knowledge of the sector in question.’ 131 Registered Designs Act 1949, s 1B(3), as substituted by Registered Design Regulations 2001 (SI 2001/3949), reg 2. ‘Informed user’ is not defined in the Directive or the Act. In 2001 UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 provided guidance (at para 18, p 9) as to the meaning of ‘informed user’, quoting part of an Explanatory Memorandum by the European Commission: ‘18. The term “informed user” is not defined in the Act or the Directive, but the Commission’s Explanatory Memorandum on their original proposal for a regulation gives an indication of its intention: “The person on whom an overall impression of dissimilarity must be made is an ‘informed user’. This may be, but is not necessarily, the end consumer who may be totally unaware of the appearance of a product, for example if it is the internal part of a machine or a mechanical device replaced in the course of a repair. In such cases, the ‘informed user’ is the person replacing the part. A certain level of knowledge or design awareness is presupposed depending on the character of the design. But the term ‘informed user’ should indicate also that the similarity is not to be assessed at the level of ‘design experts’’’.’ (See also note 130 above regarding the meaning of ‘informed user’, as interpreted by the ECJ.)

405

7.61  Designs

the degree of freedom of the author in creating the design shall be taken into consideration.132

Making available to the public before the relevant date 7.61 A design is considered prior art if it has been made available to the public before the relevant date133 and: •

if the design has been published, exhibited, used in trade or otherwise disclosed before the relevant date (whether following registration or otherwise) to the public;134 or

•

if such disclosure does not fall within the following five exceptions.135

The exceptions are set out in the 1949 Act136 as follows: ‘(6) A disclosure falls within the subsection:– (a) it could not reasonably have become known before the relevant date in the normal course of business to persons carrying on business in the European Economic Area and specialising in the sector concerned;137 132 Registered Designs Act 1949, s 1B(4), as substituted by the Registered Design Regulations 2001 (SI  2001/3949). In 2001 the UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 (no longer available) reproduced (at para 20, p 9) part of a commentary by the European Commission on (at the time) the equivalent wording to Registered Designs Act 1949, s 1C(4), in the draft Community Design Regulation: ‘Highly functional designs where the designer must respect given parameters are likely to be more similar than designs in respect of which the designer enjoys total freedom. Therefore, paragraph 2 also establishes the principle that the freedom of the designer must be taken into consideration when the similarity between an earlier and a later design is being assessed’. 133 For the meaning of ‘relevant date’, see note 129. 134 Registered Designs Act 1949, s 1B(5), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). For the meaning of ‘relevant date’, see note 129. 135 Registered Designs Act 1949, s 1B(5)(b), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). 136 Registered Designs Act 1949, s 1B(6), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). For the meaning of ‘relevant date’, see note 129. 137 The equivalent provision in the Design Regulation was subject to consideration in Green Lane Products Ltd v PMS  International Group Ltd and others [2008]  EWCA  Civ 358, [2008]  All ER (D) 313 (Apr), particularly the words ‘sector concerned’ (the wording in the Design Regulation is ‘the circles specialised in the sector concerned operating within the Community’ (Art 7)) and was held to mean ‘the sector of the alleged prior art’. The following words from the judgment of the High Court in this case were upheld: ‘1. “The sector concerned” within the meaning of Article  7 of the Regulation is the sector that consists of or includes the sector of the alleged prior art. 2. “The circles specialised in the sector concerned, operating within the Community” within the meaning of Article  7 of the Regulation are capable of consisting of all individuals who conduct trade in relation to products in the sector concerned, including those who design, make, advertise, market, distribute and sell such products in the course of trade in the Community’. Although this is

406

Registered designs 7.61

(b) it was made to a person other than the designer, or any successor in title of his, under conditions of confidentiality (whether express or implied); (c) it was made by the designer, or any successor in title of his, during the period of 12 months immediately preceding the relevant date; (d) it was made by a person other than the designer, or any successor in title of his, during the period of 12 months immediately preceding the relevant date in consequence of information provided or other action taken by the designer or any successor in title of his; or (e) it was made during the period of 12 months immediately preceding the relevant date as a consequence of an abuse in relation to the designer or any successor in title of his’. These exceptions provide a ‘safeguard clause’ which allows for prior art which could not have been reasonably known to persons in the normal course of their business in the specialised area covered by the design, within the territory of the European Economic Area138 and allowing a grace period for the designer and others to disclose the design for a period of 12 months be the relevant date without harming the right to make an application for registration as a registered design, as well as for disclosures of designs made in confidence. The equivalent provision for patents is much stricter, with no equivalent provision to a ‘safeguard clause’, and the grace period being restricted to six months.139

137 contd a judgement concerning the Design Regulation and not concerning the Registered Designs Act 1949, as the wording between the two are for all purposes to be taken as identical, if this matter was to arise in the UK, it can be reasonably argued that a similar view would be taken as in this case. See also the judgments of Procter & Gamble Co v Reckitt Benckiser (UK) Ltd [2007] EWCA Civ 936, [2008] FSR 208, [2007] All ER (D) 133 (Oct) and Woodhouse UK plc v Architectural Lighting Systems [2006] RPC 1 (a case heard in the Patents County Court). 138 In 2001 the UKIPO document The Registered Designs Regulations 2001, The Effect of the Amendments to the Registered Designs Act 1949 (no longer available) gave guidance on the meaning of this exception, at para 23, p 10: ‘23. The rider of “could not reasonably have become known” is not intended to break up designs into different industrial sectors – since the design is protected and not the product, this would not make sense for designs (e.g. ornamentation designs) which can be used on a wide variety of products. The intention can be seen in the Commission’s Explanatory Memorandum on their second proposal for the Design Directive, which explained that: “The Article 6 has further been amended in accordance with the wishes of the European Parliament and the Economic and Social Committee through the introduction of what is commonly known as the ‘safeguard clause’. Its aim is to protect the design industry from claims that a design right is not valid because there was an earlier design in use somewhere in the world where the European industry could not possibly have been aware of it. The intention of this provision is to avoid the situation where design rights can be invalidated by infringers claiming that antecedents can be found in remote places or museums’’’. 139 Patents Act 1977, s 2.

407

7.62  Designs

Grounds for refusal of registration 7.62 The 1949 Act sets out the grounds on which a design will not be protected by registration under the Act: •

where the appearance of a product is solely dictated by the product’s technic al function;140

•

where the features of appearance of a product which must necessarily be reproduced in their exact form and dimensions so as to permit the product in which the design is incorporated or to which it is applied to

•

be mechanically connected to, or placed in, around or against, another product so that either product performs its function;141

•

where it is contrary to public policy or to accepted principles of morality.142

Ownership of designs 7.63 The first owner of a registered design may be the author of the design (the ‘original proprietor’)143 or the employer of the author. The position is similar to that for design right, with some important exceptions, referred to below. As with design right, following the changes to the 1949 Act in 2014 140 Registered Designs Act 1949, s  1C, as substituted by Registered Design Regulations 2001 (SI 2001/3949), reg 2. 141 Registered Designs Act 1949, s 1C(2), as substituted by Registered Design Regulations 2001 (SI  2001/3949), reg  2. The ‘must fit’ exception. But does not include a design serving the purpose of allowing multiple assembly or connection of mutually interchangeable products within a modular system, which can be protected as a registered design (Registered Designs Act 1949, s 1C(3), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). The UKIPO document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949 gave guidance (at para 33, p 11) on the meaning of the type of items which might be covered by s 1C(3) as including interlocking seating systems or shelving arrangements which can be built up to any size. In addition, Recitals 14 and 15 of the Design Directive provide help in understanding the reasoning for the inclusion of s 1(3): ‘(14) Whereas technological innovation should not be hampered by granting design protection to features dictated solely by a technical function; whereas it is understood that this does not entail that a design must have an aesthetic quality; whereas, likewise, the interoperability of products of different makes should not be hindered by extending protection to the design of mechanical fittings; whereas features of a design which are excluded from protection for these reasons should not be taken into consideration for the purpose of assessing whether other features of the design fulfil the requirements for protection; (15) Whereas the mechanical fittings of modular products may nevertheless constitute an important element of the innovative characteristics of modular products and present a major marketing asset and therefore should be eligible for protection’. 142 Registered Designs Act 1949, s  1D, as substituted by Registered Design Regulations 2001 (SI 2001/3949), reg 2. 143 Registered Designs Act 1949, s 2(1), as amended by Copyright, Designs and Patents Act 1988, s 267.

408

Registered designs 7.66

the commissioner of a design is no longer treated as the original proprietor of the commissioned design.144 The person who creates the design, whether or not commissioned to do so, will normally be the first owner. The aim of this change, as with the same one for the unregistered design right, is to harmonise the law on this point for UK designs with the EU design right as well as with copyright.

Author as owner 7.64 The author of a design is defined as ‘the person who creates it’ or, in the case of a computer-generated design which has no human author, the ‘person by whom the arrangements necessary for the creation of the design are made’.145 Unless the design was created in the course of the author’s employment, the author is the first owner of the property in the design.146

Employer of author as owner 7.65 Where a design is created by an employee in the course of his or her employment, and it is not owned by a commissioner, the employer is the first owner of the property in the design.147

Subsequent owners and formalities of transfer 7.66 The 1949 Act recognises the possibility of a design being assigned or otherwise transferred to another person.148 It now requires an assignment to be in writing149 as well as the assignee registering the assignment150 in a prescribed form. It is the registration of the 144 Registered Designs Act 1949, s 2(1A), omitted by the Intellectual Property Act 2014, in force from 1 October 2014. 145 Registered Designs Act 1949, s 2(3), (4), as amended above. 146 Registered Designs Act 1949, s 2(1), as amended above. 147 Registered Designs Act 1949, s  2(2), as amended by Copyright, Designs and Patents Act 1988, s 267. However, it is important that the formalities are properly complied with as to the original proprietor: see Woodhouse UK plc v Architectural Lighting Systems [2006] RPC 1 (a decision of the Patents County Court), where the commissioner of a design did not register the design under the Registered Designs Act 1949 (but the design was registered by one of the companies commissioned to make the design, the application being made by someone who is not the proprietor). 148 Registered Designs Act 1949, s  2, as amended by Registered Design Regulations 2001 (SI 2001/3949), reg 9(2). 149 Registered Designs Act 1949, s 15B. 150 Registered Designs Act 1949, s 19(1).

409

7.67  Designs

assignment that gives rise to the ownership right, rather than the assignment itself, unlike the position in the case of patents.151

Applications for registration or cancellation of registration 7.67 The Registered Designs Act 1949 outlines the proceedings for registration of a design.152 The Secretary of State may supplement these provisions with more detailed rules.153 Once a design is registered, the proprietor or any other person interested may apply to the registrar to cancel the registration.154

Exclusive rights given by registration 7.68 The registration of a design gives the registered proprietor the exclusive right to use the design and any design which does not produce on

151 See Registered Designs Act 1949, ss  7, 7A (s  7 substituted, and s  7A inserted, by the Registered Design Regulations 2001 (SI 2001/3949)). Also see s 19(5), and, compared with Patents Act 1977, s 33. Sections 7 and 7A describe the rights given by registration as such, while s 19(5) indicates that a document (eg an assignment) will not be admitted in evidence in court unless (with some exceptions) an entry is made in the registrar of that document. But Patents Act 1977, s 33 sets out the benefits of registration, but does not make registration compulsory. 152 Registered Designs Act 1949, ss 3, 3A, 3B, 3C, 3D; s 3 as substituted, and ss 3A, 3B, 3C, 3D as inserted, by the Registered Design Regulations 2001 (SI 2001/3949) and further amended by the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974) and the Intellectual Property Act 2014. The principal amendment is to allow several designs to be included in one application for a design. 153 Registered Designs Act 1949, ss  36, amended by the Copyright, Designs and Patents Act 1988 and Registered Design Regulations 2001 (SI 2001/3949). There are new rules governing the processing of applications for a registered design: Registered Designs Rules 2006 (SI 2006/1975). A summary of the changes the rules made can be found on the UK Intellectual Property Office website, at www.ipo.gov.uk/pro-types/pro-design/d-law/d-dpn/d-dpn-506. htm. 154 Registered Designs Act 1949, ss 11, 11ZA, 11ZB, 11ZC, 11ZD, 11ZE, 11ZF; s 11 substituted by, and ss  11ZA, 11ZB, 11ZC, 11ZD, 11ZE, 11ZF inserted by, the Registered Design Regulations 2001 (SI  2001/3949), and as amended by the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974), the Designs (International Registrations Designating the European Community) Regulations 2007 (SI 2007/3378) and the Enterprise and Regulatory Reform Act 2013 (Competition) (Consequential, Transitional and Saving Provisions) Order 2014 (SI  2014/892). The principal change of the 2014 Order is to change the name of the authority which can require the registrar to take action in certain law matters (the authority is now the Competition and Markets Authority) .

410

Registered designs 7.69

the informed user155 a different overall impression.156 This right is subject to any limitation attaching to the registration in question (such as any partial disclaimer or a declaration of partial invalidity made by a court or the registrar).157 The ‘use of a design’ is further defined by the Act as to include a reference to: ‘(a) the making, offering, putting on the market, importing, exporting or using of a product in which the design is incorporated or to which it is applied; or (b) stocking such a product for those purposes’.158

Infringement 7.69 A  registered design is infringed by a person who, without the permission of the registered proprietor, does anything which is the proprietor’s exclusive right.159

155 The Registered Designs Act 1949 does not provide a definition or explanation of the meaning of ‘informed user’ (but see the view of the UK  Intellectual Property Office at note 131 above and the case referred to there). However, the section in which this phrase is used was introduced to implement the provisions of the Design Directive. In Rolawn Ltd and another v Turfmech Machinery Ltd [2008] EWHC 989 (Pat), [2008] All ER (D) 77 (May) the meaning of ‘informed user’ was analysed, partly on the basis of recital 13 from the Design Directive: ‘Whereas the assessment as to whether a design has individual character should be based on whether the overall impression produced on an informed user viewing the design clearly differs from that produced on him by the existing design corpus, taking into consideration the nature of the product to which the design is applied or in which it is incorporated, and in particular the industrial sector to which it belongs and the degree of freedom of the designer in developing the design.’ And specifically in relation to the informed user, the following is quoted from a case heard in Austria: ‘The “informed user” will, in the view of the Appeals Court, have more extensive knowledge than an “average consumer in possession of average information, awareness and understanding” … in particular he will be open to design issues and will be fairly familiar with them …’ (see note 131 for a discussion on ‘informed user’). 156 Registered Designs Act 1949, s 7(1), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). In determining whether a design produces a different overall impression on the informed user, the degree of freedom of the author in creating his design must be taken into consideration (Registered Designs Act 1949, s 7(3), as substituted by the Registered Design Regulations 2001 (SI 2001/3949)). 157 Including any partial disclaimer or any declaration of partial invalidity by the registrar or a court: Registered Designs Act 1949, s 7, as substituted by the Registered Design Regulations 2001 (SI 2001/3949). 158 Registered Designs Act 1949, s 7(1), as substituted by the Registered Design Regulations 2001 (SI 2001/3949). 159 Registered Designs Act, s  7A(1), as inserted by the Registered Design Regulations 2001 (SI 2001/3949).

411

7.70  Designs

Activities which do not infringe the right in a registered design 7.70 The 1949 Act lists a range of activities which are not considered to be infringements of a registered design and include160 (other than with the consent of the registered proprietor): •

an act which is done privately and for purposes which are not commercial;

•

an act which is done for experimental purposes;

•

an act of reproduction for teaching purposes or for the purpose of making citations provided that the act for reproduction is compatible with fair trade practice and does not unduly prejudice the normal exploitation of the design, and mention has to be made of the source;

•

the use of equipment on ships or aircraft which are registered in another country but which are temporarily in the UK;

•

the importation into the UK of spare parts or accessories for the purpose of repairing such ships or aircraft; or

•

the carrying out of repairs on such ships or aircraft.

Right to prior use 7.71 The changes made to design law in 2014 included the introduction of a limited right to prior use of a design.161 The aim of the change was to harmonise the 1949 Act with the EU Regulation. If, before the application date162 for a registered design: (a) a person makes use of the registered design in good faith; or (b) that person makes serious and effective preparations to use the registered design; that person can continue to use the registered design for the purposes s/he was using it or preparing to use it before the application date.163 There are exceptions to this prior right use:

160 Registered Designs Act 1949, ss 7A(2), (3), as inserted by the Registered Design Regulations 2001 (SI 2001/3949). 161 Registered Designs Act 1949, s 7B, as inserted by the Intellectual Property Act 2014, in force from 1 October 2014. 162 The application date is the date when the application for registration is made (under Registered Designs Act 1949, s 3) or is treated as made (under Registered Designs Act 1949, s 14(2)). 163 Registered Designs Act 1949, s 7B(1), as inserted by the Intellectual Property Act 2014, in force from 1 October 2014.

412

Registered designs 7.73

(a) the right does not apply if the person has used a design (or has made preparations to use it) and the design was copied from a design which is subsequently registered;164 (b) the right of prior use that a person has does not allow the person to grant a licence to another person to use the design;165 (c) the right of prior use that a person has does permit assignment of the right or its transmission on death (or on dissolution if a body corporate) only where: (i) there is use of the design (or preparation for its use) in the course of business; and (ii) the right is assigned (or transmitted) with the part of the business which uses (or is preparing to use) the design.166

Exhaustion of rights 7.72

Once a product which:

•

has a design protected by registration (or a registered design applied to it); and

•

is put on the market within the European Economic Area by the registered proprietor (or with his or her consent);

the registered design is not infringed by any acts in relation to it.167

‘Must-match’ spare parts 7.73 A further exception is provided by a right in a registered design of a component part which may be used for the purpose of the repair of a complex product so as to restore its original appearance. There is no infringement by the use for that purpose of any design protected by the registration.168 164 Registered Designs Act 1949, s 7B(3), as inserted by the Intellectual Property Act 2014, in force from 1 October 2014. 165 Registered Designs Act 1949, s 7B(4), as inserted by the Intellectual Property Act 2014, in force from 1 October 2014. 166 Registered Designs Act 1949, s 7B(5), as inserted by the Intellectual Property Act 2014, in force from 1 October 2014. 167 Registered Designs Act 1949, s 7A(4), as inserted by the Registered Design Regulations 2001 (SI 2001/3949). 168 Registered Designs Act 1949, s 7A(5), as inserted by the Registered Design Regulations 2001 (SI  2001/3949). In the UK  Intellectual Property Office document The Registered Designs Regulations 2001: The Effect of the Amendments to the Registered Designs Act 1949, para 53, p 14, the meaning of ‘use’ is related to Registered Designs Act 1949, s 7(2), and ‘consequently includes the full range of actions which would otherwise be an infringement, including making, importing, stocking product for the design itself’ (Registered Designs Act 1949, s 7(2)); see para 7.68 above.

413

7.74  Designs

Duration of rights 7.74 Registered designs continue, in the first instance, for five years from the date of registration.169 They may be renewed for further periods of five years, up to a maximum total period of 25 years.170 There are detailed provisions dealing with the position where renewal fees are not paid.171

Crown user provisions 7.75 The 1949 Act includes Crown user provisions which are similar (but not identical) to those for patents.172

Register of designs 7.76 The 1949 Act includes provisions relating to the maintenance of the register of designs, including provisions concerning the public right of access to the register and the status of entries on the register.173

Obligation on transferee or licensee to register transaction 7.77 The 1949 Act requires the transferee or licensee of a registered design to apply to the registrar for registration of his or her title, or notice of his or her interest, on the register.174

Transferor may register 7.78 The obligation upon the transferee to register the transaction does not prevent the transferor from doing so.175

169 Registered Designs Act 1949, s 8(1). 170 Registered Designs Act 1949, s 8(2). 171 Registered Designs Act 1949, ss  8(4), 8A, 8B, as amended by the Registered Design Regulations 2001 (SI  2001/3949) and the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974). 172 Registered Designs Act 1949, s 12. 173 Registered Designs Act 1949, s 17, as amended by the Youth Justice and Criminal Evidence Act 1999 and the Criminal Justice Act 2003. 174 Registered Designs Act 1949, s 19(1). 175 Registered Designs Act 1949, s 19(2).

414

Registered designs 7.82

Duties of the registrar 7.79 The 1949 Act sets out the obligations of the registrar to register transactions notified to him or her.176

Deemed assignment of design right 7.80 Where the registered design and national unregistered design right are owned by the same person, an assignment of the registered design is deemed to be also an assignment of the design right ‘unless a contrary intention appears’.177

Consequences of failure to register 7.81 There are no direct penalties for failure to register a transaction. However, failure to register a document such as an assignment or licence in respect of a design may result in one’s rights being unenforceable. A  document in respect of which no entry has been made on the register shall not be admitted in any court as evidence of the title of any person to a registered design or share of a registered design unless the court otherwise directs.178 It is therefore very important to register transactions involving registered designs.

Rectification of the register 7.82 Applications may be made to the court to rectify the register, ie change the details contained in the register in respect of a design, including the name of the proprietor.179

176 Registered Designs Act 1949, s 19(3); Registered Design Regulations 2001 (SI 2001/3949). Until 1 October 2014 the registrar was not able to register any interest in a registered design in which a national unregistered design right also subsisted unless the registrar was satisfied that the holder of the interest was also entitled to a corresponding right in the design right (Registered Designs Act 1949, s 19(3A)). The explanatory notes to the Intellectual Property Act 2014 indicate that the intention of s 19(3A) was that there was not an uncoupling of the unregistered design right and its registered design, but that the linking of the two rights was not in accordance with how other EU rights are treated, and by the removal of s 19(3A) the intention is also to remove barriers to keeping the register up to date. 177 Registered Designs Act 1949, s 19(3B), as amended by the Registered Design Regulations 2001 (SI 2001/3949). 178 Registered Designs Act 1949, s 19(5). 179 Registered Designs Act 1949, s 20, as amended by the Registered Design Regulations 2001 (SI 2001/3949) and the Regulatory Reform (Registered Designs) Order 2006 (SI 2006/1974).

415

7.83  Designs

Miscellaneous provisions Groundless threats of infringement proceedings 7.83 As in the case of patents, there is a civil wrong of making groundless threats of infringement proceedings.180

Criminal offences Intentional copying of a registered design and putting on the market a product where a registered design is copied 7.84 Among the changes introduced by the Intellectual Property Act 2014 was the creation of criminal offences for the intentional copying of a design to make a product or for putting on the market a product where a registered design is copied,181 where the copying or putting on the market is done in the course of business.

Intentional copying of a registered design to make a product 7.85 If a person in the course of business intentionally copies a registered design to make a product, that person commits an offence.182 To commit the offence, the person: •

has to make the product so that: –

it is exactly to the registered design; or

– it has features that differ only in immaterial details from the registered design;183 and •

has to know that the design is a registered design (or has reason so to believe);184 and

•

does so without the consent of the registered proprietor of the design.185

180 Registered Designs Act 1949, s 26. For a description of the similar provisions applicable to patents, see para 4.61. 181 Registered Designs Act 1949, s 35ZA, inserted by the Intellectual Property Act 2014, in force from 1 October 2018. The offence covers not only registered designs under the Registered Designs Act 1949 but also includes a registered Community design: Registered Designs Act 1949, s 35ZA(7). 182 Registered Designs Act 1949, s 35ZA(1). 183 Registered Designs Act 1949, s 35ZA(1)(a). 184 Registered Designs Act 1949, s 35ZA(1)(b). 185 Registered Designs Act 1949, s 35ZA(1)(b).

416

Registered designs 7.86

Putting on the market a product which is made by use of a registered design 7.86 If a person in the course of a business puts on the market a product which is made by the intentional copying of a registered design, that person commits an offence.186 To commit this offence, the person: •

has to make the product so that: –

it is exactly to the registered design; or

– it has features that differ only in immaterial details from the registered design;187 and •

does so without the consent of the registered proprietor of the design;188 and

•

has to know (or has reason to believe) that: –

–

the design has been copied without the consent of the registered proprietor of the design so that the product: ○

it is exactly to the registered design; or

○

it has features that differ only in immaterial details from the registered design; and

the design is a registered design.189

There are various defences available to a person charged with an offence: •

if the person can show s/he reasonably believed that the registration of the design was invalid;190 or

•

if the person: –

can show s/he did not infringe the right in the design; or

–

reasonably believed that s/he did not do so.191

The penalties include fines or imprisonment up to 10 years; and now, as in line with offences committed for copyright and trade mark infringement, 186 Registered Designs Act 1949, s 35ZA(2), (3). ‘Putting on the market’ also includes importing, exporting or using the product or stocks of it for one of these purposes; but, for this offence, where there is use of the product in the course of a business, it does not include ‘using it for a purpose which is merely incidental to the carrying on of the business’: Registered Designs Act 1949, s 35ZA(6). 187 Registered Designs Act 1949, s 35ZA(3)(a). 188 Registered Designs Act 1949, s 35ZA(3)(b). 189 Registered Designs Act 1949, s 35ZA(3)(c). 190 Registered Designs Act 1949, s 35ZA(4). 191 Registered Designs Act 1949, s 35ZA(5).

417

7.87  Designs

local trading standards departments are responsible for enforcement.192 There are also provisions that enable the forfeiture of products or articles.193

Breach of secrecy orders for defence purposes 7.87 The Act includes provisions under which the registrar may make certain orders that information concerning a design shall be kept secret ‘for the defence of the realm’.194 Failure to comply with such an order is a criminal offence.195 The provisions may be compared with the equivalent provisions in respect of patents.196

Falsification of the register 7.88

An offence is committed where a person: ‘… makes or causes to be made a false entry in the register of designs, or a writing falsely purporting to be a copy of an entry in that register, or produces or tenders or causes to be produced or tendered in evidence any such writing, knowing the entry to be false …’.197

False representations that a design is registered 7.89

An offence is also committed198 where a person: ‘(1) … falsely represents that a design applied to, or incorporated in, any product sold by him is registered … and for the purposes of this provision a person who sells a product having stamped, engraved or impressed thereon or otherwise applied thereto the word “registered”, or any other word expressing or implying that the design applied to, or incorporated in, the product is registered, shall be deemed to represent that the design applied to, or incorporated in, the product is registered …

192 Registered Designs Act 1949, s 35ZB. 193 Registered Designs Act 1949, s 35ZC. 194 Registered Designs Act 1949, s 5, as amended by Copyright, Designs and Patents Act 1988, s 273, and Registered Design Regulations 2001 (SI 2001/3949), reg 9(2) and Sch 2. Whilst the equivalent provisions in respect of patents may be sensible, it is difficult to imagine that the country’s security interests would normally be harmed by the disclosure of a registered design. 195 Registered Designs Act 1949, s 33. 196 See Ch 4. 197 Registered Designs Act 1949, s 34. These provisions are similar to the equivalent provisions in respect of patents; see para 4.65. 198 Registered Designs Act 1949, s  35, as amended by Registered Design Regulations 2001 (SI 2001/3949), reg 9(1) and Sch 1, paras 10(1)–(3). For the equivalent provisions in respect of patents, see para 4.66.

418

Community Design 7.91

(2) … after the right in a registered design has expired, marks any product to which the design has been applied or in which it has been incorporated with the word “registered”, or any word or words implying that there is a subsisting right in the design under this Act, or causes any such product to be so marked …’.

Liability of directors, officers etc 7.90 The 1949 Act includes provisions199 which make a ‘director, manager, secretary or other similar officer’ of an organisation criminally liable for offences committed under the Act by the organisation, in certain limited circumstances.

COMMUNITY DESIGN General 7.91 In 2001 the EU introduced Europe-wide protection for designs200 (in this section, the ‘Design Regulation’). In summary, the Design Regulation provides for the following: •

The introduction of two new types of design protection directly applicable in each member state:201 –

long-term (up to 25 years) protection on registration of a design – a Registered Community Design (‘RCD’);202 and

–

short-term (for three years) protection for designs without the need for registration – an Unregistered Community Design (‘UCD’);203

(when referring to both together in this section, ‘Community Design(s)’). •

These Community Designs are effective throughout the EU.204

199 Registered Designs Act 1949, s 35A, as inserted by the Copyright, Designs and Patents Act 1988. The provisions are identical to those which apply in the case of patents and are discussed in para 4.69. 200 Council Regulation (EC) 6/2002 ([2002]  OJ L3/1) on Community designs (‘Design Regulation’). 201 Design Regulation, Art 1(2). 202 Available from 1 April 2003. 203 Available from 6 March 2002. 204 Design Regulation, Art 1(1). Design Regulation, Art 1(3) provides that a Community Design shall ‘have a unitary character. It shall have equal effect throughout the Community. It shall not be registered, transferred or surrendered or be the subject of a decision declaring it invalid, nor shall its use be prohibited, save in respect of the whole Community. This principle and its implications shall apply unless otherwise provided in this Regulation’. According to the last publicly available annual report (2016) of the EUIPO, the number of applications for an RCD now exceeds 100,000 per year, and up to 2013 there were over 700,000 RCDs (WIPO report).

419

7.91  Designs

•

The European Union Intellectual Property Office (EUIPO) and the UK Intellectual Property Office administer the RCD.205

•

The criteria for protection are expressed in similar terms as in the Design Directive and as implemented in the 1949 Act.206 These criteria are the same whether the design is an RCD or UCD.

•

The length of protection provided to each type of Community Design is different: – for the RCD: five years initially from the date of filing an application. It is possible to renew registration for further five-year periods, up to a maximum of 25 years from the date of filing;207 and –

•

for the UCD: three years from the date on which the design was made available to the public within the EU.208 Protection for the UCD only commences from that date.

The main rights of the Community Design are that the proprietor has the exclusive right to use it and to prevent any third party from using it where the third party does not have consent from the proprietor.209 The proprietor of an RCD or UCD receives the same level of protection and

205 Design Regulation, Art 12. The EUIPO was known as the Office for Harmonisation in the Internal Market (Trade Marks and Designs) until 23 March 2016. 206 Most of the elements concerning registered designs are set out in para 7.54 above. In Recital 3 of the Design Regulation it is noted that there are substantially different member state design laws and the Design Directive is to remedy this situation; Recital 3 states that the ‘substantive provisions of this Regulation on design should be aligned with the respective provisions in the [Directive]’. Compare Arts 3–10 of the Design Regulation to Arts 1–8 of the Design Directive to see the similarity of the wording. However, not all of the provisions between the Design Regulation and the Design Directive are expressed in the same way; for example, concerning ownership, under the Design Directive a commissioner of a design ‘for money or money’s worth’ can register a design whereas under the Design Regulation such a provision is not incorporated (Art 14). 207 Design Regulation, Art 12. 208 Design Regulation, Art 11(1); ‘made available to the public within the European Community’ means that the design ‘has been published, exhibited, used in trade or otherwise disclosed in such a way that, in the normal course of business, these events could reasonably have become known to the circles specialised in the sector concerned, operating within the Community. The design shall not, however, be deemed to have been made available to the public for the sole reason that it has been disclosed to a third person under explicit or implicit conditions of confidentiality’. The creation of two types of Community Designs is prompted by the need to serve all sections of the industry in the Community. One should be to provide short-term protection for designs where the design would be incorporated in products which have a short market life. Therefore, to require registration would be too great a burden for the owner/designer of the design: Recitals 15–17 of the Regulation. 209 Design Regulation, Arts 19(1), (2). The right is spelt in the same terms as the Design Directive and as implemented in Registered Designs Act 1949, s 7.

420

Community Design 7.91

rights except that for a UCD210 the rights are only infringed where there is copying of the protected design.211 •

The ‘fair dealing’ provisions are almost identical for the Design Regulation as for the Design Directive.212 There is one substantial difference between the two: for an RCD, a third party, if he or she can establish that, before the date an application for an RCD is filed (or priority is claimed), he or she has in good faith commenced use within the EU (or has made serious and effective preparations to that end) of a design which is included in the scope of protection of a registered Community Design which has not been copied from the latter, he or she will have a right of prior use.213 This right entitles the third party to exploit the design but not to grant a licence to another person to exploit the design.214

•

The Design Regulation sets out detailed provisions for the application for, and practice and procedure concerning, an RCD.215

•

The Community Design will vest in the designer, or the designer’s employer, where the designer created the design in the execution of his or her duties or following instructions given by the employer.216

•

The Design Regulation provides sanctions in actions for infringements217 which can be enforced in the UK courts.218

210 Design Regulation, Art 19(1). See para  7.91 above for a description of some of the rights conferred by the Directive and the Regulation. 211 Design Regulation, Art 19(2). The Article goes further by stating what is not deemed to be copying: ‘The contested use shall not be deemed to result from copying the protected design if its results fixed from an independent work of creation by a designer who may be reasonably thought not to be familiar with the design made available to the public by the holder’. 212 See para 7.x above for an outline of them as they have been implemented in the Registered Designs Act 1949 by the Design Directive. 213 Design Regulation, Art 22. This right of (limited) prior use is now also available to persons where there is a design registered under the Registered Designs Act 1949. 214 Design Regulation, Art 22(2), (3). 215 Design Regulation, Arts 35–78. 216 Design Regulation, Art 14(1), (3). It should be noted that unlike UK  Design Right and UK Registered Design, title does not automatically vest in the commissioner. 217 Design Regulation, Art 89(1)(a)–(c), which provides for (i) injunctions, (ii) an order to seize infringing products, and (iii) an order to seize materials and implements which are primarily for use in the manufacture of infringing goods. Also available are damages, accounts, orders for delivery up and disposal of infringing articles etc; see Community Design Regulations 2005 (SI 2005/2339), as amended. 218 The High Court and the Patents County Court have been designated as ‘Community Design courts’ which can deal with Community Design infringements; see Community Designs (Designation of Community Design Courts) Regulations 2005 (SI 2005/696).

421

7.92  Designs

Provisions of a Community Design which are of direct relevance to commercial transactions Nature of Community Design 7.92 Subject to certain articles,219 a Community Design is ‘an object of property’ which shall be dealt with in its entirety, and for the whole area of the Community, as a national design right of the member state in which the holder has domicile or is established.220 As the 1949 Act has been amended so that a registered design is now clearly stated to be personal property, and this amendment and others were made to bring this Act in line with the Design Directive, it can be reasonably assumed that a Community Design is also personal property.221

Licensing 7.93 It is possible to license (whether exclusively or non-exclusively) a Community Design for the whole or part of the EU.222 A holder: •

can invoke the rights provided by the Community Design against a licensee who contravenes any provision in his or her licensing contract with regard to its duration, the form in which the design may be used, the range of products for which the licence is granted and the quality of products manufactured by the licensee;223

•

has to give his or her consent if a licensee wishes to bring proceedings for infringement of a Community Design.224

Transfer 7.94 The Design Regulation does not have any specific provisions regarding the transfer (eg  assignment) of a Community Design other than that to acknowledge that, once a transfer has taken place regarding an RCD, it is necessary to enter it into the register of registered Community Designs.225 219 For example, the article concerning licensing; see further below. 220 Design Regulation, Art 27(1). 221 See para 7.50 above. 222 Design Regulation, Art 32. But other than this provision, and certain other provisions concerning the transfer of an RCD (its being given as security, being levied in execution and a Community Design being involved in insolvency proceedings), a Community Design can only be dealt with in its entirety and for the whole area of the Community (Community Design Regulation, Art 27). 223 This provision is without prejudice to any legal proceedings which would be based on the law of contract. 224 Again this provision is without prejudice to any licensing contract. An exclusive licensee can bring an action, but only if the holder does not do so within the relevant time limits. 225 Community Design Regulation, Art 28.

422

Community Design 7.98

Actions against a licensee 7.95 A proprietor of a Community Design can invoke the rights conferred by a Community Design against a licensee who contravenes any provision in his or her licensing contract in regard to: • its duration; • the form in which the design may be used; • the range of products for which the licence is granted; and • the quality of products manufactured. A  licensee requires the consent of the rights holder to bring infringement proceedings unless the licensee has an exclusive licence, in which case he or she can bring infringement proceedings, if after notice the rights holder refuses to do so.226

Applications 7.96 It was possible to make applications for RCDs from 1 January 2003, but the first RCD was not available until 1 April 2003. Applications can be made direct to the EUIPO or the UK Intellectual Property Office, who will forward an application on to the EUIPO (for a fee).

Unjustified threats of infringement proceedings Introductory point 7.97 This section considers the provisions relating to unjustified threats of infringement proceeds for all three types of design – registered designs, design right and Community Design. Following the bringing into law of the Intellectual Property (Unjustified Threats) Act 2017, the provisions for all three are identical (as they are now too for patents and trade marks) – setting out the provisions for each separately would be repetitive.227 For the background to the 2017 Act, see para 4.02.

The making of a threat of infringement proceedings 7.98 For there to be a ‘threat of infringement proceedings’ a person228 has to send a communication that states: 226 Community Design Regulation, Art 32. 227 There are a few very minor differences, but they are not relevant to what is set out in this section. 228 The wording here does not indicate that the sender has to be the owner of the type of design concerned (or anyone who has a right under the registered design, design right or Community Design). However, for example, only the registered design owner or an exclusive licensee has the right to bring proceedings (Sections 24A, 24F of the 1949 Act).

423

7.99  Designs

(1) a registered design exists, or a design right subsists in a design or a Community Design exists;229 and (2) the person intends to bring proceedings230 against another person for infringement of the registered design, design right or Community Design by: (a) an act done in the UK; or (b) an act which, if done, would be done in the UK.231 There is an objective test as to whether such a communication would amount to a threat of infringement proceedings – that is, would a ‘reasonable person’ understand that the communication contains (1) and (2) above?232

How it is possible to communicate the threat of infringement proceedings 7.99

It is possible for a person to communicate the threat either:

•

by a communication addressed directly to a specific recipient; or

•

generally, such as to the public (or a specific section of the public).233

229 Registered Designs Act 1949, s 26(1); Copyright, Designs and Patents Act 1988, s 253(1); Community Design Regulations 2005 (SI  2005/2339), reg  2(1). For a registered design, a reference to a registered design also means an application for a registered design made under Registered Designs Act 1949, s 3. 230 The proceedings may be brought within or without the UK: Registered Designs Act 1949, s  26(1)(b); Copyright, Designs and Patents Act 1988, s  253(1)(b); Community Design Regulations 2005 (SI 2005/2339), reg 2(1)(b). 231 Registered Designs Act 1949, s 26(1)(b); Copyright, Designs and Patents Act 1988, s 253(1) (b); Community Design Regulations 2005 (SI 2005/2339), reg 2(1)(b). 232 Registered Designs Act 1949, s 26(1); Copyright, Designs and Patents Act 1988, s 253(1); Community Design Regulations 2005 (SI 2005/2339), reg 2(1). 233 Registered Designs Act 1949, s 26(2); Copyright, Designs and Patents Act 1988, s 253(2); Community Design Regulations 2005 (SI  2005/2339), reg  2(2). UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance provides an example of what would constitute a communication to the public in relation to patents: A patent owner puts on its website a notice that products of a particular type which are manufactured by a manufacturer will infringe the patent owner’s patent. Also, the notice states that the patent owner will take steps to prevent further infringement of the patent. It is possible for potential purchasers of the product to read this notice. The guidance indicates that there is an ‘inference […] that a purchaser of [the manufacturer’s] product might be infringing by buying it. The test would be whether a reasonable person in the position of a potential purchaser of that type of product would understand the webpage text to contain a threat to sue them. Recent case law suggests that the test would be satisfied in these circumstances’.

424

Community Design 7.101

The right to bring proceedings for a threat of infringement proceedings 7.100 Where a person makes a threat of infringement proceedings, a person who is aggrieved by the threat can take action in respect of the threat.234 This right to take action is subject to a number of exceptions.

Situations when a threat of infringement proceedings is not actionable 7.101 A  threat of infringement proceedings is not actionable where the allegation of infringement consists of:235 (1) making or disposing of a product or article;236 (2) importing a product or article for disposal;237 (3) an intention to make or dispose of a product or article;238 or (4) an intention to import a product or article for disposal;239 (5) either (1), (2), (3) or (4) (‘Primary acts of infringement’) and a secondary act of infringement, which would consist of a threat of infringement proceedings where the allegation consists of doing anything else in relation to the product or process.240 Exception (5) in the list would allow a person to threaten infringement proceedings only where the allegation is, for example, that the alleged infringer is making and selling a product. The wording of the section appears to mean that the person making the threat has to allege that the alleged

234 Registered Designs Act 1949, s 26A(1); Copyright, Designs and Patents Act 1988, s 253A(1); Community Design Regulations 2005 (SI 2005/2339), reg 2A(1). UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates that ‘a “person aggrieved” means any person whose commercial interests have been or might be affected by the threat in a real rather than a fanciful way’. This meaning is not found itself in the 1949 Act or the 2017 Act. 235 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates that those that make or dispose of a product (or use a process) are ‘primary actors’, and others who do not fall into these categories are ‘secondary actors’. 236 Registered Designs Act 1949, s  26A(2)(a); Copyright, Designs and Patents Act 1988, s 253A(2)(a); Community Design Regulations 2005 (SI 2005/2339), reg 2A(2)(a). 237 Registered Designs Act 1949, s  26A(2)(b); Copyright, Designs and Patents Act 1988, s 253A(2)(b); Community Design Regulations 2005 (SI 2005/2339), reg 2A(2)(b). 238 Registered Designs Act 1949, s 26A(3); Copyright, Designs and Patents Act 1988, s 253A(3); Community Design Regulations 2005 (SI 2005/2339), reg 2A(3). 239 Registered Designs Act 1949, s 26A(3); Copyright, Designs and Patents Act 1988, s 253A(3); Community Design Regulations 2005 (SI 2005/2339), reg 2A(3). 240 Registered Designs Act 1949, s 26A(4); Copyright, Designs and Patents Act 1988, s 253A(4); Community Design Regulations 2005 (SI 2005/2339), reg 2A(4).

425

7.102  Designs

infringer is both making the product and also selling it. If the allegation only consists of selling a product, the available exceptions would not apply.241 One implication is that a person cannot send a communication threatening infringement proceedings to another person where the other person does not make or dispose of a product or does not use a process – unless the person sending the communication wishes to run the risk of an action.

Communications which do not contain express threats 7.102 A  communication which does not contain an express threat of infringement proceedings is also not actionable by the recipient but only if it is a ‘permitted communication’.242 For a communication to be a ‘permitted communication’, it has to fulfil the following conditions: •

the communication must be made for a ‘permitted purpose’, to the extent that the communication contains information relating to a threat;243 and

•

all of the information that relates to a threat is ‘necessary information’ for that purpose and the person sending the communication has a reasonable belief in its truth.244

‘Permitted purpose’ is defined, and the 1949 Act gives examples of what constitutes ‘necessary information’.

Permitted purpose245 7.103 The 1949 Act states what is and what is not a permitted purpose. 241 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance provides an example in relation to patents, where a manufacturer makes and sells a patented product but also sells the same product which is made by another manufacturer. The examples goes on to indicate that a threat made by the patent owner of legal action for infringement against the first manufacturer for making and selling the product is not actionable, but a threat for selling the other manufacturer’s product is actionable. It is not clear from the guidance whether this is just an example or is meant to illustrate the meaning of exception (5). 242 Registered Designs Act 1949, ss 26A(5), 26B(1); Copyright, Designs and Patents Act 1988, ss 253A(5), 253B(1); Community Design Regulations 2005 (SI 2005/2339), regs 2A(5), 2B(1). 243 Registered Designs Act 1949, s 26B(1)(a); Copyright, Designs and Patents Act 1988, s 253B(1) (a); Community Design Regulations 2005 (SI 2005/2339), reg 2B(1)(a). 244 Registered Designs Act 1949, s 26B(1)(b)(i), (ii); Copyright, Designs and Patents Act 1988, s 253B(1)(b)(i), (ii); Community Design Regulations 2005 (SI 2005/2339), reg 2B(1)(b)(i), (ii). 245 UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance indicates the policy reasons for allowing ‘permitted communications’: the introduction of ‘a “safe harbour” of “permitted communications” […] allows parties to communicate disputes without running the risk of triggering litigation. The provisions allow rights holders to attempt to identify the source of infringement by engaging those further down the supply chain under a clear framework’. The principle of such communications is that the rights holder should be attempting to identify the source of the infringement (a person who is carrying out a primary act of infringement).

426

Community Design 7.104

A ‘permitted purpose’ is: •

a statement that the registered design, design right or Community Design exists;

•

to discover whether a primary act of infringement has infringed a registered design, design right or Community Design, and who has infringed the registered design, design right or Community Design; or

•

a person notifying a recipient that the person has a right in (such as the registered design, design right or Community Design owner) or under (such as a licensee) a registered design, design right or Community Design where the recipient’s awareness of the right is relevant to any proceedings.246

It is possible for a court to make another purpose a permitted purpose if the court considers that it is in the interests of justice to do so.247 What is not a permitted purpose is a request that a person: •

stops doing, for a commercial purpose, anything in relation to a product or process;

•

delivers up or destroys a product; or

•

gives an undertaking relating to a product or process.248

Necessary information 7.104 If the following information is included in a communication which is made for a permitted purpose, it is considered necessary information that relates to a threat: •

a statement that a registered design, design right or Community Design exists and is in force (or an application has been made);

246 Registered Designs Act 1949, s  26B(2)(a)–(c); Copyright, Designs and Patents Act 1988, s  253B(2)(a)–(c); Community Design Regulations 2005 (SI  2005/2339), reg  2B(2)(a)–(c). UKIPO’s The Intellectual Property (Unjustified Threats) Act 2017 Business Guidance gives an example of what would and would not amount to a permitted communication: the patent owner sends a communication to a shop indicating that the shop is selling a product which the patent owner believes infringes its patent. The communication asks for details of the manufacturer or importer of the product. The communication then goes on to state that there is attached a transcript of a case that the patent owner brought for infringement concerning an unrelated product and is provided to the shop as information. The part of the communication relating to asking details of the manufacturer or importer would be for a permitted purpose (as long as the patent owner can show that it reasonably believed that the information in the communication was true) and would not be actionable. But the statement about the transcript would not be for a permitted purpose and would be actionable. 247 Registered Designs Act 1949, s 26B(3); Copyright, Designs and Patents Act 1988, s 253B(3); Community Design Regulations 2005 (SI 2005/2339), reg 2B(3). 248 Registered Designs Act 1949, s  26B(4)(a)–(c); Copyright, Designs and Patents Act 1988, s 253B(4)(a)–(c); Community Design Regulations 2005 (SI 2005/2339), reg 2B(4)(a)–(c).

427

7.105  Designs

•

details of a registered design, design right or Community Design (or a right in or under it), but the details must be accurate in all material respects and must not be misleading in all material respects;

•

information that enables the identification of the products or process which are the subject of the alleged acts of infringement of the registered design, design right or Community Design.249

Remedies 7.105 Where there is an actionable threat, it is possible to bring proceedings against the person who made the threat for the following remedies: •

a declaration that the threats are unjustifiable;

•

an injunction against the continuance of the threats; and

•

damages in respect of any loss sustained by the aggrieved person because of the threats.250

Defences 7.106 A person who makes a threat has two defences available: •

s/he can show that the act which is mentioned in the threat infringes (or would infringe) the patent;251

• s/he: – cannot identify anyone who has carried out a primary act of infringement, despite taking reasonable steps; and –

notified the recipient of the threat of the steps that s/he took (whether before making the threat or at the time of making the threat).252, 253

249 Registered Designs Act 1949, s  26B(5)(a)–(c); Copyright, Designs and Patents Act 1988, s 253B(5)(a)–(c); Community Design Regulations 2005 (SI 2005/2339), reg 2B(5)(a)–(c). 250 Registered Designs Act 1949, s  26C(1)(a)–(c); Copyright, Designs and Patents Act 1988, s 253C(1)(a)–(c); Community Design Regulations 2005 (SI 2005/2339), reg 2C(1)(a)–(c). 251 Registered Designs Act 1949, s 26C(3); Copyright, Designs and Patents Act 1988, s 253C(3); Community Design Regulations 2005 (SI 2005/2339), reg 2C(3). 252 Section 70C(4) of the 1977 Act. 253 Registered Designs Act 1949, s 26C(4); Copyright, Designs and Patents Act 1988, s 253C(4); Community Design Regulations 2005 (SI 2005/2339), reg 2C(4).

428

Comparison of features of the various forms of design protection 7.108

Professional advisers 7.107 It is not possible to bring proceedings against a professional advisor254 for an actionable threat, subject to the following conditions:255 •

the professional advisor acted on the instructions of another person when the professional advisor has sent the communication with the threat of infringement proceedings; and

• the communication identifies the person who has instructed the professional advisor.256 The person who has instructed the professional advisor remains liable for a threat, even if the person has a professional advisor acting on the person’s behalf.257

COMPARISON OF FEATURES OF THE VARIOUS FORMS OF DESIGN PROTECTION 7.108 Protection

Design Right

Registered Design

Registered Community Design

Unregistered Community Design

Length of protection

15 years from end of calendar year in which the design was first recorded or an article was first made (whichever comes first); or 10 years from the end of the calendar year if the design is made available for sale or hire within 5 years

5 years from the date of registration, renewable in 5-year periods, up to a total of 25 years

5 years from the date of filing of an application, renewable in 5-year periods, up to a total of 25 years

3 years from the date on which the design was first made available to the public

First owner

Designer, unless created in the course of employment, then the employer

The author of the design, unless created in the course of employment, then the employer

The designer, unless created in the course of employment, then the employer

Same as for RCD

254 A professional advisor is a person who is acting in a professional capacity of providing legal services or the services of a patent or trade mark attorney, and is regulated as concerns the provision of those services by a regulatory body: Registered Designs Act 1949, s 26D(2); Copyright, Designs and Patents Act 1988, s 253D(2); Community Design Regulations 2005 (SI 2005/2339), reg 2D(2). 255 Registered Designs Act 1949, s 26D(1); Copyright, Designs and Patents Act 1988, s 253D(1); Community Design Regulations 2005 (SI 2005/2339), reg 2D(1). 256 Registered Designs Act 1949, s  26D(3)(a), (b); Copyright, Designs and Patents Act 1988, s 253D(3)(a), (b); Community Design Regulations 2005 (SI 2005/2339), reg 2D(3)(a), (b). 257 Registered Designs Act 1949, s 26D(4); Copyright, Designs and Patents Act 1988, s 253D(4); Community Design Regulations 2005 (SI 2005/2339), reg 2D(4).

429

7.108  Designs Protection

Design Right

Registered Design

Meaning of design

The design of any aspect of the shape or configuration (whether internal or external) of the whole or a part of an article

The appearance of Same as for the whole or a part of Registered Design a product resulting from the features of, in particular, the lines, contours, colours, shape, texture or materials of the product or its ornamentation

Same as for Registered Design

Criteria for protection

That the design is original

Same as for That the design: Registered Design (a) is new (b) has individual character (c) is not dictated solely by its technical function (d) is not contrary to public policy or morality

Same as for Registered Design

Exclusion from That the design: (a) features of Same as for protection (a) is common-place appearance of a Registered Design in the design field product which are in question solely dictated (b) is a method or by the product’s principle of technical function construction (b) features of (c) contains features appearance which of shape or must necessarily configuration of be reproduced in an article which their exact form allow it to be and dimension in connected to/ order to permit placed in/around/ the designed against another product to be article to allow mechanically either to function connected to, or (‘must-fit’) or placed in, around is dependent on or against another appearance of product so that another article either product of which it is may perform its intended to form function an integral part (c) a design which (‘must-match’) is contrary to (d) is surface public policy decoration or to accepted principles of morality

Same as for Registered Design

Formalities

None – but protection will arise on making design available to the public

None – but design Registration needs to be recorded in a design document for protection to arise

430

Registered Community Design

Registration

Unregistered Community Design

Comparison of features of the various forms of design protection 7.108 Protection

Design Right

Registered Design

Registered Community Design

Unregistered Community Design

Rights

The owner of the design right has the exclusive right to reproduce (ie copy) the design: (a) by making articles to that design, or (b) by making a design document recording the design for the purpose of enabling such articles to be made

Exclusive right of the registered proprietor to use the design and any design which does not produce on the informed user a different overall impression

Exclusive right for the registered holder of an RCD to use it and to prevent any third party not having his or her consent from using it. The use covers: (a) making (b) offering (c) putting on the market (d) importing (e) exporting, or (f) using of a product in which the design is incorporated or to which it is applied, or stocking such a product for those purposes

Same as for RCD, but: (a) only if the contested use results from copying the protected design; and (b) the contested use is deemed not to result from copying the protected design if it results from an independent work of creation by a designer who may be reasonably thought is not familiar with the design made available to the public

Extent of protection

UK

UK

EU

EU

1950 (9 December 2001, for applications following implementation of the Design Directive)

6 March 2002 (but 6 March 2002 the date on which applications can be made is still awaited)

Date of 1 January 1989 implementation

431

CHAPTER 8

The Law of Confidence Introduction435 Some recent developments in the law of confidence 437 Protection of technical information 438 Patents438 Copyright439 Employees439 The law of confidence and its application to technical information 440 Meanings of the term ‘know-how’ 440 Organisation of this chapter 442 Law of confidence – equitable and contractual 443 Scope of the law of confidence 443 Protection of know-how under the law of confidence 444 The form in which information must be recorded to be subject to obligations of confidentiality and the requirement for ‘originality’ 444 Whether contractual and equitable obligation of confidence can cover the same set of circumstances 446 Circumstances in which a breach of confidence arises 447 The necessary quality of confidence 447 Circumstances importing a duty of confidence 450 Marking a document or information as confidential 450 Objective or subjective test to determine whether the circumstances in which the confidential information was disclosed will import an obligation of confidentiality? 451 Agreement to keep information confidential 452 Manner in which information is acquired 452 Where a third party receives or obtains information which is confidential453 Unsolicited information 455 Information disclosed in the course of negotiations 456 Information disclosed under a contract 456 Use of the information outside limits of authorisation 457 The defendant’s state of mind 458 Form in which the information is disclosed 458 Duration of an obligation of confidence 459 Release460 What employer confidential information can an employee use during and after termination of their employment? 462 Confidential information and employees 462 Current employees 462 Former employees 463

433

The Law of Confidence Some consequences for employers wishing to protect their confidential information 465 Consequences of breaching a duty of confidence 467 The enforcement of commercial confidentiality obligations 467 The springboard doctrine 469 The formulation of the ‘springboard doctrine’ 470 ‘Principles’ for obtaining a springboard injunction 471 Length of a springboard injunction 472 What happens if part of the information remains confidential? 472 The Trade Secrets Directive 474 Circumstances when the 2018 Regulations apply: the unlawful acquisition, use and disclosure of a trade secret 475 Meaning of a ‘trade secret’ 476 Types of information 477 Commercial value 477 Type of information which is not within the definition of a ‘trade secret’ for the purposes of the Trade Secrets Directive 478 What would amount to ‘reasonable steps in the circumstances’ to keep the information secret? 478 ‘Holder’ of a trade secret 479 Bringing proceedings 479 Time limits for bringing proceedings 480 Remedies available 480 The Trade Secrets Directive and the unlawful acquisition, use and disclosure of a trade secret 481 When it is lawful to acquire a trade secret 482 When it is unlawful to acquire, use or disclose a trade secret 482 Permitted exceptions when a person is faced with a claim for alleged acquisition, use or disclosure of a trade secret 483 Contract484 Strengths and weaknesses of the law of confidence 484 Strengths of the law of confidence 485 Weaknesses of the law of confidence 486 Appendix486 Vestergaard Frandsen A/S v Bestnet Europe Ltd486 Valeo Vision SA v Flexible Lamps Ltd488 Invista Textiles (UK) Ltd and another company v Botes and others491 Facts491 Confidential information 492 Provisions from the contract of employment 492 Arguments of the parties 493 Judge’s findings 493 Misuse of confidential information 494 Non-competition495 Provisions from the contract of employment 495 Arguments of the parties 496

434

Introduction 8.01 The findings of the judge Other findings and conclusion

496 498

INTRODUCTION 8.01 The area of law that protects confidential information (sometimes known as the law of confidence) is central to any discussion of the laws relating to the creation, exploitation or transfer of technology. The law of confidence is relevant in a number of different commercial situations. The most commonly encountered may be the following: Confidential information as a tradable asset: it is common for organisations and persons to license confidential ‘know-how’1 in a similar way to patents and other types of intellectual property. The most obvious official recognition of this practice (if official recognition is needed) is in the EU the Technology Transfer Regulation which covers (among other IP types) the licensing of ‘know-how’, a specific type of confidential information (‘a package of practical information, resulting from experience and testing … that is secret …’).2 Strictly, know-how is not a type of intellectual property, in the way that patents and copyright are intellectual property.3 Yet the law of confidence gives sufficient protection to know-how for commercial organisations to regard it as a valuable asset and suitable for licensing on commercial terms. The nature of this protection is in some respects quite different to the protection available to forms of intellectual property. Perhaps, the best way to characterise the protection available to each is as follows:

1 2 3

The meaning of the term ‘know-how’ is discussed at para 8.06 below. Commission Regulation (EC) 772/2004 ([2004] OJ L123/11) on the application of Article 81(3) of the Treaty to categories of technology transfer agreements, Arts 1(1)(b), (c), 2(1) etc. See Ch 13. Lawyers have discussed the nature of confidential information, and in particular whether it is protected under the law of property, the law of equity, trusts, contract etc. See eg Gurry on Breach of Confidence: The Protection of Confidential Information (2nd edn, Oxford, 2012). The best view seems to be that confidential information is not property (a proposition which is supported by recent case law: see eg Douglas v Hello! Ltd (No 3) [2005] EWCA Civ 595; [2006] QB 125 at paras 119, 126–127). Commonly, confidentiality obligations arise under the law of contract, as in the case of written confidentiality agreements. But in the absence of a formal agreement, a person may still owe legally enforceable duties of confidence under the law of equity. An important feature of the law of equity is that its remedies are generally at the discretion of the court. There are also various ‘rules’ of equity which may be invoked by the court and adversely affect a party. Eg, ‘he who comes to equity must come with clean hands’. The best course for parties is for them to decide the extent of their duties through contractual terms, in writing.

435

8.01  The Law of Confidence

•

confidential know-how: the protection for know-how will generally only exist where the know-how is and remains secret;

•

intellectual property: the protection for intellectual property will exist, regardless of whether it is secret or not.

Preventing the misuse or disclosure of business secrets: the owner or licensee of business secrets (which may include manufacturing know-how) may need to take action to prevent misuse or disclosure of those secrets by others. As discussed below, it is not always necessary for a confidentiality agreement to be in place for obligations of confidence to arise. A  common example of this is where an employee leaves a company and joins a rival company, with the employee taking information learnt whilst working for the former employer. In certain circumstances it is possible to obtain an injunction to prevent the employee (or his or her new employer) from misusing such information and/or obtain damages in respect of any misuse.4 The law in this area affects a broader category of information than just technical know-how. Some of the leading court decisions in this field do not concern technical information, but concern more general business secrets (including sales and customer information),5 although the courts have decided on a number of cases directly concerned with technology-related businesses.6 The law of confidence is an important method for holders of know-how to prevent its misuse, whether by their employees or others who have, are presumed or are assumed to have, a legal duty not to use or disclose that know-how. This chapter briefly summarises the law of confidence as it applies to technical information and technology transfer. In technology-based industries, confidentiality obligations are often derived from (sometimes detailed) written confidentiality agreements. Chapter 2 includes a discussion of the commercial and practice issues that commonly arise in confidentiality agreements.

4 5

See para 8.28 below. Faccenda Chicken v Fowler [1987] Ch  117, [1986]  FSR  291 (CA) (a leading case which concerned the misuse of customer lists by a frozen chicken salesman). This case has been applied in a number of decisions, such as Wallace Bogan & Company v Cove [1997] IRLR 453 (involving solicitors canvassing clients of their ex-employer); AT  Poeton (Gloucester Plating) Ltd v Michael Ikem Horton [2001] FSR 169 (involving a sales engineer employee of the claimant setting up in competition to the claimant and allegedly misusing confidential information concerning the technical process used by the claimant in its business, as well as customer lists). 6 Eg Searle v Celltech [1982]  FSR  92; Vestergaard Frandsen A/S  v Bestnet Europe Ltd [2013]  UKSC  31; Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch).

436

Some recent developments in the law of confidence 8.02

SOME RECENT DEVELOPMENTS IN THE LAW OF CONFIDENCE 8.02 The major development since the third edition of this book for the purposes of this chapter is the passing into law of the Trade Secrets Directive7 and its implementation into UK law from 9 June 2018. This is a significant legislative measure which has the aim to achieve a minimal amount of harmonisation of the laws among member states in the EU in regard to a subset of confidential information – that is, commercial confidential information (otherwise known as ‘trade secrets’). Although this new legislative measure is not specifically targeted at the information generated or used by persons involved in technology transfer, it does cover that type of information. The Trade Secrets Directive is significant for several reasons, but in particular for the UK: (1) it introduces a statutory definition into UK law for some confidential information (in a way not precisely seen before for confidential information in the UK); and (2) it sets out a set of remedies available for trade secrets. The UK government considers that the existing law of confidence already exceeds the level of protection which the Trade Secrets Directive provides and has not implemented all of its provisions. It has implemented the Trade Secrets Directive by means of a statutory instrument8 (‘2018 Regulations’) which, in summary: •

provides a definition of the meaning of a trade secret;

•

states the circumstances when there is a breach of confidence: an unlawful acquisition, use or disclosure of the trade secret occurs where the acquisition, use or disclosure constitutes a breach of confidence in confidential information (that is, by using the principles established by the existing common (equitable) law of confidence developed by the courts);

•

states that, where there is unlawful acquisition, use or disclosure of the trade secret, the trade secret holder can either use: –

the remedies provided in the 2018 Regulations; or

– existing common-law remedies, if the common-law remedies provide wider protection than those in the 2018 Regulations;

7 8

Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. The Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597). In force from 9 June 2018 (reg 1).

437

8.03  The Law of Confidence

•

provides a definition for a person who has possession of a trade secret which is set out in terms other than there being ownership of a trade secret (‘trade secret holder’).

There is further consideration of the Trade Secrets Directive and the 2018 Regulations at para 8.38 onwards. Other developments are less significant and arise from decisions of the courts in the UK. Two are of particular interest as they involve technology-based companies and their scientist (ex-)employees, and are areas of concern for possessors of confidential information: •

Vestergaard Frandsen A/S  v Bestnet Europe Ltd,9 which summarised the circumstances when a third party can be under an obligation of confidentiality to the discloser of confidential information, where the third party has not received or used the confidential information directly from the disclosing party (that is, there is no direct relationship between the disclosing party and the third party). This case is considered further at para 8.19; and

•

Invista Textiles (UK) Ltd and another company v Botes and others10 which considered obligations of confidentiality and non-complete covenants (and illustrates the difficulties an employer can have in enforcing such covenants). This case is considered further at para 8.31.

In addition to consideration in the relevant places in this chapter, an appendix to this chapter sets out more facts and key parts from the decisions made in these cases, as an illustration of how the courts have recently dealt with these areas.

PROTECTION OF TECHNICAL INFORMATION Patents 8.03 It is useful to compare the protection that the law of confidence affords to confidential information with that provided by patents. In the area of technical ideas, confidence does not have a long-term role unless the information can be put to commercial use without at the same time becoming public.11 For example, a mechanical device will almost always reveal its workings to experts once it is put on the market, whilst a process of manufacture may not be similarly detectable.  9 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. 10 Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch). 11 In one case it was suggested that a duty of confidence will not be implied (ie where the parties have not expressly agreed that there is a duty of confidence) where it would be reasonable to expect that the subject matter of what is claimed to be protected could be legally protected in another way (such as making an application for a patent, registered design or registered trade mark) (Carflow Products (UK) Ltd v Linwood Securities (Birmingham) Ltd [1996] FSR 424).

438

Protection of technical information 8.05

In the short term, until it is possible to file a patent application (where it is necessary to reveal details of the invention), such disclosure should only take place under obligations of confidence; otherwise, without such obligations, any disclosure will destroy the invention’s novelty.12 In practice, to secure and protect a central invention an application is made for a patent, while information relating to the process of bringing it into commercial production is tied up as secret ‘know-how’ by means of confidentiality undertakings. Thus, it is possible to protect an invention, and the product developed from that invention, by both patents and know-how.

Copyright 8.04 For computer software, copyright and know-how may be more relevant than patents.13 For example: •

if software is commercialised by making only the object code available, but the underlying source code is kept secret, there may be a competitive value in the secret know-how comprised in the source code; or

•

a programmer may make use of or have knowledge of computer and programming techniques and methodologies which are not known either generally or specifically to other programmers. Such techniques and methodologies, although perhaps not reflected in the final code, will have a commercial value if known as they could speed up the work on a computer program or produce better code.

The ‘protection’ given by any know-how will only last as long as it remains secret, ie for as long as competitors of the owner or licensee of the know-how do not have access to it or cannot lawfully duplicate it.14

Employees 8.05 Problems can often arise when managers or other employees try to take the know-how and other confidential information to a rival organisation. A  particular difficulty is distinguishing between the know-how and other confidential information of the employer which:

12 See Patents Act 1977, s 2(4). 13 To obtain a patent for software will require, normally, that not only the software fulfils the criteria for being novel but also that it has a technical effect – that is, something more than simply running on a computer. See para 4.99 onwards. 14 Or perhaps decompile it to obtain interoperability information (where a person is lawfully entitled to do this) (see Ch 5). Of course, software can be decompiled by persons not entitled to do so, and in such information they could access any confidential information contained in the decompiled code, but they would be infringing the copyright of the owner of the software.

439

8.06  The Law of Confidence

•

the courts have characterised as a ‘trade secret’ and which the employee cannot use after termination of her or his employment (whether or not the employee has memorised it);

•

the employee is entitled to treat as his or her general skill and knowledge and can use after termination of their employment,15 and breach of confidence proceedings would be hard to maintain against such employees. Generally, courts are reluctant to burden ex-employees with obligations that will prevent them using their general knowledge and skill to their best advantage.

This is considered further below.16

THE LAW OF CONFIDENCE AND ITS APPLICATION TO TECHNICAL INFORMATION Meanings of the term ‘know-how’ 8.06 The term ‘know-how’ has different meanings in different situations. The term has been defined for specific purposes in UK tax legislation17 and in EU Regulations.18 In certain other legislation the term is not used at all – instead, expressions such as ‘technical information’19 or trade secret (used in EU20 and US legislation)21 are used. With the implementation of the Trade 15 Yates Circuit Foil v Electrofoils [1976] FSR 345. 16 See para 8.28 below. 17 For example, Corporation Tax Act 2009, s 176(1) which defines know-how as ‘any industrial information or techniques likely to assist in (a) manufacturing or processing goods or materials …’. 18 Principally in Commission Regulation (EU) 316/2014 ([2014] OJ L 93/117) of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements, which defines know-how as ‘a package of nonpatented practical information, resulting from experience and testing, which is: (a) secret, that is to say, not generally known or easily accessible; (b) substantial, that is to say, significant and useful for the production of the contract products; and (c) identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality’. 19 For example, see Unfair Contract Terms Act 1977, Sch 1, which states that certain sections of that Act do not apply to: ‘any contract so far as it relates to the creation or transfer of a right or interest in any patent … technical or commercial information …’. 20 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. 21 The Uniform Trade Secrets Act, s 1(4) defines a ‘Trade Secret’ as ‘information including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy’. It appears that only North Carolina has not adopted the Act (see http://uniformlaws.org/Act.aspx?title=Trade%20Secrets%20Act).

440

The law of confidence and its application to technical information 8.06

Secrets Directive into UK law, and the introduction of a defined meaning for a trade secret, its meaning is likely to include know-how.22 In some employment law cases, the term ‘know-how’ has been used in a very specific sense to refer to the general skill and knowledge of an employee, which may have been learnt whilst an employee of X, but which he or she may be entitled to use after leaving the employment of X. In this sense, the term is contrasted with the non-Trade Secrets Directive meaning of ‘trade secrets’ which the employee may not use after ceasing to be an employee of X. In one case the Court of Appeal held: ‘It appears to me that the problem is one of definition: what are trade secrets, and how do they differ (if at all) from confidential information? [the advocate for the defendant] suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication. That is my preferred view of the meaning of trade secret in this context. It can thus include not only secret formulae for the manufacture of products but also, in an appropriate case, the names of customers and the goods which they buy. But some may say that not all such information is a trade secret in ordinary parlance. If that view be adopted, the class of information which can justify a restriction is wider, and extends to some confidential information which would not ordinarily be called a trade secret.’23 It is understood that a similar distinction may be made under certain Federal or State laws in the US. In some cases, it appears that a distinction is also made between confidential information and trade secrets, the latter being the more important and ‘proprietary’ to the employer. In the authors’ experience, business people involved with the licensing of intellectual property and other commercial agreements involving technology do not make distinctions between know-how, confidential information and trade secrets which are made in some employment cases ; accordingly, they should not normally be applied by a court in a dispute involving the

22 Recital 14 of the Trade Secrets Directive indicates that a trade secret covers know-how (together with business information and technological information). The recital does not specify further the meanings of these terms, other than that they have commercial value. The meaning is explored further at para 8.42 below. 23 Lansing Linde Ltd v Kerr [1991] 1 All ER 418 at pp 425–426, approved in FSS Travel and Leisure Systems v Johnson [1998] IRLR 382 and applied in Sectrack NV v Satamatics Ltd and another [2007] EWHC 3003 (Comm), [2007] All ER (D) 312 (Dec). For another case which considers this distinction, see Poly Lina Limited v Finch [1995] FSR 751.

441

8.07  The Law of Confidence

interpretation of a technology-related commercial agreement.24 The term ‘confidential information’ should be understood in a commercial context to mean any information which the law will protect under the law of confidence, as to which see below, whilst the term ‘know-how’ has various meanings, discussed in the following paragraphs. In the authors’ experience, until now, the term ‘trade secrets’ is not commonly used in licence agreements made under English law, although this may change with the implementation of the Trade Secrets Directive. Sometimes the term ‘know-how’ is used in technology-related agreements to refer to all technical information disclosed under the agreement. In licence agreements where both patents and know-how are licensed, the term: •

is used to mean technical information that the licensee is entitled to use but which is not within the claims of the licensed patents;

•

applies only to confidential technical information, to which competitors do not have access;

•

applies to both confidential and non-confidential technical information; or

• has a broader use, to include some non-technical information, eg customer lists, business methods or practices, financial projections, marketing and sales plans and data, pricing information and so on. In summary, although the precise meaning of the term know-how will vary from agreement to agreement, it is suggested that the most common meanings are as follows: (a) technical information (as distinct from marketing or other commercial information); (b) confidential, technical information; or (c) confidential, technical information relating to a manufacturing process.

ORGANISATION OF THIS CHAPTER 8.07

This remainder of this chapter is organised into three sections:

(1) setting out the equitable and contractual protection for confidential information; (2) setting out the main provisions of the 2018 Regulations (and, where relevant, from the Trade Secrets Directive); and (3) considering the strengths and weaknesses of the law of confidence. 24 Unless of course the dispute involves the misuse of technology-type information by an (ex-) employee or perhaps a consultant.

442

Organisation of this chapter 8.08

Law of confidence – equitable and contractual Scope of the law of confidence 8.08 Before the implementation of the Trade Secrets Directive into UK law, there were two main areas of English law that protected confidential information: •

the law of equity; and

•

the law of contract, whether by means of: –

including express provision in a contract;25 or

–

implying confidentiality provisions into a contract.26

For completeness, it is also possible to protect an obligation of confidence by other means: as a tort, bailment or by specific legislation. Consideration of these matters is outside the scope of this book. These contrast with, for example: •

the statutory protection now provided by the Trade Secrets Directive for commercial confidential information (see para 8.38 onwards below);

•

many states in the US adopting the Uniform Trade Secrets Act;27

•

whilst among the EU member states, how confidential information is protected, being a mixture of civil (eg by contract or by tort), criminal and competition law (which varies from country to country).28 This is likely to change with the implementation of the Trade Secrets Directive, which will require member states to harmonise their laws.

This section will focus on the protection given under the English law of equity and, where relevant, contractually agreed obligations of confidentiality. As with the common law, the law (or rules) of equity have developed over centuries, mainly through court decisions. The remedies for breach of confidence form only a small part of such laws, which also cover many other areas. For example, when determining whether to order ‘specific performance’ of a contract, the court will apply equitable principles. There is no single, reported case or other source that definitively states all aspects of the law of confidence. This may be contrasted with, for example, 25 Litholite Ltd v Travis and Insulators Ltd (1913) 30 RPC 266. 26 Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239. 27 See note 24 above. 28 See Study on Trade Secrets and Confidential Business Information in the Internal Market (Final Study, April 2013), prepared for the European Commission for a country-by-country analysis. This provides, at least at the time of the study, a very helpful summary of the different ways that confidential information was protected by different member states’ laws.

443

8.09  The Law of Confidence

the law of patents or law of copyright. Although many reported cases have considered questions of patent or copyright law, the basic principles of current UK patent and copyright law are set out in one main source for each: the Patents Act 1977 and the Copyright, Designs and Patents Act 1988 respectively. The remainder of this section provides a very brief summary of the law of confidence in its current state of development. The following paragraphs concentrate on issues that are likely to arise in relation to confidential information concerning technology. Most of this law is based on reported court decisions. For a fuller treatment of this subject, the reader is referred to the books cited in the bibliography at the end of this book.

Protection of know-how under the law of confidence 8.09 The extent of protection for know-how under the law of confidence will depend in part on the sense in which the term ‘know-how’ is used. In principle, technical information is as likely to qualify for protection under the law of confidence as any other type of information; the same rules normally apply whatever the subject matter of the information. In the absence of patents, copyright or other intellectual property, the law of confidence may give the only available means of protection to an item of know-how, under English law.

The form in which information must be recorded to be subject to obligations of confidentiality and the requirement for ‘originality’ 8.10 Information may be subject to obligations of confidentiality where a person: •

communicates it orally;29

•

communicates or sets it out in a(n) (electronic) document;30

•

communicates it graphically;31

•

incorporates it or embodies it in a machine, equipment or a product;32

•

keeps it in her/his memory.

29 Seager v Copydex Ltd [1967] 2  All ER  415, [1967] 1  WLR  923; Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375; and Fraser v Thames Television Ltd [1984] QB 44, [1983] 2 All ER 101. 30 Thompson v Stanhope (1774) Amb 737. 31 Prince Albert v Strange (1849) 1 Mac & G 25. 32 Ackroyd’s (London) Ltd v Islington Plastics Ltd [1962] RPC 97; .

444

Organisation of this chapter 8.10

In relation to information retained in the memory of a person, it is possible, for example: •

that a person can create or develop an idea or invention and communicate it orally and the person who receives the oral communication may retain it only in her or his memory;33 or

•

that an employee, during the course of her or his employment, may learn or receive information, develop knowledge and skills from others, etc, but the employee does not need to put any of this information into any recorded form (such as in a document) for the employer to stop that employee using the information, knowledge and skills if they amount to a trade secret.34

In effect, there is no particular formality with which it is necessary for a person to comply in order for the information which they have in their possession or control to be confidential. However, the information must be original and/ or there must be an element of application in terms of skill and inventiveness concerning the information. Although there is no exact definition of the meaning of originality or the amount of skill and inventiveness necessary, it is clear that information can be confidential although the information is publicly available and where a person has used ‘an application of skill and originality’ in relation to it: ‘… it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.’35 ‘Original’ does not mean that the information has to be novel or unknown (in the way that it is necessary for an invention to be novel so that it is possible to make a patent application), or that it is complex, difficult or elaborate; it is possible for it to be uncomplicated. Also, the amount of work that a person has to do may be different depending on the type of information, although the mere mechanical or non-selective application of publicly available information will not make the result confidential.36

33 Fraser v Thames Television Ltd [1984] QB 44, [1983] 2 All ER 101. 34 Johnson & Bloy (Holdings) Ltd v Wolstenholme Rink plc [1987] IRLR 499, [1989] FSR 135, CA 35 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 at 415, CA. 36 Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289.

445

8.11  The Law of Confidence

Whether contractual and equitable obligation of confidence can cover the same set of circumstances 8.11 The courts have come to different views as to whether contractual and equitable can exist side by side, including deciding: (1) that it is possible, with the same situation or set of facts, to apply both a contractual and an equitable obligation of confidence;37 (2) that there would be a breach of an equitable obligation confidence although a party was under a contractual obligation38 (or where the courts were able to imply a contractual obligation of confidentiality); (3) that, if the parties have agreed express provisions as to the obligations of confidentiality, any wider set of obligations found in the equitable law of confidence would not apply.39 The court held: ‘Where parties to a contract have negotiated and agreed the terms governing how confidential information may be used, their respective rights and obligations are then governed by the contract and in the ordinary case there is no wider set of obligations imposed by the general law of confidence: see e.g. Coco v Clark at 419.’ However, whether the decision in this case will be relevant in all situations is not obvious, as the court used the phrase ‘the general law of confidence’. The use of this phrase does not rule out different or wider equitable obligations of confidentiality which may occur. What is one to make of the differing decisions as to whether equitable and contractual obligations can arise from the same situation or set of facts, particularly if parties expressly agree a set of provisions? It does not add to certainty if a court might decide to apply different (equitable) obligations irrespective of what the parties agreed. The last case listed above is one of the more recent and perhaps it is the one that reflects the current state of law in this area that generally contractual provisions can override equitable obligations of confidentiality. However, other more recent cases have also indicated that equitable obligations of confidence can co-exist with contractual obligations, but it is not clear from those judgements which will have precedence.40 But with the general proviso that equity is a discretionary measure available to the courts and for the parties to attempt to limit or exclude its application is, in effect, attempting to oust the jurisdiction of the court – usually not advisable, or permissible.

37 Robb v Green [1895] 2 QB 315, CA; Nichrotherm Electrical Co Ltd, Cox, Drew and Francis v J R Percy and G A Harvey & Co (London) Ltd [1957] RPC 207, CA. 38 Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER 289, [1965] 1 WLR 1293. 39 Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch). 40 See Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch), para 179.

446

Organisation of this chapter 8.13

Circumstances in which a breach of confidence arises 8.12 In order to bring a successful action for breach of confidence, it is necessary, generally, to establish three things:41 (a) that the information in question has the ‘necessary quality of confidence’ (which means the information is not public property or public knowledge); (b) that it was disclosed in circumstances which ‘imported an obligation of confidence’; and (c) that the defendant made unauthorised use of the information to the detriment of the claimant. An alternative way of establishing the circumstances when it is possible to bring an action for breach of confidence was set out in a recent Supreme Court case, based on the ‘conscience’ of the recipient of information being affected: ‘The classic case of breach of confidence involves the claimant’s confidential information, such as a trade secret, being used inconsistently with its confidential nature by a defendant, who received it in circumstances where she had agreed, or ought to have appreciated, that it was confidential … Thus, in order for the conscience of the recipient to be affected, she must have agreed, or must know, that the information is confidential.’42 Despite this reformulation, the following sections of this part of the chapter will examine each of the three elements necessary to bring a successful action for breach of confidence (because of their frequent use in many cases involving allegations of breach of the obligation of confidentiality).

The necessary quality of confidence 8.13 Information will not have the necessary quality of confidence if it is ‘public property and public knowledge’. But it may be possible for a package of information to be confidential even if individual elements of the

41 See Coco v AN Clark (Engineers) Ltd [1969] RPC 41. The courts have subsequently applied the three elements in many cases, such as in De Maudsley v Palumbo [1996] FSR 447; Mars UK Limited v Teknowledge Limited (No 1) [2000] ECDR 99; Inline Logistics Ltd v UCI Logistics Ltd [2002] RPC 611; Collag Corpn v Merck & Co Inc [2003] FSR 16; and OBG Ltd v Allan; Douglas v Hello! Ltd (No 3); Mainstream Properties Ltd v Young [2007] UKHL 21. It is often the starting point for a court in deciding a case on a claim for a breach of an obligation of confidentiality. 42 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31.

447

8.13  The Law of Confidence

package are publicly known, for example if substantial work is needed to recreate the package.43 However, information is not confidential if it is common knowledge either among the general public, or among that part of the general public interested in the field to which the information in question relates, for example researchers working in a particular area of science or engineering.44 As noted above, although individual parts or elements of a set of information are publicly known, if a person has to carry out a significant amount of work to recreate that set of information, the set of information can be confidential.45 The significant amount of work must be original46 and not merely mechanical or without displaying any particular skill or judgement.47 For example, a court held that compiling a list of individual design features of contact lens designs (which were public knowledge) involved a significant amount of work, but the work did not require any specific judgement or level of skill: ‘It is a commonplace that valuable and novel ideas may be produced by the judicious selection and combination of a number of items which, separately, are in the public domain. No one would suggest that such ideas are incapable of being the subject of an obligation of confidence. But …there must be some product of the skill of the human brain. A mere non-selective list of publicly available information should not be treated as confidential even if putting it together involves some time and effort. No relevant skill is employed. Were this not the case, it would be possible for individual competitors to copy or make use of the individual items of information, but they could not get together to make use of all or most of them.’48 The following, rather subjective test has been suggested in a case49 to determine whether (in a business context) information has the necessary quality of confidence: 43 See Lord Greene MR in Saltman Engineering Co v Campbell Engineering Co Ltd [1963]  RPC  203, where it was held that a document may be confidential if it is the result of work done by its maker, even if the matters on which he or she worked were matters of public knowledge. See also Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 where a list of publicly available design features relating to contact lenses was held not to be confidential, because the effort shown was that of simply packaging the features together. The judge found in this case that no relevant skills were employed. 44 Harrison v Project and Design (Redcar) Ltd [1978] FSR 81. 45 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413n, (1963) 65 RPC 203, CA. 46 For the meaning of originality, see para 8.10 above. 47 Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289. 48  Ibid. 49 In Marshall (Thomas) (Exports) v Guinle [1979] Ch  227, [1978] 3  All ER  193, [1978] 3  WLR  116, [1979]  FSR  208, and which was referred to in American Home Products Corporation v Novartis Pharmaceuticals (UK) Ltd (No  2) [2001]  EWCA  Civ 165, [2001] FSR 784, [2001] All ER (D) 141 (Feb).

448

Organisation of this chapter 8.13

(a) the owner must believe that the release of the information would be advantageous to the rivals of the owner or injurious to him or her; and (b) the owner must believe that the information is not in the public domain; and (c) the owner’s beliefs (in (a) and (b) above) must be reasonable; and (d) the information must be judged in the light of the usage and practices of the particular trade or industry concerned.50 There have been many cases which have considered the necessary quality of confidence; it is difficult to draw brief conclusions from those cases, except that the courts have held that many types of information have the necessary quality of confidence in particular situations, including: •

customer lists;

•

names and addresses of employees;

•

simple ideas;

•

detailed technical data;

• drawings; • diagrams; •

tables; and

• photographs. As discussed above, the form in which the information is recorded or is present does not determine whether it is capable of being confidential (see para 8.10 above). In a couple of instances, the courts have considered information relevant to technology transfer and held: •

that the core inventive concept (for a patentable invention) has the necessary quality of confidence where it was used by another person in making a patent application;51

•

that a technique for testing computer software was not protected as a trade secret (and therefore could be used by an ex-employee after termination of the ex-employee’s employment). It could be readily reproduced by a skilled person using publicly available sources. But the use of the claimant’s software source code by the defendants was considered to be a breach of obligation of confidentiality (even if the use was no more than to check that the defendants’ computer program operated correctly).52

50 See Ibcos Computers Ltd v Barclays Mercantile Highland Finance Ltd [1994] FSR 275. 51 Re Stanelco Fibre Optics Ltd’s Application [2004] EWHC 2263, [2005] RPC 15, [2004] All ER (D) 06 (Oct). 52 Cantor Fitzgerald International v Tradition (UK) Ltd [2000] RPC 95.

449

8.14  The Law of Confidence

In certain cases, the courts have not treated information as confidential, if this is not in the public interest (eg if the information concerns criminal activity or other wrongdoing). Even though the obligation of confidence may be part of a contract of employment, there is no duty to keep a secret about the employer’s wrongful or unlawful act.53 Also, if the information comes within an exceptional category (eg information disclosed on discovery in litigation) the courts may not be prepared to treat such information as confidential. Information may be secret but, if it is trivial or has no use, the courts are unlikely to enforce any equitable obligation confidentiality.54 Besides the information having the necessary quality of confidence, it also needs to be ‘significant, not necessarily in the sense of commercially valuable … but in the sense that the preservation of its confidentiality or secrecy is of substantial concern to the [claimant].’55

Circumstances importing a duty of confidence 8.14 For a person to be under an obligation of confidentiality, the information that is communicated to her or him, or which s/he receives or obtains, must arise in circumstances which impose an obligation of confidentiality.56 The circumstances do not require there to be a confidential relationship between the person disclosing and the person receiving the information.57 An obligation of confidence can arise, for example, by express agreement between persons (such as by contract), by implication, by the nature of the relationship between persons (such as between a lawyer and the lawyer’s client, a doctor and the doctor’s patient, an employer and an employee) and by statute. The following are some common ways in which a duty of confidence can arise or be implied and which are most likely to be encountered in commercial situations.

Marking a document or information as confidential 8.15 Whether a document or information is marked as ‘confidential’ (or similar) or not will in itself not make the document or information confidential. 53 Initial Services v Putterill [1968] 1 QB 396. 54 Coco v AN  Clark (Engineers) Ltd [1969]  RPC  41 at 48; Attorney General v Guardian Newspapers Ltd (No 2) [1988] 3 All ER 545; and McKennitt v Ash [2005] EWHC 3003 (QB) (upheld on appeal). 55 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414. 56 Coco v AN Clark (Engineers) Ltd [1969] RPC 41. 57 Coco v AN Clark (Engineers) Ltd [1969] RPC 41; Primary Group (UK) Limited v Royal Bank of Scotland [2014] EWHC 1082 (Ch), [211].

450

Organisation of this chapter 8.16

For example, the courts have held that: •

where a technical document was labelled as being ‘confidential’, it was not in fact confidential, because it had been provided to many members of a trade association;58

•

the efforts of operators of manufacturing processes were not enough to make the processes confidential. The operators were of the view that the processes that they used to manufacture a type of pesticide were confidential and they had procedures in place to keep the processes secret, which included imposing obligations of confidence on persons such as suppliers. The court held that it was necessary to establish all of the three points listed at para  8.12, and in this case the claimants were not able to show that the defendants were not entitled to use the claimants’ confidential information.59

Objective or subjective test to determine whether the circumstances in which the confidential information was disclosed will import an obligation of confidentiality? 8.16 An objective standard is used to determine whether the circumstances in which confidential information was disclosed will impose an obligation of confidentiality, so that a person: ‘received [the confidential information] in circumstances where [s/he] had agreed, or ought to have appreciated, that it was confidential.’60 (emphasis added) Other than when a person has agreed to keep information confidential, the key phrase is ‘ought to have appreciated’, which points to a judgement being made other than by the person who has received the confidential information, as expressed in an earlier case, so that: ‘any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the

58 Dalrymple’s Application [1957] RPC 449. 59 Collag Corpn v Merck & Co Inc [2003] FSR 16. 60 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. An alternative formulation along the same lines is ‘An equitable obligation of confidence will arise as a result of the acquisition or receipt of confidential information if, but only if, the acquirer or recipient either knows or has notice (objectively assessed by reference to a reasonable person standing in his shoes) that the information is confidential’: Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012]  EWHC  616 (Ch), [2012]  RPC  29 (affirmed by [2013] EWCA Civ 780, [2013] RPC 947), applied in Kerry Ingredients (UK) Ltd v Bakkavor Group Ltd [2016] EWHC 2448 (Ch), [2017] 2 BCLC 74.

451

8.17  The Law of Confidence

information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence.’61 Where there is a direct relationship between the disclosing and receiving party, it is more likely that the recipient of confidential information will be taken to appreciate it is confidential.62 However, there can be practical difficulties showing the recipient ‘ought to have appreciated’ that the information was confidential where there is no direct relationship between the party disclosing the confidential information and the person receiving or using the confidential information. In those latter circumstances – from a common sense point of view – it might seem obvious that the recipient must have appreciated that the information was confidential but in fact a court may not hold this to be the case. This is considered further at para 8.19.

Agreement to keep information confidential 8.17 The cases which have come before the courts do not support a simple, general definition of when a duty of confidence is ‘imported’. However, where the defendant has agreed to keep the information confidential, he or she will normally have such a duty.63 It is possible for a duty of confidence to arise even where there is no use of words such as ‘keep this information confidential’. For example, in one case a product was provided to the recipient subject to a condition that the recipient would not examine the mechanism. This was held to be sufficient to make information relating to the mechanism confidential.64

Manner in which information is acquired 8.18 Where confidential information is innocently acquired, the acquirer may not be under a duty of confidence, even if he or she realises that the information he or she has heard or seen is meant to be confidential. For example, a person may overhear a conversation or see the information on the premises of a company.65 It will normally take more for that person to be under an obligation of confidentiality. 61 Coco v AN Clark (Engineers) Ltd [1969] RPC 41. The court in this case went on to state that, in a commercial situation, a recipient would find it difficult to rebut a presumption that s/he is under an obligation of confidence if the information has commercial value and where the provider and recipient share a common objective. 62 See previous note. 63 See Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. 64 Paul (KS) (Printing Instruments) Ltd v Southern Instruments (Communications) Ltd and EP Ellis [1964] RPC 118. 65 See Folding Attic Stairs Ltd v Loft Stairs Co Ltd [2009] EWHC 1221 (Pat); [2009] FSR 24 at paras 81–83, where a visit by the Irish Minister of Trade and Tourism with a photographer was made without an obligation of confidence being imposed on them. Unsurprisingly the judge held they were under no obligation of confidence and were free to disclose whatever they saw. This case was not primarily about confidentiality but concerned patent infringement and whether there was prior disclosure of art.

452

Organisation of this chapter 8.19

If the acquirer acted in an underhand way, the court may be more likely to find against him or her, as it did in a case involving illegal telephone tapping.66 If the acquirer of the information acted with all propriety, he or she may well not have a duty of confidence, although much will depend on the circumstances of the case and the view taken by the court. In one case with rather unusual facts, a barrister intended to send papers containing confidential information to the solicitors instructing that barrister. The barrister’s administrator made a mistake: the papers were sent to the opposing side’s solicitors. It was held that those solicitors, even though they were an innocent acquirer of the confidential information, could be restrained from using it to the benefit of their client because they had become ‘improperly implicated in the leakage of the information’ contained in the papers that they had received.67 That is they had taken overt acts in relation to the papers by taking copies of them.

Where a third party receives or obtains information which is confidential 8.19 The factual situations under the above heading are not typical in the context of this book where a person can acquire or obtain information which is confidential other than in the circumstances where there is a direct relationship between the disclosing party and the receiving party. Should a third party be under an obligation of confidentiality to the party who originally disclosed the confidential information at all or in what circumstances? If the third party is not to be liable, there can be serious consequences for the disclosing party. The disclosing party could lose all the ‘value’ in the confidential information if the third party received the information other than under obligations of confidentiality or made further disclosures themselves – for example, the disclosing party losing the opportunity to make a patent application68 or not being able to license their know-how or other confidential information. As noted earlier, the licensing of know-how can be a valuable asset to a technology company. Case law indicates that, where a third party receives confidential information other than from the disclosing party, the third party will normally only be liable, in simple terms, if they knew the information was confidential or they ought to have appreciated it was confidential.69 However, other than when 66 See Francome v Mirror Group Newspapers Ltd [1984] 2  All ER  408 (CA; interlocutory) and the earlier Malone v Commissioner of Metropolitan Police (No 2) [1979] 2 All ER 620 (referred to in Douglas v Hello! Ltd [2001] FSR 732). Francome v Mirror Group was referred to in Imutran Ltd v Uncaged Campaigns Ltd [2002]  FSR  20. The latter case involved the defendants receiving leaked documents from the claimant pharmaceutical drug company. The defendants published the documents on websites and provided them to various government and non-governmental organisations. 67 English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232. 68 Because of the requirements of Patents Act 1977, s 2 (that is, a disclosure is made other than in confidence). 69 For example, see Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31.

453

8.19  The Law of Confidence

they knew the information was confidential, for other situations it can be difficult to show that the third party ought to have known. This can result in the third party not being liable to the disclosing party, but from an outsider’s point of view it might have seemed obvious that the third party ‘must have known’ or that it ‘must have been obvious’ that the information was confidential information. A  couple of cases (one relating to employment and another concerning commercial parties) illustrate the dangers for parties who possess confidential information when they disclose confidential information. They show the inherent ‘fragility’ of confidential information as a form of protection (unlike forms of intellectual property). In the first case, the Supreme Court in a recent decision summarised the situations when a third party can acquire liability to a disclosing party:70 •

it is unlikely, without additional facts, that a third party will be liable where: –

the third party did not acquire the confidential information (such as an employee not acquiring the confidential information during or after employment); and/or

–

the third party did not know that the confidential information was used (or misused);

•

although a third party can learn of the trade secret in circumstances where s/he does not appreciate it is confidential, the third party can become liable at the time the third party is told or otherwise appreciates (or otherwise ought to have appreciated) that the trade secret is confidential;

•

the third party can incur ‘secondary’ liability where the recipient of the confidential information misuses it, and the third party assists the recipient in that misuse. But the third party would have to know that the recipient was abusing the confidential information, whether by: –

actual knowledge of the misuse; or

–

so-called ‘blind-eye knowledge’;

for the latter it appears the third party would need to be involved in ‘commercially unacceptable conduct in the particular context involved’71 and in effect be engaged in dishonest activity. For liability to be fixed on the third party ‘more is required than merely careless, naïve or stupid behaviour; there must be awareness of the fact that the information was confidential or willingness to turn a proverbial blind eye’;72 70 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. See the Appendix to this chapter for the key points from this case. 71 Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97, cited with approval in Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. 72 From Toulson and Phipps, Confidentiality (3rd edn, Sweet & Maxwell), 3-071, cited in Thomas v Pearce [2000] FSR 718, CA.

454

Organisation of this chapter 8.20

•

a third party who did not know that the information that was being abused was in fact confidential could become liable if there were additional facts: for example, being vicariously liable to another for the misuse of confidential information, such as where ‘a person who directly misuses a claimant’s trade secret does so in the course of her employment by a third party, then the third party could (at least arguably) be liable to the claimant for the breach of confidence. However, that would simply involve the application of one well established legal principle, vicarious liability, to another, misuse of confidential information’.

An earlier case illustrates the dangers that a disclosing party can face when it discloses its confidential information to another party with which it has entered into an agreement, but the other party then discloses the confidential information to a third party.73 In this case, the claimant (a designer and maker of lamps for use in the automobile trade) provided drawings to a maker of trucks. The drawings were protected as registered designs and by copyright, as well as there being confidential information in relation to these items of intellectual property. The manufacturer then passed copies of the drawings and the confidential information onto the defendant (also a designer and maker of lamps). There was no direct connection between the claimant and the defendant, although it appeared the defendant was aware that the claimant was a supplier to the truck manufacturer and that the claimant was the owner of intellectual property. However, the defendant never checked whether the truck manufacturer had the right to pass on drawings of the claimant to the defendant. None of this was enough to make the defendant subject to any obligation of confidentiality to the claimant. On the facts, these circumstances did not warrant a finding that the defendant knew or ought to have known that the drawings were confidential. Again, it can seem obvious that the third party must have known it was (mis) using the confidential information of the disclosing party but, as noted, the court found otherwise. Although much will depend on the facts of a specific case, it can seem that a court in effect accepts that the third party did not know if the third party says it did not know and, absent dishonestly or deliberately turning a blind-eye to a situation, the third party will not be liable.

Unsolicited information 8.20 It is unlikely that one person could oblige another to respect confidence by sending the other person unsolicited information in a letter or email marked ‘Confidential’ – such as if an inventor sends unsolicited details of his or her invention to a company and marking any letter, email or 73 Valeo Vision SA v Flexible Lamps Ltd [1995] RPC 205. See the Appendix to this chapter for the key points from this case.

455

8.21  The Law of Confidence

any other document containing details of the invention with words such as ‘confidential’ or ‘secret’, and asking the company to develop the invention into a commercial product. If this was the case, one organisation could send confidential information to another organisation to put difficulties in the way of the second organisation using it, should the second organisation discover the confidential information independently. The recipient of such unsolicited confidential information should, for the recipient’s own protection, return the material at once (unless the supplier of the information is willing to sign a waiver disclaiming its rights in respect of confidentiality), making it clear that he or she regards himself or herself as being under no obligation.74

Information disclosed in the course of negotiations 8.21 The courts have held in some cases that information disclosed in the course of negotiations had been disclosed in confidence, even where no confidentiality undertaking was given. For example, a court held that obligations of confidence arose in respect of details of an unpatented invention, where these details were disclosed in the course of negotiations concerning another, patented, invention.75 Practically, parties should not assume that a court will impose such an obligation in all situations where such inventions are the subject matter of negotiation. It is suggested that this and other cases illustrate the point that, if a confidentiality agreement is not signed, it may still be possible to persuade a court to find an equitable duty of confidence in the particular circumstances of the negotiations. It is generally much, much safer, though, to enter into a written confidentiality agreement which identifies clearly the extent of any confidentiality obligations.76

Information disclosed under a contract 8.22 It is possible for parties to a contract to explicitly agree the obligations of confidence they will be under, as well as, in the absence of explicit agreement, for provisions to be implied into a contract. If the parties explicitly agree provisions of confidentiality, the extent of their obligations is normally governed by the provisions of their contract, but their agreement can cover not only confidential, but also non-confidential, information. In effect the parties are entering into a negative covenant, provided that in doing so they are not: 74 Sometimes, commercial organisations who are in the habit of receiving information of this kind develop policies for dealing with such a situation, ie designating one role to deal with all correspondence of this nature and sending a standard letter back. 75 Seager v Copydex Ltd [1967] 1 WLR 923. 76 Auto Securities Ltd v Standard Telephones and Cables Ltd [1965] RPC 92 where an injunction was refused on the balance of convenience.

456

Organisation of this chapter 8.23

•

in breach of public policy (such as entering into a restraint of trade);

•

doing something illegal;

•

doing something which is obscure.77

Concerning implying obligations of confidentiality: •

In one case, an obligation of confidentiality was implied in relation to information disclosed by a contractor to a manufacturing subcontractor. The information in question included drawings of tools for the manufacture of metal punches, which were provided by the contractor to enable the subcontractor to manufacture the tools for the contractor. The subcontractor used the drawings to manufacture tools which it sold to third parties. In that case the court stated that: ‘if two parties make a contract, under which one of them obtains for the purpose of the contract, or in connection with it, some confidential matter, then, even though the contract is silent on the matter of confidence, the law will imply an obligation to treat such confidential matter in a confidential way. If a defendant is proved to have used confidential information, obtained directly or indirectly from a plaintiff, without the consent, express or implied, of the plaintiff, he will be guilty of an infringement of the plaintiff’s rights’.78

•

In another case the court had to consider whether a licensee was permitted to use confidential information disclosed to the licensee by the licensor for purposes other than the manufacture of licensed products. The court held, interpreting the agreement and applying general principles, that the licensee could be stopped from deriving any advantage from the information which it had received exclusively for the purposes of the agreement.79

These cases may illustrate a wider principle, namely that information disclosed for a limited purpose may be subject to an implied obligation on the recipient to use the information only for that limited purpose, and not to disclose it to third parties or use it on the recipient’s own account.

Use of the information outside limits of authorisation 8.23 Clearly, if no use is permitted, all uses are unauthorised. Similarly, if a person has permission to use confidential information for limited purposes, as in the cases referred to in the previous paragraphs, any use outside those limits is unauthorised. 77 A-G v Blake (Jonathan Cape Ltd third party) [2001] 1 AC 268, [2000] 4 All ER 385, HL. 78 Saltman Engineering Co Ltd and others v Campbell Engineering Co Ltd (1948) 65 RPC 203, CA. 79 Torrington Manufacturing Company v Smith and Sons (England) Ltd [1966] RPC 285. The decision of the court was at a preliminary hearing.

457

8.24  The Law of Confidence

The defendant’s state of mind 8.24 If a person, who is under an obligation of confidence, discloses or makes use of confidential information in breach of that obligation, the reason why s/he breached the obligation appears not to be relevant.80 It does not seem to matter that the defendant: •

acts out of some misguided or well-meaning motive;81

•

does not appreciate the confidentiality of a document from which he or she takes the information;82 or

•

has forgotten the source of the information and thinks he or she has thought of it himself or herself, such as where there is subconscious copying. An example is where the defendant’s employees were found to have worked out how to make a carpet grip incorporating a basic idea which they had forgotten being shown by the claimant.83

Form in which the information is disclosed 8.25 As noted above, for an obligation of confidentiality to arise it does not need to be in any special form. The obligation can arise in writing or orally; it can be expressly agreed or by implication. But disclosing or providing the information in a particular form will by itself not make that information confidential. In one case, certain information was encrypted and provided in a coin receiving and changing mechanism. The defendant decrypted that information in order to determine how to recalibrate the devices. The claimants argued that the fact of encrypting the information made it confidential. The judge was not persuaded and considered the fact that information is encrypted can mean no more than that the encrypter wanted to stop others having access to the information. As to confidentiality, the judge held: ‘[A customer of the mechanism] is the intended recipient of the article containing the information … There is nothing obviously confidential about the machine he gets. There is no marking ‘confidential’ and indeed there is not even any indication of encryption. By the time one gets to find out about the encryption it is, in my judgment, far too late to impose a duty of confidence.’

80 Raineri v Miles [1981] AC 1050, [1980] 2 All ER 145, HL. The case considered a breach of obligation of confidentiality in a contract. 81 Nichrotherm Electrical Co Ltd, Cox, Drew and Francis v J R Percy and G A Harvey & Co (London) Ltd [1956] RPC 272. 82 National Broach & Machine Co v Churchill Gear Machines [1965] RPC 61. 83 Seager v Copydex (No 1) [1967] 2 All ER 415.

458

Organisation of this chapter 8.26

Duration of an obligation of confidence 8.26 If a person is bound by an obligation of confidentiality but the information becomes publicly known, that person will normally no longer be bound.84 In a recent case the court stated: ‘In any event, it is now clear … that publication of the confidential information brings the obligation of confidence to an end. It matters not whether the information has been published by the confider, by a stranger or by the confidant himself’.85 Although it seems clear that, as a general proposition, the obligation of confidentiality ends when any person makes the information publicly known, this may not be the case in particular situations and with particular relationships. If parties to an agreement expressly agree that the obligations of confidentiality come to an end on a particular date, a party bound to those obligations will no longer be subject to them. It is possible to contrast this to where an agreement states that obligations of confidentiality continue for a period (but does not explicitly state that they come to an end). In this latter case a party who is under the obligations of confidentiality may continue to be under an implied contractual or equitable obligation of confidentiality.86 As noted above, a person will only remain subject to implied or equitable obligations of confidentiality as long as the information covered by the obligations is not public knowledge. But if there are express provisions subsisting at the same time as implied or equitable obligations, they too may come to an end if the information subject to the obligations becomes public knowledge. Otherwise, if they were to continue, they could amount to a restraint of trade or a restriction on freedom of information.87 The following points illustrate when the above is not always necessarily the case in particular situations: •

It may be possible to prevent a person using confidential information for that person’s own purposes (by means of an injunction) even after the information is no longer confidential, if s/he is subject to a fiduciary duty and s/he has received the information pursuant to that duty.88

84 Wessex Dairies Ltd v Smith [1935] 2 KB 80, CA; Vestergaard Frandsen A/S v Bestnet Europe Ltd [2009] EWHC 1456 (Ch), [2010] FSR 29 at [76]. 85 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2009] EWHC 1456 (Ch), [2010] FSR 29 at [76]. 86 Wessex Dairies Ltd v Smith [1935] 2 KB 80, 104 LJKB 484, CA; Triplex Safety Glass Co Ltd v Scorah [1938] Ch 211, [1937] 4 All ER 693; Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227, [1978] 3 All ER 193. 87 Mustad (O) & Son v S Allcock & Co Ltd and Dosen [1963] 3 All ER 416, [1964] 1 WLR 109n, HL; Franchi v Franchi [1967] RPC 149. 88 Eg Schering Chemicals Ltd v Falkman Ltd [1981] 2 All ER 321, CA.

459

8.27  The Law of Confidence

•

Where a person receives information under obligations of confidentiality and the person deliberately brings to an end the confidentiality of the information, s/he may still continue to be subject to those obligations.89

•

A  person may continue to be subject to obligations of confidentiality under a contract in the following situation: the information which is covered by the obligations of confidentiality is embodied in a product and a member of the public can see or obtain that information by inspecting the product.90 For this to occur, a member of the public would have to use a significant amount of effort to see or obtain the information, such as by spending money or carrying out a substantial amount of work to see or obtain the information.91 If a member of the public needs to carry out no work, the person under the confidentiality obligation may not be subject to the obligations.92

Release 8.27 As noted above, if the parties to an agreement expressly agree that the obligations of confidentiality come to end, the parties are in effect released from their obligations. Alternatively: •

the parties may enter into a specific agreement releasing one or more of them from their obligations of confidentiality, if their existing agreement does not provide for a specific end to the obligations of confidentiality; or

•

a release may occur by implication.93

For any of the above situations, it is possible to release a person from some or all of the obligations of confidentiality that s/he is under. Also, a person who is under an obligation of confidentiality can be released from her/his obligations in respect of a transaction or just from part of the information relating to the transaction.94

89 Speed Seal Products Ltd v Paddington [1986] 1 All ER 91, [1985] 1 WLR 1327, CA. Some later cases have cast doubt on whether the decision in this case is correct. For example, one possible result of the point made in the bullet point is that, although the information is no longer confidential, any person who interacts with the person who made the confidential information public may also be under those obligations of confidentiality. 90 Merryweather v Moore [1892] 2 Ch  518; Reid & Sigrist Ltd v Moss and Mechanism Ltd (1952) 49 RPC 461. 91 Ackroyd’s (London) Ltd v Islington Plastics Ltd [1962] RPC 97 at 104. 92 A-G v Observer Ltd, A-G v Times Newspapers Ltd [1990] 1 AC 109. 93 Ackroyd’s (London) Ltd v Islington Plastics Ltd [1962] RPC 97; Tournier v National Provincial and Union Bank of England [1924] 1  KB  461 (CA); and Brandeaux Advisers (UK) Ltd v Chadwick [2010] EWHC 3241 (QB), [2011] IRLR 224. 94 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461, CA.

460

Organisation of this chapter 8.27

Where there is an implied consent to the release from obligations of consent, the extent of the release may be difficult to determine, such as whether it is possible to disclose the information to others and in what circumstances. Some cases illustrate this point: •

where a customer provided information to a bank, there was no implied permission for the bank to provide the information in order to obtain status enquiries from other banks;95

•

if a person provides confidential information (subject to obligations of confidentiality) to another person but the first person knew that the other person was able to damage the confidentiality of that information (such as by its release), the first person is unlikely to be agreeing to its release;96

•

a teacher visited a psychiatrist to obtain a report as part of taking legal action against her employer for unfair dismissal and personal injury. The psychiatrist considered that the teacher needed treatment. In such circumstances the psychiatrist may have an implied consent to make a referral to another medical professional, but the consent would not extend to disclosing the report that the psychiatrist had prepared.97

Where confidential information relates to a person, that person will have to take some active step indicating that it can be released before it is possible to infer implied consent.98 In one case the person made a patent application and it was held that, by making the application, the applicant for the patent was giving implied consent that the information in the application about the invention would be put in the public domain on publication of the applicant’s application. The only person who can release others from an obligation of confidentiality is the person to whom the obligation is owed.99 That is, by the act of putting the information into the public domain, s/he may be releasing other persons who are bound by an obligation of confidentiality (for example, if the person has made an application for a patent).100 If a person breaks an obligation of confidentiality, is that person then released from the obligation? The courts seem to have reached contradictory decisions on this point.101  95  96  97  98  99

Turner v Royal Bank of Scotland [1999] All ER (D) 326, CA. Attorney General v Jonathan Cape Ltd [1976] QB 752, [1975] 3 All ER 484. Cornelius v de Taranto [2001] EWCA Civ 1511, (2001) BMLR 62. Prout v British Gas plc and Another [1992] FSR 478. A-G v Jonathan Cape Ltd, A-G v Times Newspapers Ltd [1976] QB 752 at 770, [1975] 3 All ER 484 at 495. 100 Mustad (O) & Son v S Allcock & Co Ltd and Dosen [1964] 3 All ER 416, [1964] 1 WLR 109n. 101 Speed Seal Products Ltd v Paddington [1986] 1  All ER  91, [1985] 1  WLR  1327, CA and Attorney General v Observer Ltd, Attorney General v Times Newspapers Limited [1990] 1 AC 1095 at 285.

461

8.28  The Law of Confidence

What employer confidential information can an employee use during and after termination of their employment? Confidential information and employees 8.28 An initial point is that there is no separate law of confidence regarding employees and ex-employees. However, there is case law102 which has specifically considered what use an ex-employee can make of the confidential information she or he has received, accessed or used during her or his employment. A second issue is the obligations of confidentiality that a current employee is under. This section briefly examines the position regarding current and former employees.

Current employees 8.29 Regarding the obligations of confidentiality that a current employee will have to her or his employer, the following are likely to be the main relevant points: •

if there is a contract of employment (and the contract contains provisions regarding confidentiality), the employee will be bound by the contract;103

•

if there are no express provisions concerning the use or disclosure of information, obligations of confidentiality are likely to be implied in the contract of employment;104

•

there is also implied into a contract of employment a duty on the employee to act in good faith to her or his employer.105 This is separate to an obligation of confidentiality, but can include such an obligation;106

•

the scope of the duty will vary depending on whether the employee has received confidential information of the employer, and the duty is likely to be stronger where:

102 Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 1 All ER 617. 103 Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 1 All ER 617; Vokes Ltd v Heather [1945] RPC 135. 104 Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 1 All ER 617. 105 Robb v Green [1895] RPC 315. 106 Wright v Weed Control Ltd [2008] All ER (D) 235 (Feb).

462

Organisation of this chapter 8.30

•

•

–

an employee has confidential information which a competitor will wish to use; and

–

the type of employment means that the employee has an exclusive duty to her or his employer;107

the obligation of good faith is that the employee (while an employee) should not, for example: –

compete with her or his employer (during or outside of the hours of employment);

–

make copies of documents or technical drawings;

–

makes copies of lists of customers (for use after the end of the employment); or

–

intentionally memorise such a list;108

that obligation of good faith will not prevent an employee, when they leave their employment, from doing business with or contacting customers of their former employment, except in particular circumstances,109 unless there are binding restrictive covenants.

Former employees 8.30 The leading case of Faccenda Chicken Ltd v Fowler110 has set out the extent of the obligation that an ex-employee will be under to her or his employer as to what confidential information of the employer the exemployee can use or disclose. The following are the key points from the court’s judgement. An ex-employee will still be under a restriction as to what he or she can do after their employment ends. There will normally be an implied term not to use or disclose certain confidential information of the employer – although the scope of the restriction on the ex-employee will be more limited than the duty of good faith which applied during her or his employment. There is a distinction between: •

‘trade secrets’: which the employee cannot disclose or use after the end of her or his employment. This category would include: –

secret processes of manufacture, such as chemical formulae, or designs or special methods of construction; and

– ‘other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret’. 107 108 109 110

Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER 289. Robb v Green [1985] 2 QB 315; Wessex Dairies Ltd v Smith [1935] All ER Rep 75. Robb v Green [1985] 2 QB 315; Wessex Dairies Ltd v Smith [1935] All ER Rep 75. Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 1 All ER 617.

463

8.30  The Law of Confidence

•

other confidential information (‘mere confidential information’): which is information that an employee must treat as confidential during the employee’s employment but, once it is learnt by the employee and necessarily remains in her or his head and becomes part of her or his own skill and knowledge, s/he can, after the employment has terminated, use that full skill and knowledge in competition with the former employer and would not be subject to restriction. This will be information which the employee must treat as confidential during employment, either because the employee is told it is confidential or, because of its character, it is obvious that it is confidential.

Faccenda Chicken Ltd v Fowler indicated that, to determine whether a particular item of information falls within the implied term which prevents the ex-employee using or disclosing that information, it is necessary to look at four factors: (1) The nature of the employment: If the employee is employed in a capacity ‘where “confidential” material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature to a greater extent than if he were employed in a capacity where such material reaches him only occasionally or incidentally’. (2) The nature of the information itself: The only type of information that will be protected is information which is classified as a ‘trade secret’, and if not possible to classify the information as a trade secret is information which ‘in all the circumstances is of such a highly confidential nature as to require the same protection as a trade secret’. There is no specified list of the matters will constitute trade secrets (or their equivalent) but an example is a secret process of manufacture, but ‘innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only shortlived’. Where there is limited circulation of certain information to a small group of people, that fact ‘may throw light on the status of the information and its degree of confidentiality’. (3) Whether the employer impressed on the employee the confidentiality of the information: Although it is not possible for an employer to prevent use or disclosure only by telling the employee that certain information is confidential, ‘the attitude of the employer towards the information provides evidence which may assist in determining whether or to the information can be regarded as a trade secret’. (4) Whether the relevant information can easily be isolated from other information which the employee is free to use or disclose: Whether it is possible to sever information is not conclusive but, if the ‘confidential’ information is part of a package of information, but the remainder is not confidential information, there may be doubt the information is really a trade secret. 464

Organisation of this chapter 8.31

Some consequences for employers wishing to protect their confidential information 8.31

Each case will turn on its facts, but practically what is clear that:

•

it can be difficult to distinguish between trade secrets and ‘mere confidential information’ (using the distinction drawn in Faccenda Chicken Ltd v Fowler);111

•

a court will look critically at the employer’s claim that its confidential information amounts to a trade secret;112

•

a court will not normally uphold clauses which seek to restrict the use by an employee of her or his ‘skill, experience, know-how and general knowledge acquired by an employee as part of his job during his employment, even though that will equip him as a competitor or potential employee of a competitor, of the employer’;113

•

there has to be a defined body of subject matter which amounts to a trade secret for an employer to be able to rely on a post-employment restrictive covenant;114

•

to determine whether what the employer has is a trade secret or amounts to the skill, know-how and general knowledge of an employee, it is necessary to examine all the evidence relating to: –

the nature of the employment;

–

the character of the information;

–

the restriction of its dissemination;

–

the extent of use in the public domain; and

–

the damage likely to be caused by its use in competition to the employer.

In addition to these points the employer will have to be precise in setting out its case and will have to provide detailed evidence to the court, as a ‘lack of precision in pleading and absence of solid evidence in proof of trade secrets are frequently fatal to enforcement of a restrictive covenant’;115 111 Lansing Linde Ltd v Kerry [1991] 1 All ER 418; FSS Travel and Leisure Systems v Johnson [1998] IRLR 382, CA. 112 See Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch) for a very recent example, and which is considered further below. 113 FSS Travel and Leisure Systems v Johnson [1998] IRLR 382, CA. 114 In FSS Travel and Leisure Systems v Johnson [1998] IRLR 382, CA the court stated this body of information must be an ‘identifiable objective knowledge constituting the employer’s trade secrets with which the employee has become acquainted during his employment’ and also quoted from an earlier case (Office Angels Limited v Rainer Thomas [1991] IRLR 214) that there must be ‘some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation’. 115 FSS Travel and Leisure Systems v Johnson [1998] IRLR 382, CA.

465

8.31  The Law of Confidence

•

although the hurdle can be high for an employer, an employer can protect their trade secrets (even if the employee memorises them) by use of a covenant which restricts ‘their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds’;116

•

there is a distinction between post-employment covenants which: –

impose confidentiality obligations – often without limit of time – as long as the confidential information is a trade secret (or akin to a trade secret);117 and

–

seek to prevent the employee competing with the employer and which also cover confidential information of the employer;

•

however, there is a presumption that a post-employment restrictive covenant is unenforceable (often as a restraint of trade) and only enforceable if reasonable;118

•

it appears that employers often rely on provisions in an employment contract concerning non-competition rather than those provisions dealing with obligations of confidentiality – for practical reasons, because of the difficulty in drawing the distinction between a trade secret and the general skill and knowledge of an employee and for an employer to properly protect or monitor breaches of confidence. The consideration of non-compete restrictive covenants is outside the scope of this book but it appears that a properly drawn-up restrictive covenant (or indeed a properly drawn-up confidentiality covenant) can protect an employer’s trade secrets and ‘mere confidential information’ (although it is more difficult to do so in the case of ‘mere confidential information’).119

A recent case illustrates some of the dangers facing employers in trying to enforce confidentiality and non-compete provisions.120 Although the case does not change or fundamentally develop the law of confidence (or that of noncompete provisions), it does provide an insight into the use and enforceability of obligations of confidence in the case of scientists working for a technologybased company. The case is also of interest because it considers:

116 Printers & Finishers v Holloway [1964] 3 All ER 731. 117 Caterpillar Logistic Services (UK) Limited v Huesca de Crean [2012] IRLR 410. 118 See Adorn Spa Ltd v Amjad [2017] EWHC 1313 (QB), which reviews the cases which set out the circumstances when a covenant may or may not be enforceable, and also repeated in Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch). 119 For example: Lansing Linde Ltd v Kerr [1991] 1 All ER 418; Lancashire Fires Ltd v SA Lyons & Co Ltd [1997] IRLR 113; AT Poeton (Gloucester Plating) Limited v Horton [2000] ICR 1208. For further information on the use of express confidentiality and non-compete covenants, see Bloch and Brearley, Employment Covenants and Confidential Information, Law, Practice and Technique (2018, Bloomsbury Professional), 6.98–6.112. 120 Invista Textiles (UK) Ltd and another company v Botes and others [2019] EWHC 58 (Ch). See the Appendix to this chapter for the key points from this case.

466

Organisation of this chapter 8.32

•

the problems that face employers where their information is stored on a multiplicity of electronic devices (including on employees’ personal devices);

•

the number of documents involved (running to several thousand, many of which were deleted); and

•

the amount of work needed (and the costs involved) to establish what information was in the possession of the defendants. In this case it appears that the claimant’s costs amounted to £1 million, a large proportion of which seemed related to this work.

A significant interest of the case, other than the factual issues, was that: •

the key provisions in the contract of employment concerning obligations of confidentiality and non-competition were inconsistently or poorly drafted; and

•

the claimant, in part, was unable to properly distinguish between information which was properly defined as trade secrets and information which fell into the category of information which amounted to the skill, know-how and general knowledge of an employee.

Both of these factors, and the general presumption that post-employment restrictive covenants are unenforceable, counted heavily against the claimant employer, given the forensic and detailed deconstruction that the judge carried out in interpreting the contract of employment. Perhaps the most important message from the case is that the focus of an employer should be not on trying to enforce contractual provisions, but rather concentrating, pre-employment, on clearly identifying what information in their possession amounts to a trade secret, and making sure that their contracts of employment contain properly drafted provisions which protect that information.

Consequences of breaching a duty of confidence The enforcement of commercial confidentiality obligations 8.32 Where a party believes there is misuse of its confidential information, it will often wish to stop the misuse (in whatever form the misuse is taking place) immediately. If the party has to wait until there is a full trial on the merits of whether there is misuse, the confidentiality or the value may be destroyed. A party can ask a court to stop such misuse pending a full trial (usually through the use of an (interim) injunction) and, if it succeeds at the trial, it can obtain a permanent injunction and other remedies. In order to obtain an injunction or damages for misuse of confidential information, it will generally be necessary for the claimant to show that he or she has suffered detriment from the breach of confidence. The remedies available where a person has proved a breach of confidentiality obligations are: 467

8.32  The Law of Confidence

•

a permanent injunction restraining further breaches; and/or

•

damages based on the value of the confidential information; and/or

•

an account of profits in respect of past or anticipated future breaches; and/or

•

an order that the recipient destroys or returns to the donor documents or other items in his or her possession containing or embodying the confidential information in question.

The remedy of an interim (ie temporary) injunction to restrain the misuse or disclosure of confidential information pending a full trial on the merits is also available, subject to the principles laid down in one leading case.121 Interim decisions turn ultimately on the particular balance of convenience. In another leading case,122 the court did not order an injunction as the court was reluctant to destroy the tools in question. The confidential information was of no great value, and would have been easy to recreate by an independent consultant. The defendants had also not behaved dishonestly. The defendants were only ordered to pay damages, calculated on the basis of a royalty, for products already manufactured, and to be manufactured in the future, with the aid of confidential information. In another case,123 where an interim injunction was felt inappropriate in the absence of a seriously arguable case, it was held that where a claimant made indiscriminate claims of confidence in relation to a wide range of information, without attempting to disentangle the obviously public domain material from the confidential, he or she should not be surprised if the court was wary of granting interim relief. The problem of remedies can become quite complex when dealing with the use of information as what has been described as a ‘springboard’ (see below), particularly where the body of information is partly public and partly private. In the leading case on what it was necessary to establish in order to bring a successful action for breach of confidence,124 concern was expressed over the issue of the duty of the recipient in such a situation. An interim injunction was granted, in large part because the court was satisfied that the defendant had made an offer to pay royalties at a reasonable rate into a suspense account pending outcome of the trial on the merits. In another case,125 the information in question was valuable and there was also the added element of a serious breach of duty by the claimant’s ex-managing director. In this case, the court said that not to grant an injunction ‘would involve putting a premium upon dishonesty by managing directors’. 121 American Cyanamid Co v Ethicon [1975] AC 396. 122 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203. 123 CMI Centres for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235, referred to in Gadget Shop Ltd v Bug.Com Ltd [2001] FSR 383. 124 See Coco v AN Clark (Engineers) Ltd [1969] RPC 41. See para 8.12 above. 125 Cranleigh Precision Engineering v Bryant [1966] RPC 81.

468

Organisation of this chapter 8.33

It has also been noted126 that the courts consider a wider range of factors in deciding whether to grant a final injunction in a breach of confidence case than in patent or copyright cases. Where the misuse of the technical information is not accompanied by any independent development, so that in substance it amounts to a mere copying, the remedy will be a final injunction, to prevent the continued marketing of the ‘copied’ product, even though the confidential information in question has become common knowledge, whether or not because of the wrongful act of the defendant. Here the duty is ‘no use at all’, even if third parties are free to use the information.127

The springboard doctrine 8.33 The ‘springboard doctrine’ is a specific remedy developed by a court to deal with a particular situation – normally through the use of an interim injunction which covers the period between: (1) when a claimant (who is alleging that there has been a misuse of its confidential information) begins a claim; and (2) when there is a full trial of the claimant’s claim. The specific situation deals with the following circumstances: (1) the claimant provides confidential information to the defendant; (2) the defendant uses the confidential information for a purpose other than one for which it was provided to the defendant; (3) the defendant misuses that confidential technical information, so that, for example: •

not only to use it to reproduce an existing product marketed by the provider of that confidential information; but also

•

to use such information as a springboard, that is ‘as a starting point for a new design’, even if ‘in the end the design wholly or partially discards the information from which it was originally built up’.128

Accordingly, a person who misuses the confidential information of the disclosing party:

126 See Cadbury Schweppes v FBI Foods (1999) 83 CPR (3d) 289 (SC Canada), [2000] FSR 491. 127 See Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629; Ocular Sciences v Aspect Vision Care [1997] RPC 289. Lancashire Fires Ltd v SA Lyons & Co Ltd was also referred to in Cantor Fitzgerald International v Tradition (UK) Ltd [2000] RPC 95. 128 Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375, referred to in Sun Valley Foods Ltd v John Philip Vincent [2000] FSR 825.

469

8.34  The Law of Confidence

•

obtains a head start;129 and

•

enjoys an unfair competitive advantage which the ‘springboard’ of the disclosing party’s confidential information provides to her or him to the detriment of the disclosing party.130

A disclosing party who wishes to obtain a springboard injunction has to show that there is unlawful use of its confidential information, that the recipient has gained an unfair competitive advantage over the disclosing party, and that the advantage remains at the date the disclosing party applies for the injunction and will continue unless the injunction is granted.131 The remainder of this section sets out: •

the circumstances from the case which first formulated the ‘springboard doctrine’;

•

a set of principles which are said to apply when a person wishes to apply for a springboard injunction;

•

the length of time that a springboard injunction should last; and

•

what is to happen if part of the information no longer remains confidential.

The formulation of the ‘springboard doctrine’ 8.34 The key facts in the case which first formulated the ‘springboard doctrine’ were:132 •

the parties entered into a contract where the claimant provided to the defendants, in confidence, all drawings and technical information for the manufacture of prefabricated portable buildings (together with all information and know-how);

•

the information was disclosed for the sole purpose of allowing the defendants to manufacture the prefabricated portable buildings;

•

before their agreement came to an end, the claimants provided to the defendant information about modifications to the portable buildings;

•

after termination of the agreement, the defendants offered for sale a building which had some of the features of the claimant’s portable buildings, as originally designed and as modified;

•

the defendants argued that they were no longer under an obligation of confidence because the claimant sold buildings and published brochures which disclosed all the features of the building;

129 130 131 132

QBE Management Services (UK) Ltd v Dymoke and others [2012] EWHC 80 (QB). Roger Bullivant Ltd and others v Ellis and others [1987] ICR 464, CA. Sun Valley Foods Ltd v John Philip Vincent [2000] FSR 825. Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375.

470

Organisation of this chapter 8.35

•

the defendants also argued that their employee who designed their portable building had not used any of the claimant’s confidential information in his design.

Concerning the defendant’s claim that he did not use any of the claimant’s confidential information, the court stated: ‘The designs and specifications, and all the technical information and know-how communicated by the plaintiffs to the first defendants in confidence for the manufacture of [original prefabricated portable building] units, and for no other purpose, were used by the first defendants for some considerable time before the arrival of [their employee] on the scene at all in their workshop, and a large number of units were manufactured.’ Although the employee of the defendant claimed he did not have access to the drawings and specifications communicated by the claimant, he was nevertheless closely involved in the production by the defendants of the claimant’s portable building so that: ‘his mind must have been saturated with every detail of its design, features and methods of construction; and if his mind was so saturated from observing the work in progress on the manufacture of [original prefabricated portable buildings]. obviously that information was either directly or indirectly derived from the original confidential communications made by the plaintiffs to the first defendants … There is no better way of really understanding something that to try and improve it, and if you produce a different result, it is absurd to say that you made no use of the thing which you set out to improve …’ The defendant before the termination of the agreement made preparations through their employee to design a new portable building to put on the market on termination of the agreement. And the employee ‘could not have avoided starting his dive into the future from the springboard of the confidential information acquired by the first defendants and by [their employee]’.

‘Principles’ for obtaining a springboard injunction 8.35 In a recent case the judge summarised what he considered were the well-established principles in obtaining a ‘springboard’ remedy as follows:133 133 QBE Management Services (UK) Ltd v Dymoke and others [2012] EWHC 80 (QB). Based on the judge’s review of the following principal cases: Roger Bullivant Ltd v Ellis [1987] FSR 172; Midas IT  Services v Opus Portfolio Ltd, unreported Ch D, 21  December 1999; Universal Thermosensors v Hibben [1992] 3 All ER 257; Sun Valley Foods Ltd v Vincent [2000] FSR 825; and Sectrack NV  v (1) Satamatics Ltd (2) Jan Leemans [2007]  EWHC  3003 (Comm). The elucidation of these principles was used in CEF Holdings Ltd v Mundey [2012] IRLR 912.

471

8.36  The Law of Confidence

•

a court has the power to impose an injunction on a person who has obtained a ‘head start’ as a result of unlawful acts so that the person is deprived of the fruits of her/his unlawful acts (this is known as ‘springboard relief’);

•

the purpose of a springboard order is to ‘prevent the defendants from taking unfair advantage of the springboard which […] they have built up by their misuse of the information’;

•

the availability of the springboard remedy is not confined to cases of breach of confidence – it is also possible to use it where there is a breach of contractual and fiduciary duties. It derives from a wider principle that a court may grant an injunction to deprive a wrongdoer of the unlawful advantage the wrongdoer derives from her/his wrongdoing;

•

it is necessary to seek and obtain a springboard remedy while the unlawful advantage is still being enjoyed by the wrongdoer;

•

the aim of a springboard remedy is to restore the parties to their ‘competitive position that they each set out to occupy and would have occupied but for the defendant’s misconduct’;

•

a court will not grant a springboard remedy where a monetary award would provide an adequate remedy to a claimant for the wrong done to it;

•

the intention behind granting a springboard remedy is not to punish a wrongdoer for their wrongdoing. The aim is to provide a fair and just protection for unlawful harm on an interim basis. What is fair and just will depend on the circumstances based on: –

the effect of the unlawful acts on the claimant; and

– the extent to which the defendant has gained an illegitimate competitive advantage; •

it is for a claimant to state the precise nature and period of competitive advantage that the defendant has gained. A short-term or ephemeral gain will not be sufficient.

Length of a springboard injunction 8.36 Where a springboard injunction is an appropriate remedy, the length will normally be ‘for a period of time it would take a wrongdoer to achieve lawfully what he in fact achieved unlawfully, relative to the victim’.134

What happens if part of the information remains confidential? 8.37 Where only part of the information is or remains confidential, that part of the information remains subject to obligations of confidentiality, and the fact 134 QBE Management Services (UK) Ltd v Dymoke and others [2012] EWHC 80 (QB).

472

Organisation of this chapter 8.37

that another part of the information has ceased to be confidential is irrelevant. This can happen in a number of ways, for example the originator can: •

disclose part of it in a patent specification, but still retain confidentiality in ‘ancillary secrets’;135 or

•

publish part of the information in a manner making it common knowledge, for instance by producing a description in a brochure for a manufactured product (but not, for example, plans, specifications or other technical information and know-how relating to that product).136

Where the technical information has been used as a springboard to develop a new product, or even to assist in the manufacture of an existing product, particularly where the whole body of information is partly public and partly private, the correct remedy is not an injunction but damages based upon the worth of the information used as a springboard. Here the duty is ‘not to use without paying’, although a duty not to further disclose might in appropriate cases also be imposed by injunction.137 Only the part of the confidential information relating to the product which, either at once or at some later date, becomes common knowledge as a result of the putting of the product on the market, will, at the time that it does become common knowledge, cease to be confidential. The fact that: ‘it might be possible for an expert … to infer from the finished product the general nature of the processes used to produce it, this is a far cry from detailed knowledge of the processes such as would enable them to be replicated’.138 It is important to be able to ascertain the point in time at which information becomes common knowledge once a product is put on the market. At any rate initially, and perhaps after some lapse of time, if the product is not marketed very widely, then only the ‘features’ of the product which are ascertainable by visual inspection and the information about it published in product brochures, will become common knowledge once enough people have bought or seen the product or read the brochures.139 The fact that more knowledge is potentially available to anyone who is prepared to take the time and effort to dismantle or analyse the product does not mean that this information is in fact common knowledge, unless and until either a large number of people actually carry out the process, or one person does so, and publishes the information so that it becomes common knowledge in some other way, such as an article in a learned journal.140 135 Mustad (O) & Son v S Allcock & Co Ltd and Dosen [1963] RPC 41, HL. 136 Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375. 137 See Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629, Ocular Sciences v Aspect Vision Care [1997] RPC 289. 138 Lancashire Fires Ltd v SA Lyons & Co Ltd [1996] FSR 629. 139 Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375, Seager v Copydex Ltd [1967] 1 WLR 923. 140 Yates Circuit Foil v Electrofoils Ltd [1976] FSR 345.

473

8.38  The Law of Confidence

THE TRADE SECRETS DIRECTIVE 8.38 One of the main aims of the Trade Secrets Directive is to establish a minimum amount of harmonisation between the laws of member states of the EU concerning ‘trade secrets’ (or rather, more accurately, commercial confidential information). The Trade Secrets Directive focuses on three areas in achieving this harmonisation: •

providing for a uniform definition of the meaning of a ‘trade secret’;

•

setting out the circumstances when there will be unlawful acquisition, use and disclosure of a trade secret; and

•

setting out a consistent set of civil remedies available in member states.141

The Trade Secrets Directive required implementation into national law by 8 June 2018. The UK implemented the Trade Secrets Directive into UK law by means of secondary legislation from 9 June 2018 which applies to England and Wales, Scotland and Northern Ireland (‘2018 Regulations’).142 The 2018 Regulations did not directly implement all of the provisions of the Trade Secrets Directive as such, as the UK government considered that many of the provisions of the Trade Secrets Directive were already implemented ‘by the principles of common law and equity relating to breach of confidence in confidential information and by statute and court rules’.143 The aim of the 2018 Regulations is limited, according to the UK Government, to addressing ‘where gaps occur or where the implementation of the provision of the [Trade Secrets Directive] in the United Kingdom, across its jurisdictions may be made more transparent and coherent’.144 The UK Government view is that there is already a well-developed law regarding all forms of confidential information and an extensive set of remedies available to a person who wishes to bring a claim for the breach of an equitable obligation of confidence. Accordingly, it is understandable why the UK Government chose, from its point of view, to implement the Trade Secrets Directive in the way that it did. However, the Trade Secrets Directive provides in effect a legislative code for determining the circumstances when there is an unlawful acquisition, use or disclosure of a trade secret as set out in several of its articles. As a matter of logic and consistency, it would have been an opportunity to implement the Trade Secrets Directive ‘as is’ so as to provide a modern self-contained 141 Trade Secrets Directive, Recitals 6 and 7 provide some examples of the differences in member states’ legislation concerning the protection of trade secrets against unlawful acquisition, use or disclosure or civil remedies. The Study on Trade Secrets and Confidential Business Information in the Internal Market (Final Study, April 2013), prepared for the European Commission, provides a country-by-country analysis of the protection available (or lack of) at 2013. 142 Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597), reg 1. 143 From the explanatory notes to the 2018 Regulations. 144 From the explanatory notes to the 2018 Regulations.

474

The Trade Secrets Directive 8.39

law to deal with an important method for persons and businesses to protect their business, technical information and know-how – rather than rely on law which is developed or adapted on a case-by-case basis, which applies to all types of confidential information – as flexible and adaptable as it has been over the last 150 years. The main provisions of the 2018 Regulations relevant to this book are as follows: •

the introduction of a number of definitions, including: –

a definition of the meaning of a trade secret;

–

a definition of a person who has possession of a trade secret, and which is set out in terms other than that person having ownership of a trade secret (‘trade secret holder’);

•

the circumstances when there is a breach of confidence is set out: an unlawful acquisition, use or disclosure of the trade secret occurs where the acquisition, use or disclosure constitutes a breach of confidence in confidential law (that is, by using the principles established by the existing common law of confidence developed by the courts);

•

that, where there is an unlawful acquisition, use or disclosure of a trade secret, a trade secret holder can use either:

•

–

the remedies provided in the 2018 Regulations; or

–

the existing common-law remedies, if the common-law remedies provide wider protection than those in the 2018 Regulations;

the time limits in which it is possible to bring a claim for the unlawful acquisition, use or disclosure of a trade secret (normally six years).

This section considers relevant parts of the 2018 Regulations (together with additional reference to the Trade Secrets Directive where relevant).

Circumstances when the 2018 Regulations apply: the unlawful acquisition, use and disclosure of a trade secret 8.39 The 2018 Regulations apply when there is an unlawful acquisition, use or disclosure of a trade secret where the acquisition, use or disclosure constitutes a breach of confidence in confidential information.145 In other words, to determine whether there is an unlawful acquisition, use or disclosure of a trade secret, it is necessary to look to the existing UK equitable law of confidence as developed by the courts, case-by-case, such 145 2018 Regulations, reg 3(1).

475

8.40  The Law of Confidence

as in the leading cases of Coco v AN Clark (Engineers) Ltd146 and Saltman Engineering Co Ltd v Campbell Engineering Co Ltd.147 Neither the Trade Secrets Directive nor the 2018 Regulations indicate the meaning of ‘acquisition’, ‘use’ or ‘disclosure’ and, until cases come before the courts, it is likely that it will be necessary, it is suggested, to use their normal dictionary meanings. Accordingly, given the way the UK government has chosen to implement the Trade Secrets Directive, it is necessary in the authors’ view to look – for where, for example, a person alleges there has been unlawful use of a trade secret – to particular English cases which cover that type of misuse.

Meaning of a ‘trade secret’ 8.40 The Trade Secrets Directive and the 2018 Regulations introduce a definition for a certain type of confidential information: a trade secret. A  ‘trade secret’ for the purposes of the 2018 Regulations (and the Trade Secrets Directive) is information which: ‘(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question, (b) has commercial value because it is secret, and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.’148 The introduction of a statutory meaning of (at least for a subset of) confidential information is new to UK law. Although new, it does not, it is suggested, offer a meaning which is substantially different from the existing equitable law of confidence, although the formulation is perhaps different. For example, the above definition recognises (at (a)) that the information has to be secret, but not all of the elements have to be secret, in that its precise configuration and assembly of it can be an element in the same way that, under the existing equitable law of confidence, it is possible for a package of information to be confidential even if individual elements of the package are publicly known (see para 8.13 above).

146 Coco v AN Clark (Engineers) Ltd [1969] RPC 41. 147 Saltman Engineering Co Ltd v Campbell Engineering Co. Ltd (1948) 65 RPC 203. 148 2018 Regulations, reg 2. A consequence resulting from the Trade Secrets Directive is that the meaning of a trade secret is now more consistent internationally, as the same definition now appears in the Trade Secrets Directive, the 2018 Regulations and in the Agreement on TradeRelated aspects of Intellectual Property Rights, Art 39(2).

476

The Trade Secrets Directive 8.42

While the definition helps to identify that sub-set of confidential information that attracts the protection of the measures set out in the Trade Secrets Directive and the 2018 Regulations (that is, it is secret information which is of commercial value), neither specify: •

the types of information which they protect;

•

what is meant by ‘commercial value’;

•

what would amount to ‘reasonable steps in the circumstances’ to keep the information secret.

The meaning of each, as set out in the Trade Secrets Directive (as far as it is possible to do so), is set out below.

Types of information 8.41 Neither the Trade Secrets Directive nor the 2018 Regulations take a prescriptive or restrictive approach as to the types of information which are capable of protection. However, the recitals to the Trade Secrets Directive do provide an indication of the type of information that the definition covers: • know-how; •

business information;

•

technological information.149

For the UK it will be necessary to look at the cases which have held particular types of information as having the necessary quality of confidence (see para  8.13 above). All of these types of information have attracted the protection of the UK equitable law of confidence.

Commercial value 8.42 The recitals to the Trade Secrets Directive provide some guidance as to the meaning of ‘commercial value’ – that is, information should be considered to have commercial value: •

whether it is actual or potential;

•

where its unlawful acquisition, use and disclosure is likely to harm the interest of a personal lawfully controlling it by undermining the person’s: –

scientific and technical potential;

–

business interests;

–

financial interests;

149 Trade Secrets Directive, Recital 14.

477

8.43  The Law of Confidence

–

strategic positions;

–

ability to compete.150

For the UK, there is no particular category of information which only attracts protection which is determined by its ‘value’ as such – except information which is not trivial or useless (see para 8.13 above), or that its unauthorised use causes a detriment to the claimant.151

Type of information which is not within the definition of a ‘trade secret’ for the purposes of the Trade Secrets Directive 8.43 The definition of trade secrets will not include (according to the Directive’s recitals): •

trivial information;

•

the experience and skills gained by employees in the normal course of an employee’s employment.152

As noted immediately above for the UK, the existing equitable law of confidence will not normally protect trivial or useless information153 and prevent an employee being able to use their experience and skills.154

What would amount to ‘reasonable steps in the circumstances’ to keep the information secret? 8.44 Unlike other parts of the definition, the recitals to the Trade Secrets Directive provide no further information as to the meaning of ‘reasonable steps in the circumstances’. Under UK law at least, where the word ‘reasonable’ appears in any obligation, the test is whether, objectively, the person subject to that obligation has complied with it. For the UK there are no specific steps that a person who possesses confidential information has to take – other than not taking the obvious step of making it publicly known. Perhaps the two systems are just different ways of looking at the same issue: under the existing UK law, if a person does not keep their confidential information secret, the confidentiality in the information is normally lost; under the Trade Secrets Directive, the holder of a trade secret has a positive obligation to take steps to keep it secret. However, some UK cases have indicated the sort of steps the processor of confidential information 150 Trade Secrets Directive, Recital 14. 151 That is the third element needed to bring a claim for a breach of confidence, as set out in Coco v AN Clark (Engineers) Ltd [1969] RPC 41. 152 Trade Secrets Directive, Recital 14. 153 See para 8.13. 154 See para 8.28 onwards.

478

The Trade Secrets Directive 8.46

should undertake – for example, in Faccenda Chicken Ltd v Fowler, informing employees that certain information is confidential (see para 8.30).

‘Holder’ of a trade secret 8.45 The 2018 Regulations (and the Trade Secrets Directive) protect, and provide remedies to, a ‘trade secret holder’ – that is, a person who ‘lawfully controls’ a trade secret.155 This phrase is not further explained in either measure, but the word ‘control’ does not by itself imply that such a person has to own a trade secret or even have it in their possession. Given the nonspecific definition, potentially a controller could include a licensee of the trade secret, an employee or a person who has lawfully received the trade secret, for example, during pre-contract negotiations.

Bringing proceedings 8.46 As noted above, a large part of the Trade Secrets Directive and, in particular, the 2018 Regulations set out matters relating to bringing an action for the unlawful acquisition, use and disclosure of a trade secret. Consideration of this area, other than as outlined immediately below, is outside the scope of this book. A trade secret holder can: •

bring proceedings and seek remedies available for an action for an equitable breach of confidence if they provide a wider set of remedies etc than available in the 2018 Regulations and they comply with the safeguards referred to in Article 1 of the Trade Secrets Directive;156

155 2018 Regulations, reg 2. 156 2018 Regulations, reg 3(2). The safeguards are set out in Trade Secrets Directive, Art 1(2) and (3), which state: ‘1(2) This Directive shall not affect: (a) the exercise of the right to freedom of expression and information as set out in the Charter, including respect for the freedom and pluralism of the media; (b) the application of Union or national rules requiring trade secret holders to disclose, for reasons of public interest, information, including trade secrets, to the public or to administrative or judicial authorities for the performance of the duties of those authorities; (c) the application of Union or national rules requiring or allowing Union institutions and bodies or national public authorities to disclose information submitted by businesses which those institutions, bodies or authorities hold pursuant to, and in compliance with, the obligations and prerogatives set out in Union or national law; (d) the autonomy of social partners and their right to enter into collective agreements, in accordance with Union law and national laws and practices. 1(3) Nothing in this Directive shall be understood to offer any ground for restricting the mobility of employees. In particular, in relation to the exercise of such mobility, this Directive shall not offer any ground for: (a) limiting employees’ use of information that does not constitute a trade secret as defined in point (1) of Article 2; (b) limiting employees’ use of experience and skills honestly acquired in the normal course of their employment; (c) imposing any additional restrictions on employees in their employment contracts other than restrictions imposed in accordance with Union or national law’. For the UK government, Article 1(2) did not impose an obligation which required its implementation and for Art 1(3) the UK government considered it had been implemented in UK case law.

479

8.47  The Law of Confidence

•

use the proceedings and remedies available for an equitable breach of confidence in addition to, or as an alternative to, the proceedings and remedies available in the 2018 Regulations.157

Time limits for bringing proceedings 8.47 The time limit for bringing proceedings for an unlawful acquisition, use and disclosure of a trade secret is six years (five years in Scotland), beginning with the later of: •

‘the day on which the unlawful acquisition, use of disclosure that is the subject of the claim ceases’;158 and

•

‘the day of knowledge of the trade secret holder’.159

Remedies available 8.48

The 2018 Regulations provide a set of remedies including:

•

measures to preserve the confidentiality of trade secrets during the course of proceedings;

•

interim measures against an alleged infringer: –

to cease or prohibit the use or disclosure of trade secrets on a provisional basis;

–

to prohibit the production of infringing goods including offering, placing on the market or use of infringing goods (or the export or import or storage of them for these uses);

–

to seize or deliver up suspected infringing goods;160

157 2018 Regulations, reg 3(3). 158 2018 Regulations, reg 6(1)(a). 159 2018 Regulations, reg 6(1)(b). The day of the knowledge of the ‘trade secret holder’ means ‘the day on which the trade secret holder first knows or could reasonably be expected to know (a) of the infringer’s activity, (b) that the activity constitutes an unlawful acquisition, use or disclosure of a trade secret, and (c) the identity of the infringer’ (2018 Regulations, reg  6(2)), which ‘knowing’ means that the trade secret holder has sufficient knowledge to bring a claim for unlawful acquisition, use and disclosure of a trade secret (2018 Regulations, reg 6(3)). 160 2018 Regulations, reg 11(1). There are a set of detailed requirements, including that the court may set a reasonable period within which a trade secret holder must bring proceedings on the merits of its case and, where no time limit is set, within 20 or 31 calendar days (2018 Regulations, reg 11(2)–(5)). Other provisions may require the trade secret holder to provide evidence to satisfy a court that the trade secret exists, that it is the trade secret holder who is making the application, and that the alleged infringer has acquired the trade secret unlawfully, is unlawfully disclosing or using the trade secret, or is about to do so (2018 Regulations, reg 12(1)). Also, a court must, in assessing the proportionality of making an interim measure, take certain matters into account.

480

The Trade Secrets Directive 8.49

•

the granting of injunctions and other corrective measures on a court finding on the merits of the case that there has been unlawful acquisition, use and disclosure of a trade secret, including:161 –

the cessation or prohibition of the use or disclosure of a trade secret;162

–

the prohibition of the production of infringing goods including offering, placing on the market or use of infringing goods (or the export or import or storage of them for these uses);163

–

the adoption of certain corrective measures concerning infringing goods (including recalling them from the market, depriving them of their infringing quality or their destruction);164

–

destruction or delivery up of any document which contains or embodies the trade secret.165

When assessing the making an order for one of these measures, besides assessing the proportionality of such an order, a court has to take into account the following: (a) the value of the specific features of the trade secret; (b) the measures taken to protect the trade secret; (c) the conduct of the infringer in acquiring, using or disclosing the trade secret; (d) the impact of the unlawful use or disclosure of the trade secret; (e) the legitimate interest of the parties and the impact on the parties of granting or refusing an order; (f) the legitimate interests of third parties; (g) the public interest; and (h) the safeguarding of fundamental rights.166

The Trade Secrets Directive and the unlawful acquisition, use and disclosure of a trade secret 8.49 As noted above, the UK Government has chosen not to implement certain provisions of the Trade Secrets Directive, in particular those provisions 161 162 163 164 165

2018 Regulations, reg 14(1); . 2018 Regulations, reg 14(1)(a). 2018 Regulations, reg 14(1)(b). 2018 Regulations, reg 14(1)(c). 2018 Regulations, reg 14(1(d). ‘Document’ will also include any object, material, substance or electronic file or any part of these things. 166 2018 Regulations, reg 15(1). For (a) and (b) in the list, where a court limits the duration of an order, the duration must be sufficient to deprive the infringer of any commercial or economic benefit from the unlawful acquisition, use and disclosure of a trade secret.

481

8.50  The Law of Confidence

relating to setting out the circumstances when there is an unlawful acquisition, use and disclosure of a trade secret – primarily because the government considers they are already implemented into UK law.167 However, it is useful to see the scope of the minimum level of protection which the Trade Secrets Directive does provide, in case, for example, a party wished to rely on one of its provisions where it believed that it was not possible to bring its case within a decision of a court dealing with the equitable law of confidence. The Trade Secrets Directive sets out, in three Articles concerning the acquisition, use and disclosure of a trade secret: •

when it is lawful to acquire a trade secret;

•

when it is unlawful to acquire, use or disclose a trade secret; and

•

the permitted exceptions to when a person is faced with a claim for alleged acquisition, use or disclosure of a trade secret.

When it is lawful to acquire a trade secret 8.50 Under the Trade Secrets Directive it is lawful to acquire a trade secret in the following circumstances: ‘(a) independent discovery or creation; (b) observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret; (c) exercise of the right of workers or workers’ representatives to information and consultation in accordance with Union law and national laws and practices; (d) any other practice which, under the circumstances, is in conformity with honest commercial practices.’168

When it is unlawful to acquire, use or disclose a trade secret 8.51 Acquisition: It is unlawful to acquire a trade secret without the consent of the trade secret holder, whenever it is carried out by:

167 The Government, in its consultation on implementing the Trade Secrets Directive (Intellectual Property Office, Consultation on draft regulations concerning trade secrets, 2018) at Annex B, states that many of the provisions were implemented mainly by common law (in a few areas by case law or specific statutory measures) – although the consultation does not (except the statutory measures) identify the source of implementation. 168 Trade Secrets Directive, Art 3(1).

482

The Trade Secrets Directive 8.52

‘(a) unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced; (b) any other conduct which, under the circumstances, is considered contrary to honest commercial practices.’169 Use or disclosure: it is unlawful to the use or disclose a trade secret without the consent of the trade secret holder if carried out by a person who is found to meet any of the following conditions: ‘(a) having acquired the trade secret unlawfully; (b) being in breach of a confidentiality agreement or any other duty not to disclose the trade secret; (c) being in breach of a contractual or any other duty to limit the use of the trade secret.’170 Acquisition, use and disclosure of a trade secret: It is also unlawful to acquire, use or disclose a trade secret if a person: ‘at the time of the acquisition, use or disclosure, knew or ought, under the circumstances, to have known that the trade secret had been obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully within the meaning of [the above paragraph].’

Permitted exceptions when a person is faced with a claim for alleged acquisition, use or disclosure of a trade secret 8.52 Member states shall allow for proceedings to be dismissed where it is alleged there has been acquisition, use or disclosure of a trade secret for one of the following reasons: ‘(a) for exercising the right to freedom of expression and information as set out in the Charter, including respect for the freedom and pluralism of the media; (b) for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest; (c) disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions

169 Trade Secrets Directive, Art 4(2). 170 Trade Secrets Directive, Art 4(3).

483

8.53  The Law of Confidence

in accordance with Union or national law, provided that such disclosure was necessary for that exercise; (d) for the purpose of protecting a legitimate interest recognised by Union or national law.’171

Contract 8.53 The Trade Secrets Directive and the 2018 Regulations do not explicitly deal with the issue of whether contractual obligations of confidentiality come within either legislative measure. The Trade Secrets Directive in a recital states: ‘This Directive should not affect the application of any other relevant law in other areas, including … the law of contract.’172 However, the Trade Secrets Directive does indicate it is considered an unlawful use or disclosure of a trade secret if a person is in breach of a confidentiality agreement or is in breach of a contractual duty to limit the use of a trade secret,173 although this wording is not implemented by the 2018 Regulations as such. This provision of the Trade Secrets Directive does not directly address the issue whether it is possible to oust the operation of the Trade Secrets Directive where the parties have specifically entered into a contract to cover a trade secret. Given this wording and the total silence in the 2018 Regulations on the matter of contractual obligations of confidence, it is an assumption that the Trade Secrets Directive or the 2018 Regulations will not directly affect such contractually agreed obligations. However, since the UK government has chosen to use the existing equitable law of confidence to determine whether there is an unlawful acquisition, use and disclosure of a trade secret, it is not clear whether, if the provisions of the 2018 Regulations are invoked (or there is reliance on the Trade Secrets Directive), they can also apply where there are contractual obligations of confidence, in the same way that, in some circumstances, contractual and equitable obligations of confidence can operate under existing UK law.

STRENGTHS AND WEAKNESSES OF THE LAW OF CONFIDENCE 8.54 This chapter has already referred to some of the strengths and weaknesses of this area of law as a means of protecting technology, whilst 171 Trade Secrets Directive, Art 5. 172 Trade Secrets Directive, Recital 39. 173 Trade Secrets Directive, Art 4(3).

484

Strengths and weaknesses of the law of confidence 8.55

discussing other topics. In some industries (eg the pharmaceutical industry) there is more of a tendency to patent inventions, particularly in the case of new drugs whose chemical structure can be quickly determined by competitors once the drug reaches the market (if not earlier). In other industries (eg in some parts of the engineering industry), there is more of a tendency to rely on the protection given by keeping the technology secret, particularly if those secrets cannot be discovered by reverse engineering the product. In other industries, eg  software, the restrictions on what can be patented may also influence companies in the direction of trade secret protection, and that once software is licensed, it is possible often to examine the code through reverse engineering, and therefore there is a greater tendency to rely on copyright infringement as a means of protection. The following is a summary of the main strengths and weaknesses (without reference to specific industries) as they appear to the author.

Strengths of the law of confidence 8.55

The main strengths of the law of confidence are:

•

there is no need to register confidential information (unlike patents) or even put the information in writing (unlike copyright);

•

as long as the information is kept confidential, rivals do not have access to it (unless they develop it independently), unlike patents which are published or copyright material once made available;

•

the remedies available in a court are such that the court can show some flexibility to treat parties ‘fairly’ even in the absence of a contractual relationship (ie  the court has an equitable, that is discretionary, jurisdiction);

•

it can protect:

•

–

the applicant for a patent by allowing him or her to impose an obligation of confidence on those who are in a position to know, or who need to know, the details of the invention before a patent application has been filed. This is important because if the details of an invention are made public before the patent application is made, it could fail for lack of novelty. Patents Act 1977, s  2(4) (b) states that publication made in breach of confidence will not invalidate the patent application; or

–

the creator of a copyright work by allowing him or her to impose an obligation of confidence on those who know the details of (and in particular the ideas/principles contained in) the copyright work. Once the copyright work is made available (eg leaked or licensed) the ideas or principles contained in it cannot be protected;

an idea for something yet to be elaborated may attract protection as confidential information where there is nothing that generates copyright. 485

8.56  The Law of Confidence

Weaknesses of the law of confidence 8.56

The main weaknesses of the law of confidence are:

•

once the information ‘leaks out’ and becomes public knowledge, further protection will not generally be available under the law of confidence (the main exception being where the ‘springboard doctrine’ applies – see above);

•

there may be difficulties in identifying exactly what is confidential information – compare with patents where the claims of the patent are precisely defined;

•

unlike patents or copyright, there is no monopoly over confidential information: others may develop the same information independently and then use or disclose it;

•

once patented information is published, protection for the published information under the law of confidence is lost. Similarly, when a copyright work is made available, the ideas and principles contained in the work will no longer be protected, only in the way they are expressed;

•

where there is a misuse of the confidential information of one person by another person, the first person:

•

–

has to act quickly (via the courts) to seek a remedy or else he or she will lose the right to seek a remedy in relation to it (generally not the case with patents or copyright material); and

–

is dependent on a judge agreeing with him or her that the confidential information is in fact confidential;

even where information is clearly confidential and clearly has been misused, a court may still not stop the misuser using it or award the innocent party sufficient or any damages.174

APPENDIX Vestergaard Frandsen A/S v Bestnet Europe Ltd175 In the case before the Supreme Court, the key points were: •

there were three employees, two were scientists and the third had a marketing role (‘Marketing Employee’);

174 Ie as the remedies available are discretionary. For example, in Seager v Copydex (No 1) [1967] 2 All ER 415 the court refused to grant an injunction, and assessed the loss of the claimant based on the value of the misused information, rather than assessing on the basis of the profits lost. There is also case law in which the assessment of damages has been on the basis of loss of profits (such as in Dowson & Mason Ltd v Potter [1986] 1 WLR 1419). 175 [2013] UKSC 31.

486

Appendix 8.56

•

the claimant company was involved in the development, manufacture and marketing of nets (using polyethylene) to prevent a person during sleep from being bitten by mosquitos and to reduce the mosquito population;

•

the Marketing Employee and one of the scientists decided to set up a competing business (through one company and then a second ‘Bestnet’) to the claimant (subsequently joined by the third, scientist, employee) and to develop and sell a competing product (‘Netprotect’);

•

one of the scientists had the aim to use a different technique than that of the claimant (involving polyester rather than polyethylene) to produce Netprotect. During the development of their product the scientist informed the others in the new business (including the Marketing Employee) that he would be using polyethylene rather than polyester as he could develop the product more quickly. The Marketing Employee told him to go ahead on that basis;

•

the claimant company started proceedings, alleging that there was breach of their trade secrets. At first instance, the scientists were found to be in breach of their obligations of confidentiality, but for the Marketing Employee, it was found as facts that:

•

–

during her employment, she did not have access to the claimant’s trade secrets;

–

although she was aware that the scientist was using trade secrets, she believed they originated from work done subsequent to them all leaving the employment of the claimant; and

–

at the start of the proceedings, although she was aware of the claimant’s allegations, she did not appreciate that Netprotect was conceived with the assistance of the claimant’s trade secrets;

despite these findings of fact made by the judge in the bullet point above, the judge still fixed the Marketing Employee with liability for breach of an obligation of confidence: ‘[She] was subject to an express obligation of confidentiality contained in […] her contract of employment. This obligation explicitly continued after termination of her employment. After termination, however, the obligation is only enforceable in so far as it prevents [her] from misusing [the claimant]’s trade secrets. In the absence of an express term, [she] would be subject to an implied term to that effect. Although she was not personally involved in devising the initial Netprotect recipes or carrying out the trials, she was closely involved in setting up … Bestnet and in the commercial side of the development of Netprotect. In my judgment, this is sufficient to render her liable for breach of her own obligation of confidence.’

•

the only issue left, by the time the case reached the Supreme Court, was whether the Marketing Employee was liable for breach of an obligation of confidence. Given the close working relationship between 487

8.56  The Law of Confidence

the Marketing Employee and the scientists following their leaving the employment of the claimant, it is perhaps surprising that the Marketing Employee was unaware (or not made aware) of the source of the scientist information and techniques (or at least that it was not obvious to her). However, the judge, at first instance, found she did not know and, as noted in the previous bullet point, she was held in breach of an obligation of confidentiality. Accordingly, the principal reasons why the Supreme Court found that the Marketing Employee was not liable was that she did not know: ‘(i) the identity of those secrets, and (ii) that they were being, or had been, used, let alone misused.’ Ultimately, the Supreme Court found that an action for breach of confidence was based on conscience, and that for the ‘conscience of a recipient to be affected, [the Marketing Employee] must have agreed, or must know, that the information is confidential’.176

Valeo Vision SA v Flexible Lamps Ltd177 In this case, the key points were: (1) The claimant designs and makes lamps for cars. It owned the registered designs and the copyright of drawings for some lamps, and confidential information relating to these items of intellectual property. (2) The claimant was a supplier of lamps to a truck manufacturer (MAN). The claimant supplied drawings and information to MAN. The defendant copied the drawings. (3) MAN also wanted the defendant to produce lights. (4) MAN supplied to the defendant some of the copied versions of the drawings and confidential information of the claimant. 176 The Supreme Court also put it another way: ‘The classic case of breach of confidence involves the claimant’s confidential information, such as a trade secret, being used inconsistently with its confidential nature by a Defendant, who received it in circumstances where she had agreed, or ought to have appreciated, that it was confidential’, drawing support from Attorney General v Guardian Newspapers and others (No 2) [1988] 3 All ER 545 and in particular: ‘I start with the broad general principle (which I do not intend in any way to be definitive) that a duty of confidence arises when confidential information comes to the knowledge of a person (the confidant) in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others. I have used the word “notice” advisedly, in order to avoid the (here unnecessary) question of the extent to which actual knowledge is necessary, though I of course understand knowledge to include circumstances where the confidant has deliberately closed his eyes to the obvious. The existence of this broad general principle reflects the fact that there is such a public interest in the maintenance of confidences, that the law will provide remedies for their protection’. 177 [1995] RPC 205.

488

Appendix 8.56

(5) The claimant sued the defendant for infringing the registered designs, infringing the copyright in its drawings and misuse of the confidential information. (6) The defendant admitted it had carried out the acts of infringement in relation to the registered designs, but denied it had copied a substantial part of the drawings (ie had not infringed the copyright in the claimant’s drawings). It counterclaimed to revoke the registered designs. It also denied it was liable in confidence (because the confidential information had been published by the claimant). (7) The defendant succeeded in its counterclaim to revoke the registered design. (8) The claimant only succeeded in showing that the defendant had infringed the copyright in some of the drawings supplied to MAN. (9) Of relevance to this section is the failure of the claimant to make out its case against the defendant for breach of an obligation of confidence. The judge noted or held that: (a) the claimant provided drawings to MAN in circumstances where MAN was under a duty to keep them, and the information in them, confidential (for use only for the purpose of the business between the claimant and MAN and no other purpose); (b) it was a breach of confidence of MAN to show to the defendant the claimant’s drawings and for MAN to supply information as to what the claimant was doing; (c) MAN had kept the claimant informed that it was seeking a second source of supply for lamps but had never sought the permission of the claimant to show the drawings etc; (d) the defendant must have realised that the claimant’s ‘drawings and other information supplied to a manufacturer such as MAN would be supplied in confidence and should not be used without permission’. Sometime after the relationship between MAN and the claimant started, the defendant became aware that the claimant designed the other source of supply of lamps to MAN, and shortly after that it also became aware that the claimant had registered intellectual property rights. It wished to avoid infringing them; (e) it appeared that the defendant proceeded on the basis that MAN had the permission of the claimant to show the claimant’s drawings and models to the defendant, although the defendant never asked whether this was right; (f) based on the evidence before the court, the defendant had not used information from the drawings supplied by the claimant to MAN and subsequently passed onto the defendant; 489

8.56  The Law of Confidence

(g) the defendant had a reasonable belief that the drawings that they received from MAN originated from, and were produced by, MAN. The judge concluded that the defendant had ‘used the [claimant]’s confidential information via [MAN’s drawing], but it did not know that the information was the confidential property of the [claimant] nor did it know that it should not be used without the [claimant]’s consent’; (h) the judge had to decide whether there should be an inquiry into what damages the defendant should pay (having decided that an injunction was not an appropriate remedy because of other factors not relevant to the alleged misuse of the claimant’s confidential information); (i) the claimant argued that there was a misuse of their confidential information and that the defendant should pay damages because the defendant should not retain the benefit of their misuse of confidential information, relying on the following passage from Seager v Copydex Limited:178 ‘The law on this subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent.’ (j) the judge did not accept that this passage supported the claimant’s case as the information was not disclosed to the defendant in confidence as the confidential information was obtained in circumstances where the defendant believed that MAN had the right to provide it to them. The judge held that there was a clear breach of confidence by MAN, but the claimant had decided not to take action against MAN for commercial reasons; (k) also not of assistance to the claimant was the following passage from Attorney General v Guardian Newspapers and others (No 2):179 ‘Since the right to have confidentiality maintained is an equitable right, it will (in legal theory and practical effect if the aid of the court is invoked) ‘bind the conscience’ of third parties, unless they are bona fide purchasers for value without notice …’; (l) the defendant was not a bona fide purchaser for value, but also it did not know of the claimant’s right to the information and that latter fact did not ‘bind the conscience’ of the defendant; (m) to order an inquiry into whether damages would be payable, ‘it is necessary to establish knowledge or for there to be circumstances in which the defendant ought to have known or there were reasonable

178 [1967] 1 WLR 923. 179 [1990] 1 AC 109.

490

Appendix 8.56

grounds for the defendant to know that the use was wrongful’. As the conscience of the defendant was not bound, it would not be appropriate to grant such an order.

Invista Textiles (UK) Ltd and another company v Botes and others180 Facts (1) The claimant is part of the world’s largest international textile and polymer groups. (2) They make polymers, chemical intermediates and fibres including nylon. Among their brands is LYCRA. (3) Among the defendants are scientists formerly employed by the claimant, including a biotechnologist, biochemist, and one with expertise in computational biology and bioinformatics. (4) During their employment one of the defendants (DB) looked to set up a biotechnology venture (VideraBio) which the defendant did not believe would compete with the claimant or use the claimant’s trade secrets. (5) Other defendants helped DB while they were still employed by the claimant. (6) The defendants resigned and most of them started to work for the new biotechnology venture. (7) Subsequently the claimant discovered, on the work computer of one of the defendants, files relating to the biotechnology venture. (8) The claimant commenced proceedings alleging breach of contract or breach of equitable obligations of confidentiality (as well as inducing a third party to breach a contract). (9) The claimant sought an interim injunction. It was compromised through a consent order, one of the provisions of which was that the defendants agreed to a search and the delivery up of any material concerning the claimant’s confidential information or which was the claimant’s property on the devices in the possession of the defendants. (10) There were further proceedings concerning the searches of the defendants’ devices, including making forensic images of the defendants’ devices and email accounts and which took a long time. There were disputes about deleted emails and files (whether they were deleted in the normal course of their employment or whether they had been deliberately deleted). The forensic work by the claimant including recovering deleted files. 180 [2019] EWHC 58 (Ch).

491

8.56  The Law of Confidence

11. It appears that nearly 8,000 files were found, some of which were stored on a USB memory stick. The disputes related in part to whether some of the documents belonged to the claimant as well. 12. All told, the claimant’s costs ran to £1,000,000, a large part of which appeared to relate to the searching and forensic work. Although there were several sets of proceedings, the real issue in contention (as far as the parties were concerned) was who should pay those costs. The court found that, first, there had to be a trial on the merits of the causes of action before it was possible to decide on the amount of the costs to be paid and by whom.

Confidential information Provisions from the contract of employment The meaning of confidential information and the obligations of confidentiality in the defendants’ employment contracts were set out as follows: ‘1

Confidential Information 1.1 During your employment you will have access to and be entrusted with confidential information and trade secrets relating to the business of the Employer. This includes but is not limited to information and secrets relating to: 1.1.1 Corporate and marketing strategy, […] 1.1.2 Business methods and processes, technical information and know how relating to the Employer’s business and which is not available to the public generally, including inventions, design, programs, techniques, data base systems, formulae and ideas. 1.1.3 Business contacts […] […] 1.1.7 Any document marked confidential 1.2 You may not during your employment (otherwise than in the proper performance of your duties) or afterwards (otherwise than with the prior written consent of the Employer or as required by Law) use or disclose any confidential information or trade secrets concerning the business of the Employer or in respect of which the employer may be bound by an obligation of confidence to any third party. You should also use your best endeavours to prevent the publication or disclosure of such information or secrets. These restrictions will not apply after your employment has terminated to information which has become available to the public generally, otherwise than through unauthorised disclosure.’ 492

Appendix 8.56

Arguments of the parties (1) The defendants’ argument was that restriction in the above provision was unreasonable, going beyond what was necessary to protect the claimant’s legitimate interest as it would prevent an individual defendant from ‘using information which is part of their general knowledge, skill and experience, and seeks to prevent the individual defendants using “mere confidential information” (rather than just trade secrets or confidential information akin to trade secrets). The defendants also said that the scope of the information captured by clause 1 was too uncertain to be enforceable.’ (2) The claimant’s argument was that the provision was reasonable and enforceable because it related to its confidential and proprietary documents which were created during the defendants’ employment.

Judge’s findings (1) The judge found that the definition of confidential information in clause 1.1 was ‘very wide and uncertain’. (2) He noted in particular the following wording: (a) the words at the end of clause 1.1 (‘includes but is not limited to’); and (b) the words in clause 1.1.2 would cover ideas and techniques which are part of an employee’s skill and experience; and (c) clause 1.1.7 included any document marked as confidential, regardless of its content (that is, whether it was in fact confidential or not). That clause 1.1.7 was not restricted so that it only ‘applies if the content of the document is not in the public domain’. (3) In contrast, clause 1.1.2 was limited to information which ‘was not available to the public generally’. As the words ‘not available to the public generally’ were not found in other clauses, the judge held that they were not limited in that way. (4) Although the judge found it was not relevant to interpreting the words of the employment contract, the judge nevertheless noted that several of the claimant’s documents were marked ‘confidential’ but those documents contained no non-public information (such as a world map which showed the locations of the claimant). (5) The judge found that the claimant did have genuine trade secrets but: (a) clause 1.2 was far wider than necessary to protect those trade secrets; and (b) clause 1.1.2 was also far wider than necessary to protect them. If the clause was ‘limited to “trade secrets” expressly or using some 493

8.56  The Law of Confidence

other wording like that could be reasonable, but these provisions are not written that way’. (6) The judge held that the whole of clause 1 and in particular 1.1.2 was an unreasonable restraint of trade and unenforceable after termination of employment. (7) The judge indicated that the defendants owed a non-contractual duty of confidence after termination of their employment to the claimant.

Misuse of confidential information (1) Apart from some slides, the judge found that, post-employment, the defendants had not misused any trade secret type of information (nor was there any threat that they would do so). (2) Also there was a document containing unpublished patent applications (and which the claimant argued contained trade secrets) which was found in the possession of one of the defendant’s devices. The judge held that there was no evidence that the defendant had opened the file or read it, and the defendant had encrypted the file and had forgotten the password. (3) As for the slides: (a) these were prepared by defendant DB after termination of her employment and used in a presentation to students; (b) the judge found the information they contained to be the same or similar to those prepared while she was an employee; (c) the organisation of the information in both versions was the same and a lot of the wording in both was identical (with the judge noting, on the latter point, that, although some wording was the same, that was a copyright matter, but the claim against the defendants was not for infringing copyright). (4) The claimant contended that: (a) the information in the slides itself was not confidential but the compilation of that information was confidential, of a trade secret type; and (b) DB had breached her contract of employment by making the slides because she had misused company property (the company property being the original slides). (5) The judge had to decide whether the information they contained was the type of information that a duty of confidence should protect. (6) The judge accepted that confidential information can consist of a compilation of non-confidential information, but on the facts of the case the judge was not satisfied that: 494

Appendix 8.56

‘… this combination of those non-confidential elements is sufficient to amount to protectable confidential information. Systems metabolic engineering is a topic which the right kind of biotechnologists are well aware of … There are numerous published scientific papers about it. The individual elements on both slides are all well known aspects of it and they all relate to each other in an entirely conventional way. I reject the submission that presentation of the [slides] in public (or its creation) amounted to a breach of any obligation of confidence enforceable post termination of [defendant]’s employment. It did not misuse trade secret type information belonging to [the claimant].’ (7) The judge rejected altogether the claimant’s case based on misuse of confidence in contract or equity.

Non-competition Provisions from the contract of employment The non-competition provisions in the defendants’ contracts of employment were as follows: ‘5

Obligations After Termination of Employment 5.1 For the purposes of the Agreement, the following expression shall have the following meaning: “Competing Business” means any entity or persons engaged in or about to become engaged in research, development, production, marketing or selling of a competing product(s). “Competing Products” means product(s) process(es) or service(s) with which the employee has worked within five years preceding termination of such employment, or about which the employee has acquired the employer’s trade secret, technical or non-technical information. “Company Employee” means […] 5.2 To protect the Employer’s trade secrets, technical and nontechnical confidential information, the Employee agrees that whilst the Employee is employed by the Employer and for a period of 3 months following the termination of employment with the Employer for any reasons, the Employee shall not directly or indirectly: 5.2.1 be employed by, consult with or render services with any Competing Business 5.2.2 promote, solicit or induce for himself or any other person, any person or body whatsoever who is or has been a customer of the Employer any time during 5 495

8.56  The Law of Confidence

years preceding such termination of employment; and 5.2.3 solicit or induce directly or indirectly for any competing business the employment of any person who is now or at any time after the date hereof is a Company Employee.’

Arguments of the parties (1) The claimant argued that: (a) the work done by the defendants during the three months following the termination of their employment breached clause 5.2.1; (b) clause 5.2.1 was necessary to protect its interests as the defendants had access to trade secrets and confidential information akin to trade secrets; and (c) in any case the non-compete clause only lasted three months. (2) The defendants argued that clause 5.2.1 was unreasonable (and unenforceable) because it went beyond what was necessary to protect the claimant’s legitimate interest. The two definitions quoted above make clause 5.2.1 unreasonably broad and uncertain.

The findings of the judge (1) That Competing Business is a defined term but: (a) it does not only mean a business which competes with the claimant; (b) it also means any business engaged in a range of activities such as research, development and the selling of competing products. (2) That Competing Products is a defined term. It does not mean only products which compete with the Claimant, but also includes within its definition products ‘which have a defined relationship with the relevant employee’. Despite the clear wording of the clause, it was accepted by the claimant that it did not mean five years going back from the date of termination (which could cover a period prior to the defendant’s employment with the claimant), but only five years during the employment with the claimant. (3) The judge held that the purpose of clause 5.2, which is expressly stated: (a) to protect the employer’s trade secrets, technical or non-technical confidential information; (b) applies while a defendant is employed and for three months afterwards; and (c) prohibited a defendant being employed by or rendering services to any Competing Business. 496

Appendix 8.56

(4) The judge found that, given the definition of Competing Business, the clause was not about competition at all as Competing Businesses may or may not be in competition with the claimant as ‘[t]he clause is actually aimed at protecting confidential information’. (5) The judge held in interpreting clause 5.2 that, for each Competing Product, it was necessary to establish two things: that the individual defendants worked on a particular specific Competing Product while employed by the claimant (the employer claimed the defendants had worked on the following Competing Products: ‘biotransformation’, ‘Fermentation’, ‘Acetaldehyde’, and host organisms ‘Y.lipolytica’ and ‘Clostridium’) and that VideraBio was engaged in or was about to engage in carrying out one of the activities stated in the definition of Competing Business (research, business) etc. (6) The judge found that, for the Competing Product ‘biotransformation’, it ‘is so high level as to be meaningless’. For other Competing Products the judge held that the defendants had worked on them while employed at the claimant and that VideraBio was engaged in or was about to be engaged in research and development at the material time. (7) In order to determine the reasonableness of clause 5.2 post termination, the judge examined one of the Competing Products in more detail (‘Y. lipolytica’), and he found that: (a) it was within the scope of the definition of a Competing Product; (b) since VideraBio was contemplating engaging in research relating to it, VideraBio was a Competing Business; (c) an individual defendant would be in breach of clause 5.2 if they were employed or rendered services to VideraBio within three months after their employment was terminated; (d) however, one of the defendants (DB) was already an expert in ‘Y.lipolytica’ before she was employed by the claimant; (e) ‘Y.lipolytica’ is a well-known organism; (f) it is likely that the claimant employed DB because of her expertise with ‘Y.lipolytica’; and (g) accordingly, the use of the ‘Y.lipolytica’ host was part of DB’s general knowledge, skill and experience, and: ‘So approached that way, the effect of this clause is to prevent an employee like [DB] from working in her own field using her own skill at all in that period. It certainly is not limited so as to operate only to protect trade secrets of Invista. What makes VideraBio a Competing Business is not competition with [the claimant]. The feature which makes VideraBio a Competing Business is the fact it is interested in the same publicly known host organism as [the claimant] has been interested in, regardless 497

8.56  The Law of Confidence

of whether there is any relationship between the purposes for which the two businesses are interested in those organisms. Another way of looking at the problem is the level of generality with which [the claimant]’s case is put, but that follows from the way the clause is drafted.’ (8) The judge recognised that the post-termination clause was short (three months), and: (a) such a clause might make sense where the value of the information lasted for a short term (such as sales leads); but (b) the length of clause 5.2 had no relationship to any of the information which it sought to protect as ‘Information, whether trade secret or not relating (say) to the use of Y. lipolytica to make chemical compounds has a currency much longer than three months and in truth cannot really be used for much in that short a period at all’. (9) The judge concluded on the non-compete provisions: ‘All this clause achieves when applied to employees like the individual defendants is to prevent them from exercising the very same skills they were hired for in the first place for three months postemployment. That does not benefit [the claimant] at all. I find that the clause, in its operation as it operates after the employment has ceased is an unreasonable restraint of trade. The period in the clause is just a relatively short period to try and make an unreasonable clause seem more reasonable. That is not a justification.’

Other findings and conclusion Although the judge did not find that the defendants had misused the confidential information of the claimant, that they were not in breach of their confidentiality obligations, and that the non-compete provision was an unreasonable restraint of trade, the defendants did breach some of the provisions of their contracts of employment: (1) The contract of employment also contained a provision that, upon termination of employment, employees had to return any of the claimant’s property. The judge found that DB had failed to return two items of the claimant’s property. (2) The judge also found that an item of company property which was present on one of the defendant’s personal devices and which had been deleted in the course of their employment did not breach the contractual provision to return company property. However, a defendant who deleted documents after his employment had terminated had breached his contract of employment. (3) Defendant DB was in breach of the non-solicitation provision (clause 5.2.2, see above) because she solicited the other defendants to work for VideraBio. 498

Appendix 8.56

(4) The defendant’s preparatory work to set up VideraBio while employed by the claimant was also held to be a breach of a contractual duty of fidelity to the claimant. (5) Despite the above breaches, the judge did not order an inquiry as to the damages that the defendant should pay to the claimant, as: ‘It would be entirely disproportionate. There is no justification for it. There is no evidence any of these activities cause any substantive or quantifiable loss to [the claimant]. I am prepared to hear submissions about what sum by way of damages (if any) ought to be awarded for the proven breaches, including the failure to return documents […], at the hearing to deal with the consequences of this judgment but that is as far as it will go.’ (6) Also no injunction was sought by the claimant, except for the return of the documents still in the possession of the defendants.

499

CHAPTER 9

Personal Property Introduction502 The application of personal property laws to intellectual property 502 Bailment503 Implied covenants under the Law of Property Act 1925 (‘the LPA’) and the Law of Property (Miscellaneous Provisions) Act 1994 504 Does the LPA apply to intellectual property? 504 Relevant provisions of the LPA 504 Relevant provisions of intellectual property statutes 505 Conclusions506 Implied covenants of title, freedom from encumbrances etc under the 1994 Act 507 Covenants applicable to Full Title Guarantee and Limited Title Guarantee508 Covenants applicable to Full Title Guarantee only 509 Covenants applicable to Limited Title Guarantee only 509 Implied conveyance of all rights held 509 Other provisions of the Law of Property Act 1925 which could apply to intellectual property transactions 510 Introduction510 Use of expressions 511 Notices511 Fraudulent concealment of material matters 513 Purchaser’s constructive notice 513 Execution of deeds and contracts concerning property 514 Individuals who sign deeds 514 UK companies signing contracts and deeds 514 Contracts (which are not deeds) 515 Deeds515 Foreign companies 516 Other bodies, academic institutions and government departments and organisations 516 Signing of a document by a corporation aggregate 517 Signing of a document on behalf of a corporation aggregate 517 Signing of deeds by corporation aggregates 517 Witnessing of conveyances 518 Relief from forfeiture 518 Multiple ownership of property 519 Introduction519 Patents in the UK 519 The position in regard to other UK intellectual property 520

501

9.01  Personal Property The position in regard to non-UK intellectual property 521 Comment521 Joint ownership and ownership in common 522 Distinction between joint ownership and ownership in common 522 Prohibition on legal ownership in common 523 Ability of companies to hold as joint tenants 523 Bailment524 Introduction524 Circumstances in which bailment may arise 526 Rights of the bailor 526 Rights of the bailee 526 Duties of the bailee 527 Duties of the bailor 528 Sub-bailment528 Commercial implications of the law of bailment 529 Non-derogation from grant 530 The case of British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd530 Relevance of non-derogation from grant and the right to repair to patents532 Related legal principles 535 Conclusion536 Impact of EU laws on UK property law 536 Ownership of human tissue and biotechnological products originating from human tissue 537 Introduction537 Human tissue as property 537 Common law and statutory provisions 537 Criminal law 539 Ownership of the products of biotechnological engineering 539 How biotechnology uses human tissue: legal rights 540 Human Fertilisation and Embryology Act 1990 and Human Tissue Act 2004 542

INTRODUCTION The application of personal property laws to intellectual property 9.01 The main forms of intellectual property – patents, designs and copyright – are part of that broad category of property under English law known as ‘personal’ property (such as goods, rights to sue) as distinct from ‘real’ property (ie land). Except where intellectual property laws provide differently, the general law of personal property applies to patents, copyright, designs and the like. The 502

Introduction 9.02

most familiar example of this, for the purposes of this book, is sections 2–5 of the Law of Property (Miscellaneous Provisions) Act 1994 (‘the 1994 Act’, in this chapter). These sections imply certain covenants1 into ‘dispositions’ (eg conveyances)2 of property that are expressed to be made by a person ‘with full title guarantee’ or ‘with limited title guarantee’. As discussed below, many intellectual property lawyers consider that these implied covenants in the 1994 Act also apply to assignments of intellectual property.3 But if the provisions regarding implied covenants can apply to intellectual property transactions, are there also other provisions of property statutes – particularly the Law of Property Act 1925 (‘the LPA’, in this chapter) – and of property law generally, which affect such transactions?4 In the authors’ view, there are several areas where this is so, including some which rarely receive consideration. It may be unwise to be too dogmatic – the application of traditional property laws to intellectual property transactions has not received much attention from the courts. Moreover, the LPA largely consolidated 19th century laws, and it is unlikely that intellectual property was a significant consideration for the drafters of the LPA. This chapter considers some areas of traditional property law which, in the authors’ view, may significantly affect agreements concerned with intellectual property (especially if those areas are not specifically addressed in an agreement). Note that due to the frequency of references to gender in this chapter, the masculine is understood as including the feminine.

Bailment 9.02 The law of personal property may also be relevant to technologyrelated agreements where the technology is not protected by intellectual property. In the biotechnology field, agreements sometimes provide for the 1

2 3 4

A  covenant is essentially a binding, contractual, promise or undertaking. Traditionally, a covenant was an undertaking given in a deed. It has a specific meaning in ‘real’ property transactions, where a negative covenant may be binding on subsequent owners of the land to which the covenant relates. But, apart from this exception, the term simply means a contractual obligation. The word ‘covenant’ is also commonly encountered in employment contracts (eg ‘restrictive covenants’), although with such contracts other terminology could just as easily be used to describe such binding promises. The formal transfer of ownership (or the document that transfers ownership) of property from one person to another. In intellectual property transactions ‘assignment’ is the word used, rather than ‘conveyance’. See para 9.06 below. An example of where intellectual property laws do provide differently is Patents Act 1977, s 30(6) which provides that an assignment of a patent must be in writing signed by the assignor (or mortgagor) to the transaction. By contrast, LPA, s 52 provides only that conveyances of land must be by deed; there is no requirement that a conveyance of personal property be by deed or in writing.

503

9.03  Personal Property

supply of materials such as cell lines, monoclonal antibodies or genetically modified organisms which are not protected or protectable by patents or other intellectual property rights. The transfer of ownership is not usually a consideration (where it is a possibility for such material). ‘Exclusive licences’ to use such materials are not uncommon; in the absence of intellectual property rights such exclusivity is often based on the assumption that the cell line or other property is unique, and cannot be obtained from any source other than the licensor. The licensee is, in effect, granted exclusive access to personal property. The agreement may provide that the materials may only be used for limited purposes and must be returned when the agreement comes to an end. Such an agreement may give rise to a bailment of the materials, in which case the long-established common law of bailment will apply.5 This chapter will consider the main areas where personal property laws may affect technology-related agreements. It does not consider the law of property as it applies to land and buildings as such. But the law of property will be considered to the extent that it is the same for both real and personal property. As noted above, much of it is found in the LPA or in the 1994 Act. Also dealt with in this chapter are specific areas dealing with the highly topical issue of whether human tissue is property or can be ‘owned’.6

IMPLIED COVENANTS UNDER THE LAW OF PROPERTY ACT 1925 (‘THE LPA’) AND THE LAW OF PROPERTY (MISCELLANEOUS PROVISIONS) ACT 1994 Does the LPA apply to intellectual property? Relevant provisions of the LPA 9.03 In order to establish that the LPA (as amended) applies to intellectual property assignments at all, and its effect on such assignments, it is necessary to consider a number of provisions and definitions in the LPA. By LPA, s 205, ‘conveyance’ is defined to include: ‘a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will; “convey” has 5 6

See para 9.36 onwards below. The laws which govern the issue of the obtaining, retention and use of (as well as requirement to or obtain consent for the use of) human tissue (and bodies and body parts) is considered in Ch 11.

504

Implied covenants under the Law of Property Act 1925 (‘the LPA’) 9.04

a corresponding meaning; and “disposition” includes a conveyance and also a devise, bequest, or an appointment of property contained in a will; and “dispose of” has a corresponding meaning’. (emphasis added) The term ‘property’ is defined by the same section of the LPA to include: ‘any thing in action, and any interest in real or personal property’. Accordingly, a transfer of legal title to real or personal property, or transfer of an interest in real or personal property, would seem to be a conveyance for the purposes of the LPA. Clearly, intellectual property is not real property (ie land and buildings). The argument in favour of the LPA applying to intellectual property transactions therefore depends partly on whether intellectual property is personal property. It also depends on whether the LPA applies to personal property. The LPA was introduced as part of a major reform of land law in the 1920s.7 Although the LPA does not specifically state that its provisions apply to personal property, it seems clear that some of them do. This can be seen from the fact that some sections of the LPA state that they apply only to land (eg s 1), whilst other sections are not so limited. However, the LPA only applies to property situated in England and Wales.8 Thus, even if intellectual property is property for the purposes of the LPA, it is likely that the LPA only applies to UK intellectual property, eg a UK patent.

Relevant provisions of intellectual property statutes 9.04 The key question is whether it is possible to classify the main forms of intellectual property as personal property. Most of the statutory forms of intellectual property contain statements on this point. Each will be examined in turn. In the case of patents, the position is clear. The Patents Act 1977 states: ‘Any patent or application for a patent is personal property (without being a thing in action)…’9

7 8 9

See the commentary in 39(2) Halsbury’s Laws of England (4th edn, LexisNexis, 2003 reissue) Real Property, para 43 ff. LPA, s 209. Patents Act 1977, s  30(1). A  definition of a ‘thing in action’ (or a chose in action): ‘The meaning of the expression “chose in action” or “thing in action” has expanded over time and is now used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. It is used in respect of both corporeal and incorporeal personal property which is not in possession’: 13 Halsbury’s Laws of England (5th edn, LexisNexis, 2009) para 1.

505

9.05  Personal Property

For registered trade marks, the position is equally clear. The Trade Marks Act 1994 states: ‘A registered trade mark is personal property…’10 For registered designs, the position is now also equally clear. The Registered Designs Act 1949 states: ‘A registered design or an application for a registered design is personal property…’11 For copyright and design right, the position is almost as clear. Under the Copyright, Designs and Patents Act 1988: ‘Copyright is transmissible by assignment, by testamentary disposition or by operation of law, as personal or moveable property.’12 Whilst for design right: ‘Design right is transmissible by assignment, by testamentary disposition or by operation of law, as personal or moveable property.’13 In the case of the database right, there is not a clear statement in the same way as for the other forms of intellectual property, but it is clearly identified as a form of property: ‘A  property right (‘database right’) subsists, in accordance with this Part, in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database.’14 By implication, a database will also be ‘personal property’ as it clearly cannot amount to real property.

Conclusions 9.05 It seems clear that most, if not all, types of intellectual property, particularly patents, trade marks, copyright, design right, registered designs and database right, are examples of personal property.

10 11 12 13 14

Trade Marks Act 1994, s 22. Registered Designs Act 1949, s 15A, as amended by SI 2006/1028. Copyright, Designs and Patents Act 1988, s 90. Copyright, Designs and Patents Act 1988, s 222. Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 13(1).

506

Implied covenants under the Law of Property Act 1925 (‘the LPA’) 9.06

An assignment of such intellectual property will generally transfer the legal title to that property.15 Accordingly, it seems that an assignment of intellectual property could be a conveyance of property for the purposes of the LPA and the 1994 Act. It is less likely that an intellectual property licence would be regarded as a conveyance or disposition of property. A  licence is regarded as a right under the intellectual property, rather than a right or interest in the property.16 There may be an argument that certain kinds of exclusive licence give the licensee a property interest in the intellectual property, as distinct from a mere contractual right; certainly an exclusive licence can give the licensee statutory rights, which may be thought of as going beyond mere contractual rights.17

Implied covenants of title, freedom from encumbrances etc under the 1994 Act 9.06 The 1994 Act created a new regime18 for dispositions of property that are expressed to be made: •

‘with full title guarantee’; or

•

‘with limited title guarantee’.19

Where these expressions are used in an conveyance or an assignment, a set of covenants are implied into the conveyance/assignment of property. ‘Property’ is defined, as before, to include any interest in personal property, whilst ‘disposition’ (the meaning of which includes a ‘conveyance’ under LPA, s 205) includes the creation of a term of years (essentially, under the law of real property, a lease).20

15 Subject to compliance with any formalities, eg a patent, assignment must be in writing signed by or on behalf of the assignor (Patents Act 1977, s  30(6)) and should be registered (see Patents Act 1977, s  33); for a registered design, a registered design assignment, like for a patent, must be in writing signed for or on behalf of the assignor (Registered Designs Act 1949, s 15B(3)) and should be registered (Registered Designs Act 1949, s 15B(3)). 16 See eg Insituform Technical Services Ltd v Inliner UK plc [1992] RPC 83 at p 105. 17 See eg the rights of an exclusive licensee of a patent, under Patents Act 1977, s 67 (the right to bring infringement proceedings after the date a licence under a patent has been granted). 18 1994 Act, s  10 repealed LPA, s  76 ‘as regards dispositions of property made after commencement of this Part’; commencement was on 1  July 1994 by statutory instrument. LPA, s 76 had implied certain covenants into conveyances that were stated to be made ‘as beneficial owner’. 19 1994 Act, s 2 ff. 20 1994 Act, s 1(4).

507

9.07  Personal Property

The covenants are to be implied: ‘whether or not the disposition is for valuable consideration’21 unlike the position under LPA, s 76.22 It is possible to limit or extend the operation of any of the implied covenants by wording in the disposition/assignment which contains the expressions ‘with full title guarantee’ or ‘limited title guarantee’.23 In addition, the person making the disposition/assignment has no liability under a covenant in respect of: •

any matter to which the disposition is expressly made subject; or

•

any matter which is within the actual knowledge of the person to whom the disposition/assignment is made.24

The benefit of these implied covenants is stated to go with the estate or interest of the person to whom the disposition/assignment is made.25 It can be enforced by every person in whom that estate or interest is (in whole or in part) for the time being vested.26 In summary, the following covenants are to be implied27 (covenants relevant only to land are not mentioned here).

Covenants applicable to Full Title Guarantee and Limited Title Guarantee28 9.07 •

The person disposing of the property (‘seller’) has the right to dispose of that property; and

•

the seller will at his own cost do all he reasonably can to give to the person to whom he disposes of the property (‘buyer’) the title he purports to give; and

21 22 23 24 25

1994 Act, s 1(1). See para 9.03 above. 1994 Act, s 8(1). 1994 Act, s 6. 1994 Act, s 7. The meaning of a person can include corporate bodies (for example, companies, universities incorporated by Royal Charter): Interpretation Act 1978, s 5, Sch 1. The reference to the covenant’s going with an estate of a person will only apply to an individual, but the reference to going with the interest of a person can cover where a person equals a corporate body. 26 See note 25. 27 By 1994 Act, ss 2, 3, 5. 28 1994 Act, s 2.

508

Implied covenants under the Law of Property Act 1925 (‘the LPA’) 9.10

•

where the disposition is a mortgage of property subject to a rentcharge, the mortgagor will fully and promptly observe and perform all the obligations under the instrument creating the rentcharge that are enforceable by the owner of the rentcharge.29

Covenants applicable to Full Title Guarantee only30 9.08 •

The seller is disposing of the property free from all charges, encumbrances (whether monetary or not) and third party rights, other than charges, encumbrances and rights he does not and could not reasonably be expected to know about.31

Covenants applicable to Limited Title Guarantee only32 9.09 •

The seller has not, since the last disposition for value of that property, charged or encumbered it by any charge or encumbrance which subsists at the time of the present disposition, nor granted any third party rights in relation to the property which subsist at the time of the present disposition; nor has he allowed (‘suffered’) anyone else to do so; nor is he aware that anyone else has done so since the last disposition for value.

Implied conveyance of all rights held 9.10 A  provision of the LPA confirms that a conveyance is effective to transfer all the rights in the property held by the party conveying the property.33 This provision appears to have been intended to remove doubts based on 19th century case authority.

29 It is not clear whether this provision is relevant to mortgages of intellectual property, but it is included for the sake of completeness (as a ‘rentcharge’ is an annual or periodic sum arising from land (other than the rent reserved by a lease or tenancy etc)). New rentcharges cannot be created (Rent Charges Act 1977, ss 2(1), 2(3)), with existing ones ceasing to exist within 60 years of 1978. 30 1994 Act, s 3. 31 This implied covenant is also stated to apply, by 1994 Act, s 3(2), to liabilities imposed and rights conferred by or under any enactment unless, because they are only potential liabilities and rights in relation to that property, or apply to property generally, they do not constitute defects in title. 32 1994 Act, s 4. 33 LPA, s 63.

509

9.11  Personal Property

In the intellectual property field, there is case law34 on a similar point, namely that following an assignment of a patent, no rights are retained by the assignor. Therefore, where an assignment of a patent merely states that a party assigns a named patent to another, the effect of the above provision would seem to be that all his right, title, interest, claims and demands in the patent are assigned. Often, assignments will specifically state that all ‘right, title and interest’ is transferred. Although this would seem not to be strictly necessary by virtue of the above provisions, it is prudent to state expressly the extent of rights transferred, particularly where non-UK intellectual property is included in the assignment. Note that this provision of the LPA does not mention whether the person to whom the property is conveyed has the right to sue in respect of infringements which occurred prior to the date of the infringement, although it does refer to claims and demands that have already been made. If the parties intend that the right to sue in respect of past infringements is transferred, this should be stated in the assignment.35

OTHER PROVISIONS OF THE LAW OF PROPERTY ACT 1925 WHICH COULD APPLY TO INTELLECTUAL PROPERTY TRANSACTIONS Introduction 9.11 The main intention of the LPA was to consolidate previous law on transactions in land although, as has already been mentioned, many of its provisions also apply to transactions in personal property.36 The following paragraphs concentrate on those provisions of the LPA that appear to have a direct impact on intellectual property transactions, for example provisions which may alter the interpretation or effect of an assignment or licence agreement. Other provisions of the LPA, which are not described here, may be applicable to intellectual property transactions but do not seem to affect such transactions significantly. 34 See In the matter of Scott and Beard’s Patent 45  RPC  31 (1927), where a former owner unsuccessfully tried to object to an application by the assignees to extend the term of the patent, on the grounds that he had not assigned the right to apply for an extension. See also Massmann v Massmann and the Custodian of Enemy Property 61 RPC 13 (1943) (CA) and 60 RPC 45 (1943). 35 For example Patents Act 1977, s 30(7), which provides that an assignment of a patent ‘may’ confer on the assignee the right to bring proceedings for a previous infringement, ie  this is not automatically implied into such an assignment. Often an assignment of intellectual property will include multiple sets of provisions to cover this and other eventualities, 21(1) Encyclopaedia of Forms of Precedents 1997: see (LexisNexis) Patents and Technology Transfer, Form 29 [275]. 36 Primarily because some provisions of the LPA are stated to apply to real property, while others are to ‘property’ but without further elaboration or restriction as to the type of property which is meant.

510

Other provisions of the Law of Property Act 1925 9.13

Use of expressions 9.12 It is common in commercial agreements to state specifically that certain expressions, when used in the agreement, are to be interpreted broadly. For example, it is common to state that references to a person include a firm, company or other organisation. In the absence of such express terms, LPA, s 6137 provides that the following words have the following meanings: ‘In all deeds, wills, orders and other instruments executed, made or coming into operation after the commencement of this Act [ie  1st January 1926], unless the context otherwise requires: (a) ‘Month’ means calendar month;38 (b) ‘Person’ includes a corporation; (c) The singular includes the plural and vice versa; (d) The masculine includes the feminine and vice versa.’ The wording of LPA, s 61 does not expressly state that its provisions apply only to deeds and instruments (eg written agreements) concerning property, but this may be implicit given the general purpose of the LPA. It seems that such provisions apply to assignments of intellectual property, whether or not the parties execute them as deeds, and possibly also to licences and other agreements concerning intellectual property. In relation to the interpretation of implied covenants, LPA, s 83 implies some further provisions which appear to repeat parts of LPA, s 61: ‘In the construction of a covenant or proviso, or other provision, implied in a deed or assent by virtue of this Act, words importing the singular or plural number, or the masculine gender, shall be read as also importing the plural or singular number, or as extending to females, as the case may require.’

Notices 9.13

It is desirable in commercial agreements to include a provision stating:

•

the method(s) by which one party can or must send communications to another; and

•

whether and when any communication which is sent is taken to be received.

37 See also the equivalent provisions in Interpretation Act 1978, ss 5, 6 and Sch 1. 38 97 Halsbury’s Laws of England (5th edn, LexisNexis, 2010) Time, paras 307–311, 345, the latter paragraph dealing with fractions of days, which are normally disregarded in any calculation of time.

511

9.13  Personal Property

In the absence of such a provision, the notice provisions set out in LPA, s 196 are likely to apply to any ‘instrument affecting property’; this phrase would appear to cover most agreements in respect of intellectual property, including licences and assignments. LPA, s 196 can be a major trap for the unwary, as failure to serve a notice in the required manner could invalidate the notice.39 For example, the termination provisions in a licence agreement sometimes provide that termination for breach may only take place after the party not in default gives notice of the breach to the defaulting party, as well as giving the defaulting party an opportunity to remedy it. Failure to give notice of the breach in the correct way could invalidate any subsequent purported termination of the licence agreement. LPA, s 196(5) implies certain notices provisions into any: ‘instrument affecting property executed or coming into operation after the commencement of this Act [ie 1st January 1926] unless a contrary intention appears’. The notices provisions are set out in LPA, s 196(1)–(5), the relevant parts of which read as follows: ‘(1) Any notice required or authorised to be served or given by this Act shall be in writing. […] (3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last known place of abode or business in the United Kingdom of the … person to be served … (4) Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the … person to be served, by name, at the aforesaid place of abode or business, office or counting house, and if that letter is not returned by the postal operator (within the meaning of [Part 3 of the Postal Services Act 2011]) concerned undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.

39 See Orchard (Developments) Holdings plc v Reuters Ltd [2009] EWCA Civ 6 for a recent example (in a commercial landlord and tenant case), where failure to follow contractual provisions for providing a notice by a particular method made the notice of no effect. This case did not deal with a failure to follow the method specified in LPA, s 196, but is a recent illustrative example of the consequences of failure to follow the specified method. What may seem a bureaucratic impediment or of technical insignificance if a notice is communicated one way rather than another can lead to a notice being ineffective if sent in a way other than as specified in a contract or assignment (even if the recipient of the notice did receive the notice and was aware of its contents).

512

Other provisions of the Law of Property Act 1925 9.15

(5) The provisions of this section shall extend to notices required to be served by any instrument affecting property executed or coming into operation after the commencement of this Act unless a contrary intention appears.’

Fraudulent concealment of material matters 9.14 LPA, s 183 includes provisions which affect not only the parties to a property transaction, but also their agents. The aim of this provision is to prevent a person, when disposing of property, from concealing or falsifying matters which are material to the title to the property, and may go further than the general law of fraud. In that sense it may be regarded as an exception to the principle of caveat emptor – let the buyer beware! Unusually, the provision mentions specifically the solicitor acting for a party disposing of property. The section provides for both a criminal offence and a civil wrong where matters, which are material to the title to the property, are concealed or falsified. LPA, s 183(1) provides as follows: ‘Any person disposing of property or any interest therein for money or money’s worth to a purchaser, or the solicitor or other agent of such person, who: (a) conceals from the purchaser any instrument or incumbrance material to the title; or (b) falsifies any pedigree upon which the title may depend in order to induce the purchaser to accept the title offered or produced; with intent in any of such cases to defraud, is guilty of a misdemeanour [ie criminal offence] punishable by fine, or by imprisonment for a term not exceeding two years, or by both.’ LPA, s 183(2) provides for a similar civil cause of action giving a right to damages.

Purchaser’s constructive notice 9.15 LPA, s  199 limits the circumstances in which a purchaser is prejudicially affected by notice of any instrument or matter or any fact or thing relating to the property which is being purchased by him. In brief summary, the purchaser is not affected unless the purchaser or the purchaser’s counsel, solicitor or other agent knew or would have known if the purchaser or counsel, solicitor or other agent had made reasonable enquiries.

513

9.16  Personal Property

Execution of deeds and contracts concerning property40 9.16 Since the LPA came into effect, subsequent Acts have extensively revised the law on the execution of deeds and other documents, both: • for individuals (by the Law of Property (Miscellaneous Provisions) Act 1989); and • for companies (by the Companies Act 2006); •

BUT NOT FOR companies or other organisations that are not covered by the Companies Act 2006 (such as organisations incorporated by Royal Charter or by an Act of Parliament, for example, many universities).

In summary (and excluding mention of requirements that relate only to land transactions):

Individuals who sign deeds41 9.17 (a) There is no longer any requirement for an individual to execute a deed with a seal; (b) it must be made clear on the document that the document is intended to be a deed (ie by stating that it is a deed or that it is executed as a deed); (c) it must be signed by the individual (or a person authorised to execute it in the name of or on behalf of that individual): (i) in the presence of a witness who attests the signature; or (ii) at his direction and in his presence by someone else, and in the presence of two witnesses who each attest the signature; (d) to be valid the deed must also be delivered as a deed by him or a person authorised to do so on his behalf.

UK companies signing contracts and deeds 9.18 The following rules apply to companies incorporated under, or otherwise governed by, a UK  Companies Act.42 In relation to overseas companies, see below. Furthermore, the following rules only apply to deeds or other documents executed under English law. 40 The execution of documents is considered in greater depth, and with practical examples, in Anderson and Warner, The Execution of Documents (3rd edn, Law Society Publishing, 2015). 41 Law of Property (Miscellaneous Provisions) Act 1989, s 1(2), (2A). 42 Companies can be incorporated under a number of Companies Acts, including 1948, 1985 and 2006.

514

Other provisions of the Law of Property Act 1925 9.20

Contracts (which are not deeds) 9.19 (a) A contract may be made: (i) by a company: (A) by writing under its common seal (if the company has one);43 or (B) by two authorised signatories signing, either by: (a) two directors signing; or (b) a director and the company secretary (if the company has one) signing; or (c) a director signing in the presence of a witness;44 and the document stating it is executed by the company;45 or (ii) on behalf of a company, by any person acting under its authority, whether express or implied (ie the person signing on behalf of the company does not need to be a director or the company secretary).46

Deeds 9.20 (a) A company can execute a deed either by: (i) affixing its common seal (if the company has one);47 or (ii) two authorised signatories signing, either by: (A) two directors signing; or (B) a director and the company secretary (if the company has one) signing; or (C) a director signing in the presence of a witness;48 (b) where a document is signed in one of the ways as set out in (a)(ii), the document must also include wording that it is executed by the company;49 43 Companies formed under a Companies Act do not need to have a seal: Companies Act 2006, s 45. 44 Companies Act 2006, ss 44(1)–(4). 45 Companies Act 2006, s 44(4). 46 Companies Act 2006, s 43. 47 Companies formed under a Companies Act do not need to have a seal: Companies Act 2006, s 45. 48 Companies Act 2006, ss 44(1), (2), (3), 46(1)(a). The way the seal is used will also be governed by the provisions of the company’s Articles of Association, which will specify how many directors (or other persons authorised) have to be present when the seal is applied. 49 Companies Act 2006, s 44(4).

515

9.21  Personal Property

(c) the document signed in the way stated above, where it is intended that it be a deed, will also: (i) make clear on its face that it is intended to be executed as a deed;50 (ii) have to be delivered as a deed. It is presumed, unless a contrary intention is proved, that it is automatically ‘delivered’ upon being executed;51 (d) in favour of a ‘purchaser’, a document is deemed to have been duly executed by a company if it purports to be signed by two authorised signatories (which are all directors and the company secretary, if the company has one) or by a director signing in the presence of a witness.52

Foreign companies 9.21 (a) In the case of companies incorporated outside the United Kingdom, the provisions relating to UK companies summarised above are applied with modifications.53 (b) In effect, a foreign company can execute a contract, by or on behalf of the foreign company, either by applying its common seal, or by any manner permitted by the laws of the territory in which the company is incorporated for the execution of documents by such a company; the document should also state that it is executed by the company. (c) A foreign company can execute a deed either by applying its common seal, or by any manner permitted by the laws of the territory in which the company is incorporated for the execution of documents by such a company.

Other bodies, academic institutions and government departments and organisations 9.22 The LPA as regards the signing of various documents (such as contracts, assignments, etc) is still of relevance to bodies and organisations which do not fall within the above categories. Many academic institutions, research organisations, governmental departments and other similar 50 Law of Property (Miscellaneous Provisions) Act 1989, s 1(2)(a). 51 Companies Act 2006, s 46(1)(b), (2). 52 Section 44(5). ‘Purchaser’ means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee, or other person who for valuable consideration acquires an interest in property. 53 Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (SI 2009/1917), with effect from October 2009. For documents executed prior to 1 October 2009, readers should consult the law as stated in the 2nd edition of this book.

516

Other provisions of the Law of Property Act 1925 9.25

organisations are still bound by the provisions of the LPA as to the execution of documents, particularly the use of a seal for the execution of certain documents.54 They are a form of incorporated body, a ‘corporation aggregate’ (but without requirement to register as companies under, or be regulated by, the Companies Act 2006). They have distinct legal identities, some being formed by Royal Charter (such as most universities), others by statute (such as NHS Trusts, under the National Health Service Act 2006).55

Signing of a document by a corporation aggregate 9.23

Either by

(a) the affixing of the seal of the corporation aggregate on the document in the presence of and attested by: (i) two members of the board of directors, council or governing body of the corporation aggregate; or (ii) one member of the board of directors, council or governing body of the corporation aggregate and the clerk, secretary or other permanent officer of the corporation or his deputy. Or by (b) such method of execution or attestation which is authorised by the corporation aggregate’s charter, statute, etc that regulates its affairs.56

Signing of a document on behalf of a corporation aggregate 9.24 A  corporation aggregate can appoint someone on their behalf to sign documents (other than deeds), either by resolution or by some other method.

Signing of deeds by corporation aggregates 9.25 (a) this will follow the same procedure as described under ‘Signing of a document by a corporation aggregate’; and (b) the document signed will also: 54 LPA, s 74. 55 The LPA calls such forms of incorporated body a ‘corporation aggregate’. 56 LPA, s 74(6).

517

9.26  Personal Property

(i) make clear on its face that it is intended to be executed as a deed;57 (ii) have to be delivered as a deed. It is presumed, unless a contrary intention is proved, that it is automatically ‘delivered’ upon execution.58

Witnessing of conveyances 9.26 Another provision which appears designed to protect the purchaser of property is in LPA, s 75. It deals with the situation where the conveyancing document is signed in counterparts,59 often without both parties being present at signature. LPA, s 75 includes the following provision: ‘On a sale, the purchaser … shall be entitled to have, at his own cost, the execution of the conveyance [ie by the seller] attested [ie witnessed] by some person appointed by him, who may, if he thinks fit, be his solicitor.’ In the case of an assignment of intellectual property and where the validity of a signature may be in doubt, this may provide some protection for the purchaser. Alternatively the parties could always arrange to sign together at a completion meeting.

Relief from forfeiture 9.27 In one case,60 a court was prepared to override a provision in an agreement between co-owners of a patent, which provided that if a party (the defaulting party) failed to reimburse the other party one half of certain patent expenses within a period of 30 days, the other party could require the defaulting party to assign to the other party its rights in the patent. The court held that its equitable jurisdiction to grant relief against forfeiture61 is available for all kinds of proprietary or possessory rights. The court extended the time period in which the defaulting party was required to reimburse the other party for the patent costs. 57 Law of Property (Miscellaneous Provisions) Act 1989, s 1(2)(a). 58 LPA, ss 74A(1)(b), (2). 59 The traditional practice where each party to an agreement signs a copy of the agreement, and then the parties exchange copies, so that each party holds the copy signed by the other party. The contract comes into being at the time the copies of the agreements are exchanged. This is the way contracts were traditionally entered into for conveyancing (no party holds a copy of the agreement signed by both parties). 60 BICC v Burndy Corporation [1985] RPC 273 (CA), referred to in On Demand Information plc (in administrative receivership) and another v Michael Gerson (Finance) plc and another [2000] 4 All ER 734. 61 Forfeiture is more frequently encountered in real property disputes, such as cases concerning the eviction of lessees for failure to comply with the terms of their leases.

518

Multiple ownership of property 9.29

That case was distinguished in another recent case, which concerned a trade mark licence,62 on the grounds that the licensee’s rights were contractual, rather than being an interest in property. Accordingly, the principle of relief against forfeiture was not available.63 For the sake of completeness, it may be worth mentioning that the principle of relief against forfeiture is also established in statutory form in LPA, s 146(2). Under that section a lessee can apply to the court for relief from forfeiture of the lease, even though he is in breach of the lease, and the lease provides that it may be terminated in the event of such a breach. However, LPA, s  146 is stated to apply to ‘leases’; it is not clear whether this term could apply to intellectual property licences, but it seems unlikely on reading the section.64

MULTIPLE OWNERSHIP OF PROPERTY Introduction 9.28 Multiple ownership of intellectual property can lead to significant problems for the owners, particularly if their rights and obligations towards one another in respect of that property are not fully agreed. Some of the reasons why problems can arise are described in this section.

Patents in the UK 9.29 The Patents Act 1977 determines certain rights and obligations of coowners of a UK patent, in the absence of any agreement between them to the contrary.65 In brief summary, each co-owner is entitled to an equal, undivided share in the patent; each co-owner may manufacture and sell products using the patented invention without the consent of the other co-owner(s); but a coowner may not grant any licence under the patent, nor assign his share in the patent without the consent of the other co-owner(s). Parties who agree to co-own a patent but do not fully document what each party can and cannot do and what each party needs to pay or be paid are not always aware of these provisions and their implications. For example, if an academic institution and a manufacturing company simply agree that they will co-own a patent, the manufacturing company

62 Crittall Windows Limited v Stormseal (UPVC) Window Systems Limited and Another [1991] RPC 265. 63 See para 10.05. 64 See LPA, ss 146(5), 205 for definitions of lease and lessee. 65 See Patents Act 1977, s 36, and para 4.05.

519

9.30  Personal Property

can exploit the patent without paying the academic institution any royalty if it manufactures the patented products itself. By contrast, the academic institution will generally not be in a position to manufacture the products and in order to exploit the patent it will need to grant licences under it. It will not be able to do this unless the other co-owner agrees; even where the other co-owner does agree it may demand a royalty or other payment as the price for its consent. Unless there is agreement beforehand, the manufacturer could work the patent itself without needing to ask the permission of the academic institution, and thus keep all the financial revenue from so doing (unless the parties have entered into an agreement which varies the default position provided by the Patents Act 1977). Patents Act 1977, s  36 would allow the academic institution to have the patented products made for it and an agent to sell them in the name of the academic institution. However, the reality is that an academic institution in the UK is a charity, which would limit the institution’s ability to engage in trading activity. In such circumstances, in the event of a dispute reaching the court, a court might decide that the reality of the transaction into which the academic institution has entered with the agent is a licence agreement.

The position in regard to other UK intellectual property 9.30 The nature of co-owners’ rights in other types of UK intellectual property is not as clearly stated in the legislation as it is in the case of patents. The position appears to be similar to that governing patents, in relation to the granting of licences: (1) Copyright: in the case of jointly owned copyright, any requirement of the licence of the copyright owner requires the licence of all of them;66 (2) Design right: a reference to the design of a designer means all the designers where there is a joint design, unless otherwise provided.67 However, it is noticeable that the legislation for copyright and design right refers to joint owners rather than co-owners;68 as discussed below, the law of property makes a distinction between joint tenancy and tenancy in common, and it may be that the ownership rules in respect of jointly owned copyright and design right differ from those for the co-ownership of patents.

66 Copyright, Designs and Patents Act 1988, s 173(2). 67 Copyright, Designs and Patents Act 1988, s 259(2). In the case of registered designs, there is now no specific provision addressing this point. The provision formerly to be found in the Registered Designs Act 1949 has been repealed, and in any case did not deal with the issue of co-owners. 68 See the heading to Patents Act 1977, s 36.

520

Other provisions of the Law of Property Act 1925 9.32

The position in regard to non-UK intellectual property 9.31 The rights and obligations of co-owners under the patent laws of other countries are in many cases different to those which apply to UK patents. It is understood, for example, that it may be possible for a coowner of a US patent to grant a non-exclusive licence under the patent without the consent of the other co-owner(s). Thus if parties co-own a portfolio of patents in several countries, and fail to agree their respective rights in those patents, they may find that their rights vary depending on the country of the patent. Misunderstandings may arise where the coowners are from different countries which have different rules: each coowner may imagine that the patent laws of his country apply worldwide, and may intend that his country’s laws on co-ownership would apply to all the patents.

Comment 9.32 Parties should either avoid co-ownership of intellectual property wherever possible, or agree in advance (and in detail) what each co-owner may do with the intellectual property. Issues to consider include which party is to be responsible for: •

obtaining and maintaining (eg  paying renewal fees) the intellectual property (in the case of patents, registered designs and registered trade marks);

•

defending it against challenges to its validity;

•

enforcing it against third parties who infringe it;

•

deciding on any amendments to its scope;

•

licensing it, and enforcing licence provisions.

In addition, any agreement should deal with other mainstream commercial issues: •

what activities each co-owner can carry out (with and without the consent of the other co-owner), including whether they have the right to sub-license;

•

whether they can work their rights in any technical field or territory (ie  whether they could, in making a patented product, both sell their products in the same territory at the same time);

•

what happens to any revenues that each party generates (ie whether each co-owner keeps the revenues they generate, or does one co-owner need to make payment to the other); and

•

when the consent of a co-owner is required, and what happens if it is not forthcoming. 521

9.33  Personal Property

Some of these are the same as where an owner of any form of intellectual property wishes to grant a licence to a licensee; but, without clear and explicit wording, disputes can easily arise. The remainder of this section will consider how the traditional laws of personal property may affect the rights and obligations of multiple owners of intellectual property.

Joint ownership and ownership in common Distinction between joint ownership and ownership in common 9.33 The most common situation in which people encounter the phrases ‘joint ownership’/‘joint tenancy’ and ‘ownership in common’/‘tenancy in common’ is where spouses or civil partners co-own their house. They may agree to do so either jointly or in common. For the reasons referred to below, the legal mechanism for doing this will generally involve them in holding the property on trust for themselves as either joint tenants or tenants in common. The most obvious difference between these two methods of ownership becomes clear where one of the co-owners dies. In the case of: •

a joint tenancy: on the death of one of the joint tenants, the house becomes the sole property of the surviving joint tenant;

•

a tenancy in common: on the death of one of the tenants in common, the deceased’s share of the property passes under their will or under the intestacy rules.69

Tenants in common each have what is known as an undivided share in the property. Spouses who own a house as tenants in common will generally have equal, undivided shares in the property. This terminology becomes relevant when considering the statutory rights of co-owners of patents. Patents Act 1977, s 36(1) provides as follows: ‘Where a patent is granted to two or more persons, each of them shall, subject to any agreement to the contrary, be entitled to an equal undivided share in the patent.’ The rights of co-owners of a patent are thus defined by statute, as quoted above, rather than under the general law of personal property. Nevertheless it seems clear from the statutory wording that the owners of a patent are owners (tenants) in common rather than joint owners (tenants), subject to any

69

For example, the deceased tenant could leave a will stating that his or her share of the property could go to someone other than the surviving spouse/civil partner, such as a third person or a charity. If there is no will, then there are rules to decide the amount the surviving spouse will have, depending on whether there are children and other family members.

522

Other provisions of the Law of Property Act 1925 9.35

agreement to the contrary. The general law governing ownership in common may therefore be applicable to co-ownership of patents, except to the extent that such law has been modified by the statutory provisions. By contrast, the Copyright, Designs and Patents Act 1988 (‘the CDPA’) does not include any wording equivalent to Patents Act 1977, s 36(1). The CDPA refers to joint owners of copyright and design right.70 It is not clear whether use of the word ‘joint’ implies joint ownership in the traditional property law sense. The Registered Designs Act 1949 makes no reference to joint ownership or ownership in common.71 In cases of doubt, the co-owners of intellectual property should include in their agreement a statement indicating whether ownership in common or joint ownership is intended. In practice, owners of intellectual property tend to prefer to be owners in common.

Prohibition on legal ownership in common 9.34 LPA, s 34(1) made it impossible to create an undivided share in land (ie ownership in common) except under a settlement or a trust for sale. One effect of this provision is that if two people (eg spouses or civil partners) wish to own their house in common, they may only do so by holding the house as joint legal owners, and on trust for themselves as beneficial tenants in common. This prohibition on legal ownership in common does not apply to patents, by virtue of Patents Act 1977, s 36(1). Nevertheless, in view of the general approach of English property law in distinguishing between legal and beneficial co-ownership, it may be desirable to indicate, in agreements between co-owners of intellectual property, that they own the property as beneficial owners in common (if that is intended), as well as the respective shares that they hold in the property (eg equal shares, or two-thirds to onethird etc).

Ability of companies to hold as joint tenants 9.35 For the sake of completeness, the following matter needs mention. Until the end of the 19th century it was not possible for a ‘body corporate’72 to own property as joint tenants. The Bodies Corporate (Joint Tenancy) Act 70 See eg  Copyright, Designs and Patents Act 1988, s  173(2) (in relation to copyright), and s 258(2) (in relation to design right). 71 See ss 15A, 15B, as inserted by SI 2006/1028. 72 The legal name for companies and other types of organisation which have a separate legal status from the persons owning them or responsible for their running, such as universities, government departments, regulatory authorities, NHS trusts and so on.

523

9.36  Personal Property

1899 removed this prohibition. Section 1 of that Act includes the following provisions: ‘(1) A body corporate shall be capable of acquiring and holding any real or personal property in joint tenancy in the same manner as if it were an individual … (2) Where a body corporate is joint tenant of any property then on its dissolution the property shall devolve on the other joint tenant.’ Thus, there is no legal constraint on companies owning intellectual property as joint beneficial owners (or, for that matter, as beneficial owners in common). However, it is hardly conceivable that two commercial organisations would wish to own any form of intellectual property as joint tenants (ie that if one ceases to exist, then its interest in the intellectual property would automatically be owned by the ‘surviving’ commercial organisation).

BAILMENT Introduction 9.36 In certain circumstances, the possession of physical items by one person which are owned by another person may give rise to the legal relationship known as bailment,73 and which can exist independently from any contract.74 Common examples of bailment are the hire of goods (eg  a car), the deposit of valuables with a bank for safe custody, leaving a coat with a laundry for drying cleaning, the transport of goods75 and the loan of a garden mower. There appears to be no universally accepted definition of bailment. One definition76 suggests the following: ‘A bailment arises when one person (the bailee) is willingly and with authority in possession of goods to which another (the bailor) retains better title; and the necessary authority to possess may be supplied either by the bailor’s consent, actual or implied, or by operation of law.’ Note that the bailor does not need to be the owner of the goods; the bailor merely has to have a ‘better title’ to the goods. For example, a pharmaceutical company wishes a contractor to test some compounds of the pharmaceutical company, but the contractor needs to use equipment 73

See (2) Chitty on Contracts (32nd edn, Sweet & Maxwell, 2015) Ch 33, and Bell, Modern Law of Personal Property in England and Ireland (Butterworths, 1989) Ch 5. 74 Eg Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37. 75 See East West Corporation v DKBS 1912 A/S and another; Utaniko Ltd v P & O Nedlloyd BV [2003] EWCA Civ 83, [2003] 2 All ER 700 for the application of the law of bailment to a modern commercial contract (although not related to intellectual property). 76 See note 75. See also 3(1) Halsbury’s Laws of England (4th edn, LexisNexis, 2005 reissue) Bailment, para 1 for an outline of the meaning of bailment.

524

Other provisions of the Law of Property Act 1925 9.36

which the pharmaceutical company has. However, the pharmaceutical company does not own the equipment but has leased the equipment from the manufacturer of the equipment before providing it to the contractor. In this example, the pharmaceutical company would have the better title to the equipment (having the right to possess and use the equipment directly from the manufacturer). Where a bailment relationship exists, there is a considerable amount of (case) law governing the rights and obligations of the parties to that relationship – the bailor and the bailee.77 That relationship is different from a contractual relationship and, for example, may give the bailor and bailee rights against third parties.78 This section will consider ways in which such rights may be used by an owner of technology. Most physical things can be subject to bailment, other than real property (or things fixed to real property), including live or dead animals, but not live human beings;79 however, it is possible to bail human tissue and human remains.80 Goods, equipment and (biotechnological) materials are sometimes provided under a technology transfer agreement or other type of intellectual property agreement concerning technology (such as a materials transfer agreement), in circumstances which may give rise to a bailment. For example: •

It is common in the biotechnology field for samples of biological materials to be provided by one scientist to another, or by one company to another, to enable the recipient to carry out research work using the materials. The materials may be self-reproducing, eg a cell line.

•

Sometimes, a contract research organisation will provide equipment to carry out research work to another party under a contract.

The parties may agree that property to the materials or equipment remains with the provider. In such circumstances, under English law the recipient may hold the materials or equipment as bailee for the provider (independent of, and in addition to, any contractual arrangement between the parties). It seems this may also be the position under US laws.81 The same relationship may exist in other fields of technology; however, the topic is of particular importance in the biotechnology field. Sometimes materials are provided in circumstances where there are no intellectual property rights protecting them and they do not embody any confidential information. In such cases, the protection given under the laws of personal 77 This area of law is almost entirely developed by case law. 78 See Chitty on Contracts (32nd edn, Sweet & Maxwell, 2015) para 33-015. 79 Palmer on Bailment (3rd edn, Sweet & Maxwell, 2009), 1-06. 80 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37. 81 See eg Kirn in 9(3) Licensing Law and Business Report (1986).

525

9.37  Personal Property

property, including the law of bailment, may be the only legal protection available82 to the owner of the materials to prevent use of the materials by third parties. The following paragraphs will briefly summarise the main legal implications of a relationship of bailment and consider how it may apply to the supply of materials under a technology-related agreement such as a research collaboration agreement. The terms implied into a contract of hire (a type of bailment) under the Supply of Goods and Services Act 1982 are discussed in Chapter 10.

Circumstances in which bailment may arise 9.37 The rights and duties of bailor and bailee vary, depending on the circumstances in which the bailment arises, but the main categories of bailment that are relevant to the supply of materials are: •

gratuitous bailment, ie where one party is merely doing the other party a favour. Examples of this in relation to supply of materials would be (i) where the owner of the materials provides, or is asked to provide, a sample to enable someone else to carry out research; and (ii) where the owner requests another person to carry out tasks using the materials;

•

bailment for reward, where the bailment is mutually beneficial, eg under a contract. An example of this in the technology transfer field could be where the owner of materials provides a sample to another person, and the owner and the other person agree to share the financial proceeds from the exploitation of any intellectual property created or developed from carrying out research work on the sample.

Rights of the bailor 9.38 The bailor remains the owner of (or the person having a better title to) the goods during the period of bailment, but his rights as owner may be restricted. For example, he may not be able to sue third parties for conversion83 of his property during the period of the bailment.

Rights of the bailee 9.39 The bailee has a special property in the goods; the nature of his rights varies depending on the circumstances of the bailment. All bailees have rights 82 Except for eg contractual rights against the recipient, where a contract has been made. 83 Where a person deals with goods (which do not belong to him) in a manner which is inconsistent with the rights of the owner of the goods.

526

Other provisions of the Law of Property Act 1925 9.40

against third parties who interfere with the goods, and for example are able to sue third parties for conversion and in negligence. A bailee has a proprietary interest in the goods. The bailee may also have rights against the bailor, eg if the bailee is storing the materials for reward and the bailor fails to pay the storage charges.

Duties of the bailee 9.40 The main duties of a bailee, which appear relevant to the supply of materials under a technology transfer agreement, are the following: •

Take care of the goods: the bailee has a duty to take care of the goods whilst they are in the bailee’s possession, including the duty to protect the goods from third parties. This duty may go further than under the general law of negligence. The extent of the common law duty may vary depending on the circumstances of the bailment, although there is conflicting case authority on this point. In addition, there is the statutory duty on the provider of a service, under a contract (which may involve a bailment of goods), to carry out the service with reasonable care.84

•

Exercise skills: where the bailee holds himself out as having particular skills, the bailee will be liable for failure to exercise them. Conversely the bailor’s knowledge of the bailee’s inexperience and infirmities may lower the standard of care required.

•

Use of facilities: a bailee must exercise due care to protect the goods entrusted to him against the risks inherent in his premises, although he may be exonerated if he complies with specific instructions from the bailor.

•

Duty not to convert: unsurprisingly, a bailee must not ‘convert’ the goods, eg by selling them or appropriating them for himself.

•

Duty not to deviate: it is a serious breach of the bailment to ‘deviate’ from the bailment. This expression covers all failures to comply with the conditions imposed on the bailee’s possession of the goods. For example it would cover keeping the goods for longer than the agreed period, or at a different location from that agreed, or providing them to third parties without permission. The bailee is liable for any harm that the goods receive during the deviation, without the need to prove further default by the bailee. Apparently this head of liability does not extend to financial loss suffered as a result of the deviation, in respect of which the normal rules of causation apply. Deviation is regarded as a repudiatory breach, giving the bailor the immediate right to the return of the goods.

84 See Supply of Goods and Services Act 1982, s 12(3).

527

9.41  Personal Property

•

Duty to redeliver: generally, the bailee will be under an obligation to redeliver the goods to the bailor or to his order, at the agreed time and place. Except as otherwise provided, this duty is passive: the bailee merely has to make the goods available for collection at his own premises within a reasonable time as and when the bailor calls upon him to do so, unless otherwise agreed.

Duties of the bailor 9.41 The main duties of a bailor, which seem relevant to the supply of materials under a technology transfer agreement, are the following: •

Right to bail: in general it is an implied term of the bailment, at common law, that the bailor has the right to bail the goods.85

•

Safety and fitness of the goods: it seems that in gratuitous bailments (eg, where there is no contractual relationship between the bailor and the bailee), the bailor’s common law duty of care towards the bailee may be similar to that which operates under the law of negligence, with possibly a higher standard where the gratuitous bailment is for the benefit of the bailor. It seems that in the case of bailments for reward, eg  under a contract of hire or carriage, the standards may be higher still.86

•

Other common law duties: a number of other duties may arise in particular situations, eg  a duty to reimburse the bailee for expenses incurred by him in preserving the goods from harm.87

•

Statutory duties: for a discussion of the implied terms in a contract of hire, under the Supply of Goods and Services Act 1982, see Chapter 10.

Sub-bailment 9.42 A  sub-bailment occurs where a person (sub-bailee) has goods transferred to her/him by another (bailee), where the bailee (who is not the owner of the goods) has a right to possession of the goods because s/he is a bailee of the owner. It seems that a bailee may in some circumstances sub-bail the goods unless the contract is a personal one, or he has agreed not to do so, or on the circumstances of the bailment. For example, all warehousing contracts are 85 For the statutory provision to this effect contained in the Supply of Goods and Services Act 1982, see Ch 10. 86 For the statutory provisions, see para 10.75. 87 This duty was held to arise where the expense was caused by the bailor’s failure to give adequate instructions regarding disposal of a salvaged cargo – see China-Pacific SA v Food Corpn of India, The Winson [1982] AC 939 at 960, [1981] 3 All ER 688.

528

Other provisions of the Law of Property Act 1925 9.43

personal, as they rely on the personal skills of the bailee.88 If the bailee is entitled to sub-bail, the sub-bailment must be consistent with the purposes for which the goods were originally bailed. It is for the bailee to justify any sub-bailment. The bailee will be liable if he is negligent in selecting the subbailee, and for the sub-bailee’s failure to carry out his delegated duties. Where materials are sub-bailed (ie bailed by the bailee to another person), it seems the sub-bailee owes the duties of a bailee to both his bailor and the main bailor, despite the lack of privity of contract with the latter.89 The bailee acts as agent for the bailor to create a collateral bailment between the bailor and the sub-bailee. Normally the sub-bailee can only look to the bailee for any agreed payment.

Commercial implications of the law of bailment 9.43 The above summary demonstrates that there is an extensive amount of law on the rights and duties of the parties to a bailment. That law may be applicable to a transfer of biological or other materials, for example to enable research to be carried out on those materials by the bailee. However, the law has evolved to deal with quite different factual situations, and may not be considered appropriate in the biotechnology field. For example, the rules on sub-bailment may seem too permissive – often the owner of materials will wish the materials to be kept in confidence by the recipient, and he will not be prepared to allow them to be transferred to a third party. Under the law of bailment it seems that the recipient might be entitled to transfer the materials to a third party unless the bailment was personal to him. The danger for a party where a written agreement stating specifically what their rights and duties are to be is not entered into, is that some of the implied ‘terms’ of a bailment may apply and in ways which the party does not intend or want. Even in contracts where the possession of materials is transferred from one party to another, although such matters as liability arising from any personal damage caused by the materials, who is to own intellectual property arising from the use of the material, and how the materials are to be held are often addressed, many of the other ‘terms’ implied by the law of bailment are not addressed.

88 Edwards v Newland & Co (E  Burchett Ltd, third party) [1950] 2  KB  534, [1950] 1  All ER 1072, CA. 89 See eg China-Pacific SA v Food Corpn of India, The Winson [1981] 3 All ER 688, HL. This will be whether or not the sub-bailee knows of the identity of the original bailor, Balsamo v Medici [1984] 2 All ER 304. However, if there is a clause in the agreement between the bailee and the sub-bailee which limits or excludes liability, the bailor is bound by that agreement, if the bailor has consented (whether expressly or impliedly) to the provisions of the subbailment agreement which contained such limitations or exclusions, eg Sandeman Coprimar SA v Transitos y Integrales SL [2003] EWCA Civ 113. See also Bell, Modern Law of Personal Property in England and Ireland (Butterworths, 1989), p 96.

529

9.44  Personal Property

Non-derogation from grant The case of British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd 9.44 The principle of non-derogation from grant (also known as the rule against derogation) is a traditional property law principle, normally encountered in relation to real property (land and buildings). To the surprise of many intellectual property lawyers it formed the basis of a judgment of England and Wales’s most senior domestic court90 in 1985, in a case concerning copyright law. The case illustrates how the courts may apply traditional property laws to intellectual property matters, sometimes in unexpected ways. In the case,91 one judgment referred to the principle of non-derogation from grant. The case concerned copyright in drawings of the exhaust pipes of a car. The central issue was whether a purchaser of such a car had the right to buy replacement exhaust pipes to the same design from someone other than the original manufacturer of the car who also held the copyright in the drawings. The leading judgment in the case held that the purchaser of a car had the right to have his car repaired, including the right to purchase replacement exhaust pipes from someone other than the car manufacturer. In this judgment, the basis of the decision was as follows: ‘For my part, I  base the right to repair on the principle of nonderogation from grant rather than implied licence and I see no difficulty in concluding that suppliers such as Armstrong may make exhaust pipes to be supplied to those cars of BL [British Leyland] which require to be repaired by the replacement of exhaust pipes. Every owner of a car has the right to repair it. That right would be useless if suppliers of spare parts were not entitled to anticipate the need for repair. The right cannot, in my view, be withheld by the manufacturer of the car by contract with the first purchaser and cannot be withheld from any subsequent owner.’ Earlier in this judgment,92 the judge considered how the principle might apply to the sale of a car: ‘I  see no reason why the principle that a grantor will not be allowed to derogate from his grant by using property retained by him in such a way as to render property granted by him unfit or materially unfit for the 90 House of Lords, now the Supreme Court. 91 British Leyland Motor Corporation Ltd and another v Armstrong Patents Co Ltd and another [1986] 1 AC 577, [1986] RPC 279, referred to in United Wire Ltd v Screen Repair Services (Scotland) Ltd [2000] FSR 204; Newspaper Licensing Agency Ltd v Marks and Spencer plc [2001] 3 All ER 977; Dyson Ltd v Qualtex (UK) Ltd [2006] EWCA Civ 166, [2006] All ER (D) 101 (Mar) (see paras 5–12). 92 [1986] 1 AC at 641.

530

Other provisions of the Law of Property Act 1925 9.44

purpose for which the grant was made should not apply to the sale of a car. … The principle applied to a motor car manufactured in accordance with engineering drawings and sold with components which are bound to fail during the life of the car prohibits the copyright owner from exercising his copyright powers in such a way as to prevent the car from functioning unless the owner of the car buys replacement parts from the copyright owner or his licensee.’ The judgment also considered the implied licence to repair a purchaser of a patented article has to carry out repairs without being held liable for infringement. The judgment reviewed cases on this issue which address the difficult question of when repair becomes so extensive as to amount to reconstruction, and therefore the production of a new, infringing item.93 There is no suggestion in the judgment that any of the judgments in these earlier patent cases were based on the rule against derogation; they were concerned simply with the law of patents, which meant it was not possible to directly apply that law to a case concerning copyright.94 Instead, the judgment turned to the general law of property, and the rule against derogation in particular, as the basis of a purchaser’s right to have repaired an article protected by copyright. It appears that this principle has not been widely followed in cases which came after.95 The ‘right’ of the purchaser or owner of a product to repair the product will only apply in limited circumstances because of decisions made after the Leyland case; including: •

In one case96 (a copyright case concerning computer software), the right to repair referred to in British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd did not extend to a right to copy computer file layouts from the source code of a suite of computer programs.

•

In another case97 (concerning the manufacture and sale of printer cartridges by the defendant which were detailed imitations of, and interchangeable with those of the claimant), the claimant sued for

93

See [1986] 1 AC 642–643. The cases considered include Dunlop Pneumatic Tyre Co Ltd v Neal [1899] 1 Ch 807; Dunlop Pneumatic Tyre Co Ltd v Holborn Tyre Co Ltd (1901) 18 RPC 222; Dunlop Pneumatic Tyre Co Ltd v David Moseley & Sons Ltd [1904] 1 Ch 612 (CA); Sirdar Rubber Co Ltd v Wallington, Weston & Co (1905) 22  RPC  257, (1907) 24  RPC  539 at 543 (HL); and Solar Thomson Engineering Co Ltd v Barton [1977] RPC 537. See also 79 Halsbury’s Laws of England (5th edn, LexisNexis) Patents, para 507. See [1986] 1 AC at 644B. British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd appears to have been cited in only a few cases since. IBCOS Computers v Barclays Mercantile Highland Finance Limited [1994] FSR 275, referred to in Cantor Fitzgerald International (an unlimited company) and another v Tradition (UK) Ltd and others [2000]  RPC  95, and also in Stoddard International plc v William Lomas Carpets Ltd [2001] FSR 848. Kabushiki Kaisha v Green Cartridge Co (Hong Kong) Limited [1997] AC 728, [1997] FSR 817, PC, a Privy Council decision of a Hong Kong case.

94 95 96

97

531

9.45  Personal Property

copyright infringement. The defendant denied infringement and claimed that the claimant was not entitled to enforce its rights in so far as such enforcement interfered with an inherent right to repair. The claimant was successful in its claim against the defendant for the following reasons: –

the court held that the decision in British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd was founded on unfairness to the customer and abuse of monopoly power. Where these features were not obvious, the jurisprudential and economic basis for the doctrine was greatly undermined;

–

in the latter case, the analogy with the sort of repair that a person who bought an item would assume that he could do for himself was much weaker, as when the cartridge was replaced nothing in the machine would need to be repaired;

–

it was felt that there was competition between the manufacturers of replacement cartridges and those who refilled existing cartridges so that it could not be said the claimant, through its use of its intellectual property rights, had resulted in it obtaining a dominant position in the market, much less to abuse that position; and

–

the competition argument was held to be far less compelling in that the cost of replacement toner cartridges was significant, and it could not be assumed that customers did not take into account such costs when choosing a machine which did introduce an element of competitiveness into the aftermarket as well as for the market in photocopiers and printers itself.

Relevance of non-derogation from grant and the right to repair to patents 9.45 Where a product is protected by a patent, it appears, based on current cases decided by the most senior courts in the UK, that the doctrine of nonderogation from grant has no role to play. Also, the Patents Act 1977 contains no provisions which give a right to repair, nor is it included among the acts which do not infringe a patent for an invention.98 There are older cases where courts have held that a patentee had obtained an implied right or a licence to repair,99 but recent cases have not followed these where the issue of repair is under consideration.100 The correct approach is that there should be focus on whether a person is carrying out an act in relation to a product (which is subject to protection by a patent) which constitutes infringement. In the first of two cases decided by the most senior court in the 98 See Patents Act 1977, s 60(5). 99 For example, Solar Thomson Engineering Co Ltd v Barton [1977]  RPC  537; Dellareed v Delkim [1988] FSR 329. 100 Or if the court is examining whether a person has modified a product or makes part of a product.

532

Other provisions of the Law of Property Act 1925 9.45

UK,101 the court considered whether a person had a right to repair a product protected by a patent. In arriving at its decision that there was not a right to repair, the court arrived at this decision by making the following points: •

a person will infringe a product where s/he makes a product in relation to the invention claimed, if the person does so without the consent of the patent owner;

•

a genuine repair will not infringe a patent because it does not amount to an infringing act, as the act of repair is not the same as making the product (which is an act which requires the consent of the owner of the patent). The act of repair means that ‘you may prolong the life of a licensed article, but you must not make a new one under the cover of repair’;102

•

if a repair of a product does not equate to the making of the product, a consequence is that the person who carries out the repair does not need the consent of the patent owner (or any express or implied licence) for undertaking the repair. This right to repair ‘is not an independent right conferred upon him by licence, express or implied. It is a residential right forming part of the right to do whatever does not amount to making the product’;103

•

if consent is required, it has to mean contractual consent, but it does not necessarily mean that a patent owner who sells a product will be consenting to the carrying out of infringing acts;

•

where the patent owner disposes of a product, there is normally exhaustion of her/his patent rights. The purchaser can do whatever s/he wants with the product (which will include repairing it). But the exhaustion of the patent rights of the owner does not mean that the purchaser has a licence to use the rights of the patent owner set out in section 60 of the 1977 Act;

•

as a result, if a person carries out an act in relation to a patent product it is necessary to consider whether that act is an act of infringement rather than to consider whether it amounts to a repair – that is, whether it is an act of manufacture; and

•

to decide ‘whether there has been manufacture of the product of the invention, it will be necessary to take into account the nature of the invention as claimed and what was done by the defendant’.

The court recognised that a repair of a product (like modifying or adapting) is a concept which shares a boundary with the making of a product ‘but does not trespass upon its territory … As a matter of ordinary language, the notions of making and repair may well overlap. But for the purposes of the statute [section 60(1)(a) of the Act], they are mutually exclusive’. 101 United Wire Ltd v Screen Repair Services (Scotland) Ltd and others [1999] All ER (D) 878, CA, with the decision upheld on appeal: [2000] 4 All ER 353. 102 Quote from Sirdar Rubber Co Ltd v Walling, Weston & Co (1907) 24 RPC 539, 543 in United Wire Ltd v Screen Repair Services (Scotland) Ltd and others [2000] 4 All ER 353. 103 United Wire Ltd v Screen Repair Services (Scotland) Ltd and others [2000] 4 All ER 353.

533

9.45  Personal Property

In a later case the Supreme Court held that:104 •

while a court should have as a first consideration whether a person is making a patented product, it can be helpful to consider if s/he is repairing rather than making the product (although, on the facts of the case, carrying out a check as to whether the person’s activities involved repair did not help the court);

•

it will be a matter of fact and degree whether a person makes rather than repairs a patented product;

•

if a person replaces a constituent part of a patented product, the replacement does not mean that the person makes the article rather than repairs it, as a ‘repair of an item frequently involves replacement of one or some of its constituents’,105 even if the replacement part is a significant part of the patented product.106

The court indicated that, in determining whether a person ‘makes’ a patented product, a court should consider the following points: ‘•

First, the word “makes” must be given a meaning which, as a matter of ordinary language, it can reasonably bear.

•

Secondly, it is not a term of art: like many English words, it does not have a precise meaning.

•

Thirdly, it will inevitably be a matter of fact and degree in many cases whether an activity involves “making” an article, or whether it falls short of that.107

104 Schütz (UK) Ltd v Werit (UK) Ltd; Schütz (UK) Ltd No 2 v Werit (UK) Ltd [2013] UKSC 16. 105 The court draws, by analogy, from cases concerning the repair of buildings and roofs in particular, and where because a roof is so badly deteriorated it is necessary to replace the whole roof. The rebuilding of the roof did not amount to the ‘making’ of the roof or rebuilding the property to which the roof is attached. 106 The court noted ‘the normal use of “making” and “repairing” demonstrates the same point. Works to a ship or a motor car, which involve removal and replacement of defective significant constituent parts, could be substantial in terms of physical extent, structural significance, and financial cost, without amounting to “making” a ship or motor car, as a matter of ordinary language: in such a case, they would be “repair” of the existing ship or motor car. Thus, in Coleborn & Sons v Blond [1951] 1 KB 43, 49-50, Denning LJ said, in a case concerned with purchase tax, that “[s]peaking generally, … if you replace an old engine by a new one, or an old body by a new body, you are not making a different vehicle: you are altering and improving an old one …”. On the facts of that case he held “a new thing was made out of two parts – … the old chassis and … the new body – [which] when assembled together make a different thing from either of them separately”’. 107 In this later case, the court noted the differences between the product under consideration compared to the United Wire case. In the earlier case, the replaced part was ‘integrally connected to the retained part, so the work included a significant element of demolition, (ii) the replaced part was subjected to significant improvement work, (iii) the inventive concept either largely resided in the replaced part (the first patent) or was closely connected to that part (the second patent), and (iv) the work involved could undoubtedly be described as manufacture’. While, in the later case, the replaced part was a free-standing bottle (although it had to be made), the bottle did not include any part of the inventive concept of the patent protecting the product.

534

Other provisions of the Law of Property Act 1925 9.46

•

Fourthly, the word “makes” must be interpreted in a practical way, by reference to the facts of the particular case.

•

Fifthly, however, there is a need for clarity and certainty for patentees and others, and for those advising them.

•

Sixthly, it should be borne in mind that the word applies to patents for all sorts of products, from machinery to chemical compounds.

•

Seventhly, one should bear in mind, at least as part of the background, the need to protect the patentee’s monopoly while not stifling reasonable competition.

•

Eighthly, the word “makes” must be interpreted bearing in mind that the precise scope of a claim may be a matter almost of happenstance in the context of the question whether the alleged infringer “makes” the claimed product. Lord Diplock described the specification of a patent as “a unilateral statement by the patentee, in words of his own choosing” by which he states “what he claims to be the essential features of the new product” – Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183, 242, [1981] FSR 60. As Lord Hoffmann explained in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2004]  UKHL  46, [2005] 1  All ER  667, [2005]  RPC  169, para 21, a claim is, or at least should be drafted “not only … in the interest of others who need to know the area ‘within which they will be trespassers’ but also in the interests of the patentee, who needs to be able to make it clear that he lays no claim to prior art or insufficiently enabled products”. As Lord Hoffmann went on to explain in para 35, all sorts of factors, only some of which may appear to be rational, can influence the person drafting a claim.

•

Ninthly, where, as here, there is a decision (United Wire) of the House of Lords or this court on the meaning of the word, it cannot be departed from save for very good reasons indeed.

•

Finally, particularly given that s  60 (like s  125) is one of the sections mentioned in s 130(7) of the 1977 Act, the word should be interpreted bearing in mind that it is included in a provision which is intended to be part of a scheme which applies in many other jurisdictions.’108

Related legal principles 9.46 The rule against derogation also has similarities with the principle of exhaustion of rights, ie the principle that once one has put a product on the market one’s rights in that product are exhausted. This principle has been developed under EU law in a number of cases concerned with the free movement 108 From Schütz (UK) Ltd v Werit (UK) Ltd; Schütz (UK) Ltd No 2 v Werit (UK) Ltd [2013] UKSC 16, reformatted.

535

9.47  Personal Property

of goods rules contained in EU Treaty, Arts 34–36. It is also understood that the intellectual property laws of some countries may incorporate specific ‘nonderogation’ or ‘exhaustion of rights’ rules into the relevant legislation.109 Different, but related, legal principles operate where a licensor of intellectual property requires his licensee to purchase from him, or use, certain products (eg by means of a tying provision in a licence agreement). Such a provision may be unlawful under EU and/or UK competition laws (unless that product must be used for valid technical reasons).110

Conclusion 9.47 The decision in British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd was not concerned with agreements for the exploitation or transfer of technology, except in the broader sense that a sale of a product, which is protected by intellectual property rights, may be considered as a technology transfer agreement. However, the leading judgment does suggest, by implication, that certain provisions in licences and similar agreements may not be enforceable. For example, a provision in a licence agreement, under which a licensee agreed not to offer spare parts to customers of other licensees or of the licensor, might well offend against the principle of nonderogation from grant.111 In a broader sense, the case indicates that the traditional law of property is indeed applicable to the exploitation and enforcement of intellectual property rights, and should not be overlooked by intellectual property law practitioners.

IMPACT OF EU LAWS ON UK PROPERTY LAW 9.48 In principle, EU laws do not affect national property laws in EU member states. EU Treaty, Art 345 is apparently unambiguous: ‘This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership.’ In other words, property is a matter of national law, and not within the jurisdiction of the European Union. However, the ECJ has distinguished, in a number of cases,112 between the existence of a national right, which is not subject to EU laws, and the exercise of that right, which may be subject to EU laws. In a series of cases involving the rules on the free movement of goods

109 110 111 112

For example, it is understood that US copyright statutes may include such a principle. See Chs 12 and 15. As well as possibly breaching EU or other competition laws. Such as in Consten and Grundig v Commission [1966] ECR 299.

536

Ownership of human tissue and biotechnological products 9.50

contained in EU  Treaty, Arts 34–36, the ECJ has held that transactions in national property may be caught by EU laws if in the exercise of the property right there is a breach of a provision of the Treaty. This principle has been applied in intellectual property cases, and there would seem to be no reason in principle why it would not apply also to other types of property, if an effect on inter-state trade can be established. (It may be more difficult to establish such an effect in the case of land.) Thus, Article 345113 probably does not enable transactions in UK property to be exempted from EU competition laws.

OWNERSHIP OF HUMAN TISSUE AND BIOTECHNOLOGICAL PRODUCTS ORIGINATING FROM HUMAN TISSUE Introduction 9.49 The phenomenal rate of progress in the biosciences in general and the biomedical sciences in particular and the fact that the related legal issues are also now in a similar state of flux, necessitate an understanding of relevant surrounding legal issues with respect to intellectual property contracts in medicine and the biosciences, particularly regarding ownership and use of materials generated by or made available to, these scientific areas.114

Human tissue as property Common law and statutory provisions 9.50 Since an Australian case in 1908,115 it has been clear that no one can have proprietary rights in the body of another person as such. The case also expresses an important exception to the long-established common law rule mentioned in the previous paragraph that there is no property in a corpse. Where a corpse, or part of a corpse, had undergone a process or application of human skill designed to preserve it for medical or scientific

113 See para 9.48. 114 Chapter 11 provides a brief introduction to the background to the scientific matters dealt with by this area as well as outlining the regulatory control of and the need for consent where bodies, body parts or human tissue are involved, principally now through the Human Fertilisation and Embryology Act 1990 (as amended by the Human Fertilisation and Embryology Act 2008) and the Human Tissue Act 2004. This part of this chapter focuses entirely on issues of whether such things as bodies, body parts and human tissue can be property and whether they can be owned by anyone. 115 Doodeward v Spence (1908) 6 CLR 406.

537

9.50  Personal Property

examination, it acquired a value and became property. This exception has been confirmed in recent case law,116 and in statute in the Human Tissue Act 2004.117 With the rise of tissue banks, biotechnological engineering and human reproductive technology as major users of human tissue, the situation has now changed dramatically from the days when human tissue was only relevant from the point of view of the treatment of corpses and cadaveric specimens. At common law, since a donor could not bequeath his body, it followed that there could be no consent to the removal of tissue at death for transplantation or therapeutic purposes.118 There has been recent legislation concerning (and much larger regulatory control and licensing of) obtaining, use and disposal of bodies, body parts and human tissue (‘tissue’)119 – principally, the Human Fertilisation and Embryology Act 1990120 and Human Tissue Act 2004.121 These modern statements of law have, however, not specifically addressed the issue of property rights in (let alone ownership of) materials, fluids and human tissue. More recent case law has recognised that a living person has a form of ownership in the fluids which the person produces or which is removed from the person.122

116 R v Kelly [1999] 2 WLR 384, [1999] QB 621, [1998] 3 All ER 741, CA. This case concerned the theft of human body parts from the Royal College of Surgeons. 117 Human Tissue Act 2004, s  32(9)(c) where material which is subject to the application of human skill is exempt from a number of offences, such as offering to supply a body, etc under Human Tissue Act 2004, s 32(1). 118 See Williams v Williams (1882) 20 ChD 659. 119 And, as noted at note 114, regulatory control and licensing, and the requirement for consent matters, are dealt with in Ch 11. 120 As amended by the Human Fertilisation and Embryology Act 2008, from 1 October 2009. 121 This Act has repealed the Human Tissue Act 1961, the Human Organ Transplant Act 1989 and other relevant Acts (which were dealt with in the second edition of this book), and was largely brought into force from 1 September 2009. 122 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37. This case was not concerned, as with earlier cases, with a deceased person’s body, and whether it was possible to own the body. The decision in this case was based on the point that the person would have a form of ownership over fluid (in this case, sperm) coming from their body. Without this form of ownership, where there was destruction of the fluid stored by the defendants, the claimants would not be able to bring an action in negligence for the loss of the fluid. The claimants had cancer and ‘the men accepted the advice of the clinicians at the hospital that they should undergo a course of chemotherapy. They were advised that the treatment might damage their fertility and were asked whether they wished to produce samples of semen prior to the start of the treatment on the basis that the hospital, which has a fertility unit licensed under the Human Fertilisation and Embryology Act 1990, would freeze their samples and store them for the possible future use of the sperm in their semen to the extent permissible under the Act.’ The 1990 Act restricts what the claimants were able to do with the sperm once it was produced to the defendant. Although the 1990 Act has eroded to a limited extent their right to use the sperm, particularly that they could direct how the sperm is used, it does not ‘abrogate from their ownership. First, there are numerous statutes which limit a person’s ability to use his property – for example a land-owner’s ability to build on his land or to evict his tenant at the end of the tenancy or a pharmacist’s ability to sell his medicines – without eliminating his ownership of it. Second, by its provisions for consent, the Act assiduously preserves the ability of the men to direct that the sperm be not used in a certain way: their negative control over its use remains absolute.’

538

Ownership of human tissue and biotechnological products 9.52

Criminal law 9.51 There are a small number of decisions on theft offences in which certain materials, fluids or human tissue has been treated as property: • Urine: in one case a defendant was convicted of theft of a urine sample collected at a police station for the purposes of an alcohol level test.123 Having initially provided the sample, the defendant poured it down the sink while the constable was temporarily absent from the room. On appeal to the Court of Appeal on sentence only, the court noted that theft of urine was ‘in its way a technical offence’, but otherwise cast no doubt on its correctness. • Blood: in another case a similar decision was reached, where a defendant had provided a blood sample for a blood alcohol test.124 He was then released and he left, taking the sample with him, having removed it while the officer’s back was turned. He was convicted of both theft and failing to provide a specimen under the Road Traffic Act 1972. On appeal, the Court of Appeal quashed the conviction for the offence under the Road Traffic Act. The conviction for theft was not in issue, although the judgment of the court, delivered by Scarman LJ, appeared to recognise its correctness and freely spoke of the removal of the blood sample as ‘theft’. It should follow from the above decisions that statutes which require the provision of human tissue samples for police-related forensic investigation effectively require the donor of the tissue to transfer his or her proprietary interests in the sample to the police. Such interests presumably come into existence as soon as the sample is removed from the body. In the absence of legislation, sample removal by consent could be regarded as a gift. This may be compared with the situation under a bailment model, for example, where a donor might place legal restrictions on the kind of diagnostic tests which could be performed on tissue samples.

Ownership of the products of biotechnological engineering 9.52 Biotechnology generally involves the development of techniques for the application of biological processes to the production of materials for use in medicine and industry. Therefore it encompasses not only genetic engineering but also the use of materials, fluids and human tissue, obtained from living or dead bodies, transplants, and in vitro fertilisation, as well as the production of antibiotics. In the biotechnology industry huge sums are spent on research and development, as well as manufacture and marketing, relating to novel 123 In R v Welsh [1974] RTR 478. 124 R v Rothery [1976] RTR 550, CA.

539

9.53  Personal Property

cell lines, bacterial strains, drugs, biologic probes and other products of biotechnological engineering. One issue which arises concerns property rights in human tissue used in these manufacturing processes. Much of the case law appears not to decide whether a person is the owner of some materials, fluid or human tissue, but whether it is capable of patent protection (within the current law governing patent protection). In Europe and the UK (as well as in the USA), there is a now large body of highly complex case law concerning such matters, particularly whether there are inventions capable of being patented, including deciding the distinction between what is a ‘product of nature’ and where a technical process creates or produces it. In relation to the human genome, its patentability has generated complex case law, not only in the UK but also in the US and elsewhere. Patent protection is available for products synthesised from human cells or containing cloned human DNA.125 Also, in the US, patents for DNA sequences controlling Alzheimer’s disease, multiple sclerosis and diabetes have been granted. Patent rights in living things, including microorganisms, and cloned human DNA, can also exist under the laws of the UK. A patent has been granted for the genetic structure of the hepatitis C virus.

How biotechnology uses human tissue: legal rights 9.53 While cloned human DNA sequences may be patentable, it is highly likely that ‘human patents’ would be excluded under the Patents Act 1977, s 1(3) (as amended by SI 2000/2037), which provides that a patent may not be granted for an invention, the publication or exploitation of which would be contrary to public policy or morality. This is further reflected in the Biotechnology Directive,126 which provides that the human body, at any stage in its formation or development, cannot be patented.127 While the issue of patentability of much biotechnological and tissue material is set out and being tested in the courts, and therefore capable of forming the basis of profitable businesses, the issue of whether the provider of the material and tissue can have a share in profits is a different matter. It appears that the provider of the material and/or tissue will not have any rights to a

125 See Kirin-Amgen Inc and others v Hoechst Marion Roussel Ltd and others; Hoechst Marion Roussel Ltd and others v Kirin-Amgen and others [2004] UKHL 46, [2005] 1 All ER 667. 126 Council Directive 98/44/EC. 127 The precise scope of this is constantly being tested as new and further uses are being applied. For example, such as a case heard in the European Patents Office, the EPO  Opposition Division, University of Edinburgh/Stem Cells, European Patent Number 0695351, where claims directed to or embracing human embryonic stem cells were unpatentable as contrary to ordre public and morality.

540

Ownership of human tissue and biotechnological products 9.53

share. For example in a US case128 a conversion claim was brought against a physician at the University of California at Los Angeles (UCLA) Medical Center who, in the course of treating the plaintiff for leukaemia, developed a unique cell line using tissue (which was obtained without the plaintiff’s consent). The Regents of the University of California patented the cell line together with methods of production for various products derived from it, and the physician negotiated agreements for commercial development of the cell line. The Court of Appeals held that the plaintiff had a cause of action for conversion;129 this was reversed by the Supreme Court of California, which held that there was no judicial precedent recognising conversion liability for unauthorised use of human cells in biotechnological research. It seems that this decision in effect requires that the removal of tissue be treated (under relevant US law) as a gift by the donor to the removing institution and that the plaintiff had no rights in the material removed. Although the position under English law would be different as far as the removal of the material, following the passing of the Human Tissue Act 2004, the US case appears to confirm the position under English law that a person will not have any rights in the commercial application (and the profits arising from such application) of his or her human tissue. This brings us back to the relationship between the use of tissue in biotechnological research and human tissue legislation, discussed earlier. Such legislation provides for the donor’s consent to use donated tissue for scientific and medical purposes, and this presumably includes biotechnological research.130 However, the legislation is only effective if property rights are acknowledged in severed tissue. Otherwise the researcher (or the researcher’s employing organisation) would have no better right to the tissue than the tissue donor, or anybody else for that matter. Proprietary rights could, of course, be regarded as being created through the process of biotechnological research, rather than at the time the tissue was removed from the donor. This would provide a basis for enforcing a researcher’s right to possession of tissue, even if the tissue at the time of donation had no legal status. Following this line of reasoning would seem to lead to the conclusion that the proprietary status of tissue in the products of manufacture is unlikely in reality to be seriously challenged, although the issue of the tissue donor having a possible share in any commercialisation seems more open and perhaps an area from which further case law will emanate over the coming years.

128 Moore v Regents of the University of California (P 2d 479 (1990) (Supreme Court)). 129 ‘Conversion’ is, very simply, where a person deals with the goods (which do not belong to that person) in a manner that is consistent with the rights of the owner. 130 A position reinforced, following the bringing into force of the Human Tissue Act 2006.

541

9.54  Personal Property

Human Fertilisation and Embryology Act 1990 and Human Tissue Act 2004131 9.54 As indicated above, both of these Acts have little or nothing to say, substantially, about the issue of ownership (or other proprietary rights of the material which is their subject matter). For the purposes of this book both Acts permit research to be carried out in a controlled and a licensed fashion or with the provision of consent of the person from whom material is obtained. For example: •

Human Fertilisation and Embryology Act 1990: the authority established under this Act grants separate licences in respect of treatment, storage and research activities in respect of gametes and embryos;132 and

•

Human Tissue Act 2004: the removal (in some circumstances), storage and use of a human material for particular purposes are only lawful if done with appropriate consent.133 To carry out these activities without consent is an offence.134 For example, the purposes relevant to this book that require consent include: – obtaining scientific or medical information about a living or deceased person which may be relevant to any other person (including a future person); –

research in connection with disorders, or the functioning, of the human body.135

The issue of consent is subject to exceptions and in any case needs to be seen in the context of the numerous Codes on Consent issued by the Human Tissue Authority, in particular the Code on carrying out research136 (which among other things indicates when licensing is required, when consent is required and how the Human Tissue Act 2004 interacts with other legislation or requirements to conduct research on human tissue (such as the need to obtain ethical approval for such research)). There is one statutory exception to the requirement for consent for the use and/or storage of human tissue: 131 Chapter 11 provides an outline of these Acts. 132 In respect of licensing activities, see ss 11(1)(c), 15 and Sch 2, para 3. 133 Human Tissue Act 2004, s 1. ‘Relevant material’ means material other than gametes, which consist of human cells, but will not include in any case embryos outside the human body or hair and nail from the body of a living person (Human Tissue Act 2004, s 53). ‘Appropriate consent’ depends on whether the tissue or body part is coming from a person who is living or dead or whether the person is a child. In the case of a living adult the consent has to come from him or her. See Human Tissue Act 2004, ss 2–4. 134 Human Tissue Act 2004, s 5. 135 Human Tissue Act 2004, Sch 1, Pt I. 136 In particular Code of Practice 9 on research, which illustrates the complex and heavily regulated nature of undertaking research on human tissue. The Code of Practice is available from http://www.hta.gov.uk.

542

Ownership of human tissue and biotechnological products 9.54

•

the human tissue has to come from a living person; and

•

the researcher is not in possession, and not likely to come into possession, of information that identifies the person from whom the human tissue has come; and

•

the research has been ethically approved, eg by a recognised research ethics committee.137

The modern law as expressed in these two Acts makes commercial dealing in human tissue an offence. For example, the Human Tissue Act 2004 makes it an offence to supply human tissue for any financial or other material award for transplantation.138 Certain material is exempt from this restriction. These are gametes and embryos139 and ‘material which is the subject of property because of an application of human skill’.140 This latter phrase is not further explained but does raise the possibility that in some circumstances it might be possible for limited commercial dealings to take place: •

where a researcher has legitimate access to human tissue; and

•

has carried out work on the human tissue (presumably within the appropriate licensing scheme and receiving ethical approval from the appropriate body); and

•

wishes to sell the material.

137 Human Tissue Act 2004, ss 1(8), (9). 138 Human Tissue Act 2004, s 32. The way an offence can be committed under the Act goes wider, including initiating or negotiating involving the giving of a financial or material award for the supply of human tissue, issuing an advertisement inviting persons to supply human tissue, and finding a person willing to supply human tissue. There are exceptions where a person is authorised to store or use material and payments are made for legitimately incurred expenses such as transporting, preparing or storing the human tissue. The human tissue covered by this section is tissue that (i) consists of or includes human cells; (ii) is, or is intended to be, removed from a human body; (iii) is intended to be used for the purpose of a transplant and is not excepted (see next sentence of paragraph in text). 139 Presumably because they would be covered by the Human Fertilisation and Embryology Act 1990. 140 Human Tissue Act 2004, s 32(9)(c).

543

CHAPTER 10

Contract Law Introduction548 Intellectual property transactions and contract law 548 Scope of this chapter 550 Interpretation and construction of licences and other agreements 551 Introduction551 What is not covered in this chapter 553 Nature and extent of licences 554 Licence or agreement to grant licence? 554 Nature of a licence 555 Extent of licence 556 Meaning of ‘invention’ and ‘improvements’ 559 Meaning of ‘invention’ 559 Meaning of ‘improvement’ 560 When must improvements be communicated? 561 Duration of a licence of improvements 561 Exclusive, non-exclusive or sole 561 Exclusive licence 561 Non-exclusive licence 564 Sole licence 564 Statutory meaning of exclusive, non-exclusive or sole licences 564 Rights to assign, sub-license, sub-contract etc a licence 565 Sub-licensing566 The right to sub-contract 568 General points 568 Duration of licence and termination; effect of termination 569 Where a licence is granted for a fixed period 569 Where a licence is granted without a specific termination provision and is not for a fixed period; is termination possible on reasonable notice? 569 What is reasonable notice? 571 Termination for breach and relief from forfeiture 572 When does notice of termination take effect? 573 Consequences of termination 573 Termination by expiry of the patent 574 Effect of invalidity of licensed rights on licence 574 Rights of purchasers of licensed products; implied warranty by seller 574 Other contractual rights and obligations 576 Obligation to exploit licence 576 Meaning of ‘best endeavours’ and ‘reasonable endeavours’ 577 Best endeavours 577

545

Contract Law Reasonable endeavours 579 All reasonable endeavours 580 Right to promote competing products? 580 Does the party under an endeavours obligation have to act against their own (financial) interest? 581 Warranties and implied terms 582 Interference and threats by licensor 583 Most favoured licensee clauses 583 Normal terms of a patent licence – uncertainty of terms 584 Royalties, interest, payment terms, advance payment, milestone payments and currency provisions 585 Implied obligation to pay reasonable royalty 585 Interest payable on royalties 585 Time not of the essence for payment terms 586 Milestone payments not deductible from royalties 586 Currency terms 586 Payment of royalties beyond the scope of a patent, after a patent has expired or a licence is terminated 586 Royalty stacking (royalty sharing) 587 At what date a payment of a (minimum) royalty is to start 588 On what are royalties payable? 589 Other points regarding the payment of royalties 593 Auditing of records 594 Maintaining the patents – bringing and defending legal proceedings 595 No challenge clauses – implied terms under English law as against prohibition under EU competition law 595 Anti-competitive provisions – generally 597 Confidentiality obligations 597 Meaning of ‘business’ in a licence agreement 598 Service of notices 601 Law and jurisdiction 601 Infringement, validity and jurisdiction 604 Infringement604 Validity605 Ownership rights 608 Rights of co-owners 608 Rights of employees 609 General610 Selected contract law statutes affecting intellectual property transactions610 Introduction610 Unfair Contract Terms Act 1977 611 Summary of main provisions 611 Non-application of UCTA to international supply contracts involving goods 612 Application of UCTA to contracts involving intellectual property 614 When does UCTA apply? 616

546

Contract Law Sale of Goods Act 1979 617 Supply of living materials and other materials, software and records617 The terms implied into a sale of goods 618 Is a sale (assignment) of patents a sale of ‘goods’? 621 Supply of Goods and Services Act 1982 622 Supply of materials etc 624 Contracts for the transfer of property in goods 624 Contracts for the hire of goods 624 Contracts for the supply of services 626 Contracts (Rights of Third Parties) Act 1999 628 Changes to doctrine of privity of contract 628 Exceptions to application of C(RTP)A 629 Who will benefit from the Act? 629 Third party beneficiary examples 629 Contract where a contracting party is part of an international group of companies 629 Research contract between sponsoring company and university 630 Contract containing indemnity 630 Revenue sharing by academic employees 631 How third party is to be identified 631 Remedies given to third parties 632 Defences of contracting party (as promisor) to third-party action 632 Exceptions to application of Act to third parties 634 Arbitration634 Exclusion or variation of third party’s rights 635 Issues for drafting 636 Examples of when third parties may, or may not, be able to enforce 636 Confidentiality agreements or confidentiality clauses 636 Licensing of technology and software 636 Indemnities637 Payment to third party 637 Exclusion of liability 637 Settlement agreements 637 Late Payment of Commercial Debts (Interest) Act 1998 637 The Provision of Services Regulations 2009 639 General639 Information to be provided 640 Method of making information available 642 How the service provider is to make information available under ‘2. Information which the service provider has to make available to a recipient of the service’ above 642 When (and the manner in which) the information is to be provided 642 Complaints642

547

10.01  Contract Law

INTRODUCTION Intellectual property transactions and contract law 10.01 The law of contract is a large subject; much of it applies equally to commercial transactions involving intellectual property as it does to other types of commercial agreement. There are only a limited number of areas where there are special rules for intellectual property transactions. The standard legal practitioner’s work on contract law demonstrates the extent of the law of contract (Chitty on Contracts).1 It runs to two volumes, each of more than 2,000 pages. Its discussion of general principles of contract law in Volume 1 hardly mentions intellectual property,2 while Volume 2, which deals with particular types of contract, does not contain a section on intellectual property transactions.3 Such an omission may seem strange, given the importance of intellectual property in the economy nowadays. There are a number of reasons for this omission, including: •

There is relatively little legislation in the UK specifically directed towards commercial transactions in intellectual property.4 There is no general codifying statute for intellectual property licences in the way that there is for the sale of goods.5 In the late 19th century when much of the law concerning contract was substantially codified, intellectual property was far less important to the economy than now. Related to this is how to classify transactions concerning intellectual property; most transactions relate to the use of the intellectual property without a transfer of ownership (that is, the licensing of intellectual property rather than assignment). Such transactions did not fit into the models developed relating to the sale of goods (which includes the transfer of ownership) or the supply of a service (which often involves a person undertaking something, often with or through the use of goods or nontangible items such as intellectual property).6

1 2

33rd edn, Sweet & Maxwell, 2018. In the latest edition there are very few mentions, and there is no substantive treatment of intellectual property on its terms in the way that there is for topics such as insurance, construction or sale of goods. It has never contained such a section. Other books on contract law are similarly brief in their discussion of intellectual property matters (if they mention them at all). This chapter does not consider those provisions of intellectual property legislation which affect commercial agreements concerned with intellectual property. Such provisions deal with a limited number of contract law issues and do not provide a general codification of commercial law in the area of agreements concerned with intellectual property. Also the extent of these provisions varies among the different types of intellectual property (with those for patents perhaps the most extensive). See further Ch 3. Ie Sale of Goods Act 1979. Other legislation, particularly the Supply of Goods and Services Act 1982, may be relevant in particular situations. See para 10.75. Only the Consumer Rights Act 2015 explicitly recognises that intellectual property is ‘different’ from the sale of goods or the provision of services by the introduction of a separate category for digital goods which attract their own rights and obligations separate from goods and services.

3 4

5 6

548

Introduction 10.01

•

The laws that govern contracts generally also govern intellectual property transactions, although sometimes commercial legislation contains modified provisions for intellectual property transactions. For example, the Unfair Contract Terms Act 19777 applies in principle to commercial agreements concerned with intellectual property as it does to commercial agreements with other subject matter. However, the Act includes provisions which modify the general regime in the case of certain types of intellectual property transaction.8 Such modifying provisions form only a small (and sometimes overlooked) part of the statutes in question. Moreover, the application of such legislation to intellectual property transactions remains relatively untested in the courts.

•

Historically, intellectual property transactions have formed a relatively small proportion of the total number of commercial transactions. Fewer cases in this field have reached the higher courts than in some other fields, such as shipping or insurance. As the judges have developed the law of contract through court decisions, the facts of the cases in which such decisions were made have tended not to be concerned with intellectual property. Of course, there are exceptions, for example: –

Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd9 was concerned with a patent and know-how licence in respect of aircraft ejector seat technology;10 and

–

Oxford Gene Technology Ltd v Affymetrix Inc11 was concerned with a patent licence in respect of the technology of DNA.

It is likely that the courts will hear more commercial cases concerned with technology in the future, as technology becomes more and more central to our economy. •

A further practical matter, which should not be overlooked, is the way in which cases concerned with intellectual property are dealt with by the English court system. Most cases concerned with intellectual property or complex technology (including contract disputes) are now heard in either: –

the Intellectual Property Enterprise Court, which can hear cases dealing with all types of intellectual property; or

  7 See Unfair Contract Terms Act 1977, Sch 1.   8 However, in both these examples the precise scope of the special provisions for intellectual property remains, in some respects, unclear.  9 Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556. This case is often cited as a general authority for the right to terminate certain types of contract on reasonable notice. 10 For example, Chitty cites the case both in the agency and employment chapters of vol 2 of that work, but its relevance to intellectual property matters is not mentioned. 11 [2001] IP & T 93, CA – a case concerned with the meaning of a ‘business’ in an assignment clause in a patent licence.

549

10.02  Contract Law

–

the Patents Court which can hear cases concerning patents, trade marks and plant varieties.12

By contrast, many major commercial cases are referred to the Commercial Court (part of the Queen’s Bench Division of the High Court). Until recently, cases in the Patents Court tended to be reported only in specialist law reports.13 But now cases in the High Court and higher level courts are all made available electronically, and therefore are more easily accessible by lawyers and non-lawyers alike.14 One possible consequence of the historical division in the court system is that patent- (or other intellectual-property-) related commercial cases do not form part of the mainstream of commercial cases cited in the higher courts and in leading textbooks on contract law. It is too early to say whether the change in the way law reports are made available will lead to any change in coverage by leading textbooks. To summarise, in a few areas of commercial law there is specific legislation for intellectual property transactions. In most areas, general principles of contract law, including contract legislation, apply to intellectual property transactions as they do to most other types of commercial transaction. However, there is relatively little case law which gives authoritative guidance on the application of these laws to intellectual property agreements.

Scope of this chapter 10.02 A  complete book could be written on the subject of English contract law from the perspective of intellectual property transactions. This chapter has a more limited purpose. It will focus on the following distinct areas: 12 Pursuant to CPR  63 and Practice Direction 63. The Intellectual Property Enterprise Court (IPEC) handles cases where the amount of damages sought is no more than £500,000. The IPEC also has a small claims track (where the limit is £10,000, and there are limitations on the costs that it is possible to recover). The IPEC was formerly known at the Patents County Court. See also the IPEC Guide (https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/543307/intellectual-property-_enterprise-court-guide. pdf) or the Patents Court Guide (www.gov.uk/government/publications/patents-court-guide). Some technically complex contract disputes, eg in relation to the supply of computer hardware or software, are referred to the Technology and Construction Court pursuant to CPR 60 and Practice Direction 60. 13 Particularly the Reports of Patent, Design and Trade Mark Cases (RPC) and the Fleet Street Reports (FSR). 14 The judgments of the High Court, Court of Appeal and Supreme Court are available in electronic format on www.bailii.org. The BAILII website allows a user to view all the reports of a particular court – for example, it is possible to see all the cases decided on one page for the Patents Court in any particular year. However, cases which pre-date (currently) the late 1990s and involve intellectual property matters are likely to be available only in specialist reports. One advantage of having access to traditional law reports is that each has a summary of the facts and the key points from the judgment at the beginning of the report, something which is not present for the judgments made available on BAILII.

550

Interpretation and construction of licences and other agreements 10.03

•

Case law which has concerned the interpretation of provisions of licences and other types of agreements, (including those concerning ownership of intellectual property).15

•

Statute law in the contract law field of particular relevance to intellectual property transactions. To avoid repetition, the provisions of intellectual property legislation which affect commercial transactions are dealt with elsewhere,16 as are the provisions of competition legislation.17

This chapter assumes that the reader is familiar with English contract law. The topics discussed below should be read in the light of general English contract law principles.18

INTERPRETATION AND CONSTRUCTION OF LICENCES AND OTHER AGREEMENTS Introduction 10.03 This section reviews cases where the English courts have interpreted the wording (or the lack of wording) of agreements concerning commercial transactions involving intellectual property, particularly, and most frequently patent (and sometimes know-how) licences. Such cases give guidance as to how a court would be likely to interpret similar wording in similar circumstances in the future (or what would happen if wording was not found in an agreement). However, it is not safe to place too much reliance on some of these cases noted below. For the benefit of readers who are not familiar with English contract law, it may be useful to mention a couple of significant reasons for this: •

The proper interpretation (or construction) of an agreement may depend to a considerable extent on the circumstances in which the agreement was made – the ‘factual matrix’ as it is sometimes known. A court may depart from an earlier court’s ruling on the meaning of particular words.19

15

These sections are based on a review of the specialist intellectual property law reports referred to above. They also draw on cases cited in various books and other materials, particularly those listed in para 10.03 below. Particular mention should be made of 79 Halsbury’s Laws of England (5th edn, LexisNexis, 2008), ‘Patents and Registered Designs’, paras 378–391, which provided supplementary material for these sections.

16 17 18

19

As well as referring to recent cases, Halsbury’s Laws of England cites a number of 19th century authorities for propositions concerning patent licences. In the absence of more recent authority, this chapter sets out many of these cases, and the principles they establish, for the sake of completeness, although sometimes with ‘health warnings’. See Ch 3. See Ch 12. For readers wishing to refresh their knowledge of contract law, the books listed in the Bibliography are suggested as useful starting points. Mention is made above of Chitty (see note 1). For those wishing to obtain an overview or even a moderately detailed outline of English contract law, Chitty is not the place to start as it is too detailed for that purpose. See further Lewison, Interpretation of Contracts (6th edn, Sweet & Maxwell, 2015), Ch 3.

551

10.03  Contract Law

•

In some respects, cases specifically about agreements concerning commercial transactions involving intellectual property form a small subset of English commercial law. Sometimes, this means there are very few reported cases of direct relevance to a point in issue. In other areas the cases are old and may be thought out of line with modern commercial practice. Often, the highest authority on a point is at High Court level (often by a specialist patents judge rather than a Commercial Court judge), and even where it is binding on another judge in the High Court, the Court of Appeal or the Supreme Court (formerly the House of Lords) can overrule it.

Despite these caveats, the following paragraphs provide a useful brief summary of English court decisions in the areas discussed. In general, when drafting an agreement concerning a commercial transaction involving intellectual property such as a licence, the best course may be for the rights and obligations of the parties to be stated specifically, rather than relying on some of these court decisions. For example, if the parties have the intention that interest will be payable on late payment of royalties, the agreement should state this, rather than rely on the leading case on this for the proposition that interest is payable on patent royalties (a case which was decided over 100 years ago).20 Most of the cases referred to in this chapter are concerned with patent (or patent and know-how) licence agreements or agreements concerning confidential information. This is perhaps inevitable, given that historically these have been the main types of intellectual property right protecting technology. In recent years, copyright and design right have become more important as means of protecting technology – copyright being particularly important for protecting computer software. However, to date there have been relatively few major cases in the English courts concerned with commercial transactions involving these types of intellectual property. This may be partly because it takes a number of years, after a new technology has emerged and become commercially important, before a significant body of case law develops – the widespread use of information technology, for example, is relatively recent. In the last few years there have been some notable cases in relation to computer software, particularly in the area of liability for defective software.21 This chapter focuses on cases which are concerned with technology-related transactions. There is a body of case law on the interpretation of agreements concerning ‘arts’-related copyright, and it might be assumed that this case law 20 Redges v Mulliner (1892) 10 RPC 21; which in any case may now be superseded by the Late Payment of Commercial Debts (Interest) Act 1998 (see para 10.99 below). 21 Particularly St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481, Salvage Association v CAP Financial Services Limited [1995] FSR 654 and Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, discussed in para 10.66 below.

552

Interpretation and construction of licences and other agreements 10.04

should also apply to the licensing of copyright in computer programs. In the authors’ view this would be a dangerous assumption to make. For example, take the issue of whether a party can unilaterally terminate an intellectual property licence agreement which includes no termination provisions. In relation to: •

Patents and know-how: the leading case22 suggests that it may be possible to terminate a patent and know-how licence on reasonable notice; the law being similar to that for distribution agreements.

• Copyright: by contrast there is 19th century case law23 which indicates that it is not possible to terminate a licence which does not include a termination provision. We suggest that, if there is a licence of a bespoke computer program which has ‘industrial’ applications, the leading case referred to above in relation to patents may provide a more reliable guide than the copyright cases, even though copyright is the intellectual property right which protects the software. The factual circumstances of patent licences are generally much closer to the circumstances of software licences than the facts of many arts-related copyright cases. One area where this hypothesis may break down is in the area of ‘multimedia’ licences, traditionally concerned both with information technology and entertainment subject matter.24 This book does not consider the arts/ entertainment aspects of ‘media law’, which is a subject in itself.

What is not covered in this chapter 10.04 As noted above, this chapter deals with cases where provisions in commercial intellectual property agreements have come under consideration by the courts – that is, those provisions directly relevant to commercial intellectual property transactions. It does not deal with the many other cases which do not involve intellectual property but involve interpretations of wording which are also of relevance in a commercial agreement.25 In particular, it does not consider what is often now the default method of interpreting contracts (developed from the line of cases of Rainy Sky SA v Kookmin Bank,26 Arnold v Britton and others27 22 Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1959] 2 QB 556. 23 Eg Reade v Bentley (1858) 4 K & J 656; Re Berker Sportcraft (1947) LT 420. 24 Although this point is less likely to continue to be true in the future. 25 For readers who wish to consult a source which contains examination of other wording interpreted by the courts, see Anderson and Warner, A-Z Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2016). 26 [2011] UKSC 50. 27 [2015] UKSC 36.

553

10.05  Contract Law

and Wood v Capita Insurance Services Limited).28 These cases are now fundamental to understanding how a court will interpret a contract, but they are of general application in commercial agreements.29 The section below also does not examine in any detail issues which usually involve, in the authors’ experience, considerable concern and effort in the negotiation of commercial agreements involving intellectual property: warranties, limitations and exclusion of liability and indemnities. This is primarily because such issues are of general application in commercial agreements in many areas, not only those involving technology transfer or intellectual property.30

Nature and extent of licences Licence or agreement to grant licence? 10.05 It is possible to draw a distinction between: •

a licence; and

•

an agreement to grant a licence.

In written licence agreements, it is possible to draft the former to include words such as: ‘X hereby grants Y a licence’, while drafting the latter with words such as: ‘X  shall grant Y  a licence in the form attached as Schedule  1 to this Agreement’. A court has held that an agreement to grant a licence is enforceable by a court by an order for specific performance, if the licensor fails to do so.31 The following are further propositions in relation to forms of licence that can be derived from mainly old cases:32

28 [2017] UKSC 24. 29 For how the courts interpret commercial courts (and consideration of these cases), see Anderson and Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional, 2017), ch 6. 30 See Anderson and Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional, 2017) for consideration of negotiating these issues. 31 Brake v Radermacher (1903) 20 RPC 631; British Nylon Spinners Ltd v Imperial Chemical Industries Ltd [1952] 2 All ER 780, 69 RPC 288, CA. 32 Halsbury’s Laws (see note 15), para 379.

554

Interpretation and construction of licences and other agreements 10.06

•

an agreement to grant a licence, if the parties act upon it, is treated in equity as a licence;33

•

it is presumed that there is an agreement to renew a licence on the same terms as originally applied where a licensee continues to manufacture and pay royalties after the expiration of his or her licence;34

•

it is presumed that there is an agreement for a licence where, during negotiations for the licence, use of the invention is permitted;35

•

for a parol (ie non-written) licence to be enforceable, it must be certain in its terms36 (note that trade mark licences, unlike licences of other types of UK intellectual property, must be in writing);37

•

it is possible to make a licence orally, in writing, or implied from the conduct of the parties.38

Nature of a licence 10.06 Normally, an intellectual property (such as a patent) licence is not a right in the licensed patent, rather it is a right under the patent,39 as a licensee derives her or his rights from the owner of the patent. In other words it is a

33 See Ward v Livesey (1887) 5  RPC  102; Postcard Automatic Supply Co v Samuel (1889) 6 RPC 560; but see Henderson v Shiels (1906) 24 RPC 108. 34 Warwick v Hooper (1850) 3 Mac & G 60; Goucher v Clayton (1865) 13 LT 115. 35 Tweedale v Howard and Bullough Ltd (1896) 13  RPC  522. In some cases the proposed licensee may be in a position to elect whether or not he or she will be treated as a licensee: Postcard Automatic Supply Co v Samuel (1889) 6  RPC  560. Where the negotiations for a licence fell through, damages were refused for acts done with the patentee’s knowledge during such negotiations: Coslett Anti-Rust Syndicate Ltd v Lennox (1912) 29 RPC 477 at 481. The licence may preclude the proprietor of the patent from suing for infringement prior to the licence: Campbell v G Hopkins & Sons (Clerkenwell) Ltd (1931) 49 RPC 38. 36 An oral agreement to grant a licence at royalties to be fixed by arbitration was upheld, and in default of arbitration royalties were fixed by the Official Referee: see Fleming v JS Doig (Grimsby) Ltd (1921) 38 RPC 57; Mellor v William Beardmore & Co Ltd (1926) 43 RPC 361; varied (1927) 44 RPC 175; Brake v Radermacher (1903) 20 RPC 631. 37 Trade Marks Act 1994, s 28(2). 38 Chanter v Dewhurst (1844) 13 LJ Ex 198; Chanter v Johnson (1845) 14 LJ Ex 289; Crossley v Dixon (1863) 10  HL  Cas 293. Where a licence is made orally the terms and conditions which are to bind the parties have to be certain (or that the methods by which terms and conditions are fixed must be certain). For example, the parties orally agree that one party grants a licence to another and that the amount of royalties payable should be settled by arbitration. The method chosen where arbitration was not able to settle the amount was that the amount would be fixed by the official referee. This was held as being sufficiently certain to be binding: Fleming v JS Doig (Grimsby) Ltd (1921) 38 RPC 57; see also Mellor v William Beardmore & Co Ltd (1926) 43  RPC  361 (varied (1927) 44  RPC  175); Brake v Radermacher (1903) 20 RPC 631. 39 Insituform Technical Services Ltd v Inliner UK plc [1992] RPC 83; see also Crittall Windows Ltd v Stormseal (UPVC) Window Systems Ltd and another [1991] RPC 265.

555

10.07  Contract Law

contractual right rather than being an interest in property.40 On this basis, in order to determine the rights and obligations of a licensee, and in the absence of statutory provision, it may be more appropriate to look to the law of contract for guidance rather than precedents from the law of property.41 By contrast, an assignee of a patent clearly does have property rights in the patent.42 In the special case of an exclusive licence, it is likely that the licensee does have a property interest in the intellectual property, although this does not seem to have been finally resolved.43

Extent of licence 10.07 A  licence should make clear as to what activities the licensor is permitting the licensee to carry out. In particular, which acts the licensee can carry out which would otherwise infringe the licensed intellectual property.

40

See eg Allen & Hanburys Ltd v Generics Ltd [1986] RPC 203: ‘A licence passes no proprietary interest in anything, it only makes an action lawful that would otherwise have been unlawful’. See also Holland and Barrett International Ltd and another v General Nutrition Investment Company [2018]  EWCA  Civ 1586, para  39 (although a case concerned with an exclusive licence to trade marks). See also Bell, Modern Law of Personal Property in England and Ireland (Butterworths, 1989). Part II of that work discusses in detail the different types of right in personal property. Bell indicates that one test of whether a right in property exists is whether the holder of the right has rights against the world rather than just eg contractual rights (see pp 6–7 of that work). On this test, an exclusive licensee under eg a patent, whose licence is registered, may be said to have property rights in the patent, by virtue of his or her statutory right to bring proceedings against infringers of the patent under Patents Act 1977, s 67. This may be regarded as an exception to the general principle that a licensee has merely contractual rights. For a case which indicates that a licensee has no rights against the world, see eg Gillette Safety Razor Co Ltd v AW Gamage Ltd (1908) 25 RPC 492, 25 RPC 782, CA. 41 See Allen & Hanbury v Generics [1986] RPC 203, HL at 264 (the speech of Lord Diplock); Insituform Technical Services Ltd v Inliner UK plc [1992] RPC 265 and Crittal Windows Ltd v Stormseal (UPVC) Windows Systems Ltd and another [1991]  RPC  265. However, there has also been case law which suggests that a licensee may have a proprietary interest in the licensed patent – see British Nylon Spinners Ltd v Imperial Chemical Industries Limited [1952] 2  All ER  780 at 783, 69  RPC  288 at 294, CA: ‘An English Patent is a species of English property of the nature of a chose in action, and peculiar in character. A person who has an enforceable right to a licence under an English patent appears, therefore, to me to have, at least, some kind of proprietary interest which it is the duty of the Courts to protect’. Also, see similar comments of Romer LJ in National Carbonising Co Ltd v British Coal Distillation Ltd (1937) 54 RPC 41. In the case of an exclusive, irrevocable licence under a patent which is registered, the licensee effectively ‘owns’ all remaining rights under the patent and almost certainly does have property rights in the patent. This is consistent with the former treatment of such licences for stamp duty purposes (ie prior to the abolition of stamp duty on most IP transactions) – they were regarded in the same category as outright assignments. 42 The terms ‘assignment’ and ‘licence’ are sometimes confused. Assignment of a patent may be regarded as a ‘sale’ of the patent. See further Ch 4. 43 For a case concerning the rights of an exclusive licensee of trade marks, see the comments of Jacobs J in Northern & Shell plc v Conde Nast [1995] RPC 117. In that case, it was held that a licensee was not entitled to sue a third party for infringement where the proprietor had given consent.

556

Interpretation and construction of licences and other agreements 10.07

It is possible to split the permitted activities between more than one licensee, such as one licensee having the right to make a product using the licensed intellectual property, and another having the right to sell the product, for example. Matters that need consideration include: •

the specific activities that the licensee can carry out, such as: – making; – selling; – storing; – disposing; – using; –

•

carrying out research or improvement activities;

whether the licence is: – exclusive; –

non-exclusive; or

– sole; •

the duration of the licence, such as: –

for a fixed period;

–

renewal year-by-year;

until the expiry of the intellectual property; •

the geographical area it covers;

•

technical or field limitations;

•

whether any form of payment is required: – royalties: –

set amounts; or

–

assets such as equity;

•

the number of units/items which can be made, sold or used;

•

whether the licensee can grant sub-licences; and

•

whether the licensee can sub-contract some or all of the licensed activities.

Traditionally, licences under UK intellectual property law used the language of the relevant statute, eg a patent licence might be drafted so as to permit the licensee to: ‘make, use, exercise and vend’ 557

10.07  Contract Law

products falling within the claims of the patent, the quoted words being those used in the Patents Act 1949. The equivalent infringing acts in the language of the Patents Act 197744 include, in the case of products, to: ‘make, dispose of, offer to dispose of, use, import or keep the product whether for disposal or otherwise’.45 The extent of the grant of a licence and the wording used can be important where a licensee is defending an action for infringement brought by a licensor that the licensee is using the patent outside the terms of the licence.46 However, modern licences tend not to track the language of a statute so closely, not least because: •

licences frequently extend to more than one country;

•

the statutory language in each country varies; and

•

it is common to grant licences under more than one type of intellectual property, eg one licence agreement granting licences under several types of intellectual property, such as patents, copyright and designs. The statutory language differs according to the type of right under consideration.

Thus, licences tend to use more general wording, eg a licence might permit the licensee to ‘manufacture, have manufactured, use and sell’ the licensed products. Sometimes, licences are not clear as to which acts are permitted. In a number of reported cases the courts decided that particular rights should be implied into particular licence agreements (eg that a licence to manufacture included a right to use the patented invention). Even though the typical wording used in licences has changed over the years, and the cases were decided in relation to provisions not commonly used in modern licences, they give some useful guidance. These cases decided47 that: •

a licence to manufacture implies the right to use;48

•

a licence to ‘vend’ (ie sell) gives the right to license purchasers to use, or sell again, the article purchased;49

44 Patents Act 1977, s 60. 45 Which is similar to the wording used in TRIPS, Art 28: ‘making, using, offering for sale, selling or importing’. 46 Apple Computer Inc v Articulate Systems Inc 44 USPQ 2d 1369 (ND Cal 1997), quoted by Melville: Forms and Agreements on Intellectual Property and International Licensing (3rd edn, Sweet & Maxwell) a licence to use, modify and compile a patentee’s source code in a particular software product, can if paid-up, offer a complete defence to allegations of patent infringement. 47 The following cases are all taken from Halsbury’s Laws (see note 15), ‘Patents’, para 384. 48 The footnote to this statement referring to Basset v Graydon (1897) 14 RPC 701, HL; and National Phonographic Co of Australia Ltd v Menck [1911] AC 336, 28 RPC 229, PC. 49 Thomas v Hunt (1864) 17 CBNS 183; National Phonographic Co of Australia Ltd v Menck [1911] AC 336, 28 RPC 229, PC.

558

Interpretation and construction of licences and other agreements 10.09

•

with a licence merely to ‘use and exercise’ a patent, it may be possible to extend it so as to authorise manufacture and sale,50 or to import for subsequent sale and distribution;51

•

a personal licence to use certain goods, the property of the licensor, does not give the power to license others to use them;52 and

•

if a licence only permits the making of an article of a particular kind, proceedings for infringement will lie against the licensee for making articles within the patent and not within the licence.53

Meaning of ‘invention’ and ‘improvements’ 10.08 The courts have considered the meaning of the expressions ‘invention’ and ‘improvement’, as used in licence agreements on more than one occasion. Sometimes it is only possible to ascertain the meaning with difficulty. This is often due to the lack of precision in the drafting of the agreement under consideration by a court. Where these terms are not clearly defined, the court may have difficulty in determining the intentions of the parties.

Meaning of ‘invention’ 10.09 A  number of cases have considered the meaning of ‘invention’,54 including: •

the mere disclosure by a licensor to his licensee of a chemical formula was held not to amount to making an ‘invention’. If it had amounted to an invention, the licence agreement would have required the licensor to extend the licence to cover such additional invention;55

•

on the other hand, in a case involving a dispute over the scope of a licence, the licensed invention was held to include the subject matter of patent applications which had not been filed at the time the licence agreement was made, and whose claims were broader than the inventions disclosed by the licensor to the licensee at the time the licence agreement was made;56

50 51 52 53

Dunlop Pneumatic Tyre Co Ltd v North British Rubber Co Ltd (1904) 21 RPC 161, CA. Pfizer Corpn v Ministry of Health [1965] AC 512, [1965] RPC 261, HL. British Mutoscope and Biograph Co Ltd v Homer [1901] 1 Ch 671, 18 RPC 177. SA pour la Fabrication d’Appareils d’Eclairage v Midland Lighting Co (1897) 14 RPC 419; Dunlop Pneumatic Tyre Co Ltd v Buckingham and Adams Cycle and Motor Co Ltd (1901) 18 RPC 423, CA. 54 The Patents Act 1977 does not itself define the meaning of a patent. It states what amounts to a ‘patentable invention’ (Patents Act 1977, ss 1(1), 125(1)). 55 Beecham Group Limited v Bristol Laboratories International SA [1978] RPC 521, HL. 56 Fluflon Limited v William Frost & Son Limited [1968] RPC 508, HL; this case illustrates the dangers of not defining key terms in a patent licence. The meaning of an invention was set out in the Recitals. The meaning was stated as being ‘The said processes, apparatus and the yarns produced (to the extent that said yarns are new and patentable) are hereinafter sometimes referred to as the invention’. Lord Pearson in his speech noted that the word which stopped this sentence being a true definition was ‘sometimes’: ‘The insertion of the word ‘sometimes’ renders the application of the definition uncertain and is apt to create ambiguities’.

559

10.10  Contract Law

•

an obligation to pay royalties on products ‘falling within any claim of the patents’ included products made under patents no longer subsisting, interpreting earlier patents legislation.57 However, it may be unsafe to assume that this case would have general application today.

Meaning of ‘improvement’ 10.10 The meaning of the term ‘improvement’ will be a matter of interpretation of the agreement. Generally, an improvement is a technical advance to the patents or other technology provided under a licence agreement, including such items as new inventions, know-how protectable by intellectual property law, or modifications to software. In cases where the courts have considered the term, the following points emerge: •

An improvement was limited to a technical advance of the functions of the licensed invention, and that if there was no licence in place then there would be an infringement.

•

An improvement to a patented machine will include adding to it, taking away from it or altering it if the result is that the product achieves the same or better results as long as ‘some essential or characteristic part of the machine’ is retained.58

•

However, an important advance created by a licensee to a licensor’s patents may still be considered to be an ‘improvement’ and therefore need communicating to and/or to be owned by the licensor (subject to the provisions of the licence agreement) unless the invention created by the technical advance was so radical as to make the invention quite ‘distinct’.59

•

The meaning of an ‘improvement’ should be given a ‘broad and commercial rather than a narrow and technical meaning’, and whether a new development, invention etc amounts to an improvement is one of degree.60

•

The meaning of ‘improvements’ is to be interpreted through the technically orientated eyes of the reasonable man in the area to which the technology/patent relates.61

57 Bristol Repetition v Fomento [1961] RPC 222. 58 Linotype and Machinery Limited v Hopkins (1910) 27 RPC 109, HL; quoted extract from Court of Appeal judgment. Where there is a licensing agreement, an improvement to a machine will include a part for the machine which ‘if it can be adapted to this machine and it would make it cheaper and more effective or in any way easier or more useful or valuable or in any other way make it a preferable article in commerce’. Followed in Buchanan v Alba Diagnostics Ltd [2004] UKHL 5. 59 Buchanan v Alba Diagnostics Ltd [2000] RPC 367 at 384, Lord Hamilton, Court of Session, Outer House, quoting the words of PO Lawrence J in Sadgrove v Godfrey (1919) 37 RPC 7. 60 Buchanan v Alba Diagnostics Ltd [2004] UKHL 5. 61 Linotype and Machinery Limited v Hopkins (1910) 27 RPC 109 at 110–111.

560

Interpretation and construction of licences and other agreements 10.13

When must improvements be communicated? 10.11 There appears to be no definite time when an improvement, once made, needs communicating to the licensor in the absence of clear wording in the agreement. One case held:62 •

that the time at which the obligation to communicate an improvement could vary;

•

it would be early in the case of a major advance, as the licensor might want to secure the earliest possible patent priority; and

•

it would be later in the case of a minor workshop improvement which might require extensive trial to establish whether it was an improvement or not.

Duration of a licence of improvements 10.12 If there is a licence of improvements, which has no express duration and arises under a patent licence agreement, will it continue after expiry of the main licence? One case held, interpreting the provisions of the agreement, that the licence did continue without limit of time.63 On the consequences of an assignment by a licensor of a patent licence where there is an obligation on the licensee to communicate improvements, see paragraph 10.17 below. As for competition law issues in improvement clauses, see further Chapters 12 and 15.

Exclusive, non-exclusive or sole64 Exclusive licence 10.13 It is generally understood, under English law, that the grant of an exclusive licence means that the licensor:

62 National Broach and Machine Company v Churchill Gear Machines Limited [1967] RPC 99, HL. See also the different answers to this question given by the Court of Appeal [1965] RPC 516 and by the High Court [1965] RPC 61, respectively. A clause of the kind under consideration in this case would probably breach EU Treaty, Art 101 today. See further Ch 12. 63 Regina Glass Fibre Ltd v Werner Schuller [1972] RPC 229, CA. This case is also interesting for a further reason: it held that there was no general proposition of law that, when confidential information was given under an agreement and that agreement came to an end, the right to use the confidential information also came to an end. 64 For a case in which arguments were presented as to whether a licence was exclusive or sole, see PCUK v Diamond Shamrock Industrial Chemicals Ltd [1981] FSR 427.

561

10.13  Contract Law

•

will not license anyone else under the licensed intellectual property within the scope of the licensee’s licence; and

•

will not exercise those rights himself.65

An exclusive licence does not stop the licensor from licensing the patent to more than one licensee where the licensor has clearly delineated each grant on such matters as are set out under ‘Extent of licence’ above. For example, if a licensor grants an exclusive licence under a patent to a licensee to manufacture a chemical compound within the human healthcare field in a defined territory, the licensor agrees in effect: •

not to license anyone else under that patent to manufacture within that field within that territory; and

•

not to manufacture the chemical compound itself within that field within that territory;

for as long as the licence continues. However, the licensor could grant further licences under the patents in another field (such as animal health), or outside the licensed territory, or to exploit the patents directly outside the licensed field and territory. Also, it is necessary to look at the impact of competition laws upon such arrangements.66 Disputes over whether a party is an exclusive licensee under a patent have reached the courts (eg  to determine whether a party is entitled to bring proceedings in its own name as exclusive licensee under Patents Act 1977, s 67). In earlier cases the courts have held that: •

no particular document or form of grant was required to constitute an exclusive patent licence; the position was in each case a mixed question

65 However, the exact scope of an exclusive licence may need interpretation in the context of the agreement and/or any transaction of which it forms a part. See, for example, Holland and Barrett International Ltd and another v General Nutrition Investment Company [2018] EWCA Civ 1586, a case concerning the exclusive licensing of several trade marks. Several trade marks were licensed by the defendant to the claimant. Because the claimant had not used some trade marks for five years, the defendant terminated the exclusive licences for those trade marks (under a provision of the licence agreement, and because an unused trade mark can be revoked for nonuse under Trade Marks Act 1994, s 46). Exclusive licences for other trade marks continued. The defendant then made products using the trade marks on which it had terminated the licences. The court held that allowing the defendant to make products using the trade marks on which it had terminated the licences would affect the exclusivity of the licences which continued (because to do so would result in allowing the defendant to use confusingly similar wording or signs similar to those of the continuing licences). This case is most relevant to trade mark licensing but it is useful in indicating that it is necessary to look at what exactly other persons (including a licensor) than the exclusive licensee are prevented from doing. The case is also interesting as interpreting the provisions of a licence agreement by reference to Arnold v Britton [2015] UKSC 36, a discussion of which is outside the scope of this volume (see Anderson and Warner, Drafting Commercial Contracts (4th edn, Bloomsbury Professional, 2016), ch 6. 66 See Ch 12.

562

Interpretation and construction of licences and other agreements 10.13

of law and fact as to whether a licence is in fact exclusive. Clearly, a written agreement which makes it clear whether an exclusive licence is granted, is desirable;67 and •

it is a breach of contract, in the case of an exclusive licence, if the patent owner himself or herself uses or works the patent.68

More recently a case has summarised other recent case law as well as other materials and set out a number of propositions:69 •

to determine whether a licence is exclusive for the purposes of Patents Act 1977, s 67(1) is a matter for English law;

•

just because a licence purports to be exclusive is not determinative of its status. To identify whether a licence is exclusive, it is necessary to interpret its provisions, but an exclusive licence will expressly state that it is, and it is rare for circumstances to exist where an express licence will be implied;

•

it is for the party who is asserting that there is an exclusive licence in existence to demonstrate that it is;

•

to determine whether a licence is exclusive is not ‘a once and for all assessment’. In effect, a licence may contain provisions which change the licence from being exclusive to non-exclusive, such as: –

a provision that if an exclusive licensee does not use sufficient endeavours to exploit the licensed patent and/or fails to meet minimum royalty provisions then the licence is converted to a nonexclusive licence;

–

a provision that allows a third party to request a licence from a licensor, or a third party has an option to take a licence, will not render an existing exclusive licence as non-exclusive by itself. The exclusive licence will only become non-exclusive when the request is made, or the option is taken, by the third party;

•

a licensor can grant more than one exclusive licence in relation to the same patent; and

•

a licensor can grant each exclusive licence to only one person. A  purported grant of an exclusive licence to a party and its affiliates would not be an exclusive licence, even if the party and its affiliates are under the same control.

67 Morton-Norwich Products Inc and Others v Intercen Ltd (No 2) and Morton-Norwich Products Inc and Others v United Chemicals (London) Ltd [1981] FSR 337 (decided under an older Patents Act). 68 Rapid Steel Co v Blankstone (1907) 24 RPC 529, at 541. 69 Oxford Nanopore Technologies Ltd and another v Pacific Biosciences of California, Inc and another [2017] EWHC 3190 (Pat). The judge drew many of his propositions from Dendron GmbH v Regents of the University of California [2004] EWHC 1163 (Ch); Illumina, Inc and others v Premaitha Health plc and another; Illumina, Inc and another v TDL Genetics Ltd and others [2017] EWHC 2930 (Pat).

563

10.14  Contract Law

Non-exclusive licence 10.14 A non-exclusive licence allows the licensor both to license others and exercise the licensed rights himself or herself, within (and, for that matter, outside) the scope of the licensee’s licence. For example, if the licensor grants a non-exclusive to the licensee: •

the licensor can grant another licence on the same terms and conditions to another licensee; and

•

the licensor can also manufacture the chemical compound itself within that field within that territory.

Sole licence 10.15 By contrast, a sole licence means only that the licensor will not grant anyone a licence within the scope of the licensed rights. The licensor remains free to exercise those rights directly himself or herself in competition to the sole licensee (or through his or her agents or assigns).70

Statutory meaning of exclusive, non-exclusive or sole licences 10.16 There is no statutory definition of exclusive, non-exclusive or sole licences which is generally applicable under English law. There are, however, definitions for specific statutory purposes which are consistent with the above explanation. These will be referred to below. In general, it is not necessary for intellectual property licences to be in writing, whether exclusive, sole or non-exclusive.71 However, to take advantage of certain statutory rights of an exclusive licensee under patent, copyright and design right legislation, in particular the right to sue infringers,72 the exclusive licence must meet the definitions of an ‘exclusive licence’ as set out in the legislation. In the case of copyright and design right, ‘exclusive licence’ is defined73 for these purposes as follows: ‘In this Part an “exclusive licence” means a licence in writing signed by or on behalf of the [copyright/design right] owner authorising the 70 Murray (HM Inspector of Taxes) v Imperial Chemical Industries Ltd [1967] RPC 216, CA. 71 See Crossley v Dixon (1863) 10 HL Cas 293, HL; Morton-Norwich Products Inc v Intercen Ltd (No 2); and Morton-Norwich Products Inc v United Chemicals (London) Ltd [1981] FSR 337. 72 See eg  Ch  4 from ‘Meaning of infringement and exceptions’ to ‘Remedies for groundless threats of infringement proceedings.’ 73 See Copyright, Designs and Patents Act 1988, s 225(1) for the definition in respect of designs, and s 92(1) of that Act for the equivalent definition in respect of copyright. The definitions are identical save for the substitution of the word ‘copyright’ or ‘design’ in the places shown in square brackets in the quoted text.

564

Interpretation and construction of licences and other agreements 10.17

licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by the [copyright/design right owner]’. The equivalent definition of an exclusive licence under the Patents Act 1977 makes no mention of the licence being in writing:74 ‘“exclusive licence” means a licence from the proprietor of or applicant for a patent conferring on the licensee, or on him and persons authorised by him, to the exclusion of all other persons (including the proprietor or applicant), any right in respect of the invention to which the patent or application relates, and “exclusive licensee” and “non-exclusive licence” shall be construed accordingly’. There is a similar definition in respect of registered designs as for patents:75 ‘In this Act an “exclusive licence” means a licence in writing signed by or on behalf of the proprietor of the registered design authorising the licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by the proprietor of the registered design’. In the leading case on whether it is possible to terminate a patent licence on reasonable notice (referred to in para 10.21 below), the licensee conceded in court that a term in a licence to manufacture and sell ‘not to make any similar agreement with any other party … nor … permit anyone else to manufacture or sell’ did not exclude manufacture by the patent owner, ie  it was a sole licence.

Rights to assign, sub-license, sub-contract etc a licence 10.17 It is possible to assign (or for a licensee to grant a sub-licence) under a UK patent or patent application, but only ‘to the extent that the licence so provides’.76 This statutory wording from the Patents Act 1977 is not entirely clear, however. Its meaning could be referring to implied as well as express provisions of a licence. A court has held that a licence of patents is personal to the licensee and the licensee may not assign or sub-licence without the consent of the licensor, unless there is evidence which shows that there was an intention that the licence should not be limited to the original licensee, eg an express term in 74 Patents Act 1977, s 130(1). An exclusive licence does not mean all the rights that a licensor may have, but can be one or more, therefore it is possible to grant several exclusive licences under a patent (Courtauld’s Application [1956] RPC 208). 75 Registered Designs Act 1949, s 15C, as inserted by SI 2006/1028. 76 Patents Act 1977, s 30(4).

565

10.18  Contract Law

the licence permitting assignment or sub-licensing.77 There is no equivalent statutory language regarding the rights of a licensee under copyright or designs. But in one case a court held that, in the absence of express terms to the contrary, a licence of copyright (including copyright in designs) was personal to the licensee and not assignable.78 Where a patent licence agreement includes an obligation on the licensee to communicate improvements, it has been held that following an assignment (by the liquidator of the patent owner) of the patents and the benefit of the licence, the obligation to communicate improvements continues on the licensee towards the assignee.79

Sub-licensing 10.18 Without specific provision a non-exclusive licensee is not able to grant sub-licences. In addition to the wording of Patents Act 1977, s 30(4) (see above), in one case the court stated:80 ‘The general rule is clearly that a licensee under a patent has, in the absence of provision to the contrary in his licence, no power to grant sub-licences. That means not merely that he cannot grant sub-licences to third parties to enable the third parties to operate the patent for the third parties’ own purposes, but he cannot sub-contract to third parties the making of the patented articles for the licensee himself81 … The licensee can work the patent, but he cannot sub-contract to others to work it for him’.

77 Lawson v Donald Macpherson & Co Ltd (1897) 14 RPC 696; National Carbonising Co Ltd v British Coal Distillation Ltd (1937) 54 RPC 41 (this case considers in detail the rights of an assignee from a liquidator). See also British Mutoscope and Biograph Co Ltd v Homer [1901] 1 Ch 671, 18 RPC 177. 78 Dorling v Honnor and Honnor Marine Limited [1963] RPC 205. 79 National Carbonizing Company Ltd v British Coal Distillation Ltd (1937) 54 RPC 41. It was argued in this case that because the agreement only referred to the ‘Patentee’ and not the ‘Patentee and his assigns’, the obligation to communicate improvements did not extend to the Patentee’s assigns. The Court of Appeal rejected this argument on the basis that it was settled law that no such reference was necessary if it were ascertained ‘that the intention of the contract is that it should be assigned’. 80 Allen & Hanbury Ltd’s (Salbutamol) Patent [1987] RPC 327, CA. See the comments of Dillon LJ at 379–380. What terms would be implied into a licensee agreement (whether sub-licensing or sub-contracting) will be a matter of construction. See also Clearsprings Management Ltd v Businesslink Ltd and another [2005] EWHC 1487 (Ch), [2005] All ER (D) 172 (Jul) where what was necessary to be implied was the minimum type of licence, which did not include the right to sub-licence. The case concerned copyright and dealt with whether it is was necessary to imply a provision for an exclusive licence or a provision for an assignment of the copyright into a software development agreement. 81 The judge cited Dixon v The London Small Arms Company Ltd (1871–76) 1 App Cas 632.

566

Interpretation and construction of licences and other agreements 10.18

There is older case law which indicates that, where there is a grant of a sublicence, the sub-licence will terminate when the main licence terminates, unless the contrary can be implied.82 More recent case law (concerning copyright) perhaps indicates that a sublicence can survive the termination of the main licence, in appropriate circumstances.83 In this case: •

one company (‘Holding’) owned the copyright in the software;

•

Holding granted an informal licence to another company in its group of companies (‘Licensee’);

•

Holding and Licensee both had the same persons as directors and the court found that the directors of Holding wished to grant a licence to Licensee;

•

Licensee in turn licensed the software to a company (‘Sub-Licensee’, not connected to Holding or Licensee);

•

subsequently, Licensee went into liquidation and Holding terminated Licensee’s rights to issue licences;

•

later, Holding entered into an exclusive licence with a third party (‘New Licensee’, not connected with Holding).

New Licensee, to simplify matters, argued that, because Sub-Licensee continued to assert that it had a licence from Holding, the licence between Holding and New Licensee was not exclusive. The court held: ‘They [Holding] actually impliedly consented to it, and impliedly authorised [Licensee] to grant it [a licence from Licensee to SubLicensee]. That means that, as a matter of the application of ordinary agency principles, the licence as a permission to do that which would otherwise be unlawful came from [Holding] as well as [Licensee].’ and ‘The real question is therefore as to the scope of the authority given by the head licensor to the sub-licensor. That depends on all the facts. If the authority is sufficiently wide to allow the grant of a sub-licence which is capable of surviving the termination of the head licence, then the head licensor (copyright owner) must be taken as giving the ultimate permission himself, on normal agency principles.’

82 Austin Baldwin & Co Ltd v Greenwood Batley Ltd (1925) RPC 454. 83 VLM Holdings Ltd v Ravensworth Digital Services Ltd [2013] EWHC 228 (Ch).

567

10.19  Contract Law

In a case relating to the licensing of gene technology,84 which contained a term permitting sub-licensing to a consortium, and where the licence indicated that the consortium must have as a principle objective the development of products, it was held insufficient that only one member of the consortium ‘majored’ on the product. In a case where there was one provision in a patent licence permitting the grant of a sub-licence as well as another provision which restricted the right to sub-licence, it was held that the restriction should be removed.85

The right to sub-contract 10.19 It is arguable that a patent licensee is not permitted to sub-contract his or her rights (eg a right to manufacture licensed products) except with the consent of the licensor.86

General points 10.20 It may not be safe to rely on the propositions stated immediately above in all situations. These would appear to be an exception to the general rule that a contractual right can be assigned by a party (unless the other party contracted with him or her on the basis of his or her personal skill and reputation). However, the cases do not appear to affect the general principle that it is not possible to assign a contractual obligation without the other party’s consent. Where all rights and obligations under a contract are assigned (ie with the consent of the other party) there will, in effect, be a novation of the contract.87 Other cases have held: •

That an assignment of a patent licence was intended by the licensee to, and did, include an assignment of the benefit of a sub-licence previously

84 Oxford Gene Technology Ltd v Affymetrix Inc [2000] FSR 12, CA. 85 JR French Ltd v Redbus LMDS Ltd [2005] EWHC 1436 (Ch), [2006] FSR 13. In this case the judge was prepared to go beyond the wording of the agreement to find the objective intentions of the parties. Of particular interest was the observation of the judge that if he had considered only the wording of the agreement he would have decided the other way, ie he would have given preference to the wording which restricted the right to sub-licence, as that wording dealt with the scope of the grant of licence. It is debateable whether the judge’s decision would be the same after cases such as Arnold v Britton [2015] UKSC 36, if the wording used was clear and unambiguous. 86 Dixon v The London Small Arms Co Ltd (1876) 1 App Cas 632, HL; Allen & Hanbury Ltd’s (Salbutamol) Patent [1987] RPC 327 at 380, CA, per Dillon LJ. Also Henry Bros (Magherafelt) Ltd v Minstry of Defence and Northern Ireland Office [1997] RPC 693. On the question of what is and is not manufacture by a licensee, Halsbury’s Laws (see note 15), at ‘Patents’, para 382, n 4, cites Dunlop Pneumatic Tyre Co Ltd v Holborn Tyre Co Ltd (1901) 18 RPC 222; Dunlop v Cresswell Cheshire Rubber Co (1901) 18  RPC  473; and Dunlop v North British Rubber Co Ltd (1904) 21 RPC 161, CA. 87 Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited [1994] 1 AC 85, HL.

568

Interpretation and construction of licences and other agreements 10.22

granted by him, even though no mention of the sub-licence was made in the deed of assignment.88 Consequently the deed was rectified accordingly. It appears that the court approached the issue on ordinary contract law principles rather than on the basis that any special rule applied to the construction of patent assignments. •

That an assignment of all the interest of an assignor in a patent passes everything there is to pass including the right to apply for an extension of the term of the patent, and the joint inventor/joint owner had no continuing rights.89

Duration of licence and termination; effect of termination Where a licence is granted for a fixed period 10.21 Where a licence agreement states that it is for a fixed period, a court is likely to hold that it is not possible to terminate the licence during the fixed period: •

unless the licence contains an express provision to terminate before the end of the fixed period; or

•

except with the consent of all parties.90

Where a licence is granted without a specific termination provision and is not for a fixed period; is termination possible on reasonable notice? 10.22 Sometimes, licences are granted under an agreement where the agreement has no express provision for their termination. Is the licence perpetual, or is it possible to terminate it?91 88 Massmann v Massmann and the Custodian of Enemy Property (1943) 61  RPC  13, CA overturning the High Court decision reported at (1943) 60  RPC  45. This case was heard during the Second World War. The exceptional circumstances of that case involved a licensee who was a German national and resident. He assigned the licence to his UK-resident son in 1939 to provide him with an income in case war broke out. These unusual circumstances may undermine the authority of the decision, in so far as it states a general principle of law. 89 In the matter of Scott and Beard’s Patent (1927) 45 RPC 31. In this case the joint-owners of a patent assigned the patent to a company. The company and one of the former joint-owners applied to have the term of the patent extended under the then current patent legislation (Patents and Designs Act 1907 and 1919, s 18(6)). The other former joint-owner objected on the grounds, among others, that he had not assigned the right to obtain an extension of the patent. 90 See eg Cutlan v Dawson (1897) 14 RPC 249, CA and Guyot v Thomson [1894] 3 Ch 388, (1894) 11 RPC 541, CA. 91 The law is different for licences which do not form part of a contract: such licences may be terminable at will, unless coupled with an interest. See Wood v Leadbitter (1845) 13  M  & W 838; Winter Garden Theatre v Millennium Productions [1984] AC 173, HL.

569

10.22  Contract Law

The leading intellectual property case on this subject held that a patent and know-how licence agreement which contained no provision as to the period for which the licence was to remain in force was terminable on reasonable notice (although there were provisions allowing termination in very specific situations).92 Other cases which have held that an agreement is terminable on reasonable notice include: •

In a case concerning copyright (including copyright in designs) it was held that a manufacturing licence which did not include express provisions for termination without cause, was terminable on notice by the licensor after a reasonable time.93

•

In a (non-intellectual property) case where the licence contained no express provision for termination of the licence by the licensors, it was held that it was terminable on reasonable notice.94

•

In another case, there was no mention in the agreement between a gas supplier and its customer of the period for which it was to run, and no mention in the agreement of any right to terminate it.95 The court held that an agreement which, although indefinite in point of time, was merely one by which the supplier company obtained a customer for its gas on particular terms, and from its very nature introduced an implication that either party could determine it by notice.

In contrast to these cases, there are cases concerning copyright where licences had no provision for termination without cause but have been held not to be terminable on notice.96 It is thought that this line of cases does not represent the law in respect of agreements concerned with the exploitation of technology, ie  such agreements are terminable on reasonable notice. However, there would seem to be no reason in principle why one type of intellectual property licence should be treated differently than another.

92 Martin-Baker Aircraft Co Ltd and another v Canadian Flight Equipment Ltd (1955) 72 RPC 236, [1955] 2 QB 556, [1955] 2 All ER 722. The case involved the licensing of aircraft ejector seat technology. The licensor sought a declaration from the court that the agreement was terminable on reasonable notice; the licensee opposed the application, arguing that the licence could only be terminated by mutual consent. 93 Dorling v Honnor and Honnor Marine Limited [1963] RPC 205, [1963] 2 All ER 495. A case concerning a licence to use designs to manufacture a sailing dinghy. 94 Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948]  AC  173, HL. A case concerning a licence to use a theatre. 95 Crediton Gas Company v Crediton Urban District Council [1928] 1 Ch 174. The agreement concerned a contract entered into between a gas supplier and a local council, under which the supplier agreed to light all the public lamps in a district from September to May each year. 96 Re Berker Sportcraft (1947) LT 420.

570

Interpretation and construction of licences and other agreements 10.23

Older case law provides the following propositions:97 •

If a licence is expressed to be for a definite time, it cannot legally be revoked,98 except for acts bringing about forfeiture,99 nor can the licensee disclaim it.100

•

If there is a provision that a licence is determinable on a certain date if certain provisions have not been complied with, acceptance of royalties after that date may estop (ie, prevent) the licensor from terminating it.101

What is reasonable notice? 10.23 Where a contract is terminable on reasonable notice, what is a reasonable notice period? This will vary from contract to contract. Some guidance was given in one case102 where it was held that an agreement included an implied term that it was terminable on reasonable notice, and that it could not be so terminated on notice of less than 12 months. Other cases have held, each on the facts of the case, that the following periods were reasonable: •

12 months, on ‘rather scanty’ evidence before the court.103 The court observed that, in determining what is reasonable notice to determine a contract, it is necessary to give consideration to the circumstances at the time of the notice, rather than to those existing at the time the contract was made;

•

six months;104 and

•

nine months.105

 97 The cases listed below are cited in Halsbury’s Laws (see note 15), at ‘Patents and Registered Designs’, para 390. Because of their age and in the absence of modern authority, it is necessary to treat them with caution.  98 Guyot v Thomson [1894] 3 Ch 388, (1894) 11 RPC 541, CA; Ward v Livesey (1887) 5 RPC 102.  99 Halsbury’s Laws states that a mere breach of covenant, for example to pay renewal fees (Mills v Carson (1892) 9 TLR 80, (1892) 10 RPC 9, CA) or to sue infringers (Huntoon Co v Kolynos (Inc) [1930] 1 Ch 528, 47 RPC 403) or to provide working instructions (Cheetham v Nuthall (1893) 10 RPC 321) does not give rise to forfeiture. It is possible to query the relevance of rules against relief from forfeiture to modern intellectual property contracts (although see later in this chapter for further discussion of this topic). Moreover, the law on the circumstances in which a breach of contract may allow the innocent party to terminate the contract has developed considerably since these cases were decided. 100 Cutlan v Dawson (1897) 14 RPC 249, CA. 101 Warwick v Hooper (1850) 3 Mac & G 60. 102 Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361, CA. The case concerned an exclusive supply agreement relating to decorative tiles. 103 Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2  QB  556, [1955] 2 All ER, 722, [1955] 3 WLR 212, (1955) 72 RPC 236, at 245. 104 Dorling v Honnor and Honnor Marine Limited [1963] RPC 205, [1963] 2 All ER 495. A case concerning a licence to use designs to manufacture a sailing dinghy. 105 Jackson Distribution Limited v Tum Yeto Inc [2009]  EWHC  982. A  case involving a distributorship.

571

10.24  Contract Law

Termination for breach and relief from forfeiture 10.24 Where a party holds a proprietary or possessory right, a court may grant relief from forfeiture by exercising its equitable jurisdiction (that is, where the right is not merely contractual). For example, in one case a court was prepared to override a provision in an agreement between joint owners of a patent, providing that if a party failed to reimburse to the other one half of certain patent expenses within a period of 30 days, the other party could require the defaulting party to assign to the other its rights in the jointly owned patents.106 The court held that its equitable jurisdiction to grant relief against forfeiture (more normally encountered in cases involving evictions from domestic property) is available for all kinds of proprietary or possessory rights. In the circumstances the court was prepared to grant relief by extending the time in which the defaulting party was to reimburse the other party under the agreement. If a party only has a contractual right, it would not be eligible for relief. For example, in a case the court held that a defendant’s rights under a licence agreement were contractual; it had no proprietary or possessory rights.107 Accordingly, the defendant’s rights were ineligible for relief from forfeiture. This decision is consistent with the principle mentioned earlier that, although a joint owner of a patent has a property right in the patent, a licensee has no right in the licensed property; instead, he or she has a contractual right.108 Whether a breach of an obligation to provide information to the licensor’s auditors entitled the licensor to terminate a licence, see paragraph  10.51 below. Whether a breach of an obligation to sue infringers went to the root of a licence agreement, see paragraph 10.52 below. In a case concerning licences of right arising under the Patents Act 1977, the Patents Court was asked to settle the terms of such a licence.109 The Patents Court refused a request of the patent owner that the licence should be terminable: • immediately without prior warning if the licensee committed a fundamental breach of any of its terms; or •

if the licensee was in breach of its terms.

106 BICC plc v Burndy Corporation and BICC-Burndy Limited [1985]  RPC  273, CA. The decision has been followed in a number of other cases, although not concerned with intellectual property, such as Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd  [2013]  UKPC  25;  [2016]  AC  923; Manchester Ship Canal Company Ltd v Vauxhall Motors Ltd (formerly General Motors UK Ltd) [2018] EWCA Civ 1100. 107 Crittall Windows Limited v Stormseal (UPVC) Window Systems Limited and another [1991] RPC 265. 108 See also Sport International Bussomm BV v Inter-footwear Limited [1984] 1 WLR 776. 109 American Cyanamid Co’s (Fenbufen) Patent [1990]  RPC  309; appealed (but only on the question of the level of royalty that should be paid) and reported at [1991] RPC 409.

572

Interpretation and construction of licences and other agreements 10.26

The Patents Court decided that the penalty of allowing immediate termination of the licence without prior warning was too severe if it could apply even to trivial and accidental breaches. A  warning period would be required in all cases where the patent owner sought termination for breach. Although this case was concerned with the special circumstances of licence of right disputes, it may provide some clues as to the likely attitude of the Patents Court to the question of a patent owner’s right to terminate a licence in the event of breach by the licensee, particularly in the absence of express terms in the licence dealing with the issue. Also a court has held that a licensor can terminate a patent licence where a licensee has ceased to carry on a business (or the licensee is threatening to cease to carry on business).110 But the licensor could only terminate if, at the date the notice is given, the licensee has in fact ceased to carry on a business (or the threat to cease to carry on the business is active).

When does notice of termination take effect? 10.25 One case held that a provision permitting either party to terminate a licence on six months’ notice meant, having regard to the context, six calendar months rather than six lunar months.111 This approach is no different than that for other types of commercial agreement.112

Consequences of termination 10.26 After a licence agreement is terminated, either party may call for an account of any matter still outstanding under the agreement, even where the agreement is silent as to such rights.113

110 JR French Ltd v Redbus LMDS Ltd [2005] EWHC 1436 (Ch), [2006] FSR 13. The court held that the words ‘carry on business’ had to be construed in the context of the agreement and was not a term of art. The case concerned an agreement to exploit the intellectual property of the claimant. 111 Erith Engineering Company Ltd v Sanford Riley Stoker Company and Babcock & Wilcox Ltd 37 RPC 217 (Supplement, 1920). 112 As well as being a ‘statutory default’ position, see Law of Property Act 1925, s 61. See also Anderson & Warner, A-Z Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2017) 347–357. 113 Anglo-American Asphalt Co v Crowley Russell [1945] 2  All ER  324. In this case a clause permitted the licensor to inspect the licensee’s books and accounts. On the facts of the case the judge held that the right of inspection should not run for longer than six years prior to the date when the case started. Also of interest is that although the licensor had signed a receipt for the payment of royalties by the licensee, the licensor was not prevented from inspecting books and accounts etc in relation to those royalties which had been paid and receipted.

573

10.27  Contract Law

Termination by expiry of the patent 10.27 In some licence agreements, there are provisions that the licence for the patent will terminate when: •

the patent expires; or

•

if the patent is held in different countries: –

the dates of termination will be the dates of expiry in each country, or

–

if there is only one termination date, the date on which the last of the patents expires.

There is authority for the proposition that, where a licence terminates when the last patent expires, the date of expiry is found in the law at the date of expiry and not at the date of grant.114

Effect of invalidity of licensed rights on licence 10.28 It has been held that a patent licence granted ‘on the understanding that the patent rights are sound’ was not a guarantee of the validity of the licensed patents.115 In that case, the defendant argued that the claimant was not entitled to the patents. The court held that the defendant’s manufacture of licensed products meant that he was not entitled to deny the claimant’s title. In another case, under a patent licence, the defendant agreed to pay royalties based on the defendant selling a guaranteed minimum number of machines. The claimant guaranteed the validity of the patent and to protect the licensee from infringement. The patent was invalid, and it was admitted that it was invalid. It was held that the whole basis of the agreement was the validity of the patent and therefore it was possible to rescind the agreement.116

Rights of purchasers of licensed products; implied warranty by seller 10.29 A purchaser of a patented article, who buys the article: 114 In a USA case: BJM Inc v Melport Corp, 18 F Supp 2d 704, 48 USPQ 2d 1537 (WD KY 1988), quoted by Melville, Forms and Agreements on Intellectual Property and International Licensing (3rd edn, Sweet & Maxwell) at 3.09[6]. 115 RFH Suhr v Crofts (Engineers) Ltd (1932) 49 RPC 359. See also Lyle-Meller v A Lewis & Co (Westminster) Ltd [1956] RPC 14 and IMH Investments Ltd v Trinidad Home Developers Ltd [1994] FSR 616 (case in Trinidad Court of Appeal). 116 Henderson v Shiels (1907) 24 RPC 108.

574

Interpretation and construction of licences and other agreements 10.29

•

from the patent owner;

•

from the patent owner’s licensee;

•

from any co-owner of the patent; or

•

in a direct chain from any of the above;

has an implied licence under the patent to use the article and resell it.117 In the absence of express terms to the contrary, the licence obtained by a purchaser from the patent owner in one country extends to all other countries where the latter owns the patents.118 Sometimes a patent owner seeks to impose restrictions on the use that can be made of the article by purchasers. Under domestic English law, if at the time of sale the purchaser has notice of a restriction imposed by or on behalf of the patent owner, the restriction will bind the purchaser.119 If involving more than one EU country, such restrictions would now be likely to be in breach of EU competition laws, concerning such matters as the free movement of goods rules (EU  Treaty, Arts 34–36), restricting competition (Arts 101–118) and, if the licence was exclusive, under the Technology Transfer Regulation.120 Under the Sale of Goods Act 1979, a number of terms are implied into a contract of sale, including an implied warranty that (in most circumstances) the buyer will enjoy ‘quiet possession’ of the goods.121 If the sale of a product or a buyer’s use of goods infringed third-party patent rights, there is likely to be a breach of the warranty.122 It has even been held that this warranty is breached by publication of a patent after the date of sale which could render the goods unusable in the future.123 Similarly, in a case involving third-party trade mark rights, it was held that, if a buyer’s full possession of goods is disturbed by a third party acting within his or her rights, the buyer is entitled to be indemnified by the seller.124

117 Incandescent Gas Light Co Ltd v Cantelo (1895) 11 TLR 381, 12 RPC 262; Scottish Vacuum Cleaner Co Ltd v Provincial Cinematograph Theatres Ltd (1915) 32 RPC 353. 118 Betts v Willmott (1871) 6 Ch App 239, CA; National Phonograph Co of Australia Ltd v Menck [1911] AC 336, (1911) 28 RPC 229, PC; such implied licence does not, apparently, extend to other countries where the purchaser bought from a licensee whose licence did not extend to those other countries: Halsbury’s Laws (see note 15), ‘Patents and Registered Designs’, para 385, including n 14 to that paragraph. 119 See Halsbury’s Laws (see note 15), para 385 for discussion of the extent of this rule. 120 See further Ch 12 (and texts referred to in the Bibliography). 121 Sale of Goods Act 1979, s 12, particularly s 12(2)(b). 122 Microbeads AC v Vinhurst Road Markings Ltd [1975] 1 WLR 218, CA. Followed in Actavis UK Ltd and others v Eli Lilly [2016] EWHC 234 (Pat), where the judge held that a party to a contract who is bound to supply a product under the contract would in fact not have to do so if, in so doing, it would infringe a third party’s patent. 123 Microbeads AC v Vinhurst Road Markings Ltd [1975] 1 WLR 218, CA. 124 Niblett Ltd v Confectioners’ Materials Co [1921] 3 KB 387, [1921] All ER Rep 459, CA.

575

10.30  Contract Law

Other contractual rights and obligations Obligation to exploit licence 10.30 The ordinary rules of construction of contracts apply as to implying terms in a patent licence.125 Ordinarily, there is no implied term that a licensee will be under an obligation to manufacture products under the licence, or to use his or her licence.126 Unless a licence agreement includes provisions which address what a licensee is to do to exploit the licensed intellectual property, there will be no protection for the owner and/or licensor of the intellectual property from a failure by the licensee to work the licence. Such provisions might include: •

what level of effort the licensee is to use in exploiting the intellectual property (see below);

•

payments that the licensee needs to make (such as a minimum royalty to be paid for particular periods);

•

targets that the licensee has to achieve (such as the number of sales s/he needs to make in a period, dates when certain things are to happen, such as when a product is to be put on the market); and

•

what is to happen if the licence is not worked at all, at a sufficient level to satisfy the licensor or targets are not met (such as the termination of the licence, changes to the provisions of the licence such as it becoming a non-exclusive licence).

125 A  term will only be implied if it is strictly necessary to do so. A  number of recent cases decided by the Supreme Court (and by the Privy Council) have considered when a term will be implied into a contract. These decisions have stated the requirements in similar ways, but the following passage best expresses when a court will imply a term into a contract: ‘It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement’ (Ali v Petroleum Co of Trinidad and Tobago [2017] UKPC 2, following Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72). 126 Asserted in Halsbury’s Laws (see note 15), ‘Patents and Registered Designs’, para 386 and cases cited at that paragraph. See also Re Railway and Electrical Appliances Co (1888) 38 Ch D 597, at 608; Cheetham v Nuthall (1893) 10 RPC 321, at 333.

576

Interpretation and construction of licences and other agreements 10.32

Meaning of ‘best endeavours’ and ‘reasonable endeavours’ 10.31 A  licence agreement can contain provisions as to what a licensee is required to do to work a licence; it is normally possible to address such a requirement in two ways: •

An absolute obligation: the licensee will face an obligation, for example, to sell a certain number of a product produced under a licensed patent within a particular period.127

•

An evaluative obligation: the licensee will have to use a certain amount of effort in working the licence. The level of effort is expressed in evaluative terms.

In this section there is examination of the latter type of obligation. Often the wording used is expressed in the following ways: •

best endeavours/efforts;

•

reasonable endeavours/efforts;

•

all reasonable endeavours/efforts;

•

commercially reasonable endeavours/efforts;

•

to be diligent in undertaking; and

•

best efforts.

None of these phrases have a specific and universal meaning. Case law has suggested that some of the above phrases impose higher obligations than others (eg  a ‘best endeavours’ obligation usually requires a higher level of obligation than one expressed as ‘reasonable endeavours’), and has interpreted some of these obligations with respect to specific facts. Most of these cases are not concerned with commercialisation of intellectual property transactions.

Best endeavours 10.32 Licence agreements sometimes include an obligation on the licensee to use his or her best endeavours to do certain things, such as maximise sales of licensed products. Licensees often resist the inclusion of such an obligation in the agreement, on the basis that it imposes a heavy obligation on them.

127 Eg: ‘The Licensee shall sell 450 Licensed Products during each Year in the Territory during each calendar year of the Term of the Agreement’.

577

10.32  Contract Law

The case128 traditionally cited on the meaning of ‘best endeavours’ concerned two licence agreements relating to inventions and designs. The agreements contained clauses requiring the licensees to use ‘all diligence’ to promote sales of the inventions and designs, and to use their ‘best endeavours’ to exploit these. The court held that the licensees’ obligation was: ‘… at least that of taking reasonable steps to exploit the inventions and designs, having regard both to the interests of their shareholders and their contractual obligations to their shareholders … but that the licensees’ financial and commercial position and capabilities, and the chance that the inventions would prove commercially successful, were relevant in assessing the amount of damages’. The judge went on to give some contextual explanation as to the meaning of a best endeavours obligation: ‘In my opinion contractual obligations to use due diligence and their best endeavours to promote sales under such contracts as these would not require the directors to carry on the manufacture and attempted sale to the certain ruin of the Company and utter disregard of the interest of the shareholders; but before that extreme position could be reached … there would arise questions, some of which have arisen here, as to the amount of money to be expended on the production and on advertisement and vending of the goods and how far money is to be borrowed for that purpose, if it could be and what is already available’. In another case (which concerned the sale of land), a contract of sale included an obligation on the purchaser to use its best endeavours to obtain planning permission. The court stated: ‘These words (best endeavours) oblige the purchaser to take all reasonable steps which a prudent and determined man acting in his own interests and anxious to obtain planning permission would have taken’.129 In this case, by failing to appeal against a refusal of planning permission the purchaser was held not to have used his best endeavours.

128 Terrell v Mabie Todd & Co Ltd (1952) 69  RPC  234; also briefly reported in the Court of Appeal where the appeal was dismissed by consent ((1952) 70 RPC 97). In the earlier case the obligation was stated to be ‘to leave no stone unturned’, but this probably overstates the position. See Sheffield District Railway v Great Central Railway (1911) 14 Ry & Can Tr Cas 299 27  TLR  451. See also B  Davis v Tooth & Co [1937] 4  All ER  118; and Western Geophysical Co v Bolt Associates 200 USPQ 1 (2d Cir 1978). 129 IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, CA. For a case where an obligation to use best endeavours was considered in a preliminary motion before the court, see Imasa Ltd v Technic Incorporated [1981] FSR 554.

578

Interpretation and construction of licences and other agreements 10.33

The amount of effort required to meet a best endeavours obligation cannot be compared to a person under a contractual obligation. The correct comparison is to a person acting in their own interest, but the level of effort in a best endeavours obligation does not mean that no account can be taken of the reasonableness of the effort required:130 ‘“Best endeavours” are something less than the efforts which go beyond the bounds of reason, but are considerably more than intermittent activities. They must at least be doing all that a reasonable person reasonably could do in the circumstances’. Other cases have held that: •

if there is obligation to use best endeavours to deliver something (but the agreement is silent as to a date), this means that the obligation is to use best endeavours to secure delivery within a reasonable time;131

•

a ‘best endeavours’ obligation may not extend to the provision of bad advice;132

•

a ‘best endeavours’ obligation to negotiate and agree a settlement within a particular period of time will not require the parties to enter into any particular form of actual agreement;133

•

in order for a best endeavours obligation to exist, it is not necessary to use the phrase ‘best endeavours’.134

Reasonable endeavours 10.33 It is a common understanding among many English commercial lawyers that an undertaking to use ‘reasonable endeavours’ is less onerous than an undertaking to use ‘best endeavours’. In one case it was held that an obligation to use ‘reasonable endeavours’ was ‘considerably less’ onerous

130 Pips (Leisure Products) Ltd v Walton [1990] BCLC 895. 131 Monkland v Jack Barclay Ltd [1951] 2 KB 252. 132 Rackham v Peek Foods Ltd [1990] BCLC 895. In this case a company had covenanted to use its best endeavours to ensure that its shareholders voted in favour of acquiring another company; it was held, following an intervening event (a change in the law regarding taxation and other matters), that not to recommend to, or procure the approval of, shareholders to acquire the other company, would not amount to a breach of the best endeavours clause if it amounted to giving bad advice. 133 Beta Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch), [2003] All ER (D) 133 (May). 134 Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd and others [2004] EWHC 44 (Comm), [2004] 1 All ER (Comm) 991. This case involved a distributorship agreement with an obligation to ‘promote sales to the best of its ability in the UK and all countries in the schedule’. The comments of the judge were obiter.

579

10.34  Contract Law

than an obligation to use ‘best endeavours’135 and would lie at the lowest end of a spectrum.136 Where an agreement contains a reasonable endeavours obligation: •

a party is able to factor in other commercial considerations;137

•

a party would not be in breach of such an obligation if it did something which was financially disadvantageous;138

•

a party is not required to take all reasonable courses of action but just one of them.139

All reasonable endeavours 10.34 Sometimes a party is required to use ‘all reasonable endeavours’ – there is very little case law as to its meaning. At one time, it was thought that it meant a level of obligation occupying a middle ground between best endeavours and reasonable endeavours.140 More recent case law suggests that it may be equated to a best endeavours obligation.141

Right to promote competing products? 10.35 In one case a court held that an implied term in a contract, that a company would use its best endeavours to promote another’s products, had to be interpreted in the context of the circumstances of the contract. Such a term 135 UBH (Mechanical Services) Ltd v Standard Life Assurance Co (1986) The Times, 13  November. A  lessee undertook to his landlord to use reasonable endeavours; the lessee could take into account other commercial considerations as well as his obligation to the landlord. This involved ‘a balancing act whereby the [defendants] were obliged to put in one scale the weight of the contractual obligation to [the claimants], and in the other all relevant commercial considerations’. The judge was persuaded that an obligation to use ‘all reasonable endeavours’ ‘probably’ lay between best and reasonable endeavours. 136 Jolley v Carmel [2000] 2 EGLR 153; see also Rhodia International Holdings Ltd and another v Huntsman International LLC [2007] EWHC 292 (Comm), para 35. 137 UBH (Mechanical Services) Ltd v Standard Life Assurance Co (1986) The Times, 13 November. 138 Phillips Petroleum Co (UK) Ltd v ENRON (Europe) Ltd [1977] CLC 329, CA. It seems that the courts are prepared to allow a party to take some account of its own interests when using its ‘reasonable endeavours’. 139 Rhodia International Holdings Ltd and another v Huntsman International LLC [2007] EWHC 292 (Comm), para 33. 140 UBH (Mechanical Services) Ltd v Standard Life Assurance Co (1986) The Times, 13 November. 141 In Rhodia International Holdings Ltd and another v Huntsman International LLC  [2007]  EWHC  292 (Comm) the judge stated: ‘An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours …’, followed in Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] EWHC 145 (Ch), [2008] 05 EG 166 (CS)). Also Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417.

580

Interpretation and construction of licences and other agreements 10.36

was not inconsistent with the company being at liberty to promote, and in fact promoting, similar products made by competitors of the other, but required the company to treat the other at least as well as it treated the competitors.142 In an Australian case143 (not binding on an English court) a licence agreement contained an obligation on the licensee: ‘… at all times to use his best endeavours in and towards the design fabrication installation and selling of the [licensed product] throughout the licensed territory and to energetically promote and develop the greatest possible market for the [licensed product]’. On appeal, the High Court reached different conclusions on whether this obligation, by implication, prohibited the sale of competing products by the licensee.

Does the party under an endeavours obligation have to act against their own (financial) interest? 10.36 A  reasonable endeavours obligation is unlikely to require a party to do something which is financially disadvantageous,144 although a best endeavours clause may require a party to do so. However, much will depend on the wording of the contract and the purpose of the contract. In one case,145 the endeavours clause read: ‘Jet2.com [claimant, an airline] and BAL [defendant, an airport operator] will co-operate together and use their best endeavours to promote Jet2.com’s low cost services from BA and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2. com’s low cost pricing.’ This case involved the defendant providing landing facilities for the claimant’s aircraft. The landing of the claimant’s aircraft would have to take place outside the defendant’s normal operating times and cause it loss. The Court of Appeal held that whether a party, under a best endeavours obligation, was right to refuse to perform its obligation which would cause it financial loss ‘depended very much on the nature and terms of the contract in question’. In this case, the court in effect held that the defendant would have to operate outside its normal operating times at a financial cost to it, at least for a period. Once it was established that the claimant airline ‘could never expect to operate low cost services from the airport profitably, the defendant would not be obliged to incur further losses in seeking to promote a failing business’. 142 143 144 145

Ault & Wiborg Paints Ltd v Sure Service Ltd (1983) The Times, 2 July, High Court. Transfield Pty Ltd v Arlo International Ltd [1981] RPC 141. Phillips Petroleum Co (UK) Ltd v ENRON (Europe) Ltd [1977] CLC 329, CA. Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417.

581

10.37  Contract Law

Warranties and implied terms 10.37 Ordinarily, there is no implied covenant or warranty by a licensor in a licence agreement: •

as to his or her title to the intellectual property or the absence of encumbrances, nor that the technology does not infringe the rights of a third party,146 nor

•

that the licensed intellectual property is valid,147 and nor do the statutory ‘beneficial owner’ covenants imply such a covenant.148

However, it will be necessary to interpret the provisions of each agreement as to whether it is necessary to imply any such term.149 This means that a court could find that such a term is implied in an appropriate case.150 Similarly, there is no implied warranty of validity when a patent is assigned.151 An assignor is estopped (ie prevented) from denying validity as against his or her assignee.152 A covenant (ie a form of binding promise or obligation) for quiet enjoyment probably imports a limited covenant that the proprietor has not done anything invalidating the patent, eg omitting to pay renewal fees.153 Moreover, where a patent owner undertook to his licensee ‘by all means in his power to protect and defend the said letters patent from all infringements’, it was held that the patent owner was required to maintain the patent in force by payment of the renewal fee.154 In some circumstances a licensee may even be required to pay royalties when the recitals to a licence agreement refer to patent rights which are later discovered never to have existed.155 146 Asserted in Encyclopedia of Information Technology Law (Sweet & Maxwell), para 4.11; and asserted in relation to there being no implied covenants for validity or non-infringement of third-party rights in Halsbury’s Laws (see note 15), paras 386, 387. If no such terms are expressly stated, they are unlikely to be implied. 147 Bessimer v Wright (1858) 31 LTOS 213; Suhr v Crofts (Engineers) Limited (1932) 49 RPC 359. 148 The covenants that are implied into conveyances (ie  a transfer of ownership), under the Law of Property (Miscellaneous Provisions) Act 1994, which repealed and replaced Law of Property Act 1925, s 76. These covenants cannot in any event be implied into licences, as these generally are not ‘conveyances’ or ‘dispositions of property’ for the purposes of these statutes. 149 See note 125 concerning the implying of terms. 150 Eg a warranty that the licensor has the right to grant the licence could be implied in the circumstances of the grant of a licence, or that due to the wording and context of a licence agreement a licensee might have an implied warranty of freedom of use in the absence of an express warranty of use (Frayling Furniture Limited v Premier Upholstery Limited (1999) 22(5) IPD 22051, Ch D). 151 Hall v Conder (1857) 26 LJCP 138, 288, Ex Ch; Smith v Neale (1857) 26 LJCP 143. The same rule applies to agreements to assign: Hall v Conder; and Smith v Buckingham (1870) 18 WR 314; Liardet v Hammond Electric Light and Power Co (1883) 31 WR 710. 152 Walton v Lavater (1860) 8 CBNS 162, at 180, 186, Ex Ch, cited in Halsbury’s Laws (see note 15), para 375, n 4; see the further cases cited in that note. 153 See Halsbury’s Laws (see note 15), para  387 which discusses various aspects of quiet enjoyment covenants in licences. ‘Letters patent’ is the former name for a patent under older versions of the Patents Acts. 154 Lines v Usher (1897) 14  RPC  206: cited in Encyclopedia of Information Technology Law (Sweet & Maxwell), para 4.11. 155 IMH Investments v Trinidad Home Developers [1994] FSR 616 (a case in the Trinidad courts).

582

Interpretation and construction of licences and other agreements 10.39

As to terms that may be implied by statute into intellectual property agreements, see paragraphs 10.71 and 10.74 below (in relation to contract law statutes) and Chapter 9 (in relation to property law statutes).

Interference and threats by licensor 10.38 It appears that a court will normally imply into any licence agreement a term that the licensor will not impede the licensee’s working of the licence.156 Similarly a licensor will be restrained from using threats of infringement proceedings against the licensee.157

Most favoured licensee clauses 10.39 A court has interpreted a clause which requires a licensor to offer to a non-exclusive licensee any better terms that are given to the licensor’s other non-exclusive licensees.158 Such a clause may need further provisions to be 156 See Acrow v Rex [1971] 3  All ER  1175, where a term was implied into a patent licence agreement that the licensor would not do anything to prevent the licensee from the manufacture and sale of equipment. 157 Clark v Adie (1873) 21 WLR 456, 21 WLR 764; SA des Manufacturers de Glaces v Tilghman’s Patent Sand Blast Co (1883) 25 Ch D 1, CA. 158 Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd [1958]  RPC  8, HL where the relevant clause stated: ‘Should the sub-licensor grant a licence under the said patents at a lower royalty, that lower royalty shall apply in substitution for the royalty herein agreed’. The case concerned a ‘deed of terms’ whereby a full but non-exclusive sub-licence was granted by the appellants to the respondents for the manufacture, use and selling of writing instruments. The writing instruments were fully or partially protected by patents. Royalties were payable on a sliding scale (from 6 per cent to 3 per cent). A provision in the deed of terms provided that if a licence was granted to a third party by the appellants at a lower royalty then that lower royalty would be substituted for the royalty in the deed of terms. The appellants in the case granted a non-exclusive sub-licence to a third party allowing the third party to sell patented articles at a royalty of 5 per cent. The respondents argued that the new royalty rate (of 5 per cent) should be paid. The appellants argued that since respondents paid royalties at different percentages, it was only possible at the end of any particular period to decide whether the respondents were receiving less favourable terms, an argument which was rejected by the House of Lords. There was considerable discussion in the House of Lords as to whether the flat rate of a 5 per cent royalty granted to the third party was more favourable than that paid by the respondents (ie the range from 6 per cent to 3 per cent). The House of Lords was required to interpret the clause quoted and found that the word ‘royalty’ did not mean the total sum payable for all articles produced under the licence. It was interpreted as meaning the relevant royalty for articles in a comparable category, with the implication that: ‘… if the agreed royalty on articles under £1 is six per cent and the new royalty on like articles is five per cent, then five per cent is to be substituted for six per cent. Whereas, if the agreed royalty on articles between £1 and £2 is four per cent and the new royalty on a like article is five per cent, there is no substitution and the four per cent prevails. Any other view would mean that, by the simple device of altering the structure on which royalties are paid, the licensor could avoid the clause altogether; which would not, I am sure, commend itself to your Lordships, seeing that the whole object of the clause is to ensure that the respondents are not exposed to unfair competition’ (from the speech of Lord Denning, at p 25).

583

10.40  Contract Law

effective, such as the licensor must notify the licensee of the more favourable terms when it offers them to other licensees, and to allow the licensee to consider them.

Normal terms of a patent licence – uncertainty of terms 10.40 It is a general principle of contract law that an agreement will be void if its terms are not sufficiently certain, but the courts will attempt to give effect to the agreed contractual provisions of the parties if it is possible to do so.159 On the other hand, where parties have agreed the important terms of a contract, the fact that further terms have yet to be added or further formalities need fulfilling does not prevent there being a binding contract between them in respect of the terms that have been agreed.160 If the further terms or formalities are not agreed or fulfilled, the contract will not be invalidated unless such failure renders the contract unworkable or void for uncertainty. In a case161 which would appear to illustrate this principle, the parties entered into an agreement to settle patent litigation. The agreement provided that the patent owner would grant the other party a licence under the patent. Certain important terms were agreed, eg royalties, duration etc. The agreement also included a provision that as to the remaining terms, the licence: ‘… shall be in the normal terms of a patent licence. In the event of dispute the terms shall be referred to Counsel at the Patent Bar to be agreed by [the parties to the agreement]’. A dispute arose between the parties on another provision of the agreement which led to litigation. The court observed that it is a question of law, what are the normal terms of a patent licence. The case is of interest in that it appears that a clause of the kind quoted above would be legally enforceable. The court also stayed the action on the grounds that the arbitration clause, quoted above, covered disputes as to all terms of the proposed licence.

159 Openwork Ltd v Forte [2018] EWCA Civ 783, following Astor Management AG and anor v Antalaya Mining Plc and anor [2017] EWHC 425, WN Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, G Scammell & Nephew Ltd v HC ad JG Ouston [1941] AC 251.The two more recent cases provide a useful summary of the law and other cases concerning the circumstances when a court will find a binding contract. 160 Pagnan SpA v Feed Productions [1987] 2 Lloyd’s Rep 601, CA. See also Simtech v Jasmin Simtec Limited [1995] FSR 475 and Dalgety v DEB-ITS Limited [1994] FSR 125 where earlier cases in this area were reviewed, including Donwin v EMI Films (1984) The Times, 9 May, and Edward v Skyways Limited [1964] 1 WLR 355. 161 The Miles-Martin Pen Co Ltd and Martin v the Selsdon Fountain Pen Co Ltd, Ralph Selsdon and Rebecca Selsdon (No 2) (1950) 67 RPC 64, CA.

584

Interpretation and construction of licences and other agreements 10.42

An exception to the general principle that an agreement will be void if its terms are uncertain, apparently arises where a licence is granted and the parties do not fix a royalty: it may be implied that a reasonable royalty is payable by the licensee.162 This exception apparently arises by analogy with land law – a similar exception operates where a property lease has been granted, and where the amount of rent has not been agreed: in such cases a reasonable rent will be payable.163 This case is also interesting in that it confirms that the courts will sometimes apply legal principles from the ‘real’ property field, particularly where the law in respect of intellectual property transactions is uncertain.164 (See further Chapter 9.)

Royalties, interest, payment terms, advance payment, milestone payments and currency provisions Implied obligation to pay reasonable royalty 10.41 Where a licence agreement does not state whether royalties are payable or not then a term may be implied whereby a reasonable royalty will be payable.165 That this term is implied is based on an analogy with a proposition found in land law – that if the rent has not been agreed then a reasonable rent will be payable.166

Interest payable on royalties 10.42 Interest is apparently payable on a patent royalty in the event of late payment, even in the absence of any express provision to this effect.167 162 The issue being what is reasonable in the light of the circumstances operating when the licence was granted. In this case it was observed that on the question of the necessity of all terms in a contract being set out, the rules for licences resembled those for leases (for real property) rather than those for ordinary contracts. On that basis and in the absence of any provision in the agreement as to royalties, a term was implied into the licence that a royalty at a reasonable rate was payable. See Chadwick v Bridges (SN) & Co Ltd [1960] RPC 85, per Lloyd-Jacob J. 163 See eg Brown v Gould [1972] 1 Ch 53 where the court reviewed certain authorities in the real property field. 164 An extreme example of this arose in the case of British Leyland Motor Corporation Ltd and Another v Armstrong Patents Co Ltd and Another [1986] 1 AC 577, [1986] RPC 279. This case is considered in detail in Ch 9 under ‘Non-derogation from grant’. 165 See Chadwick v Bridges (SN) & Co Ltd [1960] RPC 85, per Lloyd-Jacob J. In this case the licence was not in writing. The court held that in determining what were the terms for the licence, the rules for so doing were similar to those for leases of real property rather than those for an ordinary contract. Based on this proposition, and as the oral agreement in this case was silent as to whether royalties were payable, a term would be implied into the oral licence agreement that a royalty was payable and at a reasonable rate. 166 In Brown v Gould [1972] 1 Ch 52. In this case the judge reviewed other cases dealing with real property. 167 Redges v Mulliner (1892) 10 RPC 21, at 23; Gill v Stone & Co Ltd (1911) 28 RPC 329.

585

10.43  Contract Law

However, this may be no longer good or relevant law, following the passing of the Late Payment of Commercial Debts (Interest) Act 1998 (see below). Before the passing of this Act, this situation represented an exception to the general rule that, prior to the commencement of legal proceedings, interest is not automatically payable on contract debts.

Time not of the essence for payment terms 10.43 Breach of an obligation to pay royalties by a certain date will not allow the licensor to terminate the licence, unless the date of payment is expressly stated to be of the essence of the contract.168

Milestone payments not deductible from royalties 10.44 Normally, an upfront or milestone payment will not be deductible from royalties unless the agreement so provides. By contrast, it is suggested that a payment expressed to be an ‘advance’ will normally be deductible from royalties.

Currency terms 10.45 On the question of whether a reference to a currency, eg ‘pounds’, means UK pounds sterling or another currency, a court held169 that such an expression must be determined in accordance with the proper law of the contract. In other words, if the proper law is English law, and the contract refers to pounds, the meaning of ‘pounds’ will normally be UK pounds.

Payment of royalties beyond the scope of a patent, after a patent has expired or a licence is terminated 10.46 Other case law has decided the following on royalties:170 •

that royalties may be paid on products whether within or outside the scope of the patent;171

•

that royalties may continue to be payable whether or not the patent is valid and until such time as the licence is terminated;172

168 Patchett v Sterling Engineering Co (1953) 70 RPC 269; (1954) 71 RPC 63; (1955) 72 RPC 50. 169 John Lavington Bonython and Others v Commonwealth of Australia [1951] AC 201. Decided by the Privy Council. 170 These cases are mentioned in Halsbury’s Laws (see note 15), para 389. 171 Baird v Nelson (1842) 8 Cl & Fin 726, HL. 172 Mills v Carson (1892) 89 TLR 80, (1892) 10 RPC 9, CA; African Gold Recovery Co Ltd v Sheba Gold Mining Co Ltd (1897) 2 Com Cas 277, (1897) 14 RPC 660.

586

Interpretation and construction of licences and other agreements 10.47

•

whether a licensee must continue to pay full royalties after some patents had expired.173

However, these cases pre-date the UK’s membership of the EU, and such payment obligations would now likely contravene Article 101, EU Treaty174 where that Article applies to the agreement (or equivalent UK competition law, eg Competition Act 1998).

Royalty stacking (royalty sharing) 10.47 To reflect the increasingly complex position where intellectual property is licensed, there are sometimes provisions in modern intellectual property licences to deal with the situation where a licensee has to obtain a licence to the intellectual property of a third party in order to work the licensed intellectual property. Where this is the case, the licensee’s obligation to pay a royalty at a certain rate to the licensor will be reduced. In one case this point came under consideration,175 particularly the following wording: ‘Royalties paid to third parties […] in order to license rights needed to practise or to have practised the technology claimed in the Patents, will be borne equally by the parties provided that [the Claimant]’s royalty pursuant to [Clause] 5.01 [of the development and licensing agreement] is not less than 2% (two percent) of Net Sales’.176 For the defendants to make products which incorporated the claimant’s technology, they also had to license patents from third parties. The defendants 173 Hansen v Magnavox Electronics Co Ltd [1977] RPC 301; Bristol Repetition Ltd v Fomento (Sterling Area) Ltd [1961] RPC 222; Siemans v Taylor (1892) 9 RPC 393. The impact of EU competition laws in this area should not be overlooked. See further Ch 12. 174 See further Ch 12. 175 Cambridge Antibody Technology v Abbott Biotechnology Ltd and another [2004] EWHC 2974 (Pat); [2004] All ER (D) 323 (Dec). The case concerned a development and licensing agreement concerning the production of antibodies, and is one of the few recent cases which deals with a modern intellectual property licensing agreement. Also notable are: (i) the thorough analysis of the evidence of witnesses by the judge and their recollections about the negotiations which led to the development and licensing agreement; (ii) the dangers of not defining precisely what is meant by words and phrases, such as the phrase ‘license rights needed to practise or to have practiced the technology claimed in the Patents’, which is the heart of the dispute and the amount of technical (scientific) analysis needed by the judge to attempt to discern which party view of the phrase was correct; (iii) the lack of consistency in some of the terms used in the licensing and development agreement (see para 78); (iv) the agreement reflects a modern trend whereby a small start-up company which has potentially valuable technology and research expertise licenses them to a multinational company – but at various stages of the development of a product it is necessary to license third-party intellectual property (see paras 40–44); and (v) perhaps less seriously (unless the cost is counted), the number of lawyers involved in arguing the case in court. 176 See note 175 – from para 64 of the judgment. The normal royalty rate was 6%, reducing to 5% for sales above a certain amount.

587

10.48  Contract Law

argued that the third-party licensing (and the payment of royalties to third parties) meant that the royalty they would have pay to the claimant would be reduced to 2 per cent, in accordance with the quoted clause above. The defendants also argued that the words ‘to practise or to have practised the technology claimed in the Patents’ in the above-quoted clause meant more than just the technology of the claimant. The phrase needed to be interpreted in relation to the claims of the patent, which contained so-called ‘reach through’ claims for the production of antibodies which comprise the product and in which the antibodies themselves fall. The claimants looked at the matter differently. Their position was that: •

the quoted clause related only to royalties which the defendants had to pay in order to work the claimant’s technology; and

•

the quoted clause did not cover the parts of the processing for producing products or the claimant’s technology.

The court found in favour of the claimants after interpreting the provisions of the agreement, finding that the claimant’s construction of the agreement was not only consistent with the wording used in the agreement but also made commercial sense. The court also held that the claimant: : •

was only involved in bringing its technology to the agreement;

•

was not involved in the development of the product;

•

had no right to be involved in or knew about downstream developments (such as what third-party licences the defendants were considering taking or what royalties the defendants would pay to third parties for doing so).

Consequently, any royalty sharing between the claimant and defendants would be limited to the part of the project for which the claimant was responsible.

At what date a payment of a (minimum) royalty is to start 10.48 The date when a royalty may start becoming payable under a licence agreement may be dependent on an event as agreed between the parties; for example: •

when a licensee starts licensing the licensed intellectual property to third parties;

•

the date when the licensee has successfully made a sellable product using the licensed intellectual property; or

•

on some other particular date that the parties agree. 588

Interpretation and construction of licences and other agreements 10.49

In one case177 such a situation came under consideration, and in particular in relation to the following clause: ‘Within sixty (60) days at the end of (a) the first two Years under this Agreement (b) each Year thereafter, the Licensee shall, in the manner provided in Clause 3.6 below, pay to [the Claimant] the shortfall (if any) between the royalties paid in accordance with Clause 3.1 above and the Minimum Royalty payable with respect to the period in question’. The defined terms were set out in the recitals to the agreement as follows: •

‘Year’ was defined as ‘the period of twelve months from the Effective Date and each subsequent consecutive period of twelve months during the period of this Agreement’.

•

‘Minimum Royalty’ was defined as meaning ‘in relation to each Year after January 1, 2003, US 1 million’.

•

‘Effective Date’ was defined as ‘the date of the last signature to the Agreement which in any event was 16th October 2001’.

The court held, interpreting the provisions of the agreement, that the defendant would start paying royalties from 16 October 2004 and not, as the claimant contended, from 16 October 2003. The judge held that ‘each Year after January 1, 2003’ (as used in the definition of ‘Minimum Royalty’) meant each complete period of 12 months from 16 October which took place after 1 January 2003.178

On what are royalties payable? 10.49 Unlike the position where what is sold is a specific good, it can be harder to determine on what precisely a royalty is payable where there is the licensing of intellectual property. For example, a patent may be licensed, but the licensee may have to carry out further research and/or development work to create a product which the licensee can sell. A key question will be, ‘Does the licensed patent cover the resulting product?’. Typically, wording in modern patent licences179 follows this type of structure, with the obligation to pay a royalty being expressed as: 177 Cambridge Display Technology Ltd v EI Dupont de Nemours & Co [2004] EWHC 1415 (Ch); [2004] All ER (D) 186 (June). 178 The judge in this case found the drafting of the agreement poor: ‘It goes without saying that the Agreement as signed has not been well drafted, and the careful draftsman would undoubtedly have reworked [the clause quoted above] so as to incorporate the “not before” provision which the definition of Minimum Royalty imposes. It looks to me very much as if a short cut has been taken, using the definition as the vehicle for imposing a further restriction on the clause which it was intended to interpret. But the language used makes it impossible, as I see it, to treat the reference to 1st January 2003 as a mere imitation of the opening words of [the clause quoted above]’. (Good drafting practice suggests that definitions of terms should not be used as the place for imposing obligations. See the section ‘Definitions’ in Anderson and Warner, A-Z Guide to Boilerplate and Commercial Clauses (4th edn, Bloomsbury Professional, 2017).) 179 The quotes here are drawn from the patent and know-how licence which appeared in the second edition of this book.

589

10.49  Contract Law

‘The Licensee shall pay to the Owner a royalty being a percentage of the Net Sales Value of all Licensed Products [or any part thereof] sold by the Licensee’. And the definition of Licensed Products being: ‘Any and all products that are manufactured, sold or otherwise supplied by the Licensee or its sub-licensee and which (a) are within any Valid Claim of the Patents and/or (b) incorporate, or their development makes use of, any of the Know-how’. And a Valid Claim being defined as: ‘A claim of a patent180 or patent application that has not expired or been held invalid or unenforceable by a court of competent jurisdiction in a final and non-appealable judgement’. A modern case has considered the issue of whether a product falls within the claims of a patent and/or patent application181 and in particular whether the royalty should be payable on the claims made in a patent application or those made in the granted patent. Sometimes between the time of the making of 180 A claim ‘is a definition in words of the invention that you want to protect’ and ‘should list all of the main technical features of your invention including those that distinguish it from what already exists. Subsidiary or preferred features, which are not crucial to your invention, should be set out in dependent claims that can refer to one or more of the previous claims’. You must write each claim as a single sentence. 181 Oxonica Energy Limited v Neuftec Limited [2009] EWCA Civ 668. This case: (i) is an example of the need to check the meaning of defined words (eg whether they cover the facts of a deal, or whether the meaning is what is intended by the parties, etc); (ii) illustrates how the courts will interpret the provisions of a modern commercial agreement to ascertain its meaning; or (iii) is just an example of poor-quality drafting (not only on how wording in the agreement was used but also whether a ‘sanity check’ was undertaken). For example, the court applying the now famous words (at least among lawyers) of Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 2, [1998] 1 WLR 896, at 912–913: ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’. This exercise, the court noted, was more difficult if ‘it is apparent to the reader that the draftsman of the document was inept or did not fully understand the legal background – as was the case here’ (from para 11 of the judgment). In constructing the meaning of a contract the judgment also relied on the guidance given in another case (Mitsui Construction Co Ltd v A-G of Hong Kong (1986) 33 BLR 14) that poor drafting itself provides ‘no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language that they have used interpreted in the light of the relevant factual situation in which the contract was made. But the poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis’. Because of the poor quality of the drafting and the ambiguity in the meaning of a definition, the court felt able to in effect rewrite part of the contract to arrive at a meaning in keeping with good business sense.

590

Interpretation and construction of licences and other agreements 10.49

the application and the time the patent is granted the applicant can withdraw some of the claims made for the invention (or the relevant patent office may ‘disallow’ a claim). In this case that is what appeared to happen. What fell to be considered by the court, based on the wording used by the parties, was whether the royalty should be for a product which fell within the claims made in the patent application or that the product did not fall within the claims made in the granted patent. The judgment of the court repeatedly criticised the quality of the drafting, but it is one of the few cases reported involving technology transfer and the licensing of patents and know-how, and it is worth setting out the judgment in some detail. The defendant filed a patent application for technology it had developed. The application was filed under the Patent Co-operation Treaty.182 The defendant wished to exploit the technology and granted, to simplify the facts, an exclusive patent and know-how licence to a spin-out company of Oxford University, the claimant. The licence provided that the claimant would pay royalties to the defendant on the sale of ‘Licensed Products’. The defined meaning of ‘Licensed Products’ was: ‘… any product, process or use falling within the scope of claims in the Licensed Application or Licensed Patent’.183 After the signing of the patent and know-how licence agreement the defendant’s patent applications proceeded through the application processes in a number of countries. The patents granted had claims which were narrower than those of the patent applications. The claimant took over research and its scientists developed a commercial product (Envirox), made sales and paid royalties to the defendant. It then developed a further product (Envirox 2) which was outside the claims of the patents granted, at least in Europe. The claimant refused to pay any royalties on Envirox 2. However, Envirox 2 fell within the claims of the PCT application (but not that of the granted patents). Therefore, the dispute between the parties and the decision in the case fell on the precise meaning of the definition quoted above. The judgment of the court noted that the section of the agreement 182 See para 3.14. 183 ‘Licensed Application’ was defined as ‘the PCT and any continuation, continuation-in-part or divisional applications thereof as well as foreign counterparts and re-issues thereof’; and ‘Licensed Patent’ was defined as ‘any patent issuing from the Licensed Application thereof as well as foreign counterparts and reissues thereof’.

591

10.49  Contract Law

containing definitions (including the one quoted above) started with the phrase ‘unless the context otherwise requires’, which meant that in different contexts a definition could have different meanings. The court noted that interpreting the quoted definition could lead to three possible results: •

any product covered by the claims of the PCT patent application (ie the widest claims); or

•

any product covered by the claims of the PCT patent application or a patent and therefore could be a later patent claim wider than the claim of an application; or

•

any product covered by the claims of a national application when and if it superseded the PCT application, and if in turn the national application was superseded by a granted patent, then the claims of the granted patent. In effect the words ‘as the case may be’ would be added to the quoted definition above, and the royalty payable would be dependent on the particular patent position in each country.

The claimant argued that the third result applied, so that in a particular territory if a national patent with a narrower claim superseded a PCT application, royalties would be paid only on a product which fell within that narrower claim. The claimant further argued that if the first or second results applied it would have to pay royalties on products which did not have any patent protection where they were sold, and such a position would not make any business sense (and the claimant would face competition from others who would not be paying royalties). If the first result was correct, then the phrase ‘or Licensed Patent’ in the quoted definition would make no sense. The claimant argued that to do so would mean that the court was rewriting the contract for the parties, which normally is not permissible. The defendant argued that the claimant was not only getting a patent licence but also a worldwide licence to the defendant’s know-how and a world-wide non-competition clause. There was no reason in logic or business sense why royalties should be confined to the scope of the patents or patent applications at any one place or time. It was reasonable, it was argued, that the claimant’s payment of royalties should reflect that it was getting the benefit of the defendant’s know-how rather than leave the claimant free of all royalty if it could find a way around a narrowed patent claim. Also the defendant argued that the third result above would be difficult to deal with as with every sale it would have to consider the patent position in the country concerned, involving not only accountants but also an examination of the state of the patent or patent application locally. The court decided that the first result was the correct approach to take, and found that ‘it offends one’s business sense’ that the claimant could use the 592

Interpretation and construction of licences and other agreements 10.50

defendant’s know-how without making a payment for it in every country where there was no patent or a restricted patent (ie  a patent whose claims were narrower than the know-how). While the claimant may have to compete with third parties in those countries where there was no patent or who got around the patent (if the patent was restricted), those third parties would have to develop their own know-how. The court, in interpreting the provisions of the agreement, found that the know-how to be provided by the defendant was significant and valuable. The claimant’s argument that the first result would mean that the words ‘or Licensed Patents’ would have no meaning was rejected. However the court found that the words at the start of the definition section of the agreement stated that the defined terms would have the meanings given ‘except where the context otherwise requires’. The court distinguished the two primary purposes of the patent and know-how license: •

to license all and any patents and know-how; and

•

to provide for the payment of royalties.

The contexts of licensing and payment were different. For licensing it was essential that the claimant got everything so that all applications and patents should be licensed. But for payments, it was not necessary to tie payment to what was being licensed. The court noted that payments not only covered the licensed patents but know-how and the non-competition clause. Therefore in the context of the payment of royalties the alternative of ‘or Licensed Patent’ should be read as not being applicable and in this context it makes no sense or an unreasonable sense. The court was initially not comfortable with disregarding the phrase ‘or Licensed Patent’ in the definition of ‘Licensed Products’ for deciding what was royalty-bearing, but it was necessary to do so to make rational senses of an ‘appallingly drafted document’.

Other points regarding the payment of royalties 10.50 The following propositions can be derived from a number of 19th century cases concerning royalties: •

Money paid for royalties under a licence cannot be recovered on the ground that the patent was invalid, unless the licence so provides.184

•

Where a licence is given under an application for a patent but no patent is granted, money paid cannot be recovered, as the licensee has been

184 Taylor v Hare (1805) 1 Bos & PNR  260. In Celltech R  & D  Ltd v Medimmune Inc [2004] EWCA Civ 1331, Jacob LJ observed at para 12 that royalties are to be paid under a (valid) patent claim even if the claim later turns out to be invalid (ie the royalties will no longer be payable once the claim has definitely been held to be invalid).

593

10.51  Contract Law

protected from possible proceedings for infringement from the date of publication of the specification.185 •

An assignee of the share of the profits from a patent can have an account of royalties taken against the licensee, provided the account is taken in such circumstances as will bind the assignor.186

•

A covenant to render accounts is generally only auxiliary to the covenant to pay.187 However, failure to keep proper books may be a material breach of the conditions and lead to forfeiture of the licence.188

•

A  covenant to pay a sum out of the profits derived from use of the invention or by way of royalty runs with the patent and is binding on a legal assignee of the patent with notice of the covenant.189

These propositions are mentioned here for the sake of completeness but should, it is suggested, be treated with caution in the absence of modern authority.

Auditing of records 10.51 Breach of an obligation to allow auditing of the licensee’s activities under a licence may entitle the licensor to terminate the licence.190 Apparently, a licensor may query whether the books offered for inspection are the only relevant ones, and he or she may demand the production of other books which he or she has reason to believe contain relevant information.191 185 Otto v Singer (1889) 7  RPC  7; the same applies if the granted patent covers less than the original application: Hadden v Smith (1847) 20 LTOS 154. 186 Bergmann v Macmillan (1881) 17 Ch D 423. 187 Bower v Hodges (1853) 22 LJCP 194. 188 Ward v Livesey (1887) 5 RPC 102. 189 Werderman v Societe Generale d’Electricite (1881) 19 Ch D  246, CA, followed in Dansk Rekylriffel Syndikat Akt v Snell [1908] 2 Ch 127, (1908) 25 RPC 421, and explained in Bagot Pneumatic Tyre Co v Clipper Pneumatic Tyre Co [1902] 1 Ch 146, (1902) 19 RPC 69, CA where it was held that equitable assignees are not so bound. 190 Fomento Ltd v Selsdon [1958] RPC 8, HL. This case concerned patents for ball-pointed pens. There was a licence agreement which included obligations on the licensee to permit the licensor’s auditors to examine the licensee’s records and make extracts from them as well as an obligation on the licensee to give the auditors all such other information as might be necessary or appropriate to enable the amount of the royalties payable to be ascertained. The licensees claimed that certain articles were not covered by the licensed patents and they refused the request of the auditors for samples of such articles so that they might form an opinion as to whether the claim for exemption from royalties was justified. The licensors successfully applied to the High Court for a declaration that this was a breach of contract and entitled them to terminate the licence. On appeal, the House of Lords by a majority of 3 to 2 upheld the High Court’s decision. 191 Fomento v Selsdon [1958] 1  WLR  45; Peter Pan Manufacturing v Corset Silhouette (1963) RPC 45.

594

Interpretation and construction of licences and other agreements 10.53

A  contractual obligation to permit the grantor to inspect accounts will ordinarily continue in force even if the agreement is terminated.192 In this case the licensee was ordered to give inspection of books for six years back from the date of the writ, although royalty statements and payments had been accepted by the licensor throughout the life of the agreement.

Maintaining the patents – bringing and defending legal proceedings 10.52 Apparently, a licensee may recover royalties paid during any period when patents have not been renewed or allowed to lapse.193 In one case194 (on appeal) the court held that a breach by the licensor of an obligation to take proceedings, at the request of the licensee, in respect of infringements of the licensed patent, did not go to the root of the contract and therefore did not relieve the licensee of obligations under the licence. In another case195 a licence agreement required the licensee to notify the licensor of any infringement of the patent, whereupon the licensor was required within six weeks to take steps to prevent such infringement. The licensee claimed that the licensor had not taken proper steps as required by the licence. It was held that the licensor was required to take such steps as a reasonably energetic patentee would take to protect what he or she thought was a valuable patent, and that the licensor had not taken the necessary steps to prevent the infringement.

No challenge clauses – implied terms under English law as against prohibition under EU competition law 10.53 Contractual provisions which prohibit a licensee from challenging the validity of the licensed intellectual property, eg by instituting revocation proceedings, are condemned under Article 101, EU Treaty.196 Within the UK under the Competition Act 1998, which aims to provide similar provisions to those under the EU Treaty, it is likely the courts will interpret such issues in the same way. But these laws will only apply to agreements which are caught by them. Where Article 101, EU Treaty and Chapter I of the Competition Act 1998 do not apply then the traditional approach of the English courts to this issue may 192 193 194 195

Anglo-American Asphalt Co Ltd v Crowley Russell & Co Ltd [1945] 2 All ER 324. Lines v Usher (1896) 13 RPC 685, (1897) 14 RPC 206. The Huntoon Company v Kolynos (Incorporated) (1930) 47 RPC 403, CA. N v ‘Splendor’ Gloeilampen Fabrieken v Omega Lampworks Ltd (1933) 50 RPC 393. A case involving the licensing of a patent for electric lightbulbs. 196 See para 12.12.

595

10.53  Contract Law

still apply. Where EU or UK statutory competition law does apply, they will override any inconsistent domestic English laws on this topic. The traditional approach of the English courts can be seen in a case197 concerning trade marks and the validity of a ‘no challenge’ clause. The case concerned an agreement between Apple Corps Ltd, publishers of Beatles records, and Apple Computer Inc, the US computer company, each of which owned trade marks which included the word ‘Apple’. The agreement was made under English law and the parties submitted to the exclusive jurisdiction of the English courts, though the agreement concerned trade marks registered in many different countries of the world. Each party agreed, among other things, not to use its ‘Apple’ trade marks in the other party’s field of business, and not to lodge opposition to or apply to cancel any of each other’s trade-mark applications and registrations. Apple Corps Ltd sued Apple Computer Inc, alleging breach of the agreement. Apple Computer Inc claimed, inter alia, that the no challenge clauses were unenforceable under English law and under the laws of certain other countries in which the agreement operated. The court held that the no challenge clauses were enforceable under English law (leaving aside questions of restraint of trade and Article  101, EU  Treaty). Furthermore, the fact that such clauses might be unenforceable under other countries’ laws was irrelevant to the enforcement by an English court of a no challenge clause. The Apple decision is consistent with some older English cases198 where the courts interpreted the wording of no challenge clauses, and where it appears to have been assumed by all concerned that such clauses were enforceable in principle. In one old case199 an injunction was ordered against a licensee who sought to impeach the validity of the licensed patent. This was in breach of an agreement between the licensee and the licensor that the licensee would not ‘impeach or deny the Letters Patent of [the licensor] while in force’. There also appears to be a principle of English law that a licensee will be prevented from denying the validity of the licensed intellectual property by virtue of his or her status as licensee, even though the agreement may contain no express no challenge clause. In one case200 such an argument was raised in a preliminary hearing and, although not accepted in its entirety, appears not to have been dismissed out of hand. In another case201 the judge based part 197 Apple Corps Ltd and Another v Apple Computer Inc and Others [1992] FSR 431. 198 Bristol Repetition Ltd v Fomento (Sterling Area) Ltd [1960] RPC 163; Campbell v G Hopkins & Sons (Clerkenwell) Ltd (1931) 49 RPC 38, overturned on appeal for different reasons and reported at 50 RPC 213. 199 Watts v Everitt Press Manufacturing Company (1910)  RPC  718, CA, upholding the High Court’s decision. 200 Fuel Economy Co Ltd v Murray (1930) 47 RPC 346, CA. 201 Lyle-Meller v A Lewis & Co (Westminster) Ltd (1955) 72 RPC 307, decision upheld on appeal and reported at [1956] RPC 14.

596

Interpretation and construction of licences and other agreements 10.55

of his decision on the basis that a licensee was precluded from contesting the validity of patents under which the licence was granted.202 Whether any such general principles exist today, in the light of Article  101, EU  Treaty, must be uncertain. There is also old authority for the proposition that a plea of invalidity is not a defence to an action to recover royalties, although this case was decided prior to the introduction of Patents Act 1977, s 74(2).203 The question of the enforceability of no challenge clauses in agreements which are subject to Article 101, EU Treaty has been considered in a number of cases before the ECJ  Justice and the European Commission.204 For a discussion of the way in which such clauses are treated in the Technology Transfer Regulation, see Chapter 13.

Anti-competitive provisions – generally 10.54 Under domestic English law, a provision may be unenforceable for being in breach of competition legislation, such as the Competition Act 1998, or common law rules on restraint of trade. These subjects are discussed further in Chapter 15. A  contractual provision will also be unenforceable if it is in breach of Article 101(1), EU Treaty and it does not benefit from an exemption under Article 101(3). This subject is discussed in Chapter 12. The English courts have from time to time considered the effect of an unenforceable provision on the contract as a whole. For example in one case205 the court held that in applying Article  101 to an English contract, consideration has to be given as to whether, after any excisions required by the Article had been made, the contract remaining would fail for lack of consideration or because of a fundamental change in its character. This approach is broadly consistent with pronouncements by the ECJ on this issue.

Confidentiality obligations 10.55 For a general discussion of the law of confidentiality, and its application to the exploitation and transfer of technology, see Chapter 8. The following paragraphs consider case law on the use and disclosure of confidential information provided under licence agreements. 202 See report of the High Court judgment cited above, lines 28–30, p 307. 203 Fuel Economy Co Ltd v Murray [1930] 2 Ch 93, at 106, (1930) 47 RPC 346, at 359, CA; see also Patents Act 1977, s 74(2). 204 See eg Bayer AG and Maschinenfabrik Hennecke GmbH v Sullhofer [1990] FSR 300 (ECJ) which confirms that such a clause may infringe Art 101(1), but does not do so in two very limited situations: (a) when the licence is a free licence; and (b) when the licence relates to a technically outdated process which the licensee does not use. 205 Chemidus Wavin Limited v Societe pour la Transformation etc [1977] FSR 181, CA.

597

10.56  Contract Law

A court held that there is no general proposition of law that, when confidential information was given under an agreement and that agreement came to an end, the right to use the confidential information also came to an end.206 In another case,207 the court held that there was an implied obligation of confidentiality in a manufacturing agreement. It was also held that a document may be confidential if it is the result of work done by its maker, even if the matters on which he worked were matters of public knowledge. In this case the court observed that: ‘[I]f two parties make a contract, under which one of them obtains for the purpose of the contract, or in connection with it, some confidential matter, then, even though the contract is silent on the matter of confidence, the law will imply an obligation to treat such confidential matter in a confidential way. If a defendant is proved to have used confidential information, obtained directly or indirectly from a plaintiff, without the consent, express or implied, of the plaintiff, he will be guilty of an infringement of the plaintiff’s rights’. In a further case,208 at a preliminary hearing the court considered whether a licensee was permitted to use confidential information disclosed to him by the licensor for purposes other than the manufacture of licensed products. The court held, interpreting the agreement and applying general principles, that the licensee could be restrained from deriving any advantage from the information which it had received exclusively for the purposes of the agreement. There are many reported cases in which there are allegations of the misuse of confidential information, including cases involving ex-employees.209 Courts have held that it is possible to restrain an innocent acquirer of confidential information from using it,210 probably only once he or she has knowledge of its confidential status.211

Meaning of ‘business’ in a licence agreement 10.56 In many commercial agreements there is a provision restricting one or all parties assigning, transferring or otherwise dealing with their rights and

206 Regina Glass Fibre Ltd v Werner Schuller [1972] RPC 229, CA. 207 Saltman Engineering Co Ltd and others v Campbell Engineering Co Ltd (1948) 65 RPC 203, CA. 208 Torrington Manufacturing Company v Smith and Sons (England) Ltd [1966] RPC 285. 209 See for example Seager v Copydex Ltd [1969]  RPC  250, CA, [1967]  RPC  349; Coco v AN  Clark (Engineers) Ltd [1969]  RPC  41; Cranleigh Precision Engineering Ltd v Bryant [1966] RPC 81; Printers & Finishers Ltd v Holloway [1965] RPC 239. 210 For a case dealing with the position of information mistakenly sent to the other side’s solicitors in litigation, see English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232. 211 Stevenson Jordan and Harrison Ltd v Macdonald and Evans [1952] RPC 10.

598

Interpretation and construction of licences and other agreements 10.56

obligations under the agreement. Sometimes a party is permitted to assign and transfer all its rights and obligations when it assigns and transfers all or part of its business. In one case the court considered the meaning of a ‘business’.212 The court held that only some of the assets of a party would be enough to be a ‘business’ even though there was no ongoing business operation, there were no products or processes for sale, and no revenues were being generated. The reasoning of the court (both at first instance and on appeal) is particularly interesting and relevant to commercial transactions involving intellectual property, and is set out in some detail: •

The claimant was the owner of certain patents. It granted a licence under them to the third defendant to develop and exploit them (including making products, and manufacturing and selling them). The assignment clause provided: ‘LICENSEE’S  [the third defendant, Beckman Coulter Inc] rights under this Agreement and the licences herein granted shall pass to any person, firm or corporation succeeding to its business in products licensed hereunder as a result of sale, consolidation, re-organisation or otherwise, provided, such person, firm or corporation shall without delay, undertake directly with LICENSOR [the claimant, Oxford Gene Technology Ltd] to comply with the provisions of this Agreement and to become in all respects bound thereby in the place and stead of LICENSEE’.

•

To simplify somewhat the facts of this long-running and complicated case, the third defendant purported to sell the ‘business in products’ including the licence to the first and second defendants, Affymetrix Inc and Affymetrix Ltd.

•

It was the wording of the phrase ‘business in products’ which came under particular scrutiny by the court.

•

The third defendant undertook some development work, which included obtaining some further patents, but had not, it appears, created any products based on the patents licensed by the claimant or the new patents.

•

What was sold by the third defendant to the first and second defendants included the benefit of the licence and some laboratory equipment, notebooks, and computer software.

•

At first instance it was held that the activities undertaken by the third defendant under the licence from the claimant could not be described as a ‘business’:213

212 Oxford Gene Technology v Affymetrix Inc [2001] IP & T 93, CA (overturning the High Court decision, [2000] IP & T 1006). 213 See Oxford Gene Technology v Affymetrix Inc (see note 212), at paras 53, 54.

599

10.56  Contract Law

‘I think that the true meaning of “business” in clause 16.2 is simply that conveyed by the normal meaning of the words. No one would normally describe a few patents and some incomplete research work, even if the latter were modestly ongoing, as a “business”. Still less would they describe the mere transfer of the rights to such, without any associated transfer of any actual activity, as a “business”. Moreover where does the submission stop? Suppose that the [third defendant] had done even less research then they had – a few test tubes and the odd notebook – would that amount to a “business” too? Could they have assigned them after only a few months of research? The incomplete research is no more a “business” than a half-built factory and probably less. … the business begins broadly when the sales start. I do not think, however, that the line is that sharp. If a factory existed, and samples were on trial, that might have been enough to constitute a business in embryonic form. To some extent the question is one of degree. What I  am clear about however, is that whatever was passed, or supposed to be passed, to the [first and second defendant] did not amount to the transfer of a business’. •

The first instance judgment was overturned on appeal. In addition to analysing the contract, a business was held not to start at the point of active commercialisation or where products were ready or nearly ready to be sold. The appeal court relied on the following passage from an earlier case: ‘… anything which occupies the time and attention and labour of man for the purpose of profit is a business. It is a word of extensive use and indefinite signification’ (Smith v Anderson (1880) 15 Ch D 247 at 258, per Jessel MR).

•

The appeal court rejected the submissions put forward by the claimant that the meaning of the phrase ‘business in products’ meant that the third defendant had to have products that were available for sale, and to have moved on from mere research and development. The appeal court interpreted the assignment clause (quoted above) by examining one of the recitals to the licence agreement: ‘[the third defendant] is in the business of designing, developing, manufacturing and selling bioanalytical instrument systems and is interested in acquiring rights in and to the Licensed Patent Rights and related Technical Information’ (the “Second Recital”)’.

•

As held by the appeal court, the phrase ‘business in products’ was used, not to restrict assignment of the licence granted by the claimant to the third defendant to a third party as provided by the Assignment Clause, but ‘to distinguish those assets and activities of [the third defendant] from other assets and activities of [the third defendant]’.214

214 As above, at para 37.

600

Interpretation and construction of licences and other agreements 10.58

•

The appeal court stated that, in interpreting the phrase ‘business in products licensed hereunder’ found in the assignment clause, it was necessary to do so in the context of the whole agreement. The court recited that the claimant’s aim was to have its patents licensed and that the claimant and the third defendant both realised that a substantial amount of research and development would need to be done to commercialise the licensed patents. Having a restriction that limited transfer of the business (including the licence granted by the claimant to the third defendant) of the third defendant to the situation where the third defendant had developed products was not something that would have been in the contemplation of either party. Furthermore, the court held that there was no: ‘… limitation as to the type of business in products that are licensed. The products licensed are those referred to in Clause 5.1 which grants the licence. They are all products covered by a claim asserted in good faith in the Licensed Patent Rights. Thus the licence covers the manufacture, use, sale and offer for sale of products. There is no requirement that such activity has to have reached the stage of commercialisation. That is made by Clause 6. Clause 6 requires an upfront advance and also provides for royalties after commercialisation. Thus the licence covers the period both before commercialisation and thereafter so that the words “products licensed hereunder” in [the assignment clause] include products made other than for commercial use. [The assignment clause] appears to provide for transfer of the licence upon a succession of the business of [the third defendant] even before commercialisation. That conclusion is, I believe supported by the recitals. [The Second Recital] records that the [third defendant] is in the business of “designing, developing and manufacturing and selling …”. Thus the parties accepted that there can be a business in designing and developing’.215

Service of notices 10.57 Failure to give notices in the correct manner as required by the agreement could be fatal for the exercise or enforcement of a right.216 In many cases the statutory provisions concerning notices set out in Law of Property Act 1925, s 196217 will apply, if this issue is not addressed in the agreement.

Law and jurisdiction 10.58 The question of which country’s laws should apply to a contract, and which courts have jurisdiction to hear cases concerning a contract, is a large 215 As note 212, at para 44. 216 See eg UDT (Commercial) Ltd v Eagle Aircraft Ltd [1968] 1 WLR 74. 217 See para 9.13.

601

10.58  Contract Law

and complex one and beyond the scope of this book. There have been some cases in the intellectual property field addressing specific issues, which it may be useful to mention: •

In a dispute concerning a licence agreement, that as a matter of public policy, in a contract by British subjects to be performed in Britain, it was held that it was undesirable that litigation that turned on it should be determined in a foreign country without express provision to that effect in the contract.218 An injunction was granted to restrain the defendant from prosecuting a claim in the US arising out of an agreement with the claimants, an English subsidiary of a US corporation.

•

In a case concerning the application of the Arbitration Act 1950219 to an arbitration clause, in an agreement between a Swiss company and an English company concerning the exploitation of certain inventions owned jointly by the parties, where the relevant clause stated that: ‘all disputes … between the parties to this agreement with respect of any matter … arising out of or relating to this agreement shall be referred to arbitration’, it was held220 that this arbitration clause amounted to an agreement to submit disputes to arbitration in the terms required by section 4(2) of the Act.

•

In a case221 involving a patent licence agreement and where the court interpreted the specific wording of a law and jurisdiction clause, the clauses were as follows: ‘The validity, construction and performance of this Agreement shall be governed by English law’. ‘All disputes, claims or proceedings between the parties relating to the validity, construction or performance of this Agreement shall be subject to the jurisdiction of the laws of England to the jurisdiction of whose courts the parties hereto submit. Each of the parties consents to the award or grant of any relief in any such proceedings before the High Court of Justice in England. Either party shall have the right to take proceedings in any other jurisdiction for the purposes of enforcing a judgment or order obtained from a Court of Justice in  England’.

218 Smith Kline & French Laboratories Ltd and another v Bloch (1981) 125 Sol Jo 81. See also the following cases cited in Melville, Forms and Agreements on Intellectual Property and International Licensing (3rd edn, Sweet & Maxwell), paras 9.15, 9.16: James Miller & Partners v Whitworth Street Estates [1970] All ER 768; Re United Railways of Havana [1960] 2 All ER 332; The Assunzione [1954] 1 All ER 278; Compagnie Tunisienne de Navigation SA [1970] 3 All ER 71. 219 Now the Arbitration Act 1996. 220 Unipat AG v Dowty Hydraulic Units Limited [1967] RPC 401. 221 Celltech R  & D  Ltd v Medimmune Inc [2004]  EWCA  Civ 1331. Applied in Chugai Pharmaceutical Co Ltd v UCB Pharma SA and others [2017] EWHC 1216 (Pat), [2017] All ER (D) 56 (Jun).

602

Interpretation and construction of licences and other agreements 10.58

It also contained a definition of ‘valid claim’ which touched the issues of jurisdiction and the payment of royalties, which ‘shall mean a claim of an issued, unexpired patent included within the Adair patent Rights which has not been held invalid or unenforceable in an unappealed or unappealable decision of a court or competent body having jurisdiction thereof’. This case is of particular relevance in delineating what matters will come within the ambit of a law and jurisdiction clause of a patent licence (including the scope of claims222 and other commercial provisions) but will not extend to questions of validity. It also indicated that, even though the validity of a patent may be under challenge in another country, an English court has jurisdiction over other matters and the court may still consider those other matters while the proceedings on validity are continuing. In this case there were proceedings by the licensee in the US courts arguing that the licensor’s US patent was invalid and that the licensee’s product did not infringe the patent. The licensee asked the English courts to stay any proceedings until the outcome of the proceedings in the US. The licensee was in effect arguing that their product was outside the claims of the licensed US patent and therefore the licensee did not have to pay royalties. The court held that the English courts were able to hear a dispute which involved a US patent and where products were sold in the US under the US patent. The court focused on the meaning of the word ‘performance’ in the jurisdiction clause (quoted above), holding: ‘Firstly as a matter of plain language “performance” must include the basic obligation to pay royalties due under the agreement. [The Licensor] say [the Licensee] are not performing their obligation, [the Licensee] deny that. There is a dispute about the performance of the Agreement and that is to be governed by English law and subject to the jurisdiction of the English courts.’ The court also held that: –

applying English law (as the law and jurisdiction clause does) can also involve applying the appropriate foreign law as to the scope of claims of the licensed patents which are governed by foreign laws;

222 Means ‘precise legal statements in the form of single sentences that define your invention by setting out its distinctive technical features’ (from Intellectual Property Office website: www. gov.uk/guidance/patents-step-by-step). The claims are part of the statements which define a patent or patent application. The document for a patent or patent application includes a specification (which sets out the technical problem which an invention seeks to address as well as other matters) and the claims which ‘define the precise scope of the monopoly conferred by the patent. The claims of a granted patent are all-important in patent law; as it is they which define the boundaries of the monopoly that the applicant is claiming’ (from Cook, A User’s Guide to Patents (4th edn, Bloomsbury Professional), 2:05).

603

10.59  Contract Law

–

the word ‘performance’ should not have a restricted meaning as argued by the Licensee; otherwise, an English court would not be able to determine any dispute – particularly for an agreement which is intended to have a global effect;

–

it made sense for the parties to select one jurisdiction ‘with a specialist, experienced court to decide matters’; and

– the argument of the licensee about the possibility of parallel litigation about validity in the country in which a patent is registered and its scope in the English courts was not accepted as a serious issue because ‘[t]he parties clearly contemplated that there might be litigation in the country of the patent concerned about its validity – either instigated by [the Licensee] or by a third party. In providing that royalties are payable unless and until such litigation results in a determination against validity, they clearly had this in mind. If they had wanted to provide that any dispute about scope should also be in the country concerned they would have done so by excluding such a dispute from “performance”’.

Infringement, validity and jurisdiction223 10.59 If the parties have agreed to exclusive jurisdiction of any dispute they may have, the courts of the country to which they have agreed to submit the dispute will normally deal with their dispute. Will an UK court have jurisdiction over a foreign patent (or other intellectual property) where the issues of infringement or validity (or both) are the subject matter of proceedings? The position concerning infringement is that, at least since 1982 with the passing of the Civil Jurisdiction and Judgments Act 1982 and what is now the Brussels Regulation224 (as well as developments in case law), an English court will have jurisdiction.225 But, where the issue concerns validity, an English court will not, normally, have jurisdiction.

Infringement 10.60 A recent case, decided by the Supreme Court, which concerned the infringement of foreign intellectual property clearly indicated that ‘there is

223 As noted above, questions concerning law and jurisdiction are complex, and these paragraphs are no more than an outline of the issues involved, in a simplified form. 224 Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). 225 The 1982 Act does not deal with infringement of foreign intellectual property, but it and case law have restricted 19th century case law which was held to limit such actions (British South Africa Co v Companhia de Moçambique [1893] AC 602).

604

Interpretation and construction of licences and other agreements 10.61

no impediment to actions for infringement of foreign intellectual property rights’ and: ‘… in the case of a claim for infringement of copyright of the present kind, the claim is one over which the English court has jurisdiction, provided that there is a basis for in personam jurisdiction over the defendant, or, to put it differently, the claim is justiciable.’226 Although the case involved copyright, later cases held UK courts could deal with cases involving foreign patents and infringement.227 The Brussels Regulation contains provisions (see further below) which confers exclusive jurisdiction on registrable intellectual property concerning validity but ‘does not apply to infringement actions in which there is no issue as to validity’.228

Validity 10.61 The position is different where the proceedings concern the validity of a patent. The normal position is that issues concerning the validity of a patent are to be dealt by the courts of the country in which the patent is registered. For parties to which the Brussels Regulation applies,229 the courts of a member state have exclusive jurisdiction, regardless of the domicile of the parties, where there are proceedings which concern: ‘… the registration or validity of patents, trade marks, designs, or other similar rights required to be deposited or registered, irrespective of whether the issue is raised by way of an action or as a defence, the courts of the Member State in which the deposit or registration has been applied for, has taken place or is under the terms of an instrument of the Union or an international convention deemed to have taken place.’230 For foreign patents which are not subject to the Brussels Regulation, the same principle normally applies so that ‘… the issue of validity can only be tried by the courts of the country of that patent’, as held by one recent case.231 226 Lucasfilm Ltd and others v Ainsworth and another [2011] UKSC 39. ‘In personam’ means ‘an act, proceeding or right done or directed against or with reference to a specific person’ (from Osborn’s Concise Law Dictionary (7th edn, Sweet & Maxwell, 1983)). 227 Actavis Group HF  v Eli Lilly and Company; Medis EHF  v Eli Lilly and Company [2012] EWHC 3316 (Pat). 228 Lucasfilm Ltd and others v Ainsworth and another [2011] UKSC 39. 229 Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). 230 Regulation (EU) 1215/2012, art 24(2). 231 Chugai Pharmaceutical Co Ltd v UCB Pharma SA and other companies [2018] EWHC 2264 (Pat), Chugai Pharmaceutical Co Ltd v UCB Pharma SA and others [2017] EWHC 1216 (Pat).

605

10.61  Contract Law

However, not all issues relating to validity will be subject to the exclusive jurisdiction of the court of the country where the patent is registered and: ‘… considerations about validity, to the extent they are relevant under the applicable law, may be taken into account in this court in resolving the question of claim scope and the fact those considerations arise does not undermine the jurisdiction of this court to decide the issue in this case.’232 It may not be easy to establish whether a case concerns infringement, validity or the interpretation of the commercial provisions, or a mixture (such as an application for a declaration of non-infringement being, in reality, an attack on the validity of a patent). The issues of infringement and validity and whether an UK court will have jurisdiction occurred in a recent case concerning the following key facts: •

the defendants granted a worldwide, non-exclusive licence of a number of patents to the claimant relating to products containing a humanised anti-IL-6 receptor known as tocilizumab – an immunosuppressive drug principally used in the treatment of rheumatoid arthritis;

•

at 12 January 2016 only one patent was still in force (a USA patent) but expiring in 2026;

•

the claimant argued that the products it manufactured fell outside the claims of the USA patent;

•

the claimant sought a declaration that it owed no royalties after 12 January 2016;

•

the defendant argued that, although the claimant’s case was framed as a claim for a declaration relating to a contract, in reality the claimant’s case concerned not only the scope but also the validity of the USA patent – and accordingly a UK court did not have the power to determine the validity of a foreign patent. It also argued that the issues of infringement and validity were inseparable;

•

the licence agreement included provisions that the parties would submit to the exclusive jurisdiction of the English courts, and that the royalties would only be payable by the claimant to the defendant ‘in countries where, but for the licence granted by [the defendant] to [the claimant] pursuant to Article 2, [the claimant] or a Permitted Sublicensee would infringe a Valid Claim of the relevant Patent’, with ‘Valid Claim’ being defined as ‘a claim of an issued, unexpired Patent which has not been held invalid or unenforceable in an appealed or unappealable decision of a court of competent authority having jurisdiction over such Patent’.

232 Chugai Pharmaceutical Co Ltd v UCB Pharma SA and other companies [2018] EWHC 2264 (Pat), Chugai Pharmaceutical Co Ltd v UCB  Pharma SA and others [2017]  EWHC  1216 (Pat).

606

Interpretation and construction of licences and other agreements 10.61

The following are relevant points from the judgment of the court: •

the issue of infringement and validity were not inseparable, and a ‘court should carefully examine the substance of the dispute in the context of challenges to jurisdiction under articles  24 and 27 of the Brussels I  Regulation. However, not every infringement dispute is concerned with, or principally concerned with, a challenge to validity of the patent in suit’ – for example, where a party states it would not challenge validity and would only pursue a case for non-infringement (as the court held was the claimant’s case);

•

in construing the claims of the patent it is open to the court to consider ‘what would be the hypothetical consequences for validity of the rival interpretations’;

•

in interpreting the provisions of the licence agreement: –

the parties had agreed to the exclusive jurisdiction of the English courts unless there were provisions in the patent licence to the contrary (such as in the definition of ‘Valid Claim’ set out above);

– an exclusive jurisdiction clause such as in the patent licence ‘means that they have submitted to the jurisdiction of the English courts all disputes under or in connection with the Licence, unless the Licence terms indicate to the contrary. This is consistent with the general principle that jurisdiction clauses are to be interpreted “widely and generously”, as commercial parties who agree to an exclusive forum clause are likely to have intended their disputes to be resolved in a single forum’233 (emphasis in judgment). The definition of a ‘Valid Claim’ was such an exception, and therefore only a US court could determine whether the USA patent was invalid and ‘[a]ccordingly, for the purposes of the Licence, only the US courts can determine that the [USA] Patent is invalid, and a claim of the patent will not be treated as invalid until the appeal process has been completed’; –

in following an earlier case,234 the effect of an exclusive jurisdiction clause was to confer jurisdiction on the English courts in disputes concerning the scope of claims, whether or not such claims were valid (with the question of validity being a matter for the US courts);

–

in following that earlier case, it was noted there was a commercial importance in exclusive jurisdiction clauses and for requiring parties to stick to their agreements. The judge summarised from the earlier case the reasoning for this statement:

233 Following Fiona Trust v Privalov [2008] 1 Lloyds Rep 254 (HL), [13]; UBS  v Nordbank [2009] 2 Lloyds Rep 272 (CA), [82]. 234 Celltech R & D Ltd v Medimmune Inc [2004] EWCA Civ 1331.

607

10.62  Contract Law

‘i) Parties are taken to consider what, in all the circumstances, are the judicial arrangements which meet their commercial needs and, if the parties have done so, the court needs strong grounds before it will impose its will over and against the express intention of the parties. ii)  That has particular importance in patent licence cases. Patent licences commonly provide that patents may only be declared invalid in the countries in which they are registered, but infringement is to be determined by the court of a single state. iii) Most patentees and licensees recognise that issues of construction arise both in relation to infringement and validity, hence “squeeze” arguments are common. However, attacks on validity have to be conducted in the country where the patent is registered. It is only the courts of the country of registration which have jurisdiction to revoke. Therefore, the very nature of a patent licence agreement covering a number of countries involves the potentiality for proceedings to be generated in more than one jurisdiction. iv) Therefore, one option for the parties is to agree that validity has to be dealt with on a country by country basis, thereby acknowledging the reality that only national courts can revoke, but that all issues of infringement should be determined by one court. v) From a commercial point of view, the latter course makes good sense. To have all issues of infringement determined by one court gives rise to a greater chance of consistency. It will in many cases reduce the amount of litigation involved and it will mean that only one court, and perhaps in some cases only one judge, need be educated so as to understand the patented technology involved.’235

OWNERSHIP RIGHTS Rights of co-owners 10.62 Section 36(1) of the Patents Act 1977 provides that: ‘[W]here a patent is granted to two or more persons, each of them shall, subject to any agreement to the contrary, be entitled to an equal undivided share in the patent’. In a case236 heard in the UK Intellectual Property Office (and not, therefore, binding on the High Court), and pre-dating the passing of the Patents Act 235 This summary by the judge in Chugai Pharmaceutical Co Ltd v UCB Pharma SA and others [2017] EWHC 1216 (Pat) was based on the judgment at first instance of Celltech R & D Ltd v Medimmune Inc [2004] EWHC 1522 (Pat), which was upheld on appeal. 236 Florey & Others’ Patent [1962] RPC 186.

608

Ownership rights 10.63

1977, it was held that the equal undivided shares held by joint owners of a patent prima facie implied a right to share equally in any money received for the patent. Under UK patent law a co-owner of a patent may manufacture and sell products made in accordance with the claims of the patent without the consent of the other co-owner(s), but the co-owner may not grant any licence under the patent without the consent of the other co-owner(s).237 In one case the question arose as to whether in fact any such consent had been given or could be implied.238 See further paragraphs 4.05 (in relation to the rights of co-owners under intellectual property legislation) and 9.28 (for a discussion of the rights of co-owners under traditional property laws, and the application of these laws to co-ownership of intellectual property).

Rights of employees 10.63 The rights of an employee in inventions made by him or her are nowadays governed by Patents Act 1977, ss 39–43.239 As is discussed in more detail in Chapter 4, it is not possible to contract out of section 39 in respect of inventions made by an employee after the date of the contract, so as to diminish the employee’s rights.240 However, it is possible for an employer and employee to agree to ‘diminish the employee’s rights’ in respect of inventions made prior to the date of the contract. Moreover the statutory provisions do not apply to inventions made before commencement of that Act in 1978, and in such cases ownership will be governed by the contract of employment. In the case of copyright and designs generated by an employee, there is no statutory restriction on the parties agreeing a different position on ownership of such intellectual property to that contained in the statutory provisions. Thus there are a number of situations in which it is lawful for an employer to agree with his or her employee that the employer will own intellectual property generated by the employee. In such cases, the only restriction on the terms of such an agreement is that it must not be an unreasonable restraint of trade. The following case gives some indication of the circumstances in which there would be an unreasonable restraint of trade.

237 Patents Act 1977, s 36(2), (3). 238 Whitehead & Poole Ltd v Sir James Farmer & Sons Ltd (1918) 35 RPC 241; the decision was based on the provisions of Patents and Designs Act 1907, s 37. 239 For a discussion of those rights, please refer to Ch 4. 240 See Patents Act 1977, ss 40–42.

609

10.64  Contract Law

In the case, arising under the law prior to the Patents Act 1977,241 it was held that a clause in a contract of employment, giving the benefit of inventions made by the employee to his employer, was too wide to be enforceable since it was concerned with the discovery of any process, invention or improvement relating to articles not only manufactured by the employer but by any of its associated companies in the UK or elsewhere. It was doubtful whether such a provision was appropriate or reasonable even for a research worker employed by the plaintiffs. In this case the employee was a senior storekeeper, who was not employed to invent.

General 10.64 An agreement to sell a patent or an interest in a patent need not be in writing242 and may be enforced by an order for specific performance,243 or in the case of an agreement for sale made before grant of the patent, by applying to the comptroller for a direction that the application proceed in the name of the purchaser.244

SELECTED CONTRACT LAW STATUTES AFFECTING INTELLECTUAL PROPERTY TRANSACTIONS Introduction245 10.65 The following paragraphs consider statutes and regulations in the contract law field which either establish special rules for intellectual property transactions, or have features of particular relevance to such transactions. However, this section does not have the intention to comprehensively review contract law statutes which may affect intellectual property transactions. In many areas of contract law, no special issues are raised by intellectual 241 Electrolux Ltd v Hudson and others [1977]  FSR  313. This case is also authority for the propositions that an agreement calling for assignment of inventions made outside the field of the employer’s operations will ordinarily be unreasonable, as may such an agreement relating to inventions within the employer’s field if it extends to inventions made in the employee’s own time and with his or her own materials. 242 Smith v Neale (1857) 26 LJCP 143. 243 Bewley v Hancock (1856) 6 De GM & G  391; Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462; Liardet v Hammond Electric Light and Power Co (1883) 31 WR 710; as to enforcement of equitable rights in foreign patents, see Worthington Pumping Engine Co v Moore (1902) 20 RPC 41; Rickmond & Co Ltd v Wrightson (1904) 22 RPC 25. 244 Patents Act 1977, s 8. 245 The purpose of this section is to highlight areas of particular relevance to intellectual property transactions. For a fuller discussion, particularly in the important area of the use and acceptability of exclusion and limitation of liability clauses and the Unfair Contracts Terms Act 1977, see Anderson and Warner, Drafting and Negotiating Commercial Contracts (4th edn, Bloomsbury Professional, 2017). Since the last edition, the Consumer Rights Act 2015 has come into force. All references in the legislation mentioned in this section no longer apply to consumers. For an outline of the 2015 Act, please see chapter 7 of the Drafting and Negotiating book.

610

Selected contract law statutes affecting intellectual property transactions 10.67

property transactions and the law which applies to ‘ordinary’ commercial agreements will also apply to intellectual property transactions. The following Acts and Regulations are considered in this section: •

Unfair Contract Terms Act 1977;

•

Sale of Goods Act 1979 (as amended in particular by the Sale and Supply of Goods Act 1994);

•

Supply of Goods and Services Act 1982;

•

Contracts (Rights of Third Parties) Act 1999;

•

Late Payment of Commercial Debts (Interest) Act 1998; and

•

Provision of Services Regulations 2009.

Unfair Contract Terms Act 1977 10.66 The Unfair Contract Terms Act 1977 (UCTA) is described in its preamble as: ‘An Act to impose further246 limits on the extent to which under the law of England and Wales and Northern Ireland civil liability for breach of contract, or for negligence or other breach of duty, can be avoided by means of contract terms and otherwise, and under the law of Scotland civil liability can be avoided by means of contract terms’.

Summary of main provisions 10.67 In summary, the Act imposes limits on the extent to which one can exclude or limit liability, including certain limits in the following situations: • Negligence: under section 2 of UCTA it is not permitted to exclude or restrict liability, by a contract term or notice, for death or personal injury caused by one’s negligence. In the case of other loss or damage caused by negligence, any exclusion or restriction of liability will not be effective unless it ‘satisfies the requirement of reasonableness’.247 246 The impact of the common law (see Boomsma v Clark and Rose Ltd 1983 SLT (Sh Ct) 67) and other legislation upon exclusion clauses should not be overlooked, including the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 and the Consumer Protection Act 1987. 247 As to which, see Unfair Contract Terms Act 1977, s  11 and Sch  2. In many commercial agreements there is often standard wording which specifically addresses this point, such as ‘Nothing in this Agreement excludes any person’s liability to the extent that it may not be so excluded under applicable law, including any such liability for death or personal injury caused by that person’s negligence, or liability for fraud’. It is arguable that such wording is not necessary as it reflects no more than the default position as imposed by UCTA. But such wording is added as part of a range of provisions intended to limit or exclude liability, so that if there is any court action and a judge has to decide on the reasonableness of any exclusion or limitation of liability clauses then he or she will not find them unreasonable because they could potentially exclude or limit liability for death or personal injury.

611

10.68  Contract Law

•

Standard terms of business/consumer transactions: under section 3 of UCTA, where a contract is made on a party’s written standard terms of business,248 that party may not, among other things, exclude or restrict liability for breach of contract, unless the contract term satisfies the requirement of reasonableness.249

•

Terms implied by the Sale of Goods Act/Supply of Goods and Services Act: under sections 6 and 7 of UCTA it is not possible to exclude liability for breach of the implied terms as to title or (in the case of consumer sales) the other terms implied by these statutes.250 Exclusion of the other implied terms must be reasonable in order to be effective.

Non-application of UCTA to international supply contracts involving goods 10.68 Certain contracts for the international supply of goods are excluded from some of the provisions of UCTA (principally those provisions controlling exclusion and limitations of liability).251 Where a technology-based agreement does involve the sale or transfer of ownership or possession of goods252 then the provisions will not apply. Intellectual property transactions commonly involve parties which are based in different countries, but not all of them will be ‘international supply contracts’ for the purpose of UCTA.

248 Ie not in a business context – see definition in Unfair Contract Terms Act 1977, s 12. 249 This has been an area which has been subject to considerable judicial scrutiny and also the views of the judiciary have changed over time. Until fairly recently they took a more interventionist approach as to whether particular clauses which excluded or restricted liability were reasonable and whether they should apply. The position now appears to be, particularly in regard to commercial contracts, that there is a more ‘hands-off’ approach, perhaps best summarised in this passage from Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317: ‘Where experienced businessmen representing substantial companies of equal power negotiated an agreement, they may be taken to have had regard to the matters known to them. They should, in my view, be taken to be the best judges of the commercial fairness of the agreement which they have made; including the fairness of each of the terms of the agreement’. 250 Such as Sale of Goods Act 1979, s 13 (implied term as to description), s 14 (implied terms about quality and fitness for a particular purpose) and s 15 (sale by sample). 251 See Unfair Contract Terms Act 1977, s 26. The wording used in this section has come in for judicial criticism recently, both for the wording used and the purpose of the clause (see Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385; and Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [2009] 2 All ER (Comm) 1050, [2009] 3 WLR 861). 252 For example, where an owner of a patent is licensing its use for manufacture together with a supply of materials, chemicals or machinery, or where a company testing the safety of medicines needs to licence software to assist in the testing, but the software comes, perhaps, with some equipment such as a specially adapted computer or with a USB key containing a password to run the computer. The issue of whether (particular forms of) intellectual property are goods is considered below.

612

Selected contract law statutes affecting intellectual property transactions 10.68

A contract for the international supply of goods is one where: •

there is a contract of sale of goods or it is a contract where the possession or ownership of goods passes; and

•

the parties are based in different countries.253

In order for these conditions to be fulfilled: •

the goods involved must travel from one state to another; or

•

the acts of making the offer and acceptance to create the contract are each done in different states;254 or

•

there is delivery of the goods which are the subject matter of the contract to a third state.255

Where the conditions are met then the limits imposed by UCTA on the extent to which a person may exclude or restrict liability by reference to a contract term do not apply to liability arising under an international supply contract.256 The terms of such a contract are also not subject to any requirement of reasonableness under section 3 or 4 of UCTA.257 For example, a contract between two English companies for the supply of goods to the manufacturing facility in France of one of the parties would not be an international supply contract for the purpose of UCTA, because the parties are not based in different countries. But if one of the parties was a French company and the other was an English company, and the order for the supply of goods was made in France and was accepted in England, the contract would be an international supply contract and it would not matter whether the goods moved from one country to another. However, a contract between an English company and a French company signed in France but with the goods always present in England and their delivery also in England would not be an international supply contract.258 But if the contract had been made in England and the goods were delivered to France then the contract would be an international supply contract. 253 Unfair Contract Terms Act 1977, s 26(3). 254 It is enough if one of the acts of making an offer or acceptance was done in a different state to make a contract an international sales contract: Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm). It was not necessary for all of the acts which make up an offer and acceptance to be done in different states. 255 Unfair Contract Terms Act 1977, s  26(4). For delivery to take place, it is necessary that there is an international movement of goods: Amiri Flight Authority v BAE  Systems plc [2003] EWCA Civ 1447. 256 However, it is still not possible to exclude or restrict liability, by a contract term or notice, for death or personal injury caused by one’s negligence. 257 The wording for Unfair Contract Terms Act 1977 is set out in the companion website to this book. 258 Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385, affirmed in Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [2009] 2 All ER (Comm) 1050, [2009] 3 WLR 861.

613

10.69  Contract Law

These highly narrow distinctions may appear to be hard to explain logically. But they could easily affect some commercial intellectual property transactions where goods are being sold or provided, as any limitations or exclusions of liability would not be subject to evaluation as to their ‘reasonableness’ in the event of a dispute.259 It also seems that if any provision concerned the sale of goods then the whole contract would be an international supply contract, although the contract also dealt with other matters such as the supply of services. In such cases its exemption clauses etc would not face scrutiny by a court for their reasonableness. For example, if the primary purpose of a contract is the licensing of a patent, but also includes a provision for the supply of a small sample of chemical as well and the licensing agreement refers to the provision of these chemicals, then the licensor would be able to include very unreasonable terms regarding the licensing of the patents which the licensor might have more difficulty justifying were the agreement only to be concerned with the licensing of a patent. UCTA does not apply to certain contracts which are agreed to be made under the law of a part of the UK260 if, in the absence of such agreement, the contract would not be subject to the law of any part of the UK.261 On the other hand it is not possible to evade the operation of UCTA by agreeing to apply another country’s laws.262

Application of UCTA to contracts involving intellectual property 10.69 In general, the limits imposed by UCTA apply equally to contracts concerning or involving intellectual property as they do to other types of contract, but with one significant exception. Schedule  1, paragraph  1(c) to UCTA provides263 that sections 2 and 3 of the Act (summarised above) do not extend to: ‘… any contract so far as it relates to the creation or transfer of a right or interest in any patent, trade mark, copyright, design right, registered design, technical or commercial information or other intellectual property, or relates to the termination of any such right or interest …’ 259 The wording chosen in Unfair Contract Terms Act 1977, s 26 is to exclude all (international supply) contracts from the controls imposed by the UCTA in relation to exemption clauses (and the requirement for reasonableness) and can include leases (Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [2009] 2 All ER (Comm) 1050, [2009] 3  WLR  861). The Court of Appeal was in effect saying that it is not necessary to take a restrictive approach as to the type of contract. 260 Ie under the law of (a) England and Wales, (b) Northern Ireland, or (c) Scotland. 261 Unfair Contract Terms Act 1977, s 27(1). 262 Unfair Contract Terms Act 1977, s 27(2). 263 See also Unfair Contract Terms Act 1977, s 1(2), which gives statutory effect to Sch 1; and s 1(3) which indicates that ss 2–4 apply only to business liability.

614

Selected contract law statutes affecting intellectual property transactions 10.69

The extent of this exception is not entirely clear. In a case concerning the development and supply of computer software a court held that these words only apply to the provisions of a contract concerning the creation of a right or interest in intellectual property (ie not those provisions relating to other matters).264 In this case, part of the contract related to the supply of services. Even before the case was decided, many lawyers were cautious about relying on the words quoted above when drafting intellectual property agreements. The reasons for such caution may include the following: •

The above exception only applies ‘in so far as [the contract] relates to’ the creation or transfer of a right or interest in intellectual property. As the above-mentioned case confirmed, an agreement could relate to several matters. For example, an agreement might provide for the carrying out of research work and the provision of reports of the research work as well as the assignment, to the person commissioning the work, of any intellectual property generated in the course of performing the contract. It seems that the carrying out of the research work or the provision of a report would not come within the wording of the exception, but the assignment of intellectual property would. But the position may be less clear in relation to other clauses of an agreement. Would a warranty of title, contained in an agreement to assign a patent, be held to ‘relate to’ the transfer of the patent? Would a clause in a licence, providing that one party will defend any proceedings brought by a third party alleging breach of intellectual property rights, be held to relate to the transfer of an interest in the patent? In the light of the above-mentioned case, it seems likely that the wording of Schedule 1 to UCTA applies only to liabilities associated with the grant clause and termination clause265 of an assignment or licence, and not to other provisions of the assignment or licence agreement. It is also interesting to note decisions which relate to other parts of Schedule  1, paragraph  1, which are similarly worded to the part concerning intellectual property, in particular those relating to a decision266 concerning Schedule 1 to UCTA and real property leases.267 In a case involving the non-payment of rent268 it was held that a covenant

264 The Salvage Association v CAP Financial Services Limited [1995] FSR 654. 265 That is because of the last 11 words of para 1(c) quoted above. 266 Electricity Supply Nominees Limited v IAF Group Limited [1993] 1 WLR 1059. See also the cases referred to in this case. 267 The wording for real property is as follows: ‘… any contract so far as it relates to the creation or transfer of an interest in land, or the termination of such an interest, whether by extinction, merger, surrender, forfeiture or the like’. Assignments of intellectual property have been considered analogous to real property transactions by the courts (see para 9.03). 268 Electricity Supply Nominees Limited v IAF Group Limited [1993] 1 WLR 1059. This approach was also followed in Start Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53 and Unchained Growth III plc v Granby Village (Manchester) Management Co Ltd (unreported, 8 October 1999, CA).

615

10.70  Contract Law

requiring the payment of rent without set-off was within the exception of Schedule 1 as the covenant was an integral part of the creation of the lease. On the basis of the cases dealing with real property, provisions in an assignment of intellectual property such as the payment of money and other commercial issues (such as further assurances clauses etc) would all come within the exception to Schedule 1. •

The exception only applies to the creation or transfer of a right or interest in intellectual property. As was discussed earlier,269 a licence is generally regarded as a right under the licensed intellectual property, rather than a right in the intellectual property.270 Accordingly, a court might hold that Schedule 1 could apply to assignments but not to licences of intellectual property. However, such a narrow interpretation would seem to be inconsistent with the broad definition of intellectual property given later in the exception. The reference to ‘technical or commercial information’271 as a type of intellectual property may suggest a broad, commercial approach to the drafting of Schedule 1, paragraph 1(c) to UCTA; if so that provision might be intended to encompass licences as well as assignments. Ultimately, it would be for a court to decide this issue.

In view of these uncertainties it may be unwise in practice to rely on Schedule 1, paragraph 1(c) to UCTA when drafting exclusion clauses for use in an intellectual property agreement.

When does UCTA apply? 10.70 A general commercial point (rather than one specific to commercial intellectual property transactions) is that UCTA only applies where the parties attempt to exclude or limit liability. If the parties seek to define what one or more of the parties is providing (and the conditions on which they will provide it) then they are not attempting to restrict or exclude liability, and accordingly UCTA does not apply to such provisions: ‘Thus terms which simply define the basis upon which services will be rendered and confirm the basis upon which parties are transacting business are not subject to s  2 of UCTA. Otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness.’272 269 See para 10.6 above. 270 See Insituform Technical Services Ltd v Inliner UK plc [1992]  RPC  83; Crittall Windows Limited v Stormseal (UPVC) Window Systems Limited and another [1991] RPC 265. 271 Arguably information, as such, is not property – see Aplin, Bently and Malynicz, Gurry on Breach of Confidence: The Protection of Confidential Information (2nd edn, Oxford University Press, 2010). 272 JP Morgan Chase Bank v Springwell Navigation Corpn [2008] EWHC 1186 (Comm).

616

Selected contract law statutes affecting intellectual property transactions 10.71

In other words, it is necessary to identify those provisions which define the terms and conditions on which one party is to provide its goods and/or services and those whose role is to exclude or limit liability. UCTA does not apply to the former as they ‘prevent an obligation from arising in the first place’.273

Sale of Goods Act 1979 Supply of living materials and other materials, software and records 10.71 There are many situations in which the transfer of technology involves the supply of physical materials. For example: •

In the biotechnology field, it is common to provide samples of biological materials under a research collaboration or licence agreement. Sometimes those materials are living materials such as a cell line, which may be grown and used by the recipient to produce antibodies for research or commercial purposes.

•

In the information technology field as part of a software licence agreement, the licensor may provide the licensee with physical items or specialised equipment on which there is software embedded or with software which is provided only online.

•

In many industries, it is common to provide know-how under a licence agreement in the form of paper records or some form of storage device such as a key (although this is less likely as such information might now be provided electronically, perhaps via a password-protected internet site).

•

In the pharmaceutical research field, a research, development and licensing agreement might not only provide for the licensing of intellectual property but also for the licensor to supply some raw materials or chemicals to enable the licensee to carry out the research or to make products.

In such cases, the transaction could involve a sale of goods,274 to which the Sale of Goods Act 1979 (SGA) applies.275 A court in one case, concerning

273 JP  Morgan Chase Bank v Springwell Navigation Corpn [2008]  EWHC  1186 (Comm), following Tudor Grange Holdings v Citibank [1992] Ch 53. 274 Sale of Goods Act 1979, s 61(1) defines goods as including ‘all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular “goods” includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [and includes an undivided share in goods]’. The meaning of ‘personal chattels’ is considered further below. 275 In the case of international sales of goods, the provisions of the Uniform Laws on International Sales Act 1967 should be considered.

617

10.72  Contract Law

the supply of a computer system,276 considered that the supply of software ‘probably’ was a supply of goods, although these remarks were not part of the binding decision of the court. Whether software can amount to goods has also received consideration other than where there is a sale. In one case,277 concerning an agency governed by the Commercial Agents (Council Directive) Regulations 1993,278 the court was able to depart from the meaning given in section 61 of the SGA. For the purposes of these Regulations only, the judge found that software could come within the meaning of ‘goods’.279 A contract for the sale of goods is defined in the SGA280 as ‘a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price’. If the SGA applies, the transaction becomes subject to an extensive set of rules, including a number of implied conditions and warranties. For some of the implied terms it is not possible to exclude or limit liability. A provider of materials under a licence agreement who wishes to avoid the operation of the SGA will state specifically that property in such materials remains with the provider, even when the materials are in the possession of the recipient. Where there is no transfer of the property in the materials, the transaction does not come within the definition of a sale of goods quoted above.

The terms implied into a sale of goods 10.72 The SGA governs a technology-related transaction which involves a sale of goods. The SGA deals with many different aspects of such sales. This 276 St Albans District Council v International Computers Limited [1995] FSR 686. Chitty (see note 1), at para 43-006, cites this case and a number of other cases, including Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996  SLT  604, Tob Constructions Products Pty Ltd v Computa Bar (Sales) Pty Ltd [1983] 2 NSWLR 48, and Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317 in support of the proposition that a sale of both hardware and software is a sale of goods. 277 The Software Incubator Ltd v Computer Associates UK Ltd [2016] EWHC 1587 (QB). 278 Commercial Agents (Council Directive) Regulations 1993, reg  2(1). The Regulations only apply to agents who have authority to negotiate and enter into contracts on behalf of a principal in relation to goods. 279 The comments of the judge are interesting regarding the nature of software, although they are not strictly relevant to whether software constitutes goods for the purposes of the SGA. The judge noted that the meaning of a good meant something tangible for the purposes of the SGA, but software is intangible, and cannot be physically transported or handled in the same way as goods. He further noted that (i) it has effects similar to gas and electricity; (ii) sophisticated non-bespoke software should be regarded as a product rather than a service; (iii) it is commodified (being capable of transfer and commercial exploitation); (iv) it can only operate in a tangible medium (loaded onto and from hardware); (v) for the agreement under consideration by the court, the software was treated like tangible goods; and (vi) it is possible to deliver the software on tangible media or electronically and that the mode of delivery is not determinative of its status, in the same way that the status of tangible goods is not determined by the way they are delivered. 280 Sale of Goods Act 1979, s 2(1).

618

Selected contract law statutes affecting intellectual property transactions 10.72

chapter does not review that law, except to summarise very briefly one area that the SGA covers, the terms implied into a sale of goods.281 These are: (1) Implied terms about title etc:282 * an implied condition that the seller has the right to sell the goods; * an implied warranty that the goods are free from any charge or encumbrance not disclosed or known to the buyer before the contract is made; and * an implied warranty that the buyer will enjoy quiet possession of the goods,283 except for disturbance by a person holding a charge or encumbrance over the goods which was disclosed or known to the buyer before the contract was made. However, the above terms are not implied 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/she or a third person may have. Instead, there is * an implied warranty that all charges or encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the contract is made; and * an implied warranty that the seller or other person transferring title to the buyer, and anyone claiming through or under such person (other than a holder of a charge or encumbrance known to the buyer before the contract is made), will not disturb the buyer’s quiet possession. Cases have held that the implied term of quiet possession is breached if the product is subject to third-party patent rights284 or trade-mark rights285 (see further para 10.29 above). (2) Implied terms about quality:286 where the goods are sold in the course of a business, an implied term that the goods are of satisfactory quality. Goods are of satisfactory quality for the purposes of the SGA if ‘they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances’.287 The meaning of what constitutes ‘quality of goods’ is further defined288 as follows: 281 See Sale of Goods Act 1979, ss 12–15. 282 Sale of Goods Act 1979, s 12. 283 A court held that a previous version of the wording of this statutory warranty applies both at the time of sale and also into the future (Microbeads v Vinhurst Road Markings Limited [1975] 1 All ER 529, CA). The court gave an example of where there would likely be a breach of the warranty, where a patent owner/licensor subsequently to licensing a patent obtains an injunction to restrain the use of the goods. 284 Microbeads v Vinhurst Road Markings Limited [1975] 1 All ER 529, CA. 285 Niblett Limited v Confectioners Materials Limited [1921] 3 KB 387, CA. 286 Sale of Goods Act 1979, s 14, as substituted by Sale and Supply of Goods Act 1994, s 1. 287 Sale of Goods Act 1979, s 14(2A). 288 Sale of Goods Act 1979, s 14(2B).

619

10.72  Contract Law

‘(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods– (a) fitness for all the purposes for which goods of the kind in question are commonly supplied, (b) appearance and finish, (c) freedom from minor defects, (d) safety, and (e) durability’. However, the implied term of satisfactory quality does not apply to any matter which is drawn to the buyer’s attention before the contract is made or, where the buyer examined the goods before the contract was made, any matter which that examination ought to have revealed or, in the case of a sale by sample, any matter which would have been apparent on a reasonable examination of the sample.289 (3) Implied terms about fitness for purpose:290 where the goods are sold in the course of a business, and the buyer expressly or by implication makes known any particular purpose for which the goods are being bought, an implied condition that the goods are reasonably fit for that purpose, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him or her to rely, on the skill and judgement of the seller. It is interesting to note that in one case a court held that in a contract for the supply of software there was an implied term that the software would be fit for its purpose, although the court did not make clear whether this implied term arose by virtue of the SGA.291 (4) Implied terms about sale by sample:292 an implied condition that (i) the bulk will comply with the sample in quality and (ii) the goods will be free from any defect making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample. (5) Implied terms about sale by description:293 where there is a sale of goods by description, an implied condition that the goods will correspond with the description. Under UCTA, it is not possible to contract out of liability for breach of the terms referred to in (1) above. Any exclusion or limitation of liability for 289 Sale of Goods Act 1979, s 14(2C). 290 Sale of Goods Act 1979, s 14. 291 Saphena Computing Limited v Allied Collection Agencies Limited [1995] FSR 616, CA, and Official Referees Court. 292 Sale of Goods Act 1979, s 15. 293 Sale of Goods Act 1979, s 13.

620

Selected contract law statutes affecting intellectual property transactions 10.73

breach of (2)–(5) above must be reasonable.294 The buyer’s right to reject the goods for breach of an implied condition is qualified by an amendment to the SGA.295

Is a sale (assignment) of patents a sale of ‘goods’? 10.73 ‘Goods’ are defined in the SGA as including: ‘… all personal chattels other than things in action and money’.296 It is generally assumed that the SGA does not apply to the sale (ie assignment) of a patent or other intellectual property, because a patent is not ‘goods’. It is worthwhile examining this point as the consequences would be serious if the SGA did apply to intellectual property assignments. The SGA contains no definition of the expression ‘personal chattels’ (see definition of ‘goods’ quoted above). The standard legal practitioner’s work on contract law states297 that the expression ‘personal chattels’: •

‘[C]overs any tangible movable property except money … [but] does not include things in action, such as … industrial property’.

•

As is discussed elsewhere,298 the term ‘industrial property’ means approximately the same as intellectual property, and certainly includes patents. But a patent is expressly, by statute, not a thing in action.299 This suggests that the definition provided immediately above is flawed. However, if the first part of the definition is accepted, a patent is not a personal chattel if it is not ‘tangible movable property’.

•

The term ‘movable’ in this context excludes ‘immovables’ (ie land).300 Thus a patent is movable property. But is it tangible property? Unfortunately, this is not clear. The specification of a patent is published301 and is tangible in the sense that it is recorded on paper; but the specification and claims may not be the same thing as the patent itself. It may be that a patent is that which is registered in the register of patents,302 but again, the (tangible) register is not the patent itself. Common sense may suggest that a patent is intangible property.

294 295 296 297 298 299

Unfair Contract Terms Act 1977, s 6. Ie under Sale and Supply of Goods Act 1994, s 15. Sale of Goods Act 1979, s 61(1). Chitty on Contracts (32nd edn, Sweet & Maxwell, 2015), vol 2, para 44–015, n 85. See para 3.03. Patents Act 1977, s 30(1) states that a patent is ‘personal property (without being a thing in action)’; however, copyright, design right and registered designs might be things in action – see Copyright, Designs and Patents Act 1988, ss 90, 222 and the proviso to Registered Designs Act 1949, s 19(4) (the only place where the status of registered designs is addressed). 300 See Bell, Modern Law of Personal Property in England and Ireland (Butterworths, 1989), 19. 301 Patents Act 1977, s 24(3). 302 Ie under Patents Act 1977, s 32.

621

10.74  Contract Law

Another phrase is that of ‘chattels personal’, which has been defined as follows: ‘Chattels personal are, strictly speaking, things movable, but in modern times the expression is used to denote any kind of property other than real property and chattels real’.303 This definition suggests that a patent could be a personal chattel, as it is property304 and is not ‘real’, ie relating to land or buildings. The basic problem is that intellectual property is, or is becoming, a distinct class of property which is not encompassed by some of the traditional definitions.305 The language of the SGA does not take account of this development. In practice, it is generally assumed that the SGA does not apply to the sale of intellectual property and in the absence of a higher court decision to the contrary, this is likely to remain the general view. The question of whether intellectual property should be classified as goods or services, or neither, also arises in relation to the Supply of Goods and Services Act 1982 and the Consumer Protection Act 1987.306

Supply of Goods and Services Act 1982 10.74 Similar questions arise under the Supply of Goods and Services Act 1982 (SGSA) as arise under the SGA: does the legislation apply to agreements for the exploitation (ie licensing) or transfer of technology? To the authors’ knowledge, lawyers specialising in computer law have raised this issue, particularly in relation to the commercial supply of software (embodied in physical items on which the software is present and any manuals) under licence; it is equally possible to raise it in relation to any other form of intellectual property transaction in which physical materials are supplied (eg in the biotechnology field, where a cell line is provided as part of a licence to commercialise an antibody produced by that cell line). It is possible to find supporting authority that such transactions must involve

303 Halsbury’s Laws of England (5th edn, LexisNexis, 2008), vol 35, ‘Personal Property’, para 1204. 304 Patents Act 1977, s 30(1). 305 Bell, Modern Law of Personal Property in England and Ireland (Butterworths, 1989) 23, s 3. For example, at least for consumer contracts, ‘digital content’ is now recognised as a separate category of thing which a consumer may purchase distinct from goods and services, subject to its own rights and terms which are implied. Although digital content is not by itself a form of intellectual property, it will often incorporate or consist of intellectual property (or be the result of the application of intellectual property). 306 See para 10.74 below.

622

Selected contract law statutes affecting intellectual property transactions 10.74

either a supply of goods307 (eg the device on which the software is recorded) or a supply of services. However, the real value of such a transaction may be in the supply of information (the software or, in other examples, know-how) together with the grant of rights to use the technology and/or intellectual property, and these items may form a distinct, third category (particularly if, as is often the case now, there is no physical direct supply of the software, with the licensee obtaining it via a download). In such cases, neither the implied terms under the SGA nor the implied terms under the SGSA would apply to the agreement. As was discussed earlier,308 the common law does not generally imply warranties as to title etc into intellectual property licence agreements.309 In the authors’ view, the supply of information or intellectual property as such does not constitute a supply of goods or a supply of services. The courts have not finally resolved this issue. However, in one case the court considered that the supply of software ‘probably’ was a supply of goods and commented that if it was not, it was difficult to see what it was, other than something to which no statutory rules applied.310 By contrast in another case,311 a contract to supply software was characterised as a supply of services. In an earlier, unreported case,312 the court refused to decide whether software constituted goods or services, and commented that the position appeared to be far more complex than had at first been realised.313 307 It has been held in a criminal case that the offence of criminal damage to property under Criminal Damage Act 1971, s 10(1) was committed by a hacker in altering the contents of a computer disc (R v Whiteley [1993] FSR 168, CA). 308 See para 10.37 above. 309 For an unreported case in which an implied term of fitness for purpose was implied, even though the contract pre-dated the passing of the SGSA, see Mackenzie Patten & Co v British Olivetti Ltd (unreported, 11 January 1984, Michael Davies J). 310 St Albans City and District Council v International Computers Ltd [1995]  FSR  686. The Court also referred to an Australian case where it was held that a sale of a computer system, including both hardware and software, is a sale of goods; the position where software alone is supplied is less clear. See Toby Construction Products Pty Ltd v Computa Bar (Sales) Pty Ltd [1983] 2 NSWLR 48. 311 Salvage Association v CAP Financial Services Limited [1995] FSR 654. 312 Eurodynamic Systems plc v General Automation Ltd (unreported, 6 September 1988) [1988] Lexis Citation 943,. 313 The judge, on the assumption that software could be goods, did not favour the argument of one of the litigants that there was a licence to the software and not a sale. The judge’s view was that, although there was a licence rather than a sale, that was not enough by itself to take the agreement outside of the SGA, as ‘although the ideas and concepts involved in software remained GA’s intellectual property, the reality of the transaction is that there has been a transfer of a product’. However, the judge recognised the litigant’s argument that the SGA can only apply to software if they are goods as being a stronger point (that is, software is information which directs and operates hardware but remains intangible). The judge noted that the definition in the SGA, s 61 of goods (as including ‘all personal chattels other than things in action and money’) did not help and he could not find a case on point to help. He did note that the courts in other jurisdictions were more likely to find that software could amount to goods (such as cases in the USA, some based on UCC Article 2). The judge believed he did not need to come to a view on any of these points for the purposes of the case before him, but nevertheless they are interesting observations.

623

10.75  Contract Law

Supply of materials etc 10.75 As was mentioned earlier, the SGA will not apply to the supply of materials or other physical items if the property (ownership) in such items is not transferred. The SGSA is broader in its application, as it is concerned with: •

contracts for the transfer of property in goods;

•

contracts for the hire of goods; and

•

contracts for the supply of services.

As is discussed in more detail below, the SGSA implies certain terms into such contracts, including: •

in relation to goods, conditions or warranties as to title, freedom from encumbrances, quiet possession, correspondence with description or sample, quality, fitness for purpose, right to transfer possession; and

•

in relation to the supply of services, that the service will be carried out with reasonable care and skill, in a reasonable time and for a reasonable charge.

As will be discussed below, there may well be situations in which some of these terms will be implied into a contract for the exploitation or transfer of technology.

Contracts for the transfer of property in goods 10.76 This category of contract is broader than a sale of goods,314 and covers for example a contract where the consideration is something other than money. The same comment applies to such contracts as applies to the sale of goods, namely that if property in the goods is not transferred the relevant provisions of the SGSA will not operate. The terms implied into contracts for the transfer of property in goods are very similar to those implied into contracts for the sale of goods, as to which see paragraph 10.72 above.

Contracts for the hire of goods 10.77 Such contracts are defined for the purposes of the SGSA as follows: ‘In this Act a “contract for the hire of goods” means a contract under which one person bails or agrees to bail goods to another by way of hire, other than … (a) a hire purchase agreement; [or] … (b) a contract

314 See Supply of Goods and Services Act 1982, s  1; excluded from the definition are certain categories, eg hire-purchase agreements and mortgages.

624

Selected contract law statutes affecting intellectual property transactions 10.77

under which goods are (or are to be) bailed in exchange for trading stamps on their redemption’.315 It may not be usual to regard the supply of, say, micro-organisms under a biotechnology research agreement, or a computer disc under a software licence agreement, as being (or including) a contract for the hire of goods. However, it is possible to interpret such an arrangement in this way, depending on the facts of the case. As is discussed elsewhere,316 the supply of such materials may give rise to a bailment. If that is the case, the only remaining question is whether the bailment is ‘by way of hire’. Chitty317 describes hire in this way: ‘In the bailment termed “hire” the bailee receives both possession of the chattel and the right to use it, in return for remuneration to be paid to the bailor. The bailee is under an obligation to return the chattel to the owner (or his nominee) at the expiration of the fixed period of the hiring and to pay the cost of returning it; but in a hiring or lease of livestock, the progeny of the livestock born during the hiring belongs to the hirer (unless the contract provides to the contrary)’. This definition of ‘hire’ would seem to cover many typical arrangements in the biotechnology industry in which one person supplies materials to another, for example to enable research work to be carried out. Sometimes materials are supplied without ‘remuneration’, in which case (based on Chitty’s definition) the arrangement may not be a hire. It is interesting to note that the progeny of hired livestock does not belong to the hirer of the livestock unless the contract provides otherwise.318 It may be arguable that the term ‘livestock’ would cover living biological materials, eg a cell line and its ‘progeny’, antibodies. Where a supply of materials is a contract for the hire of goods as defined by the SGSA, a number of terms may be implied into the contract.319 These may be summarised as follows:320 •

315 316 317 318 319 320

Implied terms about right to transfer possession, etc: an implied condition that the bailor has the right to transfer possession of the goods; and an implied warranty that the bailee will enjoy quiet possession of the goods for the period of the bailment except for disturbance by the holder of charge or encumbrance which was disclosed or known to the bailee before the contract is made. Supply of Goods and Services Act 1982, s 6. See Ch 9. Chitty on Contracts (32nd edn, Sweet & Maxwell, 2015), vol 2, para 33–064. Chitty cites Tucker v Farm and General Investment Trust Ltd [1966] 2 QB 421. Supply of Goods and Services Act 1982, ss 7–11. As indicated in the list, the implied terms are treated as conditions (that is, the parties have a right to treat the contract as repudiated if there is a breach of one of the implied terms). However, the bailee will not have the right to repudiate the contract if the breach by the bailor is so slight it would be unreasonable for the bailor to do so, unless there is a contrary intention in the contract (or it can be implied). In such a case the implied term is treated as a warranty rather than a condition.

625

10.78  Contract Law

•

Implied terms about quality: where the bailor bails goods in the course of a business, an implied condition that the goods supplied are of satisfactory quality, except for defects specifically drawn to the bailee’s attention before the contract is made or, if the bailee examines the goods before the contract is made, except for defects which the examination ought to reveal.

•

Implied terms about fitness for purpose: where the bailor bails goods in the course of a business and the bailee makes known, expressly or by implication, any particular purpose for which the goods are being bailed, an implied condition that the goods supplied are reasonably fit for that purpose, unless the bailee does not rely, or it is unreasonable for him or her to rely, on the skill and judgement of the bailor.

•

Implied terms where hire is by sample: where the bailor bails goods by reference to a sample, an implied condition (i) that the bulk will correspond with the sample in quality, (ii) that the bailee will have a reasonable opportunity of comparing the bulk with the sample, and (iii) that the goods will be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

•

Implied terms where hire is by description: where the bailor bails the goods ‘by description’, an implied condition that the goods will correspond with the description.

These terms may be ‘negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract’ (unless this is prohibited under the Unfair Contract Terms Act 1977.321 In addition to these statutory terms, terms may also be implied322 under the common law of bailment.323

Contracts for the supply of services 10.78 Such contracts are defined324 for the purposes of the SGSA as ‘a contract under which a person (‘the supplier’) agrees to carry out a service’. This may or may not also involve a transfer of the property in the, or hire of, goods.325 321 Supply of Goods and Services Act 1982, s 11. 322 Other than in relation to quality of fitness – see Supply of Goods and Services Act 1982, ss 11(3), 9(1). 323 See para 9.36. 324 Supply of Goods and Services Act 1982, s 12. 325 However, a contract of service (ie employment) or apprenticeship is excluded. The Secretary of State may by statutory instrument exclude categories of service from one or more of the implied terms under the Act. A number of categories of service have been excluded by the Secretary of State in relation to the implied term of care and skill, eg the services of an advocate in court or before an arbitrator and the services of a company director to the company when acting in that capacity.

626

Selected contract law statutes affecting intellectual property transactions 10.78

This definition will cover many activities carried out under agreements for the exploitation or transfer of technology. Examples include: •

the provision of assistance by a licensor to a licensee under a patent and know-how licence for such activities as providing or explaining the know-how supplied or providing ongoing technical assistance as the licensee works the patent;

•

the provision of assistance by a licensor to a licensee under a manufacturing licence agreement in the setting up of manufacturing facilities;

•

the provision of research work and reports under a research and development agreement;

•

the provision of advice, assistance and reports under a consultancy agreement;

•

the provision of computer programming under a software development agreement; and

•

the provision of maintenance services in relation to licensed software.

Where such a contract for the supply of services exists, the SGSA provides that certain terms are implied into the contract. It is possible to summarise these as follows: •

Implied term about care and skill: where the supplier is acting in the course of a business, an implied term that the supplier will carry out the service with reasonable care and skill.

•

Implied term about time for performance: where the supplier is acting in the course of a business and the time for the service to be carried out is not (i) fixed by the contract, (ii) left to be fixed in a manner agreed by the contract or (iii) determined by the course of dealing between the parties, an implied term that the supplier will carry out the service within a reasonable time.

•

Implied term about reasonable charges: where the consideration for the service is not (i) determined by the contract, (ii) left to be determined in a manner agreed by the contract, or (iii) determined by the course of dealing between the parties, an implied term that the party contracting with the supplier will pay a reasonable charge.

Such terms may be ‘negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract’, unless this is prohibited by the UCTA.326

326 Supply of Goods and Services Act 1982, s 16.

627

10.79  Contract Law

Contracts (Rights of Third Parties) Act 1999 Changes to doctrine of privity of contract 10.79 The Contracts (Rights of Third Parties) Act 1999 (referred to in this section as ‘C(RTP)A’) made important changes to English contract law.327 The C(RTP)A modifies the common law doctrine of privity of contract by granting rights to certain third parties to enforce certain terms of contracts to which the C(RTP)A applies where the third party is not a contracting party to a contract. These changes have had a practical effect on the way in which contracts are drafted. The C(RTP)A allows a third party328 a right to enforce a term of a contract in two situations, namely where: •

the contract states explicitly that he or she may do so;329 or

•

a term of the contract purports to confer a benefit on him or her.330

This provision only applies if on the proper construction of the contract it appears that the parties intended that the term be enforceable by the third party.331 This right is in addition to any other right or remedy that the third party may have independently of the C(RTP)A.332 If a contract indicates that the third party can enforce a particular term then there is no further requirement necessary for the third party to do so (unless the contracting parties have specified some such requirement).

327 The Contracts (Rights of Third Parties) Act 1999 applies to contracts governed by English law entered into on or after 11 May 2000 (there are some transitional provisions for contracts entered into before that date). 328 A third party is ‘a person who is not a party to a contract’ (Contracts (Rights of Third Parties) Act 1999, s 1(1)). 329 Contracts (Rights of Third Parties) Act 1999, s 1(1)(a). 330 Contracts (Rights of Third Parties) Act 1999, s 1(1)(b). 331 Contracts (Rights of Third Parties) Act 1999, s 1(2). In Nisshin Shipping Co Ltd v Cleaves & Company Ltd and others [2003] EWHC 2602 (Comm), [2004] 1 All ER (Comm) 481 the court held that there would have to be an express clause in a contract which stated that the third party should not have the right to enforce benefit (ie to disapply C(RTP)A, s 1(1)(b)). Also, the court held that, if a contract is silent on how a person can enforce a provision which confers a benefit on him or her, such silence does not mean that there was no intention to grant any rights of enforcement. See also Laemthong International Lines Co Ltd v Artis and others [2005] EWCA Civ 519, [2005] 23 All ER (Comm) 167, adopted in Great Eastern Shipping Company Ltd v Far East Chartering Ltd and another [2011] All ER (D) 289 (May). 332 Contracts (Rights of Third Parties) Act 1999, s 7(1).

628

Selected contract law statutes affecting intellectual property transactions 10.82

Exceptions to application of C(RTP)A 10.80 The C(RTP)A does not apply to all contracts. In particular: •

it only grants rights to a third party who meets the criteria set out in the C(RTP)A,333 and those rights are qualified by the other provisions of the Act;

•

certain categories of contract are automatically excluded, eg contracts of employment; and

•

any contract entered into before 10 May 2000.334

Who will benefit from the Act? 10.81 The C(RTP)A  gives to persons who are not parties to a contract (described in the C(RTP)A  as ‘third parties’) certain rights to enforce that contract and therefore alters the English common law doctrine of privity of contract. The common law doctrine of privity of contract will continue, unaltered, in situations where C(RTP)A does not apply. Moreover, C(RTP) A does not prevent a third party from relying on rights that exist apart from C(RTP)A, for example claims based in tort.335 This doctrine of privity of contract generally provides that only the parties to a contract (the ‘contracting parties’) can have enforceable rights and obligations under the contract. Put another way, only a contracting party may sue another contracting party for breach of contract. It is, in general, not enough that a person is referred to in the text of the contract; to be contracting parties persons must generally sign the contract or have their agent or representative do so on their behalf. English law in this area has been fairly strict, compared with some other countries’ laws. The 1999 Act gives greater rights to third parties than they had under previous English law rules.

Third party beneficiary examples Contract where a contracting party is part of an international group of companies 10.82 A contracting party may wish the contract to benefit other companies in the same group as itself. An example might be a licence agreement covering 333 In particular, Contracts (Rights of Third Parties) Act 1999, s 1(1). 334 The Act does not apply to any contract entered into before 11 November 1999, and will only apply to contracts entered into between 11 November 1999 and 10 May 2000 if the parties expressly indicated that it would: Contracts (Rights of Third Parties) Act 1999, s 10(1), (3), (4). 335 Contracts (Rights of Third Parties) Act 1999, s 7(1).

629

10.83  Contract Law

several territories, with the licensee being a major international company. It is not uncommon for such a licensee to include in the contract a definition of ‘affiliate’ (eg its subsidiaries in particular territories covered by the licence) and provide that both it and its affiliates may exploit the licence. Some countries’ laws give the affiliates enforceable rights under the contract. By contrast, the English law rules in this area have been quite strict; prior to the coming into force of the C(RTP)A, the affiliates would not have had direct, enforceable rights against the licensor. This assumes that the affiliates are not contracting parties. Sometimes, techniques are used to overcome this difficulty. For example, the licensee might expressly enter into the contract as the agent of its affiliates. However, such techniques have their own difficulties, eg how does the licensee obtain its agency authority? The C(RTP)A will make it much easier, in this example, for the affiliates to enforce the contract directly against the licensor.

Research contract between sponsoring company and university 10.83 Research contracts with universities will often provide for research work to be done by, or under the supervision of, a named academic scientist who will usually be an employee of the university. Sometimes that scientist is referred to in the research contract; and sometimes, but not always, he or she is asked to be a signatory to the research contract. Where a scientist is not a contracting party, prior to the coming into force of the C(RTP)A he or she would have had no enforceable rights or obligations vis-à-vis the sponsoring company. For example, the contract may provide that he or she will chair a steering committee that will review the progress of the research project, or that he or she will have confidentiality obligations to the sponsoring company. On occasion, the person drafting such contracts (generally a non-lawyer) would not give due attention to the rules on privity of contract and would not have given the scientist enforceable rights or obligations. With the coming into force of the C(RTP)A, enforceable rights (but not obligations) may be given to the scientist who is not a contracting party but is named in the contract as having certain rights.

Contract containing indemnity 10.84 A detailed indemnity clause in a contract to which only A and B are parties might include the following words: ‘A shall indemnify and hold harmless B, its affiliates, and their respective officers, employees, consultants, agents and representatives …’ Prior to the coming into force of the C(RTP)A, B’s employees (for example) would not have had enforceable rights against A under the indemnity. B might have been able to enforce the indemnity on their behalf. Under the C(RTP)A, B’s employees may well have directly enforceable rights. 630

Selected contract law statutes affecting intellectual property transactions 10.86

Revenue sharing by academic employees 10.85 Many academic institutions have policies or schemes which allow their employees to share in the revenues generated by the institution from the commercial exploitation of inventions or discoveries made by those employees. If the academic institution enters into an agreement with a commercial party for the exploitation of an invention, and the agreements refer to the fact that there is such a scheme in place, a share of the payments made by the commercial company will be paid to the employee. An employee may wish, if payment is not made by the commercial company to the academic institution, to enforce the payment provisions directly where the academic institution does not wish to engage in litigation to enforce payment. Prior to the introduction of the C(RTP)A, the employee would not be able to consider such action.

How third party is to be identified 10.86 The C(RTP)A states that it must be possible to identify the third party in the contract: • by name; •

as a member of a class; or

•

as answering a particular description.336

The third party need not be in existence at the time the contract is entered into.337 This could include allowing contracting parties to confer enforceable rights on, for example: •

a company that has not yet been incorporated;

•

a sub-licensee which has not yet been granted a sub-licence;

336 Contracts (Rights of Third Parties) Act 1999, s  1(3). In Avraamides and another v Colwill and another [2006]  EWCA  Civ 1533, [2006]  All ER (D) 167 (Nov) the court considered whether it was possible to expressly identify the claimants in an agreement. The claimants contracted with a building company for the building company to build two bathrooms. The building company did not carry out the work satisfactorily. The assets and goodwill of the building company were transferred by an agreement to the defendants (leaving the building company without assets) and there was nothing left to pay the claimants. The key wording from the agreement was: ‘The purchasers (sic) undertakes to complete outstanding customer orders taking into account any deposits paid by customers as at 31 March 2003, and to pay in the normal course of time any liabilities properly incurred by the company as at 31 March 2003. The Colwill loan account after adjustment to be transferred on by the partnership’. The court relied on the word ‘express’ in C(RTP)A, s 1(3). The court held that the use of the word ‘express’ does not allow a process of construction or implication. Although ‘customers’ are identified as beneficiaries in the first part of the quoted extract from the agreement, as far as the second part of the extract is concerned, the court held that it (‘to pay in the normal course of time any liabilities properly incurred by the company as at 31 March 2003’) was not sufficiently precise to identify the customers (claimants). Such a phrase could include a large number of unidentified classes (see in particular para 19 of the judgment). 337 Contracts (Rights of Third Parties) Act 1999, s 1(3).

631

10.87  Contract Law

•

a named role, which is to carry a specific function under the contract, but from time to time may be changed, such as a project director in a hardware and software installation contract or a supervising scientist under a research agreement;

• (unlikely to occur in a commercial agreement) an unborn child; or • (unlikely to occur in a commercial agreement) a future spouse. Where it is intended to give enforceable rights to a third party, the parties to an agreement should be careful not only to identify the third party but also to make it clear what term(s) is/are to be enforceable by the third party and the extent to which it/they can be enforced. Merely naming a third party may not necessarily make the latter point clear.

Remedies given to third parties 10.87 A  third party has the same remedies as if he or she was one of the contracting parties. The third party can recover damages for loss of bargain, and the principles of remoteness and mitigation which apply to the parties equally apply to the third party. Note that the C(RTP)A does not cause the third party to become a contracting party.338 It merely gives the third party similar rights to those that it would have if it were a contracting party. If a contract allows the third party to enforce a contractual term by virtue of the C(RTP)A, s 1(1) then the third party will have available ‘any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract’.339 The C(RTP)A  provides also that the rules regarding damages, injunctions, specific performance and other relief also apply.340

Defences of contracting party (as promisor) to third-party action 10.88 The C(RTP)A provides for a number of separate defences: (a) ‘The promisor shall have available to him by way of defence or set-off any matter that: (i) arises from or in connection with the contract and is relevant to the term; and 338 Contracts (Rights of Third Parties) Act 1999, s 7(4). 339 Contracts (Rights of Third Parties) Act 1999, s 1(5). 340 Contracts (Rights of Third Parties) Act 1999, s 1(5).

632

Selected contract law statutes affecting intellectual property transactions 10.88

(ii) would have been available to him by way of defence or set-off if the proceedings had been brought by the promise’.341 This would allow the promisor to rely against the third party on, for example: (A) a valid exemption clause in the contract between the parties; (B) the fact that the contract was void for mistake or voidable for misrepresentation; or (C) the fact that the contract had been frustrated; or (D) the fact that the promisor was justified in refusing to perform it on account of the promisee’s repudiatory breach. (b) ‘The promisor shall also have available to him by way of defence or setoff any matter if: (i) an express term of the contract provides for it to be available to him in proceedings brought by the third party, and (ii) it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee’.342 (c) ‘The promisor shall also have available to him: (i) by way of defence or set-off any matter, and (ii) by way of counterclaim any matter not arising from the contract, that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract’.343 (d) ‘Subsections (2) and (4) [of Section 3 of the C(RTP)A] are subject to any express term of the contract as to the matters that are not available to the promisor by way of defence, set-off or counterclaim’.344 (e) ‘Where in any proceedings brought against him a third party seeks in reliance on Section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any circumstance relating to him or otherwise) had he been a party to the contract’.345 For example, this subsection would operate if the third party sought to rely on a clause that purported to exclude liability for death or personal injury caused by the third party’s negligence: such a clause would be void under Unfair Contract Terms Act 1977, s 2(1).346 341 342 343 344 345 346

Contracts (Rights of Third Parties) Act 1999, s 3(2). Contracts (Rights of Third Parties) Act 1999, s 3(3). Contracts (Rights of Third Parties) Act 1999, s 3(4). Contracts (Rights of Third Parties) Act 1999, s 3(5). Contracts (Rights of Third Parties) Act 1999, s 3(6). Unfair Contract Terms Act 1977, s 2(1).

633

10.89  Contract Law

Similarly, a complete exclusion of liability in standard contract terms would often be void under Unfair Contract Terms Act 1977, s  3. However, note that in the case of liability for other types of loss or damage resulting from negligence, C(RTP)A provides as follows: ‘Section 2(2) of the Unfair Contract Terms Act 1977 (restriction on exclusion etc of liability for negligence) shall not apply where the negligence consists of the breach of an obligation arising from a term of a contract and the person seeking to enforce it is a third party acting in reliance on Section 1 of the Contracts (Rights of Third Parties Act) 1999’.347 Thus, some of the prohibitions under the Unfair Contract Terms Act 1977 apply to third parties under C(RTP)A, and some do not.

Exceptions to application of Act to third parties 10.89 C(RTP)A  provides that, in certain situations, no rights are conferred on a third party. For example, a third party acquires no rights to enforce a term of a ‘contract of employment’ against an employee.348 Similar exclusions apply to ‘workers’ contracts’ and contracts with ‘agency workers’.349 For example, if an employee is engaged as an account manager for a major customer of the employer, the customer would acquire no rights under C(RTP)A  to enforce the contract of employment against the employee, eg  to enforce confidentiality provisions of the contract of employment.

Arbitration 10.90 If a term of the contract provides that the parties are to settle disputes by arbitration, then the third party is also bound by that term. A  third party is treated as a party to an arbitration agreement as regards ‘disputes between himself and the promisor relating to the enforcement of the substantive term by the third party’.350 This applies where (a) the right under the C(RTP)A, s  1 to enforce a term (the ‘substantive term’) is subject to a term providing for the submission of the dispute to arbitration (the ‘arbitration agreement’), and (b) the arbitration agreement as defined by C(RTP)A is an agreement in writing for the purposes of the Arbitration Agreement Act 1996, Part I.351

347 348 349 350 351

Contracts (Rights of Third Parties) Act 1999, s 7(2). Contracts (Rights of Third Parties) Act 1999, s 6(3)(a). Contracts (Rights of Third Parties) Act 1999, s 6(3)(b), (c). Contracts (Rights of Third Parties) Act 1999, s 8(1). Contracts (Rights of Third Parties) Act 1999, s 8(1).

634

Selected contract law statutes affecting intellectual property transactions 10.91

Exclusion or variation of third party’s rights 10.91 There are three situations where the contracting parties may not, without the third party’s consent, rescind or vary rights previously given to a third party under a term of a contract.352 Those situations are: •

where the third party has communicated his assent to the term of the contract to the promisor;353 or

•

where the promisor is aware that the third party has relied on the term;354 or

•

where the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.355

The parties may rescind or vary the contract term if: •

the third party signifies his or her consent to the variation in question;356 or

•

the contracting parties include an express term in the contract that they may by agreement rescind or vary the contract without the consent of the third party;357

•

the consent of the third party is required in circumstances specified in the contract instead of those set out above;358

•

the court or arbitral tribunal decides to dispense with the requirement for consent on the grounds that the third party’s whereabouts cannot reasonably be obtained or that he or she is mentally incapable of giving his or her consent;359

•

the court or arbitral tribunal decides to dispense with the requirement for consent on the grounds that it cannot reasonably be ascertained whether or not the third party has in fact relied on the term.

Where the court or arbitral tribunal dispenses with consent, it may impose such conditions as it thinks fit, including a condition requiring the payment of compensation to the third party.360 It seems that the restriction on variation of a third party’s rights operates in both a negative and a positive way. For example, if the contracting parties wish 352 353 354 355 356 357 358 359 360

Contracts (Rights of Third Parties) Act 1999, s 2(1). Contracts (Rights of Third Parties) Act 1999, s 2(1)(a). Contracts (Rights of Third Parties) Act 1999, s 2(1)(b). Contracts (Rights of Third Parties) Act 1999, s 2(1)(c). Contracts (Rights of Third Parties) Act 1999, s 2(1). Contracts (Rights of Third Parties) Act 1999, s 2(3)(a). Contracts (Rights of Third Parties) Act 1999, s 2(3)(b). Contracts (Rights of Third Parties) Act 1999, s 2(8). Contracts (Rights of Third Parties) Act 1999, s 2(6).

635

10.92  Contract Law

to enhance a term of a contract which the third party has a right to enforce, such as increased payment, the third party would also need to provide his or her consent.

Issues for drafting 10.92 The C(RTP)A  has been of major commercial significance in the drafting of contracts made under English law. Most commercial agreements drafted since the introduction of the C(RTP)A  now include a provision explicitly excluding the application of it as well as the right of any third party being able to enforce any of the provisions of the agreement. This has become an (almost) invariable standard ‘boilerplate’ provision of such agreements. However, in some cases it may be relevant that a third party can enforce a benefit under an agreement. Where this is the case, the parties to an agreement will need to clarify whether the whole agreement, or any of its terms, is intended to benefit any third parties, and if so: •

who are the third parties;

•

which provisions of the contract are made for their benefit;

•

whether the party accepting obligations to third parties wishes to make such obligations subject to conditions or obligations, and if so what are those conditions or obligations;

•

whether the third parties’ rights are assignable; and

•

whether the contracting parties can agree to revoke a third party’s rights without the consent of the third party.

Examples of when third parties may, or may not, be able to enforce Confidentiality agreements or confidentiality clauses 10.93 If a contracting party to an agreement agrees that certain information is to be kept confidential, and the obligation extends to confidential information received from a third party, then the third party may be able to enforce that obligation if the contracting party receiving the confidential information breaks the obligation.

Licensing of technology and software 10.94 Where an owner of intellectual property grants a licence to a licensee to work a patent, or distribute software, with the right to sub-license, the licence may include an obligation on the licensee to allow the licensor to audit his or her financial records to establish the amount of royalties due. The 636

Selected contract law statutes affecting intellectual property transactions 10.99

agreement may also include a clause requiring the licensee to include such an audit provision in any sub-licence that it may grant. The term of a sub-licence agreement, which states that the head licensor shall have this audit right, may be directly enforceable by the head licensor.

Indemnities 10.95 If one contracting party gives an indemnity in favour of another contracting party, and the indemnity extends to third parties, such third parties may enforce the indemnity directly against the indemnifying contracting party.

Payment to third party 10.96 In an agreement between two parties, there may be a provision that one of the parties will make a payment to a third party. In such a case the third party may be able to enforce the payment term directly against the paying party if the paying party fails to make payment.

Exclusion of liability 10.97 If a contract states that proceedings shall not be taken against third parties of a contracting party (such as officers or employees), then those third parties may be able to rely on such a term.

Settlement agreements 10.98 If a dispute between two contracting parties is compromised or settled, and as part of the settlement or compromise some benefit or right is conferred on a third party, the third party may be able to enforce that benefit or right directly.

Late Payment of Commercial Debts (Interest) Act 1998 10.99 If the parties to an agreement do not indicate in an agreement that interest is payable on payments which are made late, then the Late Payment of Commercial Debts (Interest) Act 1998 (‘1998 Act’) may apply. Before the 1998 Act was passed, interest was not due on the late payment of a contractual debt, unless the parties to a contract had expressly agreed it was or it could be implied from a course of dealing or trade custom.361 However, the 1998 Act now makes the following provision: 361 In some limited statutory situations, interest is payable, such as on a court judgment: see County Courts Act 1984, s 74, as amended. There is also old case law whereby if royalties are paid late then interest is payable.

637

10.99  Contract Law

•

for interest to be payable on qualifying debts362 in contracts for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business;363 and

•

in addition to interest, the supplier is entitled to fixed sums.364

The 1998 Act implies a term into contracts that any qualifying debt created by the contract carries simple interest.365 The parties to a contract cannot contract out of the 1998 Act except in accordance with the 1998 Act, which is only normally possible where there is a ‘substantial contractual remedy’ for late payment of the debt.366 Interest runs from the day after the ‘relevant date’ which is normally the agreed payment day or, if no such date is agreed, the day after 30 days has elapsed since the obligation to pay arose.367 The Consumer Credit Act 1974 imposes limits on extortionate credit bargains (ie credit agreements which stipulate grossly exorbitant repayments or grossly contravene ordinary principles of fair dealing), which may affect a contractual obligation to pay interest on loans. In the case of most commercial contracts, 362 A ‘qualifying debt’ is a debt created by virtue of an obligation to pay the whole or any part of the contract price where the contract is one to which Late Payment of Commercial Debts (Interest) Act 1998, s 3(1) applies. The payment of an instalment under a contract will also come within the meaning of a qualifying debt (where the contract provides for the payment of sums due by instalment): see Fitzroy Robinson Ltd and Mentmore Towers Ltd; Fitzroy Robinson Ltd v Good Start Ltd (No 3) [2009] EWHC 3365 (TCC). 363 Late Payment of Commercial Debts (Interest) Act 1998, ss 1, 2(1). The payment of interest is an implied term of such contracts. The Late Payment of Commercial Debts (Interest) Act 1998 was brought into effect in stages, each stage applying to certain categories of business (ie by size), mainly to protect small business. As from 7 August 2002 the 1998 Act applies to all sizes of organisations. 364 Late Payments of Commercial Debts (Interest) Act 1998, s 5A(1), as inserted by reg 2(4) of the Late Payment of Commercial Debts Regulations 2002 (SI 2002/1674) implementing Directive 2000/35/EC ([2000]  OJ L200/35) on combating late payment in commercial transactions. The fixed sums are £40 for debts less than £1,000; £70 for debts of more than £1,000 but less than £10,000; and £100 for debts of £10,000 or more. This additional right comes into force on 7 August 2002, and does not affect contracts entered into before that date. If the costs of recovering the debt are not covered by the fixed sums, the supplier can recover the difference between the fixed sum and the amount of costs: Late Payments of Commercial Debts (Interest) Act 1998, s 5A(2A). 365 Late Payment of Commercial Debts (Interest) Act 1998, s 1(1). For the meaning of a qualifying debt, see note 362 above. 366 Late Payment of Commercial Debts (Interest) Act 1998, ss 7–10. This is of course a different issue as to where a party entitled to interest under this Act would claim the interest or other ‘substantial contractual remedy’ if the party in default was in a (much) stronger bargaining position. For example, if a major drugs company wished to have a new drug tested by a small company which undertook such work, the small company is unlikely to wish to claim interest. 367 Late Payment of Commercial Debts (Interest) Act 1998, s 4. The ‘agreed payment day’ is a date agreed between the supplier and the purchaser when there will be payment of the debt, being the ‘day on which the debt is created by the contract’. The agreed date can be a fixed date or on the happening, or failing to happen, of an event. There are also anti-avoidance measures to stop debtors paying later than 60 days (commercial debtors) or 30 days (public authorities).

638

Selected contract law statutes affecting intellectual property transactions 10.100

the main restriction on interest provisions is that they should not amount to a penalty, as this would make them unenforceable. The rate of interest should therefore be made comparable to the likely cost of borrowing the money from a bank.

The Provision of Services Regulations 2009 General 10.100 From 28  December 2009 any provider of a service must provide certain details to a recipient of those services,368 including: •

information about itself (contact details, legal status);

•

the terms and conditions on which it provides those services as well as details of the services provided and how the price for them is calculated;

•

its professional or authorised status (if a member of a regulated professional or a trade which requires authorisation) and its (indemnity) insurance provision; and

•

how it is possible to resolve disputes (including details of the disputes procedure).

The Regulations apply to all providers of services (except for a number of excluded categories, none of which are likely to be of much relevance to parties involved in commercial agreements relating to intellectual property or technology transfer).369 None of these requirements (and others in the Regulations) specify that it is necessary to include these details in the contract between a service provider and its customer/clients. The Regulations are also silent as to what is to happen if this information is not provided, ie whether the customer/client can take legal action and on what basis such action will be, eg whether there will be a claim for breach of contract, a claim based on tort, and what will be the remedies, although in some instances it seems clear that existing remedies under English law would apply in any case. For example, one requirement of the Regulations is that the service provider states the price for the service. Under English law, where this is not specified in the contract (nor the means of calculating it), the price would be what is reasonable.370 But it is harder to see what loss would be suffered if a service provider failed to provide its telephone number (but provided all the other required contact details). 368 Provision of Services Regulations 2009 (SI 2009/2999), regs 7–12, implementing Directive 2006/123/EC ([2006] OJ L376/36) on services in the internal market. 369 See Provision of Services Regulations 2009 (SI 2009/2999), reg 2. For example, the providers of financial services, electronic communications services and networks, healthcare services, and transportation. 370 Supply of Goods and Services Act 1982. s 15.

639

10.101  Contract Law

Perhaps the usual remedies will continue to apply, ie  although a user of a service can establish a breach, however the user would not be entitled to any damages as he or she had not suffered any loss.371 In addition, the Regulations are also silent as to whether any of the requirements for providing information are implied into a contract as a contractual term between a service provider and a recipient of services.

Information to be provided 10.101 1. Information to be provided following a request for information about the service or where recipients of the service can send a complaint: contact details for the service provider (postal address, telephone number or email address; telephone number and the official address of the service provider (if it has one));372 2. Information which the service provider has to make available to a recipient of the service:373 •

information and contact details: the name of the service provider, legal status, the place where the service provider is established, details where the service provider can be contacted rapidly and communicated with directly (including any electronic means);

•

information about any authorisation, regulation or registration: –

if the provider is registered in a trade or similar public register, the name of the register, the provider’s registration number (or equivalent means of identification);

–

if the activity of the provider is subject to an authorisation scheme in the UK, the details of the competent authority (or electronic means of contacting and using the services provided by it);

– if the provider is carrying on a regulated profession, the provider’s professional title, in which EEA that title has been granted and the name of the professional with which the provider is registered; •

information about the terms on which the service provider provides its services:

371 These points are separate from the action that a regulatory body (such as a local trading department) could take if the information is not provided. Consideration of this is outside the scope of the book. 372 Provision of Services Regulations 2009 (SI 2009/2999), reg 7. The official address of a service provider is that which it is required by law to register, notify or maintain for the purpose of receiving notices or other communications (Provision of Services Regulations 2009 (SI 2009/2999), reg 7(2)). 373 Provision of Services Regulations 2009 (SI 2009/2999), reg 8(1).

640

Selected contract law statutes affecting intellectual property transactions 10.101

–

the general terms and conditions used by the provider (if any);

–

the existence of contractual terms used by the provider regarding which law applies to the contract or which country’s courts have jurisdiction (if any);

–

any after-sales guarantee (other than those that are imposed by law);

–

the price of the service, where the price is pre-determined by the provider for a given type of service;

–

the main features of the service to be provided (if not apparent from the context);

– where the provider is required to hold professional liability insurance or provide a guarantee then information about the insurance or guarantee including contact details of the insurer or guarantor and the territorial coverage of the insurance or guarantee. 3. Information that the service provider has to provide on request: where a recipient of a service asks, the service provider must provide the following information to the recipient: •

if the price for the service is not pre-determined, then the price of the service or how the price for the service is calculated (so that the recipient can check the price or a detailed estimate);

•

if the provider is carrying out a regulated profession, a reference to the professional rules in the EEA state in which the provider is established and how to access the rules;

•

information on the other activities carried out by the service provider which are directly linked to the service provided to the recipient, and how any conflicts of interest are avoided;

•

any codes of conduct that the service provider is subject to, along with how the codes can be accessed and the language(s) in which they are available.

4. Dispute resolution:374 where there is a non-judicial dispute resolution procedure available as a result of a service provider being subject to a code of practice or as a member of a professional body or trade association, then the service provider: •

must let the recipient of the service know about the procedure; and

•

must mention it in any information document provided by him or her which outlines a detailed description of the service (including specifying how to access detailed information about it).

374 Provision of Services Regulations 2009 (SI 2009/2999), reg 10.

641

10.102  Contract Law

Method of making information available How the service provider is to make information available under ‘2. Information which the service provider has to make available to a recipient of the service’ above 10.102 The information is to be made available by the service provider to the recipient:375 •

on the service provider’s own initiative;

•

by being easily accessible to the recipient at the place where the service is provided or the contract is concluded;

•

by being easily accessible to the recipient by electronic means (via an address supplied by the service provider); or

•

by being contained in a document supplied by the service provider to the recipient and which contains a detailed description of the service.

When (and the manner in which) the information is to be provided 10.103 The time at which a service provider is to provide or make available the information to the recipient will be: •

in good time before the conclusion of the contract; or

•

if there is no written contract, before the service is provided.376

The manner in which the information has to be supplied or made available is to be clear and unambiguous.377

Complaints 10.104 If the service provider has received a complaint from a recipient of a service, he or she must respond to it as quickly as possible.378 The service provider must also use its best efforts to find a satisfactory solution to the complaint.379

375 Provision of Services Regulations 2009 (SI 2009/2999), reg 8(2). 376 Provision of Services Regulations 2009 (SI 2009/2999), reg 11(b). Unless the service provider is asked for the information specified in para 10.101 above after the provision of the service. 377 Provision of Services Regulations 2009 (SI 2009/2999), reg 11(a). 378 Provision of Services Regulations 2009 (SI 2009/2999), reg 12(1)(a). 379 Provision of Services Regulations 2009 (SI 2009/2999), reg 12(1)(b). Unless the complaint is vexatious (Provision of Services Regulations 2009 (SI 2009/2999), reg 12(2)).

642

CHAPTER 11

Regulatory Requirements Introduction646 Information protection and release and computer technology 647 Data protection 647 Data Protection (GDPR and DPA 2018) 647 Summary of the main differences between the GDPR and its predecessor648 Specific provisions from the DPA 2018 of relevance 653 Introduction653 General provisions of the DPA 2018 of relevance to this book 653 Territorial scope 654 Principles which govern the lawful processing of personal data 656 Type of personal data subject to the GDPR 657 Types of processing of personal data to which the GDPR does not apply657 GDPR applies only to living persons 657 Grounds on which is possible to process ‘ordinary’ personal data 657 Requirements if personal data is to be processed for purposes other than the original purpose 659 Conditions a controller needs to satisfy if it wishes to process personal data on the basis that it has the consent of the data subject659 Further points about consent 660 Children661 Special categories of personal data (‘sensitive personal data’) 661 Grounds on which it is possible to process sensitive personal data 662 Conditions for collecting personal data from a data subject (and the provision of information) 664 Processing of personal data for research and scientific purposes 665 Carrying out processing for Research Purposes – UK law requirements668 On which of the grounds is it possible to process the personal data of a data subject for (scientific) research purposes? 668 Research and clinical trials 669 A UK view on the need for consent 672 Transfer of data to third countries 672 Adequacy decision 673 Safeguards673 Binding corporate rules 674 Derogations676 Provisions under the DPA 2018 677

643

Regulatory Requirements Key definitions used in the GDPR and the DPA 2018 677 Freedom of information 679 Introduction679 Aim of the Freedom of Information Act 2000 680 Making a request for information held by a public authority 681 How the request must be made 681 Who can make a request 681 How long does the public authority have to consider the request? 681 How must the public authority provide the information requested?682 Advice and assistance 682 Refusing a request 683 Where the cost of compliance is exceeded 684 Publication scheme 685 What is a ‘public authority’ 685 Public authorities – those listed in FOIA 685 Public authorities – those designated by the Secretary of State 686 Publicly owned companies 687 What type of information can be obtained from a public authority? 688 Exemptions690 Information provided in confidence 691 Contracts entered into by a public authority with a commercial party692 Commercial interests and trade secrets 693 Other potentially relevant exemptions 698 The public interest test 703 Freedom of information and intellectual property 705 Environmental information 707 Information707 Public authority 708 Information held by a public authority 708 Method in which a request can be made 709 Time in which a response can be provided by a public authority 709 Exceptions709 Exceeding a stated cost 709 Law and the Internet 710 Operating a website 710 Required information 710 Equal treatment and disabled persons 710 Data protection 711 Liability711 Using a website to do business 712 The 2013 Regulations 712 The E-Commerce Regulations 713 Administration of the internet 714 Computer-related crime 715 Telecommunications716

644

Regulatory Requirements The use of human tissue in research 716 The Human Tissue Act 2004 716 Removal, storage and use of human organs and other tissue for scheduled purposes 717 Regulation of activities involving human tissue 719 Miscellaneous and general 721 Data protection 722 Some defined terms used in the Human Tissue Act 2004 722 Human reproductive technology 723 Activities governed by the Act 724 The Human Fertilisation and Embryology Authority and licences 725 Research using embryos and gametes 725 Information727 Offences727 Some defined terms used in the 1990 Act as amended 728 Clinical trials 729 The Declaration of Helsinki 729 The (EU) Clinical Trials Regulation and Directive 732 The principal reasons for the introduction of the CTR 733 Key provisions in the CTR 734 Key definitions used in the CTR 744 The (UK) Clinical Trials Regulations 746 Research ethics committees and opinions 747 Authorisation by the MHRA 750 Amendment of the conduct of the clinical trial 752 The end of a clinical trial 754 EudraCT: a European database of clinical trials 754 Definitions used in the UKCTR (where stated, taken from the CTD) 754 Import and export regulations 756 Export regulations 756 Strategic export controls 756 Licences757 Goods758 Embargoes for particular destination 759 End use: weapons of mass destruction 760 Activities760 Other export controls 762 Chemicals and pesticides 762 Drugs762 Seeds and plants 763 Import regulations 764 Goods generally 764 Military equipment, nuclear material and chemicals 764 Nuclear material 764 Chemicals764 Pharmaceutical products, seeds, plants and animals 765

645

11.01  Regulatory Requirements

INTRODUCTION 11.01 There are numerous regulatory requirements relating to the transfer, exploitation or use of technology and which impose obligations on individuals and organisations. This chapter deals with selected regulatory requirements as they relate to: •

information technology;

•

pharmaceutical or biotechnological research; and

•

import and export regulations.

Within these areas, particular attention is paid to: •

data protection;

•

freedom of information and the internet; and

•

research involving human gametes and embryos, human tissue and clinical trials.

There are a large number of regulations governing activities in the pharmaceutical and biotechnology industries. These affect various classes of people, including wholesalers, parallel importers, retail pharmacists, contractors, researchers and users. Many of these regulations concern environmental issues, the safety of those involved in the industry, the safety of the products developed (especially medicines and food) and the labelling and classification of products. Also important are what might be classed as moral issues, including genetic engineering, experiments using live animals, and research using human tissue, gametes and embryos. Clinical trials are subject to detailed regulation as a result of European Directives and Regulations. Data protection laws can affect a wide range of activities, including many types of technology transfer. For example, clinical trials, which involve generating data on individuals, will normally be subject to the requirements of data protection law, as will many e-commerce ventures. These requirements are strict and not always fully considered. Many of the organisations that are involved in technology transfer are publicly owned bodies (such as educational institutions and research councils). Under freedom of information laws, upon request, such bodies have to release much of the information that they hold. However, when they enter into commercial transactions with third parties, both sides to the transaction may wish to avoid releasing information about the transaction, on the grounds of commercial confidentiality or for other practical reasons. Although there are many potential exemptions a public authority can rely on to avoid releasing commercial information, the general trend is towards greater disclosure by public authorities. In effect, the public body has to carry out an exercise, in response to a request, so that only information, which genuinely comes within 646

Information protection and release and computer technology 11.03

a permitted exemption, is not released. Later sections of this chapter consider those exemptions which are of most relevance in making such an assessment.

INFORMATION PROTECTION AND RELEASE AND COMPUTER TECHNOLOGY Data protection 11.02 Most researchers who use data obtained from living persons will need to consider the requirements of both the General Data Protection Regulation (‘GDPR’)1 and the Data Protection Act 2018 (‘DPA 2018’) and the law of confidential information.2 Further considerations come into play when medical data are involved (where it will be necessary to consider the requirements of the (UK) Medicines for Human Use (Clinical Trials) Regulations 2004 and/or the (EU) Clinical Trials Regulation).3 A second area which is particularly relevant to research and the exploitation of technology concerns the transfer of data to a third country, that is outside the EU. Many research projects involve, for example, several parties located in two or more EU countries (especially where the EU provides funding). This section focuses on some of the key issues involving data protection in relation to research in general and medical research and clinical trials in particular, and the special requirements required for transferring data outside the UK or the EU.4

Data Protection (GDPR and DPA 2018) 11.03 Despite the intention of the UK to leave the EU, the GDPR is, and will be, the main legislative measure which concerns personal data in the UK.5 1

2 3 4

5

Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC. Directive 95/46/EC was implemented into UK law by the Data Protection Act 1998 (which is now repealed by the Data Protection Act 2018). Regulation (EU) 536/2014 is directly applicable and does not need translation, as such, by a UK legislative measure. See Ch 8. Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. This section is no more than a brief outline, and does not consider such matters as the regulatory and enforcement powers of the EU, and in the UK, of the Information Commissioner, the procedures and requirements for notification, etc. A detailed exposition of the requirements of the GDPR and the DPA is outside the scope of this book. See the bibliography. On the UK leaving the EU, the DPA 2018 (and the GDPR itself) will undergo revision pursuant to the Data Protection, Privacy and Electronic Communications (Amendments etc) (EU Exit) Regulations 2019 (SI 2019/419).

647

11.04  Regulatory Requirements

Within the UK, the GDPR is supplemented by the DPA 2018, which adds to, and modifies, the GDPR as well as dealing with areas which the GDPR does not cover. The GDPR is a more extensive and rigorous set of obligations on those persons and organisations who control or process personal data than under the Directive it replaced, as well as providing further rights to persons. The GDPR reflects the profound changes which have occurred since the Directive, not only in the way that personal data is collected, but also in the new ways it is possible to process data, or analyse data as well as how much personal data is now stored (such as in the cloud). The previous Directive was based on proposals dating from the late 1980s and early 1990s, when the use of computer technology, the internet or cloud storage was far less advanced and more locally based. An issue with the GDPR is that its extent (in terms of the number of provisions, as well as the additional provisions and the detail of obligations on controllers and processors of personal data) far exceeds that of its predecessor Directive.6 The same is true of the DPA 2018, which goes far beyond simply carrying out any necessary implementation or filling in any ‘blanks’ in the GDPR.7

Summary of the main differences between the GDPR and its predecessor 11.04 GDPR

Art

Directive

Art

4(1)

2(a) ‘‘personal data’ shall mean any information relating to an identified or identifiable natural person (‘data subject’); an identifiable person is one who can be identified, directly or indirectly, in particular by reference to an identification number or to one or more factors specific to his physical, physiological, mental, economic, cultural or social identity;’

More personal data subject to control Definition of ‘personal data’ means any information relating to an identified or identifiable natural person (‘data subject’); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person;8 Changes over the Directive in italics The definition itself adds the following categories: name, genetic, location data or online identifier over the Directive.

6 7 8

In terms of the number of words, the GDPR has over 55,000, while its predecessor Directive had 13,000. Together with the extensive guidance issued by the Information Commissioner at www.ico. org.uk. GDPR, Art 4(1).

648

Information protection and release and computer technology 11.04 GDPR

Art

Directive

Art

The extent of the meaning of personal data is spelt out in Recitals 26, 28 and 30 and additional new definitions: 1. Personal data which has been pseudonymised but which it is possible to attribute to a natural person through the use of additional information is considered to be information on an identifiable natural person. 2. To determine whether a natural person is identifiable it is necessary to take account of the means reasonably likely to be used to single out the natural person. Such singling out can be by the controller or someone else, and be either directly or indirectly. 3. A distinction is therefore drawn between, in effect, personal data which is subject to pseudonymisation and personal data which is made anonymous; where the latter applies, the data subject is no longer identifiable then the principles of data regulation do not apply. 4. It is possible to identify a natural person with online identifiers provided by ‘their devices, applications, tools and protocols … This may leave traces which, in particular when combined with unique identifiers and other information received by the servers, may be used to create profiles of the natural persons and identify them’. Other relevant new definitions: 4(4) 1. ‘pseudonymisation’: where it is no longer possible to attribute the processing of personal data to a specific person without the use of additional information – as long as the additional information is kept separate

No specific definition

4(5)

No specific definition

2. ‘profiling’: which is a form of automated processing of personal data – or analyse or predict such matters as a natural person’s performance at work, personal preferences, health, location or movements etc. Data Protection Principles The data protection principles are essentially the same as under the Directive except:

5(1)(a) That personal data must be • For the first principle (that the processing of processed fairly and lawfully. personal data must now not only be processed legitimately and fairly but also transparently). • There are now 6 principles. The additional principle concerns the processing of the personal data in such a way that it is kept secure from unauthorised access or unlawful processing.

5(1)(f)

649

6(1)(a)

11.04  Regulatory Requirements GDPR

Art

Directive

8

No specific provision

Art

Children A child under 16 (13 in the UK) cannot give consent to the processing of its personal data where there is an offer of information society services (a person with parental responsibility has to do so). Consent The meaning of consent has changed and the conditions necessary to establish consent have been toughened for controllers. 4(11) Consent of the data subject ‘means any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her’ Changes over the Directive in italics

‘the data subject’s consent’ 2(h) shall mean any freely given specific and informed indication of his wishes by which the data subject signifies his agreement to personal data relating to him being processed.’

The principal changes concern: 1. the expanded definition of consent (see immediately above), with the additional requirements that it is now also unambiguous, and that the data subject must also take some positive action to signify consent), and 7

2. there are now additionally requirements or conditions to determine whether consent is given, including:

No specific provision

• the controller has to demonstrate that the subject has consented to the processing of their personal data; • where writing is used, it is necessary that the request for consent is kept separate to other matters; • the request for consent has to be in an intelligible and easily accessible form, using clear and plain language; • the data subject has the right to withdraw consent (and it should be able to do so as easily as s/he can give consent); Special categories of personal data The types of personal data which comes within 9(1) the meaning of a special category has expanded: ‘Processing of personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, or trade union membership, and the processing of genetic data, biometric data for the purpose of uniquely identifying a natural person, data concerning health or data concerning a natural person’s sex life or sexual orientation shall be prohibited.’ Changes over the Directive in italics

650

8 ‘Member States shall prohibit the processing of personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, tradeunion membership, and the processing of data concerning health or sex life.’

Information protection and release and computer technology 11.04 GDPR

Art

Directive

Art

The grounds when it is possible to process special categories of personal data follows largely that in the Directive, expect that two new grounds are introduced: 9(2)(i) No specific provision

• processing is necessary for reasons public interest in the area of public health (particularly to counter serious cross-border threats to health);

• processing is necessary for archiving purposes 9(2)(j) No specific provision in the public interest, scientific or historical research purposes or statistical purposes. Rights of data subjects The number of rights of data subjects has over their personal data has increased, as well as existing rights being defined in greater detail, The rights the data subject has are: • a right to certain information where personal 13, 14 data is collected directly or indirectly from the data subject;

10, 11

• a right to have access to personal data held by 15 a controller;

12(a)

• a right to have inaccurate personal data held by a controller rectified;

16

12(b)

• a right to have personal data held by a controller erased (a right to be forgotten)

17

12(b)

• a right to place a restriction on the processing 18 of personal data held by a controller;

12(b)

• a right to receive personal data that is held by one controller in a structured, commonly used and machine-readable format so that it can be transmitted to another controller (data portability)

20

None

• a right to object to automated individual decision-making.

21

15

• the controller has to communicate to each recipient of personal data any rectification, erasure or restriction of processing

19

The manner in which information is provided, and any communication, from the controller about the rights is to be made in a ‘concise, transparent, intelligible and easily accessible form, using clear and plain language’

12(1)

651

No specific overall provision

11.04  Regulatory Requirements GDPR

Art

Territorial scope increased GDPR applies to a controller or processor: 1. established in the EU, regardless of whether the processing of personal data takes place in the EU; and

3(1)

2. who is not established in EU, but there is the processing of personal data of data subjects who are in the EU. This will apply:

Directive Scope Does not define the scope by whether a data processor or controller is established in the EU or whether it applies to processors who are not established in the EU

Art 4

(a) if the processing relates to the offering of 3(2)(a) goods and services to such data subjects in the EU; or 3(2)(b)

(b) there is monitoring of the behaviour of data subjects in the EU where their behaviour takes place in the EU.

Also relevant to this provision: For a controller not established in the EU, it must 27(1) appoint, in writing, a representative in the EU. Keeping records of processing 30 Both the controller and the processor of a data subject’s personal data have to maintain a record of the processing. The details include the contact details of the controller, the purposes for processing, descriptions of the categories of personal data and personal data, who the recipients are or will be (including third countries); and if relevant the envisaged time limits for the erasure. A similar set of requirements are imposed on the processor Data protection officers Certain types of controller or processor have to 37 appoint an data protection officer, where: • the processing is carried out by a public authority;

A requirement to keep a register, but only for the controller

22

No specific provision

• their core activities consist of ‘processing operations which, by their virtue, their scope and/or their purposes, require regular and systematic monitoring of data subjects on a large scale’; • their core activities consist on a large scale of the processing of ‘sensitive’ personal data (or relating to criminal activities).9 The role of the data protection officer includes advising their controller/processer of their obligations as well as monitoring compliance with the GDPR and co-operating with supervisory authorities.

9

38

No specific provision

GDPR, Art 37(1). GDPR, Arts 37 to 39 specify other aspects of the role and position of the data protection officer, the detail of which is outside the scope of this book.

652

Information protection and release and computer technology 11.06

Specific provisions from the DPA 2018 of relevance Introduction 11.05 As noted above, the DPA 2018 adds to, and modifies, the GDPR as well as dealing with areas which the GDPR does not cover.10 This section deals with a few of the provisions in the DPA 2018 which are of general application. Besides these general provisions, the DPA 2018 contains detailed provisions on such matters as: •

the processing of personal data by competent authorities for law enforcement purposes;

•

the processing of personal data by the intelligence services;

•

the powers and responsibilities of the Information Commissioner; and

•

enforcement powers.

All of these are outside the scope of this book.

General provisions of the DPA 2018 of relevance to this book 11.06 The DPA 2018 has the purpose to make provision for the processing of personal data but to indicate that most processing of personal data is subject to the GDPR.11 The DPA 2018 states its aim (together with the GPDR) is to protect individuals where there is processing of personal data by: •

requiring personal data to be processed lawfully and fairly, subject to the consent of the data subject or where there is another specified basis;

•

providing rights to the data subject so that the data subject can:

•

–

obtain information about the processing of personal data;

–

require rectification of inaccurate personal data;

providing powers to the Information Commissioner to enforce the provisions of the GDPR and the DPA 2018.12

The DPA 2018 modifies or adds to the meanings of certain words or provisions used in the GDPR, including: •

10 11 12 13

the definition of a controller under the GDPR13 (see definitions at the end of this section): ‘where personal data is processed only (a) for

DPA 2018, s 1(2). DPA 2018, s 1(1), (2). DPA 2018, s 2. See definitions at the end of this section.

653

11.07  Regulatory Requirements

purposes for which it is required by an enactment to be processed, and (b) by means by which it is required by an enactment to be processed, the person on whom the obligation to process the data is imposed by the enactment (or, if different, one of the enactments) is the controller’;14 •

the meaning of a ‘public authority’: has the meaning set out in freedom of information legislation in the UK, and any regulations issued by the Secretary of State (subject to some modifications not of relevance to this book);15

•

modifications to the meaning of certain articles of the GDPR (dealt with at the appropriate places in the text of this section): –

GDPR, Art 6(1)(e): processing carried out in the public interest;

–

GDPR, Art 8(1): age of a child’s consent;

–

GDPR, Art 9(1): process of special categories of personal data;

–

GDPR, Art 9(2)(h): processing for health and social care purposes;16

•

exemptions to the rights of data subjects as set out, mainly, in the GDPR, Arts 13 to 2117 (whether some or all of them) in particular circumstances, with the Secretary of State having the power to provide for further exemptions;18

•

that the Secretary of State can make regulations for the purposes of the GDPR, Art 49(1)(d) concerning transfers of personal data to third countries (see further below);19

•

the circumstances when it is possible to process personal data for archiving, research and statistical purposes (see further below);20

•

a tribunal does not come within the meaning of a ‘court’.21

Territorial scope 11.07 The GDPR applies to the processing of personal data both by controllers and processors in the following situations: •

‘to the processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union, regardless of whether the processing takes place in the Union or not’;22

14 15 16 17 18 19 20 21 22

DPA 2018, s 6. DPA 2018, s 7. DPA 2018, ss 8 to 11. See table at para 11.04 above under ‘Rights of data subjects’ for an outline. DPA 2018, ss 15, 16. The details of the circumstances are set out in DPA 2018, Schs 2, 3 and 4. DPA 2018, s 18. DPA 2018, s 19. DPA 2018, s 20. GDPR, Art 3(1).

654

Information protection and release and computer technology 11.07

•

‘to the processing of personal data of data subjects who are in the Union by a controller or processor not established in the Union, where the processing activities are related to: (a) the offering of goods or services, irrespective of whether a payment of the data subject is required, to such data subjects in the Union; or (b) the monitoring of their behaviour as far as their behaviour takes place within the Union’.23

For the first situation, the controller or processor must have an ‘establishment’ in the EU, which is likely to mean that the controller or processor must have a stable arrangement for its presence in the EU, although the legal form is not determinative (such as the setting up of a subsidiary or branch), and in appropriate circumstances could be a single person of an overseas company.24 The first situation also requires that the processing is ‘in the context of the activities of’ the controller’s or processor’s establishment in the EU, which means that the controller or processor must be carrying out some form of commercial activity within the EU, although the controller or processor itself does not need to process the personal data, or that the processing of the personal data needs to take place, in the EU.25 The second situation, while applying to a controller or processor not having an establishment in the EU, only covers subjects who are in the EU and where the goods, services are offered to them in the EU or their behaviour is monitored in the EU. Whether the data subject is an EU national or where they are resident are not relevant factors but only that they are in the EU and that, eg, the processing activities of the controller or processor are related to the offering of goods or services to those data subjects in the EU.26 For the 23 GDPR, Art 3(2). 24 See GDPR, Recital 22 and European Data Protection Working Party, Guideline 3/2018 on the territorial scope of the GDPR (Article 3) – 16 November 2018. 25 See the analysis of the European Data Protection Working Party’s Guideline referred to in note 24, at pages 6–7. The Guideline provides some helpful worked examples of when a controller or processor would be considered to have an establishment or to be carrying out activities in the context of the establishment. 26 The European Data Protection Working Party’s Guideline referred to in note 24 provides valuable worked examples of when a service is offered or not offered to a person in the EU. GDPR, Recital 23 indicates that, ‘In order to determine whether such a controller or processor is offering goods or services to data subjects who are in the Union, it should be ascertained whether it is apparent that the controller or processor envisages offering services to data subjects in one or more Member States in the Union’. The recital also goes on to indicate some factors to determine whether a controller or processor has the necessary intention to offer goods and services to a data subject located in the EU: ‘Whereas the mere accessibility of the controller’s, processor’s or an intermediary’s website in the Union, of an email address or of other contact details, or the use of a language generally used in the third country where the controller is established, is insufficient to ascertain such intention, factors such as the use of a language or a currency generally used in one or more Member States with the possibility of ordering goods and services in that other language, or the mentioning of customers or users who are in the Union, may make it apparent that the controller envisages offering goods or services to data subjects in the Union’.

655

11.08  Regulatory Requirements

monitoring of behaviour it is likely that some consideration of the purpose of the monitoring and any subsequent behavioural analysis or profiling techniques used is required.27

Principles which govern the lawful processing of personal data 11.08 It is only lawful to process personal data if, and only to the extent that, one of the following principles apply, so that personal data shall be:28 •

‘processed lawfully, fairly and in a transparent manner in relation to the data subject (‘lawfulness, fairness and transparency’)’;

•

‘collected for specified, explicit and legitimate purposes and not further processed in a manner that is incompatible with those purposes … (‘purpose limitation’)’;29

•

‘adequate, relevant and limited to what is necessary in relation to the purposes for which they are processed (‘data minimisation’)’;

•

‘accurate and, where necessary, kept up to date; every reasonable step must be taken to ensure that personal data that are inaccurate, having regard to the purposes for which they are processed, are erased or rectified without delay (‘accuracy’);30

•

‘kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the personal data are processed … (‘storage limitation’)’;

•

‘processed in a manner that ensures appropriate security of the personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures (‘integrity and confidentiality’)’.

27

See GDPR, Recital 24: ‘In order to determine whether a processing activity can be considered to monitor the behaviour of data subjects, it should be ascertained whether natural persons are tracked on the internet including potential subsequent use of personal data processing techniques which consist of profiling a natural person, particularly in order to take decisions concerning her or him or for analysing or predicting her or his personal preferences, behaviours and attitudes’. For the European Data Protection Board the type of monitoring activities that can come within the scope of monitoring activities would include: ‘Behavioural advertisement; Geo-localisation activities, in particular for marketing purposes; Online tracking through the use of cookies or other tracking techniques such as fingerprinting; Personalised diet and health analytics services online; CCTV; Market surveys and other behavioural studies based on individual profiles; Monitoring or regular reporting on an individual’s health status’ (from page 8 of the Guideline referred to in note 24. 28 GDPR, Art 5(1)(a) to (f). 29 Further processing is not incompatible with this principle if done for ‘archiving purposes in the public interest, scientific or historical research purposes or statistical purposes’. 30 Personal data may be stored for a longer period if processed for archiving purposes in the public interest, scientific or historical research purposes or statistical purposes in accordance with Article 89(1) subject to implementation of the appropriate technical and organisational measures required by this Regulation in order to safeguard the rights and freedoms of the data subject’.

656

Information protection and release and computer technology 11.12

The controller has responsibility for complying with the above principles, and also has to be able to demonstrate that s/he is complying with them.31

Type of personal data subject to the GDPR 11.09 The GDPR applies to the processing of personal data: •

by automated means (whether wholly or partially);

•

not by automated means but where it forms part of a filing system (or is intended to form part of a filing system).32

Types of processing of personal data to which the GDPR does not apply 11.10 Circumstances when the GDPR does not apply to processing of personal data include:33 •

unsurprisingly, in the course of activity which is outside the scope of EU law;

•

by a natural person during purely personal or household activity;

•

by a competent authority which is for the purpose of preventing, investigating, detecting or prosecuting a criminal offence or enforcing criminal penalties (including protecting against and preventing threats to public safety).34

GDPR applies only to living persons 11.11 •

GDPR applies only to personal data of a living person, and not to deceased persons.35

Grounds on which is possible to process ‘ordinary’ personal data 11.12 •

31 32 33 34 35 36

It is only possible to process personal data if one of the following conditions applies:36 GDPR, Art 5(2). GDPR, Art 2( 1). GDPR, Art 2(2). DPA 2018, Part 3 concerns such matters in the UK. GDPR, Recital 27. GDPR, Art 6(1).

657

11.12  Regulatory Requirements

–

a data subject has given consent to the processing of her or his personal data for one or more specific purposes;37

–

it is necessary to process personal data: ○

for the performance of a contract to which the data subject is a party; or

○

to take steps at the request of the data subject prior to the entering of the contract;38

–

it is necessary to process personal data to comply with a legal obligation to which the controller is subject;39

–

it is necessary to process personal data so that the vital interests of the data subject or another person are protected;40

–

it is necessary to process personal data for the performance of tasks which are in the public interest or concern the exercise of official authority vested in the controller.41 The processing of personal data for these purposes, in the UK, will include:42 ○

the administration of justice;

○

the exercise of a function of either House of Parliament;

○

where a person exercises a function which is conferred on them by an enactment or the rule of law;

○

the exercise of a function by the Crown, a Minster of the Crown, or a government department; or

○

an activity which promotes democratic engagement;

37 GDPR, Art 6(1)(a). 38 GDPR, Art 6(1)(b). 39 GDPR, Art 6(1)(c). It is possible for a member state to ‘maintain or introduce more specific provisions to adapt the application of the rules of this Regulation with regard to processing for compliance with [this point] by determining more precisely specific requirements for the processing and other measures to ensure lawful and fair processing including for other specific processing situations as provided for in Chapter IX’: GDPR, Art 6(2). (Chapter X refers to delegation of acts and the procedure a member state has to adopt.) The ‘legal obligation’ does not necessarily equate to a legislative measure adopted by a parliament, but it ‘should be clear and precise and its application should be foreseeable for persons subject to it, in accordance with the case-law of the Court of Justice of the European Union … and the European Court of Human Rights’: GDPR, Recital 41. Recital 45 indicates that, although there is no requirement for a specific law for each individual processing, there should be a legislative basis in EU or member state law for the processing and one law may suffice for several processing operations based on a legal obligation to which the controller is subject. 40 GDPR, Art 6(1)(d). 41 GDPR, Art 6(1)(e). See note 39, as the point made there also applies to this point. 42 DPA 2018, s 8(1).

658

Information protection and release and computer technology 11.14

–

it is necessary to process personal data so that the controller or a third party can pursue legitimate interests.43 Such interests can be overridden by the interests or fundamental rights of the data subject which require protection of personal data (particularly where the data subject is a child).

Requirements if personal data is to be processed for purposes other than the original purpose 11.13 If there is to be the processing of personal data for a purpose other than for the purpose for which it was originally collected, then to determine whether the processing for another purpose is compatible with the initial purpose, the controller will take the following into account:44 •

the link between the original purpose for processing the personal data and the new purpose;

•

the context in which the personal data has been collected, focusing particularly on the relationship between the controller and the data subject;

•

the nature of the personal data (and in particular whether the personal data concerns special categories of personal data relating to criminal convictions and offences);

•

the potential consequences of the further processing of personal data;

•

the existence of appropriate safeguards (such as the use of encryption and pseudonymisation).

Conditions a controller needs to satisfy if it wishes to process personal data on the basis that it has the consent of the data subject 11.14 If a controller wishes to process personal data on the basis that the controller has the consent of the data subject, the following apply: •

the controller has to be able to demonstrate that the data subject has consented to the processing of her or his personal data;45

43 GDPR, Art 6(1)(f). This does not apply where the processing is carried out by a public authority performing its tasks: GDPR, Art 6(1). Such legitimate interests can include where there is ‘relevant and appropriate relationship between the data subject and the controller in situations such as were the data subject is a client or in the service of the controller’: GDPR, Recital 47. The recital also considers legitimate interests such as processing to prevent fraud or for direct marketing purposes. Also see note 39 above in relation to Recital 45, as this applies equally to this legal basis for the processing of personal data. 44 GDPR, Art 6(4). 45 GDPR, Art 7(1).

659

11.15  Regulatory Requirements

•

that the request for consent is separated out from other matters if the consent is given in a written declaration. Also, the request for consent has to be in an intelligible and easily accessible form and written in clear and plain language. Any part of the written declaration not complying with the GDPR is not binding;46

•

the data subject can withdraw her or his consent at any time. Before giving consent, the data subject has to receive information that it is possible to withdraw consent and it should be as easy to withdraw consent as it is to give consent;47

•

in deciding whether consent is freely given, it will be necessary to take the ‘utmost account’ of whether the performance of a contract is conditional on the processing of personal data when the reality is that such processing is not necessary for the performance of the contract.48

Further points about consent 11.15 Although consent is not the only ground on which it is possible for a controller to lawfully process the personal data of a data subject, it is the ground which receives the most detailed treatment in the GDPR (as well as in other materials). However, for a controller to validly rely on consent can be difficult, given the restrictive meaning in the GDPR together with the obligations on the controller which are set out in the previous paragraph. The definition of consent sets out the circumstances that must be satisfied, so that it is: •

freely given;

• specific; 46 GDPR, Art 7(2). 47 GDPR, Art 7(3). 48 GDPR, Art 7(4). See Article  29 Working Party – Guidelines on consent under Regulation 2016/679 (adopted 28 November 2017, last revised and adopted 10 April 2018), 3.1.2, page 8: ‘Article 7(4) GDPR indicates that, inter alia, the situation of “bundling” consent with acceptance of terms or conditions, or “tying” the provision of a contract or a service to a request for consent to process personal data that are not necessary for the performance of that contract or service, is considered highly undesirable. If consent is given in this situation, it is presumed to be not freely given (Recital 43). Article 7(4) seeks to ensure that the purpose of personal data processing is not disguised nor bundled with the provision of a contract of a service for which these personal data are not necessary. In doing so, the GDPR ensures that the processing of personal data for which consent is sought cannot become directly or indirectly the counter-performance of a contract. The two lawful bases for the lawful processing of personal data, i.e. consent and contract cannot be merged and blurred. Compulsion to agree with the use of personal data additional to what is strictly necessary limits data subject’s choices and stands in the way of free consent.’ If the controller needs to process personal data to perform a contract, the proper lawful basis for processing will not be consent (GDPR, Art 6(1)(a)), but GDPR, Art 6(1)(b).

660

Information protection and release and computer technology 11.17

•

informed; and

•

an unambiguous indication of the data subject’s wishes.

Consent is not normally ‘freely given’: •

where there is a clear imbalance between the data subject and controller;

•

in any situation where a controller is a public authority.49

Consent is not ‘freely given’ where the data subject has no genuine or free choice to refuse or withdraw consent without detriment.50

Children 11.16 A  child cannot lawfully consent to the processing of its personal data until the child is 16 where there is an offer of information society services.51 Under that age the processing of the child’s personal data is only lawful where consent is given by a person who has parental responsibility for the child.52 The UK has chosen to lower the age to 13, as the GDPR permits.53

Special categories of personal data (‘sensitive personal data’) 11.17 There are special categories of personal data which reveal racial or ethnic origin, political opinions, religious or philosophical beliefs, or trade union membership of a data subject (‘sensitive personal data’).54 The processing of personal data relating to sensitive personal data is prohibited unless one of the grounds set out in paragraph 11.18 apply.

49 GDPR, Recital 43. 50 GDPR, Recital 42. Also see Article  29 Working Party – Guidelines on consent under Regulation 2016/679 (adopted 28 November 2017, last revised and adopted 10 April 2018), 3.1, page 5: ‘If consent is bundled up as a non-negotiable part of terms and conditions it is presumed not to have been freely given. Accordingly, consent will not be considered to be free if the data subject is unable to refuse or withdraw his or her consent without detriment’. The opinion makes specific reference to GDPR, Art 7(4) (see above and note 48). 51 GDPR, Art 8(1). A reference to Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market. 52 GDPR, Art 8(1). The controller has to use reasonable efforts to verify that the person with lawful responsibility over a child has given consent or is authorised, taking into account the available technology: GDPR, Art 8(2). 53 DPA 2018, s 9(1). 54 GDPR, Art 9(1). The principal change in the GDPR over the Directive is the addition of genetic data and biometric data. But, unlike the other types of data considered to be a special category, it appears that the prohibition only extends where the process concerns the purpose of uniquely identifying a natural person.

661

11.18  Regulatory Requirements

Also covered within the meaning of sensitive personal data are the processing of genetic data,55 biometric data56 for the purpose of uniquely identifying a natural person, and data concerning health or data concerning a natural person’s sex life or sexual orientation.

Grounds on which it is possible to process sensitive personal data 11.18 The processing of special categories of personal data (‘sensitive data’) is prohibited unless there is a specific ground for so doing:57 (a) a data subject has given his or her explicit consent to the processing of the personal data for one or more specific purposes;58 (b) the processing is necessary to carry out the obligations of the data subject or controller (or exercise specific rights that they have) in the fields of employment, social security and social protection law;59 (c) the processing is necessary to protect the vital interests of the data subject or another natural person, where the data subject is physically or legally incapable of giving consent;60 (d) the processing is carried out in the course of legitimate activities by notfor-profit bodies (whose aims are political, philosophical, religious or trade-union related) – subject to conditions: •

that the processing relates to its members, ex-members and persons who have regular contact with it in connection with its purposes; and

•

personal data is not disclosed outside the body without the consent of the data subject;61

(e) processing relates to personal data which has been manifestly made public by the data subject;62 55

‘Genetic data’ means ‘personal data relating to the inherited or acquired genetic characteristics of a natural person which give unique information about the physiology or the health of that natural person and which result, in particular, from an analysis of a biological sample from the natural person in question’: GDPR, Art 4(13). 56 ‘Biometric data’ means ‘personal data resulting from specific technical processing relating to the physical, physiological or behavioural characteristics of a natural person, which allow or confirm the unique identification of that natural person, such as facial images or dactyloscopic data’: GDPR, Art 4(13). 57 GDPR, Art 9(2)(a) to (j). 58 GDPR, Art 9(2)(a). 59 GDPR, Art 9(2)(b). This applies ‘in so far as it is authorised by Union or Member State law or a collective agreement pursuant to Member State law providing for appropriate safeguards for the fundamental rights and the interests of the data subject’. 60 GDPR, Art 9(2)(c). 61 GDPR, Art 9(2)(d). 62 GDPR, Art 9(2)(e).

662

Information protection and release and computer technology 11.18

(f) processing is necessary to establish, exercise or defendant a legal claim or whenever a court is acting in its judicial capacity;63 (g) processing is necessary for reasons of substantial public interest, based on EU or member state law, as long as the law: •

is proportionate to the aim pursued;

•

respects the right to data protection;

•

provides for suitable and specific measures to safeguard the fundamental rights and interests of the data subject;64

(h) the processing is necessary for the following purposes: •

of preventive or occupational medicine;

•

for the assessment of working capacity of the employment;

•

of medical diagnosis;

•

of the management of health or social care systems of services on the basis of EU or national law pursuant to a contract with a health professional;65

(i) processing is necessary for reasons of public interest in the area of public health, such as: •

protecting against serious cross-border threats to health;

•

ensuring high standards of quality and safety of health care and medicinal products or medical devices;

on the basis that there is EU or member state law ‘which provides for suitable and specific measures to safeguard the rights and freedoms of the data subject, in particular that of the data subject’;66 (j) processing is necessary: •

for archiving purposes in the public interest;

•

for scientific research purposes;

•

for historical research purposes; or

•

for statistical purposes;

in accordance with GDPR Article 89(1).67

63 GDPR, Art 9(2)(f). 64 GDPR, Art 9(2)(g). 65 GDPR, Art 9(2)(h). Processing under this provision, where the data is processed by or under the responsibility of a professional who is subject to an obligation of professional secrecy or another person, is also subject to an obligation of secrecy: GDPR, Art 9(3). 66 GDPR, Art 9(2)(i). 67 GDPR, Art 9(2)(j).

663

11.19  Regulatory Requirements

Members states can maintain or introduce further conditions (including limitations) concerning the processing of genetic data, biometric data or data concerning health.68 For the UK, the processing of personal data meets the requirements of (b), (h), (i) or (j) in the above list if the processing meets a condition in DPA 2018, Sch 1, Part 1; for (g), its requirements are met if it meets a condition in DPA 2018, Sch 1, Part 2. The details of these Schedules are outside the scope of this book.

Conditions for collecting personal data from a data subject (and the provision of information) 11.19 At the time personal data is collected from a data subject, the controller shall provide to the data subject the following information:69 •

the controller’s identity and contact details;

•

the contact details of the data protection officer;

•

the purposes for which the processing of the personal data is intended and the legal basis for processing;

•

the legitimate interests pursued by the controller or by a third party (where processing is carried out so that the controller or a third party can pursue legitimate interests);

•

recipients or categories of recipients of the personal data;

•

whether the controller intends to transfer personal data to a third country (or an international organisation). Also, the controller will need to let the data subject know of the existence or absence of an adequacy decision by the Commission in addition to other requirements.

Also, at the time personal data is collected, to ensure there is fair and transparent processing, the controller shall provide the data subject with the following further information:70 •

the period for which the personal data will be stored (or, if not possible, the criteria the controller will use to determine the period);

•

the existence of the following rights that the data subject has:

68 69 70

–

access to personal data;

–

rectification of personal data;

–

erasure of personal data;

–

restricting of processing concerning the data subject;

GDPR, Art 9(3). GDPR, Art 13(1). GDPR, Art 13(2).

664

Information protection and release and computer technology 11.20

–

objecting to processing;

–

data portability;

– if processing is based on consent (whether for ‘ordinary’ or ‘sensitive’ personal data), the existence of the right to withdraw consent at any time (without affecting the lawfulness of processing based on consent before the withdrawal of consent); –

the right to make a complaint to the regulatory body supervising the data controller;

–

whether the provision of personal data: ○

is a statutory requirement;

○

is a contractual requirement;

○

is necessary to enter into a contract;

as well as whether the data subject is required to provide the personal data and the consequences of failing to do so; –

if there is to be automated decision-making (including profiling), meaningful information concerning the logic involved in such processing; the information should include an explanation of the significance and the envisaged consequences of such processing for the data subject;

–

if the controller intends to process the personal data for a purpose other than that for which the personal data was originally collected, the controller has to let the data subject know (prior to the further processing) what the other purpose is (as well as other information stated above);

•

if the personal data is not collected directly from the data subject, the controller has to provide to the data subject similar information to that described above;

•

the provision of information has to be: –

in a concise, transparent, intelligible and easily accessible form, using clear and plain language;

–

provided in writing (or other means including by electronic means).71

Processing of personal data for research and scientific purposes 11.20 The Data Protection Act 1998 provided a limited exemption from some of the data protection principles and the subject access right where personal data was being processed for research purposes. 71 GDPR, Art 12(1). It is possible for the information to be provided orally if requested by the data subject, as long as the identity of the data subject is established by other means.

665

11.20  Regulatory Requirements

GDPR also allows member states to derogate from the rights that data subjects have under the GDPR (if a member state chooses to do so). But the principal provision in the GDPR in relation to research activities is not set out in the same way as under the 1998 Act.72 This provision itself does not set out on which of the lawful grounds it is possible to process the personal data of a data subject who is a participant in a research project. Several grounds are potentially available and, at first glance, obtaining the consent of the data subject is the most relevant, but this is an incorrect assumption to make. To establish on which of the grounds it is possible to process the personal data of a data subject, it is necessary to look at the opinions issued by the European Data Protection Board,73 as well as other sources of information. The principal provision of the GDPR relevant to the processing of personal data for research purposes provides that: •

where processing is carried out for Research Purposes (see next bullet point), that processing can only take place subject to safeguards being in place which respect the rights and freedoms of the data subject;74

•

the purposes are: (1) archiving purposes in the public interest; (2) scientific research; (3) historical research; and (4) statistical purposes; (‘Research Purposes’)

•

the safeguards should ensure that there is respect for data minimisation, principally through the use of technical and organisation measures. Pseudonymisation is one measure, as long the Research Purposes can be fulfilled in that manner;75

•

the GDPR does not define the meaning of ‘scientific research’ but a recital provides some guidance:76

72 GDPR, Art 89. 73 Article  29 Working Party – Guidelines on consent under Regulation 2016/679 (adopted 28 November 2017, last revised and adopted 10 April 2018) and European Data Protection Board, Opinion 3/2019 concerning the Questions and Answers on the interplay between the Clinical Trials Regulation (CTR) and the General Data Protection regulation (GDPR) (Art 70.1.b)) (adopted 23 January 2019). 74 GDPR, Art 89(1). 75 GDPR, Art 89(1). 76 GDPR, Recital 159. In Article 29 Working Party – Guidelines on consent under Regulation 2016/679 (adopted 28  November 2017, last revised and adopted 10  April 2018), 7.2, page 28: ‘the notion [that is the meaning of scientific research] may not be stretched beyond its common meaning and understands that “scientific research” in this context means a research project set up in accordance with relevant sector-related methodological and ethical standards, in conformity with good practice’.

666

Information protection and release and computer technology 11.20

–

the processing of personal data for scientific research purposes should be interpreted in a broad manner;

– it will include technological development and demonstration, fundamental research, applied research and privately funded research; –

where there is to be publication or other disclosure of personal data in the context of scientific research purposes, specific conditions will be needed;

•

for a data subject to consent to participate in scientific research activities in clinical trials, it is also necessary to apply the relevant provisions of the CTR;77

•

where it is possible to fulfil the Research Purposes by further processing without identifying (or where it no longer possible to identify) a data subject, the Research Purposes shall be fulfilled in that manner;78

•

a member state can derogate from the following rights for the second, third and fourth Research Purposes:79 –

a right to have confirmation that the controller is processing the data subject’s personal data and access to that personal data;80

– a right to have inaccurate personal data held by a controller rectified;81 –

a right to place a restriction on the processing of personal data held by a controller;82 and

–

a right to object to processing of the data subject’s personal data;83

•

the ability to derogate shall be subject to the conditions and safeguards set out above ‘in so far as such rights are likely to render impossible or seriously impair the achievement of the specific purposes and such derogations are necessary for the fulfilment of those purposes’;84

•

the UK has decided to derogate from the rights listed above, as well as the rights relating to data portability and erasure (see next section).85

77 GDPR, Recital 161. The recital does not specify what the relevant provisions are, but it is likely to be those concerning consent. 78 GDPR, Art 89(1). 79 GDPR, Art 89(2). For the first Research Purpose (archiving purposes in the public interest), there is also a longer list of possible derogations, which covers – in addition to the list of rights set out here – the right of data portability and the need for the controller to communicate any rectification, erasure or restriction on processing to recipients of personal data: GDPR, Art 89(3). 80 GDPR, Art 15. 81 GDPR, Art 16. 82 GDPR, Art 18. 83 GDPR, Art 21. 84 GDPR, Art 89(2). 85 DPA 2018, s 15(2)(f), Sch 2, Pt 6.

667

11.21  Regulatory Requirements

Carrying out processing for Research Purposes – UK law requirements 11.21 Under the DPA 2018, processing of personal data of a data subject will not satisfy the safeguard requirements of the GDPR, Art 89(1): •

if it is likely to cause substantial damage or substantial distress to the data subject;86

•

if it is carried out for the purposes of measures or decisions with respect to a particular data subject unless the purpose for which the processing is necessary includes a purpose of approved medical research.87

‘Approved medical research’ means medical research which is carried out by a person who has approval from: •

a research ethics committee which is recognised or established by the Health Research Authority;

•

a body which has the purpose of assessing the ethics of research involving individuals. Bodies include NHS trusts or NHS foundation trusts, a Research Council, etc.88

On which of the grounds is it possible to process the personal data of a data subject for (scientific) research purposes? 11.22 As noted above, the GDPR does itself not specify any particular ground on which it is (only) possible to lawfully process the personal data of a data subject participating in a research project. A synthesis of opinions and other sources issued indicates that: •

it is possible that the person carrying out research (‘Researcher’) can rely on the consent of the data subject (whether for ‘ordinary’ personal data or ‘sensitive’ personal data);89

•

however, consent should not normally be the ground on which the Researcher should rely when wishing to process the personal data of a data subject who is participating in a research project. Rather, a Researcher should rely on one of the following grounds: –

86 87 88 89 90

for ordinary personal data, it is necessary to process personal data for the performance of tasks which are in the public interest or concern the exercise of official authority vested in the controller;90

DPA 2018, s 19(2). DPA 2018, s 19(3). DPA 2018, s 19(4). DPA 2018, s 19(4)–(6) sets out the full list. GDPR, Art 6(1)(a) or 9(2)(a). GDPR, Art 6(1)(e).

668

Information protection and release and computer technology 11.23

–

for ordinary personal data, it is necessary to process personal data so that the controller or a third party can pursue legitimate interests;91

–

for sensitive personal data, processing is necessary for archiving purposes in the public interest, scientific or historical research purposes, or statistical purposes in accordance with GDPR, Article 89(1).92

Research and clinical trials 11.23 The use of grounds other than the consent of the data subject is even more likely to be relevant where the research is a clinical trial (which is subject to the (UK) Medicines for Human Use (Clinical Trials) Regulations 2004 and/or the (EU) CTR).93 The opinion of the European Data Protection Board94 sets out the reasoning why consent under the GDPR is unlikely to be the basis for the processing of the personal data of a data subject, and it is worth setting out their view in some detail: •

•

•

it is necessary to distinguish between: –

processing operations related to reliability and safety purposes;

–

processing operations purely related to research activities;

reliability and safety purposes: the legal basis for processing operations of personal data relating to reliability and safety purposes is: –

for ‘ordinary’ personal data: that the processing is necessary to comply with a legal obligation to which the controller is subject;95

–

for ‘sensitive’ personal data: that the processing is necessary for reasons of public interest in the area of public health, such as ensuring high standards of quality and safety of health care and medicinal products or medical devices;96

research activities: where the processing of personal data relates to research activities, it is not possible, as the legal basis for the processing, for the Researcher to rely on the ground that s/he is under a legal obligation to do so.97 Rather, the Researcher will need to rely on:

91 92 93

GDPR, Art 6(1)(f). GDPR, Art 9(2)(j). Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. 94 European Data Protection Board, Opinion 3/2019 concerning the Questions and Answers on the interplay between the Clinical Trials Regulation (CTR) and the General Data Protection regulation (GDPR) (Art 70.1.b) (adopted 23 January 2019). 95 GDPR, Art 6(1)(c). 96 GDPR, Art 9(2)(i). 97 That is, GDPR, Art 6(1)(c).

669

11.23  Regulatory Requirements

•

–

the explicit consent (whether for ordinary or sensitive personal data) of the subject;98

–

for ordinary personal data, it is necessary to process personal data for the performance of tasks which are in the public interest;99

–

for ordinary personal data, it is necessary to process personal data so that the controller or a third party can pursue legitimate interests;100

–

for sensitive personal data, it is necessary for reasons of public interest in the area of public health (to ensure high standards of quality and safety of health care etc);101

–

for sensitive personal data, it is necessary for scientific research purposes in accordance with GDPR, Art 89(1) etc.102

explicit consent and informed consent: under the CTR there is a requirement to obtain ‘informed consent’ which is not the same as the legal ground for the processing of personal data under the GDPR: – the concepts of consent (‘ordinary’ personal data) or explicit consent (‘sensitive’ personal data) as the case may be for GDPR, and informed consent (under the CTR), have different purposes; –

for the EDPB, informed consent ‘is not conceived as an instrument for data protection compliance’;

–

For GDPR purposes, it is necessary to look at all the conditions that make up the meaning of consent (that it is ‘freely given’ etc) and in particular for explicit consent (which is likely to be the type of consent involved where a clinical trial is involved where the data subject’s health data is processed);103

–

The EDPB indicates that it is particularly necessary to look at: ○ whether consent is ‘freely given’, meaning that the data subject has real choice and control; ○

 98  99 100 101 102 103

whether there is a clear imbalance between the data subject and the controller, which, if it is the case, would mean that consent is not a valid legal ground for processing the personal data of the data subject;

GDPR, Arts 6(1)(a), 9(2)(a). GDPR, Art 6(1)(e). GDPR, Art 6(1)(f). GDPR, Art 9(2)(i). GDPR, Art 9(2)(j). The Opinion states that the data controller should pay particular attention to Article 29 Working Party – Guidelines on consent under Regulation 2016/679 (adopted 28 November 2017, last revised and adopted 10 April 2018).

670

Information protection and release and computer technology 11.23

– a clinical trial may lead to situations of imbalance of power between a sponsor or investigator and a participant, and there is an obligation on the investigator to take into account all relevant circumstances, including whether: ○ a participant is a member of an economically or socially disadvantaged group; or ○

‘is in a situation of institutional or hierarchical dependency that could inappropriately influence her or his decision to participate’;

–

accordingly, although there is a need to obtain informed consent under the CTR, because of the imbalance of power between an investigator and a data subject there is an implication that consent is not freely given for the purposes of the GDPR – such as because the participant is not in good health or, as noted above, belongs to a socially or economically deprived group or is in any situation of institutional or hierarchical dependency;

–

for all of these reasons, ‘consent will not be an appropriate legal basis in most cases, and other legal bases must be relied upon’;

–

withdrawal of consent: the opinion of the EDPB also highlights another issue why consent is not an appropriate legal basis for the processing of personal data of a data subject, that of the withdrawal of consent: ○

under the CTR, if a data subject withdraws her or his informed consent, that act does not affect activities already carried out. But the withdrawing of consent will only apply to the use of the personal data for research purposes and should cease. But the processing of personal data can continue if there is another lawful ground under the GDPR, such as the sponsor/ investigator is under a legal obligation to which the sponsor/ investigator is subject, such as the one related to safety purposes;104

○

under the GDPR, if the basis of processing is consent, the data subject has the right to withdraw consent at any time and the withdrawal will not affect the lawfulness of the processing up to the withdrawal; but, on withdrawal of consent, the data subject has the right to have the data erased, unless there is another legal basis for processing.105

104 CTR, Art 28(3). See European Data Protection Board, Opinion 3/2019 concerning the Questions and Answers on the interplay between the Clinical Trials Regulation (CTR) and the General Data Protection regulation (GDPR) (Art 70.1.b) (adopted 23 January 2019), paras 22 to 24. 105 GDPR, Art 17(1), (3).

671

11.24  Regulatory Requirements

A UK view on the need for consent 11.24 For the UK Health Research Authority:106 ‘the legal basis for processing data for health and social care research should NOT be consent. This means that requirements in the GDPR relating to consent do NOT apply to health and care research.’ Its reasoning is as follows: •

in the past the obtaining of consent was the method of obtaining access to the confidential information of patients involved in a research study;

•

this requirement has not changed with the introduction of the GDPR;

•

however, the GDPR requires a legal basis to process personal data in addition to the law protecting confidential information;

•

for health and social care research carried out under the UK  Policy Framework for Health and Social Care Research, the legal basis for processing personal data will depend on the type of organisation which is the controller of the personal data:

•

–

For universities, NHS organisations, Research Council institutes and other public authorities: the legal basis for the processing of personal data for research is that it is a task in the public interest;

–

For commercial organisations and charitable research organisations: the legal basis for the processing of personal data for research is that it is within the legitimate interests of the organisation;

the Health Research Authority, as for the EDPB, indicates that where there is an imbalance of power between the controller and the data subject (such as where the controller is a public authority and the data subject is dependent on the services provided by the public authority) the reality is that the data subject does not have a free choice.

Transfer of data to third countries 11.25 It is only possible to transfer personal data for processing to a third country where certain conditions are fulfilled as set out in the GDPR.107 The situations when it is possible to transfer data to a third country include

106 See www.hra.nhs.uk/planning-and-improving-research/policies-standards-legislation/dataprotection-and-information-governance/gdpr-guidance/what-law-says/consent-research/. 107 GDPR, Art 44. The conditions equally apply by the controller and the processor. The requirements are set out in GDPR, Arts 45 to 50. The requirements equally apply to where the transfer is to an international organisation.

672

Information protection and release and computer technology 11.27

the Commission making an adequacy decision,108 that there are appropriate safeguards, or a specific ‘derogation’ applies.

Adequacy decision 11.26 If the Commission has issued an adequacy decision that the third country ensures that there is an adequate level of protection, it will not be necessary to obtain specific authorisation to transfer personal data after the issuing of the decision.109

Safeguards 11.27 If there is no adequacy decision made by the Commission, a controller or processor can transfer data to a third country only: •

if the controller or processor has provided appropriate safeguards; and

•

on condition that: –

there are enforceable data subject rights; and

–

there are effective legal remedies for data subjects;110

The appropriate safeguards may be provided by: ‘(a) a legally binding and enforceable instrument between public authorities or bodies; (b) binding corporate rules …; (c) standard data protection clauses adopted by the Commission …; (d) standard data protection clauses adopted by a supervisory authority and approved by the Commission …; (e) an approved code of conduct … together with binding and enforceable commitments of the controller or processor in the third country to apply the appropriate safeguards, including as regards data subjects’ rights; or (f) an approved certification mechanism … together with binding and enforceable commitments of the controller or processor in

108 For current adequacy decisions made by the Commission, see: https://ec.europa.eu/info/law/ law-topic/data-protection/international-dimension-data-protection/adequacy-decisions_en. Currently there are adequacy decisions for the following countries: Andorra, Argentina, Canada (commercial organisations), Faroe Islands, Guernsey, Israel, Isle of Man, Japan, Jersey, New Zealand, Switzerland, Uruguay and the United States of America (limited to the Privacy Shield framework). 109 GDPR, Art 45. 110 GDPR, Art 46(1).

673

11.28  Regulatory Requirements

the third country to apply the appropriate safeguards, including as regards data subjects’ rights.’ In addition, it is possible for the following methods to provide the appropriate safeguards (subject to authorisation by a supervisory authority): –

contractual clauses between a controller and processor and, in the third country, the controller, processor or recipient of the personal data; or

–

provisions which are inserted into administrative arrangements between public authorities or bodies, where they include enforceable and effective data subject rights.111

Binding corporate rules 11.28 A supervisory authority will approve binding corporate rules if they: ‘(a) are legally binding and apply to and are enforced by every member concerned of the group of undertakings, or group of enterprises engaged in a joint economic activity, including their employees; (b) expressly confer enforceable rights on data subjects with regard to the processing of their personal data; and (c) fulfil the requirements laid down [in the Conditions].’112 The Conditions shall specify at least the following: ‘(a) the structure and contact details of the group of undertakings, or group of enterprises engaged in a joint economic activity and of each of its members; (b) the data transfers or set of transfers, including the categories of personal data, the type of processing and its purposes, the type of data subjects affected and the identification of the third country or countries in question; (c) their legally binding nature, both internally and externally; (d) the application of the general data protection principles, in particular purpose limitation, data minimisation, limited storage periods, data quality, data protection by design and by default, legal basis for processing, processing of special categories of personal data, measures to ensure data security, and the requirements in respect of onward transfers to bodies not bound by the binding corporate rules;

111 GDPR, Art 46(3). 112 GDPR, Art 47(1).

674

Information protection and release and computer technology 11.28

(e) the rights of data subjects in regard to processing and the means to exercise those rights, including the right not to be subject to decisions based solely on automated processing, including profiling in accordance with Article 22, the right to lodge a complaint with the competent supervisory authority and before the competent courts of the Member States in accordance with Article 79, and to obtain redress and, where appropriate, compensation for a breach of the binding corporate rules; (f) the acceptance by the controller or processor established on the territory of a Member State of liability for any breaches of the binding corporate rules by any member concerned not established in the Union; the controller or the processor shall be exempt from that liability, in whole or in part, only if it proves that that member is not responsible for the event giving rise to the damage; (g) how the information on the binding corporate rules, in particular on the provisions referred to in points (d), (e) and (f) of this paragraph is provided to the data subjects in addition to Articles 13 and 14; (h) the tasks of any data protection officer designated in accordance with Article  37 or any other person or entity in charge of the monitoring compliance with the binding corporate rules within the group of undertakings, or group of enterprises engaged in a joint economic activity, as well as monitoring training and complainthandling; (i) the complaint procedures; (j) the mechanisms within the group of undertakings, or group of enterprises engaged in a joint economic activity for ensuring the verification of compliance with the binding corporate rules. Such mechanisms shall include data protection audits and methods for ensuring corrective actions to protect the rights of the data subject. Results of such verification should be communicated to the person or entity referred to in point (h) and to the board of the controlling undertaking of a group of undertakings, or of the group of enterprises engaged in a joint economic activity, and should be available upon request to the competent supervisory authority; (k) the mechanisms for reporting and recording changes to the rules and reporting those changes to the supervisory authority; (l) the cooperation mechanism with the supervisory authority to ensure compliance by any member of the group of undertakings, or group of enterprises engaged in a joint economic activity, in particular by making available to the supervisory authority the results of verifications of the measures referred to in point (j); (m) the mechanisms for reporting to the competent supervisory authority any legal requirements to which a member of the group of undertakings, or group of enterprises engaged in a joint economic 675

11.29  Regulatory Requirements

activity is subject in a third country which are likely to have a substantial adverse effect on the guarantees provided by the binding corporate rules; and (n) the appropriate data protection training to personnel having permanent or regular access to personal data.’113

Derogations 11.29 Where there is no adequacy decision, or there are no appropriate safeguards, it is still possible to transfer personal data to a third country if one of the following conditions are fulfilled (called, in the GDPR, ‘derogations for specific situations’):114 •

•

the data subject has: –

explicitly consented to the proposed transfer; and

–

has been informed of the possible risk because of the absence of an adequacy decision and appropriate safeguards;115

the transfer is necessary: –

to perform a contract between the data subject and the controller;

–

to implement pre-contractual measures carried out at the request of the data subject;116

•

the transfer is necessary for the conclusion or performance of a contract which is in the interest of the data subject but is between the controller and another legal or natural person;117

•

the transfer is necessary for important reasons of public interest;118

•

the transfer is necessary to start, carry out or defend a legal claim;119

•

the transfer is necessary to protect the vital interest of the data subject or other persons if the data is physically or legally incapable of giving consent;120

•

the transfer is made from a register which is publicly available, subject to conditions.121

In the absence of an adequacy decision, or safeguards being in place (including binding corporate rules) or one of the above conditions not being met, a data transfer can still take place where: 113 114 115 116 117 118 119 120 121

GDPR, Art 47(2). GDPR, Art 49(1). GDPR, Art 49(1)(a). GDPR, Art 49(1)(b). GDPR, Art 49(1)(c). GDPR, Art 49(1)(d). GDPR, Art 49(1)(e). GDPR, Art 49(1)(f). GDPR, Art 49(1)(g).

676

Information protection and release and computer technology 11.31

•

the transfer is not repetitive;

•

it involves only a limited number of data subjects;

•

it is necessary for the purposes of ‘the compelling legitimate interests pursued by the controller which are not overridden by the interests or rights and freedoms of the data subject, and the controller has assessed all the circumstances surrounding the data transfer and has on the basis of that assessment provided suitable safeguards with regard to the protection of personal data’.122

In such a case the controller has to inform the supervisory authority and the data subjects involved.

Provisions under the DPA 2018 11.30 The DPA 2018 itself provides measures for the transfer of personal data to third countries which, in summary, are that the Secretary of State has powers to make regulations: •

for the purposes of GDPR, Art 49(1)(d) to specify the circumstances when it is possible or not to transfer personal data for important reasons of public interest;123

•

to restrict transfers of a category of personal data to a third country:124 –

in the absence of an adequacy decision under GDPR, Art 45(3);

–

because the ‘restriction is necessary for important reasons of public interest’.

Key definitions used in the GDPR and the DPA 2018 11.31 binding corporate rules

means personal data protection policies which are adhered to by a controller or processor established on the territory of a Member State for transfers or a set of transfers of personal data to a controller or processor in one or more third countries within a group of undertakings, or group of enterprises engaged in a joint economic activity;

biometric data

means personal data resulting from specific technical processing relating to the physical, physiological or behavioural characteristics of a natural person, which allow or confirm the unique identification of that natural person, such as facial images or dactyloscopic data;

122 GDPR, Art 49(1). 123 DPA 2018, s 18(1). GDPR, Art 49(1)(d) specifies that a transfer to a third country can take place because ‘the transfer is necessary for important reasons of public interest’. 124 DPA 2018, s 18(2).

677

11.31  Regulatory Requirements consent

of the data subject means any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her;

controller

means the natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data; where the purposes and means of such processing are determined by Union or Member State law, the controller or the specific criteria for its nomination may be provided for by Union or Member State law;

filing system

means any structured set of personal data which are accessible according to specific criteria, whether centralised, decentralised or dispersed on a functional or geographical basis;

genetic data

means personal data relating to the inherited or acquired genetic characteristics of a natural person which give unique information about the physiology or the health of that natural person and which result, in particular, from an analysis of a biological sample from the natural person in question;

personal data

means any information relating to an identified or identifiable natural person (‘data subject’); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person;

personal data breach

means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise processed;

processing

means any operation or set of operations which is performed on personal data or on sets of personal data, whether or not by automated means, such as collection, recording, organisation, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure or destruction;

processor

means a natural or legal person, public authority, agency or other body which processes personal data on behalf of the controller;

profiling

means any form of automated processing of personal data consisting of the use of personal data to evaluate certain personal aspects relating to a natural person, in particular to analyse or predict aspects concerning that natural person’s performance at work, economic situation, health, personal preferences, interests, reliability, behaviour, location or movements;

pseudonymisation

means the processing of personal data in such a manner that the personal data can no longer be attributed to a specific data subject without the use of additional information, provided that such additional information is kept separately and is subject to technical and organisational measures to ensure that the personal data are not attributed to an identified or identifiable natural person;

recipient

means a natural or legal person, public authority, agency or another body, to which the personal data are disclosed, whether a third party or not. However, public authorities which may receive personal data in the framework of a particular inquiry in accordance with Union or Member State law shall not be regarded as recipients; the processing of those data by those public authorities shall be in compliance with the applicable data protection rules according to the purposes of the processing;

678

Information protection and release and computer technology 11.32 restriction of processing

means the marking of stored personal data with the aim of limiting their processing in the future;

supervisory authority

means an independent public authority which is established by a Member State pursuant to Article 51;

third party

means a natural or legal person, public authority, agency or body other than the data subject, controller, processor and persons who, under the direct authority of the controller or processor, are authorised to process personal data.

Freedom of information Introduction 11.32 Many commercial transactions involving technology transfer have as one of the parties a governmental, regulatory, academic or health service body or organisation. Any of these types of organisation is likely to be a ‘public authority’. In such a case any person will have the right to request that the public authority release information that it holds. The Freedom of Information Act 2000 (FOIA)125 gives that right and applies to most types of information held by a public authority. The right a person has to the information held by a public body is subject to a number of exemptions. The most relevant to technology transfer or intellectual property transactions are that the information: •

is held subject to obligations of confidentiality;

•

constitutes a trade secret;

•

would prejudice the commercial interests of a person; or

•

is obtained in the course of (or is derived from) a programme of research.

Also relevant, but less likely to be of importance involving commercial transactions, is information which constitutes personal information, or which the public body holding is intending to publish or which is subject to legal professional privilege. This section does not cover all aspects of the FOIA,126 but concentrates on those aspects which are most likely to be relevant to public authorities holding information which relates to commercial transactions involving intellectual property: whether an organisation is subject to FOIA, what type 125 In force since 1 January 2005. 126 This section does not consider the detail of making a request for the release of information, the grounds or procedures for internal reviews, the detailed procedures concerning where payment of fees are due, etc, or the enforcement powers of the Information Commissioner. Also not considered are some of the available exemptions which are relevant to the type of public authorities which are involved in the creation of intellectual property or technology transfer.

679

11.33  Regulatory Requirements

of information is caught by FOIA, and the circumstances when information need not be disclosed. Following the implementation of the FOIA in 2005, many requests to public authorities were rejected because the public authorities frequently argued that exemptions such as the ‘commercial interests of a person would be prejudiced’ or there would be a ‘breach of obligations of confidentiality’ could apply to any situation where a transaction with a commercial party was involved. Such a ‘broad brush’ approach is no longer in accordance with the approach taken by the Information Commissioner and the First-tier or Upper Tribunal. Also, the Information Commissioner has issued guidance to almost every section of, and issue raised by, the FOIA.127 The result of the cases before the Information Tribunal and the guidance is that if a public authority wishes to rely on exemptions then only that information which comes truly within an exemption will be caught. A public authority is unlikely to be able to maintain a blanket ban on the release of any details of a commercial contract between it and a commercial organisation. The public authority will be required to sift out that information which is genuinely confidential from that which is not (just to take one of the possible exemptions available). This approach has an implication for commercial organisations entering into agreements with public authorities: rather than assuming that a commercial agreement will be (automatically) exempt from disclosure, the commercial organisation will need to identify that information which it believes can harm it and try to isolate it.

Aim of the Freedom of Information Act 2000 11.33 The FOIA allows a person (applicant) to make a request to a public authority for the information that the public body holds. The right is twofold: •

a right to be told whether the public authority holds or does not hold the requested information;128 or

•

a right to be provided with the requested information.129

As a preliminary point, the right under the FOIA is to information not to documents, that is to the content of documents and not to a document 127 This is available from www.ico.org.uk. It is regularly revised. The guidance has undergone substantial revision since the third edition of this book. 128 Freedom of Information Act 2000, s 1(1)(a). Known as ‘the duty to confirm or deny’ (Freedom of Information Act 2000, s  1(6)). The confirmation from the public authority has to be in writing. The duty to confirm or deny is also met where the public body provides the requested information (Freedom of Information Act 2000, s 1(5)). 129 Freedom of Information Act 2000, s 1(1)(b).

680

Information protection and release and computer technology 11.36

containing the information. For example, if a person requests the information concerning a contract which a public authority has entered, the public authority (if it had to disclose the whole of the information contained in the contract) could provide the contract’s provisions typed out in an email and not the file containing the original final version of the contract or a scanned copy of a signed version.

Making a request for information held by a public authority How the request must be made 11.34 For an applicant to receive the information a public authority holds, the applicant has to: •

make a request a writing;130

•

provide his or her name and an address for the correspondence;131

•

describe what information he or she is seeking.132

Other than these points (and where any possible exemption applies or permissible reason for not providing the information requested, such as it is vexatious) the public authority cannot enquire further into the identity of the applicant or seek the motive of him or her in wishing to receive the information he or she requests.133

Who can make a request 11.35 There are no restrictions on who can make the request for information.134 For example, there is nothing to prevent a commercial organisation making a request for information held by a public authority regarding the contracts the public authority has entered into with competitors of that commercial organisation.

How long does the public authority have to consider the request? 11.36 Once a public authority has received a request from an applicant for information it must comply with the request promptly and in any case 130 Freedom of Information Act 2000, s  8(1)(a). The use of electronic means is permitted to transmit the request, but whatever method is used the request has to be in a legible form and capable of being used for subsequent reference (Freedom of Information Act 2000, s 8(2)). 131 Freedom of Information Act 2000, s 8(1)(b). It appears that the address does not have to be a physical address, but could only be an email address. 132 Freedom of Information Act 2000, s 8(1)(c). 133 This point is considered further in the Information Commissioner’s Freedom of Information Good Practice Guidance No 6. 134 As long as the applicant complies with the points made at para 11.34 above.

681

11.37  Regulatory Requirements

no later than 20 working days following the date of receipt.135 There are certain circumstances in which the period can be extended, including if the public authority needs further information from the applicant to help it to identify what information is in fact sought;136 or where a fee is sought from the applicant and the public authority is awaiting the payment of the fee.137 Also, if the public authority wishes to rely on a qualified exemption, the time for compliance can also be extended in order to enable the public authority to consider the statutory public interest test in relation to that qualified exemption. In such a case the public authority must issue a refusal notice138 and include with the notice an estimate of how long it will take to make a decision.139

How must the public authority provide the information requested? 11.37 The public authority can communicate the information requested by any means which are reasonable in the circumstances.140 However the applicant can at the time he or she makes the request specify the means of communication of the information, including that it be provided in a permanent form (such as on paper, electronically, on a carrier etc), or inspect the records held by the public authority containing the information requested or ask the public authority to provide a digest or summary of the information requested in a permanent or other form acceptable to the applicant.141

Advice and assistance 11.38 A public authority is under a duty to provide advice and assistance to a person who is considering making a request under FOIA or has made one, as far as it would be reasonable to expect the public authority to do

135 136 137 138 139

Freedom of Information Act 2000, s 10(1). Freedom of Information Act 2000, s 1(3). Freedom of Information Act 2000, s 9. Freedom of Information Act 2000, s 17(1). Freedom of Information Act 2000, s 10(3). It is possible to exceed the 20 working day deadline ‘if information falls within the scope of a qualified exemption and additional time is required to consider the public interest test … In general, it is best practice for an extension to be for no more than a further 20 working days although this will depend on the circumstances of the case, including again the complexity and volume of the material, and in some circumstances a longer extension may be appropriate’: Cabinet Office, Freedom of Information – Code of Practice, July 2018, 4.4–4.7. 140 Freedom of Information Act 2000, s  11(4). See also ICO, Means of communicating information (section 11), 2015. This guidance also deals with aspects of how the information must be communicated, as well as the public authority’s right to make a reasonable charge for providing the information (eg photocopying and post costs). 141 Freedom of Information Act 2000, s 11(1).

682

Information protection and release and computer technology 11.39

so.142 The wording appears to mean that the duty on the public authority is not one-off, but continues for as long as the applicant needs the advice or assistance. The guidance issued by the Information Commissioner indicates that the public authority should provide advice and assistance in the following areas: •

help the applicant to clarify unclear requests;

•

if the public authority cannot provide the information in a format or method requested by the applicant, help the applicant by providing the information requested in an acceptable format;

•

help the applicant to narrow his or her request so that it does not exceed the cost limit;

•

inform the applicant that the request by an applicant is covered by exemptions for information which is accessible to the applicant by other means143 or for information intended for future publication,144 and in appropriate cases where the information can be found; and

•

if the information requested is held by another public authority then transfer the request to another public authority and let the applicant know that this has happened.145

Refusing a request 11.39 If the public authority is refusing a request by an applicant, it is required to issue a refusal notice, which must be issued within the 20 workingday period. The refusal notice must: •

state that the public authority is relying on an exemption;

•

specify which exemption it is relying on; and

•

state the reason why the exemption applies (unless it is obvious why the exemption applies).146

The refusal also has to state the internal procedure that the public authority has for dealing with complaints about the handling of requests for information (or state that the authority does not provide such a procedure) and must also state that the applicant has the right to apply to the Information Commissioner 142 Freedom of Information Act 2000, s 16(1). The duty includes complying with a relevant code of practice, namely the ‘Access Code’ issued by the Secretary of State under Freedom of Information Act 2000, s 45 (available from www.fco.gov.uk). 143 Under Freedom of Information Act 2000, s 21. 144 Under Freedom of Information Act 2000, s 22. 145 Information Commissioner’s guidance on advice and assistance. 146 Freedom of Information Act 2000, s  17(1)(a)–(c). The public authority does not need to state the reason why the exemption applies if to do so would involve the disclosure of the information the applicant requested (Freedom of Information Act 2000, s 17(5)).

683

11.40  Regulatory Requirements

concerning whether the public authority has dealt with the applicant’s request in accordance with the FOIA.147 If a refusal is provided by a public authority and the applicant asks for an internal review of the refusal (a complaint), the public authority, according to the guidance issued by the Information Commissioner, should take no longer than 20 working days or, exceptionally, 40 working days to deal with the internal review.148 The content of the notices to be provided and the procedures to be followed where a public authority does not hold the information requested or where it considers the request to be vexatious or repetitious are different to those stated immediately above.149 In addition, another possible form of refusal is where the public authority considers that the cost of compliance exceeds the applicable limit (see below).

Where the cost of compliance is exceeded 11.40 If an applicant’s request means that the public authority, in order to comply with it, exceeds certain time limits, the public authority has to notify the applicant within the 20-working-day period for dealing with requests.150 Currently the limits are £600 for central government and £450 for other types of public authorities, including the health service and education.151 The duty to confirm or deny and the duty to communicate the information requested each have their own appropriate limit.152 In considering whether the time limit will be exceeded or not, the following are the only permissible activities that can be taken into account: (i) determining whether the public authority holds the information; (ii) locating the information, or a document containing it; (iii) retrieving the information, or a document containing it; and (iv) extracting the information from a

147 Freedom of Information Act 2000, s 17(7). 148 The Freedom of Information Act 2000 itself provides no time limit for dealing with complaints. The Code of Practice issued under Freedom of Information Act 2000, s 45 (see https://webarchive.nationalarchives.gov.uk/+/http://www.justice.gov.uk/guidance/foi-codeof-practice.htm) states that the complaint should be dealt with within a reasonable time. It appears that public authorities have, in some cases, taken a long time to deal with complaints made by applicants whose requests for information have been denied. In some cases, the period has extended to several months or even more than a year. The guidance issued by the Information Commissioner states that the period should now be normally not more than 20 working days, or at worst 40 working days (ICO, Time limits for compliance under the Freedom of Information Act (Section 10), 2015, para 62). 149 Freedom of Information Act 2000, s 17(5). 150 See note 149. 151 Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2004 (SI 2004/3244), reg 3. 152 Freedom of Information Act 2000, s 12(1), (2).

684

Information protection and release and computer technology 11.42

document containing it.153 And the time taken can only be charged at £25 per person per hour.154

Publication scheme 11.41 Public authorities are required to adopt and maintain a publication scheme. Essentially a public authority specifies which categories of information it will make available and then information which falls within those categories will be published.155 The aim of a publication scheme is that if the public authority makes information available then there will be less of a need for persons to make requests for that information to be provided. Any scheme must indicate what type of information is covered by the scheme, how the information will be made available (eg electronically or on paper) and whether there will be a charge for it or if it will be made available free of charge.156 Rather than creating its own publication scheme, a public authority may adopt a model scheme prepared by the Information Commissioner.157 Model schemes are provided by the Information Commissioner for certain categories of public authorities, including higher and further education institutions and certain organisations involved in the provision of medical services (but not NHS Trusts, for example).158

What is a ‘public authority’ Public authorities – those listed in FOIA 11.42 The right to obtain information only applies where the information is held by a public authority. The FOIA does not provide a definition for what constitutes a ‘public authority’. Rather the FOIA adopts a list approach; for an organisation to be a public authority, it has to be: 153 Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2004 (SI 2004/3244), reg 4(3). Such tasks as reading time, time to consider and consult on whether the information should be disclosed or whether the information request exceeds the time limit cannot be taken into account. 154 Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2004 (SI 2004/3244), reg 4(4). 155 Freedom of Information Act 2000, s 19(1). The Information Commissioner must approve each scheme and any amendment to it. 156 Freedom of Information Act 2000, s 19(2). 157 Freedom of Information Act 2000, s 20(1). 158 Where a public authority adopts a model scheme without amendment, the public authority does not need to seek the approval of the Information Commissioner, but if it makes any amendments to the model scheme at any time, it does (Freedom of Information Act 2000, s 20(2)).

685

11.43  Regulatory Requirements

•

included in a list of organisations set out in Schedule 1 to the FOIA;159 or

•

designated a public authority by the Secretary of State.160

A ‘public authority’ includes the following types of organisation: •

government departments;

• local authorities (including county councils, the Greater London Authority, fire and rescue authorities, waste disposal authorities and so on); •

health-related organisations, such as a primary care trust, a special health authority, an NHS foundation trust, an NHS Trust, a person providing general medical or dental services;

•

education-related organisations, such as universities, further education colleges, etc;

•

research and other types of councils and advisory groups (such as United Kingdom Research and Innovation).

However, a public authority may not be subject to the provisions of the FOIA for all of its activities, and where this exception applies it is listed in Schedule 1.161 In practice this exception applies only to a few organisations.

Public authorities – those designated by the Secretary of State 11.43 Where the Secretary of State wishes to designate an organisation as a public authority, it is necessary to fulfil a number of conditions: •

the organisation is not listed in Schedule 1 and is not capable of being listed; and

•

the organisation exercises functions of a public nature; or

•

is providing a service under a contract made with a public authority and the service which is provided is a function of that public authority.162

159 Freedom of Information Act 2000, s  3(1)(a). The list of organisations found in Sch  1 is continually added to. It is necessary to consult the list to check whether a particular organisation has been added. 160 Freedom of Information Act 2000, s 3(1)(b). The power is set out in further detail in Freedom of Information Act 2000, s 5 (see below). 161 Freedom of Information Act 2000, s  7(1). For example the BBC would not be required to provide information held for the purposes of journalism, art or literature, or the Competition Commission would not need to provide information held by it where it is acting as a tribunal. 162 Freedom of Information Act 2000, s 5(1).

686

Information protection and release and computer technology 11.44

Publicly owned companies 11.44 The meaning of a public authority will also include a company which is wholly owned by a public authority.163 ‘Wholly owned’ means that ownership has to be vested: •

wholly in the owning public authority; or

•

in a company which is itself wholly owned by a public authority; or

•

in a person who is acting on behalf of the public authority or a wholly owned company.

For example: •

universities usually carry out their technology transfer activities through a separate (technology transfer) company, and if such a company is wholly owned by the university then the separate company would count as a public authority;

•

to develop the example in the previous bullet point, if the technology transfer company creates a spin-out company to commercially exploit a piece of technology and it is the sole shareholder (initially, for example) then the spin-out company would be a public authority. However, if the spin-out company is formed with some of the shareholding being held by others, then it would not be a public authority for the purposes of the FOIA;

•

but if one share was sold or transferred in the university’s technology transfer company to a private company, then the technology transfer company would no longer be a public authority for the purposes of the FOIA. The motive for taking the company outside the remit of the FOIA appears not to be relevant;

•

if the university wished to offer the services of its academics as consultants and experts in order to obtain income from the use of such expertise, and it created a separate company to undertake such activity which the university wholly owned, then that too would be a public authority for the purposes of the FOIA. The FOIA does not appear to make any distinction as to what activities the publicly owned company can or cannot carry out (ie the publicly owned company does not need to be restricted to non-commercial activities).164

‘Sharing of ownership’ by public authorities: a publicly owned company if owned by more than one public authority will not be subject to the FOIA, that is the ownership cannot be shared between a number of public authorities,

163 Freedom of Information Act 2000, ss 3(1)(b), 5. 164 This is a separate issue from whether trading activities affect the charitable status of the university.

687

11.45  Regulatory Requirements

unless one of the public authorities is the Crown or is a company owned by the ‘wider public sector’ or by the Crown and the ‘wider public sector’.165 For example, the Russell Group of Universities’ membership (ownership) is made up of the 20 universities who are part of that group. Each university on its own account would be a public authority, but since they jointly own the Russell Group of Universities, that organisation would not be a public authority under the FOIA. But if only one university owned the Russell Group of Universities then it would be a public authority.

What type of information can be obtained from a public authority? 11.45 In principle, it is possible for a person to request most types of information held by a public authority (subject to the available exemptions).166 Information is held by a public authority for the purposes of the FOIA if: •

the public authority holds the information itself; or

•

the information is held by another person on behalf of the public authority.167

For a public authority, holding information itself is likely to mean:168 (1) information it has generated itself; and (2) other information it possesses as long as there is ‘an appropriate connection between the information and the authority, and it is held to any extent for its own purposes’. This is likely to cover information it has received from a contractor or other external party. Such information will also come within the meaning of information it holds itself because, to some extent, it is holding that information for its own purposes. For information held by someone on behalf of the public authority, a key test will be how much of the information will be generated by the other person 165 Freedom of Information Act 2000, s 6 (as amended by the Protection of Freedoms Act 2012). For the Crown it will mean a government department, a minister of the Crown, a company wholly owned by the government department or a minister of the Crown or a person acting under the direction of one of these; for the ‘wider public sector’ it will mean if every member is a person falling within either (i) a relevant public authority or a company wholly owned by the wider public sector, or (ii) a person acting on behalf of a relevant public authority. For a company wholly owned by the Crown and the wider public sector, there are a number of conditions set out in the FOIA as to membership. 166 See para 11.46 below. 167 Freedom of Information Act 2000, s 3(2). 168 See ICO, Outsourcing and freedom of information – guidance document, 2017, paras 10–15, and University of Newcastle upon Tyne v the Information Commissioner and the British Union for the Abolition of Vivisection [2011] UKUT 185 (AAC). Although this guidance concerns outsourcing, it applies more generally, given that many types of contract that a public authority will enter into will involve the other contracting party handling or generating information during the contract or explicitly on behalf of the public authority.

688

Information protection and release and computer technology 11.45

for its own purposes and how much is generated for or held on behalf of the authority. An important starting point will be the contract between the public authority and the other person, which should specify:169 •

what information the other person is required to provide to the public authority (for reporting and monitoring purposes);

•

what information the public authority has the right to see;

•

what happens to information in the possession of the other person at the conclusion of the contract.

Another way of looking at the issue is that the other person is performing a service which is part of the public authority’s core function. The closer the service is to being part of the public authority’s core function, the more likely it is that the information the other person holds will be held on behalf of the public authority. For example, a university’s technology transfer company is involved in the obtaining of patents for the intellectual property created by one of the university’s academics. It decides that the administration of applications, registration and maintaining of patents as well as accounting of royalties from licensing can be more efficiently carried out by a contractor. The contractor will hold all such records. Since the activities just listed are likely to be core activities of the technology transfer company, then if dealt with by the contractor they are being held on behalf of the technology transfer company.170 The main exceptions where information is not held by a public authority would be: •

the information is held on behalf of another person; or

•

the information is not ‘official’ information, that is information which is not created by the public authority’s employees as part of carrying out their duties or is not intended to be used by the authority for its own use or in the course of its functions.

For example, •

if there is a social club or trade union branch at the public authority and the members of the club or union need to exchange emails about its activities;171 or

169 See ICO, Outsourcing and freedom of information – guidance document, 2017, paras 17–20. The guidance sets out decisions made by the Information Commissioner and the Information Tribunal as to whether information is held on behalf of the public authority. 170 A common example in a domestic situation would be when a local authority outsources an activity such as the administration of council tax or housing benefit to a private contractor. 171 To develop this example, if there is an exchange of emails between a trade union and the human resources department of the public authority concerning, eg the working conditions at the public authority, the information contained in the emails is likely to be information created as part of the function of the public authority.

689

11.46  Regulatory Requirements

•

if an employee sends or receives an email about a non-work matter using the public authority’s email system,

then such information would not count as being held by the public authority although the information contained in those emails will be stored by, and processed by, equipment owned or used by the public authority. Where a request is made for information the public authority must provide the information as it was held at the time the request was made.172 A public authority is not permitted to alter, deface, block, erase, destroy or conceal information which is requested by an applicant where the intention of carrying out any of these things is to prevent the provision of that information to the applicant.173 The public authority will be guilty of an offence where these activities are carried out. An offence will also be committed by any employees or officers of the public authority, and any person acting under the direction of the public authority.174

Exemptions 11.46 While in principle all types of information held by a public authority are available for disclosure, there are, however, circumstances when disclosure does not apply, plus a number of exemptions. Disclosure is not required where the public authority, in order to comply with a request, would exceed the appropriate cost limit set out in the relevant regulation175 or where a request is vexatious or repetitious.176 There are a number of specific exemptions from the requirement to disclose information following a request. These exemptions fall into two categories, absolute and qualified. If the exemption is a qualified one, the public authority is required to apply a public interest test.

172 Freedom of Information Act 2000, s 1(4). Although amendments to the information can be made if they occur in the period between the request and the supply of the information and if the amendments would have been made regardless of whether the request would have been made or not (Freedom of Information Act 2000, s 1(4)). 173 Freedom of Information Act 2000, s 77(1). The offence is punishable by a fine (not exceeding level 5 (currently £5,000) on the standard scale) on summary conviction. 174 Freedom of Information Act 2000, s 77(2). 175 The limit is set out in the Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2004 (SI  2004/3244). Although if the limit is exceeded the public authority can continue to search beyond the limit. Of relevance is the Lord Chancellor’s Code of Practice on Management of Records, 2009 and the Information Commissioner, Section 46 Code of Practice – records management, 2016. 176 Freedom of Information Act 2000, s 14. See ICO, Dealing with vexatious requests (section 14), 2016, for consideration of what might amount to a vexatious or repetitious request.

690

Information protection and release and computer technology 11.47

The exemptions which are set out below are only those which are most likely to be relevant to those organisations that are public authorities and that carry out technology transfer or other commercial intellectual property transactions.

Information provided in confidence 11.47 Information does not have to be disclosed by a public authority if: •

that information was obtained by the public authority from any other person;

•

the disclosure of that information to the public by the public authority holding it would constitute a breach of confidence actionable by the person from whom it was obtained (or any other person);177 and

•

it would be likely that court action for the breach of confidence would succeed.178

This exemption is absolute179 (the public authority does not have to apply a public interest test). Points to note: •

information held by a public authority will only be exempt where it is the confidential information of a third party. In addition the fact that it is marked confidential or was provided to the public authority subject to obligations of confidentiality is not enough, at the time when a request made for its disclosure, for it to still be confidential. The public authority has to make its own determination that such information still has the necessary ‘quality of confidentiality’ (although it can consult with the provider of the information, the decision has to be that of the public authority);180

•

where the information is the public authority’s own confidential information, the public authority cannot rely on this exemption. The fact that the public authority marks it as ‘confidential’ or any other such statement is irrelevant;

177 Freedom of Information Act 2000, s 41. For this exemption to be engaged, the test the public authority must use where it is considering disclosing information and confidentiality is an issue is as follows: would the disclosure expose the public authority to a breach of confidence claim, which on the balance of probabilities, would succeed (as well as establishing whether the public authority would have a defence to such a claim). Establishing only that such a claim would be arguable would not be sufficient to bring the exemption into play. See The Higher Education Funding Council for England v The Information Commissioner (Guardian News and Media Ltd, additional party), EA/2009/0036 (13 January 2010). 178 ICO, Information provided in confidence, 2017, para 8. 179 Freedom of Information Act 2000, s 2(3). 180 See ICO, Information provided in confidence, 2017, at para F.

691

11.48  Regulatory Requirements

•

there has to be an enforceable obligation of confidence for the exemption to apply;

•

the FOIA does not displace the existing law of confidence;181

•

the decision on whether information provided to a public authority is subject to actionable obligations of confidence is for the public authority, and not for a third party who is objecting to its disclosure.

Contracts entered into by a public authority with a commercial party 11.48 Contracts between some commercial parties and public authorities sometimes contain provisions where: •

the existence of the contract between the public authority and the commercial party is to be treated as confidential; and/or

•

the identity of the commercial party is to be treated as confidential; and/ or

•

the provisions of the contract are to be treated as confidential; and/or

•

certain provisions are to be treated as confidential.

It is unlikely, based on the current guidance issued by the Information Commissioner and cases which have been before the Tribunal, that the first items in the above list would not be disclosable following an applicant’s request for disclosure. The following appears to be the position: •

a concluded contract between a public authority and a commercial party would normally not be exempt from being disclosed. This is because it would not contain information obtained by the public authority from a third party (as the concluded contract would contain mutual obligations of the parties, and be the parties’ document);182

• information regarding a pre-contractual negotiation position or technical information whether contained in the contract, in a schedule to the contract or elsewhere may still be characterised as confidential information obtained by a public authority from a third party.183 181 This is outlined in Ch  8. Much of the Information Commissioner Freedom of Information Act Awareness Guidance No 2, Information Provided in Confidence, version 4, 12 September 2008, is in effect a statement of the existing law of confidence. 182 This would most probably cover the position where a commercial party provides a draft contract and the public authority signs it, as after signature the document no longer has been provided by the commercial party as it will contain obligations on both parties. ICO, Information provided in confidence (Section 41), 2017, paras 17–18, and Department of Health v ICO (EA/2008/0018, 18 November 2008): ‘If the Contract signifies one party stating: “these are the terms upon which we are prepared to enter into a Contract with you” by the acceptance of that Contract the other party is simultaneously stating “and these are the terms upon which we are prepared to enter into a Contract with you”. Consequently the Contract terms were mutually agreed and therefore not obtained by either party’. 183 ICO, Information provided in confidence (Section 41), 2017, paras 19–21.

692

Information protection and release and computer technology 11.49

Points to note: •

the fact that information requested by an applicant is not exempt as confidential information does not necessarily mean that it will have to be disclosed. It may have the benefit of other exemptions available under the FOIA. For example, that the information requested may prejudice the commercial interests of a third party or may be a trade secret;184

•

to lessen the chances of a public authority having to disclose information, the parties should separate technical or commercial information which is genuinely confidential from other information. For example, in an agreement, specific details about pricing and charging could be placed in a separate schedule to the agreement;

•

that a public authority, as a matter of good practice when entering into a contract: –

should inform the other party, before the contract is drawn up, that some or all of the contract may be disclosed following a freedom of information request; and

–

can use confidentiality clauses to help identify information which would be exempt from a freedom of information request but must consider with care whether such clauses are compatible with their duty under the FOIA;

–

be aware that any clauses in a contract dealing with the issue of confidentiality cannot prevent disclosure under the FOIA of information which is protected by the confidentiality clause if, in fact, the information itself is not confidential.

Commercial interests and trade secrets 11.49 Information held by a public authority does not need to be disclosed following a request where: •

the information is a trade secret; or

•

the information if released would, or is likely to, prejudice the commercial interests of any person (including the public authority holding it).185

This exemption is a qualified exemption under the FOIA186 (that is the public authority will have to carry out a public interest test into whether or not to release the information requested).

184 That is, under Freedom of Information Act 2000, s 43(2) or 43(1) respectively. 185 Freedom of Information Act 2000, s 43. 186 Freedom of Information Act 2000, s 2(3).

693

11.50  Regulatory Requirements

Meaning of a trade secret 11.50 The FOIA does not define what amounts to a ‘trade secret’ but it appears not to displace what case law has considered to be trade secrets.187 The Information Commissioner has indicated some of the factors which can or cannot make information a trade secret:188 •

it is information which is not merely confidential but ‘confers a competitive advantage to the owners and therefore requires more protection’;

•

it is information which is not widely disseminated and is not generally known and which a rival cannot easily recreate or discover so that ‘disclosure of the information should also be liable to cause real (or significant) harm to the owner or be advantageous to any rivals. It is information which therefore should be accorded a high level of secrecy’;

•

it can be: – a technical secret (covering, for example, an invention, a manufacturing process, engineering and design drawings; or a craft/recipe (common in food, pharmaceutical and cosmetic industries)); or –

a business secret (covering, for example, costs information (such as how much money an organisation spends on product development), pricing information (such as how much a company plans to charge for a product it sells), supplier lists and contact details, plans for the development of new products or the discontinuance of old products);

•

although a technical or business secret, it still may not amount to a trade secret;

•

a business secret is less likely to be a trade secret than a technical secret.

Where a public authority has received a request for information which constitutes a trade secret the public authority has to confirm whether or not it has that information (although, as a trade secret, that information would not need to be disclosed).

Meaning of commercial interests 11.51 The meaning of commercial interests could cover a wide range of factors or issues, but the Information Commissioner189 considers ‘commercial interests’ to consist of the following: 187 See Ch 8 for a description of what can amount to a trade secret. 188 ICO, Commercial interests (section 43), 2017, paras 6–10. 189 The following points are drawn from ICO, Commercial Interests (section 43), 2017, paras 22–25.

694

Information protection and release and computer technology 11.51

•

‘a person’s ability to participate competitively in a commercial activity, ie the purchase and sale of goods and services’;

•

profit does not have to be the motive for such activity, but can be simply a charge made to cover the cost of the provision of goods and services;

•

while trading may be a key element of the meaning of ‘commercial interests’, information can still be caught by this exemption where it only indirectly relates to the activities of buying and selling;190

•

the fact that the financial interests of a public authority are prejudiced by the release of information does not necessarily mean that the commercial interests of that public authority are prejudiced.191

The Information Commissioner has provided an indicative list of what type of information that can affect commercial interests, of which the most relevant are likely to be for public authorities involved in the commercial exploitation of intellectual property:192 •

the public authority’s own commercial activities (this would cover information held in regard to trading and other similar activities);

•

policy development;193

•

policy implementation.

Other types of information which could fall within the commercial interest exemption are procurement, the public authority’s purchasing position, regulation (ie  where the public authority has regulatory functions), private finance initiative/public private partnerships. In addition to the guidance issued by the Information Commissioner, the Ministry of Justice had formerly

190 For example, a company obtains a patent licence from a university. The company decides it no longer wishes to exploit that licence and writes to the university to terminate the licence. One consequence is that the company will have to make a large number of research staff redundant, and has informed the relevant government department that it is making staff redundant. While the fact that staff are being made redundant may not directly relate to the commercial activity of the company under the patent licence of making sales of a patented product, the fact that staff are being made redundant could affect the company, eg loss of potential sales, reduction in share price and so on. 191 For example, a university has been overpaying their administrative staff in the technology transfer department because they have failed to correctly calculate pay. This is likely to be embarrassing to the university if disclosed but could hardly be said to be related to the negotiating, entering into and servicing of contracts entered into with commercial parties regarding the commercial exploitation of the university’s intellectual property. 192 ICO, Commercial Interests (section 43), 2017, para 13. 193 For example, a university technology transfer company (or the university) may undertake research, surveys or analysis of various industry sectors (and technical developments within them) to determine where to undertake future research work and where not to carry out such work. Such work may influence the commercial strategy to be followed by the technology transfer company and could be valuable to those who invest in the work spun out of universities and other research organisations.

695

11.51  Regulatory Requirements

provided an indicative list of the types of specific business information which could particularly damage commercial interests: •

research and plans relating to a potential new product;

•

product manufacturing cost information;

•

product sales forecast information;

•

strategic business plans, including for example, plans to enter, develop or withdraw from a product or geographical market sector;

•

marketing plans, to promote a new or existing product;

•

information relating to the preparation of a competitive bid;

•

information about the financial and business viability of a company;

•

information provided to a public authority in respect of an application for a licence or as a requirement of a licence condition or under a regulatory regime.194

Third party interests: In other guidance issued by the Information Commissioner,195 the issue of how a public authority is to assess what ‘would, or would be likely to, prejudice the commercial interests of any person’ is explored further: •

where a public authority wishes to withhold information because the commercial interests of a third party would be (or would be likely to be) prejudiced, the public authority must have evidence that such is the actual concern of a third party;196

•

it is not enough for the public authority to speculate why the interests of a third party will be prejudiced;

•

if possible, the third party should be asked for their opinions as to whether their interests will be prejudiced;

•

if the third party does not forward an opinion, the public authority should not speculate on behalf of the public authority; and

•

if the public authority cannot seek the views of the third party (such as because of time constraints), the public authority can use arguments about the likelihood that the interests of the third party will be prejudiced, if it has prior knowledge of such third party views, but the public authority has to provide evidence that the third party had genuine concerns that prejudice would be caused.

194 Ministry of Justice, Freedom of Information Guidance, Exemptions, Section 43 (‘Commercial interests’), 14 May 2008, p 5. 195 ICO, Commercial interests (section 43), 2017, paras 26–29. 196 It is not enough that there is a mere assertion by an individual or company that its interests will be prejudiced. See Ministry of Justice, Freedom of Information Guidance, Exemptions, Section 43 (‘Commercial interests’),14 May 2008, p 5, where John Connor Press Associates Limited v The Information Commissioner (EA/2005/0005), 25 January 2006 is cited in support of this point.

696

Information protection and release and computer technology 11.51

Prejudice: For a public authority not to disclose information, it would have to show that the disclosure: •

would prejudice the commercial interests of any person (which means that the prejudice is more likely than not to occur (that is, there is more than a 50% chance it would occur)); or

•

would be likely to prejudice the commercial interests of any person (that is, there is ‘more than a hypothetical or remote possibility of prejudice occurring’, and there must be ‘a real and significant risk of prejudice, even though the probability of prejudice is less than 50%’).197

It is for the public authority to decide on the likelihood of prejudice, based on the facts of a case, and its decision on prejudice will also be relevant to any decision it makes on whether it is in the public interest to disclose the information or not. The approach that a public authority should take when considering whether there will be prejudice to the commercial interests of any person is:198 (1) to identify the ‘applicable interests’ within the relevant exemption. In the case of commercial interests it is necessary to identify what those interests are and not to consider other factors which are not connected with them – for example, that it is the financial interests which are prejudiced if they are unrelated to the commercial interests; (2) to identify the ‘nature of the prejudice’, which means: (a) showing that the prejudice is ‘real, actual or of substance’ (a disclosure must be capable of causing harm to the interest of a person; if the disclosure would cause trivial or insignificant harm, there is no prejudice); and (b) showing that there is a ‘causal link’ between making the disclosure and the prejudice the public authority is claiming will occur (that is, the public authority has to be able to show how the specific information if disclosed would, or would be likely to, lead to the prejudice), although it may not be possible to provide concrete proof because the public authority is to an extent speculating what would happen before a disclosure takes place; but the public authority has to be making more than a mere assertion or a statement of belief; and (c) deciding on the likelihood of prejudice. As noted above, the public authority has to show that disclosure would, or would be likely to, cause prejudice to the commercial interests. To determine whether

197 Freedom of Information Act 2000, s  43(2). ICO, Commercial Interests (section 43), 2017, paras 16–21, and based on the cases of Hogan v Information Commissioner [2006]  UKIT EA_2005_0030 (17 October 2006) and John Connor Press Associates Ltd v The Information Commissioner [2006] UKIT EA_2006_0005 (24 January 2006). 198 Drawn from ICO, The prejudice test, 2013, paras 15–23.

697

11.52  Regulatory Requirements

the prejudice would, or would be likely to, occur the public authority should consider ‘the range of circumstances in which prejudice could occur (for example, whether it would affect certain types of people or situations); how frequently the opportunity for the prejudice arises (ie  how likely it is for these circumstances to arise); and how certain it is that the prejudice results in those circumstances’. Disclosing all or only part of a contract: The FOIA deals with information and not documents as such, and a contract can include a mixture of information which is confidential and non-confidential or which would or would not prejudice the commercial interests of another person.199 Facing a request for a disclosure of an agreement, a public authority would have to separate out that information which is not confidential or does not prejudice the commercial interests of any other person. It would not be possible for the public authority to state that the contract must be looked at as a whole (such as when it is being interpreted in connection with a dispute under contract law).200 An argument that it can be time-consuming to separate out provisions between those which need disclosing and those that do not is also unlikely to be sustainable (particularly if that work does not exceed the appropriate cost limit set out in the relevant regulation).

Other potentially relevant exemptions 11.52 In addition to those listed above, other exemptions which can sometimes be relevant include: Information intended for future publication:201 a public authority need not provide information which is requested where it is held with a view to publication (whether by the public authority itself or any other person) at some future date (whether or not the date has yet been determined)202 if: •

the information was already held with a view to publication at the date the request for access was made; and

199 Channel Four Television Corp v IC & British Sky Broadcasting Ltd [2011]  UKFTT EA_2010_0134 (GRC) (22 February 2011), para 8. 200 See note 199. 201 Freedom of Information Act 2000, s 22. Publication means made available to members of the public, and would not mean that it is made available to a restricted audience: ICO, Information intended for future publication and research information (sections 22 and 22A), 2017, para 15. 202 The public authority ‘must have a settled expectation that the information will be published at some future date’: ICO, Information intended for future publication and research information (sections 22 and 22A), 2017, para  5. This ICO guidance indicates that the intention must pre-date the request (that is, the public authority cannot decide it will publish the requested information after it has received the request from a person), and the intention must relate to the specific requested information (that is, a general intention to publish some information will not suffice): paras 7, 9 and 10. See also paras 12 to 14 as to different circumstances as to when there is no fixed publication date but a public authority can come within this exemption.

698

Information protection and release and computer technology 11.52

•

it is reasonable in all the circumstances to withhold access until the date referred to above.203

The duty to confirm or deny does not apply if to do so would disclose any information covered by this exemption. This is an absolute exemption.204 Research information: a public authority does not need to provide information which is obtained in the course of (or is derived from) a programme of research,205 if: •

the programme of research is still underway;

•

there is an intention to publish a report of the research (whether the publication will be by the public authority or another person);206

•

disclosure of the information before the date of publication would cause (or would be likely to cause) prejudice: –

to the programme of research;

–

the interests of any individual participating in the programme of research;

–

the interests of the public authority which holds the information;

–

the interests of the public authority which intends to publish the information if different from the public authority which holds the information.207

The duty to confirm or deny does not apply if to do so would disclose any information covered by this exemption.208 There is an overlap between this exemption and that of the exemption for ‘Information intended for future publication’ above, but its intention is to cover a wider set of information. 203 This exemption could, presumably, apply where a university is working on an invention with a view to applying for a patent. In such a case, when the application for the patent is published by the UK  Intellectual Property Office, the information about the invention which is the subject of the patent would be publicly available. 204 Freedom of Information Act 2000, s 2(3). 205 Freedom of Information Act 2000, s 22A, inserted by the Intellectual Property Act 2014, in force from 1 October 2014. ‘Research’ is not defined but the ICO is likely to use the following definition: ‘a systematic investigation intended to establish facts, acquire new knowledge and reach new conclusions’: ICO, Information intended for future publication and research information (sections 22 and 22A), 2017, para 45. 206 A public authority may have to disclose more information than it would intend to publish if a person requests it (that is, the public authority could not limit the information it intends to disclose to that information that it intends to publish): ICO, Information intended for future publication and research information (sections 22 and 22A), 2017, para 44. 207 Freedom of Information Act 2000, s 22A(1), introduced by the intellectual Property Act 2014 (from 1  October 2014) to cover exempt information relating to in-progress research from disclosure. If there is a private sponsor of a programme of research, any prejudice to it would not appear to be a factor that a public authority could take into account, given the wording of Freedom of Information Act 2000, s 22A; however, it is likely that it would be possible to find another exemption. 208 Freedom of Information Act 2000, s 22A(2).

699

11.52  Regulatory Requirements

The grounds on which it will be possible for a public authority to delay releasing information are greater than the previous exemption, not only because a research programme can continue for a lengthy period but also because, as long as the research is continuing: •

the exemption will continue even if there has been publication of a report on some aspect of the research but there remains an intention to publish a report on the outcome in the future;

•

the exemption will continue to apply to information obtained in the course of or derived from the programme of research, as long as one or more reports will be published in the future.209

Legal professional privilege: this exemption covers information in respect of which a claim to legal professional privilege could be maintained in legal proceedings;210 this exemption would cover: •

communications between a solicitor or a barrister and his or her client for the purposes of giving legal advice; and

•

any document which has been prepared by any person where the primary purpose of creating the document was for the purpose of litigation, whether actual or intended.

This is a qualified exemption.211 If the information requested comes within either of these categories then the public authority will need to apply the public interest test, ie  whether the public interest in maintaining the exemption outweighs the public interest in disclosing the information.212 The duty to confirm or deny still applies to requests for information covered by the legal professional privilege, except where a response would disclose the information covered by the legal professional privilege.213 The underlying law concerning legal professional privilege is not affected or altered by the FOIA (just as with the law of confidentiality). The privilege will extend to whether the lawyer involved is external or an in-house lawyer and thus would cover communications between staff of a public authority and its in-house lawyer.214

209 ICO, Information intended for future publication and research information (sections 22 and 22A), 2017, paras 48, 49. 210 Freedom of Information Act 2000, s 421. 211 Freedom of Information Act 2000, s 2(3). 212 Under Freedom of Information Act 2000, s 2(2). 213 Freedom of Information Act 2000, s 42(2). 214 Confirmed in Calland v Information Commissioner and FSA (EA/2007/0136, 8 August 2008), Information Tribunal.

700

Information protection and release and computer technology 11.52

The guidance issued by the ICO provides some of the circumstances where it is more likely that it will be in the public interest that information subject to legal professional privilege should be disclosed: •

although it may be more difficult to show the balance lies in favour of disclosure under the public interest test where legal professional privilege applies, there is no need for those factors to be exceptional; but the public interest in disclosure is not enough;

•

the older the information which is subject to legal professional privilege, the less likely it is relevant to current decision-making or challenge and the more likely it has served its purpose;215

•

a very large sum of public money is at stake;

•

the legal advice or a decision resulting from the advice will influence a significant number of people;

•

where it appears that the public authority is engaging in unlawful activity or misrepresentation;

•

there is a lack of transparency in the way that the public authority carries out its action but there has to be more than mere curiosity in seeing the advice.

Personal information:216 the public authority is exempt from providing information following a request where the information is personal data and: •

relates to the applicant himself or herself,217 in which case the public authority must deal with the applicant’s request as a subject access request under the DPA 2018;218

•

if the request relates to a request for information which does not fall within the above category (that is, it relates to another person) as long as one of the three conditions apply:219

215 The guidance cites two cases before the information tribunal where information that was six years old was considered still to be relatively recent while that which was over ten years old was considered not recent and which was one factor to take into account in favour of disclosure. 216 Consideration of the disclosure of personal data in relation to a request under the FOIA is outside the scope of this volume, other than the brief points made here. The Information Commissioner has produced several sets of guidance on the following topics: (i) personal information, (ii) access to information held in complaint files, (iii) information exempt from the subject access right, (iv) neither confirm nor deny in relation to personal data, (v) personal data of both the requester and others, and (vi) requests for personal data about public authority employees. 217 Freedom of Information Act 2000, s 40(1). There is no duty on a public authority to confirm or deny whether the requested information is held: Freedom of Information Act 2000, s 40(5A). 218 ICO, Personal information (section 40 and regulation 13), 2019, p 10. 219 For each of these conditions, a public authority does not need to confirm or deny whether it holds the requested information if to do so would contravene the data protection principles, contravene an objection to procession, or the information is exempt from the subject access right: Freedom of Information Act 2000, s 40(5B).

701

11.52  Regulatory Requirements

– the disclosure would contravene any of the data protection principles.220 The ICO guidance221 indicates that the only data protection principle which is likely to be contravened is the following one: ‘Personal data shall be processed lawfully, fairly and in a transparent manner in relation to the data subject’.222 To be able to disclose the information would require: ○

for ordinary personal data: the consent of the person concerned or it is necessary for the legitimate interest of the controller or a third party;223

○

for sensitive personal data: the explicit consent of the person concerned or that the personal data has been manifestly made public by that person;224

–

the disclosure would contravene GDPR, Article  21 (the right to object to processing);225

–

the requested information is exempt from the subject access right.226 The implementation of the GDPR and the DPA  2018 has now changed how a public authority should consider whether or not to release personal data (that is, by considering the three conditions set out above), but a public authority can still release information about its employees – such as if the employees are of a sufficient seniority, are carrying out a public-facing role, or if an employee is carrying out an action or making a decision relating to their work.227

Prohibition on disclosure: information is exempt where if disclosed by the public authority the disclosure: •

is prohibited by or under any existing enactment;

•

is incompatible with any EU obligation;

•

would constitute or be punishable as a contempt of court (such as where it would breach a court order).228

This is an absolute exemption.229 220 Freedom of Information Act 2000, s 40(2), (3A). 221 ICO, Personal information (section 40 and regulation 13), 2019, pp 11–20. 222 GDPR, Art 5(1)(a). 223 GDPR, Art 6(1)(a), (f). 224 GDPR, Art 9(2)(a), (e). 225 Freedom of Information Act 2000, s 40(2), (3B). 226 Freedom of Information Act 2000, s 40(2), (4A). That is, exemption from the right of subject access if: processed under the GDPR (DPA  2018, s  26, Schs 2, 3, 4); processed for law enforcement purposes (DPA 2018, s 45(4)); or processed for intelligence services (DPA 2018, Pt 4 of Ch 6). 227 ICO, Requests for personal data about public authority employees, 2019, p 11. 228 Freedom of Information Act 2000, s 44. 229 Freedom of Information Act 2000, s 2(3).

702

Information protection and release and computer technology 11.53

Health and safety: information is exempt if its disclosure would or would be likely to: •

endanger the physical or mental health of any individual;

•

endanger the safety of any individual.230

This exemption is a qualified exemption.231

The public interest test 11.53 Where an exemption is qualified, such as those relating to: •

whether the information is a trade secret;

•

the information if disclosed would, or would be likely to, prejudice the commercial interests of any person, or

•

information which is obtained in the course of (or is derived from) a programme of research,

the public authority has to establish whether it is in the public interest to disclose the information requested by an applicant once the public authority has decided that the exemption applies. There is no requirement to apply the public interest test where the exemption is absolute, such as where the information is provided in confidence.232 The tests are for: •

the duty to confirm or deny: in all the circumstances of the case, the public interest is in maintaining the exclusion of the duty to confirm or deny which outweighs the public interest in disclosing whether the public authority holds the information;233 and

•

the information held: in all the circumstances of the case, the public interest is in maintaining the exemption which outweighs the public interest in disclosing the information.234

The Information Commissioner’s guidance235 makes the following points: •

230 231 232 233 234 235

the ‘public interest’ is that which serves the interests of the public (not which is of interest to the public or private interests of the person who requested the information);

Freedom of Information Act 2000, s 38. Freedom of Information Act 2000, s 2(3). Freedom of Information Act 2000, s 2(1)(a), (2)(b), (3). Freedom of Information Act 2000, s 2(1)(b). Freedom of Information Act 2000, s 2(2)(b). See ICO, The public interest test, 2016.

703

11.53  Regulatory Requirements

•

there is a public interest in transparency and accountability with the aim ‘to promote public understanding and to safeguard democratic processes’,236 but simply because a matter is of interest to the public does not always mean that it is in the public interest to disclose information;237

•

a public authority has to undertake two steps: –

first, establish whether a qualified exemption applies; and then

–

second, carry out the public interest test, by deciding whether ‘the public interest is better served by maintaining the exemption (and hence withholding the information) or by disclosing the information’;238

•

a public authority can only withhold releasing the information if the public interest in maintaining an exemption outweighs the public interest in disclosing the information, but if ‘the public interest is equal on both sides, then the information must be released. If the public interest in disclosure is greater than the public interest in maintaining the exemption, then the information must also be released. In this sense we can say that there is an assumption in favour of disclosure in FOIA’;239

•

the public interest test must be applied separately to each exemption;240

•

the public authority, when applying the public interest test, should consider the circumstances at the time it considers a person’s request for information (or, if carrying out an internal review, up to the time of the internal review);

•

the public authority has to carry out a balancing exercise – consider the factors for releasing the information and for not doing so;241

•

the public interest cannot be used by itself, it has to be tied to a specific exemption; arguments that relate to other exemptions are not relevant – that is, only the public interest considerations relevant to the particular exemption should be applied in considering whether that exemption should be maintained;

•

although a public authority may have a general policy about whether to release information, the FOIA requires it to consider in each case the balance of public interest in the circumstances of that particular case;

236 ICO, The public interest test, 2016, para 9. 237 ICO, The public interest test, 2016, para 11, and Guardian Newspapers Limited and Heather Brooke v the Information Commissioner and the BBC (EA  2006/0011, EA  2006/0013, 8 January 2007). 238 ICO, The public interest test, 2016, para 6. 239 ICO, The public interest test, 2016, para 7. 240 ICO, The public interest test, 2016, paras 14–19. 241 ICO, The public interest test, 2016, para 20: ‘The authority should try to do this objectively, recognising that there are always arguments to be made on both sides. It may be helpful for the authority to draw up a list showing the arguments it is considering on both sides; this will help when it comes to assessing the relative weight of the arguments’.

704

Information protection and release and computer technology 11.54

•

factors which support disclosure (where the exemption relates to commercial interests) include:242 –

openness and transparency – there is, in effect, a presumption that there should be openness and transparency in the affairs of a public authority;

– accountability for the spending of public money – disclosing commercial information concerning how a public authority spends public money can make the public authority more accountable; •

factors which support non-disclosure (where the exemption relates to commercial interests) include:243 –

competition – it is not in the public interest for a public authority to disclose information where such disclosure would reduce the public authority’s ‘ability to negotiate or compete in a commercial environment’;

–

impact on other negotiations – the revealing of some information (such as the method of pricing) can have a detrimental effect on a public authority when it negotiates other contracts and procurements;

–

ability to generate income – it is not always in the public interest for the disclosure of information on how a public authority generates its income, as to do so may lessen the public authority’s competitive advantage or ability to operate in a particular market place. For example, if a university provides the services of its academic as consultants, revealing details on how it prices such provision may allow private sector competitors to offer competition at a lower  price.

Freedom of information and intellectual property244 11.54 The information that a person will request will normally also be subject to protection by one or more forms of intellectual property. The FOIA provides an exemption from disclosure for information that a public authority holds if to do so would be prohibited by other legislation.245 The provision of information by a public authority to a person requesting that information is likely to infringe intellectual property rights of the person or organisation to which the information belongs, unless that person or organisation gives permission.

242 ICO, Commercial interests (section 43), 2017, paras 45–48. 243 ICO, Commercial interests (section 43), paras 49–52. 244 See ICO, Intellectual property rights and disclosures under the Freedom of Information Act, 2016. 245 Freedom of Information Act 2000, s 44(1).

705

11.54  Regulatory Requirements

For example, if a person requests a document that an academic in a university has written under a research programme, the report may attract the protection of copyright and also possibly the database right of which the university is the owner. If the university cannot apply an exemption (such as those set out above), it can provide the information and it is permitting the copying of the information itself, so there will be no infringement of copyright or the database right. However, if the document was prepared by an academic in another university, s/he may retain the ownership of copyright and database right and has only provided the document on the basis that it is used for the purposes of the research programme. In the latter situation the university could not refuse disclosure of information solely because to do so would infringe the copyright and/or database right of the academic, as the relevant items of legislation to these forms of intellectual property permit the doing of a particular act which is specifically authorised by an Act of Parliament (in this case the FOIA) and, accordingly, the copying of the information will not infringe the copyright and/or the database right.246 Although, intellectual property rights will not normally constitute a bar to the provision of information to a person requesting the information, however, that person will be subject to the intellectual property rights of the owner of the information. The person requesting the information could only use the information they receive in accordance with the permitted exceptions (for example, for copyright, the fair dealing provisions, such as using the information for criticism, private study, public readings, news reporting etc).247 In simple terms the person who has requested the information does not obtain an implied licence to exploit the information for commercial purposes.248 As a matter of good practice, a public authority when releasing information should indicate that the information remains protected by copyright or other relevant intellectual property rights.249 246 Copyright, Designs and Patents Act 1988, s  50(1); Copyright and Rights in Databases Regulations 1997 (SI 1997/3032), reg 20(2), Sch 1, para 6. 247 See para 5.26. 248 Office of Communications v Information Commissioner and T  Mobile [2007]  UKIT EA_2006_0078, para 51: ‘It is accepted by all parties that the release of information under either EIR or FOIA does not involve an implied licence to exploit it commercially or to do any act which would constitute an infringement if not authorised. Any person to whom the information is released will therefore still be bound by an obligation to respect any intellectual property rights that already subsist in it. However, once the material protected by an intellectual property right has been released to a third party it becomes more difficult to discover instances of infringement (either by that third party or any person to whom it passes the material), to trace those responsible for it and to enforce the right against them’. According to the ICO guidance this case was appealed to the High Court and then the Court of Appeal, and the position of the tribunal as stated above was accepted by these higher courts. 249 And also, if relevant, under what terms it is licensed, for example under the Open Government Licence. See ICO, Intellectual property rights and disclosures under the Freedom of Information Act, 2016, paras 16, 17.

706

Information protection and release and computer technology 11.56

Environmental information 11.55 There is a separate statutory regime in place for environmental information held by public authorities. Although the law for environmental information is not contained in the Freedom of Information Act 2000, in essence there is not substantive difference in the legal regime governing environmental information and other information held by a public authority. Environmental information held by a public authority is governed by the Environmental Information Regulations 2004 (‘the 2004 Regulations’).250 Accordingly the making of requests, the exemptions available, and what is a public authority etc are not considered separately. Below is an outline of any significant differences between the two regimes.

Information 11.56 The 2004 Regulations only apply to environmental information which is defined as meaning: ‘namely any information in written, visual, aural, electronic or any other material form on– (a) the state of the elements of the environment, such as air and atmosphere, water, soil, land, landscape and natural sites including wetlands, coastal and marine areas, biological diversity and its components, including genetically modified organisms, and the interaction among these elements; (b) factors, such as substances, energy, noise, radiation or waste, including radioactive waste, emissions, discharges and other releases into the environment, affecting or likely to affect the elements of the environment referred to in (a); (c) measures (including administrative measures), such as policies, legislation, plans, programmes, environmental agreements, and activities affecting or likely to affect the elements and factors referred to in (a) and (b) as well as measures or activities designed to protect those elements; (d) reports on the implementation of environmental legislation; (e) cost-benefit and other economic analyses and assumptions used within the framework of the measures and activities referred to in (c); and (f) the state of human health and safety, including the contamination of the food chain, where relevant, conditions of human life, cultural sites and built structures inasmuch as they are or may be 250 SI 2004/3391.

707

11.57  Regulatory Requirements

affected by the state of the elements of the environment referred to in (a) or, through those elements, by any of the matters referred to in (b) and (c)’.251 Any information held by a public authority which comes into the above categories will require an applicant to make an application under the 2004 Regulations rather than the FOIA.

Public authority 11.57 A public authority has essentially the same meaning under the 2004 Regulations as under the FOIA, but includes a greater range of persons and organisations which might come within the meaning of a public authority, and would include: ‘(c) any other body or other person, that carries out functions of public administration; or (d) any other body or other person, that is under the control of a [public authority and]– (i) has public responsibilities relating to the environment; (ii) exercises functions of a public nature relating to the environment; or (iii) provides public services relating to the environment’.252 This could mean that a company which was not wholly owned by a public authority could be a public authority,253 but obviously only in relation to environmental information it held.

Information held by a public authority 11.58 Under the FOIA, a public authority will be required to only disclose its own information, where it is held directly or indirectly by it (ie by someone holding it on the behalf of the public authority). Under the 2004 Regulations information will be disclosable which is in the authority’s possession, whether such information is produced by it or received by it, or the information is held by someone on the behalf of the public authority.254

251 Environmental Information Regulations 2004 (SI 2004/3391), reg 2(1). 252 Environmental Information Regulations 2004 (SI 2004/3391), reg 2(2). 253 But the information the company held for purposes other than the Regulations would not be disclosable under the Freedom of Information Act 2000 as it would not be a public authority under the Act (as not being wholly owned by the ultimate public authority. 254 Environmental Information Regulations 2004 (SI 2004/3391), reg 3(2).

708

Information protection and release and computer technology 11.62

The 2004 Regulations can require the public authority to provide information which belongs to another person if the public authority is holding it on the behalf of the other person (which is not possible under the FOIA).

Method in which a request can be made 11.59 Under the 2004 Regulations a request for environmental information does not have to be made in writing; it is possible to make a valid request verbally.255

Time in which a response can be provided by a public authority 11.60 Normally it is necessary to comply with the same 20-working-day period in providing a response for environmental information, but unlike for information caught by the FOIA, a public authority can more easily extend the period (to 40 working days).256

Exceptions 11.61 The exemptions available under the FOIA are generally the same for environmental information, but there are some differences: •

they are called exceptions not exemptions;257

•

where an exception requires prejudice under the FOIA, the term used for an exception is ‘adversely affected’;258

•

there are less of them, but the 2004 Regulations include a specific exception for intellectual property rights; and

•

all of them are subject to the public interest test. There is not a category of exceptions which are ‘absolute’, ie not subject to the public interest test (such as exemption for information provided in confidence under the FOIA).259

Exceeding a stated cost 11.62 Unlike under the FOIA, where if a certain limit is reached then there is no longer a requirement on the public authority to release the information requested, under the 2004 Regulations there is no such limit, but the public authority can charge a reasonable amount.260 255 256 257 258 259 260

See Environmental Information Regulations 2004 (SI 2004/3391), reg 5(1). See Environmental Information Regulations 2004 (SI 2004/3391), reg 7. See Environmental Information Regulations 2004 (SI 2004/3391), reg 12. See Environmental Information Regulations 2004 (SI 2004/3391), reg 12(5). See Environmental Information Regulations 2004 (SI 2004/3391), reg 12. See Environmental Information Regulations 2004 (SI 2004/3391), reg 8.

709

11.63  Regulatory Requirements

Law and the Internet Operating a website Required information 11.63 The operator of a website must by law provide certain information to the website’s users. This includes the following:261 •

in the case of an individual, his or her name; in the case of a partnership, the names of all the partners; and in the case of a company, the name, place of registration, registered number and physical address of the company;

•

the name of the contracting entity to any transaction, if different from the above;

•

contact details allowing rapid and direct communication;

• membership of a professional body and details of any supervising authority; •

the VAT number (if applicable);

•

any information required under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (if the operator is trading with consumers) (‘2013 Regulations’);

•

in the case of any prices mentioned, whether they include tax and delivery charges.

Equal treatment and disabled persons 11.64 Under the Equality Act 2010,262 a service provider (whether for payment or not) must not discriminate against a person requiring a service by not providing that service (including the terms on which the service provider provides the service, terminating the provision of the service or any other detriment).263 Other provisions of the Act set out prohibited conduct, such as direct discrimination of a ‘protected characteristic’264 where the service provider, because of the protected characteristic, treats another person less favourably than the service provider would treat others,265 as well as indirect 261 See the Companies Act 2006, the Consumer Contracts (Information, Cancellation and Addi­ tional Charges) Regulations 2013 and the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013). 262 The Equality Act 2010 is a complex piece of legislation with many exceptions which are outside the scope of this book. The user should consult the Equality and Human Rights Commission’s Equality Act 2010: Summary Guidance on Services, Public Functions and Associations, 2014 and What equality law means for your business, 2018. 263 Equality Act 2010, s 29(1), (2). 264 Age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, sexual orientation: Equality Act 2010, s 4. 265 Equality Act 2010, ss 13, 14, 15.

710

Information protection and release and computer technology 11.66

discrimination in relation to a protected characteristic.266 Where a person has a disability, the service provider must make reasonable adjustments, so that, for example, if the provision of a service ‘puts a disabled person at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled, [the service provider has to] take such steps as it is reasonable to have to take to avoid the disadvantage’.267 The Act applies to a service provider established in Great Britain who provides an information society service (meaning ‘any service normally provided for remuneration at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, and at the individual request of a recipient of the service’), subject to certain exceptions.268 Relevant guidelines have been produced by the World Wide Web Consortium and the International Standards Organisation.269

Data protection 11.65 Any collection of personal data by a website must comply with the data protection principles set out in the GDPR and the DPA 2018.270 If the operator of the website collects any personal data, it will need to register as a data controller with the Information Commissioner’s Office.271 If the operator wishes to process any personal data outside the EU, it will only be able to do so in one of the circumstances that the GDPR provides.272 How the operator deals with the personal data of data subject should be addressed in the website’s terms and conditions.

Liability 11.66 The website operator or internet service provider is potentially liable to a claim if, for example, content on a website infringes someone’s intellectual property or is defamatory. However, the Electronic Commerce Regulations provide three exemptions that may protect from liability the

266 Equality Act 2010, s 19. 267 Equality Act 2010, s 31(9), Sch 2. Also Equality Act 2010, s 20(2). Equality Act 2010, s 20(3), (4) deals with other circumstances (such as a physical feature). 268 Equality Act 2010, s 206, Sch 25. 269 See www.w3.org/wai/intro/wcag.php and www.iso.org/standard/70913.html. 270 See para 11.04 above. 271 See www.ico.org.uk. 272 See para 11.25 above. Also the operator should consider the guidance issued by the Information Commissioner: Assessing Adequacy: International data transfers (https://ico.org.uk/media/ for-organisations/documents/1529/assessing_adequacy_international_data_transfers.pdf); Binding corporate rules (https://ico.org.uk/for-organisations/binding-corporate-rules/); Using the privacy shield to transfer data to the US (https://ico.org.uk/media/for-organisations/ documents/2014413/data-transfers-to-the-us-and-privacy-shield.pdf). Although the guidance refers to the previous data protection law, the ICO website states that, until it issues new guidance which specifically applies to the GDPR and the DPA 2018, this old guidance is of some use.

711

11.67  Regulatory Requirements

provider of an information society service, defined as ‘any service normally provided for remuneration, at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, and at the individual request of a recipient of a service’.273 These three exemptions are as follows. • The mere conduit exemption exempts a person who provides a service that consists of the transmission of information across a communications network from civil or criminal liability arising as a result of such transmission provided that he or she (a) did not initiate the transmission; (b) did not select the receiver of the transmission; and (c) did not select or modify the information contained in the transmission.274 • The caching exemption exempts a service provider from civil or criminal liability where the information is subject to automatic, intermediate and temporary storage for the sole purpose of transmitting the information more efficiently. The service provider must, however, act expeditiously to remove or disable access to information once he or she becomes aware that, at the initial source of the transmission, the information has been removed, or access has been disabled, or that a court has ordered such removal or disablement.275 • The hosting exemption exempts a service provider from civil or criminal liability when the service consists of information provided by the recipient of the service where the service provider (a) did not know about the unlawful activity or information, or of any facts or circumstances from which the unlawful activity or information would have been apparent, and (b) acts expeditiously to remove or disable access to the information once he or she becomes aware of it.276

Using a website to do business The 2013 Regulations 11.67 Although of relevance where a website operator trades with a consumer, those using a website to do business must comply with the 2013 Regulations, which apply to contracts for the supply of goods and/or services where the parties make exclusive use of one or more means of distance 273 Electronic Commerce (EC Directive) Regulations 2002, reg 2(1). There are similar exemptions relating to liability in relation to terrorism in the Electronic Commerce Directive (Terrorism Act 2006) Regulations 2007 (SI 2007/1550), and in relation to racial and religious hatred in the Electronic Commerce Directive (Racial and Religious Hatred Act 2006) Regulations 2007 (SI 2007/2497). Where none of the exemptions apply, it should be noted that legislation such as the Obscene Publications Acts 1959 and 1964, the Protection of Children Act 1978 and the Sex Offences Act 2003 apply to online content. 274 Electronic Commerce (EC Directive) Regulations 2002, reg 17. 275 Electronic Commerce (EC Directive) Regulations 2002, reg 18. 276 Electronic Commerce (EC Directive) Regulations 2002, reg 19.

712

Information protection and release and computer technology 11.68

communication up to and including the moment at which the contract is concluded.277 While the 2013 Regulations apply only to consumer contracts; among other exceptions, they do not apply to contracts relating to certain financial services.278 Among the provisions of the 2013 Regulations are the following: •

Certain information must be provided to the consumer before the conclusion of the contract, and further information must be provided on the conclusion of the contract.279

•

With certain exceptions,280 the consumer must have a cooling-off period of 14 days from the day after the goods ordered are received or from the day when the consumer agrees to a contract for services. During this period the consumer may cancel the contract.281

•

If the information required under the first bullet point has not been provided, the cooling-off period may be extended up to 12 months and 14 days.282

Each Local Authority Trading Standards enforces the Regulations, and each may seek an injunction against a non-compliant supplier.283

The E-Commerce Regulations 11.68 As already mentioned in the section on liability, the E-Commerce Regulations apply to suppliers of information society services, and hence any website used to sell or market a product or service.284 The E-Commerce Regulations require the following. •

Where a contract is to be concluded by electronic means, a supplier must, before accepting an order: –

define the technical steps needed to conclude the contract;

–

state whether or not the contract will be kept by the supplier;

277 Consumer Contracts (Information, Cancellation and Additional Charges) regs 5, 13(1), Sch 2. 278 Consumer Contracts (Information, Cancellation and Additional Charges) reg 6(1)(b). 279 Consumer Contracts (Information, Cancellation and Additional Charges) reg 13. 280 Consumer Contracts (Information, Cancellation and Additional Charges) regs 28, 29. 281 Consumer Contracts (Information, Cancellation and Additional Charges) reg 30(2), (3). 282 Consumer Contracts (Information, Cancellation and Additional Charges) reg 31(2). 283 Consumer Contracts (Information, Cancellation and Additional Charges) regs 44, 45. 284 Electronic Commerce (EC Directive) Regulations 2002, reg 2(1).

713

Regulations 2013, Regulations 2013, Regulations 2013, Regulations 2013, Regulations 2013, Regulations 2013, Regulations 2013,

11.69  Regulatory Requirements

–

provide the purchaser with the opportunity to identify and correct errors before placing an order; and

–

state the languages offered for the conclusion of the contract.285

•

The consumer must be able to store and reproduce the terms and conditions.286

•

The supplier must acknowledge receipt of an order without delay and provide a further opportunity for the consumer to identify and correct any errors in the order.287

•

Non-compliance by the supplier can entitle the consumer to rescind the contract.288

The Regulations also regulate commercial communications by email. They include the following requirements: •

Any commercial email must: –

be clearly identifiable as a commercial communication;

– clearly identify the person on whose behalf the commercial communication is made; –

•

clearly identify any promotional offer, competition or game and present any conditions for participation accessibly, clearly and unambiguously.289

Any unsolicited commercial email must clearly identify itself as such on receipt.290

Administration of the internet 11.69 All websites are named according to the domain name system (DNS), which is co-ordinated by the Internet Corporation for Assigned Names and Numbers (ICANN), a not-for-profit public-benefit corporation formed in 1998.291 ICANN is responsible for setting the procedures used for resolving disputes about domain names, known as the Uniform Dispute for Domain

285 286 287 288 289 290

Electronic Commerce (EC Directive) Regulations 2002, reg 9. Electronic Commerce (EC Directive) Regulations 2002, reg 9(3). Electronic Commerce (EC Directive) Regulations 2002, reg 11(1). Electronic Commerce (EC Directive) Regulations 2002, reg 15. Electronic Commerce (EC Directive) Regulations 2002, reg 7. Electronic Commerce (EC  Directive) Regulations 2002, reg  8. The Privacy and Electronic Communications (EC Directive) Regulations 2003 (SI 2003/2426) also apply to unsolicited emails; the Commission has proposed a Regulation on Privacy and Electronic Communications which would repeal the Privacy and Electronic Communications (EC Directive) Regulations, but this is yet to come into law. 291 See www.icann.org.

714

Information protection and release and computer technology 11.70

Names Resolution Policy (UDRP).292 Entities registering a generic top-level domain (ending in .com, .org, .info or .net, for example) must usually agree to the UDRP when they register. ICANN does not itself participate in the resolution of domain-name disputes, but it maintains a list of authorised dispute-resolution providers.293 Agreement to the UDRP does not preclude action through the courts if a party considers it necessary. Administration of the UK’s country-code top-level domain (.uk) lies with Nominet UK, a not-for profit organisation established as a company limited by guarantee.294 Entities registering a .uk address must agree to Nominet’s dispute-resolution procedure (DRS) and accept its terms and conditions.295 As with the UDRP, however, this does not preclude court action: if a party goes to court, the dispute-resolution procedure is suspended. The Internet Watch Foundation (IWF), a charitable company limited by guarantee, is an independent self-regulatory body set up by the UK internet industry in 1996.296 Its aim is to restrict access to illegal content on the internet. If a user reports illegal material to the IWF, and the site in question is hosted in the UK, the IWF can require the internet service provider hosting the site to remove the content in question. If the site is hosted abroad, its URL can be placed on a backlist enabling access to it to be blocked by UK internet service providers. The World Wide Web Consortium (W3C) is an international consortium that develops standards for the internet, with the aim of improving its operation by ensuring the compatibility of web-based technologies.297 It is administered by the Massachusetts Institute of Technology, the European Research Consortium for Informatics and Mathematics, and Keio University. As already mentioned, among its guidelines are the Website Content Accessibility Guidelines, which aim to ensure accessibility to the internet for disabled users.298

Computer-related crime 11.70 In addition to criminal provisions concerning infringement of copyright, the Computer Misuse Act 1990 sets out the following criminal offences: •

292 293 294 295 296 297 298 299

unauthorised access to computer material (hacking);299

See www.icann.org/resources/pages/dndr-2012-02-25-en. See www.icann.org/en/dndr/udrp/approved-providers.htm. See www.nominet.uk. See www.nominet.uk/domain-support/uk-domain-disputes/. See www.iwf.org.uk. See www.w3.org. See www.w3.org/tr/wcag20. Computer Misuse Act 1990, s 1.

715

11.71  Regulatory Requirements

•

unauthorised access to computer material with intent to commit or facilitate the commission of further offences;300

•

unauthorised acts with intent to impair, or with recklessness as to impairing, operation of a computer;301

•

unauthorised acts causing, or creating risk of, serious damage;302 and

•

making, supplying or obtaining articles for use in any of the above offences.303

Telecommunications 11.71 The most important legislation concerning telecommunications is the Communications Act 2003, which replaced the Telecommunications Act 1984. Under the Communications Act, the Office of Communications (Ofcom) is responsible for licensing the provision of telecommunications systems.304 Ofcom is responsible for the duties previously carried out by the Broadcasting Standards Commission, the Independent Television Commission, the Office of Telecommunications, the Radio Authority and the Radiocommunications Agency.

The use of human tissue in research The Human Tissue Act 2004 11.72 The Human Tissue Act 2004 (‘2004 Act’) governs the use of human tissue for scientific research in England, Wales and Northern Ireland.305 The Scottish equivalent is the Human Tissue (Scotland) Act 2006. The 2004 Act established a consistent regulatory regime for the use of human tissue, including organs and other body parts taken from a donor (whether living or deceased), for research and other purposes based on the donor’s consent. It was passed as a result of public concern following the use without consent of organs taken from deceased children at Bristol Children’s Hospital and Alder Hey Children’s Hospital in Liverpool. The following paragraphs summarise the provisions of the three parts of the 2004 Act (defined terms are explained at the end of this section). 300 301 302 303 304 305

Computer Misuse Act 1990, s 2. Computer Misuse Act 1990 (as amended), s 3. Computer Misuse Act 1990 (as amended), s 3ZA. Computer Misuse Act 1990 (as amended), s 3A. See www.ofcom.org.uk. See also the Tissues and Cells Directive 2004/23/EC ([2004] OJ L102/48), and the Council of Europe Convention on Human Rights and Biomedicine (ETS 164, 1997), which may be found at http://conventions.coe.int/treaty/en/treaties/html/164.htm.

716

Information protection and release and computer technology 11.73

Removal, storage and use of human organs and other tissue for scheduled purposes 11.73 The Act lists certain purposes for which activities specified in the 2004 Act require consent.306 These are referred to as the ‘scheduled purposes’ and are listed in two parts. Part 1 of Schedule 1 sets out the following purposes as requiring appropriate consent where a body of a deceased person or material from a human body is concerned: •

anatomical examination;

•

determining the cause of death;

•

establishing after a person’s death the efficacy of any drug or other treatment administered to him or her;

•

obtaining scientific or medical information about a living or deceased person which may be relevant to any other person (including a future person);

•

public display;

•

research in connection with disorders, or the functioning, of the human body; and

• transplantation. Part 2 of Schedule 1 sets out the following purposes as requiring appropriate consent if the activity relates to deceased persons: •

clinical audit;

•

education or training relating to human health;

•

performance assessment;

•

public health monitoring; and

•

quality assurance.

Under the 2004 Act, the following activities are lawful if done for a scheduled purpose with appropriate consent:307 •

the storage of the body of a deceased person (other than for anatomical examination);

•

the use of the body of a deceased person (other than for anatomical examination);

306 Human Tissue Act 2004, s 1, Sch 1. How consent is established in the circumstances stated below is set out in Human Tissue Act 2004, ss 3 to 7, depending on whether there is a deceased child, an adult or a deceased adult, and when it is appropriate to dispense with consent, for example. 307 Human Tissue Act 2004, s 1(1).

717

11.73  Regulatory Requirements

•

the removal from the body of a deceased person of any relevant material of which the body consists or which it contains;

•

the storage for use of any relevant material which has come from a human body; and

•

the use of any relevant material which has come from a human body.

The following activity is lawful if done with appropriate consent and after a certificate of the cause of death has been signed: •

the use or storage of the body of a deceased person for anatomical examination.308

It is an offence for a person to carry out any of these activities without appropriate consent unless he or she reasonably believes that such consent is in place or that what he or she is doing does not constitute such an activity. The maximum penalty is imprisonment for up to three years and/ or a fine.309 It is also an offence to use or store donated material otherwise than for a scheduled purpose, medical diagnosis or treatment, decent disposal, or a purpose specified in regulations.310 Consent is not needed for the storage or use of material from the body of a living person for medical research where the research is ethically approved in accordance with regulations and the researcher is not able to identify the person from whom the material has come.311 Nor is it needed for the storage or use of material from the body of a living person for a purpose specified in Part 2 of Schedule 1 (see above).312 In the case of a child, the person who has parental responsibility for the child may give appropriate consent.313 In the case of an adult who has died, a person who stood in a qualifying relationship to the adult immediately before

308 309 310 311

Human Tissue Act 2004, s 1(2)–(3). Human Tissue Act 2004, s 5. Human Tissue Act 2004, s 8. Human Tissue Act 2004, s 1(7)–(9); s 1(10)(c). The Human Tissue Act 2004 (Ethical Approval, Exceptions from Licensing and Supply of Information about Transplants) Regulations 2006 (SI 2006/1260) state that research is ethically approved for this purpose where it is approved by ‘(a) a research ethics committee recognised or established by or on behalf of the Health Research Authority under the Care Act 2014, or (b) any other group of persons which assesses the ethics of research involving individuals and which is recognised for that purpose by or on behalf of the Welsh Ministers or the Department of Health, Social Services and Public Safety in Northern Ireland’. 312 Human Tissue Act 2004, s 1(10)(a), (b). 313 Human Tissue Act 2004, s 2. Consent is not needed where the material is exempted material (see definitions below): Human Tissue Act 2004, s 2(5). Parental responsibility has the same meaning as in the Children Act 1989.

718

Information protection and release and computer technology 11.74

the adult died may give appropriate consent,314 or this may be given by one or more persons appointed by the adult for the purpose of giving consent before he or she died (‘nominated representatives’).315 Such an appointment may be made orally or in writing, but in either case must be witnessed.316 In the case of adults lacking the capacity to give consent, consent may be deemed to be given in certain circumstances.317 For storage or use of material for public display or anatomical examination, however, the person concerned (whether an adult or a child) must himself or herself have given consent in writing (which must be witnessed) before they died.318 Where it is desirable in the interests of another person to use relevant material from a living person in order to obtain scientific or medical information about the donor, the Human Tissue Authority may dispense with the need for consent if the donor cannot be traced or does not respond to reasonable efforts to get him or her to decide whether to consent.319 None of the above provisions applies to anything done for purposes of the functions of a coroner or under the authority of a coroner.320

Regulation of activities involving human tissue 11.74 Activities involving human tissue are regulated by the Human Tissue Authority (HTA), which issues codes of practice relating to activities within its remit.321 The following activities require a licence from 314 Human Tissue Act 2004, s 3. Consent is not needed where the material is exempted material (see definitions below): Human Tissue Act 2004, s 3(4). The qualifying relationships are set out in s  27(4), and are ranked in the following order: (a) spouse, civil partner or partner; (b) parent or child; (c) brother or sister; (d) grandparent or grandchild; (e) child of a person falling within para (c); (f) stepfather or stepmother; (g) half-brother or half-sister; (h) friend of longstanding. Consent should be obtained from the person whose relationship to the person concerned is accorded the highest ranking (s 27(6)), provided that he or she is willing and able to deal with the issue of consent and it is reasonably practicable to communicate with him or her within the time available (s 27(8)). 315 Human Tissue Act 2004, s 4. 316 Human Tissue Act 2004, s 4(3)–(5). 317 Human Tissue Act 2004, s  6 and the Human Tissue Act (Persons who Lack Capacity to Consent and Transplants) Regulations 2006 (SI 2006/1659). 318 Human Tissue Act 2004, ss 2(4)–(6), 3(3)–(5). Public display does not include display for the purpose of enabling people to pay their final respects to the deceased or display incidental to the deceased’s funeral (s 54(5)). 319 Human Tissue Act 2004, s 8. 320 Human Tissue Act 2004, s 11. 321 Human Tissue Act 2004, ss 13–15 and Sch 2. Current codes of practice relate to (A) consent; (B) post-mortem examination; (C) anatomical examination; (D) public display; (E) research; (F) donation of solid organs and tissue for transplantation; and (G) donation of allogeneic bone marrow and peripheral blood stem cells for transplantation. The codes are updated from time to time and the last update was in April 2017. (A) and (F) do not apply to Wales (there is a draft code for (F) at the time that material for this book was being prepared). The codes are available from www.hta.gov.uk/hta-codes-practice-and-standards-0.

719

11.74  Regulatory Requirements

the HTA (unless relating to the body of a person who has been dead for 100 years or longer):322 •

anatomical examination;

•

post-mortem examination;

•

removal of relevant material from the body of a deceased person for use other than transplantation;

•

storage of an anatomical specimen;

•

storage of the body of a deceased person or relevant material from a human body for a scheduled purpose; and

•

public display of the body of a deceased person or relevant material from the body of a deceased person.

It is an offence for a person to carry out any of these activities without a licence unless he or she reasonably believes that no licence is required or that a licence is in place. The maximum penalty is imprisonment for up to three years and/or a fine.323 A licence applies to the individual designated in that licence, other persons notified to the HTA by that individual, and anyone acting under his, her or their direction.324 The designated individual has a duty to secure that the persons to whom the licence applies and the practices used to carry out the activity are suitable, and that the conditions of the licence are complied with.325 The HTA may issue directions in relation to the conduct of an activity authorised by licences generally, licences of a particular description or a particular licence.326 In carrying out a licensed activity, a person must comply with any applicable requirements imposed by directions.327 There is a procedure for appeal if an application for the grant, revocation or variation of a licence is refused.328 The Act prohibits the possession of an anatomical specimen away from licensed premises without authorisation,329 and commercial dealings in human material for transplantation.330 Removal of transplantable material from the body of a living person for transplantation and using any such material for 322 323 324 325 326 327 328 329 330

Human Tissue Act 2004, s 16. Human Tissue Act 2004, s 25. Human Tissue Act 2004, s 17. Human Tissue Act 2004, s 18. Human Tissue Act 2004, s  23(1), (2). See also the Human Tissue (Quality and Safety for Human Application) Regulations 2007 (SI 2007/1523) and the Quality and Safety of Organs Intended for Transplantation Regulations 2012 (SI 2012/1501). Human Tissue Act 2004, s 23(3). Human Tissue Act 2004, ss 19–22. See also the statutory instruments referred to in note 326. Human Tissue Act 2004, ss 30–31. Human Tissue Act 2004, s 32.

720

Information protection and release and computer technology 11.75

transplantation are forbidden unless the HTA is satisfied that no reward has been or is to be given and the conditions specified in regulations are satisfied.331 The requirement to hold a licence does not apply to anything done for purposes relating to the prevention or detection of crime or the conduct of a prosecution,332 nor to the public display of religious relics at a place of public worship.333

Miscellaneous and general 11.75 There are provisions enabling a person managing a hospital, nursing home or other institution to preserve part of a body that may be suitable for use for transplantation, to retain the body for that purpose,334 and to treat as waste surplus material coming from a person’s body in the course of his or her receiving medical treatment, undergoing diagnostic testing or participating in research.335 It is an offence to have any bodily material with the intention of analysing any human DNA in it without qualifying consent and otherwise than for an excepted purpose; this does not apply: •

to material from a person who has been dead for more than 100 years;

•

where it is an existing holding and the person who has it will not come into possession (nor is likely to come into possession) of information as to the identity of the individual from which the material comes; or

•

to an embryo outside the human body.336

As well as the medical diagnosis or treatment of the person whose body manufactured the DNA,337 the excepted purposes include research in connection with disorders or functioning of the human body if the bodily material concerned is the subject of an order of the High Court;338 in the case of existing holdings, such research is an excepted purpose if the material is from a living person, the research is ethically approved in accordance with regulations, and the analyst cannot identify the individual from whose body the material has come.339 331 Human Tissue Act 2004, ss 33–34. See also the Human Tissue Act 2004 (Persons who Lack Capacity to Consent and Transplants) Regulations 2006 (SI  2006/1659), and the Human Tissue Act 2004 (Ethical Approval, Exceptions from Licensing and Supply of Information about Transplants) Regulations 2006 (SI 2006/1260). 332 Human Tissue Act 2004, s 39. 333 Human Tissue Act 2004, s 40. 334 Human Tissue Act 2004, s 43. 335 Human Tissue Act 2004, s 44. 336 Human Tissue Act 2004, s 45 and Sch 4. 337 Human Tissue Act 2004, Sch 4, para 5(1)(a). 338 Human Tissue Act 2004, Sch 4, para 6. 339 Human Tissue Act 2004, Sch 4, para 10. Other excepted purposes include the functions of a coroner or procurator fiscal; the prevention or detection of crime; the conduct of a prosecution; national security; and implementing an order or direction of a court or tribunal (Sch  4, para 5(1)); see Sch 4 generally.

721

11.76  Regulatory Requirements

The trustees of certain national museums may, if they consider it appropriate, transfer from their collections any human remains of a person who they believe died less than 1,000 years before 3 October 2005.340 A  person duly authorised by the HTA may inspect records kept under the Act and enter and inspect licensed premises.341 The HTA can apply to a justice of the peace for a warrant to enter and search any premises if there are reasonable grounds for believing that an offence under the Act is being or has been committed there.342 A duly authorised person can seize anything found in the course of an inspection or search which may be required for the HTA’s functions relating to licensing or to use as evidence.343 When an offence under the Act is committed by a body corporate with the consent or connivance of any director, manager, secretary or similar officer, or is attributable to any neglect on the part of such a person, that person, as well as the body corporate, is liable for the offence and may be proceeded against and punished accordingly.344

Data protection 11.76 GDPR and the DPA 2018 are also relevant to the use of human tissue for research, as scientists will need to have access to the patient data associated with the tissue they are using.345 Also relevant are the Human Rights Act 1998 and the law of confidentiality, as well as the tort of the misuse of private information.

Some defined terms used in the Human Tissue Act 2004 11.77 Adult

A person who has attained the age of 18 years

Anatomical examination

Macroscopic examination by dissection for anatomical purposes, which are purposes of teaching or studying, or researching into, the gross structure of the human body.

Child

A person who has not attained the age of 18 years.

Donated material

The donated body of a deceased person, or donated relevant material that has come from a human body.

Excepted material

material which has– (a) come from the body of a living person, or (b) come from the body of a deceased person otherwise than in the course of use of the body for the purpose of anatomical examination.

340 341 342 343 344 345

Human Tissue Act 2004, s 47. Human Tissue Act 2004, s 48 and Sch 5, paras 1, 2. Human Tissue Act 2004, Sch 5, paras 3, 4. Human Tissue Act 2004, Sch 5, para 5. Human Tissue Act 2004, s 49. See para 11.03 onwards above.

722

Information protection and release and computer technology 11.78 Material from the body Material from the body of a person not alive at the point of separation of a deceased person (s 54(2)(a)). Material from the body Material from the body of a person alive at the point of separation. of a living person Relevant material

Material, other than gametes, which consists of or includes human cells, but not embryos outside the human body or hair and nail from the body of a living person.

Human reproductive technology 11.78 Human reproductive technologies are regulated by the Human Fertilisation and Embryology Act 1990 (‘1990 Act’). The 1990 Act has been amended to reflect scientific developments (in particular, new ways of creating embryos) and social developments (in particular, same-sex partnerships).346 As amended, the 1990 Act now regulates all live human embryos outside the body, however created, and all live human gametes; it also regulates embryos created for research purposes from a combination of human and animal genetic material (‘human admixed embryos’). The amended Act makes the sex selection of offspring illegal, except for medical reasons; enables same-sex couples to be recognised as the legal parents of children conceived by means of donated sperm, eggs or embryos; replaces the reference to ‘the need for a father’ in the 1990 Act as originally enacted with ‘the need for supportive parenting’; and facilitates follow-up research of infertility treatment by opening up the register of information relating to such treatment. The main provisions of the amended 1990 Act as they affect scientific research are as follows (defined terms are explained at the end of this section). 346 The 1990 Act was amended by the Human Fertilisation and Embryology Act 2008 from 1 October 2009. It was further amended in 2015 to provide ‘for specified eggs and embryos, which contain donated mitochondria, to be permitted for use in assisted conception treatment under section 3(2) of the Human Fertilisation and Embryology Act 1990 by the Human Fertilisation and Embryology (Mitochondrial Donation) Regulations 2015 (SI 2015/572)’ (drawn from the explanatory notes to the 2015 Regulations). And the 1990 Act was further amended in 2018 for the HFEA to apply the ‘Single European Code’ (SEC) by the Human Fertilisation and Embryology (Amendment) Regulations 2018 (SI 2018/334). This latter amendment refers (by insertion of principally s 8ZB into the 1990 Act) to an EU system where human tissues and cells which are for human application have to be traceable from a donor to the recipient (and vice versa). This is done through a unique identifier under the name of the SEC. This will be done by entering the SEC into a Commission database to allow users to be ‘able to retrieve relevant information on the tissue and cell product itself and on the associated tissue establishment, including the activities for which it is authorised, by tissue and cell type, and its contact details’ (see https://ec.europa.eu/health/blood_tissues_organs/tissues/single_european_code_en). The SEC follows the implementation of Commission Directive (EU) 2015/565 of 8 April 2015 amending Directive 2006/86/EC as regards certain technical requirements for the coding of human tissues and cells. This requirement on the HFEA, although only recently introduced, will also be removed on the date when the UK leaves the EU (Human Fertilisation and Embryology (Amendment) (EU Exit) Regulations 2019, reg 2(6)).

723

11.79  Regulatory Requirements

Activities governed by the 1990 Act 11.79 The following activities are forbidden by the 1990 Act: •

placing in a woman: –

an embryo other than a permitted embryo, or

–

any gametes other than permitted eggs or permitted sperm;347

•

(where the purpose is providing fertility services) using female germ cells taken or derived from a foetus for the purpose of providing fertility services;348

•

placing in a woman a human admixed embryo, any other embryo that is not a human embryo or any gametes other than human gametes;349

•

placing a human admixed embryo in an animal;350 and

•

keeping or using a human admixed embryo in any circumstances where regulations prohibit its keeping or use.351

The following activities may be carried out only in pursuance of a licence under the 1990 Act: •

bringing about the creation of an embryo;352

•

keeping or using any embryo;353

•

storing any gametes;354

•

(in the course of providing treatment services for any woman) using: – any sperm, other than partner-donated sperm which has been neither processed nor stored; –

the woman’s eggs after processing or storage; or

–

the eggs of any other woman;355

•

placing sperm and eggs in any woman in any circumstances specified in regulations;356 and

•

mixing human gametes with animal gametes, bringing about the creation of a new human admixed embryo, or keeping or using a human admixed embryo.357

347 348 349 350 351 352 353 354 355 356 357

Human Fertilisation and Embryology Act 1990, s 3(2). Human Fertilisation and Embryology Act 1990, s 3A. Human Fertilisation and Embryology Act 1990, s 4A(1). Human Fertilisation and Embryology Act 1990, s 4A(4). Human Fertilisation and Embryology Act 1990, s 4A(5). Human Fertilisation and Embryology Act 1990, s 3(1). Human Fertilisation and Embryology Act 1990, s 3(1A)(a). Human Fertilisation and Embryology Act 1990, s 4(1)(a). Human Fertilisation and Embryology Act 1990, s 4(1)(b). Human Fertilisation and Embryology Act 1990, s 4(3). Human Fertilisation and Embryology Act 1990, s 4A(2).

724

Information protection and release and computer technology 11.81

The following activities may be carried out only in pursuance of a licence or a third-party agreement under the 1990 Act:358 •

keeping or processing, without storage, an embryo intended for human application;359

•

procuring or distributing an embryo intended for human application;360 and

•

procuring, testing, processing or distributing any gametes intended for human application.361

The Human Fertilisation and Embryology Authority and licences 11.80 Licences are issued by the Human Fertilisation and Embryology Authority (HFEA).362 The HFEA grants separate licences in respect of treatment, fertility, storage and research activities, each of which is subject to various conditions, including consent requirements.363 All parties concerned share control of gametes and embryos. The HFEA may also issue directions and must maintain a code of practice giving guidance about the proper conduct of activities carried on in pursuance of a licence.364 Storage licences are subject to conditions prohibiting storage of gametes and embryos beyond the statutory storage period, although the terms of a donor’s consent may shorten such period.365

Research using embryos and gametes 11.81 It is possible to conduct research on materials covered by the 1990 Act subject to: •

that records maintained under a licence contain such information as the HFEA may require under any directions that it issues;

•

information in such records not being removed before any specified period set out in directions issued by the HFEA;

358 A third-party agreement is defined in s 2A: it refers to an agreement between the holder of a licence under the Act and another person who ‘(a) procures, tests or processes gametes or embryos (or both), on behalf of the holder of the licence, or (b) supplies to the holder of the licence any goods or services (including distribution services) which may affect the quality or safety of gametes or embryos’. 359 Human Fertilisation and Embryology Act 1990, s 3(1A)(b). 360 Human Fertilisation and Embryology Act 1990, s 3(1B). 361 Human Fertilisation and Embryology Act 1990, s 4(1), (1A). 362 Human Fertilisation and Embryology Act 1990, ss 5–9 and Sch 1. See www.hfea.gov.uk. 363 Human Fertilisation and Embryology Act 1990, ss 11–21 and Sch 2. On consent, see Sch 3. 364 Human Fertilisation and Embryology Act 1990, ss  23–26. The current code of practice is the ninth edition (2010): see www.hfea.gov.uk/media/2793/2019-01-03-code-of-practice-9thedition-v2.pdf . 365 Human Fertilisation and Embryology Act 1990, s 14. The statutory storage period for gametes and embryos is ten years (s 14(3)–(4A)).

725

11.81  Regulatory Requirements

•

any embryo appropriated for the purposes of any research project shall be kept and used only for that project.366

The 1990 Act provides that the HFEA may issue licences which authorise: (1) for embryos: (a) the bringing about the creation of embryos in vitro; and (b) the keeping or using of embryos; for the purpose of a research project specified in the licence.367 (2) for human admixed embryos: (a) the bringing about the creation of human admixed embryos; and (b) the keeping or using of human admixed embryos; for the purpose of a research project specified in the licence.368 A  licence issued for human admixed embryos may not cover any activity concerning embryos.369 Any licence granted: •

cannot be for a period longer than three years;370

•

can only authorise activities on specified premises (or, if relevant, third party premises) and under the supervision of a designated individual;371

•

cannot apply to more than one research project;372

•

cannot authorise activities which are carried out under the supervision of more than one individual;373 and

•

cannot apply to premises of the person who holds the licence in different places.374

The HFEA will only issue a licence if it is satisfied that any proposed use of embryos or human admixed embryos will be necessary for the purposes of research.375 Any licence that the HFEA issues will only authorise activities that the HFEA: •

366 367 368 369 370 371 372 373 374 375

believes to be necessary or desirable for one of a number of principal purposes (as described below);

Human Fertilisation and Embryology Act 1990, s 15. Human Fertilisation and Embryology Act 1990, Sch 2, para 3(1). Human Fertilisation and Embryology Act 1990, Sch 2, para 3(3). Human Fertilisation and Embryology Act 1990, Sch 2, para 3(4). Human Fertilisation and Embryology Act 1990, Sch 2, para 3(8). Human Fertilisation and Embryology Act 1990, Sch 2, para 4(1). Human Fertilisation and Embryology Act 1990, Sch 2, para 4(2)(b). Human Fertilisation and Embryology Act 1990, Sch 2, para 4(2)(c). Human Fertilisation and Embryology Act 1990, Sch 2, para 4(2)(d). Human Fertilisation and Embryology Act 1990, Sch 2, para 3(5).

726

Information protection and release and computer technology 11.83

•

believes to be necessary or desirable for the purpose of providing knowledge that may be capable of being applied for the first two principal purposes (as described below); or

•

for other purposes as specified in regulations.376

The principal purposes are as follows: •

increasing knowledge about serious disease or other serious medical conditions;

•

developing treatments for serious disease or other serious medical conditions;

•

increasing knowledge about the causes of any congenital disease or congenital medical condition that does not fall within the first bullet point above;

•

promoting advances in the treatment of infertility;

•

increasing knowledge about the causes of miscarriage;

•

developing more effective techniques of contraception;

•

developing methods for detecting the presence of gene, chromosome or mitochondrion abnormalities in embryos before implantation; or

•

increasing knowledge about the development of embryos.377

Information 11.82 The HFEA keeps a register containing information relating to treatment services to an identifiable individual, the procurement or distribution of sperm other than that donated by a partner, and the keeping of gametes and embryos and their use.378 It also keeps a register of licences and a register of serious adverse events and serious adverse reactions.379 There are restrictions on disclosure of protected information, but such information may be disclosed for the purposes of medical or other research, where so permitted by regulations, or in the interests of justice.380

Offences 11.83 It is an offence punishable by a fine and/or imprisonment for up to ten years to keep or use an embryo in any circumstances prohibited by

376 377 378 379 380

Human Fertilisation and Embryology Act 1990, Sch 2, para 3A(1). Human Fertilisation and Embryology Act 1990, Sch 2, para 3A(2). Human Fertilisation and Embryology Act 1990, ss 31–31ZG. Human Fertilisation and Embryology Act 1990, ss 31A, 31B. Human Fertilisation and Embryology Act 1990, ss 33–35.

727

11.84  Regulatory Requirements

regulations.381 Keeping or using gametes in contravention of the 1990 Act is an offence punishable by a fine and/or imprisonment for up to two years.382 There is a defence available to a person where s/he: •

has a licence or a third party agreement or has been given directions; and

•

has taken all such steps as are reasonable and has exercised due diligence to avoid committing an offence.383

The HFEA has powers of inspection, entry, search and seizure.384 No money or other benefit may be given or received for the supply of gametes or embryos, unless authorised by directions issued by the HFEA.385

Some defined terms used in the 1990 Act as amended 11.84 Female germ cells

Cells of the female germ line and includes such cells at any stage of maturity and accordingly includes eggs.386

Fertility services

Medical, surgical or obstetric services provided for the purpose of assisting women to carry children.387

Permitted egg

A permitted egg is one (a) which has been produced by or extracted from the ovaries of a woman, and (b) whose nuclear or mitochondrial DNA has not been altered.388

Permitted sperm

Permitted sperm are sperm (a) which have been produced by or extracted from the testes of a man, and (b) whose nuclear or mitochondrial DNA has not been altered.389

Permitted embryo

An embryo is a permitted embryo if (a) it has been created by the fertilisation of a permitted egg by permitted sperm, (b) no nuclear or mitochondrial DNA of any cell of the embryo has been altered, and (c) no cell has been added to it other than by division of the embryo’s own cells.390

Human admixed embryo

(a)

An embryo created by replacing the nucleus of an animal egg or of an animal cell, or two animal pronuclei, with: (i)

two human pronuclei,

(ii)

one nucleus of a human gamete or of any other human cell; or

(iii) one human gamete or other human cell.

381 382 383 384 385 386 387 388 389 390

Human Fertilisation and Embryology Act 1990, s 41(1). Human Fertilisation and Embryology Act 1990, ss 41(2)–(4). Human Fertilisation and Embryology Act 1990, s 41(11). Human Fertilisation and Embryology Act 1990, Sch 3B. Human Fertilisation and Embryology Act 1990, ss 12(1)(e), 23. Human Fertilisation and Embryology Act 1990, s 3A(2). Human Fertilisation and Embryology Act 1990, s 3A(2). Human Fertilisation and Embryology Act 1990, s 3ZA(2), used in interpreting s 3(2). Human Fertilisation and Embryology Act 1990, s 3ZA(3), used in interpreting s 3(2). Human Fertilisation and Embryology Act 1990, s 3ZA(4), used in interpreting s 3(2).

728

Information protection and release and computer technology 11.85 (b) Any other embryo created by using:

(c)

(i)

human gametes and animal gametes; or

(ii)

one human pronucleus and one animal pronucleus.

A human embryo that has been altered by the introduction of any sequence of nuclear or mitochondrial DNA of an animal into one or more cells of the embryo.

(d) A human embryo that has been altered by the introduction of one or more animal cells. Or: (e)

Any embryo not falling within paragraphs (a)–(d) which contains both nuclear or mitochondrial DNA of a human and nuclear or mitochondrial DNA of an animal (‘animal DNA’) but in which the animal DNA is not predominant.391

Clinical trials The Declaration of Helsinki 11.85 The most widely accepted ethical guidance concerning medical research involving human subjects is found in the Declaration of Helsinki, originally issued by the World Medical Association (WMA) in 1964.392 The Declaration has been subject to numerous revisions; the current version is that adopted in 2013.393 Some of the fundamental principles enshrined in the Declaration are as follows: •

It is a statement of ethical principles for medical research where the research involves human subjects. It also covers research on identifiable human material and data. (Paragraph 1)

•

It is the duty of the physician to promote and safeguard the health, wellbeing and rights of patients, including those who are involved in medical research. The physician’s knowledge and conscience are dedicated to the fulfilment of this duty. (Paragraph 4)

•

The aim of medical research is to generate new knowledge, but it must not take precedence over the rights and interests of an individual research subject. (Paragraph 8)

•

A  physician has the duty to protect the life, health, dignity, integrity, right to self-determination, privacy and confidentiality of personal information of a research subject. Protecting the research subject is always the responsibility of the physician (and other health care

391 Human Fertilisation and Embryology Act 1990, s 4A(6). 392 See www.wma.net. 393 World Medical Association Declaration of Helsinki: Ethical Principles for Medical Research Involving Human Subjects, last amended by the 64th WMA General Assembly, Brazil, October 2013. See www.wma.net/policies-post/wma-declaration-of-helsinki-ethical-principles-formedical-research-involving-human-subjects/.

729

11.85  Regulatory Requirements

professionals) and never the research subject (even though the research subject has given their consent). (Paragraph 9) •

Physicians must consider the ethical, legal and regulatory norms and standards for research involving human subjects in their own countries as well as applicable international norms and standards. No national or international ethical, legal or regulatory requirement should reduce or eliminate any of the protections for research subjects set forth in the Declaration. (Paragraph 10)

•

The design and performance of each research study involving human subjects must be clearly described in a research protocol. The protocol should contain a statement of the ethical considerations involved and should indicate how the principles in this Declaration have been addressed. It should include information about funding, sponsors, institutional affiliations, potential conflicts of interest, incentives for subjects as well as provisions for treating and/or compensating research subjects who are harmed as a consequence of participation in a research study. (Paragraph 21)

•

The research protocol must be submitted for consideration, comment, guidance and approval to a research ethics committee before the study begins. This committee must be transparent in its functioning and independent of the researcher, the sponsor and any other undue influence. (Paragraph 23)

•

Every medical research study involving human subjects must be preceded by careful assessment of predictable risks and burdens to the individuals and communities involved in the research in comparison with foreseeable benefits to them and to other individuals or communities affected by the condition under investigation. (Paragraph 17)

•

Medical research involving human subjects may only be conducted if the importance of the objective outweighs the inherent risks and burdens to the research subjects. (Paragraph 16)

•

Participation by competent individuals (those capable of giving informed consent) as subjects in medical research must be voluntary. Although it may be appropriate to consult family members or community leaders, no competent individual may be enrolled in a research study unless he or she freely agrees. (Paragraph 25)

•

In medical research involving competent human subjects, each potential subject must be adequately informed of the aims, methods, sources of funding, any possible conflicts of interest, institutional affiliations of the researcher, the anticipated benefits and potential risks of the study and the discomfort it may entail, and any other relevant aspects of the study. The potential subject must be informed of the right to refuse to participate in the study or to withdraw consent to participate at any time without reprisal. Special attention should be given to the 730

Information protection and release and computer technology 11.85

specific information needs of individual potential subjects as well as to the methods used to deliver the information. After ensuring that the potential subject has understood the information, the physician or another appropriately qualified individual must then seek the potential subject’s freely given informed consent, preferably in writing. If the consent cannot be expressed in writing, the non-written consent must be formally documented and witnessed. (Paragraph 26) •

Where there is the use of identifiable human material or data, the physician must seek informed consent. This will apply where there is research on material or data contained in biobanks or similar repositories. In exceptional situations where it is impossible or impracticable to obtain consent, it is not necessary to obtain consent, but the research will still need the approval of a research ethics committee. (Paragraph 32)

•

It is necessary to register all research involving human subjects on a publicly accessible database before recruitment of data subjects. (Paragraph 35)

•

Researchers have a duty to make their research on human subjects publicly available and they are accountable for the completeness and accuracy of their reports. Negative and inconclusive results as well as positive results must be published or made publicly available. (Paragraph 36)

Although the Declaration does not itself have legal force, its principles are widely accepted. In Europe, those principles are reflected in the Clinical Trials Regulation394 and the Clinical Trials Directive,395 and the Good Clinical Practice Directive requires that clinical trials should be carried out in accordance with the Declaration.396 These Directives and the legislation transposing them into UK law are considered in more detail below. 394 Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. See Recital 43: ‘The members of the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) have agreed on a detailed set of guidelines on good clinical practice which is an internationally accepted standard for designing, conducting, recording and reporting clinical trials, consistent with principles that have their origin in the World Medical Association’s Declaration of Helsinki’; and Recital 80: ‘This Regulation is in line with the major international guidance documents on clinical trials, such as the 2008 version of the World Medical Association’s Declaration of Helsinki and good clinical practice, which has its origins in the Declaration of Helsinki’. 395 Directive 2001/20/EC ([2001]  OJ L121/34) on the approximation of the laws, regulations and administrative provisions of the member states relating to the implementing of good clinical practice in the conduct of clinical trials on medicinal products for human use; see also Directive 2001/83/EC ([2001] OJ L311/67) on the Community code relating to medicinal products for human use (the Medicinal Products Directive). 396 Commission Directive 2005/28 EC ([2005] OJ L91/13) laying down principles and detailed guidelines for good clinical practice as regards investigational medicinal products for human use, as well as the requirements for authorisation of the manufacturing or importation of such products.

731

11.86  Regulatory Requirements

The (EU) Clinical Trials Regulation and Directive 11.86 During the life of this edition of the book, the EU  Clinical Trials Regulation (‘CTR’)397 will replace the EU Clinical Trials Directive (‘CTD’).398 At the date when the material was prepared for this edition of the book: •

the CTR has not yet become operational due to difficulties in developing one of its key features, an online portal for the submission of applications for the running of clinical trials.399 Once the CTR is operational, there will be a period of approximately three years where a person who applies for authorisation to run a clinical trial can be subject to either the CTD or the CTR;400 and

•

it is not clear how, and to what extent, the UK will participate or operate within the provisions of the CTR once the UK leaves the EU.401

The aim of both the CTD and the CTR is to harmonise the law among member states on the conduct of clinical trials and to ensure that all such trials follow good clinical practice. If the CTR were to apply to the UK, it would not, as an EU  Regulation, require implementation into UK law as such, unlike the CTD, which was implemented into UK law by the Medicines for Human Use (Clinical Trials) Regulations 2004 (‘UKCTR’).402

397 Regulation (EU) 536/2014 of the European Parliament and of the Council of 16 April 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC. 398 Directive 2001/20/EC of the European Parliament and of the Council of 4 April 2001 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use. 399 The European Medicines Agency has responsibility for operating the portal. For information on the development of the portal, see www.ema.europa.eu/en/human-regulatory/researchdevelopment/clinical-trials/clinical-trial-regulation. During preparation of this chapter, this web page stated that the portal would become operational in May 2020, but this date is no longer shown, and no specific date was stated except for a progress report dated October 2019. 400 See Regulation (EU) 536/2014, Art 98. 401 The MHRA carried out a consultation in 2016, but appears not to have published information as to what is happening regarding implementation of the CTR, or how the UK will operate with the CTR when it is outside the EU where a person wishes to run a pan-European clinical trial after the CTR begins operating. See Cave (Professor of Health Care Law, Durham University), EU Clinical Trials Regulation 2014: Fetter or facilitator?, 2018 (available from Medical Law International at www.ncbi.nlm.nih.gov/pmc/articles/PMC6290553/), which provides an analysis of whether the CTR could apply to the UK after the UK has left the EU, depending on whether the CTR begins operating before the date that the UK actually does leave the EU (although the article was written before developments taking place in 2019). See also the government’s statement (from 2018) as to what is likely to happen after the end of the implementation, after 31 December 2020. That is it will be necessary to make parallel submissions to the MHRA and the EU, unless a different arrangement is negotiated: www.gov. uk/government/news/clinical-trials-regulation. 402 SI 2004/1031.

732

Information protection and release and computer technology 11.87

This section of the chapter sets out: • the principal reasons for the introduction of the CTR; • an outline of the main provisions of the CTR; and • the relevant provisions of the CTD (as implemented by the UKCTR) concerning the conduct of clinical trials in the UK. Both the CTR and the CTD require that all clinical trials are designed, conducted and reported in accordance with the principles of good clinical practice,403 and that all medicines used in a clinical trial should be subject to the principles of good manufacturing practice.404 Many clinical trials now take place not only at several trial sites within one country, but also across several countries: both the CTR and the CTD attempt to make uniform the requirements relating to such multi-centre and multi-territory clinical trials, and to enable the EU to co-ordinate information relating to such trials and to control them. The CTR enables the EU to take a more prescriptive approach for such co-ordination and control, the reasons for which are set out under the next heading.

The principal reasons for the introduction of the CTR405 11.87 A  number of criticisms have been made about the CTD, with the most significant being perhaps the following: • the CTD had the aim to harmonise and simplify the administrative provisions applying to clinical trials. However, this has not occurred as regulators in member states implemented the Directive in their own way;406 • the CTD has a ‘one size fits all’ approach to regulating clinical trials, rather than distinguishing between those clinical trials which pose a 403 Regulation (EU) 536/2014, Art 47; Clinical Trials Directive, Art 1(4); see the Good Clinical Practice Directive, which was transposed into English law by way of amendment of the Clinical Trials Regulations by the Medicines for Human Use (Clinical Trials) Amendment Regulations 2006 (SI 2006/1928). 404 Regulation (EU) 536/2014, Recital 55; Clinical Trials Directive, Recital 12. Medicines used in clinical trials are described as ‘investigational medicinal products’: see definition at the end of this section. 405 The points in this section are drawn from the Houses of Parliament, Parliamentary Office of Science & Technology, Postnote Number 561, Regulating Clinical Trials, October 2017, and from Cave (Professor of Health Care Law, Durham University), EU Clinical Trials Regulation 2014: Fetter or facilitator?, 2018 (available from Medical Law International at www.ncbi. nlm.nih.gov/pmc/articles/PMC6290553/). Users of the book should also consider the official guidance from the UK, which is updated from time to time (such as www.gov.uk/government/ publications/further-guidance-note-on-the-regulation-of-medicines-medical-devices-andclinical-trials-if-theres-no-brexit-deal). 406 Regulation (EU) 536/2014, Recitals 4, 5. From a UK perspective, an inquiry by the House of Commons Science and Technology Committee in 2013 found: (i) a lack of transparency in the registering and reporting of clinical trials; (ii) a complex system for gaining ethic committee approval (including getting approval from then National Research Ethics Services and permission from each NHS trust where the trial was to be conducted), plus approval from the Human Tissue Authority in some cases. For the UK, changes were made in 2016, so that assessment by the NHS via the HRA is made at the same time as the ethical committee review, so that there is a single HRA approval.

733

11.88  Regulatory Requirements

greater risk compared to lower-risk ones. That is, all clinical trials must meet the good clinical practice requirements, without consideration of the risks of the trial; •

that getting approval was administratively complex and that the CTD led to a decline in the number of clinical trials taking place in the EU (by 25% from 2007–2011), and the average delay in starting a clinical trial increased by 90%.

Key provisions in the CTR 11.88 They key provisions are: •

Use of a Regulation (rather than a Directive): the use of an EU Regulation (rather than an EU  Directive) enables a more simple and harmonised set of administrative provisions to govern clinical trials – and reduce divergences of approach among different member states.407

•

More than doubling in the use of definitions: many definitions in the CTR are the same as or very similar to those appearing in the CTD, but the CTR has introduced new definitions covering different aspects of the authorisation, the running etc of a clinical trial. For example, various stages of a clinical trial are now defined terms, such as ‘start of a clinical trial’, ‘end of a clinical trial’, ‘temporary halt of a clinical trial’, ‘suspension of a clinical trial’ and ‘early termination of a clinical trial’. They will need careful consideration, if they appear in documentation (or even an agreement), as their meaning may not always be obvious (and in some cases may vary, depending on the wording of an application for authorisation).

•

Introduction of a definition of a ‘clinical study’ and recognition that different types of clinical trial have different levels of risks: the introduction of a concept (and as a definition in the CTR) of a ‘clinical study’, which encompasses:408 –

a clinical trial;409

–

a low-intervention clinical trial;410 and

–

a non-interventional study.411

The aim is to define each based on specific criteria and to take account of international guidelines412 and to recognise that there are different levels 407 408 409 410 411 412

Regulation (EU) 536/2014, Recitals 4, 5. The definition of ‘clinical study’ equates to the meaning of a ‘clinical trial’ under the CTD. CTR, Art 2(2), whose definition is different to that found in the CTD. CTR, Art 2(3). CTR, Art 2(4). CTR, Recital 12 indicates that this new approach in the CTR stems from a recommendation of the Organisation for Economic Cooperation and Development (OECD) Council on the Governance of Clinical Trials of 10 December 2012. The recommendation introduced different risk categories for clinical trials. A clinical trial in the CTR corresponds to OECD Categories A and B(1), while a low-intervention clinical trial corresponds to OECD Categories B(2) and C.

734

Information protection and release and computer technology 11.88

of risk with conducting the different types of clinical study.413 Although there is a recognition that different types of clinical study pose different levels of risk, each type still has to go through the same application procedure for authorisation. •

A centralised application process through an EU-run portal: to conduct a clinical trial it will be necessary to submit one application (with a supporting dossier) for authorisation to a database through an EUoperated portal (and only in that way).414 Rather than the current practice under the CTD of making applications to each EU member state where a sponsor wishes to conduct the trial, although under the CTR each member state involved will: –

still need to grant approval, but

–

be working with the same set of information obtained, from the EU portal.

All notifications and communications between the sponsor and member states will normally only be made via the portal. •

Transparency:415 –

for clinical trials conducted in the EU, there should be a sufficient level of transparency so that much of the information regarding a clinical trial will be available to the public (and available through the EU portal);

–

all clinical trials should be recorded in the EU portal;

–

the information recorded in the portal: ○

should be publicly available;

○

should be in easily searchable format;

○

so that related data and documents should be linked together by an EU trial number (and with the use of hyperlinks making

413 See CTR, Recital 11: ‘The risk to subject safety in a clinical trial mainly stems from two sources: the investigational medicinal product and the intervention. Many clinical trials, however, pose only a minimal additional risk to subject safety compared to normal clinical practice. This is particularly the case where the investigational medicinal product is covered by a marketing authorisation, that is the quality, safety and efficacy has already been assessed in the course of the marketing authorisation procedure or, if that product is not used in accordance with the terms of the marketing authorisation, that use is evidence-based and supported by published scientific evidence on the safety and efficacy of that product, and the intervention poses only very limited additional risk to the subject compared to normal clinical practice. Those low-intervention clinical trials are often of crucial importance for assessing standard treatments and diagnoses, thereby optimising the use of medicinal products and thus contributing to a high level of public health. Those clinical trials should be subject to less stringent rules, as regards monitoring, requirements for the contents of the master file and traceability of investigational medicinal products’. 414 CTR, Art 81(1). 415 CTR, Recital 67, Art 81.

735

11.88  Regulatory Requirements

•

links to documents such as the summary of the clinical trial, the layperson’s summary, the protocol and the clinical study report of one clinical trial); ○ should contain linking data from other clinical trials which have used the same investigational medicinal product; ○ should contain the start and end date of the clinical trial; – there is a presumption that the EU database should be publicly available, unless specific pieces of information should not be available. Accordingly, the data and information should be publicly available unless it is necessary to keep it confidential on one of the following grounds:416 ○ to protect personal data (in accordance with Regulation 45/2001);417 ○ to protect commercially confidential information;418 ○ to protect communications between member states concerning the preparation of the assessment or to allow the effective supervision of a clinical trial by member states; – data in the application dossier will not be publicly available before a decision on the clinical trial is made (unless there is an overwhelming public interest in making it public); – personal data of a subject of a clinical trial will not be publicly accessible.419 Limitation on data that is (commercially) confidential: as noted under ‘Transparency’ above, an aim of the CTR is that the information recorded on the EU database should normally be publicly accessible, but the CTR also indicates what information is or is not normally confidential: – a clinical study report is not considered commercially confidential in the following circumstances: ○ on the granting of marketing authorisation; ○ on completion of the procedure for granting marketing authorisation; or ○ where an application for marketing authorisation is with­ drawn;420

416 CTR, Art 81(4). 417 This is a reference to Regulation (EC) 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data. 418 Including taking account of the status of marketing authorisation of a medicinal product, unless there is an overwhelming public interest in disclosing the information. 419 CTR, Art 81(7). Note that this is the wording used in the CTR itself, but the recital states something slightly different: that no personal data relating to a data subject who participates in a clinical trial should be recorded in the EU database. 420 CTR, Recital 68.

736

Information protection and release and computer technology 11.88

–

the following are also not confidential: ○

the main characteristics of the clinical trial;

○ the conclusion on the assessment report (Part I)421 for the authorisation of a clinical trial; ○

the decision on the authorisation of a clinical trial;

○

a substantial modification of a clinical trial;

○ the results of the clinical trial (including reasons for a temporary halt and early termination).422 •

More detailed provisions affecting a sponsor; recognition of co-sponsors: –

there is explicit recognition that it is possible for there to be more than one sponsor of a clinical trial. If there is more than one, they will have equal responsibility, unless they agree otherwise, by written contract, as to their respective responsibilities;423

–

an investigator and the sponsor can be the same person;424

–

a sponsor can delegate (by written contract) all of its tasks, without prejudice to the responsibility of the sponsor (particularly in regard to the safety of subjects and the ‘reliability and robustness of the data generated in the clinical trial’);425

–

if the sponsor is not established in the EU, it has to appoint a natural or legal person as its legal representative.426 The legal representative will have responsibility for compliance with the sponsor’s obligations under CTR.427

421 See ‘A more detailed method of making an application within specified time limits’ below. 422 CTR, Recital 68. Part I of the assessment report is dealt with under ‘A more detailed method of making an application within specified time limits’ below. 423 CTR, Art 72. There is a derogation from this, in that sponsors are to be jointly responsible for establishing (i) which sponsor has responsibility for ensuring compliance with the obligations of a sponsor in the authorisation procedure; (ii) which sponsor is the contact point for ‘all questions from subjects, investigators or any Member State concerned regarding the clinical trial and providing answers to them’; and (iii) which sponsor is responsible for implementing corrective measures taken by member states (under CTR, Art 77, including revoking authorisation of a clinical trial, the suspending of a clinical trial or modifying any aspect of a clinical trial): CTR, Art 72(2)). 424 CTR, Art 71 425 CTR, Art 71. A sponsor can delegate the tasks to a natural person, a company, an institution or an organisation. 426 CTR, Art 74(1). But a member state does not need to apply this provision of the CTR if the clinical trial is to take place solely in its territory (or its territory and that of a third country, as long as the sponsor establishes at least a contact person on their territory for communications with the sponsor: CTR, Art 74(2)). There is a similar provision where the clinical trial is conducted in more than one member state, as long as there is at least one contact person in the EU for communications: CTR, Art 74(3). 427 CTR, 74(1). The legal representative will be the addressee for all communications with the sponsor sent under the CTR, and any communication to the legal representative is deemed to be a communication to the sponsor.

737

11.88  Regulatory Requirements

•

More clearly stating the responsibility of the principal investigator: The principal investigator: –

is to ensure compliance of a clinical trial at a clinical trial site with the requirements of the CTR; and

–

is to assign tasks among the teams of investigators, so that: ○

the safety of subjects; and

○ the reliability and robustness of data generated during the clinical trial at the clinical trial site; are not compromised.428 •

More stringent criteria concerning protecting the subject of a clinical trial and obtaining their consent: There are now detailed rules on obtaining the informed consent of a subject: –

besides obtaining informed consent, there are a number of other conditions that need meeting, including:429 ○

that the anticipated benefits to the subjects or to public health justify the foreseeable risks and inconveniences and that there is constant monitoring of this condition;

○

the subject has received certain specified information;

○

there is safeguarding of the rights of the subjects for their physical and mental integrity, their privacy and protection of data concerning them (in accordance with the GDPR);430

○

the subject has received contact details of an entity which can provide information if the subject wants it;

○

the subject is not subject to undue influence to participate in the clinical trial (including that of a financial nature);

○

that the subject receives medical care from an appropriately qualified medical doctor;

○ that the clinical trial is designed to cause as little pain, discomfort, fear and any other foreseeable risk as possible. Also, the risk threshold and the degree of distress are specifically defined in the protocol and are constantly monitored; –

informed consent also requires:431 ○

428 429 430 431

it is in writing;

CTR, Art 73. CTR, Art 28. The article refers to the predecessor to the GDPR (Directive 95/46/EC), which is now repealed. CTR, Art 29(1).

738

Information protection and release and computer technology 11.88

–

○

it is signed by the person who is conducting the interview with the subject (a member of the investigating team who is appropriately qualified by the law of the member state);

○

if the subject is unable to write, it is possible to use other means of obtaining consent, as long as it is recorded in the presence of at least one impartial witness;

○

the subject is to receive the document (or record) by which consent has been given;

○

the subject is to have adequate time to consider their decision to participate in the clinical trial,

the subject has to receive certain information (prepared in writing and made available to the subject) for the purpose of obtaining the subject’s informed consent and: ○

so that the subject can understand: (1) ‘the nature, objectives, implications, inconveniences of the clinical trial’;

risks

and

(2) the rights and guarantees of the subject, including the right to refuse to participate and to withdraw at any time without any resulting detriment; (3) the conditions under which the clinical trial will be conducted and how long the subject needs to participate in it; (4) possible alternative treatments as well as follow-up treatments if participation is discontinued; ○

that information has to be ‘kept comprehensive, concise, clear, relevant and understandable to a layperson’;

○

needs providing prior to obtaining the consent in an interview by a member of the investigating team who is appropriately qualified according to the law of the member state concerned (and there shall be verification that the subject has understood the information);

○ includes information about compensation system;432 ○

the

applicable

damage

includes the clinical trials number and information about the availability of the clinical trials results;433

432 Details are set out in CTR, Art 76. 433 That the subject will be able to obtain a summary of the results in a form understandable by a layperson, which will be available from the EU database (regardless of the outcome of the clinical trial): CTR, Art 29(6).

739

11.88  Regulatory Requirements

–

there are additional or different requirements concerning consent where there is a clinical trial:434 ○ which is a cluster trial (a clinical trial that is conducted exclusively in one member state);

•

○

on incapacitated subjects;

○

on minors;

○

on pregnant or breastfeeding women; and

○

in an emergency situation.

A more detailed method of making an application within specified time limits:435 The CTR sets out in more detail the requirements for making an application for authorisation of a clinical trial than in the CTD, as well as setting time limits for when it is necessary to undertake certain steps. The following is a brief outline: –

the first step is that the clinical trial receives scientific and ethical review by an ethics committee in a member state;436

–

the sponsor is to submit an application dossier437 to all intended member states who will take part in the clinical trial via the EU portal;438

–

the sponsor is to propose one member state as a reporting member state (rMS) within six days from the submission of the application dossier;439

–

the rMS has 10 days from the submission of the application dossier to validate the application; deciding the clinical trial falls within the

434 CTR, Arts 30 to 35. 435 All notifications, provision of information, etc during the application process will be made through the EU portal, so they are not stated for each step of the description here. 436 CTR, Art 4. 437 The content of the application dossier is set out in CTR, Annex I, and will include a cover letter, a completed EU application form, the protocol, documentation relating to compliance with GMP for the investigational medicinal product, the investigational medicinal product dossier, the auxiliary medicinal product dossier, the scientific advice and paediatric investigation plan, the content of the labelling of the investigational medicinal products, recruitment arrangements (for each member in which the clinical trial will take place), subject information consent form and informed consent procedure (for each member state in which the clinical trial will take place), the suitability of the investigator (for each member in which the clinical trial will take place), proof of insurance cover or indemnification, financial and other arrangement, proof of payment, and proof that data will be processed in compliance with the GDPR. The detail is outside the scope of this volume. The application dossier needs to state details of previous applications and, where there is more than one sponsor, detailed information as to their responsibilities. 438 CTR, Art 5(1). 439 CTR, Art 5(1).

740

Information protection and release and computer technology 11.88

scope of the CTR and that the application dossier is complete.440 If there is no notification by the rMS within 10 days the clinical trial is deemed to fall within the scope of the CTR and the application dossier is deemed complete.441 This is called the ‘validation date’ of the application;442 –

the rMS is to assess the application (in the form of an assessment report (Part I)) within 45 days from the validation date.443 The date on which the rMS submits the final version of the assessment report (Part I) to the sponsor is called the ‘reporting date’;444

–

between the validation and reporting date, the rMS can request additional information from the sponsor, and the 45-day period can be extended for up to a further 31 days. The rMS will review the requested information (and, where necessary, with other member states concerned) to complete the final version of the assessment report (Part I). If the sponsor fails to provide the requested information, its application will lapse in all member states concerned;445

– other member states will also need to prepare an assessment report (Part II) containing similar information to that of the rMS plus additional information446 and shall submit it to the sponsor within 45 days from the validation date. As with the rMS, the other member states concerned can request additional information from the sponsor, and can extend the 45-day period by up to a further 31 days, and if the sponsor fails to provide the requested information, the application lapses in the member state concerned. On receipt of the additional information, the member state concerned has up to 19 days to complete its assessment; –

each member state concerned has to notify its decision on the clinical trial within five days of the reporting date (ie provision of

440 CTR, Art 5(3). There is also provision where other member states comment on whether the proposed clinical trial falls within the scope of the CTR or the application dossier is complete: CTR, Art 5(5). 441 CTR, Art 5(4). 442 CTR, Art 5(6). 443 CTR, Art 6(1), (4). If the clinical trial is to take place in more than one member state, the assessment is broken into three phases: an initial assessment phase lasting up to 26 days (carried out by the report member state); a co-ordinated review phase lasting up to 12 days (starting after the initial review phase, and involving all the member states concerned); and a consolidation phase lasting up to seven days (involving the reporting member state, starting from the end of the co-ordinated review phase): CTR, Art 6(7). 444 The assessment report (Part I) deals with such matters as whether there is compliance with provisions of the CTR and provides a conclusion as to whether the clinical trial is ‘acceptable’, ‘acceptable subject to conditions’ or ‘not acceptable’. 445 CTR, Art 6(8). 446 CTR, Art 7(1). If the conclusion of another member state is to authorise or authorise subject to conditions the clinical trial, they will need to include that decision in the assessment report, Part II: CTR, Art 8(3).

741

11.88  Regulatory Requirements

the assessment report (Part I) to the sponsor) or the final date of the assessment report (Part II). This is called the ‘notification date’; –

a sponsor can also: ○ withdraw an application at any stage up to the reporting date;447

–

•

○

resubmit an application to any member state after refusal to grant authorisation or the withdrawal of authorisation. It is treated as a new application for authorisation;448

○

add another member state to the clinical trial by submitting an application dossier for that member state;449

○

apply for a substantial modification450 of a clinical trial (which appears to include, but not be limited to, the addition of a clinical trial site or the change of a principal investigator in a clinical trial site);451

if, in a member state, no subject is included in a clinical trial within two years from the notification date of authorisation, the authorisation expires in that member state.452

Detailed notification scheme: The sponsor has to notify each member state concerned of the following (normally within 15 days, except as noted): –

the start of a clinical trial;453

–

the first visit of the first subject in relation to that member state;454

–

the end of the recruitment of subjects for a clinical trial in that member state;455

–

the end of the clinical trial, whether in one member state or in all member states (and, if applicable, in third countries);456

447 448 449 450

CTR, Art 12. CTR, Art 13. CTR, Art 14. Note that ‘substantial modification’ is a definition, meaning ‘… any change to any aspect of a clinical trial … which is likely to have a substantial impact on the safety or rights of the subjects or on the reliability and robustness of the data generated in the clinical trial’. See below for the full definition. 451 CTR, Arts 15 to 24. These articles come with time limits. Recital 23 indicates that the modifications can relate to the conduct, methodology, investigational or auxiliary medicinal products, the investigator or clinical trial site. 452 CTR, Art 8(9). It is possible to obtain an extension if the sponsor requests it, as long as the procedure for applying for a substantial modification is followed as set out in CTR, Arts 15 to 24. 453 CTR, Art 36(1). 454 CTR, Art 36(2). 455 CTR, Art 36(3). 456 CTR, Art 37(1), (2), (3).

742

Information protection and release and computer technology 11.88

•

–

within one year of the end of a clinical trial in all member states concerned, the sponsor shall submit a summary of the results, irrespective of the outcome of the clinical trial;457

–

a temporary halt of a clinical trial in all member states where the reason does not affect the ‘benefit-risk balance’;458

–

on resumption of a clinical trial by a sponsor, which is halted under the above point;459

–

a temporary halt or early termination of a clinical trial for reasons of a change of the ‘benefit-risk balance’.460 Where there is a resumption in such cases, the resumption counts as a substantial modification.461

Adverse events: There are also detailed provisions on the reporting of adverse events, serious adverse events and unexpected serious adverse events, including:462 –

the investigator is to record all adverse events (unless the protocol states otherwise);

–

the investigator is to report serious adverse events to the sponsor (usually within 24 hours);

–

the sponsor is to keep a record of all adverse events reported to it by the investigator;

–

for unexpected serious adverse events, the sponsor has to report them to the Eudravigilance database maintained by the EMA, and the sponsor has to do so depending on the seriousness of the reaction of the subject, and usually no later than seven days after the sponsor has become aware of the reaction and there is a fatal or life-threatening unexpected serious adverse event, and 15 days in the case of non-fatal or non-life-threatening unexpected serious adverse events.

457 CTR, Art 37(4). The content of the summary is set out in CTR, Annex IV. Also with that summary there should be a further summary which is understandable to laypersons; the content of the layperson summary is set out in CTR, Annex V. 458 CTR, Art 37(5). 459 The end date of the clinical trial shall be as follows: if the clinical trial is not resumed within two years or the date when the sponsor decides not to resume the clinical trial. If the clinical trial is terminated early, the date of the early termination is the date of the end of the clinical trial. The sponsor has to notify all the member states concerned with the reasons for such actions and, where appropriate, the follow-up measures for subjects: CTR, Art 37(7). 460 CTR, Art 38(1). 461 CTR, Art 38(2). In which case, CTR, Arts 15–24 will apply. 462 CTR, Arts 40–43.

743

11.89  Regulatory Requirements

Key definitions used in the CTR 11.89 Defined term

Definition

Adverse event

means any untoward medical occurrence in a subject to whom a medicinal product is administered and which does not necessarily have a causal relationship with this treatment.

Clinical study

means any investigation in relation to humans intended: (a) to discover or verify the clinical, pharmacological or other pharmacodynamic effects of one or more medicinal products; (b) to identify any adverse reactions to one or more medicinal products; or (c) to study the absorption, distribution, metabolism and excretion of one or more medicinal products, with the objective of ascertaining the safety and/or efficacy of those medicinal products.

Clinical study report

means a report on the clinical trial presented in an easily searchable format, prepared in accordance with Annex I, Part I, Module 5 of Directive 2001/83/EC and accompanying an application for marketing authorisation.

Clinical trial

means a clinical study which fulfils any of the following conditions: (a) the assignment of the subject to a particular therapeutic strategy is decided in advance and does not fall within normal clinical practice of the Member State concerned; (b) the decision to prescribe the investigational medicinal products is taken together with the decision to include the subject in the clinical study; or (c) diagnostic or monitoring procedures in addition to normal clinical practice are applied to the subjects.

Early termination of a clinical trial

means the premature end of a clinical trial due to any reason before the conditions specified in the protocol are complied with.

End of a clinical trial

means the last visit of the last subject, or at a later point in time as defined in the protocol.

Ethics committee

means an independent body established in a Member State in accordance with the law of that Member State and empowered to give opinions for the purposes of this Regulation, taking into account the views of laypersons, in particular patients or patients’ organisations.

Informed consent

means a subject’s free and voluntary expression of his or her willingness to participate in a particular clinical trial, after having been informed of all aspects of the clinical trial that are relevant to the subject’s decision to participate or, in case of minors and of incapacitated subjects, an authorisation or agreement from their legally designated representative to include them in the clinical trial.

Investigator

means an individual responsible for the conduct of a clinical trial at a clinical trial site.

744

Information protection and release and computer technology 11.89 Defined term

Definition

Low-intervention clinical trial

means a clinical trial which fulfils all of the following conditions: (a) the investigational medicinal products, excluding placebos, are authorised; (b) according to the protocol of the clinical trial, (i) the investigational medicinal products are used in accordance with the terms of the marketing authorisation; or (ii) the use of the investigational medicinal products is evidencebased and supported by published scientific evidence on the safety and efficacy of those investigational medicinal products in any of the Member States concerned; and (c) the additional diagnostic or monitoring procedures do not pose more than minimal additional risk or burden to the safety of the subjects compared to normal clinical practice in any Member State concerned.

Member State concerned

means the Member State where an application for authorisation of a clinical trial or of a substantial modification has been submitted under Chapters II463 or III464 of this Regulation respectively.

Non-interventional study

means a clinical study other than a clinical trial.

Principal investigator

means an investigator who is the responsible leader of a team of investigators who conduct a clinical trial at a clinical trial site.

Protocol

means a document that describes the objectives, design, methodology, statistical considerations and organisation of a clinical trial. The term ‘protocol’ encompasses successive versions of the protocol and protocol modifications.

Serious adverse event

means any untoward medical occurrence that at any dose requires inpatient hospitalisation or prolongation of existing hospitalisation, results in persistent or significant disability or incapacity, results in a congenital anomaly or birth defect, is life-threatening, or results in death.

Sponsor

means an individual, company, institution or organisation which takes responsibility for the initiation, for the management and for setting up the financing of the clinical trial.

Start of a clinical trial

means the first act of recruitment of a potential subject for a specific clinical trial, unless defined differently in the protocol.

Subject

means an individual who participates in a clinical trial, either as recipient of an investigational medicinal product or as a control.

Substantial modification

means any change to any aspect of the clinical trial which is made after notification of a decision referred to in Article 8, 14, 19, 20 or 23 and which is likely to have a substantial impact on the safety or rights of the subjects or on the reliability and robustness of the data generated in the clinical trial.

Suspension of a clinical trial

means interruption of the conduct of a clinical trial by a Member State.

463 CTR, Arts 4–14 relating to the authorisation for a clinical trial. 464 CTR, Arts 15–24 relating to the authorisation procedure for a substantial modification of a clinical trial.

745

11.90  Regulatory Requirements Defined term

Definition

Temporary halt of a clinical trial

means an interruption not provided in the protocol of the conduct of a clinical trial by the sponsor with the intention of the sponsor to resume it.

Unexpected serious adverse reaction

means a serious adverse reaction, the nature, severity or outcome of which is not consistent with the reference safety information.

The (UK) Clinical Trials Regulations465 11.90 The CTD was transposed into UK law by the Medicines for Human Use (Clinical Trials) Regulations 2004 (‘UKCTR’) and brought about a significant change in the regulation of clinical trials in the UK from what had previously been in place, besides bringing about a degree of harmonisation among member states on the conduct of clinical trials applied. The UKCTR apply to all clinical trials involving ‘medicinal products’,466 whether sponsored by industry, the government, a research council, a charity or a university and whether commercial or non-commercial.467 This section outlines the main provisions of the Regulations. Before a clinical trial can take place, it is necessary for a set of conditions, protocols or standards to be met or fulfilled, based on the Good Clinical Practice Directive.468 First, the foreseeable risks and inconveniences of the trial must be weighed against the anticipated benefit for the individual trial subject and other present and future patients.469 Secondly, both a research 465 The UKCTR will undergo modification on the UK leaving the EU; many of the changes replace references to EU (or EEA) matters, and only a few of the most relevant are noted at appropriate places in this section. It is clear that some further work will be needed, for example, although not covered in this section, concerning market authorisation for medicinal products. Currently the UK can rely on marketing authorisation by the EEA or the EU. On the UK leaving the EU, marketing authorisation will be done in the UK or by a regulatory body responsible for licensing medicinal products in a country which is included in a list by the MHRA. This all assumes that the UK leaves based on a deal and not in a no-deal situation. Readers of the book should consult the following websites for further information: www.hra.nhs.uk/aboutus/news-updates/latest-guidance-implications-nodeal-brexit/, www.gov.uk/guidance/makingsubmissions-to-the-mhra-in-a-no-deal-scenario and www.gov.uk/government/publications/ submitting-regulatory-information-on-medical-products-if-theres-no-brexit-deal/submittingregulatory-information-on-medical-products-if-theres-no-brexit-deal. 466 The old regime, governed by the Medicines Act 1968, did not apply to Phase I clinical trials and did not require approval of a proposed trial by an ethics committee. For the meaning of ‘medicinal products’, see the definitions at the end of this section at [ ]. 467 Non-commercial clinical trials are those conducted, such as by academics without the participation of the pharmaceutical industry. 468 Commission Directive 2005/28/EC of 8  April 2005 laying down principles and detailed guidelines for good clinical practice as regards investigational medicinal products for human use, as well as the requirements for authorisation of the manufacturing or importation of such products. 469 UKCTR, Sch 1, Pt 2, para 10. For minors and adults not able to give informed consent, there are additional requirements and restrictions set out in Pts 4, 5 of Sch 1.

746

Information protection and release and computer technology 11.91

ethics committee and the Medicines & Healthcare products Regulation Agency (MHRA) must come to a conclusion that the anticipated therapeutic and public health benefits justify the risks – a requirement that must be permanently monitored during the continuance of the trial.470

Research ethics committees and opinions 11.91 The United Kingdom Ethics Committees Authority (UKECA) is responsible for establishing, organising, recognising and monitoring research ethics committees (RECs).471 There are provisions relating to the membership, chairmen, sub-committees, meetings, procedures, deputies, co-opted members, staff, premises, facilities, expenses, annual report and transfer of functions of RECs.472 The work of RECs is co-ordinated by separate Research Ethics Services for England, Wales, Scotland and Northern Ireland,473, which, among other functions, provides ethical guidance and management support to RECs.474 They publish Standard Operating Procedures which ethics committees must follow.475 Ethics committees are divided into different types, according to the type of clinical trial for which they are recognised to give an opinion: •

•

Type 1 RECs deal: –

with Phase 1 clinical trials in healthy volunteers (including patients without the target disease or condition);

–

with Phase 1/2a clinical trials with both healthy volunteers and patients with the target disease or condition;

Gene Therapy Advisory Committee476 deals with clinical trials of medicinal products for gene therapy and clinical trials of advanced therapy medicinal products;

470 UKCTR, Sch 1, Pt 2, para 12. 471 UKCTR, regs 5–10. Its members are the Health Research Authority (for England), the National Assembly for Wales, the Scottish Ministers and the Department of Health, Social Services and Public Safety for Northern Ireland; its functions may, by agreement, be performed by only one of them. 472 UKCTR, Sch 2. 473 Respectively: National Health Authority (for England), NHS Research Scotland, Health and Care Research Wales, Health and Social Care (for Northern Ireland). For details about the National Health Authority, see www.hra.nhs.uk/about-us/committees-and-services/res-andrecs/research-ethics-service/. 474 See Governance arrangements for research ethics committees (2018 edition), Annex C: Research Ethics Service head office functions, available at www.hra.nhs.uk/planning-andimproving-research/policies-standards-legislation/governance-arrangement-research-ethicscommittees/. 475 See, for example, National Health Authority, UK Health Departments, Standard Operating Procedures for Research Ethics Committees Research Ethics Service, version 7.4, July 2019. 476 A special REC designated by the United Kingdom Ethics Committees Authority.

747

11.91  Regulatory Requirements

•

Type 3 RECs deal with all other clinical trials of an investigational medicinal product in patients.477

Also there are other types of REC, such as a ‘flagged REC’, which deal with other research, including research involving adults lacking capacity, research involving children, and research involving medical devices.478 An application for an ethics review by an REC must be made by the chief investigator of the trial in question,479 with specified information and documents that must accompany the application.480 The applications are now made online using the Integrated Research Application System (IRAS).481 The REC must give its opinion in relation to the trial within a specified period (see below).482 If so requested, the REC must give an opinion on any relevant issue relating to the trial.483 In preparing its opinion, the ethics committee must consider, in particular, the following matters:484 •

the relevance of the trial and its design;

•

whether the evaluation of the anticipated benefits and risks is satisfactory and whether the conclusions are justified;485

•

the protocol;

•

the suitability of the investigator and the supporting staff;

•

the investigator’s brochure or, where the investigational medicinal product has a marketing authorisation and the product is to be used in accordance with the terms of that authorisation, the summary of product characteristics relating to that product;

•

the quality of the facilities for the trial;

•

the adequacy and completeness of the written information to be given, and the procedure to be followed, for the purpose of obtaining informed consent to the subject’s participation in the trial;

477 National Health Authority, UK  Health Departments, Standard Operating Procedures for Research Ethics Committees Research Ethics Service, version 7.4, July 2019, para  1.7. It appears that ‘Type 2’ RECs are no longer in use. 478 See National Health Authority, UK Health Departments, Standard Operating Procedures for Research Ethics Committees Research Ethics Service, version 7.4, July 2019, paras 1.8–1.16. 479 UKCTR, reg 14(1). 480 UKCTR, Sch 3, Pt 1. 481 See www.myresearchproject.org.uk. 482 UKCTR, reg 15(1). 483 UKCTR, reg 15(8). 484 UKCTR, reg 15(5). 485 UKCTR, Sch 1, Pt 2, para 10.

748

Information protection and release and computer technology 11.91

•

if the subjects are to include minors or persons incapable of giving informed consent, whether the research is justified and the justification for the research on persons incapable of giving informed consent;486

•

provision for indemnity or compensation in the event of injury or death attributable to a clinical trial;

•

any insurance or indemnity to cover the liability of the investigator and sponsor;

•

the amounts, and, where appropriate, the arrangements for rewarding or compensating investigators and trial subjects;

•

the terms of any agreement between the sponsor and the owner or occupier of the trial site which are relevant to those arrangements;487 and

•

the arrangements for the recruitment of subjects.

The ethics committee has 60 days to give a reasoned opinion from the date it receives a valid application from an applicant.488 This period can be modified, extended or disregarded in the following circumstances: •

The ethics committee can make one request for further information to that received from the applicant. The 60-day limit is suspended until it receives the further information.489

•

If the clinical trial involves a medicinal product for gene therapy or somatic therapy, or a medicinal product containing a genetically modified organism, the ethics committee has 90 days to give its opinion, or 180 days if it is necessary to consult a specialist group or committee.490

•

For xenogenic cell therapy there is no time limit for authorisation.491

If a clinical trial is to be carried out at several trial sites, only one REC opinion need be given.492 While the UK remains a member of the EU and for so long as it is possible to apply for authorisation of a clinical trial under the CTD, if a clinical trial is to be carried out simultaneously in several member states, each member state should provide one opinion for that trial.493 There is a procedure for appeal against an unfavourable decision by an REC.494 486 Having regard to the conditions specified in UKCTR, Sch 1, Pts 4, 5. 487 In the UK, pharmaceutical companies normally offer compensation via the Association of the British Pharmaceutical Industry’s standard form of indemnity for clinical studies (see www. abpi.org.uk/publications/ct-compensation). Universities may take up clinical trials insurance. The NHS may make an ex-gratia payment where harm is caused without its negligence. 488 Longer periods are allowed in the case of clinical trials involving a medicinal product for gene therapy or somatic therapy or a medicinal product containing a genetically modified organism (UKCTR, reg 15(10)). 489 UKCTR, reg 15(2), (3). 490 UKCTR, reg 15(10). 491 UKCTR, reg 19(9); CTD, Art 6(7). 492 UKCTR, reg 14(2). 493 CTD, Art 7. 494 UKCTR, reg 16 and Sch 4.

749

11.92  Regulatory Requirements

Authorisation by the MHRA 11.92 As well as receiving a favourable opinion from a REC, it is also necessary to obtain authorisation by the MHRA for a clinical trial.495 Responsibility for making a request for authorisation to the MHRA to conduct a clinical trial lies with the sponsor.496 Among the information that must be included in a request for authorisation are the following:497 •

the name and address of the sponsor and any other person fulfilling any of the sponsor’s responsibilities;

•

the address of each trial site and the name and address of the investigator responsible for the conduct of the trial at each site;

•

a copy of the ethics committee opinion in relation to that trial, if available;

•

a description of any investigational medicinal product to be used in the trial;

•

the name and address of the person responsible for the manufacture or importation of any finished investigational medicinal product to be used in the trial and the details of their authorisation;

•

the address where any batch of finished investigational medicinal products to be used in the trial has been, or is to be, checked for conformity with GMP;

•

a description of the proposed trial;

•

the protocol for the proposed trial;

•

a dossier on each investigational medicinal product to be used in the trial containing the particulars set out in the Clinical Trials Regulations, Sch 3, Pt 2, para 11; and

495 The ‘licensing authority’ is the ‘competent authority’ for the purposes of the Clinical Trials Directive and the Good Clinical Practice Directive (UKCTR, reg 4). The licensing authority is the Secretary of State (for Health) (Human Medicines Regulations 2012 (SI 2012/1916), reg 6, amending the UKCTR). The Medicines & Healthcare products Regulatory Agency (MHRA) is an executive agency of the Department of Health. The MHRA and an REC may disclose to each other any information acquired in carrying out their functions under the UKCTR (reg  27A).On the day that the UK leaves the EU, the MHRA can make accessible to the public certain information concerning a clinical trial: (a) the request for authorisation; (b) any amended request for authorisation; (c) any amendment to the protocol made; (d) the favourable opinion of the ethics committee or the favourable opinion given by an appeal panel; and (e) the notification of the end of the clinical trial (UKCTR, reg 27B, inserted by SI 2019/44). 496 UKCTR, reg 17. The sponsor is the person who takes responsibility for the initiation, management and financing of the trial (reg 3); the sponsor is also responsible for the investigator’s brochure (reg 3A). Under the UKCTR the sponsor must be established in an EEA state or have a legal representative (reg 3(11)), but on the UK leaving the EU the MHRA will have to publish a list of countries where the sponsor (or its legal representative) may be established for the purposes of reg 3(10) (reg 3(11A), inserted by SI 2019/744, with reg 3(11B) and (11C) setting out how the MHRA will determine which countries will be included in the list). 497 UKCTR, Sch 3, Pt 2.

750

Information protection and release and computer technology 11.92

•

a description or sample of the labelling which is to appear on each investigational medicinal product when supplied to a subject in the trial.

The number assigned to the trial by the European clinical trials database (EudraCT) should also be included.498 If the MHRA establishes grounds for non-acceptance of the application, the sponsor gets one chance to amend its application. If the sponsor does not do so, then the application will be rejected and the sponsor will not be able to start the clinical trial.499 The sponsor has the right of appeal and the MHRA will refer it to the appropriate committee.500 Appeals are normally being dealt with on paper but the sponsor can also appear before a person who is not a member of the appropriate committee.501 General medicinal products: 60-day applications. The MHRA has up to 30 days to consider applications from sponsors. If within that period the MHRA gives notice to the sponsor that it accepts the application, or gives no notice to the sponsor, the trial is to be treated as authorised. Alternatively, the MHRA may reject the application (setting out its grounds for so doing), or accept it subject to specified conditions.502 If the application is refused, or accepted subject to conditions, the sponsor may submit an amended request for further consideration within 14 days. The MHRA must determine the amended request within 60 days of the original application.503 Medicinal products for gene or somatic cell therapy, genetically modified organisms or tissue engineered products: 90-day applications. If the clinical trial involves medicinal products for gene therapy or somatic cell therapy, medicinal products containing genetically modified organisms or tissue engineered products, the 60-day period is extended to 90 days.504 Medicinal products for xenogenic cell therapy: no-time-limit applications. There is no time limit for the MHRA’s authorisation of a trial involving a medicinal product for xenogenic cell therapy.505

498 See para 11.95 below. 499 UKCTR, reg 18. 500 UKCTR, reg  26 and Sch  5. Appropriate committee means the Commission for Human Medicines or an expert committee set up by the MHRA: reg 2(1). 501 UKCTR, Sch 5, paras 3 and 4. The person will not be a member of the Commission on Human Medicines, an expert committee appointed by the MHRA, plus a number of others set out in para 4. 502 UKCTR, reg 18(2)–(4). 503 UKCTR, reg 18(5)–(8). 504 UKCTR, reg 19. The period can also be extended for a further 90 days if it is necessary to consult a relevant committee. 505 UKCTR, reg 19(9).

751

11.93  Regulatory Requirements

Notification to the sponsor. If the sponsor has not heard from the MHRA by the end of the 30-day period, then the sponsor can begin the trial except as provided in the following paragraphs.506 The MHRA may, within seven days of receiving an application for a trial, inform the sponsor that written authorisation for that trial is required, if the proposed trial involves medicinal products which do not have a marketing authorisation, or which have an active ingredient that is a biological product of human or animal origin, or contain biological components of human or animal origin, or the manufacturing of which requires such components.507 Written authorisation from the MHRA is always required before the commencement of a clinical trial involving medicinal products for gene therapy and somatic cell therapy, including xenogenic cell therapy, or medicinal products containing genetically modified organisms.508 Up to the date that the UK leaves the EU, if the clinical trial is to be conducted partly in a non-EEA country as well as in the UK, the MHRA may require an undertaking by the sponsor or the owner of the premises where the trial is to be conducted permitting inspection by the MHRA to establish that the conditions and principles of good clinical practice are adhered to.509

Amendment of the conduct of the clinical trial 11.93 Either the sponsor or the MHRA may amend the trial authorisation after the commencement of the trial.510 The MHRA may amend the authorisation by giving at least 14 days’ notice to the sponsor, if it believes such amendment to be necessary to ensure the safety or scientific validity of the trial or adherence to the conditions and principles of good clinical practice.511 The sponsor may make representations to the MHRA within the 14-day notice period.512

506 UKCTR, reg 18(3). 507 UKCTR, reg 20. Until the date when the UK leaves the EU, the lack of marketing authorisation is by reference to Part A of the Annex to Council Regulation (EEC) 2309/93 of 22 July 1993 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Agency for the Evaluation of Medicinal Products. This refers to the following biotechnological processes: recombinant DNA technology; controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and hybridoma and monoclonal antibody methods. After the UK leaves the EU, these will be explicitly incorporated in the UKCTR (by SI 2019/744). 508 UKCTR, reg 19. 509 UKCTR, reg 21. From the date the UK leaves the EU the reference in this paragraph change to any non-UK country (as amended by SI 2019/744). 510 UKCTR, reg 22. 511 UKCTR, reg 23(1), (2). 512 UKCTR, reg 23(3).

752

Information protection and release and computer technology 11.93

The sponsor may make a non-substantial amendment to the trial authorisation at any time, but the procedure set down in the Regulations must be followed if the amendment is substantial.513 A substantial amendment is one which is likely to affect to a significant degree: •

the safety or physical or mental integrity of the subjects of the trial;

•

the scientific value of the trial;

•

the conduct or management of the trial;

•

the quality or safety of any investigational medicinal product used in the trial.514

If the amendment consists of or includes an amendment to the request for authorisation of the trial, or to the particulars or documents that accompanied that request, the sponsor must notify the MHRA. If it consists of or includes an amendment to the terms of an application for an ethics committee opinion, the sponsor must notify the ethics committee.515 The sponsor must notify the MHRA and/or the REC of the reasons for, and the content of, the amendment.516 The MHRA may, within 35 days of receiving the notice of amendment, notify the sponsor of its grounds for not accepting the proposed amendment or of its acceptance of the amendment subject to any specified conditions. Hence if the sponsor has received no response within 35 days the sponsor may make the amendment.517 In the case of a notice of amendment to an REC, the REC must give its opinion of the amendment to the sponsor within 35 days of receiving the notice of amendment. Hence the sponsor may make the amendment only if the REC has given a favourable opinion.518 If there are grounds for non-acceptance the sponsor has the choice of either amending the proposed amendment to take account of the grounds for nonacceptance or withdrawing the proposed amendment.519 There is provision of appeal by the sponsor to the Commission for Human Medicines or other appropriate committee if the MHRA declines to accept an amendment proposed by the sponsor or imposes an amendment that the sponsor does not accept.520

513 514 515 516 517 518 519 520

UKCTR, reg 24(1). UKCTR, regs 24, 11. UKCTR, reg 24(4). UKCTR, Sch 3, Pt 3. UKCTR, reg 24(5), (7). UKCTR, reg 24(6), (9). UKCTR, reg 25. UKCTR, reg 26 and Sch 5.

753

11.94  Regulatory Requirements

The end of a clinical trial 11.94 The sponsor is required to inform the competent authority and the ethics committee within 90 days of the end of the clinical trial. If the clinical trial has ended early for any reason, the period for notification is reduced to 15 days. The reasons for the early termination must be stated.521

EudraCT: a European database of clinical trials522 11.95 For so long as the UK remains a member of the EU, it, like other member states, has to enter certain details of clinical trials taking place in its territory into a European database known as EudraCT.523 The details required to be entered are as follows:524 •

extracts from the request for authorisation;

•

any amendments made to the request for authorisation;

•

any amendments made to the protocol (after the start of the clinical trial);

•

the favourable opinion of the ethics committee; and

•

the declaration at the end of the clinical trial.

The database is accessible only to the competent authorities in each member state, the European Commission and the EMEA. The MHRA may be requested by the UK government, the EU or the EMEA to provide further information on a clinical trial in addition to the items described immediately above.525 The UKCTR do not contain a specific provision for this requirement.

Definitions used in the UKCTR (where stated, taken from the CTD) 11.96 Adverse event

Any untoward medical occurrence in a subject to whom a medicinal product has been administered, including occurrences which are not necessarily caused by or related to that product.

Adverse reaction

Any untoward and unintended response in a subject to an investigational medicinal product which is related to any dose administered to that subject.

521 522 523 524 525

UKCTR, reg 27 and Sch 3, Pt 4. When the UK leaves the EU, the requirement to enter information on this database will cease. See https://eudract.ema.europa.eu/eudract-web/index.faces. Clinical Trials Directive, Art 11(1)(a)–(e). Clinical Trials Directive, Art 11(2).

754

Information protection and release and computer technology 11.96 Ethics committee (definition from CTD)

An independent body in a member state, consisting of healthcare professionals and non-medical members, whose responsibility it is to protect the rights, safety and well-being of human subjects involved in a trial and to provide public assurance of that protection, by, among other things, expressing an opinion on the trial protocol, the suitability of the investigators and the adequacy of facilities, and on the methods and documents to be used to inform trial subjects and obtain their informed consent.

Informed consent (definition from CTD)

The decision, which must be written, dated and signed, to take part in a clinical trial, taken freely after being duly informed of its nature, significance, implications and risks and appropriately documented, by any person capable of giving consent or, where the person is not capable of giving consent, by his or her legal representative; if the person concerned is unable to write, oral consent in the presence of at least one witness may be given in exceptional cases, as provided for in national legislation.

Inspection (definition from CTD)

The act by a competent authority of conducting an official review of documents, facilities, records, quality assurance arrangements, and any other resources that are deemed by the competent authority to be related to the clinical trial and that may be located at the site of the trial, at the sponsor’s and/or contract research organisation’s facilities, or at other establishments which the competent authority sees fit to inspect.

Investigational medicinal product

A pharmaceutical form of an active substance or placebo being tested, or to be tested, or used, or to be used, as a reference in a clinical trial, and includes a medicinal product which already has a marketing authorisation but is, for the purpose of the trial (a) used or assembled (formulated or packaged) in a way different from the form of the product authorised under the authorisation, (b) used for an indication not included in the summary of product characteristics under the authorisation for that product, or (c) used to gain further information about the form of the product as authorised under the authorisation.

Investigator

The authorised health professional responsible for the conduct of a trial at a trial site, and if the trial is being conducted by a team of authorised health professionals at a trial site, the investigator is the leader responsible for that team.

Investigator’s brochure

A document containing a summary of the clinical and non-clinical data relating to an investigational medicinal product which are relevant to the study of the product in human subjects.

Multi-centre clinical trial (definition from CTD)

A clinical trial conducted according to a single protocol but at more than one site, and therefore by more than one investigator, in which the trial sites may be located in a single member state, in a number of member states and/or in member states and third countries.

Non-interventional trial

A study of one or more medicinal products which have a marketing authorisation, where the following conditions are met: (a) the products are prescribed in the usual manner in accordance with the terms of that authorisation; (b) the assignment of any patient involved in the study to a particular therapeutic strategy is not decided in advance by a protocol but falls within current practice;

755

11.97  Regulatory Requirements (c) the decision to prescribe a particular medicinal product is clearly separated from the decision to include the patient in the study; (d) no diagnostic or monitoring procedures are applied to the patients included in the study, other than those which are ordinarily applied in the course of the particular therapeutic strategy in question; and (e) epidemiological methods are to be used for the analysis of the data arising from the study. Protocol

A document that describes the objectives, design, methodology, statistical considerations and organisation of a clinical trial.

Serious adverse event, serious adverse reaction or unexpected serious adverse reaction

Any adverse event, adverse reaction or unexpected adverse reaction, respectively, that: (a) results in death; (b) is life-threatening; (c) requires hospitalisation or prolongation of existing hospitalisation; (d) results in persistent or significant disability or incapacity; or (e) consists of a congenital anomaly or birth defect.

Sponsor (definition from CTD)

An individual, company, institution or organisation which takes responsibility for the initiation, management and/or financing of a clinical trial.

Subject

An individual who participates in a clinical trial (a) as a recipient of an investigational medicinal product or of some other treatment or product, or (b) without receiving any treatment or product, as a control.

Unexpected adverse reaction

An adverse reaction the nature or severity of which is not consistent with the information about the medicinal product in question set out (a) in the case of a product with a marketing authorisation, in the summary of product characteristics for that product, (b) in the case of any other investigational medicinal product, in the investigator’s brochure relating to the trial in question.

IMPORT AND EXPORT REGULATIONS Export regulations Strategic export controls 11.97 The export of certain goods is subject to strategic export controls. Goods that are controlled in this way include: •

military items;

•

items that have both military and civilian uses (dual-use items);

•

items that may be used for torture; and

•

items that are radioactive sources. 756

Import and export regulations 11.98

Strategic export controls may apply to an export because of the nature of the goods in question, their destination, or their ultimate end-use. Certain activities, such as arranging a contract between overseas companies, are subject to strategic controls in the same way.

Licences 11.98 The Export Control Joint Unit (ECJU) ‘administers the UK’s system of export controls and licensing for military and dual-use items’ and is part of the Department for International Trade (DIT).526 It issues licences enabling controlled goods to be exported and controlled activities to be carried out.527 Licences are normally issued between 20 and 60 working days after an application has been made, depending on the type of licence sought and the type of goods.528 Three types of export licence can be granted: • An open general export licence (OGEL) requires no application and is available for any exporter meeting its requirements. However, an exporter must first register with SPIRE, an online export licensing system run by DIT529 and may be required to obtain an appropriate undertaking from the recipient of the goods.530 See DIT’s website (‘OGEL Checker’ and ‘Goods Checker Tool’) for a list of currently available open general export licences.531 • A  standard individual export licence (SIEL) covers a specific supply from the applicant to a named recipient at a specific destination where the applicant cannot meet the conditions for an OGEL.532 Applicants for such licences are required to submit appropriate end-user undertakings along with their application.533 • An open individual export licence (OIEL) covers multiple supplies of specific goods from the applicant to either a named recipient or a 526 See www.gov.uk/government/organisations/export-control-organisation. 527 See www.gov.uk/guidance/beginners-guide-to-export-controls, www.gov.uk/guidance/ukstrategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items and www.berr.gov.uk/whatwedo/europeandtrade/strategic-export-control/index.html/strategicexport-control/index.html. 528 See www.gov.uk/guidance/licence-types-faqs and www.gov.uk/guidance/standard-individualexport-licences. 529 See www.spire.trade.gov.uk/spire/fox/espire/LOGIN/login. 530 See www.gov.uk/government/collections/open-general-export-licences-ogels and assets. publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840091/19ogel-military-goods.pdf. 531 See www.ecochecker.trade.gov.uk/spirefox5live/fox/spire/. 532 See www.gov.uk/guidance/standard-individual-export-licences. 533 See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence and www.gov.uk/government/publications/end-user-undertaking-euuform.

757

11.99  Regulatory Requirements

named destination.534 Such licences are normally issued to those who have made, or will need to make, repeated applications for standard individual open licences (usually a minimum of 20 a year). They do not cover items used for nuclear, biological or chemical weapons, dualuse items intended for military use, or items intended for re-export to a destination not covered by the licence. Applicants for such licences are required to submit appropriate undertakings from the recipient of the goods along with their application.535

Goods 11.99 The UK Strategic Export Control Lists, published on DIT’s website, comprise the military, explosive-related, dual-use control, radioactive sources, security and paramilitary, EU dual-use and EU human rights lists.536 The category of military goods includes goods, software and technology designed for military use. Technology is defined as ‘information (including but not limited to information comprised in software and documents such as blueprints, manuals, diagrams and designs) that is capable of use in connection with the development, production or use of any goods’,537 but information that is already in the public domain or relates to basic scientific research is not controlled.538 ‘In the public domain’ means ‘available without restriction upon further dissemination (no account being taken of restrictions arising solely from copyright)’;539 and ‘basic scientific research’ means ‘experimental or theoretical work undertaken principally to acquire new knowledge of the fundamental principles of phenomena or observable facts and not primarily directed towards a specific practical aim or objective’.540 Dual-use goods are covered by the EU Dual Use Regulation 2009 (Regulation 428/2009/EC), as amended by Regulation 2018/1922/EC,541 which lists, in Annex I, goods in the following ten categories for which a licence is required for export outside the Community: 534 See www.gov.uk/guidance/licence-types-faqs. 535 See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence. 536 DIT publishes a ‘Consolidated list of strategic military and dual-use items that require export authorisation‘ which is updated from time to time (available from www.gov.uk/government/ publications/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-anddual-use-items-that-require-export-authorisation). The legislation from which the lists are derived is the Export Control Order 2008 (SI 2008/3231) (as amended), arts 4A and 9 and Schs 2 and 3, the Export of Radioactive Sources (Control) Order 2006 (SI  2006/1846) (as amended), Sch  1A; and Regulations 125/2019/EC, Annexes II, III, 258/2012/EC, Annexes I and IV, and 428/2009/EC ([2018] OJ L319/3) (as amended), Annex I. 537 Export Control Order 2008 (as amended), art 2(1). 538 Export Control Order 2008 (as amended), art 18. 539 Export Control Order 2008 (as amended), art 2(1). 540 Export Control Order 2008 (as amended), art 18. 541 Regulation 428/2009/EC ([2018] OJ L319/3) (as amended), Annex I.

758

Import and export regulations 11.100

•

nuclear materials, facilities and equipment;

•

special materials and related equipment;

•

materials processing;

• electronics; • computers; •

telecommunications and ‘information security’;542

•

sensors and lasers;

•

navigation and avionics;

•

marine; and

•

aerospace and propulsion.

Annex IV lists particularly sensitive items for which a licence is required for transfer even between Community countries.

Embargoes for particular destination 11.100 Some countries are affected by embargoes imposed by the United Nations or other sanctions restricting trade. A current list may be found on 542 Regulation 428/2009/EC ([2018] OJ L319/12 and 14) (as amended) includes the following definitions and associated technical notes: Definition of ‘Information security’: ‘all the means and functions ensuring the accessibility, confidentiality or integrity of information or communications, excluding the means and functions intended to safeguard against malfunctions. This includes “cryptography”, “cryptographic activation”, “cryptanalysis”, protection against compromising emanations and computer security’. Associated Technical Note: ‘“Cryptanalysis”: analysis of a cryptographic system or its inputs and outputs to derive confidential variables or sensitive data, including clear text’. Definition of ‘Cryptography’ (5) means the discipline which embodies principles, means and methods for the transformation of data in order to hide its information content, prevent its undetected modification or prevent its unauthorized use. ‘Cryptography’ is limited to the transformation of information using one or more ‘secret parameters’ (e.g., crypto variables) or associated key management. Note: ‘Cryptography’ does not include ‘fixed’ data compression or coding techniques. Associated Technical Notes: 1. ‘Secret parameter’: a constant or key kept from the knowledge of others or shared only within a group. 2. ‘Fixed’: the coding or compression algorithm cannot accept externally supplied parameters (e.g., cryptographic or key variables) and cannot be modified by the user. Definition of ‘Cryptographic activation’ (5) means any technique that specifically activates or enables cryptographic capability of an item, by means of a mechanism implemented by the manufacturer of the item, where this mechanism is uniquely bound to any of the following: 1. A single instance of the item; or 2. One customer, for multiple instances of the item. Associated Technical Notes: 1. ‘Cryptographic activation’ techniques and mechanisms may be implemented as hardware, ‘software’ or ‘technology’. 2. Mechanisms for ‘cryptographic activation’ can, for example, be serial number-based licence keys or authentication instruments such as digitally signed certificates.

759

11.101  Regulatory Requirements

the DIT and Foreign and Commonwealth Office websites.543 Export to these countries may require a licence for any type of goods.

End use: weapons of mass destruction 11.101 A  special restriction applies to the export of goods, software or technology whose likely end use is in connection with weapons of mass destruction. Export outside the EU of dual-use goods software or technology, other than those specified in Annex I to the EU Dual-Use Regulation 2009 (as amended), is forbidden without a licence where there are grounds for suspecting that they are or may be intended, in their entirety or in part, for purposes connected with weapons of mass destruction.544 The restriction also applies to the electronic transfer of software or technology.545 It does not apply if the exporter has made all reasonable enquiries as to the proposed use of the goods, software or technology in question and is satisfied that they will not be used for such purposes.546 If the exporter is not so satisfied, a licence for export is required; in case of doubt, guidance should be sought from the Export Control Organisation.547

Activities 11.102 Certain brokering and trafficking activities are also subject to strategic export controls, as set out in the Export Control Order 2008.548 This divides controlled goods into three categories, A, B and C: •

Category A goods (the highest risk): include certain security and paramilitary police equipment and cluster munitions, explosive submunitions and explosive bomblets.549 No person may supply or deliver, agree to supply or deliver, or do any act calculated to promote the supply or delivery of any such goods where that person knows or has reason to believe that such action may result in the removal of those goods from one third country to another. This applies both to persons carrying out activities in the UK and UK persons operating abroad.550

543 Export Control Order 2008 (as amended) Sch 4, and see www.gov.uk/guidance/current-armsembargoes-and-other-restrictions. 544 Export Control Order 2008, art  6(1). The restriction covers intended ‘use in connection with the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of chemical, biological or nuclear weapons or other nuclear explosive devices, or the development, production, maintenance or storage of missiles capable of delivering such weapons’ (art 2(1)). 545 Export Control Order 2008, art 6(2)(b). 546 Export Control Order 2008, art 6(2). 547 See www.gov.uk/guidance/supplementary-wmd-end-use-controls. 548 The Order was made under the Export Control Act 2002. 549 Export Control Order 2008, Sch 1, Pt 1. 550 Export Control Order 2008, art 21.

760

Import and export regulations 11.102

•

Category B goods (lower risk than Category A but higher than Category C): include certain small arms and light weapons, including their accessories and ammunition, hand grenades, man-portable air defence systems, long-range missiles, and the components for any of these.551 Such goods are subject to the same restriction as applies to goods in category A, except that the provision of financing or financial services, insurance or reinsurance services or general advertising or promotion services by a person whose only involvement is to provide such services is not prohibited.552 Contract promotion activities, that is activities to promote the arrangement or negotiation of a contract for the acquisition, disposal or movement of goods, are also permitted provided that no payment is received.

•

Category C  goods (lowest risk): include all other military goods, portable devices for the purpose of riot control or self-protection by the administration or dissemination of an incapacitating chemical substance, and certain substances.553 Such goods are subject to the same restriction as applies to goods in category A, with the same exemption as applies to goods in category B, and with the additional exemption that the provision of transportation services is not prohibited by a person whose only involvement is to provide such services.554 Contract promotion activities carried out without payment are also permitted.

Controlled activities are subject to a licensing system similar to that which applies to controlled goods:555 • An open general trade control licence (OGTCL) allows a trader to carry out certain activities in respect of category C goods, small arms and light weapons to and from specified countries. Such a licence requires no application, and is re-usable, although an exporter must first register with SPIRE.556 See the government’s website for a list of currently available open general export licences and guidance on further restrictions and requirements that may apply.557 • A standard individual trade control export licence (SITCL) is specific to a named trader and covers a single deal where a specific quantity of specified goods passes from a specified supplier to a specified recipient for a specified end-user.558

551 552 553 554 555

Export Control Order 2008, Sch 1, Pt 2. Export Control Order 2008, art 22. Export Control Order 2008, art 2(1). Export Control Order 2008, art 23. See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence. 556 See www.spire.bis.gov.uk. 557 See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence. 558 See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence.

761

11.103  Regulatory Requirements

• An open individual trade control licence (OITCL) is also specific to a named trader, but allows a range of activities connected with trade in specific goods between specified overseas sources and destination countries. This licence can hence be re-used, but certain details will need to be recorded on SPIRE.559

Other export controls 11.103 Certain other goods are also subject to export controls, as set out below.

Chemicals and pesticides 11.104 These are regulated by the EU by means of the Dangerous Chemicals Regulation, which implemented the Rotterdam Convention.560 The Regulation applies to the chemicals listed in Annex I, but not to chemicals exported for research, provided the quantities are within certain limits.561 If a chemical is captured by the Regulation, its export will be subject to one or both of the following two processes: export notification; and explicit consent.562 In particular, if a chemical is listed in Part 2 or 3 of Annex I or a mixture contains such chemicals in a concentration that triggers labelling obligations under Regulation (EC) 1272/2008, the exporter must submit a prior informed consent form (PIC) to the competent authority of the member state from which it is to be exported (in the UK, the Health and Safety Executive), which must give its consent before the export can take place.563 In all circumstances, an exporter should ensure that the packaging and labelling used complies with the requirements of Regulation (EC) 1107/2009, Directive 98/8/EC and Regulation (EC) 1272/2008, or any other relevant Union legislation.564

Drugs 11.105 It is usually necessary to obtain an export certificate for a medicinal product in order to meet the requirements of the country to which the product in question is to be exported. In the UK, export certificates are issued by the MHRA, and there are five different types,565 each of which can be obtained by submitting an application through the MHRA portal:566 559 See www.gov.uk/government/publications/spire-online-export-licensing-guidance/using-spireto-get-an-export-licence. 560 Regulation 649/2012/EC ([2012] OJ L 201/60) concerning the export and import of dangerous chemicals. On the Rotterdam Convention, see www.pic.int. 561 See https://echa.europa.eu/regulations/prior-informed-consent/understanding-pic. 562 See https://echa.europa.eu/regulations/prior-informed-consent/understanding-pic. 563 Regulation 649/2012/EC, Art 14(6). 564 Regulation 649/2012/EC, Art 17(1). 565 See www.gov.uk/guidance/export-drugs-and-medicines-special-rules#medicines. 566 See www.gov.uk/guidance/mhra-portal-register-to-submit-forms.

762

Import and export regulations 11.106

• A certificate of a pharmaceutical product (licensed) [CPP (licensed)], which applies only to a licensed medicinal product and provides certain details about the product, its manufacture and its marketing authorisation. • A  certificate of a pharmaceutical product (unlicensed) [CPP (unlicensed)], which applies only to an unlicensed medicinal product that has been manufactured in the UK and only in cases where the applicant has a manufacturer licence for the drug. • A certificate of licensing status (CLS), which can apply to a licensed or unlicensed medicinal product and which contains certain details about the product and its dosage form. This certificate has a limit of 10 products and one country per certificate and is used by importing agents for bids made in response to an international tender. • A  certificate of manufacturing status (CMS), which does not contain any information specific to the product in question, but confirms that the named site where it was manufactured meets the requirements of good manufacturing practice. • A certificate for the importation of a pharmaceutical constituent (CPC), which is used where a particular ingredient of a medicinal product is to be exported. The certificate is ingredient, country and site function (eg  manufacturing) specific. To obtain this certificate, the ingredient must have been manufactured in a site that holds a valid certificate of inspection from the MHRA. A special licence is needed for the export of controlled drugs.567 The Drug Licensing and Compliance Unit of the Home Office issues such a licence.568

Seeds and plants 11.106 There is usually no restriction on exports of seeds and plants to other member states in the EU. In certain circumstances, however, you may need a supplier document and, if the seed or plant is susceptible to serious pests or diseases, a plant passport may also be required.569 The grower issues his or her own passport, and the grower needs to be authorised for the purpose by the Animal and Plant Health Agency (APHA, an executive agency of the Department for the Environment, Food and Rural Affairs, DEFRA).570 If seeds or plants are to be exported outside the EU, the importing country will normally require a phytosanitary certificate, issued by DEFRA, through

567 That is, drugs that are controlled under the Misuse of Drugs Act 1971 and the Misuse of Drugs Regulations 2001 (SI 2018/1055) (as amended). 568 See https://dlcu.homeoffice.gov.uk/Default.aspx. 569 See www.gov.uk/guidance/export-plants-seeds-bulbs-and-wood-special-rules. 570 See www.fera.defra.gov.uk/plants/planthealth/plantpassporting.cfm.

763

11.107  Regulatory Requirements

its online platform, eDomero.571 A  phytosanitary certificate proves that the seeds or plants in question have, for example, been produced in accordance with the relevant standards.

Import regulations572 Goods generally 11.107 Currently, while the UK remains a member of the EU, goods can generally be imported into the UK without a licence. No duty is payable on goods imported from another member state, but goods imported from outside the EU will be subject to the EU Common Customs Tariff (CCT),573 and may also be subject to import quotas. Further details of applicable tariffs, and the rare cases where a licence is required, may be obtained from HMRC.574 If a quota applies, it is possible to import the goods in question even when the quota has been reached, but at a full, rather than reduced, tariff. The following are among the categories of goods that require an import licence.

Military equipment, nuclear material and chemicals 11.108 The import of certain military equipment requires a licence from the Import Licensing Branch (ILB) of the Department for International Trade.575 The Government’s ‘Do I need a BIS import licence’ should be consulted.576

Nuclear material 11.109 Nuclear material cannot be imported without a licence issued by the Office for Civil Nuclear Safety (OCNS).577

Chemicals 11.110 Certain chemicals require a licence from the ILB for import, including chemicals that can be used to produce controlled drugs. Under the 571 See http://edomero.defra.gov.uk/. 572 For general information, see www.gov.uk/guidance/import-controls and www.gov.uk/startingto-import/import-licences-and-certificates. 573 See https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/what-iscommon-customs-tariff_en. 574 See www.hmrc.gov.uk. 575 See www.ilb.trade.gov.uk/icms/fox/live/IMP_LOGIN/login. 576 See www.berr.gov.uk/whatwedo/europeandtrade/importing-into-uk/import-licensing/noticesto-importers/page22864.html. 577 ONR is a statutory public corporation, established by the Energy Act 2013 from 1 April 2013. For details of import licensing, see www.onr.org.uk/cnss/licensing.htm.

764

Import and export regulations 11.111

Reach Regulation,578 those who import more than one tonne of chemicals per year must register with the European Chemicals Agency in Helsinki.579

Pharmaceutical products, seeds, plants and animals 11.111 It is necessary to hold a wholesale dealer’s licence from the MHRA to import pharmaceutical products from another member state, and an import licence to import them from outside the EEA.580 The import licence can apply to medicinal products without a marketing authorisation in certain circumstances. A licence is necessary to import certain seeds, plants and animals that are endangered species: see the Convention on International Trade in Endangered Species of Flora and Fauna (CITES).581 The CITES Regulation divides plants and animals into four categories: an import licence is required for those listed in Annexes A and B from DEFRA, and it is necessary to provide to the UK Border Agency prior to importation a notification for those listed in Annexes C and D.582

578 Regulation 1907/2006/EC ([2006]  OJ L396/1) concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). 579 See http://echa.europa.eu. 580 See www.gov.uk/guidance/import-a-human-medicine. 581 See www.cites.org. 582 Regulation 318/2008/EC ([2008]  OJ L95/3) amending Regulation 338/97/EEC ([1997]  OJ L61/1) on the protection of species of wild fauna and flora by regulating trade therein. See www.gov.uk/guidance/cites-controls-import-and-export-of-protected-species.

765

CHAPTER 12

Introduction to EU Competition Laws Affecting Technology-Related Agreements Introduction770 Impact of EU competition law upon commercial agreements 770 Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty; European Economic Area Agreement 771 EU Treaties771 Article 101772 Articles 34–36773 European Economic Area Agreement 774 Association Agreements with Central and Eastern European countries 774 Scope and purpose of this chapter 775 Notice on agreements of minor importance 775 Horizontal agreements (including R&D agreements) 775 Vertical agreements (including intellectual property licences) 776 Article 101 and commercial agreements 778 Text of Article 101 and author’s summary 778 When does Article 101(1) apply? 779 Broad scope of Article 101(1) 779 Undertakings780 Requirement for undertaking to be engaged in economic activity 780 Several undertakings forming a ‘single economic unit’ and being one undertaking (parent/subsidiary) 781 Associations of undertakings 783 Agreements, decisions and concerted practices 783 Agreements783 Decisions785 Concerted practices 785 Which may affect trade between member states 786 Which have as their object or effect the prevention, restriction or distortion of competition 787 Anti-competitive787 Restriction by object 788 Restriction by effect 790 Significant792 Within the common market 792 Difficulties of determining whether Article 101(1) applies 793 Consequences if Article 101(1) applies 794

767

Introduction to EU Competition Laws Affecting Technology-Related Agreements Provisions are void; possibility of fines 794 Exemption under Article 101(3) – only the European Commission may exempt 794 Overview of how to determine whether Article 101(1) applies, and whether a block exemption applies, to a technology-related agreement 795 Does the agreement have a ‘Community dimension’? 796 Does the Notice on agreements of minor importance apply? 797 Is it a horizontal or vertical agreement? 799 If the agreement is horizontal, does the Merger Regulation or the Article 101 regime apply? 800 Test 1 801 Test 2 801 Two-thirds rule 802 If the Article 101 regime applies, does the agreement breach Article 101 after consideration of the Guidelines on horizontal agreements?802 Does the R&D Agreements Regulation apply? If so, will an agreement receive block exemption under it? 804 Is it a ‘research and development agreement’? 804 Does it meet the conditions for exemption? 804 Duration of the exemption; is the market share below 25 per cent? 805 Does the agreement include any ‘hardcore’ restrictions? 805 Does the agreement include any ‘excluded’ restrictions? 806 Does the Specialisation Agreements Regulation apply? If so, will an agreement receive block exemption under it? 806 If the agreement is vertical, does the agreement breach Article 101 after consideration of the Guidelines on vertical restraints? 807 Does the Vertical Agreements Regulation apply? If so, does the agreement meet the requirements of that Regulation? 808 Does the Notice on subcontracting apply? If so, does the agreement meet the requirements of that Notice? 810 Does the Technology Transfer Agreements Regulation apply? Does the agreement fit within or receive block exemption under that Regulation?811 Primary purpose of the Regulation 812 Period of time that the block exemption lasts 813 Qualifying agreements 813 Summary list of excluded agreements 814 Market-share thresholds 814 Summary of impermissible (hardcore) restrictions making a whole agreement ineligible for protection 815 Summary of excluded restrictions making that restriction ineligible for protection 817 Software licences 817 Application of Vertical Agreements Regulation and Guidelines on vertical restraints to software licences 818 The Computer Programs Directive 819

768

Introduction to EU Competition Laws Affecting Technology-Related Agreements Applying the block exemption Regulations and Guidelines by analogy: which terms of a typical software licence are likely to infringe Article 101)? 820 Terms unique to software licences 821 Hardcore restrictions (and their exceptions) and the Technology Transfer Agreements Regulation 822 Agreements that provide for both R&D work and the licensing of technology or know-how 822 What does each Regulation exempt? 824 Which Regulation should the parties prefer – the Technology Transfer Agreements Regulation or the R&D Agreements Regulation?827 Detailed consideration of Notices, Guidelines and block exemption Regulations828 Status of Commission Notices 828 Relevant Commission Notices 829 Relevant block exemption Regulations 830 Horizontal and vertical agreements 830 Notice on agreements of minor importance 831 Background831 Reason for the 2014 update to the Notice 832 Background and purpose 834 Agreements covered by the Notice – market-share thresholds 835 Agreements not covered by the Notice – containing restrictions ‘by object’ 836 Agreements not covered by a block exemption; agreements covered by a block exemption but including excluded restrictions 837 Comments837 Commission Notice on subcontracting agreements 838 Background and summary 838 Meaning of subcontracting agreements; purpose of Notice 839 Permitted restrictions: use of contractor’s technology and equipment; use of items produced using such technology and equipment839 Examples of contractor’s technology and equipment 840 Two qualifications to the Commission’s favourable view of these restrictions841 Other permitted restrictions: confidentiality, improvements and trade marks 842 Comments844 Implementation Regulation 845 Introduction845 Summary of provisions 845 UK law following the bringing into force of the Implementation Regulation848

769

12.01  Introduction to EU Competition Laws Affecting Technology-Related Agreements

INTRODUCTION Impact of EU competition law upon commercial agreements 12.01 Under English law there are relatively few legal constraints upon the provisions that it may be possible to include in a technology transfer agreement, whether it be an R&D  agreement, intellectual property licence or assignment, or other technology-related agreement. Unlike the position in some countries, the commercial terms do not generally need approval by a government authority. Nor is there any problem over the export of royalties from the UK, as exchange controls were abolished many years ago. There are, of course, laws and regulations affecting certain technology transfer activities, including activities performed under agreements. Two obvious examples are: •

tax laws (in respect of payments arising under technology transfer agreements),1 and

•

regulations on such activities as: –

the conduct of clinical trials of drugs;

–

the use of human and animal issue;

–

the use of the personal data of individuals (such as in clinical trials); and

–

the export of technology.2

But as to laws constraining the terms of commercial agreements themselves, competition laws are most likely to feature prominently and affect the provisions of a commercial agreement. There are two kinds of competition law: •

domestic UK competition law; and

•

EU competition law.

The latter applies in the UK due to its membership of the European Union,3 at least until the UK leaves the EU (or any transition period after it). Chapter 15 considers UK competition law. Despite the intention of the UK to leave the EU, UK competition law has been brought into line with EU competition law and is now largely the equivalent of its EU counterpart. At the time material for this book was prepared, it was too early to state how UK competition law will change and the extent to which it will diverge from EU competition law. However, even on leaving the UK, the Competition Act 1998 will still contain 1 2 3

See Ch 17. See Ch 11. That is, pursuant to the European Communities Act 1972 and subsequent legislation.

770

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.02

provisions which will mirror Articles 101 and 102, although it will no longer be necessary for UK competition law to be consistent with developments in EU competition law after the date the UK leaves the EU.4 EU competition law is complex and addresses the detailed terms of technology transfer agreements. For those advising on legal aspects of such agreements, EU competition law is often the area which requires the most analysis – in order to decide whether the law applies at all to the agreement and, if it does, whether the terms proposed would be acceptable to the EU competition authorities. The prudent and most cost-effective course is to assume that often the law does apply, and to tailor the agreement to meet the requirements of a block exemption Regulation, where this is possible. The main block exemption Regulations in this field will be considered in some detail later in this chapter.

SOURCES OF EU COMPETITION LAW: ARTICLES 101, 102 AND 34–36 OF THE EU TREATY; EUROPEAN ECONOMIC AREA AGREEMENT EU Treaties 12.02 The two modern treaties which establish the European Union in its current form are: •

the Treaty on European Union (‘TEU’); and

•

the Treaty on Functioning of the European Union (‘TFEU’).5

TFEU is the primary source of EU competition law. TFEU (in its previous form as the Treaty of Rome) became part of English law when the UK joined the then European Community on 1 January 1973.6 Currently the membership of the EU consists of the following 28 countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark,

4 5

6

For example, Competition Act 1988, s  60 will be repealed on the day that the UK leaves the EU. Both last amended by the Treaty of Lisbon, and in force from 2009. See the previous edition for information on the history of amendments and changes to the Treaties. Most of the provisions of the Treaty of Lisbon are beyond the scope of this book, but the following are a few brief points: (i) the European Union replaced and succeeded the European Community; (ii) the Treaty of Rome became the ‘Treaty on the Functioning of the European Union’; and (iii) the Articles of the Treaty of Rome were renumbered with additional Articles. The two most relevant Articles for the purposes of this Chapter are Articles 101 (formerly 81) and 102 (formerly 82). Many Regulations, Directives, Guidance and Notices pre-date the Treaty of Lisbon, and these documents still refer to Articles 81 and 82. Under the European Communities Act 1972, as amended, for example to take account of the Treaty of Lisbon by the European Union (Amendment) Act 2008, and most recently by the European Union (Withdrawal) Act 2018.

771

12.03  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.7 Candidate countries are Albania, Montenegro, the Former Yugoslav Republic of Macedonia, Serbia and Turkey, and potential candidates are Bosnia and Herzegovina, and Kosovo. The provisions of TFEU that most closely affect intellectual property rights and their exploitation are: • Article 101; •

Article 102; and

• Articles 34–36. These Articles are concerned with prohibiting particular kinds of anticompetitive behaviour. It is now long-established under EU law that the exercising of intellectual property rights (for example, through licensing or litigation) can amount to a breach of one or more of these Articles.8

Article 101 12.03 This chapter mainly concerns Article  101 which prohibits certain agreements, decisions and concerted practices which have, as their object

7 8

See https://europa.eu/european-union/about-eu/countries_en#28members. At first sight, two Articles of the EU  Treaty would appear to exclude intellectual property rights from the provisions of the Treaty: (1) Art 345 states: ‘This Treaty shall in no way prejudice the rules of member states governing the system of property ownership’. This Article applies to intellectual property, which is a national system of property ownership (although some limited international rights also exist). (2) Art 36 provides that Art 34 shall not apply, inter alia, to restrictions concerning: ‘the protection of industrial and commercial property’. However, Art 36 goes on to provide that such restrictions: ‘shall not … constitute a means of arbitrary discrimination or a disguised restriction on trade between member states’. In practice, decisions on the anti-competitive effects of exercising intellectual property rights have formed a significant part of the European Court’s and European Commission’s workload. Two lines of reasoning have been developed by the Court which have enabled it to apply the competition rules to intellectual property rights despite the constraints imposed by the above-quoted Articles. First, in a series of cases under Art 101, commencing in 1966 with Establisssements Consten SA & Grundig-Verkaufs-GmbH v Commission [1966] ECR 299, [1966] CMLR 418 the Court has distinguished between the ‘existence’ of an intellectual property right, which is covered by Art 345, and the ‘exercise’ of that right, which may infringe Art 101. Secondly, in a series of cases concerning Arts 34–36, beginning in 1974 with Centrafarm BV and Adnaan de Peijpper v Sterling Drug Inc [1974] ECR 1183, [1974] 2 CMLR 480, [1976] FSR 164, the Court distinguished between the ‘specific subject matter’ of a patent (or other intellectual property) which gave the owner of the patent the exclusive right to manufacture a patented product and be the first to supply it, and other, less central, rights which could not be exercised in an anti-competitive way, for example the bringing of infringement proceedings against parallel importers of products which were originally put on the market in the EEC by the patent owner or with his or her consent.

772

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.04

or effect, the restriction of competition within the internal market of the EU. The text of Article 101 is reproduced below.9 Article 10210 prohibits undertakings, which have a dominant position within the EU, from abusing their dominant position. ‘Dominant position’ is a flexible concept but would normally apply to a company with a high market share. A market share of 40 per cent is sometimes mentioned in this context but there is really no set figure – a company with a smaller market share than 40 per cent could be dominant, particularly if the rest of the relevant market was supplied by a large number of companies, each with a very small market share.11 Abuse of a dominant position might arise, for example, from a company’s pricing activities or where the company restricted access to certain types of technical information. The same anti-competitive activity could be a breach of Article 101 if carried out by more than one party under an agreement or amounts to a concerted practice, or a breach of Article 102 if carried out by one party alone where that party is in a dominant position. In some situations, a contractual obligation may also amount to a breach of Article 102.

Articles 34–36 12.04 Articles  34–36 are concerned with activities that restrict the free movement of goods between different countries of the EU, such as import restrictions. Such restrictions are contrary to the objective of creating a single European market and are prohibited under Article 34. In certain situations, these Articles will prohibit the owner or licensee of rights in technology from taking action to enforce his or her rights, where this would restrict the free movement of goods from one EU country to another. For example, the bringing of a patent infringement action against a parallel importer of patented goods from another EU country may in certain situations amount to such a breach. Thus, there are several ways in which EU competition laws can constrain an individual or organisation from exploiting its intellectual property rights. Where an agreement is entered into in respect of the intellectual property, the terms may breach Article 101. Where the party exploiting the rights is in a dominant position, its actions in relation to those rights may breach Article  102. Where the rights are exercised in such a way as to restrict the movement of goods within the EU, there may be a breach of Articles 34–36.   9 See para 12.11 below. 10 See http://eur-lex.europa.eu/collection/eu-law/treaties.html. 11 In different contexts, it is interesting to note that the Commission has focused on the dangers of a 20 per cent or 30 per cent market share (eg in Technology Transfer Agreements Regulation, Art 3(1), (2)) and of a 10 per cent or 15 per cent market share (eg in 2001 Notice on agreements of minor importance, para 7).

773

12.05  Introduction to EU Competition Laws Affecting Technology-Related Agreements

European Economic Area Agreement 12.05 The Agreement on a European Economic Area (‘EEA Agreement’) should be mentioned.12 The EEA  Agreement, which came into effect on 1 January 1994, created a free-trade zone, now comprising the 28 members of the EU plus 3 of the 4 members of the EFTA (European Free Trade Association), Iceland, Lichtenstein and Norway (only Switzerland as a member of EFTA is not part of the EEA Agreement). The EEA extended EU competition rules to these non-EU  European countries. For example, Articles  53 and 54 of the EEA Agreement are worded in the same way as Articles 101 and 102. Similarly, the block exemption Regulations described later in this chapter apply in these countries as well as in member states of the EU. In effect there is a parallel set of rules for these non-EU countries, with parallel enforcement authorities – for example, the so-called ‘EFTA  Surveillance Authority’ is equivalent to the European Commission,13 and its activities are subject to the EFTA Court of Justice.14 Both the Commission and the EFTA Surveillance Authority have authority to apply the principles set out in Articles 53 and 54 of the EEA Agreement.15 Switzerland remains outside the EEA (although it is a member of the European Patent Convention). Where an agreement has anti-competitive effects in EU countries only, it should be notified to the Commission. Where it has anti-competitive effects only in the non-EU countries that are party to the EEA Agreement, then it should be notified to the Surveillance Authority. Where it has anti-competitive effects in both areas, and the effects in the EU are ‘appreciable’, the European Commission will have jurisdiction. There are detailed rules on the overlap between the two jurisdictions.16

Association Agreements with Central and Eastern European countries 12.06 EU and EEA countries have entered into agreements, known as Association Agreements, with certain East European countries that are candidates to become members of the EU; whilst these agreements include provisions concerning the protection of intellectual property, they don’t provide for equivalent competition laws to those operating in EU and EEA countries. Thus, the competition rules are very similar in all countries in the EEA, although the legal basis will differ, depending on whether the agreement is

12 In the UK, see the European Economic Area Act 1993. 13 EEA Agreement, Article 108. 14  Ibid. 15 EEA Agreement, Article 55. 16 See EEA Agreement, Article 56, for example.

774

Scope and purpose of this chapter 12.09

concerned with activities or effects in EU countries. The remainder of this chapter will consider agreements within the jurisdiction of the European Commission (and references to member states will include these further countries, where applicable), and will refer to the EU legislation.

SCOPE AND PURPOSE OF THIS CHAPTER 12.07 This chapter considers Article  101. Its purpose is to give practical assistance to those who draft and review technology-related agreements and who wish to take account of Article 101. The following subjects are discussed: •

•

•

First there is consideration of the following points: –

a general explanation of the provisions of Article 101;

–

the types of situation in which it may apply; and

–

the consequences of infringing Article 101(1).

Next, there is: –

an overview of the main steps involved in analysing whether a technology-related agreement (particularly R&D  agreements and intellectual property licences) may breach Article 101(1); and

–

if there is a breach, whether the agreement may receive block exemption under Article 101(3).

The main part of this chapter then considers the provisions of certain Commission Notices and Regulations that are most relevant in practice to technology-related agreements, namely:

Notice on agreements of minor importance 12.08 •

Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1).17

Horizontal agreements (including R&D agreements) 12.09 •

Guidelines on horizontal cooperation agreements;18

17 Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01). 18 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01).

775

12.10  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

R&D Agreements Regulation;19

•

Specialisation Agreements Regulation.20

Vertical agreements (including intellectual property licences) 12.10 •

Guidelines on vertical restraints21 (considered only in outline);

•

Regulation on Vertical Agreements22 (considered only in outline);

•

Notice on subcontracting agreements;23

•

Technology Transfer Agreements Regulation;24

•

Guidelines on technology transfer agreements.25

This chapter does not provide a general description of EU competition laws and the institutions that enforce them.26 Nor does it provide a general analysis of the very extensive case law (including Commission decisions) under Article 101, although particularly relevant case law is discussed at various points to clarify particular provisions of the block exemption Regulations, or to give a flavour of the interpretation that has been placed on Article 101(1) 19 Commission Regulation (EU) 1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements. 20 Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. 21 Guidelines on Vertical Restraints (2010/C 130/01). 22 Commission Regulation 330/2010 on the application of Article  101(3) of the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices [2010] OJ L 102/1. 23 Commission notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85 (1) of the EEC Treaty ([1979] OJ C 1/2). 24 Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements. 25 Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03). 26 In very brief summary, the Council of the European Communities (the Council) is the highest level of authority in respect of the passing of legislation; in some cases, the Council has delegated authority to the Commission of the European Communities (the Commission). Thus, the block exemption Regulations are Commission Regulations implemented pursuant to powers originally granted to the Commission by the Council (Council Regulation of 2 March 1965 on application of Article 85 (3) of the Treaty to certain categories of agreements and concerted practices, 19/65/ EEC). In respect of the interpretation of legislation, it is possible to appeal certain decisions of the Commission (eg on whether Art 101(1) applies to an agreement) to the General Court, and then subsequently on a point of law only to the Court of Justice. National courts also have authority to decide whether Art 101(1) applies to an agreement.

776

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.10

by the Commission and ECJ,27 respectively. A  comprehensive review of Article 101 and EU competition law is outside the scope of this book. Instead, this chapter focuses on the practical aspects of compliance with Article 101 and on how to bring an agreement within the scope of relevant Commission Notices and block exemption Regulations. Clearly, an understanding of the omitted areas is desirable for anyone involved in drafting or advising on agreements of this kind, particularly where it is not possible to fit the agreement within a block exemption Regulation or Commission Notice, or a party or the parties contemplate particularly unusual provisions and it is not clear whether they would be in breach of Article 101. A list of specialist books on EU competition law is included in the bibliography. Many technology-related agreements are concerned with activities in more than one country, as in the case of a pan-European licence agreement. As was mentioned earlier, the laws described in this chapter apply equally in most European countries. However, it is also necessary to take account of the separate requirements of national competition laws. Non-UK ‘domestic’ competition laws are beyond the scope of this book.28 There is consideration of current UK domestic competition law in Chapter 15. Even after the UK has left the EU, the consideration and application of EU competition law is likely to continue to be a necessity, where any agreement concerns a party operating from or within an EU country or where any of the activities set out under the agreement take place in the EU. However, Article  101 concerns trade between members states and the equivalent provision in UK competition law concerns trade within the UK. When the UK leaves the EU, it will no longer be a member state, and any agreement between a UK party and a party from a EU country would not come within either Article 101 or the equivalent UK competition law provision. It is not clear yet how any competition law issue would be handled in the event of a dispute. It is possible that the treaties that the two will need to negotiate after Brexit will deal with this point. If the agreement extends beyond Europe, competition laws in non-European countries may also be relevant, and local advice should be obtained.29 27 The EU has two courts, the General Court and the Court of Justice, together ‘ECJ’ in this chapter. The General Court hears appeals from the decisions of the Commission, including the decisions made by the Commission in relation to Articles 101 and 102, while the Court of Justice hears appeals from the General Court. For further details, see the Court of Justice of the European Union website: https://curia.europa.eu/jcms/jcms/j_6/en/. 28 A (short) summary can be found in Anderson (ed), Drafting Agreements in the Biotechnology and Pharmaceutical Industries (looseleaf, Oxford University Press). 29 For example, if the agreement involves the acquisition of US assets worth $50m or more, it may be necessary to notify the agreement to the US authorities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and rules promulgated by the US Federal Trade Commission thereunder. Thus, an IP licence agreement that includes the US as part of the licensed territory might be notifiable if the value of the US element of the deal is sufficiently large. Where the acquisition price of the US assets is wholly or partly contingent (eg royalties based on sales), it be may be necessary to determine the fair market value of the assets (similar to a net present value calculation). Further information on the Act is available on the Federal Trade Commission website (www.ftc.gov).

777

12.11  Introduction to EU Competition Laws Affecting Technology-Related Agreements

At various points in this section, there will be quotes from the text of European legislation, mainly that of Article 101, several Commission Notices and three block exemption Regulations. The format of European legislation, particularly the older legislation (such as, in particular, the Notice on Sub-contracting), can be complex, with long, unbroken sentences that deal with several issues in the same sentence. To assist comprehension, some quotations will appear with additional headings and spacing that do not appear in the original text, and in some cases additional numbering which will be in square brackets.30

ARTICLE 101 AND COMMERCIAL AGREEMENTS Text of Article 101 and author’s summary 12.11 The text of Article  101 follows. The drafting style of the original can be difficult to follow in places, particularly where it incorporates several concepts and examples into a single sentence. A  noticeable trend in latest versions of some Regulations is to increase the number of definitions. While this shortens the text of some Articles, it does not necessarily add to a user’s understanding of them, as the amount of cross-referencing increases. To assist analysis of the Article, italicised comments (which are not part of the original text) and additional spacing have been incorporated into the following text.31 Author’s summary

Text of Article 101

101(1) – certain activities are incompatible with the Common Market:

101(1). The following shall be prohibited as incompatible with the common market:

agreements etc

all agreements between undertakings, decisions by associations of undertakings and concerted practices

which may affect trade between member states

which may affect trade between member states And

and have anti-competitive objectives or effects in the EC

which have as their object or effect the prevention, restriction or distortion of competition within the common market,

for example – price fixing, market rigging, discrimination between customers

and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment;

30

See https://eur-lex.europa.eu/collection/eu-law/treaties/treaties-force.html for the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union. 31 For Article 101 in its original form, see previous note.

778

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.12 Author’s summary

Text of Article 101 (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

101(2) – agreements which breach 101(1) are automatically void

(2). Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

101(1) – but exemptions from 101(1) may be available if:

(3). The provisions of paragraph (1) may, however, be declared inapplicable in the case of:

the agreement

–

any agreement or category of agreements between undertakings;

–

any decision or category of decisions by associations of undertakings;

–

any concerted practice or category of concerted practices;

has certain public benefits

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit,

and the anti-competitive aspects are not too bad

and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

When does Article 101(1) apply? Broad scope of Article 101(1) 12.12 The Commission and the ECJ have interpreted the language of Article 101(1) broadly. In particular, several words used in the Article need consideration as to their meaning, in particular: • agreements; • undertakings; •

associations of undertakings;

•

decisions by associations of undertakings; 779

12.13  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

concerted practices;

•

agreements which have as their object the restriction of competition; and

•

agreements which have as their effect the restriction of competition.

The ECJ has produced many judgments concerning these terms and the following is intended to provide no more than a summary of the meanings of the above words and phrases.

Undertakings Requirement for undertaking to be engaged in economic activity 12.13 An ‘undertaking’ is not defined in the EU  Treaties (or any of the Regulations), but the ECJ has considered its meaning in many cases. In one case it was held that: ‘the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed’.32 This term therefore can cover any company (a group of companies being treated as a single undertaking), and any other organisation or individual engaged in commercial activities, including the state (such as public and local authorities). It is suggested that it will normally include inventors and research institutes who take steps to exploit their inventions commercially.33 The approach of the ECJ is to determine whether the activity of an organisation is economic rather than to focus on the structure or legal status of an organisation. It may be possible to separate out, for a particular organisation, that some of its activities are economic activities while others are not.34 This will be particularly relevant where a public body undertakes: •

economic activities (which will make the public body an undertaking for competition law purposes); and

•

activities that are not economic.

32 In Case C-41/90, Höfner and Elser v Macroton GmbH [1991]  ECR  I-1979, [1993] 4 CMLR 306, para 21. This definition has been used in a number of succeeding ECJ cases. 33 AOPI/Beyrard [1976] 1 CMLR D14; Vaesen/Moris [1979] 1 CMLR 511; Theal/Watts [1977] 1 CMLR D44; Tepea v Commission [1978] ECR 1391. 34 See SELEX Sistemi Integrati SpA v Commission, Case T-155/04 [2006] ECR II-4797, [2007] 4 CMLR 372, appeal dismissed, Case C-113/07. It seems that each case will turn on its facts but may depend on how closely the activity under consideration is tied to its core activity.

780

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.14

The activity will not be economic if it ‘is connected with the exercise of the powers of a public authority’, so that the rules of competition in the TFEU ‘[do] not apply to activity which, by its nature, and the rules to which it is subject does not belong to the sphere of economic activity’.35 As noted above, the legal status or how it is financed it not determinative of whether it engages in economic activity, although the ECJ has held: ‘that any activity consisting in offering goods or services on a given market is an economic activity’.36 Although it is critical that the goods and services are offered on a market, the undertaking does not have to carry out the activity for the purpose of making a profit37 or to fulfil an economic purpose,38 and the absence of either will not determine whether the activity amounts to an economic activity. For example, if an organisation does not charge for what it does or provides, that will not affect whether it is carrying out economic activities. In connection with the type of organisations who engage in intellectual property transactions which are the focus of this book (such as R&D  agreements, the licensing or assignment of intellectual property), they are all likely to be classified as being involved in economic activities – whether they are a government department, a governmental organisation (such as an NHS trust), a university or a charity (such as one involved in medical research).

Several undertakings forming a ‘single economic unit’ and being one undertaking (parent/subsidiary) 12.14 Agreements and arrangements between undertakings which form a ‘single economic unit’ which are legally separate but in reality consist:

35 Wouters and others v Algemene Raad van de Nederlandse Orde van Advocaten, Case C-30/00, para 57. For example, a public authority that entered into a contract with a company ‘with a view to both receiving financial support in return for establishing a household waste selective collection service and proof that the waste is recovered, and also selling sorted household packaging to take-back firms which provide them with proof of recovery, the local authorities are carrying on an economic activity of an industrial and commercial nature within the meaning of the above’, even though the public authority had a statutory obligation to dispose of household waste (Commission Decision 2001/663/EC of 15  June 2001 relating to a proceeding under Article  81 of the EC  Treaty and Article  53 of the EEA  Agreement (COMP/34.950 — Eco-Emballages) (text with EEA relevance), notified under document number C(2001) 1611). 36 Pavlov, Cases 180/98 etc [2000] ECR I-6451, [2001] 4 CMLR 30. For example, a state-owned postal service providing courier services, or a stated-owned employment service providing services helping employees find jobs etc are all capable of being undertakings engaged in economic activity (Klaus Höfner and Fritz Elser v Macrotron GmbH, Case C-41/90). 37 See eg  Albany International BV  v Stichting Bedrijfspensioenfonds Textielindustrie Case C-67/96. 38 Sachi, Case 155-73.

781

12.14  Introduction to EU Competition Laws Affecting Technology-Related Agreements

‘of a unitary organisation of personal, tangible and intangible elements, which pursue a specific economic aim on a long-term basis and can contribute to the commission of an infringement of the kind referred to [Article 101]’ such as a parent and subsidiary39 are treated as one undertaking and therefore not subject to Article  101. In one ECJ case, a parent and its subsidiaries were treated as a ‘single economic unit’ as the subsidiaries ‘did not enjoy real autonomy in determining their course of action in the market, but carr[ied] out instructions issued to them by the parent company controlling them’.40 On the basis of this case the Commission, in the Horizontal Guidelines, indicated that it was necessary to determine whether one company exercises a decisive influence over another, and if they do, they form a single economic entity.41 Where a parent holds 100 per cent of the shareholding in a subsidiary, there is a rebuttable presumption that the parent has a decisive influence over the conduct of the subsidiary, and that the Commission need not adduce any other evidence as to the control the parent has over the subsidiary other than evidence of the shareholding.42 A  shareholding of less than 100 per cent will not create a rebuttable presumption that the parent has a decisive influence over the subsidiary, but it is still possible for the Commission, on the facts of any case, to show that the parent does have a decisive influence. The shareholding need not be a majority shareholding but can be a minority shareholding.43 Although Article 101 will not normally apply to a large company with many wholly owned subsidiaries who can arrange matters throughout the EU to control or restrict competition, that company could infringe Article 102 (that is, an abuse by an undertaking of a dominant position in the internal market or a substantial part of the internal market), if the requirements of that Article are fulfilled.44 For example, if the company wished to control who could obtain supplies of its product, it could direct its subsidiaries in particular countries not to sell to particular purchasers or types of purchaser.

39 Akzo Nobel NV and Others v Commission of the European Communities, Case T-112/05, paras 57–58. 40 Viho Europe BV v Commission of the European Communities, Case C-73/95 P, para 16. 41 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C  11/01), para  11. The Guidelines go on to indicate that: ‘The same is true for sister companies, that is to say, companies over which decisive influence is exercised by the same parent company. They are consequently not considered to be competitors even if they are both active on the same relevant product and geographic markets’. 42 Akzo Nobel NV and Others v Commission of the European Communities, Case C-97/08  P, paras 60, 64.8. 43 Fresh Del Monte Produce Inc v European Commission, C-293/13 P; Fuji Electric Co. Ltd v European Commission, Case T-132/07. 44 Viho Europe BV v Commission of the European Communities, Case C-73/95 P, para 17.

782

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.16

Associations of undertakings 12.15 The wording of Article 101(1) indicates that it applies to decisions of associations of undertakings (rather than an association or undertaking entering into an agreement). One definition of an association of undertakings is: ‘an association consists of undertakings of the same general type and makes itself responsible for representing and defending their common interests vis-à-vis other economic operators, government bodies and the public in general.’45 Cases have considered the type of associations which will come within the meaning of an ‘association of undertakings’ and they include trade associations, professional associations, etc.46 For the purposes of this book, a representative body such as the Russell Group or the Association of Medical Research Charities could be an ‘association of undertakings’, particularly if it made a decision about the type of provision that its members should include within a technology-related agreement or that a condition of membership is that members should not license their technology to companies in particular industries, if such decisions led to a restriction of competition.

Agreements, decisions and concerted practices Agreements 12.16 The term ‘agreement’ in the UK context is often synonymous with a ‘contract’. Such a restricted view will not suffice to cover the kind of activities, arrangements, co-operation or collusive behaviour which EU competition law seeks to capture for the purposes of Article 101. At the heart of the meaning of an ‘agreement’ is that there must be: 45 J.C.J. Wouters and others v Algemene Raad van de Nederlandse Orde van Advocaten, Case C-309/99, Attorney-General’s opinion, para 61. 46 See, for example, the case reference for the above note. The scope of the meaning of an ‘association of undertakings’ can be seen in the recent case of MasterCard Inc v Commission, Case C-382/12. The Commission found that ‘the setting of multilateral fallback interchange fees in the payment system operated by the international payment organisation known as ‘MasterCard’ [which applied in the EEA] constituted a decision by an association of undertakings which led to a restriction of competition between participating banks providing merchants with services enabling them to accept MasterCard [ ] debit, charge and credit cards’. An offering was made on the New York stock exchange which modified the structure and governance of MasterCard. The ECJ decided that after the floating of MasterCard the banks involved retained decision-making powers (that is ‘an institutionalised form of coordination of the conduct of the banks’) and that there remained a commonality of interests between MasterCard and the banks which were both relevant and sufficient for the purposes of assessing whether, after the IPO, MasterCard could still be considered to be an ‘association of undertakings’.

783

12.16  Introduction to EU Competition Laws Affecting Technology-Related Agreements

‘a concurrence of wills between at least two parties, the form in which it is manifested is unimportant so long as it constitutes the faithful expression of the parties’ intention’.47 Accordingly, an agreement can cover: •

formal (contractual) agreements;48 and

•

non-binding forms of arrangement etc, such as: –

understandings or gentlemen’s agreements;49

– protocols;50 –

guidelines issued by one party to which another party is expected to adhere;51

–

membership documents or constitutions issued by a trade body;52

–

exchanges of correspondence;53

–

recommendations by a trade association to its members;

–

informal arrangements54 (for example, where a patent owner agrees to bring infringement proceedings for the benefit of its exclusive licensee); and

–

direct or indirect contact, attending meetings, co-operation on a limited basis, information exchanges etc.55

47 Bayer v Commission, Case T-41/96. 48 The Commission will consider an agreement to include one which is a standard form contract and one which has expired but continues to have legal effect. 49 ACF Chemiefarma NV v Commission of the European Communities, Case 41-69; Commission Decision of 15  July 1982 relating to a proceeding under Article  85 of the EEC  Treaty, OJ [1982] L 232/1: ‘An understanding between associations of undertakings may constitute an agreement within the meaning of Article 85 (1) even if its terms have not been set down in a written document signed by the parties’. 50 Commission Decision 94/210/EC of 29  March 1994 relating to a proceeding pursuant to Articles 85 and 86 of the EC Treaty (IV/33.941 – HOV SVZ/MCN). 51 Commission Decision 2000/146/EC of 14 December 1999 relating to a proceeding pursuant to Article  15(1)(b) of Council Regulation 17 (Case No IV/34.237/F3 – Anheuser-Busch Incorporated – Scottish & Newcastle). 52 Commission Decision 84/191/EEC of 30 March 1984 relating to a proceeding under Article 85 of the EEC Treaty (IV/30.804 – Nuovo CEGAM). 53 CD-Contact Data GmbH v Commission of the European Communities, Case T-18/03. 54 See eg Case C-238/05, Anserf-Equifax, Servicios de Información sobre Solvenica y Crédito, SL v Associación de Usuarios de Servicios Bancarios (Ausbanc) [2006] ECR I-11125, where the Court held that the use of the different terms (agreements, decisions, concerted practices) was aimed to catch the different forms of collusion and co-ordination between undertakings and ‘Accordingly … a precise characterization of the nature of the cooperation at issue in the main proceedings is not liable to alter the legal analysis to be carried out under Article 81 …’. 55 Eg Cases 40–8, 50, 54–6, 111 and 113–4/73, Re the European Sugar Cartel; Cooperatiëve Vereniging ‘Suiker Unie’ UA  v Commission [1975]  ECR  1663, [1976] 1  CMLR  295; Polypropylene [1986] OJ L230/1, [1988] 4 CMLR 347; Interbrew and Alken-Maes (Belgian Beer) [2003] OJ L200/1.

784

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.18

Decisions 12.17 As noted above, a ‘decision’ is associated in the wording of Article 101 with an ‘association of undertakings’ (such as a trade body). A trade body can make a decision on how each member of it should trade or set default terms and conditions that the member should use and with which each member has to comply. The decisions that will be caught are those which restrict competition and can also include a constitutional document, recommendations issued by the trade body, documents which govern how the trade association operates, as well as an agreement into which the trade association enters.56

Concerted practices 12.18 Article 101 also refers to ‘concerted practices’ which the Commission considers to be a distinct form of collusion.57 In effect, it aims to catch any other form of behaviour or contact which does not amount to an agreement or a decision but ‘has the object or effect to influence the market of an actual or potential competitor’.58 But the distinction is unlikely to matter in practice, as the aim is to catch the different forms of collusive behaviour between undertakings.59 56

There are many Commission Decisions on the meaning of a ‘decision’, for example Commission Decision of 9 August 2001 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No COMP/29.373 — Visa International) (2001/782/ EC) where the rules of the VISA payment cards system was held to be either a decision or an agreement of an association of undertakings, being the by-laws and the operating rules where ‘the association/undertaking is Visa; and the constituent members of the association/ undertakings are the licensees under the Visa payment systems’. 57 Commission Decision of 23  April 1986 relating to a proceeding under Article  85 of the EEC  Treaty (IV/31.149 – Polypropylene): ‘The concepts of “agreements” and “concerted practices” are distinct, but cases may arise where collusion presents some of the elements of both forms of prohibited cooperation. A concerted practice relates to a form of cooperation between undertakings which without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation for the risks of competition’. 58 Coöperatieve Vereniging ‘Suiker Unie’ UA and others v Commission of the European Communities, Joined cases 40–48, 50, 54–56, 111, 113 and 114–73, para 4. 59 Commission of the European Communities v Anic Partecipazioni SpA, Case C-49/92: ‘… it must be observed that, if Article 85 of the Treaty distinguishes between “concerted practices”, “agreements between undertakings” and “decisions by associations of undertakings”, the aim is to have the prohibitions of that article catch different forms of coordination and collusion between undertakings’. In this case, the point is made that, in a complex factual situation, some elements might be characterised as an agreement while others as a concerted practice. In effect, it is not necessary to distinguish between the two and it is possible for both to occur. See, for example, Asnef-Equifax, Servicios de Información sobre Solvencia y Crédito, SL and Administración del Estado v Asociación de Usuarios de Servicios Bancarios (Ausbanc), Case C-238/05: ‘In effect, while that provision distinguishes between “concerted practices”, “agreements between undertakings” and “decisions by associations of undertakings”, the aim is to have the prohibitions of that article catch different forms of coordination and collusion between undertakings (see Case C-49/92 P Commission v Anic Partecipazioni [1999] ECR I-4125, paragraph 112). Accordingly, in the present case, a precise characterisation of the nature of the cooperation at issue in the main proceedings is not liable to alter the legal analysis to be carried out under Article 81 EC’.

785

12.19  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Which may affect trade between member states 12.19 The ECJ and the Commission have interpreted these words broadly. A  major objective is to bring about a single European market with no national or other barriers to trade within the EU. In order to be caught by this provision, the agreement need not be between parties in different member states. Moreover, the agreement need not be concerned with activities in more than one member state,60 although the agreement is far more likely to affect trade between member states if it is. If an agreement, which is concerned only with activities in one member state, could distort the pattern of trade coming from another member state, it will be caught by Article 101 (subject to the other requirements of the Article being met). Article 101 could even apply to an agreement concerned with only part of the territory of a member state, if it (or, more likely, a network of such agreements) could have an effect on inter-state trade.61 Having said this, many agreements with no international element will clearly not infringe Article 101. For example, an agreement between an inventor and a manufacturer, under which the latter is contracted by the former to build a prototype of an invention, is unlikely by itself to be subject to Article 101.62 If the agreement also includes an exclusive licence to the manufacturer to manufacture and sell in the UK, it may affect trade between member states, although in many cases it is unlikely to do so. If the product becomes successful, and a network of exclusive licensees is appointed throughout the EU, the chances of an effect on trade between member states increase significantly.63 With the coming into force of the EEA Agreement in 1994 (see para 12.05 above), the list of countries to which the European competition rules apply was expanded to include Iceland, Liechtenstein and Norway. At the date of writing, Switzerland remains outside both the EU and the EEA and is therefore not bound by Article 101. However, as was mentioned earlier, an agreement may be caught by Article 101 even if it concerns a territory outside the EU/EEA, if the agreement could affect the pattern of trade within the EU/EEA. Given the close proximity of Switzerland to several EU countries, 60 Eg see Michelin v Commission [1983] ECR 3461. 61 See, for example, Vereeniging van Cementhandelaren v Commission [1972] ECR 977. In that case, the recommendations of a trade association to its members, all of whom were cement dealers based in the Netherlands, were considered by the European Court. The recommendations were as to the prices at which members should sell in the Netherlands and the parties to whom they should sell in the Netherlands. The European Court held that such recommendations could affect trade between member states, even though the recommendations did not apply to sales outside the Netherlands. In the words of the Court (at para 30): ‘… the provisions of the agreement which are mutually binding on the members of the … association, and the prohibition by the association on all sales to resellers who are not authorised by it, make it more difficult for producers or sellers from other member states to be active in or penetrate the Netherlands market’. 62 See para 1 of the Commission Notice on subcontracting agreements (referred to below). 63 Eg see Boussois v Interpane [1988] 4 CMLR 124.

786

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.21

it is likely that there will be many cases in which an agreement relating to Switzerland is caught by Article 101.

Which have as their object or effect the prevention, restriction or distortion of competition 12.20 This requirement is central to Article  101. Two questions arise: namely, does the agreement have anti-competitive objects and/or effects, and if so, are they significant?

Anti-competitive 12.21 The Commission considers that many kinds of provision that are commonly included in technology-related agreements are restrictions ‘by object’ or ‘by effect’. The ECJ has held that the grant of an exclusive licence, by itself, does not amount to an infringement of Article 101(1) where it is concerned with new technology and is only an ‘open’ exclusive licence, that is to say it does not grant absolute territorial protection against parallel importers and other licensees.64 However, this type of non-restrictive licence is relatively rarely encountered in practice, as most exclusive licensees will require protection against other licensees. Moreover, the practice of the Commission is to interpret this ruling narrowly. The recent trend in case law is to more clearly distinguish between agreements which restrict competition by object and those which restrict competition by effect.65 Much of the analysis (and the reasoning of the case law) is complex and difficult to apply in practice, and beyond the scope of this book. 64 See Nungesser v Commission, Case 258/78, [1982]  ECR  2015, para  3: ‘In so far as the exclusive licence granted is in the nature of an open licence , that is to say that it relates solely to the contractual relationship between the owner of the right and the licensee , whereby the owner merely undertakes not to grant other licences in respect of the same territory and not to compete himself with the licensee on that territory, the grant of an exclusive licence of plant breeders’ rights in respect of certain varieties of seeds newly developed in a member state is not in itself incompatible with article  [101(1), in view of the specific nature of the products in question, if it promotes the dissemination of a new technology and competition in the community between the new product and similar existing products.’ See also Coditel SA, Compagnie générale pour la diffusion de la télévision, and others v Ciné-Vog Films SA and others, Case 262/81, where an exclusive licence of a copyright work for a limited period was not subject to the prohibitions in what is now Article 101, subject to enquiries as to whether such a licence created an artificial and unjustified barrier in terms of the needs industry concerned or the fees that could be charged because there was an exclusive licence exceeded a fair return on investment, or the duration of the exclusive licence was disproportionate to these situations. 65 For example, Expedia Inc v Autorité de la concurrence and others, C-226/11. This case indicated, ‘It must therefore be held that an agreement that may affect trade between Member States and that has an anti-competitive object constitutes, by its nature and independently of any concrete effect that it may have, an appreciable restriction on competition’. Following the case, the Notice on agreements of minor importance was re-issued in 2014 to state clearly that an agreement which includes a restriction on competition by object could not have the benefit of the Notice at all.

787

12.22  Introduction to EU Competition Laws Affecting Technology-Related Agreements

However, in purely practical terms: •

a ‘by object’ restriction is a more serious type of restriction and typically will be one which equates to a hardcore restriction in an agreement – and the exemption provided for in a block exemption Regulation from Article 101 will not apply to the agreement which contains a hardcore restriction;

•

a ‘by effect’ restriction is a less serious type of restriction and typically will be one which equates to an excluded restriction in an agreement – and the exemption provided for in a block exemption Regulation from Article 101 will not apply to the provision in an agreement which contains an excluded restriction.

Besides the practical implications for persons drafting agreements, it is suggested that it is important to understand the distinction between the two, in case the Commission or a national competition authority alleges there is a breach of Article 101(1) – as different consequences flow whether there is a restriction ‘by object’ or ‘by effect’.

Restriction by object 12.22 There is much legal and economic analysis for determining whether a restriction on competition amounts to an ‘object’ or an ‘effect’, and as noted above a full description is outside the scope of this book. What follows is just the most relevant points.66 What is clear is that there is a distinction between the two. In carrying out an assessment of an agreement, the Commission will not limit itself to assessing the provisions of the agreement. Article  101(1) indicates that the agreement must have, as its object or effect, the restriction of competition. The use of the word ‘or’ indicates that they are not cumulative but alternatives concerning the restriction of competition.67 If a restriction on competition is classified as one ‘by object’, certain consequences flow which are different if the classification is one ‘by effect’: •

the distinction between a restriction by object and a restriction by effect arises because certain types of co-ordination between undertakings show such a degree of harm that it is unnecessary to look at the effect of such co-ordination;68

66 Readers are referred to the books on competition law in the bibliography. 67 Société Technique Minière (L.T.M.) v Maschinenbau Ulm GmbH (M.B.U.), Case 56-65; Allianz Hungária Biztosító Zrt v Gazdasági Versenyhivatal, Case C-32/11, para 33. 68 Groupement des cartes bancaires (CB) v European Commission, Case C‑67/13 P, para 49.

788

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.22

•

that ‘certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition’;69

•

some types of collusive behaviour leading to price-fixing by cartels leading to negative effects on the price, quantity or quality of goods and services, and are so likely to have a negative effect that it is redundant, for the purposes of Article 101(1), to prove that the collusive behaviour has an actual effect on the market;70

•

to establish whether an agreement between undertakings shows a sufficient level of harm to qualify as a restriction by object, it is necessary to look at ‘the content of [an agreement’s] provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question’.71 The Commission may also examine the intentions of the parties, although not a determinative factor in establishing whether there is a restriction by object;72

•

although an agreement may contain a restriction by object and is prohibited by Article 101(1), it is still possible for the parties to show that they satisfy the conditions in Article 101(3), although in practice this is unlikely to be the case.73 Alternatively, there may be objective necessity for an agreement to contain a restriction by object, such as for health and safety reasons.74

What type of restriction will be a restriction by object? For what constitutes a restriction by object, there is a distinction between:

69 Allianz Hungária Biztosító Zrt v Gazdasági Versenyhivatal, Case C-32/11, paras 34, 35. The same point is made in Groupement des cartes bancaires (CB) v European Commission, Case C‑67/13 P, para 50. 70 Groupement des cartes bancaires (CB) v European Commission, Case C‑67/13 P, para 51. 71 Groupement des cartes bancaires (CB) v European Commission, Case C‑67/13 P, para 53. 72 Groupement des cartes bancaires (CB) v European Commission, Case C‑67/13 P, para 54. 73 See Communication from the Commission – Notice – Guidelines on the application of Article 81(3) of the Treaty, para 46. 74 See Communication from the Commission – Notice – Guidelines on the application of Article  81(3) of the Treaty, para  18: ‘Such exclusion of the application of Article  81(1) can only be made on the basis of objective factors external to the parties themselves and not the subjective views and characteristics of the parties. The question is not whether the parties in their particular situation would not have accepted to conclude a less restrictive agreement, but whether given the nature of the agreement and the characteristics of the market a less restrictive agreement would not have been concluded by undertakings in a similar setting. For instance, […] a prohibition imposed on all distributors not to sell to certain categories of end users may not be restrictive of competition if such restraint is objectively necessary for reasons of safety or health related to the dangerous nature of the product in question’.

789

12.23  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

•

competitors (horizontal agreements): –

price fixing;

–

output limitation;

–

sharing of markets and customers;

–

information sharing about future prices and quantities; and

–

restriction on carrying out R&D or using own technology; and

non-competitors (vertical agreements): –

fixed and minimum resale price maintenance;

–

restrictions providing absolute territorial protection; and

–

restrictions on passive sales.

The above is a non-exhaustive list of restrictions, but more generally any restriction which is listed as a hardcore restriction in a block exemption will usually qualify as a restriction by object.75 The above list, in any case, includes the type of restrictions which are labelled ‘hardcore’ restrictions in the block exemptions which are relevant to this book. But, although the above list helps in identifying certain types of provision which are currently known to be a restriction by object (and those appearing in block exemption Regulations), it is more difficult to identify those which do not fit within the list. As noted above, a restriction by object such as a hardcore restriction normally takes the whole agreement outside the scope of the block exemption.

Restriction by effect 12.23 Unlike a restriction ‘by object’ (where it is not necessary for there to be any actual effect on a market), the position is different where a restriction is characterised as one ‘by effect’. It will be necessary to look at the actual and potential anti-competitive effects (although there is no presumption that there will be anti-competitive effects). For an agreement to restrict competition by effect ‘it must affect actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods and services can be expected with a reasonable degree of probability’. The negative effects have to be appreciable and on a basis of a proper market analysis. To carry out the required analysis to determine the restrictive effects of an agreement, it will normally be necessary to define: •

the relevant market;

•

the nature of the products;

75

Communication from the Commission – Notice – Guidelines on the application of Article 81(3) of the Treaty, para 23.

790

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.23

•

the market position of the parties;

•

the market position of the competitors;

•

the market position of buyers; and

•

the existence of potential competitors and the level of entry barriers.76

It appears that a significant amount of economic analysis will be required on the part of the Commission to show there is restriction ‘by effect’ given the above factors, and consequently the same may be true also for the party or parties to disprove there is not such a restriction.77 As with restrictions by object, it is possible that a restriction by effect may also not breach Article 101(1), such as where the parties have a legitimate purpose78 or such restrictions are ‘objectively necessary to implementing certain operations’.79 Not all restrictions are necessarily anti-competitive, they may be exempt, but only in the circumstances described in the relevant Regulation. Where the relevant Regulation does not apply, for example because the type of agreement in question is excluded from the scope of the Regulation, the attitude of the Commission to the provision in question may be similar to that indicated in the Regulation. It is not possible to assume the Commission will take this approach – much will depend on the economic effects of the agreement in question, as determined by the Commission. In such cases, the previous method of seeking clarity by way of obtaining an individual exemption for such agreements by notification to the Commission is no longer available.80 The sections below, dealing with block exemption Regulations and in the special sections on software licences and joint ventures, will 76 Communication from the Commission – Notice – Guidelines on the application of Article  81(3) of the Treaty, para  27. The Notice goes on to indicate that the Horizontal Guidelines and the Guidelines on vertical restraints ‘set out a detailed framework for analysing the competitive impact of various types of horizontal and vertical agreements under [Article 101(1)]’. The complexity in carrying out the analysis may also involve determining whether there is a restriction on competition in the absence of the agreement containing a restriction on competition ‘by effect’ (which one of the books listed in the bibliography calls ‘counterfactual’, following O2 (Germany) GmbH & Co OHG v Commission of the European Communities, Case T-328/03). 77 See SIA „Maxima Latvija” v Konkurences padome, C-345/14, para 29: ‘It is only if, after a thorough analysis of the economic and legal context in which the agreements at issue in the main proceedings occur and the specificities of the relevant market, it is found that access to that market is made difficult by all the similar agreements found on the market, that it will then be necessary to analyse to what extent they contribute to any closing-off of that market, on the basis that only agreements which make an appreciable contribution to that closing-off are prohibited.’ 78 See cases referred to in note 59 above. Also Société Technique Minière (L.T.M.) v Maschinenbau Ulm GmbH (M.B.U.), Case 56/65, where a restriction on competition may be necessary for an undertaking to penetrate a new market. 79 Métropole télévision (M6), Suez-Lyonnaise des eaux, France Télécom and Télévision française 1 SA (TF1) v Commission of the European Communities, Case T-112/99. 80 Following the implementation of Regulation 1/2003.

791

12.24  Introduction to EU Competition Laws Affecting Technology-Related Agreements

discuss further the main types of provision that the Commission considers will infringe Article 101(1).

Significant 12.24 If the effects are minimal, for example because the market shares of the parties to the agreement are very small, there will be no infringement of Article  101.81 However, it is not easy to determine from the case law when the effects would be considered to be minimal in any particular case. Moreover, the position may change throughout the life of an agreement, for example if the products which are the subject matter of the agreement turn out to be very commercially successful several years into the life of the agreement. In order to remove some of this uncertainty, it is possible to turn to the Notice on agreements of minor importance; the latest version dates from 2014.82 The Notice describes circumstances in which the Commission considers that an agreement would not be sufficiently significant to be subject to Article  101 – that is, the circumstances in which, with the use of market share thresholds, agreements which have as their effect the restriction of competition do not have an appreciable restriction on competition under Article 101.83 The ‘Notice on agreements of minor importance’ is considered in paragraph 12.70 below.

Within the common market 12.25 Most agreements which are caught by this requirement will be between European parties and concern activities within the EU. However, the Commission considers that an agreement can be contrary to Article 101(1) even where the parties to it have no direct connection with the EU, and do not carry on activities within the EU, if their agreement has anti-competitive effects within the EU.84 81 See Volk v Vervaecke [1969]  ECR  295, [1969]  ECR  273 where the Court considered an agreement for the distribution of washing machines. The parties had only a 0.2 per cent share of the market and the Court held that the agreement was not within Art 101. See also Cadillon v Hoss [1971] ECR 351, and Miller v Commission [1978] ECR 131 (where a 5 per cent share was held not to be minimal, ie Art 101 could apply). 82 [2014] OJ C 291/1. 83 Although just because the market share threshold set out in the Notice is exceeded does not necessarily mean there is an appreciable effect on competition. It will be necessary to carry out an individual assessment. See Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01), para 3 and Communication from the Commission – Notice – Guidelines on the application of Article 81(3) of the Treaty, note 32 (to para 27). 84 See Ahlstrom v Commission [1988] ECR 5193.

792

Sources of EU competition law: Articles 101, 102 and 34–36 of the EU Treaty 12.26

Difficulties of determining whether Article 101(1) applies 12.26 From the foregoing it can be seen that there are a considerable number of ‘grey areas’ when it comes to determining whether or not an agreement infringes Article 101(1). In part these result from the following issues:•

The difficulty of assessing the impact of an agreement, or rather the impact of activities carried out under the agreement, upon the market in which it operates. This issue raises questions of economics as well as law and is particularly problematic in the case of agreements concerning unproven technology, where the likely market shares may be difficult or impossible to predict.

•

The approach of the Commission, which until 2004 had been to decide that many types of contract clause, particularly those restraining a party’s conduct, infringe Article  101(1), and to grant individual exemptions under Article 101(3) to the less harmful infringements. This contrasts with, for example, the US anti-trust authorities, who have tended to declare less harmful restrictions on conduct not to be subject to their competition laws at all. Although this approach has changed following adoption of the Implementation Regulation,85 where the Commission no longer grants individual exemptions, but leaves it to the parties to decide whether an agreement or contract clause comes within the exemptions available under the block exemption Regulations or a Commission Notice.

•

The non-literal approach that is required for EU legislation – ie  it is necessary to comply with the spirit of the legislation, as well as its letter, to a greater extent than is the case with domestic UK legislation.

One consequence of these uncertainties is what a person should assume when drafting or reviewing a licence agreement (particularly an exclusive licence agreement). The prudent course is often to assume that Article 101(1) does apply in principle, and to try to ensure that the agreement falls within one of the Commission Notices86 (in particular the Notice on agreements of minor importance and the Notice on sub-contracting agreements) or one of the block exemption Regulations (in particular the Technology Transfer Block Exemption Regulation).

85 Council Regulation (EC) 1/2003 ([2003]  OJ L1/1) on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance). 86 Although, strictly speaking, these Notices describe when Art 10(1) does not apply, it is convenient to consider the Notices and block exemption Regulations together.

793

12.27  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Consequences if Article 101(1) applies Provisions are void; possibility of fines 12.27 Article  101(2) provides that agreements etc which infringe Article  101(1) are ‘automatically void’. They may, however, be given an exemption under Article  (101(3) (discussed below). The wording of Article  101(2) may appear misleading, particularly to someone who is familiar with the English law distinction between: •

an agreement being void in its entirety; and

•

particular provisions of an agreement being unenforceable.

The ECJ has held that it is only the provisions which infringe Article 101(1) which are void. The remainder of the agreement may be enforceable if, after removing the offending provisions, the nature of the contract is not fundamentally altered, and the question of whether the rest of the agreement remains in force being a matter for national law.87 The Commission also has the power to fine the parties to an agreement for deliberate or negligent infringement of Article 101, the maximum fine being 1 million euros or 10 per cent of the party’s (including any group companies’) worldwide turnover in the preceding year, whichever is higher.

Exemption under Article 101(3) – only the European Commission may exempt 12.28 Article  101(3) provides that, in certain situations, the provisions of Article 101(1) may be ‘declared inapplicable’, ie the agreement may be exempted. Until 1 May 2004 there was a mechanism for granting (individual) exemptions.88 In 1965, the Council implemented Regulation 19 which enabled the Commission to introduce regulations giving ‘block exemption’ to agreements under Article 101(3) without the need for the parties to make an individual notification to the Commission. 87 See Societe Technique Miniere v Maschinenbau Ulm [1966]  ECR  235 at 250; Societe de Vente de Ciments et Betons v Kerpen & Kerpen [1983]  ECR  4173 at 4184; Chemidus Wavin v TERI [1978] 3 CMLR 514. The UK courts have held that, where certain provisions are in breach of Article  101, the provisions of the rest of the agreement may continue to be enforceable. In effect, the courts will sever the provisions which breach competition law. See, for example, Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des Résines Industrielles SA [1977] FSR 181. 88 Established in 1962, when the Council of the European Communities (the Council) implemented Regulation 17. Regulation 17 (and Regulation 3385/94, which supplemented it in 1994) provided that only the European Commission may grant an exemption under Article 81(3). Under this former law, except where a block exemption Regulation applied, the agreement must be notified to the Commission, in order for an individual exemption to be given to it under Art 81(3).

794

Overview of how to determine whether Article 101(1) applies 12.29

From 1  May 2004 it is no longer possible to apply for an individual exemption through notification to the Commission, or other methods which were available such as ‘negative clearance’ or obtain a ‘letter of comfort’ from the Commission. This significant change in approach followed the introduction of the Implementation Regulation.89 One of the most significant consequences of the Implementation Regulation was that the parties to an agreement are forced to carry out their own assessment as to whether the agreement is in accordance with EU competition law. The Implementation Regulation also indicates that if an agreement is exempt under Article 101(3) then there is no need for the parties concerned to carry out any action or make any application for the exemption to apply. This new regime has the benefit of being simpler (to some extent) than the one that applied before 1 May 2004. The parties do not need to spend their time and money on making applications to the Commission. However, since the onus is on them to carry out their own assessment as to whether their agreement complies with EU competition law (or is within the scope of a block exemption), the parties can be left in doubt as to whether in fact their agreement is considered, or will be considered at some (indeterminable) time in the future, as compliant with EU competition law.90 The parties will face the (continuing) uncertainty as to whether the Commission (and now national competition authorities and national courts) will not choose to take action against the parties after an agreement has been operating for some time. In consequence, the parties should try to make their agreement, as far as it is possible to do so, within the scope of one of the Commission Notices or block exemption Regulations.91

OVERVIEW OF HOW TO DETERMINE WHETHER ARTICLE 101(1) APPLIES, AND WHETHER A BLOCK EXEMPTION APPLIES, TO A TECHNOLOGY-RELATED AGREEMENT 12.29 This section will briefly address the following questions, some of which are dealt with in more detail in subsequent sections:

89 See para 12.84 onwards below for consideration of this Regulation. 90 The parties could, of course, carry out their legal and economic analysis of the provisions of their agreement (and its likely effect on the market in which the parties will be operating under the agreement). The costs of so doing could be substantial, particularly if the technology which forms the subject matter of the agreement is untested or novel, or the market for it is unknown. 91 See Regulation 1/2003, Recital 10 which indicates the power of the Commission to provide for further block exemptions, but also to withdraw them in particular cases where an agreement is incompatible with Art 101(3).

795

12.30  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

Does the agreement have a Community dimension?

•

Does the Notice on agreements of minor importance apply?

•

Is it a horizontal or vertical agreement?

•

If the agreement is horizontal, is it a full-function joint venture with a Community dimension to which the Merger Regulation92 applies, or is it subject to the Article 101 regime?

•

If the Article 101 regime applies, does it seem from the Guidelines on horizontal agreements that the agreement may breach Article 101(1)?

•

Does either the R&D  Agreements Regulation, or the Specialisation Agreements Regulation, apply, and if so does the agreement receive block exemption under the relevant Regulation?

•

If the agreement is vertical, does it seem from the Guidelines on vertical restraints that it may breach Article 101(1)?

•

Does the Vertical Agreements block exemption Regulation apply? If so, does the agreement meet the requirements of that Regulation?

•

Does the Notice on subcontracting apply? If so, does the agreement meet the requirements of that Notice?

•

Does the Technology Transfer Agreements block exemption Regulation apply? Does the agreement fit within or receive block exemption under that Regulation?

Does the agreement have a ‘Community dimension’? 12.30 The term ‘Community dimension’ has a specific meaning when considering whether the EU Merger Regulation applies to a merger or joint venture (see para 12.x below). The term is also useable as convenient shorthand for the tests under Article 101, referred to above, as to whether an agreement: (a) affects trade between member states of the EU, and (b) has anti-competitive objects or effects within the EU. Agreements that do not meet these tests or because the scale of activities is too small and localised, are sometimes known as ‘de minimis’. A  number of sources of information may help a person to determine whether an agreement potentially breaches Article 101 or can be dismissed at the outset as de minimis (and, perhaps just as important, whether the Commission will determine it to be de minimis), including: 92 Council Regulation (EC) 139/2004 ([2004]  OJ L24/1) on the control of concentrations between undertakings (the EC Merger Regulation) from 1 May 2004.

796

Overview of how to determine whether Article 101(1) applies 12.31

•

case law of the ECJ and Commission decisions;

•

the Notice on agreements of minor importance;

•

Guidelines on horizontal agreements; and

•

Guidelines on vertical restraints.

In practice, a good starting point is to consider whether the Notice on agreements of minor importance applies. For particular types of agreement, for example an early-stage research agreement with a university, comments in the Guidelines can also be helpful.

Does the Notice on agreements of minor importance apply? 12.31 As discussed in detail later in this chapter, the latest version of the Notice93 indicates that the Commission considers that an agreement will not breach Article 101 where: •

it does not include a provision which has as its object the restriction of competition (which, if it does, means it cannot have the benefit of the safe harbour provided by the Notice);94 but

•

it contains a provision which has as its effect the restriction of competition, and the parties’ combined market shares, in the relevant goods or services that are the subject of the agreement, do not exceed certain percentage levels. Oversimplified, these market-share thresholds are: –

10 per cent where the parties are competitors;

–

15 per cent where the parties are not competitors.95

For an agreement that has as its object the restriction of competition, it will include provisions concerning: (1) price-fixing terms when selling products to third parties; (2) sales/output limits; (3) market/customer allocation; (4) hardcore restrictions in a block exemption Regulation.96

93

Communication from the Commission – Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) 2014/C 291/01. 94 Commission Notice on agreements of minor importance, para 13. 95 Commission Notice on agreements of minor importance, para 8. 96 Commission Notice on agreements of minor importance, para 13.

797

12.31  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Where the agreement includes such provisions, the agreement will not have the benefit of the safe harbour that the Notice provides, irrespective of the market share of the parties. The first and second of these restrictions will rarely be encountered in technology transfer agreements. The Notice also gives some guidance, although stated not to form part of the Notice, to the effect that the Commission ‘quantifies with the help of the combination of a 5 per cent market share threshold and a EUR 40 million turnover’ that, in principle, agreements between undertakings are ‘not capable of appreciably affecting trade between Member States’.97 The use of the words ‘in principle’ and the fact that this statement is not officially part of the Notice should make advisers cautious about placing reliance on what seems to be in the nature of a sotto voce comment by the Commission. For example, if the parties to an agreement have a large market share in an essential new technology, the fact that they are both medium-sized companies may result in their agreement not being treated as de minimis. What is clearer from the current Notice is that the safe harbour provided by the Notice only applies where: •

an agreement has as its effect the restriction of competition; and

•

the market shares are below the levels stated above (that is, the agreement will not have an appreciable restriction on competition under Article 101).

The former Notice did not address specifically the type of restriction an agreement can contain to benefit from the safe harbour that the Notice provides (it did not explicitly distinguish between ‘by object’ and ‘by effect’ restrictions). The 2001 version of the Notice more simply indicated that, below the stated market shares, the agreement would not constitute an appreciable effect on trade, and only excluded agreements which included, in effect, hardcore restrictions. The Notice does not, however, provide guidance as to when an agreement will be unlikely to be capable of appreciably affecting trade between member states – this is available in a separate Commission Notice.98 97 See Commission Notice on agreements of minor importance, para 4, which makes reference to further Commission documents: (a) Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (OJ C 101, 27.4.2004, p 81), (noting, in particular, points 44–57); and (b) Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises or any future recommendation replacing it (OJ  L  124, 20.5.2003, p  36). The Commission Notice indicates that small and medium-sized undertakings (which are defined in the Commission Recommendation as not ‘normally capable of affecting trade between Member States’). These are enterprises that employ less than 250 persons, have an annual turnover of not more than 50 million euros, and/ or an annual balance sheet of not more than 43 million euros. 98 Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty ([2004] OJ C101/07).

798

Overview of how to determine whether Article 101(1) applies 12.32

Is it a horizontal or vertical agreement? 12.32 The distinction between horizontal and vertical agreements can seem rather theoretical to the non-economist, particularly when dealing with technology-related agreements. In a traditional industry, there may be a clear distinction between people at different levels of production (for example manufacturers, distributors, wholesalers and retailers). In such cases, it may be relatively easy to distinguish between: •

a horizontal agreement (for example, a co-operation agreement between two manufacturers or between two distributors); and

•

a vertical agreement (for example, a supply agreement between a manufacturer or a licensor of IP and a distributor).

In theory, the same distinction can be made in technology-related agreements, where: •

an R&D agreement is considered to be a horizontal agreement; whilst

•

a patent licence agreement is considered to be vertical.

In the latter case, the owner of the patent is considered to be at a different level in the chain of production and supply to the licensee, who may be a manufacturer or supplier. But there are a number of practical problems with this type of analysis in the high-tech field, including: •

Agreements often incorporate both horizontal and vertical elements, as in the case of an agreement between a biotech company that owns rights to a drug, and a large pharmaceutical company that is to acquire rights to commercialise the drug. Such agreements often involve a joint programme of R&D, combined with the large pharmaceutical company obtaining a licence to the biotech company’s underlying IP that protects the drug. It may be difficult to determine the ‘centre of gravity’ of the agreement for the purposes of EU competition law – that is, is it principally an R&D agreement or a licence agreement?99

•

Companies in the high-tech sector can have different roles and ambitions, depending on the particular project. For one project, a company may be a simple owner of technology, intending to license it out at an early stage. For the next project, it may intend to develop it to, or near to, the market, and enter into joint-marketing activities with another company. Its position in the supply chain may therefore be different for each project. Its marketing partner may be a competitor in respect of one project, and a non-competitor in respect of the next project.

99 See para 14.05 which discusses how it is possible to determine the centre of gravity (based on the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01), paras 13, 14).

799

12.33  Introduction to EU Competition Laws Affecting Technology-Related Agreements

It may, therefore, be necessary to consider some of the provisions of the agreement by reference to the rules on horizontal agreements, and other provisions by reference to the vertical agreements regime. Despite the difficulties, it is an important step in the competition analysis to decide whether the agreement is vertical or horizontal.

If the agreement is horizontal, does the Merger Regulation or the Article 101 regime apply? 12.33 A  further complication, in the case of horizontal agreements such as R&D  collaboration agreements, is to determine whether the agreement amounts to a ‘full-function’ joint venture with a ‘Community dimension’. If so, the EU Merger Regulation100 will apply, and Article 101 will usually not apply.101 The law and practice of corporate mergers is outside the main scope of this book and will therefore be treated briefly. First, a little background to the current EU competition law on mergers may be of assistance. The term ‘joint venture’ has no precise meaning under English law. Sometimes the term is used: •

in a narrow sense, to mean a company that is formed by two or more other companies for the purposes of a joint-business activity; or

•

more broadly, to mean any type of (contractual) business collaboration between companies.

Many R&D collaboration agreements could be regarded as joint ventures in the latter sense. For the purposes of EU competition law, the exact type of legal structure used by parties is not relevant, except in the case of a joint venture which would come within the ambit of the Merger Regulation. Prior to 1998, EU competition law distinguished between ‘concentrative’ joint ventures, treated as a merger of the joint venture owners’ interests, and ‘co-operative’ joint ventures, that did not amount to a merger. The current Merger Regulation covers a larger category of joint ventures known as ‘full-function’ joint ventures (or, to use the term found in the Regulation, ‘concentrations’).102 In effect, part of the category of co-operative joint ventures was moved into the Merger Regulation regime.

100 Council Regulation (EC) 139/2004 ([2004]  OJ L24/1) on the control of concentrations between undertakings (the EC Merger Regulation) from 1 May 2004. 101 See Guidelines on the applicability of Article  101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01), para 6. However, the Commission has confirmed that, in future, ancillary agreements that form part of a merger may need consideration under Art 101 – see Box 7, p 54 of the Commission’s 31st Report on Competition Policy (2001). 102 See Regulation 139/2004, Art 3(4).

800

Overview of how to determine whether Article 101(1) applies 12.35

The Merger Regulation now applies to full-function joint ventures that have a Community dimension. Thus, if the joint venture is not full-function, or is fullfunction but does not have a Community dimension, the Merger Regulation will not apply, and the agreement will fall to be analysed under Article 101.103 ‘Full-function’ joint ventures are defined as autonomous economic entities that operate on a lasting basis, and perform all the functions of such entities.104 Examples of joint ventures that are not ‘full-function’ might include joint ventures that: •

have no employees (the parents providing their employees for any work that is required); or

•

are set up for a limited period of time, or rely on the services of the parents; or

•

cannot operate on their own account as to sales and purchases (except for a limited period after their creation).

‘Community dimension’ for the purposes of the Merger Regulation means, in practice, large-scale mergers spread across several member states and where at least some of the participants are large-scale companies. Two main tests, plus a ‘two-thirds rule’, are defined by the Regulation.105 If either test is satisfied, and the two-thirds rule is also satisfied, the Merger Regulation applies.

Test 1 12.34 •

the aggregate worldwide turnover of all the undertakings concerned exceeds 5,000 million euros; and

•

the aggregate Community-wide turnover of each of at least two of the undertakings concerned exceeds 250 million euros.

Test 2 12.35 •

the aggregate worldwide turnover of all the undertakings concerned exceeds 2,500 million euros; and

•

in each of at least 3 member states, the combined aggregate turnover of all the undertakings concerned is more than 100 million euros; and

103 See further on this issue Commission Consolidated Jurisdictional Notice ([2008] OJ C95/01) under l Regulation (EC) 139/2004 on the control of concentrations between undertakings, para 91 onwards and, in particular, para 94. 104 Regulation 139/2004, Art 3(4). 105 Regulation 139/2004, Art 1(1)–(3).

801

12.36  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

in each of at least 3 member states identified above, any 2 of the undertakings concerned each have a turnover in excess of 25 million euros; and

•

the aggregate Community-wide turnover of each of at least two of the undertakings concerned exceeds 100 million euros.

Two-thirds rule 12.36 •

there must be no single member state in which all the undertakings concerned achieve at least two-thirds of their aggregate Communitywide turnover.

It will be seen that most R&D  collaborations are not full-function joint ventures with a Community dimension. Further treatment of the Merger Regulation is outside the scope of this book. Readers are referred to books which focus on competition law.106

If the Article 101 regime applies, does the agreement breach Article 101 after consideration of the Guidelines on horizontal agreements? 12.37 The Guidelines107 consider different types of horizontal agreement, and include a chapter dealing specifically with R&D  collaborations. The Guidelines are helpful in clarifying that certain types of R&D collaboration are unlikely to be in breach of Article  101. The detailed provisions of the Guidelines are discussed in more detail in a later section of this chapter (and in Chapter 14), but it may be helpful to give a flavour here of the topics discussed. Examples of agreements that are unlikely to breach Article 101 include: •

agreements concerning co-operation in R&D  at an early (‘rather theoretical’) stage far removed from the marketing of a resulting new product or technology;

•

R&D  co-operation between non-competitors, such as if the parties cannot carry out R&D  independently because they have limited technical capabilities (by the parties bringing together complementary skills, technologies and other resources). Parties will not be competitors simply because they co-operate in order to carry out R&D;

106 A list of standard works that deal with legal issues that may be relevant to technology transfer is set out in the bibliography. 107 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01).

802

Overview of how to determine whether Article 101(1) applies 12.37

•

outsourcing to specialised companies (which probably doesn’t mean the typical small, high-tech company), research institutes or academic bodies that are not active in the exploitation of the results. Article 101(1) does not apply because of the complementary nature of the co-operating parties in these scenarios;

•

R&D  co-operation that does not provide for the joint exploitation of possible results, such as an absence of provisions concerning licensing, production and marketing.

Issues that might cause the above types of agreement to be caught by Article 101 include: •

Market share: a significant market share in terms of competing products or competing technologies (such as having a market share greater than that set out in the 2010 R&D Agreements Regulation of 25 per cent).

•

Foreclosure effects: if one of the parties has significant market power with respect to key technology and there are ‘foreclosure effects’ in relation to an exclusive exploitation of the results of the R&D.

(In relation to R&D co-operation to improve existing products, the risk of these effects may be higher if there is joint production and/or marketing of the resulting products, rather than just joint exploitation by licensing. In relation to R&D of entirely new products, the risk of anti-competitive effects is lower, as such co-operation is generally considered to be pro-competitive.) •

Reduced competition for innovation: if effective competition with respect to innovation is significantly reduced or slowed.

•

Close to market: if the R&D co-operation takes place shortly before the product reaches the market.

The Guidelines explain how the relevant market should be identified when assessing the effects on competition of the agreement. The Commission considers three main types of market: •

existing product markets;

•

existing technology markets;

•

the impact of the agreement on innovation.

When assessing a new technology, for which there is no existing market, the Commission will look at the impact of the agreement on innovation, and in particular whether there are credible, alternative, ‘poles’ of research. For example, if an R&D collaboration agreement is directed to finding a new cure for cancer, are there alternative lines of research, perhaps based on unrelated scientific concepts, that might lead to the same end result, ie an effective cure for a particular type of cancer? If there are, then the Commission’s concerns about restrictions in the R&D agreement might be reduced if not removed altogether. 803

12.38  Introduction to EU Competition Laws Affecting Technology-Related Agreements

The Guidelines also give some helpful case examples of horizontal agreements that would either (a) not breach Article 101(1), or (b) breach Article 101(1) but receive exemption under Article 101(3), or (c) breach Article 101(1) and not receive exemption under Article 101(3).

Does the R&D Agreements Regulation apply? If so, will an agreement receive block exemption under it? 12.38 When analysing whether an R&D  agreement would receive block exemption under the R&D Agreements Regulation, it is possible to consider the following main issues (which are set out in more detail later in this chapter).

Is it a ‘research and development agreement’? 12.39 The R&D  Agreements Regulation covers two categories of R&D agreement: •

agreements that provide for joint R&D of products or processes, and/ or for joint exploitation of the results of R&D, but the party funding the R&D is not mentioned; and

•

agreements that provide for one party funding the R&D, and the agreements providing for paid-for R&D  and joint exploitation, joint exploitation of paid-for R&D (carried out pursuant to a prior agreement), or paid-for R&D excluding joint exploitation.

Where the agreement is only concerned with joint exploitation of results, the results must have been jointly developed by the parties pursuant to a prior agreement between them. In principle, most R&D agreements are therefore covered.

Does it meet the conditions for exemption? 12.40 The main conditions are: •

Access rights for research and exploitation: the R&D agreement must include a provision that all the parties must have full access to the results of the work (including resulting intellectual property and know-how) for the purposes of further research or exploitation as soon as they become available. It is possible to restrict the right of research institutes, academic bodies and commercial suppliers of R&D services to exploit the results. In some circumstances a party’s rights of exploitation can be restricted to a specific technical field.

•

Access to pre-existing know-how: if the agreement provides only for R&D and paid-for R&D, the agreement must include a provision that 804

Overview of how to determine whether Article 101(1) applies 12.42

permits each party to have access to pre-existing know-how of the other parties. The requirement to have access must be ‘indispensable’ for the exploitation of the results of the R&D. •

Joint exploitation and IP protection: joint exploitation qualifies for exemption only where the results of the R&D are protected by intellectual property rights or constitute know-how, and are ‘indispensable’ for the manufacture of the contract products or application of the contract processes.

•

Specialisation: there is a condition regarding specialised manufacture by one party.

•

Combined market share of competitors: if parties are competitors, combined market share must not exceed 25 per cent.

Duration of the exemption; is the market share below 25 per cent? 12.41 The R&D  Agreements Regulation includes complex conditions relating to market share which affect the duration of the exemption: •

Non-competitors’ initial period of exemption: where the parties to the agreement are not competitors, the initial period of the exemption is the duration of the joint R&D. If there is joint exploitation, for seven years from the date the contract products are first put on the internal market.

•

Competitors’ initial period: where the parties are competitors, the initial period of exemption described above only applies if, at the time the agreement is made, the parties’ market share is not more than 25 per cent. The calculation of market share depends on whether one party is financing the R&D:

•

–

if the parties’ agreement does not involve a financing party, the block exemption continues to apply as long as the combined market share of the parties does not exceed 25 per cent;

–

if one party is a financing party, the block exemption applies as long as the market share of the financing party and all of the parties with which the financing has entered R&D  agreements does not exceed 25 per cent.

Continuation of exemption: after the initial period described above, the exemption continues as long as the parties and their group companies do not have a combined market share of more than 25 per cent.

Does the agreement include any ‘hardcore’ restrictions? 12.42 The main hardcore restrictions (which prevent the agreement in its entirety benefiting from the block exemption) are: 805

12.43  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

Non-compete clauses: either restrictions on R&D  in an unconnected field, or on R&D in the same field after a term of R&D co-operation.

•

Output or sales limits: other than in certain permitted circumstances.

•

Price-fixing.

•

Passive sales restrictions: in other parties’ territories.

•

Active sales restrictions: in other parties’ EU territories (unless the parties agree to exclusively allocate territories or customers).

•

Ban on sales to resellers: who would market in other EU territories.

•

Obligations to take steps against parallel importers.

Does the agreement include any ‘excluded’ restrictions? 12.43 The two excluded restrictions (which prevent just those restrictions, and not the rest of the agreement, benefiting from the block exemption) are: •

No-challenge clauses: prohibitions on challenging the validity of relevant IP (in certain circumstances).

•

Restrictions on third-party licences to manufacture: restriction on the grant of licences to third parties to manufacture, unless one party to the R&D agreement can exploit the results of the R&D.

Does the Specialisation Agreements Regulation apply? If so, will an agreement receive block exemption under it? 12.44 Parties collaborating on a technology venture sometimes apportion responsibility between themselves for commercial activities in different territories. For example, they may agree that one will have marketing rights in Europe, and the other will have marketing rights in North America. Or they might apportion responsibility for particular activities. For example, in a biotechnology collaboration that combined antibodies with gene technology, one of them might produce the antibodies, and the other might produce the DNA required. In the authors’ experience, very few technology agreements amount to a specialisation agreement that would receive block exemption under the Specialisation Agreements Regulation. Often, this is either because the main focus of the agreement is not specialisation but is something else (eg  R&D  collaboration or IP licensing), or because the parties do not include any restrictive provisions relating to specialisation that would breach Article 101. However, the Specialisation Agreements Regulation should not be entirely overlooked. The main features of a specialisation agreement that 806

Overview of how to determine whether Article 101(1) applies 12.45

would benefit from block exemption (discussed in greater detail in a later section of this chapter) are: •

The Specialisation Agreements Regulation provides block exemption to agreements that relate to the conditions under which the parties specialise in the production of goods or services that are active in the same product market. Three types of specialisation agreement are identified: –

unilateral specialisation agreements;

–

reciprocal specialisation agreements; and

–

joint production agreements.

With the first two types, one or more parties agree to cease or refrain from producing certain products and to purchase them from another party or parties. In the case of joint production agreements, the parties agree to produce certain products jointly. •

The exemption also applies to ancillary provisions in specialisation agreements – for example, provisions under which IP rights are assigned or licensed, as long as those ancillary provisions are necessary for the implementation of the specialisation agreement.

•

The exemption will not be available if the parties’ combined market share is greater than 20 per cent of the relevant market.

•

The exemption will not be available if the agreement includes any hardcore restrictions such as price-fixing, output/sales limitations, or market/ customer allocation, although in certain circumstances it is permissible to agree the amount of production, or to set sales targets and prices to immediate customers (in the case of a production joint venture).

If the agreement is vertical, does the agreement breach Article 101 after consideration of the Guidelines on vertical restraints?108 12.45 The Guidelines on vertical restraints: ‘… set out the principles for the assessment of vertical agreements under Article 101 … Article 1(1)(a) of [the Vertical Agreements Regulation] defines the term “vertical agreement”.’109 The Vertical Agreements Regulation defines vertical agreements as: ‘… agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement 108 Guidelines on Vertical Restraints (2010/C 130/01). 109 Guidelines on Vertical Restraints, Art 1.1(1).

807

12.46  Introduction to EU Competition Laws Affecting Technology-Related Agreements

or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services.’110 As is discussed in paragraph 12.46 below, the Vertical Agreements Regulation exempts vertical agreements containing IP provisions, provided that those provisions do not constitute the primary object of such agreements. Thus, agreements that are primarily IP licence agreements are not covered by the Vertical Agreements Regulation. Much of the Guidelines consists of comments on the application of the Vertical Agreements Regulation, and on Commission policy for different types of distribution agreement. Although they discuss the circumstances in which IP provisions may be included in distribution agreements under the Vertical Agreements Regulation (including separate discussion of trade mark, copyright and know-how provisions – for example, in franchising agreements or software distribution agreements), there is effectively no separate analysis of IP agreements per se. The Guidelines on vertical restraints are therefore of limited assistance in determining whether a technology agreement would infringe Article 101.

Does the Vertical Agreements Regulation apply? If so, does the agreement meet the requirements of that Regulation?111 12.46 The Vertical Agreements Regulation is most likely to apply if the agreement is a distribution, agency or franchise agreement. Relatively few technology agreements will qualify for block exemption under the Regulation, although in some areas (for example, software distribution) it is not always easy to establish the distinction between a distribution agreement and licence agreement. Software agreements are discussed separately later in this chapter. It is possible to briefly summarise the main provisions of the Vertical Agreements Regulation as follows: •

Vertical agreements: as was discussed in the previous section, the Regulation applies to ‘agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services’.112

110 Regulation 330/2010, Art 1(1)(a). 111 Commission Regulation (EU) 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. 112 Regulation 330/2010, Art 1(1)(a).

808

Overview of how to determine whether Article 101(1) applies 12.46

•

Intellectual property provisions in vertical agreements: the exemption applies to vertical agreements that include ‘provisions which relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that those provisions do not constitute the primary object of such agreements and are directly related to the use, sale or resale of goods or services by the buyer or its customers. The exemption applies on condition that, in relation to the contract goods or services, those provisions do not contain restrictions of competition having the same object or effect as vertical restraints which are not exempted under this Regulation’.

•

Agreements between competitors: the exemption does not apply to agreements between competitors, although non-reciprocal vertical agreements between competitors are exempted if certain detailed conditions are met.

•

Market-share limits: for the exemption to apply, the market share of the supplier must not exceed 30 per cent. In the case of agreements containing exclusive supply obligations, the market share of the buyer must not exceed 30 per cent.

•

Hardcore restrictions: the exemption will not apply if the agreement contains certain types of restriction, described in detail in Article 4 of the Vertical Agreements Regulation, concerning:

•

–

the resale price of the buyer (other than maximum sales prices, and recommended prices);

–

certain territory restrictions (subject to certain exceptions);

–

certain restrictions on active and passive sales within distribution networks;

–

restricting cross supplies between distributors within a selective distribution system;113

–

certain restrictions on the sale of components as spare parts to end users.

Excluded restrictions: the exemption will not apply to a provision of the agreement if it contains certain types of direct or indirect restrictions (described in detail in Article 5 of the Vertical Agreements Regulation) concerning: –

an obligation not to compete (whether directly or indirectly), either lasting for more than five years or for an indefinite period;

113 Vertical Agreements Regulation, Art 1(1)(e) defines a ‘selective distribution system’ as ‘a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system’.

809

12.47  Introduction to EU Competition Laws Affecting Technology-Related Agreements

–

a prohibition on a buyer not to manufacture, purchase, sell or resell goods or services after termination of the agreement; and

–

a prohibition on members of a selective distribution system selling the brands of a competing supplier.

Does the Notice on subcontracting apply? If so, does the agreement meet the requirements of that Notice? 12.47 The Notice on subcontracting may sometimes be relevant to technology-related agreements. Take the example of an R&D  programme to develop a pharmaceutical drug. Specialist companies are often engaged as subcontractors – for example, to manufacture quantities of the drug for trials, to apply their own technology to the principal’s drug for experimental purposes, or to conduct tests and trials of the drug. Another area in which subcontracting agreements are encountered is in the information technology field, where a company might be engaged to write software for a client in the expectation that the client will incorporate or use that software in another marketed product. Agreements with such subcontractors often include provisions dealing with ownership and use of intellectual property, which could in principle breach Article  101. The Notice is therefore helpful in describing a set of circumstances in which the Commission considers that such provisions will not breach Article 101. This Notice remains in force although the Commission has not changed or amended it since 1979 and it may no longer reflect the current view of the Commission as to the application of competition law. It is possible to summarise the main provisions of the Notice as follows (it is considered in more detail later in this chapter): •

Meaning of subcontracting agreements: section 1 of the Notice provides: ‘The Commission considers that agreements under which one firm, called “the contractor”, whether or not in consequence of a prior order from a third party, entrusts to another, called “the subcontractor”, the manufacture of goods, the supply of services or the performance of work under the contractor’s instructions, to be provided to the contractor or performed on his behalf, are not of themselves caught by the prohibition in Article [101(1)]’.

•

Restrictive provisions: the Notice acknowledges that the contractor may need to provide the subcontractor with technology or equipment to enable him or her to perform the contract. And that the contractor may wish to impose restrictions on the subcontractor as to the use that may be made of these items. The Notice considers whether such restrictions infringe Article 101(1). 810

Overview of how to determine whether Article 101(1) applies 12.48

•

Permitted restrictions: the Notice permits certain restrictions on the subcontractor’s use of the contractor’s technology and equipment, and of items produced using the contractor’s technology and equipment. –

subject to certain conditions, referred to below, the subcontractor may be limited to using such technology, equipment and items only for the purposes of performing work for the contractor;

– the Commission also confirms that confidentiality obligations on the subcontractor in respect of the contractor’s confidential information will not normally infringe Article 101(1);

•

–

similarly, where the contractor permits the subcontractor to use the contractor’s trade marks or get up, the subcontractor can be limited to using them solely in relation to the contract goods or services;

–

where the subcontractor makes improvements to the contractor’s technology, and those improvements are ‘incapable of being used independently of the contractor’s secret know-how or patent’, the agreement can include an undertaking by the subcontractor ‘to pass on to the contractor’ those improvements on an exclusive basis;

–

however, where such improvements ‘are capable of being used independently’ of the contractor’s technology, the subcontractor must be able to exploit the improvements independently. The most that can be granted to the contractor are non-exclusive rights to use the improvements.

Conditions of permission: the Commission’s sanguine view of such restrictions is subject to a number of conditions: –

the contractor’s technology and equipment must be ‘necessary’ to perform the contract work;

–

the subcontractor does not already have, and could not obtain, the technology and equipment from another source on ‘reasonable conditions’.

Does the Technology Transfer Agreements Regulation apply? Does the agreement fit within or receive block exemption under that Regulation? 12.48 The latest version of the Technology Transfer Agreements Regulation applies from 1 May 2014 and reflects practice in more recent block exemptions and Notices, where the Commission has been moving away from a ‘list’ or form-based approach towards what is described as a more economics-based approach. The practical effect of the economics-based approach is fewer lists, and more general criteria – for example, defining a maximum market share, below which many types of provision will be regarded as permissible (as long as the agreement includes no ‘hardcore’ restrictions). 811

12.49  Introduction to EU Competition Laws Affecting Technology-Related Agreements

The availability of the block exemption in the Technology Transfer Agreements Regulation will depend on a number of factors; •

whether there is the ‘right’ type of technology transfer agreement;

•

whether there are only two parties to the technology transfer agreement;

•

whether the agreement’s primary purpose is the transfer of technology and whether the technology which will be used to produce goods and services;

•

whether the parties do not have a market share exceeding particular percentages (the calculation depending on whether they are competing or non-competing undertakings);

•

whether the parties’ agreement contains restrictions which contain ‘hardcore’ or ‘excluded’ restrictions (which will either make either the whole agreement or just the infringing provision in an agreement ineligible for benefiting from the block exemption).

The following paragraphs will provide a brief summary of the main provisions of the Regulation, including summary lists of: •

primary purpose of the Regulation;

•

period the block exemption lasts;

•

types of agreement that qualify for block exemption under the Regulation;

•

excluded types of agreement;

•

market-share thresholds;

• impermissible (hardcore) restrictions making a whole agreement ineligible for protection (and exemptions); •

impermissible (softcore) restrictions making a provision in an agreement ineligible for protection.

For a more detailed discussion of these matters, see Chapter 13.

Primary purpose of the Regulation 12.49 A  technology transfer agreement, in order to benefit from an exemption to Article  101(1), must concern the licensing (transfer) of technology where the production of goods and services are permitted (ie not an agreement where the primary purpose is the sale and purchase of goods and services).114

114 Regulation 316/2014, Arts 1(1)(c), 2(1) and Recital 9.

812

Overview of how to determine whether Article 101(1) applies 12.51

Period of time that the block exemption lasts 12.50 A  block exemption will apply only for so long as the intellectual property right in the licensed technology has not expired, lapsed or been declared invalid.115 Where know-how is involved there is a different formulation: the exemption will last for so long as the know-how remains secret.116

Qualifying agreements 12.51 The block exemption in the Technology Transfer Agreements Regulation covers agreements: •

concerning the licensing of ‘technology rights’;

•

which are made between two parties; and

•

which are for the purpose of the production of contract products by the licensee (or the licensee’s sub-contractor).

The Regulation also covers the assignment of ‘technology rights’ (provided that part of the risk remains with the assignor). ‘Technology rights’ includes the following main types of intellectual property: (a) pure patent117 licence agreements; (b) pure know-how118 licence agreements; (c) software copyright licensing agreements; and (d) mixed patent, know-how or software copyright licensing agreements. The block exemption also applies to provisions in agreements which relate to the sale and purchase of products, or the licensing or assignment of other intellectual property rights by the licensee, as long as those provisions do

115 Regulation 316/2014, Art 2(2). 116 But, where the know-how becomes publicly known other than through the fault of the licensee, the exemption shall last for the period of the agreement. 117 Regulation 316/2014 also includes other types of intellectual property, such as patent applications, utility models, utility model applications, supplementary protection certificates, plant breeders’ certificates and semiconductor topographies. See Regulation 316/2014, Art 1(1)(b). 118 Know-how is described in the Regulation as ‘a package of non-patented practical information, resulting from experience and testing, which is: (i) secret, that is to say, not generally known or easily accessible, (ii) substantial, that is to say, significant and useful for the production of the contract products, and (iii) identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality’ (Regulation 316/2014, Art 1(1)(i)).

813

12.52  Introduction to EU Competition Laws Affecting Technology-Related Agreements

not constitute the primary object of the agreement and those provisions are related directly to the production of contract products.119

Summary list of excluded agreements 12.52 •

multi-party agreements: agreements to which more than two undertakings are party (group companies being treated as one undertaking);

•

technology pools with territory restrictions: licence agreements which set up technology pools;120

• sub-licensing: agreements whose primary purpose is sub-licensing; • subcontracts: agreements where the primary purpose is not the licensing of technology; •

research and development: agreements whose primary purpose is carrying out research and development;

•

licensing in the context of an R&D or specialisation agreement (in which case, the block exemptions for those type of agreements will apply);

•

trade marks;

•

involving rights in performances and other rights related to copyright.

Market-share thresholds 12.53 The block exemption available under the Technology Transfer Agreements Regulation depends on the market share held by parties to an agreement; the method of calculating the market share depends on whether the parties are competing or non-competing undertakings.121 119 Regulation 316/2014, Art 2(3). A contract product is defined as ‘a product which is produced directly or indirectly on the basis of with the licensed technology rights’, while a ‘product’ means ‘goods or services, including intermediate and final goods and services’. See Regulation 316/2014, Art 1(1)(f), (g)). 120 But see the Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), paras 244–273, which set out the circumstances when a technology pool can fall outside Article 101(1), as well as Chapter 13 at para 13.42 onwards. 121 A competing undertaking is defined as one ‘which competes on the relevant technology market and/or the relevant product market …’. The relevant technology market being ‘undertakings which license out competing technologies without infringing each other’s intellectual property rights (actual competitors on the technology market); the relevant technology market includes technologies which are regarded by the licensees as interchangeable with or substitutable for the licensed technology, by reason of the technologies’ characteristics, their royalties and their intended use’. Product market essentially means that the competitive undertakings are present in the relevant product/geographical markets where the contract products are sold. See Regulation 772/2004, Art 1(1)(j)).

814

Overview of how to determine whether Article 101(1) applies 12.54 Competing undertakings122

Non-competing undertakings123

The block exemption is available if the combined market share of all the parties does not exceed 20 per cent on the affected relevant technology and product market.

The block exemption is available if the market share of each party does not exceed 30 per cent on the affected relevant technology and product market.

Summary of impermissible (hardcore) restrictions making a whole agreement ineligible for protection124 12.54 Where parties to a technology transfer agreement are competitors or non-competitors and their agreement has ‘hardcore’ restrictions, the whole agreement will be ineligible to benefit from the block exemption provided by the Technology Transfer Agreements Regulation. Competing undertakings

Non-competing undertakings

Price fixing: restricting a party’s ability to determine its prices when selling products to third parties

Price fixing: restricting a party’s ability to determine its prices when selling products to third parties. But a maximum or recommended sale price is possible (as long as it is not treated as a fixed or minimum sale price resulting from pressure or incentives).

Limiting output: limiting the amount of products that can be produced or sold.

No equivalent

But such a restriction is permissible where imposed: 1. on the licensee in a non-reciprocal125 agreement; or 2. on only one licensee in a reciprocal126 agreement.

122 Regulation 772/2014, Art 3(1). 123 Regulation 772/2014, Art 3(2). 124 Not all of the restrictions or exceptions to the restrictions are listed here, only those most relevant to technology transfer agreements. 125 A non-reciprocal agreement means ‘a technology transfer agreement where one undertaking grants another undertaking a patent licence, a know-how licence, a software copyright licence or a mixed patent, know-how or software copyright licence, or where two undertakings grant each other such a licence but where these licences do not concern competing technologies and cannot be used for the production of competing products’ (Regulation 316/2014, Art 1(e)). 126 A reciprocal agreement means ‘a technology transfer agreement where two undertakings grant each other, in the same or separate contracts, a patent licence, a know-how licence, a software copyright licence or a mixed patent, know-how or software copyright licence and where these licences concern competing technologies or can be used for the production of competing products’ (Regulation 316/2014, Art 1(1)(d)).

815

12.54  Introduction to EU Competition Laws Affecting Technology-Related Agreements Competing undertakings

Non-competing undertakings

No direct equivalent Allocation of customers or markets: this restriction is not further defined or limited by itself and could include almost any restriction as to the type of exclusivity imposed by a licensor (territory, customer, type of product). But there are 3 exceptions where this type of restriction is permissible: • Field of use or exclusive territory restriction on either party. Obligation on either party, in a non-reciprocal agreement, not to produce with the licensed technology in one or more technical fields or one or more product markets or one or more exclusive territories reserved for the other party. • Restriction on making active sales in another licensee’s territory. In a nonreciprocal agreement a restriction can be imposed by the licensor stopping one licensee making active sales in the exclusive territory of another licensee (as long as the other licensee is not a competing undertaking of the licensor when the other licensee and the licensor enter into their licence). • Own-use restriction. A licensee can be restricted so that it can only make contract products for its own use as long as it sells them as spare parts (actively or passively) for its own products Restricting a licensee’s ability to exploit its own technology or any party to carry out research and development. The latter restriction is only permissible if it is ‘indispensable’ to prevent the disclosure of licensed know-how to third parties.

No equivalent

Restriction on licensee making passive sales into a territory or to customers. A licensee cannot be restricted from making passive sales outside a particular territory or group of customers. But there are a number of exceptions where this type of restriction is permissible: • Restriction on making passive sales to exclusive territory/customer group of licensor. • Own-use restriction. A licensee can be restricted so that it can only make contract products for its own use as long as it can sell them as spare parts (actively or passively) for its own products. • Restricting sales to end-users (where licensee is a wholesaler).

816

Software licences 12.56

Summary of excluded restrictions making that restriction ineligible for protection127 12.55 Where a technology transfer agreement includes a provision such as the following, that provision will not have the benefit of the block exemption provided by the Technology Transfer Agreements Regulation (ie the rest of the agreement could still be eligible):128 •

Requiring the licensee to grant an exclusive licence to or to assign its improvements: a licensee cannot be required to grant an exclusive licence or assign to the licensor or a third party designated by the licensor for the licensee’s improvements to or its own new application of the licensed technology.

•

Requiring one party not to challenge validity of another party’s IP: this restriction is subject to one proviso: if the technology transfer agreement includes an exclusive licence, a licensor can terminate the technology transfer agreement where the licensee does challenge the validity of one or more of the licensed intellectual property rights.

•

Restricting a licensee’s ability to exploit its own technology or any party to carry out research and development (where parties are not competing undertakings): the latter restriction is only permissible if it is ‘indispensable’ to prevent the disclosure of licensed know-how to third parties.129

SOFTWARE LICENCES 12.56 Although, as noted above, the Technology Transfer Agreements Regulation covers the licensing of software protected by copyright, not all agreements involving software will have the benefit of the block exemption under the Regulation. The recitals state that the Regulation does not apply: ‘… to agreements, the purpose of which is the mere reproduction and distribution of software copyright protected products as such agreements do not concern the licensing of a technology to produce but are more akin to distribution agreements.’130 The Commission considers such a form of reproduction and distribution as not constituting the production of contract products for the purposes of the Technology Transfer Agreements Regulation, and is covered, by analogy, 127 Regulation 316/2014, Art 5. 128 Unlike the ‘hardcore’ restrictions, these are not differentiated (except for one) on whether the parties are competing or non-competing undertakings. 129 This is the mirror of the hardcore restriction, which applies only to competing parties, and which would take the whole agreement outside the block exemption. 130 Regulation 316/2014, recital 7.

817

12.57  Introduction to EU Competition Laws Affecting Technology-Related Agreements

by the Vertical Agreements Regulation and the accompanying Guidelines to that Regulation.131 In effect a software licence is now treated as any other type of intellectual property licence to which the Technology Transfer Agreements Regulation applies (unlike under earlier versions of the Technology Transfer Agreements Regulation), as long as it fulfils the conditions set out by the Regulation and subject to the proviso noted immediately above.

Application of Vertical Agreements Regulation and Guidelines on vertical restraints to software licences 12.57 The Vertical Agreements Regulation is concerned with: ‘… agreements … between two or more undertakings each of which operates, for the purposes of the agreement …, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services (“vertical agreements”).’132 The block exemption given by the Regulation extends to intellectual property licensing provisions (and assignments): ‘… provided that those provisions do not constitute the primary object of such agreements and are directly related to the use, sale or resale of goods or services by the buyer or its customers. The exemption applies on condition that … those provisions do not contain restrictions of competition having the same object or effect as vertical restraints which are not exempted under this Regulation.’133 Where an agreement is principally concerned with the grant of an IP licence, it will not receive block exemption under the Regulation. The Guidelines on vertical restraints provide some guidance on when the sale of copies of software will qualify for exemption under the Regulation: ‘(41) Agreements, under which hard copies of software are supplied for resale and where the reseller does not acquire a licence to any rights over the software but only has the right to resell the hard copies, are to be regarded as agreements for the supply of goods for resale for the purpose of the Block Exemption Regulation. Under that form of distribution, licensing the software only occurs between the copyright owner and the

131 See Guidelines on the application of Article  101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), para 62. 132 Regulation 330/2010, Art 1(1)(a). 133 Regulation 330/2010, Art 2(3).

818

Software licences 12.58

user of the software. It may take the form of a ‘shrink wrap’ licence, that is, a set of conditions included in the package of the hard copy which the end user is deemed to accept by opening the package. (42) Buyers of hardware incorporating software protected by copyright may be obliged by the copyright holder not to infringe the copyright, and must therefore not make copies and resell the software or make copies and use the software in combination with other hardware. Such use-restrictions, to the extent that they fall within Article 101(1) at all, are covered by the Block Exemption Regulation.’

The Computer Programs Directive 12.58 Arguably the most significant item of competition law that has emerged from the EU in the area of software licensing is the Computer Programs Directive.134 Although this Directive is mainly concerned with establishing a uniform regime of copyright protection for computer programs throughout the EU, it includes some provisions which, in effect, are competition law provisions rather than intellectual property measures. Most significantly, it gives a licensee of a computer program certain rights to ‘decompile’ the computer code, to make back-up copies, or make copies or adapt the program where necessary for the licensee’s lawful use of the program. These rights are subject to certain detailed conditions and exceptions.135 Contractual provisions which conflict with the decompilation right and right to make necessary back-up copies are declared to be void. The decompilation right is only for the purpose of interoperability and includes the right to obtain information from the copyright owner of the program, and the refusal to provide such information by a ‘dominant supplier’ can lead to the application of Articles 101 and 102.136 The Directive also provides that the first sale of a program in the EU by the copyright owner ‘exhausts’ his or her rights in the program.

134 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (replacing Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs). It was implemented in the UK by the Copyright (Computer Programs) Regulations 1992 and is discussed in Chapter 5 at para 5.19. 135 Directive 2009/24/EC, Art 6(1) permits decompilation to ‘achieve interoperability of an independently created computer program with other programs’ without authorisation of the rightsholder (where it is indispensable to have the information to achieve interoperability) but does not state that the other programs cannot compete with the program which is decompiled. The Commission has applied Art 102 where Microsoft refused to reveal certain interface information. See, for example, Commission Decision ComP/C-3.792 and the case law which has followed that decision. 136 See Directive 2009/24/EC, Recital 17: ‘The provisions of this Directive are without prejudice to the application of the competition rules under Articles 81[101] and 82[102] of the Treaty if a dominant supplier refuses to make information available which is necessary for interoperability as defined in this Directive’.

819

12.59  Introduction to EU Competition Laws Affecting Technology-Related Agreements

The Directive was implemented so as to amend the Copyright, Designs and Patents Act 1988 in relation to computer programs only.137 Perhaps the most notable change of a competition law nature was the introduction of a new section to the Copyright, Designs and Patents Act 1988, which reads as follows: ‘296A. – (1) Where a person has the use of a computer program under an agreement, any term or condition in the agreement shall be void in so far as it purports to prohibit or restrict– (a) the making of any back up copy of the program which it is necessary for him to have for the purposes of the agreed use; (b) where the conditions in section 50B(2) are met, the decompiling of the program; or (c) the use of any device or means to observe, study or test the functioning of the program in order to understand the ideas and principles which underlie any element of the program. (2) In this section, decompile, in relation to a computer program, has the same meaning as in section 50B.’ Except for the provisions mentioned above, the Directive does not state whether typical provisions in software licence agreements are contrary to Article 101. The provisions of typical software licences that are most likely to be contrary to Article  101 (assuming that the agreement is sufficiently significant to have an effect on trade between member states) are discussed briefly in the following paragraphs.

Applying the block exemption Regulations and Guidelines by analogy: which terms of a typical software licence are likely to infringe Article 101? 12.59 The following discussion assumes: •

that the software licence under consideration does not escape from Article 101(1) under the Notice on agreements of minor importance, or the de minimis rules generally;

•

the licence does not come within the block exemption provided by the Technology Transfer Agreements Regulation because it is between more than two parties;

•

that the licensing provisions are not ‘ancillary’ to some other type of agreement that receives block exemption or benefits from a Commission

137 Copyright (Computer Program) Regulations 1992 (SI 1992/3233).

820

Software licences 12.60

Notice, eg an R&D collaboration agreement, a distribution agreement that qualifies under the Vertical Agreements Regulation (which, as discussed above, might include software sold via a shrink-wrap licence), or a subcontracting agreement that meets the terms of the Notice on subcontracting agreements (see further the discussion of these subjects, above); •

that the licence does not contain any provisions that are void under the Software Directive (and national implementing legislation), as discussed above (eg in relation to back-up copies and de-compilation).

Terms unique to software licences 12.60 Some of the typical provisions in software licence agreements are unique to software licences, whilst others are similar to those found in other types of intellectual property licence. Some of the former provisions include: •

designated machine clauses (ie the licence permits use of the software only on a designated machine or an agreed number of machines);

•

designated site licences (in the sense of a licence to use the software at a particular site; the concept of site licences in patent licences tends to be rather different, and to refer to licensing a manufacturing facility at a particular site);

•

own-use licences (ie  the licensee may use the software for its own internal purposes only).

The above provisions are not commonly found in patent licences, and it is therefore not surprising that they are not referred to in the Technology Transfer Agreements Regulation. Some industry commentators have argued that the above provisions are pro-competitive and do not breach Article  101(1).138 A central argument is that such provisions are merely a means of establishing a fair pricing regime for the software and are not designed to prevent competition. In the absence of authoritative guidance on the subject from the Commission or the ECJ, any comment must be speculative. However, the above provisions are very often seen in software licences, and have been for many years now. It would be surprising if the Commission decided that what has become a conventional business model is illegal. A  distinction should perhaps be drawn between three categories of agreement that might include such provisions:

138 See, for example, the June 2002 response of the Business Software Alliance to the Commission’s Evaluation Report on a previous Technology Transfer Agreements Regulation, which is included on the Commission’s website. That response includes, for example, the following comments on designated machine clauses: ‘Designated machine clauses do not restrict competition within the meaning of Article  81(1) [(101(1))] because they are a reasonable way for licensors to link the payment of royalties to use of the licensed software’.

821

12.61  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

agreements that are too minor to infringe Article 101(1);

•

agreements that potentially infringe Article 101(1) but do not involve an infringement of Article 102 (abuse of a dominant position); and

•

agreements that potentially infringe both Article 101 and Article 102.

The authors’ view is that if the Commission decides to attack clauses of the kind referred to above, it is more likely to do so in situations where the licensor is a major supplier of software and Article 102 issues arise. For runof-the-mill agreements in the second category above, it seems less likely that the Commission would be interested in holding provisions such as those described above in breach of Article 101(1). However, these comments are speculative. It would be helpful if the Commission would issue clarification, as even the current Technology Transfer Agreements Regulation and its Guidance do not address these types of provision (given that the Guidance on vertical restraints does not really address this subject, except where IP provisions are ancillary to distribution).

Hardcore restrictions (and their exceptions) and the Technology Transfer Agreements Regulation 12.61 None of the hardcore or excluded restrictions expressly deal with the above type of provisions commonly found in software licences as stated above. Also, none of the permitted exceptions to certain hardcore restrictions come close to the above provisions. Some of the other, typical provisions in software licences are closer to those found in patent licences, and in these cases the provisions of the current Technology Transfer Agreements Regulation may provide some pointers. In particular, it would be prudent to avoid any provision that is a hardcore or an excluded restriction under that Regulation (as to which, see the discussion of the Regulation in para 12.48 above).

AGREEMENTS THAT PROVIDE FOR BOTH R&D WORK AND THE LICENSING OF TECHNOLOGY OR KNOWHOW 12.62 The overview sections, above, describe a sequence of steps that can help in identifying whether an agreement is either a vertical or a horizontal agreement. Different Notices and Regulations are relevant depending on which of these categories is applicable to the agreement in question. In practice, though, agreements sometimes have elements of both a horizontal R&D agreement and a vertical IP licence. In such situations, it is 822

Agreements that provide for both R&D work and the licensing of technology 12.62

appropriate to consider whether the ‘centre of gravity’ of the agreement is an R&D agreement or an IP licence agreement. Sometimes, this is not easy to decide. In such situations, the parties may occasionally be tempted to consider whether their agreement stands a better chance of receiving block exemption under the R&D Agreements Regulation, the Specialisation Agreements Regulation, or the Technology Transfer Agreements Regulation, and whether the terms of the agreement could be modified to fit within one or other category (although the provisions in the current Technology Transfer Agreements Regulation concerning R&D are much more limited). This can be a high-risk strategy: the Commission may have a different view of the centre of gravity of the agreement to that of the parties. Nevertheless, it is an area that it may, occasionally, be useful to explore. There are now a number of sources where it is possible to obtain some guidance on the current thinking of the Commission, including: •

Guidelines on horizontal agreements: where it is appropriate to determine the centre of gravity of the agreement, these Guidelines provide some limited guidance on how it is possible to do so.139 It is necessary to consider the starting point of the co-operation between the parties to an agreement and the degree of integration of the different functions which are combined. In practical terms: what is the primary purpose of the agreement – that is, is the parties’ real purpose the carrying out of research and development, or is it the production of contract products?

•

That certain licensing cannot come within the Technology Transfer Agreements Regulation or the R&D Agreements Regulation: The current Technology Transfer Agreements Regulation (which is the most recent Regulation relevant to the subject matter of this book) does not apply to licensing within the scope of the R&D  Agreements Regulation and the Specialisation Agreements Regulation.140 Licensing between the parties of the results of an R&D  agreement, for example, will be subject not to the Technology Transfer Agreements Regulation but to the R&D  Agreements Regulation. However, the R&D  Agreements Regulation will not cover the licensing of the results of a R&D agreement to a third party (because it does not fulfil a condition of that Regulation: it is not an agreement between the parties to the R&D agreement), but may be subject to the Technology Transfer Agreements Regulation.141

139 See para 14.05 which discusses how it is possible to determine the centre of gravity (based on the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01), paras 13, 14). 140 Regulation 316/2014, Art 9. 141 Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), paras 73–74.

823

12.63  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

The provisions of the Regulations themselves: For example, the current Technology Transfer Agreements Regulation contains some guidance as to the current thinking of the Commission: an R&D agreement will be covered by the Technology Transfer Agreements Regulation as long as the focus of the agreement is the production ‘of an identified contract product’.142

In this context, it may be useful to compare briefly the main features of these three Regulations.

What does each Regulation exempt? 12.63 The following is a summary of the types of agreement covered by each of the three Regulations, to enable a comparison to be made. More detailed and comprehensive descriptions of the types of agreement covered by each Regulation appear in Chapters 13 and 14. The main types of agreement covered are as follows:

142 Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), paras 65, 66. The paragraphs are worth quoting in full as they state in a fairly practical way the distinction between whether an agreement would be covered by a Technology Transfer Agreements Regulation or not (although most of it is not surprising): ‘65. The TTBER also applies to agreements whereby the licensee must carry out development work before obtaining a product or a process that is ready for commercial exploitation, provided that a contract product has been identified. Even if such further work and investment is required, the object of the agreement is the production of an identified contract product, that is to say, products produced with the licensed technology rights. 66. The TTBER and these guidelines do not cover agreements whereby technology rights are licensed for the purpose of enabling the licensee to carry out further research and development in various fields, including further developing a product arising out of such research and development[…]. For instance, the TTBER and the guidelines do not cover the licensing of a technological research tool used in the process of further research activity. Nor do they cover research and development sub-contracting whereby the licensee undertakes to carry out research and development in the field of the licensed technology and to hand back the improved technology package to the licensor[…]. The main object of such agreements is the provision of research and development services aimed at improving the technology as opposed to the production of goods and services on the basis of the licensed technology.’

824

Agreements that provide for both R&D work and the licensing of technology 12.63 Technology Transfer Agreements Regulation

Research and Development Agreements Regulation

Specialisation Agreements Regulation

Covers the following types of agreement:

Covers the following types of agreement:

Covers the following types of agreement:

• pure patent licensing agreements

• joint R&D of contract products or contract technologies and joint exploitation of the results

• unilateral specialisation agreements

• pure know-how licensing agreements

• joint exploitation of the results of R&D products or contract technologies which was previously carried out by agreement of the same parties

• reciprocal specialisation agreements

• software copyright licensing agreements

• joint R&D excluding joint exploitation of the results

• joint-production agreements

• design rights licensing agreements

• paid-for R&D of contract products or contract technologies and joint exploitation of the results

For unilateral and reciprocal specialisation agreements, one or more parties agree to cease or refrain from producing certain products and to purchase them from another party or parties For joint-production agreements, the parties agree to produce certain products jointly

• mixed know-how, patent and copyright software licensing agreements

• joint exploitation of the results of paid-for R&D of contract products or contract technologies that was previously carried out by agreement of the same parties

• agreements for the assignment of any of the above types of intellectual property (as long as some of the risk is retained by the assignor)

• paid-for R&D of contract products or contract technologies excluding joint exploitation of the results

Some key requirements:

Some key requirements:

Some key requirements:

A licence or an assignment must be:

An R&D agreement:

A specialisation agreement:

• between no more than two undertakings

• can be between two or more undertakings

• can be between two or more undertakings

825

12.63  Introduction to EU Competition Laws Affecting Technology-Related Agreements Technology Transfer Agreements Regulation

Research and Development Agreements Regulation

Specialisation Agreements Regulation

• for the purpose of the production of contract products

• must involve R&D of contract products or contract technologies

• is for the production of products and services (with ‘production’ meaning ‘the manufacture of goods or the preparation of services and includes production by way of subcontracting’, and ‘preparation of services’ meaning ‘activities upstream of the provision of services to customers’)

Duration:

Duration:

Duration:

The exemption will apply as long as the licensed technology rights have not expired, lapsed or been declared invalid (for know-how, the exemption lasts as long as the know-how remains secret) – as well as the other more general conditions (no hardcore restrictions, market share is not exceeded, etc)

The exemption shall last: • for non-competitors, for the duration of the R&D and, if results are jointly exploited, for 7 years after contract products or technologies are put on the internal market • for competitors, for the periods stated above, subject to that at the time the parties enter into their R&D Agreement, their market share being less than 25% (with the way the market share is calculated depending on whether the R&D is paidfor)

None specifically stated (other than, as with the other Regulations, if the market share is exceeded or if an agreement contains a hardcore restriction)

Ancillary provisions:

Ancillary provisions:

Ancillary provisions:

The block exemption also applies to provisions ‘which relate to the purchase of products by the licensee or which relate to the licensing or assignment of other intellectual property rights or know-how to the licensee, if, and to the extent that, those provisions are directly related to the production or sale of the contract products’.

The block exemption also applies to provisions ‘which relate to the assignment or licensing of intellectual property rights to one or more of the parties or to an entity the parties establish to carry out the joint research and development, paid-for research and development or joint exploitation, provided that those provisions do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation’.

The block exemption also applies to provisions ‘which relate to the assignment or licensing of intellectual property rights to one or more of the parties, provided that those provisions do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation’.

826

Agreements that provide for both R&D work and the licensing of technology 12.64 Technology Transfer Agreements Regulation

Research and Development Agreements Regulation

Specialisation Agreements Regulation

Market share:

Market share:

Market share:

For competing undertakings, the combined market share does not exceed 20% of the relevant market(s) For non-competing undertakings, the market share of each party does not exceed 30% on the relevant market(s)

No provisions regarding market share for noncompetitors For competitors: • for R&D agreements which do not involve paid-for R&D, the combined market share of the parties does not exceed 25% on the relevant product and technology markets • for R&D agreements which involve paid-for R&D, the combined market share does not exceed 25% on the relevant product and technology markets of the party financing the R&D and all the R&D agreements that the financing party has entered on those markets

The combined market share of the parties does not exceed 20% on any relevant market

Accordingly, the period of the exemption is likely to be shorter under the R&D  Agreements Regulation than that available under the other two Regulations. This is likely to be the case even under the Technology Transfer Agreements Regulation where patents are involved (which are a time-limited form of intellectual property protection), and is likely always to be the case where copyright is involved (which is, in effect, of unlimited duration given the length of protection afforded to copyright).

Which Regulation should the parties prefer – the Technology Transfer Agreements Regulation or the R&D Agreements Regulation? 12.64 As noted immediately above, the Technology Transfer Agreements Regulation may enable the parties to include a longer period of territorial protection in the licence. However, it will not be available if there are some particular restrictions on the carrying out of R&D.143 Depending on the commercial priorities of the parties, it may be desirable to remove the restrictions on R&D  (to enable one to argue that the Technology Transfer Agreements Regulation applies) or accept a reduced period of territorial protection for licences (ie relying on the permitted periods of joint exploitation under the R&D Regulation).

143 Regulation 316/2014, Art 4(1)(d), see para 14.46.

827

12.65  Introduction to EU Competition Laws Affecting Technology-Related Agreements

However, it may not always be possible to take advantage of the Regulation which commercially or practically gives them the best length of protection. For example, if the parties enter into an R&D agreement but wish to license the results to a third party, such licensing will not have the benefit of the block exemption of the R&D  Agreements Regulation, as such licensing does not involve an agreement between the parties (a condition of the R&D  Agreements Regulation), but may have the benefit of the block exemption of the Technology Transfer Agreements Regulation.144

DETAILED CONSIDERATION OF NOTICES, GUIDELINES AND BLOCK EXEMPTION REGULATIONS 12.65 The remainder of this chapter will consider the detailed provisions of the main Commission Notices (including the Guidelines on horizontal agreements, and the Guidelines on vertical restraints, respectively) that are likely to be useful when considering whether a technology agreement infringes Article 101.

Status of Commission Notices 12.66 From time to time, the Commission publishes Notices which set out its views on the relevance of Article 101(1) to particular kinds of commercial arrangement. Such Notices are merely an expression of their opinion and are not legally binding. Thus, an agreement that comes within the scope of a Notice and therefore, apparently, does not infringe Article 101(1) may in exceptional cases be held to infringe Article 101(1). In such a case, the offending provisions will be void. In practice, this is unlikely to happen very often. However, Notices can also become out of date, in that subsequent decisions by the Commission in particular cases may indicate a change of attitude on its part. Nevertheless, the Notices do provide a useful service, particularly since the Commission is unlikely to impose fines on parties who rely on the Notice. The Notice on agreements of minor importance states that, where parties can demonstrate that they acted in good faith in assuming that they had not exceeded the market shares set out in the Notice, the Commission will not impose fines (but this only applies once the Commission commences proceedings against the parties).145 Although the Notice is not legislation and therefore not legally binding on the Commission, this statement on fines may create some kind of estoppel 144 See para 12.62 above. 145 Notice on agreements of minor importance, para 5. The previous version of this Notice did not require the Commission to first commence proceedings before the presumption applied.

828

Detailed consideration of Notices, Guidelines and block exemption Regulations 12.67

against the Commission, which would make it unlawful to act contrary to this statement. It is likely that the Commission would take a similar approach when applying the Notice on subcontracting. Given the general uncertainty as to whether Article 101(1) applies to many types of agreement, as discussed earlier, the guidance provided by a Notice is useful (not only to parties to an agreement, but also to competition authorities in member states and the court), even if it is not legally binding. By complying with a Notice, the parties may reduce the risk of infringement of Article  101(1) to a level at which they are prepared to proceed with the agreement. This is so particularly after the bringing into force of the Implementation Regulation as it is no longer possible for the parties to notify their agreement to the Commission to establish whether an agreement’s provisions are enforceable.

Relevant Commission Notices 12.67 The following list excludes any Notices in special market sectors such as transport, coal and steel etc, as well as excluding Notices on procedural and definitional matters, such as those concerned with defining the market and with the meaning of ‘small and medium-sized enterprises’. The following are the most relevant to technology transfer agreements: •

Notice on agreements of minor importance, 2014;146

•

Notice on subcontracting agreements, 1978;147

•

Guidelines on horizontal agreements, 2014;148

•

Guidelines on vertical restraints, 2010.149

As was discussed earlier,150 the Guidelines on vertical restraints are concerned mostly with distribution agreements and like matters (for example, agency and franchise agreements – that is, parties at different levels of trade) and are not primarily concerned with technology-related agreements such as intellectual property licences and assignments. This book does not consider those Guidelines in close detail (a summary of the Guidelines appears earlier in this chapter).151

146 Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01). 147 Commission Notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85 (1) of the EEC Treaty (31979Y0103(01)). 148 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01) 149 Guidelines on Vertical Restraints (2010/C 130/01). 150 See para 12.46 above. 151 See para 12.45 above.

829

12.68  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Relevant block exemption Regulations 12.68 The block exemption Regulations that may be relevant to a technology agreement are: •

Technology Transfer Agreements Regulation, 2014;152

•

Research and Development Agreements Regulation, 2010;153

•

Specialisation Agreements Regulation, 2010;154

•

Vertical Agreements Regulation, 2010.155

In practice, the first two of these Regulations are likely to be the most relevant. For the reasons outlined above,156 the Vertical Agreements Regulation will only rarely be of relevance to intellectual property-based agreements, whilst the Specialisation Agreements Regulation will occasionally be relevant. For this reason, the detailed discussion of the block exemption Regulations that follows will concentrate on those for technology transfer and R&D, it will deal more briefly with specialisation agreements, and it will omit detailed discussion of the Vertical Agreements Regulation.157

Horizontal and vertical agreements 12.69 As has previously been mentioned, an early step in the EU competition law analysis of a commercial agreement is to decide whether the agreement is principally a vertical agreement or a horizontal agreement. It makes sense, therefore, to consider the vertical Notices and Regulations as a group, and their horizontal siblings as a separate group. The remainder of this chapter and the following chapters will therefore consider the above-mentioned Notices and Regulations in the following order: This Chapter •

Notice on agreements of minor importance;

•

Notice on subcontracting agreements;

152 Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements. 153 Commission Regulation (EU) 1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements. 154 Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. 155 Commission Regulation 330/2010 on the application of Article  101(3) of the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices [2010]. 156 See para 12.45 above. 157 As above.

830

Notice on agreements of minor importance 12.70

Chapter 13 •

Technology Transfer Agreements Regulation;

Chapter 14 •

Guidelines on horizontal agreements;

•

Research and Development Agreements Regulation;

•

Specialisation Agreements Regulation.

For a general overview of how these Notices and Regulations relate to one another, and of how to decide which of them may be most relevant to the particular agreement under consideration, the reader is referred to earlier sections of this chapter.

NOTICE ON AGREEMENTS OF MINOR IMPORTANCE158 Background 12.70 The Commission first published this Notice in 1970 and the most recent version was published in December 2014. Its purpose is to describe certain categories of agreement that, although they have as their effect the restriction of competition, nevertheless the Commission considers them to be so insignificant that they do not come within the scope of Article 101(1). In essence, if the parties have a combined market share of less than 10 per cent (if they are competitors) or 15 per cent (if they are not competitors), the Commission considers that their agreement will generally not infringe Article 101. Compared with the block exemption Regulations,159 the format of the Notice is relatively simple: •

it first describes the purpose of the Notice;

•

it sets out certain presumptions (for example, that if an agreement exceeds the market share thresholds in the Notice there is no presumption it will have an appreciable effect on competition);

•

it then sets out the market-share thresholds, below which agreements are not considered restrictive of competition if the agreements have as their effect the restriction of competition;

158 Communication from the Commission – Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) 2014/C 291/01. 159 Perhaps with the exception of the Technology Transfer Agreements Regulation, which is a relatively short document (certainly compared to its predecessor).

831

12.71  Introduction to EU Competition Laws Affecting Technology-Related Agreements

•

next that, if agreements have as their object the restriction of competition, the Notice would not apply at all;

•

it specifies the types of provision which would have as their object the restriction of competition (price fixing, limiting output or sales, allocating customers or markets) as well as hardcore restrictions in block exemption Regulations;

•

it states that the market share thresholds also apply to agreements not covered by a block exemption as well as agreements which include ‘excluded’ restrictions in a block exemption Regulation; and

•

finally, there are some definitions of terms used in the Notice.

Reason for the 2014 update to the Notice 12.71 The principal reason for the revision to the Notice arose because of an ECJ case, Expedia,160 which, in effect, drew a clearer distinction between: •

an agreement which has an anti-competitive object (and to which the Notice does not apply); and

•

an agreement which has an anti-competitive effect (and to which the Notice will apply as long as the parties’ market share is below that stated in the Notice).

Until the case, the position was that: •

Article  101(1) prohibited an agreement between undertakings which affected trade between member states and which had as its object or effect the restriction on competition within the internal market;

but •

an agreement between undertakings would fall outside the above prohibition if it had only an insignificant effect on the market.161

However, in Expedia the ECJ decided that an agreement which may affect trade between member states, and which has an anti-competitive object, will have an appreciable restriction on competition by its very nature, irrespective of any concrete effect that it may have, or actually has, on competition.162 The effect of the Expedia case is that: •

The safe harbour provided by the Notice will now only apply where an agreement contains a restriction of competition by effect and as long

160 Expedia Inc v Autorité de la concurrence and others, C-226/11. 161 Expedia Inc v Autorité de la concurrence and others, C-226/11, paras 15 and 16. 162 Expedia Inc v Autorité de la concurrence and others, C-226/11, para 37.

832

Notice on agreements of minor importance 12.71

as the market share is not exceeded. In such a case, there will not be an appreciable effect on competition. The wording of the previous version did not explicitly state that the agreement had to contain provisions which restrict competition at all (let alone confined to one ‘by effect’) – it simply indicated that an agreement between undertakings will not appreciably restrict competition if the market share of the parties was below that set out in the Notice. •

The safe harbour provided by the Notice will not apply where an agreement has as its object a restriction on competition. In particular the Notice will not apply: –

to an agreement containing restrictions on competition which has as its object the fixing of prices, the limiting of sales or output or the allocation of markets or customers; and

–

to an agreement containing hardcore restrictions found in a block exemption Regulation.

The wording of the previous version of the Notice indicated that the safe harbour would not apply if an agreement contained a hardcore restriction. Surprisingly, given that the new Notice clearly indicates that it does not apply to ‘by object’ restrictions, the Notice includes a statement that, if the market share and turnover of the parties is small enough, their agreement can include a restriction ‘by object’ and still fall outside the prohibition of Article 101(1).163 This statement is made in the paragraph which states that agreements ‘are, in principle, not capable of appreciably affecting trade between Member States’ if the parties to the agreement have a combination of a less than 5 per cent market share and a less than 40 million euros turnover.164 Although this statement is not part of the Notice itself, perhaps it is an indication that really small agreements will not be anti-competitive, regardless of the type of restrictions they include. The Notice now comes with a Commission Staff Working Document165 which provides the Commission’s view as to how to determine what constitutes a restriction ‘by object’ as well as examples of what will and what will not constitute a restriction by object (with references to relevant EU case law).166 163 Notice, para 4: ‘Such agreements normally fall outside Article 101(1) of the Treaty even if they have as their object the prevention or distortion of competition’. 164 Notice, para 4. The Commission, in making this statement, draws on other guidance found in Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (OJ C 101, 27.4.2004, p 81), particularly paras 44–57. 165 Commission Staff Working Document – Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice (SWD(2014) 198 final, revised version 03/06/2015). 166 For example, the Working Document sets out when a price fixing restriction will constitute a ‘by object’ restriction and when it can benefit from the safe harbour provided by the Notice.

833

12.72  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Background and purpose 12.72 Article 101 does not apply if effects are not appreciable: by way of background, the Commission refers to clarification given by the ECJ, that an agreement will not be in breach of Article 101(1) if its impact on: (a) trade between member states; or (b) competition; is not appreciable.167 The distinction between (a) and (b) may seem rather a subtle one, but it is important in this latest version of the Notice, for reasons which become clear in the next few paragraphs. Thus, an agreement might have anti-competitive effects, but (to take an example) these might be limited to a small part of Oxfordshire, and therefore Article 101 would not apply because trade between member states was not affected. An example of this might be an agreement between an Oxfordshire solicitor and an Oxfordshire biotech company, under which the latter agreed to purchase legal services exclusively from the former. Conversely, an agreement might affect trade between member states (for example, if it is an agreement between an English firm of solicitors and a French client), but its effects on competition might not be appreciable (for example, because the parties each have a small market share) and therefore no breach of Article 101 would arise. Notice does not apply to ‘with object’ restrictions: Following the Expedia case, the Notice does not cover agreements which have as their object the restriction of competition in the internal market.168 Notice is concerned with effects on competition: the Commission explains that the Notice is concerned with (b) above, ie agreements whose effect on competition is not appreciable because they fall below the market-share thresholds set out in the Notice. The Commission acknowledges that, even above these thresholds, an agreement may still not have an appreciable effect on competition.169 Notice is not concerned with effects on trade between member states: the Commission further explains that the Notice is not concerned with (a) above, ie whether an agreement will have an effect on trade between member states. The Commission indicates that agreements ‘are, in principle, not capable of appreciably affecting trade between Member States’ if the parties to the agreement have a combination of a less than 5 per cent market share

167 Notice, para 1. 168 Notice, para 2. 169 Notice, para 3.

834

Notice on agreements of minor importance 12.73

and a less than 40 million euros turnover.170 Perhaps most significantly, the Commission goes on to indicate that such an agreement, even if it includes a ‘by object’ restriction, will normally fall outside Article 101(1). This latter point is new to the Notice. The points made here may give some comfort, but this statement is not strictly part of the Notice and arguably would not be binding on the Commission. Consequences of meeting requirements of Notice: where an agreement meets the requirements of the Notice for being of minor importance, the Notice states that the Commission will not institute proceedings against the parties upon a complaint or on its own initiative. If the Commission has commenced proceedings, and the parties can show that they assumed in good faith that they do not exceed the market shares set out in the Notice the Commission will not impose fines.171 Thus, although the Notice does not amount to legislation, the Commission has declared its intention to be bound by it, subject to any differing interpretation given by the ECJ. Although the Notice is not binding on member states, the Commission intends that the Notice will give guidance to member states (and their courts) in their application of Article 101.

Agreements covered by the Notice – market-share thresholds 12.73 The Commission considers that an agreement will not ‘appreciably’ restrict competition and therefore will not be in breach of Article 101 if: •

the agreement restricts competition ‘by effect’; and

•

the following market-share thresholds are not exceeded.172

Competitors: where the parties are actual or potential competitors, their aggregate market share must not exceed 10 per cent in any of the relevant markets affected by the agreement.173 Non-competitors: where the parties are not actual or potential competitors in any of the relevant markets affected by the agreement, the market share of each of them in those markets does not exceed 15 per cent.174

170 Notice, para 4. The Commission, in making this statement, draws on other guidance found in Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (OJ C 101, 27.4.2004, p 81), particularly paras 44–57. 171 Notice, para 5. This is a change over the previous version of the Notice. The previous version did not indicate that the Commission first had to initiate proceedings before the undertakings could rely on their assumption made in good faith. Perhaps the change is simply to spell out what is implicitly obvious, that the undertakings will not need to make such an assumption until they are challenged about whether their agreement is covered by the Notice. 172 Notice, para 8. 173 Notice, para 8(a). 174 Notice, para 8(b).

835

12.74  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Difficult to classify as competitors or non-competitors: where it is difficult to classify the agreement as being between competitors or non-competitors, the 10 per cent threshold referred to above will apply.175 Cumulative foreclosure effects: where competition is restricted by the cumulative foreclosure effect of parallel networks of agreement, the marketshare thresholds above (ie 10 per cent and 15 per cent) are reduced to 5 per cent. The Commission states that a cumulative foreclosure effect is unlikely to exist if less than 30 per cent of the relevant market is covered by parallel networks of agreements.176 Temporary exceeding of threshold: where the above thresholds are exceeded by not more than 2 percentage points during two successive calendar years, the agreement will still fall within the requirements of the Notice.177 Calculating market share: the Commission refers the reader to the Notice on the definition of the relevant market178 and gives some further information on how to calculate market share.

Agreements not covered by the Notice – containing restrictions ‘by object’ 12.74 The Notice does not apply to agreements which have as their object the restriction of competition within the internal market and the Commission will not apply the safe harbour created by the market share thresholds set out in paragraph 12.73 above.179 Type of restrictions that are ‘by object’: the Notice singles out for particular mention three types of restrictions which, if they are included in an agreement between competitors, will result in the Notice not applying to the agreement: •

the fixing of prices when selling goods to third parties;

•

limitation of output or sales; or

•

allocation of markets or customers.180

The safe harbour of the Notice will also not apply to an agreement which contains a hardcore restriction of a type found in current or future block exemption agreements.181 175 176 177 178

Notice, para 9. Notice, para 10. Notice, para 11. Notice on the definition of the relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p 5). 179 Notice, para 13. Also see para 12.71 above for further explanation of a ‘by object’ restriction. 180 Notice, para 13. 181 Notice, para 13.

836

Notice on agreements of minor importance 12.76

Many of these restrictions are concerned with the supply of goods within distribution networks and are unlikely to be of direct relevance to most technology-related agreements.

Agreements not covered by a block exemption; agreements covered by a block exemption but including excluded restrictions 12.75 The market share thresholds that the Notice creates are also relevant for: •

categories of agreements to which no block exemption regulation applies; and

•

agreements to which a block exemption regulation does apply but an agreement includes excluded restrictions (that is, restrictions which are not described as hardcore restrictions).182

Comments 12.76 The Notice provides guidance on the types of minor agreements that the Commission considers not to infringe Article 101; this is clearly useful. Reliance on the Notice should protect the parties from fines, unless the parties negligently miscalculate their market-share figures. The agreement may still be held to infringe Article 101 even though it complies with the Notice, but this is highly unlikely to happen in practice. When applying the Notice, parties will need: •

first to determine that their agreement does not include a provision which ‘by object’ restricts competition; and

•

if their agreement does not include such a restriction, then to calculate their market share in accordance with the Notice.

This will be particularly difficult when the agreement concerns unproven technology, not least because the Commission’s guidance document183 on defining relevant markets, referred to in this Notice, focuses on product markets and not technology markets. Some further guidance on technology markets is given in the Commission’s Guidelines on horizontal cooperation agreements184 and the new Working Document which now accompanies

182 Notice, para 14. These are new also to this version of the Notice. 183 Notice on the definition of the relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p 5). 184 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01), paras 113–126.

837

12.77  Introduction to EU Competition Laws Affecting Technology-Related Agreements

the Notice.185 At the time the parties enter into the agreement, the (product) market-share may be zero. If the agreement (for example, a licence agreement) continues for several years, and the technology proves to be successful, the (product) market share may increase beyond the 10 or 15 per cent limit during the life of the agreement. Similarly, the market share may increase if the parties acquire other product lines within the same market sector after the agreement is made. The parties should periodically review their market-share figures throughout the life of the agreement to ensure they still come within the Notice. It should be noted that the maximum permitted market share set out in the Notice relates to the combined figures of both parties together with their group companies (as defined).

COMMISSION NOTICE ON SUBCONTRACTING AGREEMENTS186 Background and summary 12.77 The Notice was issued in 1978 and the Commission has not amended or re-issued it since then, unlike the Notice on agreements of minor importance. The text is now very old and it is no longer known whether it reflects the current thinking of the Commission but nevertheless it does still remain in force.187 The Notice describes certain provisions in subcontracting agreements which, in the Commission’s opinion and subject to conditions, do not infringe Article  101(1). The main focus of the Notice is restrictions imposed by the contractor on the subcontractor, particularly in the areas of intellectual property and exclusivity. The Notice is more complex than the Notice on agreements of minor importance, and reflects an old-style, form-based Commission approach, with a detailed description of permissible clauses and various conditions that must be met. Like an embryonic 1980s block exemption Regulation, it almost, but not quite, sets out a list of exempted clauses, a whitelist and a blacklist. It is, in the authors’ view, one of the worst-drafted pieces of Commission (quasi-) legislation still in use. The types of permitted provision are:

185 Commission Staff Working Document – Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice (SWD(2014) 198 final, revised version 03/06/2015). 186 Commission Notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85 (1) of the EEC Treaty (31979Y0103(01)). 187 There have been very few published decisions by the Commission on subcontracting agreements.

838

Commission Notice on subcontracting agreements 12.79

•

restrictions on the use, and supply to, third parties by the subcontractor of the contractor’s technology and equipment;

•

restrictions on the use by the subcontractor of goods, services and work which result from the use of such technology and equipment;

•

confidentiality obligations;

•

obligations on the subcontractor to communicate and license to the contractor any improvements made by the subcontractor; and

•

restrictions on the use of the contractor’s trade marks.

The following paragraphs will discuss in turn the permitted restrictions, the conditions for acceptability, and the ‘whitelist’, as well as the definitions of certain terms used in the Notice.

Meaning of subcontracting agreements; purpose of Notice 12.78 Section 1 of the Notice, inter alia, describes what is meant by a subcontracting agreement and states the Commission’s view that subcontracting agreements are not of themselves caught by Article 101(1): ‘The Commission considers that agreements under which one firm, called “the contractor”, whether or not in consequence of a prior order from a third party, entrusts to another, called “the subcontractor”, the manufacture of goods, the supply of services or the performance of work under the contractor’s instructions, to be provided to the contractor or performed on his behalf, are not themselves caught by the prohibition in Article [(101(1))].’ However, where the contractor provides the subcontractor with technology or equipment to enable him or her to perform the contract, the Notice recognises that the contractor may wish to impose restrictions on the subcontractor as to the use that may be made of such items. The Notice considers whether restrictions of this kind infringe Article 101(1).

Permitted restrictions: use of contractor’s technology and equipment; use of items produced using such technology and equipment 12.79 Section 2 describes three types of restriction which, in the Commission’s view, do not infringe Article 101(1). This favourable view is qualified by two statements which appear later in the Notice, which will be referred to below. The permitted restrictions are clauses whereby: 839

12.80  Introduction to EU Competition Laws Affecting Technology-Related Agreements

‘[1] technology or equipment provided by the contractor may not be used except for the purposes of the subcontracting agreement, [2] technology or equipment provided by the contractor may not be made available to third parties, [3] the goods, services or work resulting from the use of such technology or equipment may be supplied only to the contractor or performed on his behalf’.

Examples of contractor’s technology and equipment 12.80 The Notice gives examples, albeit in a convoluted way,188 of what is meant by the phrase ‘technology or equipment provided by the contractor’. These are: •

Contractor’s intellectual property: ‘industrial property rights of the contractor or at his disposal, in the form of patents, utility models, designs protected by copyright, registered designs or other rights’.

•

Contractor’s secret know-how: ‘secret knowledge or manufacturing processes (know-how) of the contractor or at his disposal’.

• Contractor’s documentation: ‘studies, plans or documents accompanying the information given which have been prepared by or for the contractor … which, even though not covered by industrial property rights nor containing any element of secrecy, permit the manufacture of goods which differ in form, function or composition from other goods manufactured or supplied on the market’.189 •

Contractor’s equipment: ‘dies, patterns or tools, and accessory equipment that are distinctively the contractor’s which, even though not covered by industrial property rights nor containing any element of secrecy, permit the manufacture of goods which differ in form,

188 The examples are given in a section of the Notice which describes instances of where the ‘above proviso is satisfied’. This proviso (see para  12.81) states that the restrictions are only acceptable to the Commission where the contractor’s technology and equipment are ‘necessary’ to enable the work to be carried out. The examples are introduced with the phrase: ‘The above proviso is satisfied where performance of the subcontracting agreement makes necessary the use by the subcontractor of …’. Thus, to take one of the stated examples, the contractor’s manufacturing know-how: the proviso (ie that the contractor’s technology should be necessary) is satisfied where performance of the agreement makes necessary the use of the contractor’s know-how. This is a highly complex construction; it appears to be circular. The only way the authors can find to understand it is to assume that the four examples given are simply examples of what is meant by the expression ‘technology or equipment provided by the contractor’. If this is the case, the drafting leaves much to be desired. If something more is meant, it is not clear. 189 The writer assumes that this qualification applies to the third and fourth examples given, but not the first two; this appears to be the most sensible construction.

840

Commission Notice on subcontracting agreements 12.81

function or composition from other goods manufactured or supplied on the market’.

Two qualifications to the Commission’s favourable view of these restrictions 12.81 The Commission’s favourable view of the three types of restriction mentioned above is qualified by two statements. The first is expressed as a proviso to the Commission’s favourable view of these restrictions, and appears towards the beginning of section 2; the second is a statement of circumstances in which the Commission would regard the restrictions as not justifiable, and appears as a separate paragraph at the end of section 2. It is thought that both qualifications are intended to apply equally to the three permitted restrictions. The qualifications are expressed as follows: Contractor’s technology or equipment must be necessary to perform the work ‘[Article  [101(1)] does not apply to the three types of restriction described earlier] provided that and in so far as this technology or equipment is necessary to enable the subcontractor, under reasonable conditions to manufacture the goods, to supply the services or to carry out the work in accordance with the contractor’s instructions. To that extent the subcontractor is providing goods, services or work in respect of which he is not an independent supplier in the market.’ Subcontractor has no reasonable access to alternative technology or equipment to perform the work ‘… the restrictions mentioned above are not justifiable where the subcontractor has at his disposal or could under reasonable conditions obtain access to the technology and equipment needed to produce the goods, provide the services or carry out the work. In such circumstances the restrictions could deprive the subcontractor of the possibility of developing his own business in the fields covered by the agreement.’ The Notice gives an example of the second situation: ‘… this is the case when the contractor provides no more than general information which merely describes the work to be done’. Both of these qualifications appear to be concerned with the same basic theme. The technology and equipment provided by the contractor should be significant and proprietary, and should not be available from another source. The imposition of restrictions in these circumstances is justified to protect the contractor’s proprietary technology. In any other circumstances, the restrictions may or may not be anti-competitive, but in any event the Notice would not be applicable. 841

12.82  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Other permitted restrictions: confidentiality, improvements and trade marks 12.82 Section 3 of the Notice describes some further provisions which, if included in a subcontracting agreement, the Commission considers would not infringe Article 101(1). These are: Non-disclosure of confidential information ‘An undertaking by either of the parties not to reveal manufacturing processes or other know-how of a secret character, or confidential information given by the other party during the negotiation and performance of the agreement, as long as the know-how or information in question has not become public knowledge’. Such provisions have long been accepted by the Commission as necessary to protect confidential information. Non-use of confidential information ‘An undertaking by the subcontractor not to make use, even after expiry of the agreement, of manufacturing processes or other know-how of a secret character received by him during the currency of the agreement, as long as they have not become public knowledge’. Note that this paragraph refers to an undertaking by the subcontractor, unlike the previous paragraph which referred to either of the parties. This may reflect a cautious approach by the Commission on whether restrictions on use by the contractor of the subcontractor’s know-how would infringe Article  101(1). Restrictions of this kind on the contractor should be avoided, if parties intend to rely on the Notice. Subcontractor’s improvements and inventions The Notice distinguishes between: (1) improvements (including patentable inventions) made by the subcontractor to the contractor’s technology, which are either (a) capable of being used independently of the contractor’s patented or secret technology; or (b) not capable of being used independently of the contractor’s patented or secret technology; and (2) the results of the subcontractor’s own research and development, where such results are capable of being used independently. 842

Commission Notice on subcontracting agreements 12.82

The Notice provides that in the case of improvements which can be used independently, the subcontractor may be required to license such improvements non-exclusively to the contractor, whilst in the case of improvements which cannot be used independently, the licence may be exclusive in favour of the contractor. The implication is that assignment of the improvements to the contractor would not be permitted under the Notice. However, for the Notice to apply, the subcontractor must not be restricted at all in relation to his or her disposal190 of the results of his or her own research and development, where such results are capable of being used independently,191 that is to say not even a non-exclusive licence may be required to be granted to the contractor, if the Notice is to apply. The relevant paragraphs of the Notice read as follows: Improvements to the contractor’s technology ‘An undertaking by the subcontractor [a] to pass on to the contractor on a non-exclusive basis any technical improvements which he has made during the currency of the agreement or [b] where a patentable invention has been discovered by the subcontractor, to grant non-exclusive licences in respect of inventions relating to improvements and new applications of the original invention to the contractor for the term of the patent held by the latter. This undertaking by the subcontractor may be exclusive in favour of the contractor in so far as improvements and inventions made by the subcontractor during the currency of the agreement are incapable of being used independently of the contractor’s secret know-how or patent, since this does not constitute an appreciable restriction of competition.’ Results of subcontractor’s research and development ‘However, any undertaking by the subcontractor regarding the right to dispose of the results of his own research and development work may restrain competition, where such results are capable of being used independently. In such circumstances, the subcontracting relationship is not sufficient to displace the ordinary competition rules on the disposal of industrial property rights or secret know-how.’ 190 Presumably this includes both requirements to license or assign the results to the contractor and restrictions on licensing or assigning the results to third parties. In view of the quality of the drafting generally, it is recommended that parties should not assume that ‘dispose’ means merely providing, assigning or granting rights to third parties. 191 Presumably, where the results cannot be used independently of the contractor’s patented or secret technology, they may be licensed exclusively to the contractor.

843

12.83  Introduction to EU Competition Laws Affecting Technology-Related Agreements

Contractor’s trade marks ‘Where the subcontractor is authorized by a subcontracting agreement to use a specified trade mark, trade name or get-up, the contractor may at the same time forbid such use by the subcontractor in the case of goods, services or work which are not to be supplied to the contractor.’ This paragraph seems uncontroversial. It is difficult to see how such a restriction could be regarded as anti-competitive.

Comments 12.83 The Notice is helpful as far as it goes. Many simple subcontracting agreements are unlikely to affect trade between member states or infringe Article 101. Of particular interest is the question of whether the Notice can be applied to an agreement between a licensor and licensee. For example, consider the situation where a licensee/distributor of computer software is commissioned by his or her licensor/principal to make modifications to the software to make it suitable for use on a new type of computer system, and so as to operate in a different computer language to the one in which it was originally written. On completing the modifications, he or she is licensed to distribute the modified software. The agreement provides that the principal will be exclusively licensed to use the modifications outside the distributor’s territory. Would the subcontracting Notice apply, such that the exclusive licence granted to the principal could fall outside Article  101(1)?192 If not, it may be that Article  101(1) would be infringed; by analogy193 with the Technology Transfer Agreements Regulation in a licensing agreement, anything more than a non-exclusive licence back of improvements is likely to infringe Article 101(1). The Notice seems to suggest that subcontracting agreements are less likely to infringe Article 101(1) than ‘ordinary’ licence agreements.194

192 Assume that the modifications cannot be used independently of the principal’s technology, on the basis that the modifications would be an adaptation or translation of the original software, and accordingly an infringement of the copyright in that software. 193 Since there is as yet no block exemption Regulation for software licences. 194 The Notice states that restrictions are assessed in the Notice: ‘… with due regard to the purpose of such agreements, which distinguishes them from ordinary patent and know-how licensing agreements’.

844

Implementation Regulation 12.85

IMPLEMENTATION REGULATION Introduction 12.84 The Implementation Regulation195 is part of the approach of the Commission to modernise the regulation and enforcement of competition law and practice. This Regulation includes provisions that: • the enforcement of competition law was decentralised to local competition authorities (while the Commission retained, and extended, its own powers); •

parties to an agreement should make their own assessment as to whether the agreement is compatible with competition law; and

•

the Commission moved from assessing an agreement, practice etc before it occurs (that is, by the parties notifying the Commission, getting clearance, receiving a comfort letter, applying for an exemption, etc) to analysing the effect an agreement has on competition after it has entered into force.

Summary of provisions 12.85 The Implementation Regulation, which came into force on 1  May 2004,196 in summary provides for the following: •

National competition authorities and national courts can directly apply Articles 101(1), 101(2) and 102.197

•

A  national competition authority has the power to apply Articles  101 and 102 to individual cases, whether on their own initiative or following a complaint, and the national competition authority can:

195 Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. Accompanying the Implementation Regulation is Commission Regulation (EC) 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, as amended, and a large number of Notices and Guidelines, all which add further details to the working of the Implementation Regulation, including (i) Commission Notice on co-operation within the network of competition authorities [2004]  OJ L123/18; (ii) Commission Notice on cooperation between the Commission and the courts of the EU Member States in the application of Articles  81 and 82 [2004]  OJ C101/54; (iii) Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty [2004] OJ C101/65; (iv) Guidelines on the effect of trade concept contained in Articles  81 and 82 [2004]  OJ C101; (v) Guidelines on the application of Article 81(3); (vi) Commission Notice on informal guidance relating to novel questions concerning Articles  81 and 82 that arise in individual cases (guidance letters) [2004] OJ C101/78; (vii) Commission Notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU (2011/C 308/06); and (viii) Antitrust Manual of Procedures – Internal DG Competition working documents on procedures for the application of Articles 101 and 102 TFEU (2012). 196 Regulation 1/2003, Art 45. 197 Regulation 1/2003, Arts 3(1), 6.

845

12.85  Introduction to EU Competition Laws Affecting Technology-Related Agreements

–

require an infringement to stop;

–

order interim measures;

–

accept commitments;

– impose a range of financial measures (fines, periodic penalty payments etc).198 •

An agreement which satisfies Article  101(3) or does not satisfy Article 101(1) no longer needs prior notification to the Commission – it is no longer possible to obtain an individual exemption.199

•

If there are any proceedings, whether at the EU or member state level, the person or authority who alleges there is an infringement of Article 101 or 102 has the burden of proving the infringement. An undertaking that wishes to show that it satisfies the requirements of Article 101(3) has the burden of showing that it does.200

•

The Commission has wide powers to carry out investigations, require the provision of information, take statements and carry out inspections of premises (of parties thought to be in breach of competition law as well as of those of other persons).201 A national competition authority can carry out inspections in its territory on behalf of another member state or as required by the Commission.202

•

The Commission and national competition authorities are required to co-operate and exchange information, as well as apply competition rules in close co-operation.203 This is done through a network of competition authorities (European Competition Network).204 For example, a national competition authority will have to inform the Commission, in writing, when it commences investigative measures, will be adopting a decision on infringement, accepting a commitment or withdrawing a block exemption, etc.205

198 199 200 201 202 203

Regulation 1/2003, Art 5. Regulation 1/2003, Art 1(2). Regulation 1/2003, Art 2. Regulation 1/2003, Arts 17–21. Regulation 1/2003, Art 22. Regulation 1/2003, Recital 21, Article 11(1). Where information is provided by a competition authority to another or to the Commission (or from the Commission) the information can be used as ‘evidence [in] any matter of fact or of law, including confidential information (Regulation 1/2003, Art 12(1)). The Commission’s Notices on co-operation are also relevant here: Commission Notice on co-operation within the network of competition authorities [2004] OJ L123/18; and Commission Notice on co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 [2004] OJ C101/54. 204 See http://ec.europa.eu/competition/ecn/index_en.html for further details. 205 Regulation 1/2003, Arts 11–16. There are also provisions dealing with exchange of information and what is to happen, for example, where the Commission or another member state commences investigations.

846

Implementation Regulation 12.85

•

A  national competition authority or a national court cannot rule on an agreement, decision or practice under Article  101 or 102 which is counter to a Commission decision on the same subject.206

•

The Commission has more far-reaching powers than set out in the previous bullet points, including making findings of inapplicability.207

Although the Commission will no longer receive notifications etc, in particular cases it will issue informal guidance letters.208 Although the thrust of the new regime is that the rules in force provide greater certainty and help the promotion of innovation and investment, it is recognised that as there can be ‘genuine uncertainty because they present novel or unresolved questions for the application of the rules, individual undertakings may wish to seek informal guidance from the Commission’.209 The guidance will be available despite the strong emphasis that the parties are best placed to deal (being close to the facts) with whether the provisions of an agreement are in accordance with competition law, and have available to them a large number of documents concerning the block exemptions, rules, guidance, guidelines etc. The Commission has set out when it will not provide this informal guidance, as follows: ‘The Commission will consider whether it is appropriate to process a request for informal guidance by looking at: *

whether the question really is a novel one concerning Article [101] or [102];

*

the economic importance from the point of view of the consumer of the goods or services concerned by the agreement or practice, and/or the extent to which the agreement or practice corresponds to more widely spread economic usage in the marketplace and/or the extent of the investments linked to the transaction in relation to the size of the companies concerned;

*

whether any further fact-finding is required and whether all the information is available.

206 Regulation 1/2003, Art 16. In the case of courts, they must avoid giving decisions which would conflict with a decision which is contemplated by the Commission in proceedings that the Commission has initiated. The correct approach is likely to be for a court to stay proceedings. 207 Regulation 1/2003, Arts 7–10. Where the Commission requires an undertaking or associations of undertakings to bring an infringement to an end the Commission can ‘impose any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past’ (from Regulation 1/2003, Art 7(1)). 208 Commission Notice on informal guidance relating to novel questions concerning Articles 81 and 82 that arise in individual cases (guidance letters) [2004] C101/78. 209 See Regulation 1/2003, Recital 38.

847

12.86  Introduction to EU Competition Laws Affecting Technology-Related Agreements

The Commission will not consider hypothetical questions and will not issue guidance letters on agreements or practices: *

that are no longer being implemented by the parties;

*

that have been raised in a case pending before the European Court of First Instance or the European Court of Justice;

*

that are subject to proceedings pending with the Commission, a Member State court or Member State competition authority’.210

Any letters issued are posted on the Commission website and may prove useful in providing a view as to particular competition law issues which may arise in future (to parties or to an agreement or national competition authority).

UK law following the bringing into force of the Implementation Regulation 12.86 The Implementation Regulation resulted in changes to UK competition law, including:211 •

the Competition and Markets Authority (CMA) (formerly the OFT) being designated as the national competition authority for the UK.212 It can exercise all the powers and functions of a competition authority of a member state under the relevant provisions of the Implementation Regulation;213

•

the Competition Act 1998 was amended so that the granting or cancellation of individual exemptions ceases to have effect for agreements falling within the scope of Chapter I (section 2) of the Competition Act 1998 but which satisfy the conditions set out in section 9 of the Competition Act 1998.214 It is also not possible to make notifications to the CMA etc;

210 Commission Notice on  informal guidance relating to novel questions  concerning Articles  81  and 82  of the EC  Treaty that arise in individual cases (guidance letters). Last updated: 2011. See http://europa.eu/legislation_summaries/competition/firms/l26112_en.htm. 211 Enterprise Act 2002, s  209 provides powers to change the competition regime in the UK to match European Union competition law. The Competition Act 1998 was amended by the Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261). The Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93) (made under the European Union (Withdrawal) Act 2018) will repeal many of the provisions in the Enterprise Act 2002 and the Competition Act 1998, many of those changes from the day that the UK leaves the EU. 212 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 3(1), which will be revoked on the day the UK leaves the EU: European Union (Withdrawal) Act 2018, s 20(1)–(5)). 213 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 3(2). 214 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 4 and Sch 1. Although any individual exemptions, etc will continue in effect.

848

Implementation Regulation 12.86

•

the CMA has the same powers as the Commission to carry out investigations under Article 101 and Chapter I of the Competition Act 1998;215

•

block exemption orders may continue to be made;216

•

the CMA can provide guidance on novel or unresolved questions of law, as the Commission is able to.217

215 Competition Act 1998, s 25 and following sections, as amended. 216 Competition Act 1998, s 7, as amended. 217 See CMA Competition Law Guideline on Agreements and concerted practices (OFT 401). The Guideline gives guidance on novel or unresolved questions about the application of Art 81, EC Treaty as well as the Competition Act 1998, Ch 1 prohibition. In OFT 442, more detail is given as to when the CMA will not consider a request for an opinion.

849

CHAPTER 13

The Technology Transfer Agreements Regulation and Accompanying Guidelines Introduction852 Summary of main differences between 2014 TTR and its (2004) predecessor853 General approach of the Commission to technology transfer agreements 855 The changing view of the Commission as to which types of intellectual property have the benefit of the block exemption 857 Structure of the TTR 858 The purpose of the 2014 TTR 862 How long will an exemption last for? 862 Duration of the 2014 TTR 864 Types of agreement which are subject to the 2014 TTR 864 Types of intellectual property to which the 2014 TTR applies 866 ‘Technology rights’ 866 ‘Know-how’868 Concerning ‘substantial’ 868 Concerning ‘identified’ 869 Types of agreement to which the 2014 TTR does not apply 869 Types of party who benefit from the 2014 TTR 871 Contract products 872 Market share 872 Market share levels before the block exemption is lost 872 If the parties are not competing undertakings at the time they enter into the agreement, but subsequently become competing undertakings873 If the market share is not exceeded at the time the parties enter into the agreement, but is subsequently exceeded 873 Meaning of ‘competing’ and ‘non-competing’ undertakings 873 Meaning of ‘competing undertaking’ 874 Meaning of the ‘relevant market’ 874 Meaning of relevant product market 875 Meaning of relevant technology market 875 Meaning of relevant geographic market 875 ‘Hardcore’ restrictions 875 ‘Hardcore’ restrictions and competing undertakings 876 Hardcore restrictions and non-competing undertakings 880 Excluded restrictions 883

851

13.01  The Technology Transfer Agreements Regulation and Accompanying Guidelines Withdrawal of benefit of the 2014 TTR in an individual case 886 Non-application of the 2014 TTR for parallel networks 886 Relationship between the 2014 TTR and other block exemptions 887 R&D Agreements Regulation 887 Specialisation Agreements Regulation 888 Vertical Agreements Regulation 889 Agreements that do not come within the scope of the 2014 TTR 890 Settlement agreements 891 Introduction891 Changes in the 2014 Guidelines over the previous version 892 Pay-for-restriction (pay-for-delay) 893 Cross-licensing893 Non-challenge clauses 894 Technology pools 895 Introduction895 Changes in the 2014 Guidelines over the previous version 895 Meaning of a ‘technology pool’ 895 Pro- and anti-competitive effects of technology pools 896 Pro-competitive effects 896 Anti-competitive effects 896 Approach of the EU in deciding whether a technology pool has pro- or anti-competitive effects 896 Licences granted by the technology pool 899 The creation of a ‘safe harbour’ for a technology pool 900

INTRODUCTION 13.01 The latest Technology Transfer Agreements Block Exemption Regulation1 (‘2014 TTR’) came into force on 1 May 2014 and will expire on 30 April 2026.2 It is the latest in a long line of block exemption Regulations for intellectual property and know-how licensing, including, most recently, the 2004 Technology Transfer Agreements Block Exemption Regulation (‘2004 TTR’).3 The provisions of the 2014  TTR are not significantly different from the 2004 TTR. The 2004 TTR, however, contained major changes over the 1996

1 2 3

Commission Regulation (EU) No 316/2014 ([2014] OJ L 93/117) of 21 March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements. 2014 TTR, Art 11. This Regulation is in force for 12 years rather than, as for the previous one, for 10 years. Commission Regulation (EC) 772/2004 ([2004] OJ L123/11) on the application of Article 81(3) of the Treaty to categories of technology transfer agreements. It is discussed in depth in the third edition of this book (see Ch 13).

852

Summary of main differences between 2014 TTR and its (2004) predecessor 13.02

version.4 For the sake of completeness and to show how the Commission developed its views with regard to technology transfer, the main changes between the 1996 and 2004 versions are summarised here: •

the 2004 TTR extended beyond only patent and know-how licences to also cover computer software and design right licences;

•

the 2004  TTR introduced provisions so that the block exemption from Article  101(1) of the EU  Treaty only applied where a certain market share5 was not exceeded (with different levels of market share depending on whether the parties to a technology transfer agreement were competing or non-competing);

•

the 2004  TTR also introduced provisions that differentiated between competing and non-competing parties to a technology transfer agreement, including differentiating between market share and a list of severe (‘hardcore’) restrictions which would take an agreement outside the exemption provided by the TTR.

The EU continues to issue guidance to accompany the 2014  TTR (‘Guidelines’).6 The Guidelines have the following purposes: •

to explain what the principles are for the assessment of technology transfer agreements under Article 101 of the EU Treaty;

•

to give guidance on how the 2014 TTR will be applied to technology transfer agreements; and

•

to set out how Article 101 will apply to technology transfer agreements which do not come within the TTR.

It is not possible to understand the 2014 TTR without consulting the Guidelines. They give detailed guidance as to the application of the 2014 TTR, giving in some places detailed examples as well as information on the application of Article 101 to technology transfer agreements which fall outside the scope of the 2014 TTR.

SUMMARY OF MAIN DIFFERENCES BETWEEN 2014 TTR AND ITS (2004) PREDECESSOR 13.02 The main differences between the 2014 TTR and the 2004 TTR are:7 4 5 6 7

Commission Regulation (EC) 240/96 ([1996] OJ L31/2). The speech by the European Commissioner for Competition Policy, Mario Monti, on 16 January 2004 (http://ec.europa.eu/competition/speeches/index_speeches_by_the_commissioner.html) indicates that the TTR applies to all sectors, not just ‘high-tech’ sectors. Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03). This table only provides a summary of the changes and will be most useful to readers who are familiar with these Regulations. More detail is provided later on.

853

13.02  The Technology Transfer Agreements Regulation and Accompanying Guidelines 2014 TTR

2004 TTR Duration

In force for 12 years, from 1 May 2014 to 30 April 20268

in force for 10 years, from 1 May 2004 to 30 April 20149

Change in definitions Separate definitions for: • ‘technology rights’;10 and • ‘technology transfer agreement’11

replaces ‘technology transfer agreement’ (which included the types of technology rights within the meaning of a technology transfer agreement) Technology pools

Not permitted (because typically they consist of multi-party agreements), but the Guidelines indicate that a technology pool may fall outside Article 101(1) if a number of conditions are fulfilled12

Not permitted

Hardcore restrictions The 2014 TTR contains changes to two of the hardcore restrictions Article 4(1): An agreement will not have the benefit of the exemption given in Article 2 if the parties are competing undertakings if: … (c) the agreement allocates markets or customers The 2004 TTR provides seven exceptions to this hardcore restriction

The 2014 TTR reduces the number of exceptions to four, removing: (1) the obligation on the licensee to produce with the licensed technology only within one or more technical fields of use; (2) the obligation on the licensor to licence the technology to another licensee in a particular territory; and (3) in a non-reciprocal agreement, restrictions on active and/or passive sales into the territory of another party

Article 4(2) An agreement will not have the benefit of the exemption given in Article 2 if the parties are non-competing undertakings if: … (b) the agreement contains a restriction where the licensee is prevented from making passive sales (i) into a territory, or (ii) to customers of contract products The 2004 TTR provides six exceptions to this hardcore restriction

The 2014 TTR reduces the number of exceptions to five, removing one of them: (1) if a licensor has granted an exclusive territory or an exclusive customer group to one licensee, then permitting, for a period of two years, a restriction on another licensee making passive sales in the territory or to the customer group of the first licensee

  8   9 10 11 12

2014 TTR, Art 11. 2004 TTR, Art 11. 2014 TTR, Art 1(1)(b). 2014 TTR, Art 1(1)(c). Guidelines, section 4.4 (paras 244–273).

854

General approach of the Commission to technology transfer agreements 13.03 2014 TTR

2004 TTR Excluded restrictions

Article 5(1): An obligation in a technology transfer agreement will not have the benefit of the exemption provided for in Article 2: Article 5(1)(a): The same as the 2004 TTR, but extended to all improvements, not just severable improvements

if there is a direct or indirect obligation on the licensee to grant an exclusive licence (or assign rights) to the licensor for the licensee’s own severable improvements to, or its own new applications of, the licensed technology

Article 5(1)(b): The same as the 2004 TTR, except: (1) the obligation can be on a party rather than just the licensee; and (2) the possibility of providing for the termination of the technology transfer agreement if the licensee challenges the validity of the licensed technology rights will only apply where there is an exclusive licence

if there is a direct or indirect obligation on the licensee not to challenge the validity of the intellectual property rights of the licensor, without prejudice to the possibility of providing for termination of technology transfer agreement if the licensee challenges the validity of the licensed intellectual property rights

Relationship to other regulations The 2014 TTR13 does not apply to provisions concerning licensing in an R&D agreement which are within the scope of the 2010 R&D Agreements Regulation14 or the 2010 Specialisation Agreements Regulation15

Not present

GENERAL APPROACH OF THE COMMISSION TO TECHNOLOGY TRANSFER AGREEMENTS 13.03 Not all technology transfer agreements are caught by the 2014 TTR. For example, the 2014 TTR will not catch: •

a technology transfer agreement which does not contain any provisions that restrict competition at all;16

•

a technology transfer agreement which contains provisions which restrict competition but the restrictions are not appreciable;

13 2014 TTR, Art 9. 14 Commission Regulation (EU) No  1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements. 15 Commission Regulation (EU) No  1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. 16 See, eg, Guidelines, para 156.

855

13.03  The Technology Transfer Agreements Regulation and Accompanying Guidelines

•

a technology transfer agreement which is not between a licensor and licensee;17 or

•

a technology transfer agreement which does not affect trade between member states.18

But in any case, since the 2004 TTR (and which has not changed in the 2014 TTR) the approach of the Commission generally is to take a more favourable view of such agreements, as it considers that such agreements usually: •

improve economic efficiency; and

•

are pro-competitive.19

Four reasons are stated for taking this more favourable approach towards providing a block exemption for technology transfer agreements: •

there is a reduction in the duplication of research and development;

•

the incentive for carrying out early stage research and development is strengthened;

•

it helps to spread the results of the research and development; and

•

it helps to create a market in which products can compete.20

The Commission now considers most licence agreements as being procompetitive, leading to efficiencies by combining the licensor’s technologies together with the assets and technologies of the licensee (either leading to (lower) cost and/or (higher) output that would not be otherwise available).21 Also the Commission will not presume that, just because the market share of the parties to an agreement is higher than that stated in the 2014 TTR, the agreement will infringe Article 101(1) of the EU Treaty.22 17 2014 TTR, Recital 6. 18 Article 101(1) will only apply where there is an agreement between undertakings which may affect trade between member states. A technology transfer agreement which is between two UK undertakings, relating to the licensing of UK intellectual property for the production of products in the UK, may not be subject to Article 101(1). However, UK competition law would apply. 19 2014 TTR, Recital 4. 20 2014 TTR, Recital 4. 21 Guidelines, para 17. 22 2014 TTR, Recital 13 and also Guidelines, para 43: ‘Outside the scope of the block exemption it is relevant to examine whether in the individual case the agreement is caught by Article 101(1) of the Treaty and if so, whether the conditions of Article  101(3) are satisfied. There is no presumption that technology transfer agreements falling outside the block exemption are caught by Article 101(1) or fail to satisfy the conditions of Article 101(3). In particular, the mere fact that the market shares of the parties exceed the market share thresholds set out in Article 3 of the TTBER is not a sufficient basis for finding that the agreement is caught by Article 101(1). Individual assessment of the likely effects of the agreement is required. It is only where agreements contain hardcore restrictions of competition, that it can normally be presumed that they are prohibited by Article 101’. These points are further elaborated in paras 156 onwards. The latter paragraph also extends this ‘no presumption’ point to agreements which are between more than two parties.

856

The changing view of the Commission as to which types of intellectual property 13.04

Where an agreement fulfils the conditions set out by the 2014 TTR, it is block exempted from the prohibitions contained in Article  101(1) and such an agreement is legally enforceable and valid. One implication of such a result is that a national court or national competition authority cannot prohibit such an agreement under Article 101(1) by private litigation.23

THE CHANGING VIEW OF THE COMMISSION AS TO WHICH TYPES OF INTELLECTUAL PROPERTY HAVE THE BENEFIT OF THE BLOCK EXEMPTION 13.04 The Commission’s view as to the types of intellectual property have the benefit of the block exemption has changed over time, moving beyond patent and know-how licensing. Their most radical shift was with the 2004  TTR, which extended the types of intellectual property which could have the benefit of the block exemption from Article 101 of the EU Treaty to cover software copyright. The 2014 TTR does not contain such a radical shift, making no change as to the types of intellectual property itself which have the benefit of the block exemption. But it is evident from the 2014 TTR and the Guidelines that there has been development and refinement in the Commission’s views concerning the licensing of software copyright. The Commission’s current view is that some software licensing is not subject to the 2014 TTR but can be subject to the Vertical Agreements Regulation. The 2004 TTR itself had nothing to say about software licensing other than that it was one of the types of intellectual property licensing agreement which could be subject to that Regulation.24 The accompanying Guidelines to that Regulation indicated that the licensing of copyright ‘for the purpose of reproduction and distribution of the protected work’ is similar to technology licensing.25 By the 2014 TTR the Commission’s position had shifted and it now considers that the licensing of software which is for the purpose of the ‘mere production of copies for resale’ or the distribution of such copies does not amount to production under the 2014 TTR. This type of reproduction for redistribution will be, by analogy, covered by the Vertical Agreements Regulation (and the accompanying Guidelines to that Regulation).26 The reasoning of the 23 24 25 26

2014 TTR, para 40. 2004 TTR, Art 1(1)(b). 2000 Guidelines, para 53. 2010 Guidelines, para 62, and 2014 TTR, Recital 7. The Guidelines go to state: ‘Reproduction for distribution exists where a licence is granted to reproduce the software on a carrier, regardless of the technical means by which the software is distributed. For instance, the TTBER and these

857

13.05  The Technology Transfer Agreements Regulation and Accompanying Guidelines

Commission is that the software is not being used for the production of goods and services, nor is it being incorporated into goods and services. Although an agreement concerning the reproduction and/or distribution of software will not have the benefit of block exemption provided by the 2014 TTR, this will not necessarily mean that the agreement can have the benefit of the block exemption of the Vertical Agreement Regulation. The agreement will need to satisfy the requirements of that Regulation and the accompanying Guidelines.27 The Guidelines to the latter Regulation indicate that the licensing of the software for the (re)production of copies of the software is not subject to the Vertical Agreement Regulation. Such an agreement could fail to have a ‘safe harbour’, left adrift between the two Regulations.

STRUCTURE OF THE TTR 13.05 The TTR is structured with 19 Recitals and 11 Articles, as follows: 19 Recitals

Provide details as to:

Recitals 1, 2

• the statutory basis for the (previous) 2004 TTR;

Recital 2

• the review carried out of the previous 2004 TTR;

Recitals 3–5 Recital 6

• the economic and pro-competitive effects of having the TTR; • the 2014 TTR only applies to agreements between a licensor and licensee;

Recital 6

• a technology transfer agreement can cover more than one level of trade (such as requiring the licensee to set up a distribution system);

guidelines do not cover the licensing of software copyright whereby the licensee is provided with a master copy of the software in order to reproduce and sell on the software to end users. Nor do they cover the licensing of software copyright and distribution of software by means of ‘shrink wrap’ licences, that is, a set of conditions included in the package of the hard copy which the end user is deemed to have accepted by opening the wrapping of the package, or the licensing of software copyright and distribution of software by means of online downloading.’ 27 That is those conditions set out in Vertical Agreements Regulation, Art 2(3), as well as the accompanying Guidelines, particularly the section on ‘Vertical agreements containing provisions on intellectual property rights’, paras 31 to 46. The conditions in Art 2(3) include that the intellectual property provisions must be part of a vertical agreement ‘with conditions under which the parties may purchase, sell or resell certain goods and services’ and those intellectual property provisions must not constitute the primary object of the agreement. However, the accompanying Guidelines include statements which indicate that the block exemption in the Vertical Agreements Regulation would not cover the situation where one party provides to another a master copy of the software and licenses the other party to produce and distribute copies. Such activity would not amount to the purchase or distribution of goods. In such a situation the provision of a master copy of the software would amount to the licensing of the intellectual property in the software for the purpose of manufacturing, see para 33. While the provision of hard copies of the software to another party, where the other party only has the right to resell those hard copies of the software, would come within the remit of the Vertical Agreements Regulation, see para 41.

858

The changing view of the Commission as to which types of intellectual property 13.05 Recital 7

• that the 2014 TTR only deals with agreements designed to exploit licensed technology which lead to the production of goods and services (and not other types of agreement);

Recital 7

• it does not cover: – licensing in the context of R&D agreements; – licensing in the context of specialisation agreements; – agreements whose purpose is the mere reproduction and distribution of products protected by copyright; – agreements to set up technology pools (that is, agreements for pooling technologies to license to third parties);

Recital 9

• the 2014 TTR should be limited to technology transfer agreements which fall, with sufficient certainty, within Article 101(3) of the EU Treaty;

Recital 9

• the 2014 TTR covers not only the provisions concerning the transfer of technology but also other provisions if those provisions are directly related to the production or sale of contract products;

Recitals 10, 11

• there is a presumption that agreements do lead to the improvement in production or distribution and that consumers are getting a fair share of resulting benefits, where: – the combined market share of competing parties in the relevant market does not exceed 20 per cent and there are no severely anti-competitive terms; and – the individual share of the relevant markets of each non-competing party does not exceed 30 per cent and there are no severely anti-competitive terms;

Recital 12

• if the market share on a relevant product or technological market is exceeded, the block exemption does not apply to the agreement in that market;

Recital 13

• There is no presumption that, above the market share thresholds: – agreements will be within the scope of Article 101 of the EU Treaty; – agreements within the scope of Article 101 will not satisfy the conditions of the block exemption; or – agreements will give rise to objective advantages of a size and character to compensate for disadvantages which they create for competition;

Recital 14

• no exemption for agreements which contain restrictions not indispensable to the improvement of production or distribution, such as agreements containing severely anti-competitive restrictions (for example, price fixing charged to third parties), regardless of market share, which will take the whole agreement outside the block exemption;

Recital 15

• to protect incentives to innovate and to allow for the appropriate application of intellectual property rights, and particular restrictions should not have benefit of the block exemption, such as grant back and no challenge clauses. If included, only that restriction is excluded from the block exemption;

Recital 16

• the aim of the market share thresholds, the non-exemption for agreements with severely anti-competitive restrictions and excluded restrictions is to prevent parties from eliminating competition in respect of a substantial part of the products in question;

Recitals 17–19

• remaining recitals deal with withdrawing the block exemption in particular cases (under Arts 29(1), (2) of Regulation 1/2003) and the inapplicability of 2014 TTR where there are parallel networks of TT agreements which have similar restrictive effects and which cover more than 50 per cent of a given market.

859

13.05  The Technology Transfer Agreements Regulation and Accompanying Guidelines Article 1

This Article provides the meaning of certain words and phrases which are used in the 2014 TTR, including:28 • agreement;29 • competing undertakings;30 • contract product;31 • exclusive customer group;32 • exclusive licence;33 • exclusive territory;34 • intellectual property rights; • know-how;35 • non-reciprocal agreement;36 • product;37 • reciprocal agreement;38 • relevant geographic market;39 • relevant market;40 • relevant product market;41 • relevant technology market;42 • selective distribution system;43 • technology rights;44 and • technology transfer agreement.45

Article 2

This Article provides for (and the meaning of) the block exemption pursuant to Article 101(3) of the EU Treaty, from Article 101(1) for technology transfer agreements. The exemption applies: • where the technology transfer agreement contains restrictions which fall within Article 101; • as long as the technology rights have not expired, are declared invalid etc; • as long as the know-how remains secret (unless revealed by the licensee, then for the duration of the agreement).

28 They are arranged in alphabetical order here (the 2014  TTR has a different order). The meanings are set out in the relevant sections of this chapter. For the few that are not (or that appear throughout the chapter), they are added here as footnotes to the word or phrase. 29 An ‘agreement’ means ‘an agreement, a decision of an association of undertakings or a concerted practice’. 30 See para 13.21 below. 31 See para 13.16 below. 32 See note 131 below. 33 An exclusive licence means ‘a licence under which the licensor itself is not permitted to produce on the basis of the licensed technology rights and is not permitted to license the licensed technology rights to third parties, in general or for a particular use or in a particular territory’. 34 See note 131 below. 35 See para 13.11 below. 36 See note 122 below. 37 See para 13.16 below. 38 See note 121 below. 39 See para 13.25 below. 40 See para 13.22 below. 41 See para 13.23 below. 42 See para 13.24 below. 43 See note 151 below. 44 See para 13.10 below. 45 See para 13.09 below.

860

The changing view of the Commission as to which types of intellectual property 13.05 Article 3

This Article indicates the market share thresholds that the parties to an agreement must not exceed in order to have the benefit of the exemption provided by Article 2: • 20 per cent of the combined market share on the relevant market for competing undertakings; • 30 per cent of the market share of each party where they are non-competing undertakings on the relevant market.

Article 4

This Article provides ‘hardcore’ restrictions which, if one or more of them are present, will take the whole agreement outside the benefit of the exemption provided by Article 2. The restrictions for competing undertakings are stricter than for non-competing undertakings: (a) competing undertakings: price fixing, limiting output, allocation of markets or customers;* restricting a licensee from using its own technology, restricting a party from carrying out research and development; (b) non-competing undertakings: price fixing, restricting a licensee from making passive sales in a territory or to certain customers.* • there are exceptions to these restrictions (ie where a provision contains this restriction, and it is within the specified exception, it will not take the agreement outside the benefit of the exemption provided by Article 2).

Article 5

This Article specifies that a provision in an agreement which contains one of the following restrictions will take only that provision (and not the whole agreement) outside the exemption provided by Article 2: (a) a requirement on a licensee to grant an exclusive licence or assign its own improvements to the licensor or a third party; (b) stopping a party challenging the validity of another party’s IP (except with an exclusive licence where it is possible to terminate if the licensee challenges the validity of licensed technology rights); (c) where parties are non-competing, stopping a licensee from exploiting its own technology.

Article 6

This Article allows the Commission to withdraw benefit of the exemption provided in Article 2 in specified circumstances.

Article 7

This Article prevents the 2014 TTR from applying to parallel networks of similar technology transfer agreements which cover more than 50 per cent of a relevant market.

Article 8

This Article sets out how the market share thresholds in Article 3 are calculated.

Article 9

This Article indicates that it does not apply to licensing arrangements that fall within the scope of the 2010 R&D Agreements Regulation46 or the Specialisation Agreements Regulation.47

Article 10

Provided a transitional period (until 30 April 2015) for agreements which were covered by the 2004 TTR.

Article 11

This Article provides that the 2014 TTR came into force on 1 May 2014 and expires on 30 April 2026.

46 Commission Regulation (EU) 1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements. 47 Commission Regulation (EU) No  1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements.

861

13.06  The Technology Transfer Agreements Regulation and Accompanying Guidelines

The purpose of the 2014 TTR 13.06 Under the TTR, pursuant to Article  103 of the EU  Treaty, Article  101(1)48 of the EU  Treaty shall not apply to certain categories of technology transfer agreement,49 subject to the provisions of the TTR. A technology transfer agreement is an agreement which: •

concerns the licensing or assignment of technology rights;

•

is between two undertakings; and

•

is for the purpose of producing contract products.

The disapplication of Article 101(1) shall apply:50 •

to the extent the agreement contains restrictions on competition which are within the scope of Article 101(1); and

•

for so long as the licensed technology rights have not: – expired; – lapsed; –

been declared invalid; or

– for know-how, until it becomes publicly known.51 The disapplication of Article 101(1) can also apply to other provisions of a technology transfer agreement. These are provisions which relate: •

to the purchase of products by the licensee; or

•

to the licensing or assignment of other intellectual property rights or know-how to the licensee;

but only if, and to the extent to which, the provisions relate to the production or sale of contract products.52

How long will an exemption last for? 13.07 The exemption will last:53 • for licensed technology rights other than know-how, for so long as they are in force, namely they have: 48 49 50 51

See para 12.03. 2014 TTR, Art 2, para 1. 2014 TTR, Art 2, para 2. If the licensee makes the know-how publicly known, the exemption applies for the duration of the agreement. 52 2014 TTR, Art 2, para 3. 53 2014 TTR, Art 2, para 2.

862

The changing view of the Commission as to which types of intellectual property 13.07

•

–

not expired;

–

not lapsed;

–

not been declared invalid;

where know-how is involved, for so long as the know-how remains secret. If the know-how becomes publicly known because of the actions of the licensee, the exemption will continue for the duration of the agreement.

An agreement may contain a number of different types of intellectual property or several of the same kind, and in such a case the block exemption will last until the last of the items of intellectual property remains in force.54 For example, if a technology transfer agreement licenses several patents, all of which expire on different dates, the technology transfer agreement will no longer have the benefit of the block exemption on the date when the patent with the last expiry date expires. The shortly stated exemption is dependent on a number of definitions, particularly the meaning of: •

technology transfer agreements, and

•

technology rights.

These two definitions, in turn, call on a number of important definitions found in the 2014 TTR, including: •

know-how; and

•

contract products.

These definitions are considered below. Also, the application of the exemption will depend on whether: •

the undertakings have a certain market share;55 and

• a technology transfer agreement contains certain ‘hardcore’ (more severe) or ‘excluded’ (less severe) restrictions.

54 Guidelines, para 68; the wording used in the Guidelines is not absolutely clear on this point, as it states: ‘The block exemption applies to each licensed technology right covered by the agreement and ceases to apply on the date of expiry, invalidity or the coming into the public domain of the last technology right within the meaning of the TTBER’. The wording used here could, from one point of view, mean that there is a block exemption for each form of intellectual property licensed in an agreement and comes to an end as each expires. 55 The market share depending on whether they are competitors or not: see para 13.17 below for further details.

863

13.08  The Technology Transfer Agreements Regulation and Accompanying Guidelines

Duration of the 2014 TTR 13.08 The 2014 TTR is valid from 1 May 2014 to 30 April 2026.56 It is likely that, after its expiry date, agreements which have benefited from the exemption of the 2014 TTR will continue to do so for a limited period.57

Types of agreement which are subject to the 2014 TTR58 13.09 The exemption provided by the 2014 TTR will apply to technology transfer agreements, which are defined as: • licensing agreements between two undertakings concerning the licensing of technology rights and which are for the purpose of allowing the licensee (or its sub-contractor) to produce contract products;59 or •

an assignment between two undertakings concerning the assignment of technology rights and the purpose of the assignment is the production of contract products, but the assigning party retains some of the risk associated with the exploitation.60

(For the purposes of this chapter, we simply refer to the licensing of technology rights which will cover both licensing and assignment.) The key elements of the definition are that: •

a technology transfer agreement is only between two undertakings; and

•

there is the production of contract products.

The determining factor of whether a technology transfer agreement has the benefit of the exemption is whether the actual agreement is between two

56 57

2014 TTR, Art 11. 2014 TTR provides that agreements in force at 30 April 2014 and which satisfy the conditions for exemption under Reg 772/2004 (but not under the 2014 TTR) would continue to do so until 30 April 2015 (Art 10). 58 The definition of a technology transfer agreement has changed under the 2014  TTR over that in the 2004 TTR. Under the 2004 TTR there was one definition of ‘technology transfer agreements’ which provided a list of intellectual property licensing agreements and indicated that licensing was not the primary object of such agreements (ie the production of products was the primary purpose). The wording concerning assignment was accompanied by further wording indicating that a sum payable which is dependent on turnover is part of the risk left with the assignor. This latter wording is dropped in the 2014 TTR. The 2014 TTR now provides two definitions: one of technology transfer agreements indicating the general type of agreement it covers (a licensing agreement, an assignment); and a further definition of technology rights indicating the type of intellectual property (and know-how) that the 2014 TTR deals with. 59 2014 TTR, Art 1(1)(c)(i). 60 2014 TTR, Art 1(1)(c)(ii).

864

The changing view of the Commission as to which types of intellectual property 13.09

parties.61 Some other points which it is possible to draw from the 2014 TTR and the Guidelines are: •

the word ‘transfer’ implies that technology ‘must flow from one undertaking to another’,62 and a transfer: – typically involves licensing, such as the licensor granting the licensee a right to the licensor’s technology rights in return for the payment of royalties;63 but –

can include the type of assignment as noted above, including where the sum payable in consideration of the assignment might be dependent on the level of: ○

turnover achieved;

○

quantity of products produced; or

○

operations carried on in employing the technology;

by the assignee;64 –

can concern where the licensor does not exploit the technology rights against the licensee, such as a non-assertion and settlement agreement where the licensor allows the licensee to produce within the scope of the patent;65

•

a party can include connected undertakings (or, in more commercial language, an affiliate);66

•

for a technology transfer agreement to have the benefit of the exemption, it does not only have to contain provisions concerning the licensing of technology rights; it can include provisions concerning more than one level of trade;67

•

an agreement which is between more than two undertakings will usually give rise to the same type of issues as one between two parties. For licence agreements between more than two undertakings which are of the same nature as those to which 2014 TTR applies, the Commission will apply all the principles set out in the 2014 TTR.68

61 62 63 64 65

See Guidelines, para 54. Guidelines, para 51. Guidelines, para 51. Guidelines, para 52. Guidelines, para 53. For the Guidelines the use of the terms ‘licensing’ and licensed’ includes non-assertion and settlement agreements ‘as long as a transfer of technology rights takes place as described in this section’. 66 The meaning of an undertaking (which is not a defined term in the 2014 TTR) includes their respective connected undertakings: 2014 TTR, Art 1(2). 67 Guidelines, para  55. The Guidelines give the example of a technology transfer agreement which concerns ‘not only the production stage but also the distribution stage, stipulating the obligations that the licensee must or may impose on resellers of the products produced under the licence’ and which would have the benefit of the exemption under the 2014 TTR. 68 Guidelines, para 57. However, such agreements will require individual assessment.

865

13.10  The Technology Transfer Agreements Regulation and Accompanying Guidelines

TYPES OF INTELLECTUAL PROPERTY TO WHICH THE 2014 TTR APPLIES ‘Technology rights’ 13.10 The 2014  TTR introduced a definition of intellectual property: technology rights.69 In the 2004 TTR the types of intellectual property which that Regulation applied was set out in the definition of technology transfer agreement. Despite the change, the 2014  TTR does not alter the types of intellectual property which are the subject of the Regulation. Technology rights cover the following types of intellectual property:70 • patents; •

utility models;

•

topographies of semiconductor products;

•

supplementary protection certificates (for medicinal products or other products for which it is possible to obtain supplementary protection certificates);

•

plant breeder’s certificates; and

•

software copyrights;

as well as know-how.71 The meaning of technology rights includes know-how and any of the above types of intellectual property or a combination of them (including applications or applications for registration). Other types of intellectual property (such as trade marks and copyright not related to software) can also have the benefit of the 2014 TTR if, and only if, they are directly related to the sale or production of contract products ‘to the extent that these other intellectual property rights serve to enable the licensee to better exploit the licensed technology rights’.72

69 70 71 72

2014 TTR, Art 1(1)(b). 2014 TTR, Art 1(1)(b). See para 13.11 below for the meaning of know-how. Guidelines, para  47. The Guidelines give the following example to illustrate this point: ‘For instance, where a licensor authorises a licensee to use its trademark on the products incorporating the licensed technology, this trademark licence may allow the licensee to better exploit the licensed technology by allowing consumers to make an immediate link between the product and the characteristics imputed to it by the licensed technology rights. An obligation on the licensee to use the licensor’s trademark may also promote the dissemination of technology by allowing the licensor to identify itself as the source of the underlying technology. The TTBER covers technology transfer agreements in this scenario even if the principal interest of the parties lies in the exploitation of the trademark rather than the technology’.

866

Types of intellectual property to which the 2014 TTR applies 13.10

Accordingly, the 2014 TTR does not cover the licensing of copyright (except for the licensing of software protected by copyright), but if there is licensing of other types of copyright the Commission will normally apply the principles set out in the 2014 TTR and the Guidelines where the other type of copyright licensing involves the production of contract products.73 The Commission will not apply the principles set out in the 2014  TTR to trade mark licensing, as trade mark licensing often occurs where there is the sale or resale of goods and services and is closer to the distribution and resale of goods.74 A sub-contract will not be excluded from the 2014 TTR ‘whereby the licensor licenses technology to the licensee who undertakes to produce certain products on the basis thereof exclusively for the licensor’ and can include the licensor providing equipment for the production of the products and services. There has to be a direct relationship between the supply of the equipment and the production of the goods and services.75 The primary focus must be on the licensing of the technology (and not on other purposes, eg where a subcontracting agreement includes the provision of equipment from the licensor to the licensee). Unsurprisingly the 2014  TTR will not cover a licence agreement which does not have the purpose of producing contract products but blocks the development of competing technologies.76 However, it appears possible that a technology transfer agreement can have the benefit of the exemption even though it does not directly lead to the production of contract products, such as allowing the licensee to exploit its own technology without facing the risk of a claim for infringement from the licensor.77 However, such an agreement between competitors may amount to a disguised cartel, and will be subject to special scrutiny by the Commission.78 73 Guidelines, para  48. However, this will not extend to licensing of rental rights and public performance rights protected by copyright (particularly for film or music); see Guidelines, para 49. 74 The licensing of a trademark in such a situation is likely to be subject to Commission Regulation (EU) 330/2010 of 20  April 2010 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. 75 Guidelines, para  64. As the Guidelines note, the Commission Notice on subcontracting agreements may also apply. Agreements where the sub-contractors produce products exclusively for the contractor, or where the contractor can fix the transfer price of ‘an intermediate contract product between subcontractors in a value chain’, will not be subject to EU Treaty, Art 101(1). 76 From Guidelines, para  59: ‘Where the purpose of the agreement is not the production of contract products but, for instance, merely to block the development of a competing technology, the licence agreement is not covered by the TTBER and these guidelines may also not be appropriate for the agreement’s assessment. More generally, if the parties refrain from exploiting the licensed technology rights, no efficiency enhancing activity takes place, in which case the very rationale of the block exemption is absent. However, exploitation does not need to take the form of an integration of assets.’  77 Guidelines, para 59. 78 Guidelines, para 59.

867

13.11  The Technology Transfer Agreements Regulation and Accompanying Guidelines

‘Know-how’ 13.11 The 2014 TTR applies to know-how, as long as it is: ‘a package of non-patented practical information, resulting from experience and testing, which is: (a) secret, that is to say, not generally known or easily accessible; (b) substantial, that is to say, significant and useful for the production of the contract products; and (c) identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality’;79 The Commission originally had reservations concerning agreements which involved the licensing of know-how where, in fact, such an agreement is a method of introducing an anti-competitive restriction but the know-how does not protect licensed products or does not exist. Such reservations are no longer present in the 2014 TTR. The definition of ‘know-how’ indicates that know-how has to be practical and of use in the production of contract products. In addition to the definition, the Commission has also set out guidance regarding know-how,80 in particular:

Concerning ‘substantial’ 13.12 •

for know-how to be ‘substantial’ it must significantly contribute to or facilitate the production of contract products;

•

know-how will not be substantial where the contract product can be produced with freely available technology;

•

where contract products are concerned, substantial will mean the knowhow is useful for the production of contract products but does not mean that the contract product is of a higher value than one produced with freely available technology;

•

where process technologies are concerned, substantial will mean that the know-how is useful in that it will improve the competitive position of the licensee at the date of conclusion of the agreement. This can reduce the licensee’s production costs.

79 2014 TTR, Art 1(1)(i). 80 Guidelines, para 45.

868

Types of agreement to which the 2014 TTR does not apply 13.14

Concerning ‘identified’ 13.13 •

for know-how to be identified means that it is possible to verify that it is secret and substantial;

•

know-how can also be identified if it is described in a written form or in manuals;

•

if the know-how cannot reasonably be in a permanent form it can still meet the criteria of being ‘identified’ if it consists of practical knowledge which is possessed by the employees of the licensor,81 as long as: –

the know-how is described in a general way; and

–

there is a list of employees of the licensor that will be or have been involved in passing the know-how on to the licensee.

TYPES OF AGREEMENT TO WHICH THE 2014 TTR DOES NOT APPLY 13.14 The TTR is not intended to deal with licensing agreements: •

which have more than two undertakings as parties;82

•

that set up technology pools;83

•

whose primarily purpose is sub-licensing (or with those parts of an agreement which relate to sub-licensing);84

•

which are sub-contract agreements whose primarily purpose is not the licensing of technology;85

81 The example given in the Guidelines, para 45 is that the employees may possess secret and substantial knowledge about a particular production process which is supplied to the licensee by training the licensee’s employees. 82 2014  TTR, Art 1(1)(c). But an ‘undertaking’ can include more than one company or one organisation as an undertaking can include ‘connected undertakings’, which essentially means group companies (see TTR, Art 1(2)). Presumably, the technology transfer company (if it is a wholly owned subsidiary of a university), when entering into a patent and know-how licence, could include the university as a party as it most probably comes within the definition of being a connected undertaking. 83 2014  TTR, Recital 7. Technology pools being ‘agreements for the pooling of technologies with the purpose of licensing them to third parties, or to agreements whereby the pooled technology is licensed out to those third parties’. This recital in the 2014 TTR is wider than in the 2004  TTR, in that it covers both the creating of the pooling of the technologies for the purpose of licensing as well as the actual licensing. The 2004  TTR only covered the agreements for the pooling of technologies set up for the purpose of licensing them to third parties. Technology pools are considered in the Guidelines at paras 244–277. 84 Guidelines, para 60. 85 See note 75 above.

869

13.14  The Technology Transfer Agreements Regulation and Accompanying Guidelines

•

where the primary purpose of the licensed technology is to carry out further research and development;86

•

whose purpose is to sub-contract research and development work;87

•

that involves licensing which is in the context of a research and development agreement and is covered by the R&D Agreements Regulation;88

•

that involves licensing which is in the context of a specialisation agreement and is covered by the Specialisation Agreements Regulation;89

•

of software copyright, where the purpose is only to reproduce and distribute the work protected by the copyright;90

•

of other types of intellectual property, such as trade marks or copyright (other than software), if the licensing is not directly related to the production of contract products;91

86

Guidelines, para 66. But a licensing agreement which permits the licensee to exploit the licensed technology, possibly after carrying out further research and development, is permitted as long as the licence is concerned with the production of goods or services (see TTR, Recital 7); ie there must be a direct link between the technology which is licensed and the contract product. Ie where the licensee is only responsible for carrying out research and development work in the field of the technology which is licensed to it, and on completing the research and development work provides to the licensor a package of improved technology (see Guidelines, para  66). The Guidelines state that the main purpose of an agreement of this type is ‘the provision of research and development services aimed at improving the technology as opposed to the production of goods and services on the basis of the licensed technology’. 2014 TTR, Art 9 and Commission Regulation (EU) 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements. Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. Guidelines, para 62. Reproduction for distribution means that a licensor grants a licence to reproduce the software on a carrier, irrespective of the technical means by which there is distribution of the software. The 2014 TTR would not cover a licensor who provides a master copy of the software so that the licensee can reproduce the software and sell it on. Neither will it cover shrink-wrap licences: ‘a set of conditions included in the package of the hard copy which the end user is deemed to have accepted by opening the wrapping of the package, or the licensing of software copyright and distribution of software by means of online downloading’. However, a software licence will be subject to the 2014 TTR if the licensee incorporates the software into a contract product (Guidelines, para 63): ‘the TTBER and these guidelines cover the licensing of software copyright where the licensee has the right to reproduce the software by incorporating it into a device with which the software interacts’. Guidelines, para  47. The licensing of other intellectual property will be covered by the 2014 TTR to the extent it ‘serves the licensee to better exploit the licensed technology rights’. The Guidelines provides by way of example where a trade mark licence would come within the 2014 TTR: ‘For instance, where a licensor authorises a licensee to use its trademark on the products incorporating the licensed technology, this trademark licence may allow the licensee to better exploit the licensed technology by allowing consumers to make an immediate link between the product and the characteristics imputed to it by the licensed technology rights. An obligation on the licensee to use the licensor’s trademark may also promote the dissemination of technology by allowing the licensor to identify itself as the source of the underlying technology. The TTBER covers technology transfer agreements in this scenario even if the principal interest of the parties lies in the exploitation of the trademark rather than the technology’.

87

88 89 90

91

870

Types of party who benefit from the 2014 TTR 13.15

•

that concern a trade mark;92

•

involving rights in performances and other rights related to copyright.93

The 2014 TTR also does not apply to those parts of the agreement which do not concern the purchase by the licensee of products, unless those parts are directly related to the production of contract products.94

TYPES OF PARTY WHO BENEFIT FROM THE 2014 TTR 13.15 The exemption provided by the 2014  TTR only applies where the technology transfer agreement is between two parties.95 Therefore, a multiparty agreement would not have the benefit of the exemption provided by the TTR,96 and this is another reason why technology pools are not covered by the 2014 TTR as they generally involve more than two parties.97 ‘Undertaking’ is itself not defined in the 2014 TTR or the EU Treaty, but an undertaking will include their respective ‘connected undertakings’.98 However, if an agreement is concluded between more than two undertakings which is of the same nature as those covered by the 2014  TTR, the Commission will apply the principles set out in the 2014 TTR by analogy to such agreements.99

92 Guidelines, para  49; a trade mark licence which is not closely related to the production of contract products is closer to where there is only the distribution and resale of goods (and would be covered by the Vertical Agreements Regulation (Commission Regulation (EU) 330/2010)). 93 Guidelines, para 49. 94 Guidelines, para 46. The Guidelines go on to explain that: ‘Therefore the TTBER does not apply to those parts of a technology transfer agreement relating to input and/or equipment that are used for other purposes than the production of the contract products. For instance, where milk is sold together with licensing of technology to produce cheese, only the milk used for the production of cheese with the licensed technology will be covered by the TTBER’. 95 Art 1(1)(c), within the definition of a technology transfer agreement. 96 See Guidelines, para 56. What appears determinative is whether the ‘agreement is concluded between more than two undertakings’. An agreement which is concluded between two undertakings but covers more than one level of trade will still have the benefit of the exemption provided by the 2014  TTR. The Guidelines note that the TTR would apply to a licensor providing a licence which would cover a licensee who manufactures and then distributes a product, and the licence could include a requirement on the licensee imposing obligations on resellers concerning the manufactured products (see para 57). Even if there is an agreement is between more than two undertakings it is likely that the principles contained in the TTR will be applied by the Commission if the agreement is of the ‘same nature’ as of the type of agreement explicitly covered by the TTR (see para 59). 97 Guidelines, para  56. However, the Guidelines provide guidance on where might be a safe harbour for technology pools (see para 13.49 below). 98 2014 TTR, Art 1(2). 99 Guidelines, para 57.

871

13.16  The Technology Transfer Agreements Regulation and Accompanying Guidelines

CONTRACT PRODUCTS 13.16 Although a purpose of the 2014 TTR is for the use (through licensing) of intellectual property and know-how, the effect of such use is for a practical end – the making of goods and services. A  technology transfer agreement can only have the benefit of the 2014 TTR if its purpose is ‘the production of contract products’.100 The definition of contract product in the 2014 TTR is terse: ‘“contract product” means a product produced, directly or indirectly, on the basis of the licensed technology rights’101 and a product can include a good or a service.102 It is possible to achieve the purpose of producing contract products using the licensed technology rights: •

by incorporating the licensed technology rights in the product; or

•

using the licensed technology rights to produce the product, such as during the production process.103

There has to be a direct link between the grant of the licence to the technology rights and the production of contract products, so the licensee can use those technology rights to make contract products.104

MARKET SHARE Market share levels before the block exemption is lost 13.17 To have the benefit of the block exemption, in addition to the other conditions, the undertakings who are parties to a technology transfer agreement must not exceed certain market shares.105 The fact that the parties exceed the market share specified in the 2014 TTR will not by itself mean that their technology transfer agreement will infringe Article 101(1),106 and it will be necessary to carry out an individual assessment.107 Such an agreement could still satisfy the conditions for exemption. 100 2014 TTR, Art 1(1)(c). 101 2014 TTR, Art 1(1)(g). 102 2014  TTR, Art 1(1)(f). A  ‘product’, as defined, means ‘goods or a service, including both intermediary goods and services and final goods and services’. 103 Guidelines, para 61. 104 Guidelines, para 61. 105 The Commission has set out its approach on how a market is defined: see paras 19–26 of the Guidelines. 106 See TTR, Recital 13. 107 Guidelines, para  79. The Guidelines goes on state: ‘The fact that market shares exceed the thresholds does not give rise to any presumption either that the agreement is caught by Article 101(1) or that the agreement does not fulfil the conditions of Article 101(3). In the absence of hardcore restrictions as set out in Article 4 of the TTBER, market analysis is required’.

872

Market share 13.20

The particular market share depends on whether the parties are competing undertakings or non-competing undertakings:108 •

if the undertakings who are parties to a technology transfer agreement are competing undertakings, the combined market share of the parties must not exceed 20 per cent of the affected relevant markets;109

•

if the undertakings who are parties to a technology transfer agreement are not competing undertakings, the market share of each of the parties must not exceed 30 per cent of the affected relevant markets.110

If the parties are not competing undertakings at the time they enter into the agreement, but subsequently become competing undertakings 13.18 If the parties are not competing undertakings when they enter into the technology transfer agreement, but subsequently become competing undertakings, the hardcore restrictions in paragraph 13.28 below shall apply rather than those in paragraph 13.27 below for the life of the agreement.111 The fact that the restrictions for non-competing undertakings will continue to apply is subject to any amendment of their agreement in a material way.112

If the market share is not exceeded at the time the parties enter into the agreement, but is subsequently exceeded 13.19 If the market shares are initially not more than those stated above but subsequently exceed those levels, the block exemption provided by the 2014  TTR shall continue for a period of two consecutive calendar years following the year when the relevant market share is exceeded.113

Meaning of ‘competing’ and ‘non-competing’ undertakings 13.20 Whether the undertakings are competing undertakings or noncompeting undertakings determines: 108 109 110 111

See para 13.20 below for a description of their meaning. 2014 TTR, Art 3(1). 2014 TTR, Art 3(2). 2014 TTR, Art 4(3). That is, 2014 TTR, Art 4(2) rather than 2014 TTR, Art 4(1) will apply to the technology transfer agreement. 112 2014 TTR, Art 4(3). An amendment can include the parties entering into a new technology transfer agreement which concerns the competing technology rights. 113 2014 TTR, Art 8(e).

873

13.21  The Technology Transfer Agreements Regulation and Accompanying Guidelines

•

the level of market share before the undertakings can no longer have the benefit of the block exemption; and

•

which set of hardcore restrictions apply.

The 2014 TTR only provides a definition for competing undertakings. This definition sets out how the parties compete based on a definition of relevant market, which in turn depends on the three further definitions of relevant product market, relevant technology market and relevant geographic market. This section sets out the meaning of each.

Meaning of ‘competing undertaking’ 13.21 Competing undertakings are undertakings that compete on the relevant market, and: •

the undertakings are competing on the relevant market in which the technology rights are licensed – that is, undertakings who license out competing technology rights (‘actual competitors on the relevant market’);114

•

the undertakings are competing on the relevant market in which contract products are sold – and, if the undertakings had not entered into a technology transfer agreement: –

the undertakings would both be active on the relevant market in which the contract products are sold (‘actual competitors on the relevant market’); or

–

the undertakings ‘… would, on realistic grounds and not just as a mere theoretical possibility, in response to a small and permanent increase in relative prices, be likely to undertake, within a short period of time, the necessary additional investments or other necessary switching costs to enter the relevant market(s)’ (‘potential competitors on the relevant market’).115

Meaning of the ‘relevant market’ 13.22 The ‘relevant market’ means a combination of: •

the relevant product market; or

•

the relevant technology market;

with the relevant geographic market.116 114 2014 TTR, Art 1(1)(n)(i). 115 2014 TTR, Art 1(1)(n)(ii). 116 2014 TTR, Art 1(1)(m).

874

‘Hardcore’ restrictions 13.26

Meaning of relevant product market 13.23 The relevant product market means: •

the market for the contract products and their substitutes; where

•

the contract products are: –

interchangeable; or

–

the buyer can substitute them;

because of the characteristics of the products, the prices of the products or the intended use of the products.117

Meaning of relevant technology market 13.24 The relevant technology market means: •

the market for the licensed technology rights and their substitutes; where

•

the technology rights are: –

interchangeable; or

–

the licensee can substitute them;

because of their characteristics of the technology rights, the royalties payable for those rights, and their intended use.118

Meaning of relevant geographic market 13.25 The relevant geographic market means: •

the area in which the undertakings are involved in the supply, or there is a demand for products, or the licensing of technology rights; and

•

there are sufficiently similar conditions of competition and where it is possible to distinguish that area from neighbouring areas, because the conditions of competition are significantly different from the neighbouring areas.119

‘HARDCORE’ RESTRICTIONS 13.26 The exemption from Article  101(1) is also not available where a technology transfer agreement contains restrictive provisions which are considered particularly anti-competitive. An agreement which contains 117 2014 TTR, Art 1(1)(j). 118 2014 TTR, Art 1(1)(k). 119 2014 TTR, Art 1(1)(l).

875

13.27  The Technology Transfer Agreements Regulation and Accompanying Guidelines

restrictions which are not ‘indispensable to the improvement of production or distribution’, and such restrictions are ‘severely anti-competitive restraints’ (such as fixing the price to be charged to third parties) cannot enjoy the benefit of the block exemption regardless of the market share of the parties, and the whole agreement is to be excluded from the benefit of the block exemption provided by the 2014 TTR.120 There are different ‘hardcore’ restrictions depending on whether the undertakings to an agreement are competing or non-competing undertakings. In addition, there is also a distinction between: •

a reciprocal agreement (essentially a cross-licensing agreement);121 and

•

a non-reciprocal agreement (essentially where only one party licenses technology rights or, if cross-licensing, then not competing technologies and not for producing contract products).122

The use of the definitions of reciprocal agreement and non-reciprocal agreement appears in the hardcore restrictions concerning competing undertakings, with several of the exceptions to the hardcore restrictions depending on whether there is a non-reciprocal agreement. The Guidelines indicate that the hardcore list is stricter for reciprocal agreements than for non-reciprocal agreements between competitors.123

‘HARDCORE’ RESTRICTIONS AND COMPETING UNDERTAKINGS 13.27 The exemption from Article 101(1) which 2014 TTR provides will not apply to an agreement where: 120 TTR, Recital 14. Such hardcore restrictions are considered to be almost always anti-competitive and cannot be severed from an agreement (Guidelines, paras 94, 95). It is highly unlikely that an agreement which contains such a restriction can, where an individual assessment is carried, fulfil the four conditions of Art 101(3). 121 The definition, in the 2014 TTR, Art 1(1)(d), is ‘a technology transfer agreement where two undertakings grant each other, in the same or separate contracts, a technology rights licence, and where those licences concern competing technologies or can be used for the production of competing products’. The Guidelines indicate, at para 98, that an agreement will not be reciprocal merely because there is a grant back obligation or there is an obligation on the licensee to grant back improvements to the licensed technology. 122 The definition, in the 2014 TTR, Art 1(1)(e), is ‘a technology transfer agreement where one undertaking grants another undertaking a technology rights licence, or where two undertakings grant each other such a licence but where those licences do not concern competing technologies and cannot be used for the production of competing products’. If a non-reciprocal agreement subsequently turns into a reciprocal agreement because the parties have entered into a second licence agreement, the parties may need to revise the first licence agreement to prevent that first agreement containing hardcore restrictions and the Commission, in assessing the parties situation, will look at the time that has lapsed between the parties entering the first and second licences: Guidelines, para 98. 123 Guidelines, para 98.

876

‘Hardcore’ restrictions and competing undertakings 13.27

•

the parties are competing undertakings; and

•

the agreement contains one of the restrictions detailed below.

If the agreement contains one of the ‘hardcore’ restrictions, the whole agreement will be outside the scope of the exemption. An agreement which has, as its object (whether directly or indirectly, in isolation or in combination with other factors under the control of the parties), one of the following ‘hardcore’ restrictions will not benefit from the exemption: •

•

Price restrictions. Where an agreement restricts the price that a party can charge for products it sells to a third party124 (which will also include products which incorporate the licensed technology). Examples of restrictions include:125 –

pricing fixing between competitors, such as by direct agreement on the exact price that the parties may charge; use of a price list with permitted maximum allowances on the price that a party may charge;

–

price fixing in an agreement where there are fixed, minimum, maximum or recommended prices;

–

disincentives if a party departs from an agreed price level (such as a party having to pay a higher royalty rate if the price for a product is lowered below a certain level); however, the payment of a minimum royalty will by itself not amount to price fixing;

–

cross-licensing with reciprocal running royalties with the object of co-ordinating or increasing the price of products in downstream markets;

–

agreements where royalties are calculated on the basis of all product sales, without taking in account whether there is use of the licensed technology.

Limit on output. Where an agreement limits the output of contract products126 (that is, it limits the amount that a party can produce or sell). However, it is possible to impose limits on the output of contract products on: –

124 125 126 127

the licensee in a non-reciprocal agreement;127 or

2014 TTR, Art 4(1)(a). Drawn from Guidelines, paras 99–102. TTR, Art 4(1)(b). The Guidelines, at para 104, indicate that the reason why a non-reciprocal quantity limitation is not subject to the ‘hardcore’ restriction is because it is ‘based on the consideration that a one-way restriction does not necessarily lead to a lower output on the market while the risk that the agreement is not a bona fide licensing arrangement is also lower when the restriction is non-reciprocal. When a licensee is willing to accept a one-way restriction, it is likely that the agreement leads to a real integration of complementary technologies or an efficiency enhancing integration of the licensor’s superior technology with the licensee’s productive assets’.

877

13.27  The Technology Transfer Agreements Regulation and Accompanying Guidelines

–

only one of the licensees in a reciprocal agreement (as long as the limitation on output only relates to products produced with the licensed technology).128

This ‘hardcore’ restriction targets agreements which: – contain restrictions on reciprocal output limits affecting both parties which have the object or are likely to result in a reduction of output in a market; or –

restrict output on a licensor for use of its own technology.129

Also, agreements which contain provisions which provide for a reciprocal running royalty per a unit and the royalty increases as output increases or requires parties to make payments if output goes over a certain level are both likely to reduce the incentive for parties to increase output.130 •

The allocation of markets and customers.131 Where an agreement allocates markets or customers.132 This exclusion from the block exemption is potentially vast. For example, it could stop any attempt by a licensor to control the territory into which a licensee could sell products. However, it is possible for the parties to an agreement to allocate markets or customers in the following four circumstances133

128 The Guidelines, at para 104, indicate that an output limitation on one licensee in a reciprocal agreement ‘is likely to reflect the higher value of the technology licensed by one of the parties and may serve to promote pro-competitive licensing’. 129 Guidelines, para 103. 130 Guidelines, para 103. 131 2014  TTR, Art 4(1)(c). The exceptions to this ‘hardcore’ restriction use defined phrases: ‘exclusive territories’ means ‘a given territory within which only one undertaking is allowed to produce the contract products, but where it is nevertheless possible to allow another licensee to produce the contract products within that territory only for a particular customer where the second licence was granted in order to create an alternative source of supply for that customer’ (Art 1(1)(q)); and ‘exclusive customer’ group means ‘a group of customers to which only one party to the technology transfer agreement is allowed to actively sell the contract products produced with the licensed technology’ (Art 1(1)(r)). 132 Where the parties are competing undertakings and have entered into a cross-licensing (reciprocal) agreement, it will be a hardcore restriction for them to agree not to (i) produce contract products in certain territories; or (ii) sell actively and/or passively into certain territories; or (iii) sell to customers which are reserved to the other party (Guidelines, para 105). Also, the Guidelines (at para 106) indicate that this restriction applies whether or not the licensee remains free to use its own technology, and the reasoning is as follows: ‘Once the licensee has tooled up to use the licensor’s technology to produce a given product, it may be costly to maintain a separate production line using another technology in order to serve customers covered by the restrictions. Moreover, given the anti-competitive potential of the restraint the licensee may have little incentive to produce under his own technology. Such restrictions are also highly unlikely to be indispensable for pro-competitive licensing to occur’. 133 See para 13.02 above for which exceptions were present in the 2004 TTR but are no longer present in the 2014 TTR. The effect, according to the Commission, is to simplify the hardcore restrictions but not to lead to any change of substance: European Commission – Press Release: Antitrust: Commission adopts revised competition regime for technology transfer agreements – frequently answered questions, Memo.

878

‘Hardcore’ restrictions and competing undertakings 13.27

(in essence, these are exceptions to the restrictions and therefore come within the block exemption of the TTR): –

field of use, product market or exclusive territory restrictions on either party – it is permissible to have an ‘… obligation on the licensor and/or the licensee, in a non-reciprocal agreement, not to produce with the licensed technology rights within the exclusive territory reserved for the other party and/or not to sell actively and/ or passively into the exclusive territory or to the exclusive customer group reserved for the other party’;134 an implication of this exception to the hardcore restriction is that a licensor can appoint a sole licensee in a particular territory, meaning in effect that a third party will not obtain a licence to the licensor’s technology in that territory;135

–

–

active sales restriction into another licensee’s territory (or customer group) – it is permissible to have a restriction, in a nonreciprocal agreement, on one licensee making active sales into the exclusive territory or to the exclusive customer group of another (second) licensee. This restriction is worded so that: ○

the exclusive territory or exclusive customer is allocated by the licensor; and

○

the second licensee was not a competing undertaking of the licensor at the time the second licensee entered into its licence with the licensor;136

own use restriction – it is permissible to have a restriction on the licensee so that it can only produce contract products for its own use. This permissible restriction is subject to there being no

134 TTR, Art 4(1)(c)(i). The Guidelines indicate (at para 107) that an exclusive agreement with this restriction is block exempted irrespective of the scope of the territory, if the licence is worldwide, it would mean, as the Guidelines note, that the licensor would refrain from entering the market. The purpose of this exemption, according to the Guidelines, is to give the licensee an incentive to invest in and develop the licensed technology and with the object not necessarily to share markets. 135 Guidelines, para 109. This Guideline goes on to state: ‘In the case of such sole licences the block exemption applies irrespective of whether the agreement is reciprocal or not given that the agreement does not affect the ability of the parties to fully exploit their own technology rights in their respective territories’. 136 2014  TTR, Art 4(1)(c)(ii). The Guidelines indicate (at para  110) that this block exemption applies up to the market share threshold restrictions. The Guidelines provide the rationale for this exemption: ‘By allowing the licensor to grant a licensee, who was not already on the market, protection against active sales by licensees which are competitors of the licensor and which for that reason are already established on the market, such restrictions are likely to induce the licensee to exploit the licensed technology more efficiently’. However, if the licensees get together to restrict active or passive sales in certain territories or to certain customers, the licensees will be seen as a cartel. But such activity would not involve the transfer of technology and thus it would not be subject to the 2014 TTR, although it could infringe other EU competition law provisions.

879

13.28  The Technology Transfer Agreements Regulation and Accompanying Guidelines

restriction on it selling the contract products as spare parts for its own products;137 –

•

particular customer restriction – it is permissible to have a restriction on a licensee, in a non-reciprocal agreement, to produce contract products only for a particular customer. A  condition for this restriction is that the licensor granted the license in order to create an alternative source of supply for the customer;138

licensee’s freedom to use own technology rights. The block exemption is not available where an agreement restricts the licensee’s ability to exploit its own technology rights.139 This is effectively a restriction on the licensor inserting ‘non-compete’ clauses into an agreement.140 Also there is a restriction on any of the parties to an agreement being able to carry out research and development, unless such a restriction is ‘indispensable to prevent the disclosure of the licensed know-how to third parties’.141

HARDCORE RESTRICTIONS AND NON-COMPETING UNDERTAKINGS 13.28 The exemption from Article 101(1) will not apply to a technology transfer agreement where the parties are non-competing undertakings and it contains one of the restrictions detailed below. If it contains one of the restrictions, the whole agreement will not benefit from the exemption. 137 2014  TTR, Art 4(1)(c)(iii). The Guidelines indicate (at para  111) that this permissible restriction can relate to contract products which a licensee must produce only for the purpose of incorporating into its own products, without having the right to sell to other parties. The right to sell spare parts would cover situations where the licensee is providing an after-sales service for its products. 138 2014 TTR, Art 4(1)(c)(iv). The Guidelines note (at para 112 ) that the licensor is not limited to only granting one such licence, and thus more than one undertaking could supply a specified customer. 139 2014 TTR, Art 4(d). 140 The Guidelines give examples (at para  116) of what is not permitted in relation to the licensee’s own technology: there should not be: (i) restrictions on where the licensee produces or sells; (ii) restrictions on how much the licensee produces or sells; (iii) restrictions on the price the licensee can charge; (iv) a requirement to pay royalties on products produced with the licensee’s own technology; and (v) restrictions on licensing the licensee’s own technology to third parties. 141 2014 TTR, Art 4(d). The Guidelines note (at para 115) that such a restriction is not permitted ‘irrespective of whether the restriction applies to a field covered by the licence or to other fields’. A provision which indicates that the parties agree to provide each other with improvements created in the future will not come within this restriction on independent research and development. However, a restriction on a party carrying out research and development with a third party is permissible where the restriction is for the purpose of stopping disclosure of the licensor’s knowhow. Such a restriction must be ‘necessary and proportionate’ to protect the licensor’s know-how. The Guidelines provide an example of where such a restriction would be acceptable: ‘where the agreement designates particular employees of the licensee to be trained in and responsible for the use of the licensed know-how, it may be sufficient to oblige the licensee not to allow those employees to be involved in research and development with third parties’.

880

Hardcore restrictions and non-competing undertakings 13.28

The agreement has as its object (whether directly or indirectly, in isolation or in combination with other factors under the control of the parties) one of the following restrictions: •

Price restrictions.142 The block exemption is not available where an agreement restricts the price that a party can charge for products it sells to a third party.143 The restriction would not extend to where a maximum or recommended sales price is imposed, as long as this maximum or recommended price does not become a maximum or minimum price caused by pressure from any party (or caused by any incentive by a party).

•

Passive sales restrictions. The block exemption is not available where an agreement restricts the licensee’s freedom in making passive sales of contract products into a territory or to customers.144 There are five exceptions to this restriction:145

142 2014 TTR, Art 4(2)(a). 143 2014  TTR, Art 4(2)(a). The Guidelines indicate (at para  118) that both direct and indirect price fixing is caught by this restriction. Direct agreement would include fixing on the exact price to be charged. Examples of indirect price fixing are: (i) fixing the margin; (ii) fixing the maximum level of discounts; (iii) linking the sales price of a product to the prices of competitors’ products; (iv) threats; (v) intimidation; (vi) warnings; (vii) penalties; or (viii) contract terminations in relation to whether the price level is observed. The Guidelines go on to note that the price fixing can be ‘more effective when combined with measures that reduce the licensee’s incentive to lower his selling price, such as the licensor obliging the licensee to apply a most-favoured-customer clause, ie an obligation to grant to a customer any more favourable terms granted to any other customer’. 144 2014 TTR, Art 4(2)(b). The Guidelines give examples (at para 119) of what is not permitted: (i) direct or indirect obligations, such as not selling to certain customers or to customers in certain territories or a requirement to refer orders to another licensee; (ii) indirect obligations, such as inducing the licensee to make sales by providing financial incentives or implementing a monitoring system to determine where licensed products end up or a quantity limitation. The Guidelines also note (at para 120) that this restriction does not cover sales restrictions on the licensor and that all sales restrictions are exempted up to a market share threshold of 30 per cent. 145 As noted at para 13.02 above, one of the exceptions present in the 2004 TTR was removed (providing protection to a licensee for the first two years of an agreement between noncompetitors, so that other licensees cannot make sales in the first licensee’s exclusive territory or to its exclusive customer group), so that now any passive sales restrictions between licensees will not have the benefit of the block exemption. According to the European Commission – Press Releases: Antitrust: Commission adopts revised competition regime for technology transfer agreements – frequently answered questions, Memo the removal aligns the 2014 TTR with the Vertical Agreements Regulation. Also, the Memo indicates it is possible to have such an passive restriction if there is an objective necessity for the licensee to penetrate new markets (and possibly for a period longer than two years). The Guidelines (para 126) provide further details: ‘This may be the case where licensees have to commit substantial investments in production assets and promotional activities in order to start up and develop a new market. The risks facing a new licensee may therefore be substantial, in particular since promotional expenses and investment in assets required to produce on the basis of a particular technology are often sunk, that is to say, that upon leaving that particular field of activity the investment cannot be used by the licensee for other activities or sold other than at a significant loss. For instance, the licensee may be the first to produce and sell a new type of product or the first to apply a new technology. In such circumstances, it is often the case that licensees would not enter into the licence agreement without protection for a certain period of time against (active and) passive sales into their territory or to their customer groups by other licensees’. However, the Guidelines note that a period, in such circumstances, of two years is normally sufficient.

881

13.28  The Technology Transfer Agreements Regulation and Accompanying Guidelines

–

passive sales restriction into exclusive territory/customer group – it is permissible to have a restriction on the licensee from making passive sales into an exclusive territory or to an exclusive customer group of the licensor;146

–

own use restriction – it is permissible to have a restriction on a licensee so that it can only produce contract products for its own use.147 This is only possible if the licensee is not prevented, whether actively or passively, from selling the contract products as spare parts for its own products;148

–

particular customer restriction – it is permissible to have a restriction on the licensee so that the licensee produces contract products only for a particular customer.149 A  condition for this restriction is that the licensor granted the license in order to create an alternative source of supply for the customer;

–

end-user restriction for a wholesale level licensee – it is permissible to have a restriction on a licensee so that it cannot make sales to end-users (but only to retailers) where the licensee is operating at the wholesale level of trade;150

–

unauthorised distributors restriction – it is permissible to have a restriction on a licensee so that it does not sell to unauthorised distributors, ie the licensee is a member of a selective distribution system.151

146 2014 TTR, Art 4(2)(b)(i). The Guidelines also note (at para 121) that a territory or customer group may be reserved for the licensor, and the licensor does not need to actually produce with the licensed technology any contract products for the specified territory or customer group. For example, such a reservation could be made by the licensor for later exploitation. 147 2014 TTR, Art 4(2)(b)(ii). The Guidelines indicate (para 122) that, if the contract product is a component, it is permissible for the licensee to be under an obligation to incorporate into its own products and also not to sell it to other producers. 148 This will include the licensee being able to supply third parties with spare parts where the third parties provide after-sales services on the contract products (see Guidelines, para 122). 149 2014 TTR, Art 4(2)(b)(iii). 150 2014 TTR, Art 4(2)(b)(iv). Such a restriction would allow the licensor to assign a licensee to the wholesale function: see Guidelines, para 124. 151 2014 TTR, Art 4(2)(b)(v). A ‘selective distribution system’ is defined as ‘a distribution system where the licensor undertakes to license the production of the contract products only to licensees selected on the basis of specified criteria and where these licensees undertake not to sell the contract products to unauthorised distributors’ (TTR, Art 1(1)(o)). This restriction would allow the licensor to impose an obligation on a licensee to form part of a selective distribution system, but if the restriction is imposed then it is necessary to take account of Art 4(2)(c), so that the licensee must ‘be permitted to sell both actively and passively to end users, without prejudice to the possibility to restrict the licensee to a wholesale function as provided for in Article  4(2)(b)(iv)’ (from Guidelines, para  125). However, if the territory operates a selective distributive system, such a ‘system cannot be combined with exclusive territories or exclusive customer groups where this would lead to a restrictive of active or passive sales to end-users as that would lead to a hardcore restriction under Article  4(2)(c), without the prejudice to the possibility of prohibiting a licensee from operating out of an unauthorised place of establishment’ (from Guidelines, para 125).

882

Excluded restrictions 13.29

•

Restriction on licensee making active/passive sales to end-users. The block exemption is not available where an agreement restricts a licensee in making passive or active sales to end-users where the licensee is a member of a ‘selective distribution system’.152

EXCLUDED RESTRICTIONS 13.29 If a licence agreement contains a provision with one of the following restrictions only that provision will not have the benefit of the exemption provided by Article  101(1); the rest of the agreement can have the benefit of the block exemption.153 The reason stated for these restrictions not being able to benefit from the block exemption is that there is a need to ‘protect incentives and to innovate and the appropriate application of intellectual property rights’.154 The restrictions are: •

Where the licensee is forced to grant exclusive licences to, or to assign, improvements.155 The block exemption is not available where provisions in an agreement require the licensee to grant (back) an exclusive licence, or to assign, to the licensor or a designated third party for the licensee’s ‘improvements to, or its own new applications of, the licensed

152 2014 TTR, Art 4(2)(c) See note 151 for meaning of ‘selective distribution system’. 153 2014 TTR, Art 5. See also the Guidelines (at para 128), which note that the restrictions set out in this Article will require individual assessment as to their anti- or pro-competitive effect and, if they are anti-competitive, they would be severed from the agreement in which they are contained. 154 From 2014 TTR, Recital 15. The Recital goes on to note that exclusive grant back obligations for severable improvements should be excluded from the block exemption. 155 Under the 2004  TTR this restriction applied to severable improvements only – that is, non-severable improvements were not covered by this restriction. 2014  TTR now applies to all improvements. According to the European Commission – Press Releases: Antitrust: Commission adopts revised competition regime for technology transfer agreements – frequently answered questions, Memo the change is to ensure there are sufficient incentives for follow-on innovation. The Guidelines (at para  131) indicate that a technology transfer agreement can include a provision which requires the licensee, on a non-exclusive basis, to grant back improvements, and have the benefit of the block exemption, even if the grant back obligation is non-reciprocal (that is, only imposed on the licensee) and also if the technology transfer agreement entitles the licensor to feed-on those improvements to other licensees. As the Guidelines explain further (in para  131): ‘A  non-reciprocal grant back obligation may promote the dissemination of new technology by permitting the licensor to freely determine whether and to what extent to pass on its own improvements to its licensees. A feed-on clause may also promote the dissemination of technology, in particular when each licensee knows at the time of contracting that it will be on an equal footing with other licensees in terms of the technology on the basis of which it is producing’.

883

13.29  The Technology Transfer Agreements Regulation and Accompanying Guidelines

technology’.156 The restriction applies whether there is a direct or indirect obligation on the licensee to grant such a licence or make an assignment. •

Restriction on a party challenging validity of another party’s intellectual property.157 The block exemption is not available where a provision in a technology transfer agreement stops a party challenging the validity of the intellectual property rights held by the other party in the EU.158 However, a licensor can include a provision in an exclusive licence which allows the licensor to terminate a technology transfer agreement if the licensee challenges the validity of the licensed technology rights.159

156 2014 TTR, Art 5(1)(a). The rationale for the restriction is that an exclusive licence or an assignment to improvements will reduce the incentive on the licensee to innovate as it ‘hinders the licensee in exploiting the improvements, including by way of licensing to third parties’ (Guidelines, para 129). An exclusive grant back prevents the licensee from exploiting the improvement for its own production or to license the improvement to third parties and this restriction would apply where the improvement ‘concerns the same application as the licensed technology and where the licensee develops new applications of the licensed technology’ (Guidelines, para  129). The restriction will not depend on whether the licensor pays consideration for the grant back of the severable improvement or for acquiring it on an exclusive basis. However, the existence and level of consideration may be relevant when an individual assessment is carried out under Art 101. Where consideration is paid then the incentive of the licensee to innovate is unlikely to be lessened according to the Guidelines (see para  130). The Guidelines also mention a possible negative effect on innovation where cross-licensing is taking place where there is a grant back obligation on both parties and obligation to share improvements. The effect may be that competitors cannot gain a competitive lead over each other, unless the purpose of the licence is to allow the parties to develop their respective technologies ‘and where the licence does not lead to use of the same technological base in the design of their products’. This is the case where the purpose of the licence is to create design freedom rather than improve the technological base of the licensee’ (from Guidelines, para 132). 157 Under the 2004 TTR the possibility to terminate in the event of a challenge by the licensee to the validity of the licensed intellectual property rights applied to all technology transfer agreements; but, under the 2014  TTR, this is now limited to agreements where there is an exclusive licence. 158 2014 TTR, Art 5(1)(b). The reasoning given in the Guidelines (at para 134) for forbidding no challenge clauses is that the licensee is in the best position to determine the validity of the intellectual property rights. The Guidelines also indicate (also at para 140) that the Commission will not be opposed to no-challenge clauses which relate to know-how ‘where once disclosed it is likely to be impossible or very difficult to recover the licensed know-how. In such cases, an obligation on the licensee not to challenge the licensed know-how promotes dissemination of new technology, in particular by allowing weaker licensors to license stronger licensees without fear of a challenge once the know-how has been absorbed by the licensee’. 159 2014 TTR, Art 5(1)(b). As noted above, the right to terminate is no longer available where there is a non-exclusive licence. The Guidelines indicate (at para 136) that, if the licensor was to have the right to terminate in a non-exclusive licence, the result could lead to a substantial loss to the licensee, if it has invested in machinery and tools and the machinery and tools could not be used to produce other products or where the licensee could not use the licensor’s technology, leading to the result for the licensee in not being able to carry out production. Such a termination right could have the same effect as a non-challenge clause. The Guidelines indicate, by way of example, the disincentive for a licensee to challenge the invalidity of a licensor’s intellectual property rights in a non-exclusive licence: ‘For example, in the context of standard essential patents the licensee producing a standard compliant product will necessarily have to use all patents reading on the standard. In such a case, challenging the validity of the relevant patents may result in a significant loss if the technology transfer agreement is terminated. Where the licensor’s technology is not standard essential, but has a very significant

884

Excluded restrictions 13.29

•

Restriction on non-competition. The block exemption is not available where an agreement restricts, whether directly or indirectly: –

a licensee’s ability to exploit its own technology; or

–

any party’s ability to carry out research and development (unless such a restriction is ‘indispensable to prevent the disclosure of the licensed know-how to third parties’).160 Such an obligation on a licensee not to compete with the licensor is often seen as a reasonable method of controlling the activities of the licensee (at least by a licensor) in an exclusive licence agreement. If a clause is included which forbids competition by itself this is likely to be in breach of Article 101 and therefore will not have the benefit provided by the 2014 TTR. An alternative method is for a licensee to provide a series of warranties, including: ○

that it is not developing, marketing and commercialising a competing product;

○

that it has not entered into an agreement with a third party in connection with any of the activities listed above; and

○

that it will notify the licensor if it starts any such activities or enters in an agreement with a third party regarding such activities;

(none of these specifically state that it cannot exploit its own technology to compete with the licensor); and for a separate clause to provide that the licensor to have the right to terminate the agreement if the licensee develops or acquires the rights to a competing product. 159 contd market position, the disincentive to challenge may also be high considering the difficulty for the licensee in finding a viable alternative technology to license-in’. In these types of situation, the licensee may be deterred from challenging the validity of the intellectual property if there was a risk that the technology transfer agreement would be terminated (Guidelines, para 137). The position is different where there is an exclusive licence as the licensor will be in a position of dependency, because the licensee will be the only source of income for the licensor (if royalties are dependent on the licensee producing products using the licensed technology rights) (see Guidelines, para 139). On this latter point the Guidelines (at paragraph 139) elaborate by way of example: ‘In this scenario, the incentives for innovation and for licensing out could be undermined if, for example, the licensor were to be locked into an agreement with an exclusive licensee which no longer makes significant efforts to develop, produce and market the product (to be) produced with the licensed technology rights. This is why the TTBER block exempts termination clauses for exclusive licensing agreements as long as also the other conditions of the safe harbour, such as respecting the market share threshold, are fulfilled’. 160 2014  TTR, Art 5(2). This restriction is the same as the hardcore restriction in Art 4(1)(d) (which concerns competitors rather than non-competitors here). The Guidelines (at para 141) note that for agreements between non-competitors, restrictions such as the one dealt with here generally do not have negative effects on competition or that the conditions of Art 101(3) are generally not satisfied and therefore an individual assessment is required.

885

13.30  The Technology Transfer Agreements Regulation and Accompanying Guidelines

WITHDRAWAL OF BENEFIT OF THE 2014 TTR IN AN INDIVIDUAL CASE 13.30 The Commission has the power to withdraw the benefit of the 2014 TTR161 in an individual case. This can be where a technology transfer agreement, to which the block exemption under the 2014  TTR applies, is nevertheless incompatible with Article 101(3).162 Two instances are specified ‘in particular’: •

access of third parties’ technologies to the market is restricted (such as the ‘cumulative effect of parallel networks of similar restrictive agreements prohibiting licensees from using third parties’ technologies’);163

•

access of the potential licensees to the market is restricted (such as the ‘cumulative effect of parallel networks of similar restrictive agreements prohibiting licensors from licensing to other licensees or because the only technology owner licensing out relevant technology rights concludes an exclusive licence with a licensee who is already active on the product market on the basis of substitutable technology rights’).164

In addition, a competent authority (such as the Competition and Markets Authority in the UK) in a particular member state can also withdraw the benefit of the TTR where the technology transfer agreement is incompatible with Article 101(3) in that member state.165

NON-APPLICATION OF THE 2014 TTR FOR PARALLEL NETWORKS 13.31 The Commission can, by Regulation, disapply the TTR in the case of parallel networks of similar technology transfer agreements that cover more than 50 per cent166 of a relevant market in respect of specific restraints in such agreements.167 Where the Commission makes an exclusion from the scope of 161 162 163 164 165

The Commission has power to do this under Regulation (EC) 1/2003 [2003] OJ L1/1, Art 29(1). 2014 TTR, Art 6(1). 2014 TTR, Art 6(1)(a). 2014 TTR, Art 6(1)(b). 2014 TTR, Art 6(2). A competition authority has this power under Regulation (EC) 1/2003 [2003] OJ L1/1, Art 29(2). The Guidelines note (at para 146) that where a block exemption is to be withdrawn then the burden is on the competition authority to prove that the agreement falls within Art 101(1), EU Treaty and that it does not satisfy all the four conditions of Art 101(3), EU Treaty. The Guidelines indicate that the four conditions stated in Art 101(3) are cumulative and all must be fulfilled for the exception rule to be applicable, and accordingly the block exemption can be withdrawn where an agreement fails to fulfil one or more of the four conditions in Art 101(3) (see Guidelines, para 147). 166 To establish the 50% market coverage ratio, each individual network of licence agreements which contain restraints (or combinations of restraints) will be taken into account (see Guidelines, para 151). 167 2014 TTR, Art 7(1).

886

Relationship between the 2014 TTR and other block exemptions 13.33

the 2014 TTR, it would affect all undertakings involved (ie it will not apply to one undertaking only).168 Where a Regulation is made, it cannot come into force until six months after its adoption.169

RELATIONSHIP BETWEEN THE 2014 TTR AND OTHER BLOCK EXEMPTIONS 13.32 The 2014 TTR now includes a provision that explicitly recognises that it does not apply to licensing arrangements:170 •

in research and development agreements which are within the scope of the R&D Agreements Regulation; or

• in specialisation agreements which are within the scope of the Specialisation Agreements Regulation. The 2014 TTR itself does not consider the Vertical Agreements Regulation but the Guidelines deal with the interlinking of the two (see below). The Commission, in the Guidelines, provides limited guidance as to where the TTR and other block exemptions relevant to this book interact. The following are the relevant points from the Guidelines:

R&D Agreements Regulation171 13.33 The Guidelines note that the purpose of the R&D  Agreements Regulation concerns agreements: •

involving two or more undertakings;

•

who agree to carry out research and development;

•

who agree to jointly exploit the results of the research and development.

This can be done by a joint team of the undertakings, a separate organisation or the undertakings themselves, or given to a third party, or as allocated

168 See Guidelines, para 149 Where the Commission adopts a Regulation as provided for under TTR, Art 7, it will then provide guidance on the application of Art 101 to individual agreements and where ‘appropriate, the Commission will take a decision in an individual case, which can provide guidance to all the undertakings operating in the market concerned’ (Guidelines, para 150). 169 2014 TTR, Art 7(2). 170 2014 TTR, Art 9. 171 Commission Regulation (EU) 1218/2010 on the application of Article 101(3) of the Treaty to categories of research and development agreements. See Guidelines, paras 73–74.

887

13.34  The Technology Transfer Agreements Regulation and Accompanying Guidelines

between parties depending on the specialisation of the undertakings as to research, development, production and distribution as well as licensing. The R&D Agreements Regulation in its current version also would cover paid-for research and development, where two or more undertakings will agree that one party carries out the actual research and development, but another party will finance it (whether or not there is joint exploitation of the results of the research and development). A  research and development agreement can deal with the question of licensing of the results of the research and development and come within the R&D  Agreements Regulation, and only that Regulation will cover such licensing and not the 2014 TTR. However, any actual licence entered into with a third party would not come within the R&D  Agreements Regulation, because the third-party licensee is not a party to the research and development agreement. However, if the licence with the third party fulfils the conditions of the 2014  TTR, it would have the benefit of the block exemption.

Specialisation Agreements Regulation172 13.34 The Guidelines note that the purpose of the Specialisation Agreements Regulation concerns agreements particularly: •

involving two or more undertakings;

•

who agree to enter into joint production agreements (where they jointly produce certain products); and

• that contain provisions dealing with the assignment or use of intellectual property rights, as long as the assignment or use of intellectual property rights does not constitute the primary object of the agreement. If the undertakings establish a production joint venture and they license to the joint venture the right to exploit technology for use by the joint venture for the production of products, such licensing will be subject to the Specialisation Agreements Regulation. But if the joint venture licenses the technology to a third party and the activity is not linked to the production of products by the joint venture, the Specialisation Agreements Regulation will not apply. The Guidelines consider such licensing arrangements, where the parties’ technologies are brought together, as being technology pools (and outside the scope of the 2014 TTR).

172 Commission Regulation (EU) 1218/2010  of 14  December  2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. See Guidelines, paras 71–72.

888

Relationship between the 2014 TTR and other block exemptions 13.35

Vertical Agreements Regulation173 13.35 The 2014  TTR itself does not contain a provision concerning the application of the Vertical Agreements Regulation to licensing of intellectual property, as the 2014  TTR does in relation to the R&D  Agreements Regulation and the Specialisation Agreements Regulation. But the Guidelines do, and they indicate that the Vertical Agreements Regulation concerns agreements: •

between two or more undertakings;

•

where the undertakings are operating at different levels of the production or distribution chain for the purposes of the agreement; and

•

that deal with the conditions under which the parties may purchase, sell or resell goods or services (and will cover supply and distribution agreements).

The Guidelines note that the 2014  TTR will only cover two undertakings and also only where a licensee sells products which incorporate licensed technology. A  licensee will be a supplier for the purposes of the Vertical Agreements Regulation. Although there is a close link between the 2014 TTR and the Vertical Agreements Regulation, the 2014 TTR will cover the licensor and the licensee, while the Vertical Agreements Regulations (and the Guidelines on Vertical Restraints) will cover the licensee and its buyers. The Guidelines also note here that the 2014  TTR can block exempt an agreement between a licensor and a licensee which requires the licensee to sell the products which incorporate the licensed technology in a particular way, such as obliging the licensee to establish a certain type of distribution system (eg  an exclusive or selective distribution system). Any distribution agreements concluded by the licensee would be covered by the Vertical Agreements Regulation and not the 2014 TTR. The Guidelines provide an example of the link between the two Regulations: •

a licensor can require the licensee to establish a system based on exclusive distribution in accordance with specified rules; but

•

in accordance with the Vertical Agreements Regulation, one distributor must be free to make: –

passive sales into the territories of other exclusive distributors of the licensee;174 and

– active and passive sales into the territories covered by the distribution systems of other suppliers (who are licensees and who 173 Commission Regulation (EU) 330/2010 on the application of Article 101(3) of the Treaty to categories of vertical agreements and concerted practices. See Guidelines, paras 75–78. 174 Guidelines, para 77.

889

13.36  The Technology Transfer Agreements Regulation and Accompanying Guidelines

produce their own products using the licensed technology rights). For the purposes of the Vertical Agreements Regulation, each licensee is considered a separate supplier.175

AGREEMENTS THAT DO NOT COME WITHIN THE SCOPE OF THE 2014 TTR 13.36 The Guidelines also set out what will happen to technology transfer agreements which do not come within the scope of the 2014 TTR. Principally those are agreements which involve more than two parties or where the market share is greater than stated in the 2014 TTR. Where these situations arise, the agreements will be subject to individual assessment. There appears to be a clear division between those agreements which contain hardcore restrictions (and will never be acceptable) and those agreements which merely involve more than two parties or the market share is exceeded. For these latter types of agreement, the Guidelines indicate there is no presumption that Article 101(1) applies, if they do not restrict competition within the meaning of Article 101(1) and are in accordance with the conditions set out in Article 101(3).176 The Guidelines set out in some detail the factors which will need consideration on agreements which do not fall within the scope of the 2014 TTR, principally: ‘(a) the nature of the agreement; (b) the market position of the parties; (c) the market position of competitors; (d) the market position of buyers on the relevant markets; 175 Guidelines, para 78. This point is further elaborated in the Guidelines: ‘However, the reasons underlying the block exemption of active sales restrictions within a supplier’s distribution system contained in that Regulation, may also apply where the products incorporating the licensed technology are sold by different licensees under a common brand belonging to the licensor. When the products incorporating the licensed technology are sold under a common brand identity there may be the same efficiency reasons for applying the same types of restraints between licensees’ distribution systems as within a single vertical distribution system. In such cases the Commission would be unlikely to challenge restraints where, by analogy, the requirements of Commission Regulation (EU) 330/2010 are fulfilled. For a common brand identity to exist the products must be sold and marketed under a common brand, which is predominant in terms of conveying quality and other relevant information to the consumer. It does not suffice that in addition to the licensees’ brands the product carries the licensor’s brand, which identifies it as the source of the licensed technology’. 176 Guidelines, para  156. They are deemed valid and enforceable, and nor is there is any presumption of illegality for agreements which fall outside the scope of the block exemption provided by the 2014 TTR (as long as they contain no hardcore restrictions).

890

Agreements that do not come within the scope of the 2014 TTR 13.37

(e) entry barriers; and (f) maturity of the market;’177 together with some assumptions in the Guidelines about whether particular types of provision are pro- or anti-competitive. In essence, each case will require a mixture of applying these factors, consideration of whether the provisions contain the hardcore restrictions and/or excluded restrictions, together with consideration of the Guidelines.178 This is likely to be a more complex activity than the relatively ‘simpler’ exercise of ensuring that an agreement does not contain hardcore restrictions or excluded restrictions, where the parties know (or have carried out sufficient analysis to determine) that they will not be exceeding the market shares set out in the 2014 TTR. Consideration of this more complex activity is outside the scope of the book and will invariably require specialist advice. Also, in the 2014 Guidelines there are two areas which receive particular attention and fall outside the block exemption provided by the 2014 TTR: •

settlement agreements; and

•

technology pools.

The Commission has developed its thinking on such matters, and also these types of agreement are more likely to be relevant to the type of parties who would be drafting agreements to which the 2014 TTR would apply – such as a party of any size having an interest in settling a dispute,179 or a start-up company who is working in complementary fields or technologies to other similar companies and who may wish to pool their technologies, which will save them transaction costs. The pooling of newer complementary technologies may also be attractive to potential licensees; they will not have to negotiate with separate companies to acquire all the necessary technologies, and they will save on the amount of royalties they need to pay. Below are the main points from the Guidelines that sets out the Commission’s current view on such points.

Settlement agreements180 Introduction 13.37 Where parties are involved in a dispute, a settlement agreement is a normally legitimate way for the parties to compromise. As part of the 177 Guidelines, para 159. 178 Guidelines, paras 159–223. 179 It is possible to argue that a smaller undertaking may have a greater incentive to enter a settlement agreement, because of the limited resources available to it. 180 Drawn from the Guidelines, paras 234–243.

891

13.38  The Technology Transfer Agreements Regulation and Accompanying Guidelines

settlement, the parties can license their technology rights to bring to an end their dispute and to stop one party using its intellectual property rights to prevent another using its technology rights.181 The Guidelines indicate that licensing (including cross-licensing), when used in a settlement agreement, does not normally restrict competition because, after the settlement of the dispute, the parties are able to exploit their technology. If the licensee does not have a licence to technology which is the subject matter of the dispute, the licensee will not have access to the market, and a settlement agreement that provides such a licence will not normally be caught by Article 101(1). However, Article  101(1) may catch individual provisions of a settlement agreement, and they will be treated in the same way as in other licensing agreements, with particular attention paid as to whether the parties are potential or actual competitors. The Guidelines consider three areas which are of particular concern in settlement agreements: •

pay-for-restriction (pay-for-delay);

•

cross-licensing; and

•

non-challenge clauses.

Changes in the 2014 Guidelines over the previous version 13.38 The Commission in the 2014 Guidelines has developed the section on settlement agreements over the 2004 version of the Guidelines, so that the following are made clearer: (1) Article 101(1) may prohibit a settlement agreement which has the result that a licensee is delayed or has limited ability to launch a product; (2) a settlement agreement (where the parties are competitors) which results in a significant transfer of value from the licensor to the licensee may amount to market allocation or market sharing (‘pay-fordelay’); and (3) although a no-challenge clause is an inherent part of a settlement agreement, it may still breach Article 101(1) in specific circumstances. 181 The Guidelines set out in more detail some of the reasons why parties may wish to settle their dispute or why it is in the public interest to do so: ‘The parties may prefer to discontinue the dispute or litigation because it proves to be too costly, time-consuming and/or uncertain as regards its outcome. Settlements can also save courts and/or competent administrative bodies effort in deciding on the matter and can therefore give rise to welfare enhancing benefits. On the other hand, it is in the general public interest to remove invalid intellectual property rights as an unmerited barrier to innovation and economic activity’.

892

Agreements that do not come within the scope of the 2014 TTR 13.40

Pay-for-restriction (pay-for-delay) 13.39 A pay-for-restriction (pay-for-delay) provision often concerns: •

a value transfer from one party, and

•

in return, the other party limits its entry or expansion on a market;

rather than a transfer of technology rights. Where this is the case, the settlement agreement may be caught by Article 101(1). However, if the settlement agreement: •

also includes provisions for the licensing of technology rights which are the subject matter of the dispute; and

•

leads to the licensee delaying or otherwise limiting its ability to launch a product on the market;

the settlement agreement may be caught by Article 101(1). In such a case, there would be a need to assess whether the agreement contains provisions which are hardcore restrictions, in particular whether there is: •

an allocation of market or customers;182 or

•

a restriction on a licensee being able to exploit its own technology rights.183

The Commission will be more likely to find there is a risk of market allocation or market sharing where the parties are actual or potential competitors and there is a significant transfer of value from the licensor to the licensee.

Cross-licensing 13.40 A settlement agreement which includes provisions where the parties: •

cross-licence their technologies; and

•

impose restrictions on their use of the technologies (including restricting licensing to third parties);

may be caught by Article 101(1). This is particularly likely to be so where the parties have a significant degree of market power and the settlement agreement contains more restrictions than are necessary to unblock the technologies. If the parties share markets, or fix reciprocal running royalties which have a significant impact on market prices, Article  101(1) is particularly likely to apply. 182 2014 TTR, Art 4(1)(c). 183 2014 TTR, Art 4(1)(d).

893

13.41  The Technology Transfer Agreements Regulation and Accompanying Guidelines

The parties may enter into a settlement agreement where there are provisions which permit the parties to use each other’s technologies and the agreement allows for future developments. In such cases, it is necessary to assess the impact on the parties’ incentive to innovate. If the parties have a significant degree of market power, Article  101(1) is likely to apply if the agreement prevents a party gaining a competitive lead over another. Article  101(3) is also likely to apply.184 A  settlement agreement which has an objective to allow a party to use its own technology and not be blocked by another party does not require that the parties have to share future innovations.185

Non-challenge clauses 13.41 The Guidelines indicate that a non-challenge clause in a settlement agreement falls outside Article 101(1). This is because of the nature of a settlement agreement: that, after entering the settlement agreement, the parties have agreed not to challenge the intellectual property rights which are the subject matter of their dispute. The Guidelines do indicate that a non-challenge clause might be anticompetitive and be caught by Article 101(1) in particular circumstances. This will occur where the restriction on freedom to challenge is not part of the subject matter of the intellectual property right. The Guidelines gives three examples: •

where there is a grant of an intellectual property right after the provision of incorrect or misleading information;

•

where a licensor, in addition to the licensing of technology rights, induces the licensee, whether financially or otherwise, not to challenge the validity of the technology rights;

•

the technology rights are a necessary input for the licensee’s production.186

184 The Guidelines indicate that such a restriction is unlikely to be indispensable within the meaning of the third condition of Article 101(3) (which concerns any concerted practice or category of concerted practices). 185 The Guidelines, para 241, expand further on this point: ‘However, the parties are unlikely to be prevented from gaining a competitive lead over each other where the purpose of the licence is to allow the parties to develop their respective technologies and where the licence does not lead them to use the same technological solutions. Such agreements merely create design freedom by preventing future infringement claims by the other party’. 186 These examples, in the Guidelines at para 243, refer to the discussion at para  136 on Art 5(1)(b) (that is the excluded restriction on a party to challenge validity of another party’s intellectual property). See note 159.

894

Agreements that do not come within the scope of the 2014 TTR 13.44

Technology pools Introduction 13.42 The 2014 TTR does not apply to agreements which have the purpose of setting up technology pools,187 particularly as their purpose is not to permit a licensee to produce contract products,188 and they often involve more than two parties189 – a point that the Guidelines emphasise in stating that the establishment of technology pools and the terms and conditions of their operation are not within the scope of the block exemption in the 2014 TTR because a technology pool does not allow a licensee to produce contract products.190

Changes in the 2014 Guidelines over the previous version 13.43 The Guidelines to the 2014 TTR covers new ground by setting out the circumstances when a technology pool can fall outside Article  101(1) where it fulfils certain conditions. This ‘safe harbour’ will apply: •

for the creation and operation of the technology pool;

•

to the licensing out of the pooled technology to parties who are not members of the technology pool; and

•

irrespective of the market position of the parties.191

Meaning of a ‘technology pool’ 13.44 For the purposes of the Guidelines, technology pools: •

are arrangements;

•

involving two or more parties;

•

with the parties assembling a package technology; and

•

the package of technology is licensed: –

to contributors to the pool; and also

–

to third parties.192

187 2014 TTR, Recital 7. 188 See meaning of a technology transfer agreement, 2014 TTR, Art 1(c), and Guidelines, paras 247 and 58. 189 One of the essential requirements for a technology transfer agreement to come within the block exemption provided by 2014 TTR: Arts 1(1)(c), 2. 190 Guidelines, para 247. 191 Guidelines, para 261. 192 Guidelines, para 244.

895

13.45  The Technology Transfer Agreements Regulation and Accompanying Guidelines

The Guidelines note that an arrangement for a technology pool can be a simple arrangement between a few parties or something more elaborate, such as a separate entity being responsible for the licensing of the pooled technologies.

Pro- and anti-competitive effects of technology pools Pro-competitive effects193 13.45 The Guidelines note that a technology pool does not, by definition, create or support industry standards but often does so. The type of procompetitive effects a technology pool has can include: •

a reduction in transaction costs (such as there only being one type of licence a potential licensee will needs to enter);

•

setting a limit on cumulative royalties ‘to avoid double marginalisation’;

•

permitting one-stop licensing of the technologies in the technology pool.

The simplification that a technology pool can provide in term of licensing is particularly relevant where the use of intellectual property rights is widespread and it is necessary for a party to obtain a large number of licences to operate in a particular market.

Anti-competitive effects194 13.46 The nature of a technology pool normally involves the joint selling of the pooled technologies. If the pooled technologies are wholly or partly made up of substitutable technologies then, according to the Guidelines, the technology pool can amount to a price-fixing cartel. Such a technology pool can reduce competition between parties, and when it supports an industry standard or is the industry standard, can also reduce innovation by preventing alternative technologies, such as making it harder for the alternative technologies to enter the market.

Approach of the EU in deciding whether a technology pool has pro- or anti-competitive effects 13.47 The Guidelines list the type of factors which influence the Commission’s view as to whether a technology pool will restrict competition 193 Guidelines, para 245. 194 Guidelines, para 246.

896

Agreements that do not come within the scope of the 2014 TTR 13.47

based on the way it is formed, organised and it operates. The specific factors include:195 •

how open the process is for the creation of the pool;

•

the process by which there is selection of the pooled technologies (and the nature of those technologies);

•

whether independent experts are involved in the creation and operation of the technology pool (and the extent of their involvement);

•

whether there are safeguards in place to prevent the exchange of sensitive information;

•

whether a mechanism is in place to resolve disputes.

Perhaps the most interesting and relevant part in the Guidelines concerning these factors relates to the selection and nature of the pooled technologies, as they deal with the type and combination of technologies which are likely to find a safe harbour which the Guidelines establish.196 The Guidelines draw a distinction between: •

technological complements197 and technological substitutes;198 and

•

essential and non-essential technologies;199

in assessing the ‘competitive risks and the efficiency enhancing potential of technology pools’ and those technologies which are outside a pool.200 The Guidelines note that:

195 Guidelines, para 248. 196 As long as the technology pool fulfils the conditions set out below. 197 A  ‘technological complement’ means ‘two technologies are complements as opposed to substitutes when they are both required to produce the product or carry out the process to which the technologies relate’: Guidelines, para 251. 198 A  ‘technological substitute’ means ‘two technologies [that] are substitutes when either technology allows the holder to produce the product or carry out the process to which the technologies relate’: Guidelines, para 251. 199 A  technology is essential if (a) it is necessary to produce a particular product, or (b) it is necessary to produce a product in accordance with a standard that includes the pooled technology: Guidelines, para 252. The Guidelines elaborate on the meaning of essential and non-essential in these two cases: ‘In the first case, a technology is essential (as opposed to non-essential) if there are no viable substitutes (both from a commercial and technical point of view) for that technology inside or outside the pool and the technology in question constitutes a necessary part of the package of technologies for the purposes of producing the product(s) or carrying out the process(-es) to which the pool relates. In the second case, a technology is essential if it constitutes a necessary part (that is to say, there are no viable substitutes) of the pooled technologies needed to comply with the standard supported by the pool (standard essential technologies). Technologies that are essential are by necessity also complements. The fact that a technology holder merely declares that a technology is essential does not imply that such a technology is essential according to the criteria described in this point’. 200 Guidelines, para 250.

897

13.47  The Technology Transfer Agreements Regulation and Accompanying Guidelines

•

if the technologies are substitutes, royalties are likely to be higher because ‘licensees do not benefit from rivalry between technologies in question’;201

•

if the technologies are complements, a technology pool reduces transaction costs and can lead to lower overall royalties because the parties to the technology pool can fix a common royalty rate;202

•

if it is not always possible to clearly distinguish between complementary and substitute technologies (they could be both complementary and substitute at the same time) so that, where efficiencies result from integrating two technologies, licensees are likely to want licences to both, the technologies will be treated as complements even if it is possible to substitute one for the other;203

•

including substitute technologies in a technology pool can restrict inter-technology competition, as it can amount to ‘collective bundling’ and lead to price fixing. The Commission’s view is that including a significant amount of substitute technologies in the technology pool:

•

–

is a violation of Article 101(1); and

–

is unlikely to fulfil the conditions of Article 101(3);204

a technology pool which contains a significant amount of complementary (and non-essential) technologies is likely to have an adverse impact on technologies outside the pool – licensees are likely to have little incentive to license a competing technology outside the pool if the licensee is already paying a royalty for a substitute technology and there will be a risk of foreclosure of third-party technologies.205 It also may lead to the pool including more technologies than are necessary for a licensee to produce a product or for the licensee to comply with a standard, as well as forcing the licensee to pay for more technology than it needs. If a technology pool includes non-essential technologies and the pool has a significant position on any relevant market, it may be in breach of Article 101(1).

201 Guidelines, para 253. 202 On this point, the Guidelines note that, if each party fixes their own royalty rate, that party may not take account that a higher royalty for one technology will often lead to a decrease in demand for complementary technologies and if ‘royalties for complementary technologies are set individually, the total of these royalties may often exceed what would be collectively set by a pool for the package of the same complementary technologies’. 203 Guidelines, para 254. 204 The Guidelines go on to indicate on this point (at para 255): ‘Given that the technologies in question are alternatives, no transaction cost savings accrue from including both technologies in the pool. In the absence of the pool licensees would not have demanded both technologies. To alleviate the competition concerns it is not sufficient that the parties remain free to license independently. This is because the parties are likely to have little incentive to license independently in order not to undermine the pool’s licensing activity, which allows them to jointly exercise market power’. 205 Guidelines, para 262.

898

Agreements that do not come within the scope of the 2014 TTR 13.48

Licences granted by the technology pool 13.48 The Guidelines also consider the grant of licences by the technology pools to licensees and whether they will be caught by Article 101(1), as the 2014 TTR is not likely to apply to them. The Commission, in assessing such licences, will base any assessment on four principles: ‘(a) the stronger the market position of the pool, the greater the risk of anti-competitive effects; (b) the stronger the market position of the pool, the more likely that agreeing not to license to all potential licensees or to license on discriminatory terms will infringe Article 101; (c) pools should not unduly foreclose third party technologies or limit the creation of alternative pools; (d) the technology transfer agreements should not contain any of the hardcore restrictions listed in Article 4 of the TTBER.’ The following are some of the specific points that the Guidelines make as to what provisions are likely to be acceptable:206 •

While the parties to the technology pool are free to negotiate and fix the royalties for use of the technology in the pool and the share that each party will receive, licensees must be free to fix the price for products they produce under the licence they receive from the technology pool.207

•

If the technology pool has a dominant position in the market, royalties and other provisions of the licence agreement should be non-excessive and non-discriminatory and the grant should be on a non-exclusive basis.208

•

There should be no restriction on licensees and licensors developing competing products and standards, as well as being free to grant and obtain licences outside the technology pool.209

206 Guidelines, paras 268–273. 207 The freedom to negotiate and fix royalties is subject to any commitment that the technology pool gives to grant licences on fair, reasonable and non-discriminatory (FRAND) terms. 208 The Guidelines on this point go on to indicate that the reason for this point is to ‘ensure the pool is open and does not lead to foreclosure and other anti-competitive effects on downstream markets’. Also, the technology pool can set different royalty rates for different uses of the pooled technology. The Commission considers different royalty rates for different product markets as not being restrictive of competition, but might be within a product market. 209 The Guidelines make a similar point here on the dangers of foreclosure of third-party technologies as for the previous point, but going on to note that containing such a provision might also limit innovation for competing technological solutions, particularly where the technology in the pool is included in an industry standard and the parties are subject to noncompete obligations.

899

13.49  The Technology Transfer Agreements Regulation and Accompanying Guidelines

•

If a licence contains a grant back obligation, such a provision should be non-exclusive and limited only to those provisions which are essential and important to the use of the pooled technology.210

•

A non-challenge clause with a right to terminate in a licence should not be included.211

The creation of a ‘safe harbour’ for a technology pool 13.49 For the Commission, the creation and operation of a technology pool will not be subject to Article 101(1) if it fulfils all of the following conditions: ‘(a) participation in the pool creation process is open to all interested technology rights owners; (b) sufficient safeguards are adopted to ensure that only essential technologies (which therefore necessarily are also complements) are pooled; (c) sufficient safeguards are adopted to ensure that exchange of sensitive information (such as pricing and output data) is restricted to what is necessary for the creation and operation of the pool; (d) the pooled technologies are licensed into the pool on a nonexclusive basis; (e) the pooled technologies are licensed out to all potential licensees on FRAND212 terms; (f) the parties contributing technology to the pool and the licensees are free to challenge the validity and the essentiality of the pooled technologies; and (g) the parties contributing technology to the pool and the licensee remain free to develop competing products and technology.’213 If these conditions are fulfilled, the ‘safe harbour’ will apply not only to the licensing among the members of the technology pool but also to licences granted to third parties and will also apply irrespective of the market position of the parties.214

210 The Commission considers it ‘legitimate to include a grant back obligation so that that the exploitation of the pooled technology cannot be held up by licensees, including subcontractors working under the licence of the licensee, that hold or obtain essential patents’. 211 The Guidelines note that one problem with a technology pool is that it might shield invalid patents. The inclusion of such patents might raise the price that the licensee has to pay (paying for more technology than it needs) and also, if the licensee challenges the validity of the pooled technology, it might fail if there is at least one valid patent in the technology pool. 212 See note 207 for the meaning of FRAND. 213 Guidelines, para 261. 214 Guidelines, para 261.

900

CHAPTER 14

Guidelines on Horizontal Agreements and Regulations on R&D and Specialisation Agreements Scope of this chapter 902 Guidelines on horizontal agreements 903 Background904 Purpose of the Guidelines 905 Scope of the Guidelines 905 Chapter on R&D agreements 907 Relevant markets 908 Assessment of R&D agreements under Article 101(1) 910 Main competition concerns 910 R&D agreements which have as their object restrictions on competition911 R&D agreements which have restrictive effects on competition 911 R&D agreements that are unlikely to fall under Article 101(1) 911 Market share 912 R&D directed towards improvement or refinement of existing products or technologies 912 R&D directed at a new product or technology 913 Access913 Assessment under Article 101(3) 914 Case study examples 915 Chapter on production agreements 916 Introduction916 What are production agreements? 917 Detailed treatment of production agreements 918 R&D Agreements block exemption Regulation 919 Introduction919 Introduction to the 2010 R&D Agreements Regulation 920 The changing, and current, view of the Commission concerning R&D agreements920 Summary of main differences between the 2010 R&D Agreements Regulation and its (2000) predecessor 922 Structure of 2010 R&D Agreements Regulation 925 What is research and development? 926 The purpose of the 2010 R&D Agreements Regulation 927 Duration of the 2010 R&D Agreements Regulation 927 Number of parties 927

901

14.01  Guidelines on Horizontal Agreements and Regulations on R&D Qualifying R&D agreements 928 Group A: R&D agreements involving joint R&D and/or joint exploitation where funding of R&D is not mentioned 928 Group B: where one party funds R&D and with the R&D agreement involving joint R&D and/or joint exploitation 928 Meaning of certain defined terms used in the different types of R&D agreements929 ‘Joint’, ‘specialisation in the context of exploitation’, ‘specialisation in the context of research and development’ 929 ‘Paid-for research and development’ 932 ‘Exploitation of the results’ 932 Conditions for exemption 933 Provisions that must be included in an R&D agreement 933 Access by parties to the results 934 Access to pre-existing know-how 936 Joint exploitation must be in respect of ‘indispensable’ intellectual property937 Specialisation in production 938 Duration of exemption and market share criteria 939 Non-competing undertakings 939 Competing undertakings 939 For parties who are competing undertakings and their agreement does not involve a financing party (Group A) 940 For parties who are competing undertakings and where one party is funding the R&D (Group B) 940 Provisions which prevent application of the block exemption 941 Introduction941 Hardcore restrictions 941 Excluded restrictions 945 Specialisation Agreements Regulation 946

SCOPE OF THIS CHAPTER 14.01 This chapter provides more detailed descriptions of: •

the Guidelines on horizontal agreements (‘Guidelines’);1

•

the 2010 R&D Agreements Regulation;2 and

1 2

Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements ([2010] C11/1). Commission Regulation (EU) 1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements.

902

Guidelines on horizontal agreements 14.02

•

the Specialisation Agreements Regulation;3

which are outlined in summary in Chapter 12.

GUIDELINES ON HORIZONTAL AGREEMENTS 14.02 The latest version of the Guidelines was published in 2011.4 The previous version published in 2001 (‘2001 Guidelines’)5 represented a major advance on the information that was previously available from the Commission on whether horizontal agreements infringed Article 101(1) of the EU Treaty. The Guidelines include both a general discussion of horizontal agreements as well as consideration of specific types of horizontal agreement, including: •

research and development agreements;

•

production agreements, including: –

joint production agreements, whereby the parties agree to produce certain products jointly; and

– sub-contracting (including specialisation sub-contracting) agreements (which the Commission considers to be sometimes vertical agreements and sometimes horizontal agreements; only horizontal aspects are dealt with in this Guidelines); •

purchasing agreements (that is, agreements for the joint buying of products);

•

commercialisation agreements (that is, co-operation between competitors in the selling, distribution or promotion of their substitute products);

•

agreements on standards (that is, agreements which have as their primary objective the definition of technical or quality requirements with which current or future products, production processes or methods may comply, including agreements setting out standards on the environmental performance of products or production processes).

The current Guidelines compared to the 2001 version, in relation to the sections which are summarised below, do not differ significantly, but there is some change in method of analysis as well as the introduction of a

3 4 5

Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01). Commission Notice – Guidelines on the applicability of Article  81 of the EC  Treaty to horizontal cooperation agreements (2001/C 3/02).

903

14.03  Guidelines on Horizontal Agreements and Regulations on R&D

new Chapter (Chapter 2, setting out general principles on the competitive assessment of information exchange).6 The following paragraphs will summarise relevant parts of the Commission’s Guidelines. They focus mainly on R&D agreements, but will also mention production agreements, particularly specialisation agreements, as these may occasionally be relevant to technology transfer. The other types of agreement described in the Guidelines are not discussed in this chapter.

Background 14.03 Whilst the Guidelines are not strictly binding on the Commission, they provide useful guidance on: •

when the Commission considers that an R&D  agreement will breach Article 101(1); and

•

whether an R&D  agreement is likely to qualify for exemption under Article 101(3).

Before the introduction of the Guidelines, it was difficult to advise with confidence on whether many R&D agreements infringed Article 101. Many R&D agreements appeared to be either too ‘early-stage’ or insignificant to be caught by Article 101. Over the years, the Commission had indicated that certain categories of agreement, including certain types of R&D  agreement, did not breach Article 101. However, this has not always helped, as many R&D agreements have not fitted into these categories. An example of this was the Commission’s often-repeated statement that R&D agreements which were purely concerned with R&D and did not include any restrictions in relation to commercialisation, did not generally breach Article 101. However, agreements of this kind are rarely encountered in practice: many R&D  agreements include provisions under which the parties have different commercialisation rights, for example one party has exclusive rights, or each party has rights in a different field or territory. Such a restrictive view as to the commercial realities or practice of R&D  is no longer present, to an extent, in the 2010  R&D  Agreements Regulation. It now explicitly recognises that one party may have a limited role in an R&D agreement (by only providing funding) as well as setting out in more detail that it is possible to allocate to one party the commercialisation activities such as production and distribution of products, including through the use of exclusive licensing.

6

Some of this seems to be prompted following the decision in Expedia Inc v
Autorité de la concurrence and Others, Case C-226/11 which focused on how an agreement which contains a restriction ‘by object’ cannot take advantage of the safe harbour created by the Notice on Agreements of Minor Importance. See para 12.69 onwards.

904

Guidelines on horizontal agreements 14.05

Most R&D  agreements have fallen between these two extremes and there had been relatively little helpful guidance from the Commission in respect of such agreements. Many relatively small-scale R&D agreements have been neither clearly outside the scope of Article 101, nor clearly within the scope of previous R&D Agreements Regulations. Parties to such agreements have therefore faced the dilemma of whether (a) to do nothing, hoping that the agreement falls outside Article 101(1) but running the risk that it does not, or (b) to incur the expense of carrying out an expensive analysis of whether their agreement fell outside Article 101(1). In this context, the Guidelines are a major step forward. They provide a detailed analysis of when certain types of agreement, including R&D agreements, are likely to present EU competition law problems.

Purpose of the Guidelines 14.04 The purpose of the Guidelines is to provide an analytical framework for the most common types of horizontal co-operation, and the ‘framework is primarily based on the legal and economic criteria that helps to analyse a horizontal co-operation agreement and the context in which it occurs’.7 However, being only guidelines, they are without prejudice to any interpretation that may be given by the ECJ in relation to the application of Article 101 to horizontal co-operation agreements.

Scope of the Guidelines 14.05 The Guidelines cover agreements entered into between companies operating at the same level(s) in the market, for example at the same level of production or distribution.8 The focus is on co-operation between competitors, but the term ‘competitors’ is used to include both actual and potential competitors.9 The Guidelines are concerned with the most common horizontal co-operation agreements, namely agreements on R&D, production (including sub-contracting and specialisation), purchasing, commercialisation, and standardisation (including standard contracts and information exchange).10   7 Guidelines, para 5. Although the Guidelines are intended to apply to most types of horizontal co-operation, they do not apply to mergers (meaning a ‘concentration within the meaning of Article  3 of Council Regulation (EC) 139/2004 of 20  January 2004 on the control of concentrations between undertakings  (“the Merger Regulation”) as would be the case, for example, with joint ventures performing on a lasting basis all the functions of an autonomous economic entity (“full-function joint ventures”)’).   8 Guidelines, paras 1 and 12.   9 Guidelines, para 10. 10 Guidelines, para  5. The Guidelines apply to these agreements irrespective of the level of integration they entail, but not to operations constituting a concentration within the meaning of’ the Merger Regulation such as joint ventures which operate on a continuing basis.

905

14.05  Guidelines on Horizontal Agreements and Regulations on R&D

The Guidelines are divided into chapters dealing with each category of horizontal co-operation. Each chapter contains: •

a definition of the category of horizontal co-operation to which it refers;

•

a discussion of the relevant market;

•

criteria for assessment under EU Treaty, Article 101(1), including:

•

•

–

what are the main competition concerns;

–

what are the restrictions on competition by object;

–

what are the restrictive effects on competition;

criteria for assessment under Article 101(3), including: –

what are the efficiency gains;

–

whether the restrictions are indispensable;

–

whether the efficiency gains resulting from the restrictions are passed on to consumers;

–

whether there is an elimination of competition;

–

when is the time for assessment;

‘case study’-type examples.

These case studies are worth reading as they indicate situations in which an agreement (for example, an R&D  agreement) will either not infringe Article 101(1), qualify for exemption under Article 101(3), or be regarded as anti-competitive and not qualify for exemption. Vertical agreements (that is, agreements that are entered into between companies operating at a different level of the production or distribution chain) are, in principle, excluded from these Guidelines.11 However, if a vertical agreement contains horizontal elements, they must be considered under the Guidelines. Agreements may combine different levels of cooperation, for example R&D and the production of its results.12 Unless they fall under the Merger Control Regulation,13 these agreements are covered by the Guidelines. Where there are different levels of co-operation (or ‘integrated co-operation’ in the language of the Guidelines) which are subject to the Guidelines, it is necessary to consider all of the relevant chapters. However, it may be necessary to consider which part of the integrated co-operation has the ‘centre of gravity’. The chapter of the Guidelines relating to the part of 11 Guidelines, para  12. See Commission Regulation (EU) 330/2010 of 20  April 2010 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, and the accompanying Guidelines on vertical restraints. 12 Guidelines, para 13. 13 Council Regulation (EC) 139/2004 of 20  January 2004 on the control of concentrations between undertakings (the EC Merger Regulation).

906

Guidelines on horizontal agreements 14.06

the integrated co-operation which is the centre of gravity will prevail.14 To assess where the centre of gravity is in an agreement, the Guidelines focus on two factors: •

the starting point of the co-operation; and

•

the degree of integration of the different functions which are combined.

The Guidelines gives the example of a horizontal co-operation agreement which concerns both R&D and joint production. Usually the centre of gravity would be the joint R&D, because the joint production would follow only if the R&D is successful. However, if: •

the parties had intended to engage in joint production in any case, regardless of the R&D; or

•

the agreement provides for full integration for production and only partial integration for R&D;

the centre of integration would be the joint production.15

Chapter on R&D agreements 14.06 The chapter of the Guidelines which deals with R&D agreements16 applies to all forms of R&D agreements, including: •

outsourcing of certain R&D activities;

•

joint improvement of existing technologies; and

•

co-operation concerning the research and development and marketing of new products;17

as well as related agreements concerning the production or commercialisation of the R&D results.18 An R&D agreement can be in the form of a co-operation agreement or a jointly controlled company. The 2001 Guidelines included encouraging comments about R&D  cooperation in general, and the needs and pro-competitive activities of small and medium-sized companies and ‘start-up’ companies in R&D  intensive 14 Unfortunately, the Guidelines (at para 13) use some particularly dense language to describe this: ‘However, where the relevant chapters of these guidelines contain graduated messages, for example with regard to safe harbours or whether certain conduct will normally be considered a restriction of competition by object or by effect, what is set out in the chapter pertaining to that part of an integrated co-operation which can be considered its ‘centre of gravity’ prevails for the entire co-operation’. 15 Guidelines, para 14. 16 Guidelines, Chapter 3, paras 111–149. 17 Guidelines, para 111. 18 Guidelines, para 111.

907

14.07  Guidelines on Horizontal Agreements and Regulations on R&D

sectors, in particular, but these are no longer present in the current Guidelines, perhaps because the Commission believes it is no longer necessary to make such points.19

Relevant markets 14.07 According to the Guidelines, the key to defining the relevant market when assessing the effects of an R&D agreement is ‘to identify those products, technologies or R&D efforts that will act as a competitive constraint on the parties’.20 The Commission recognises that R&D may result in:21 •

a product or technology which competes in an existing product or technology market (for example, where the focus of the R&D  is on making slight improvements or variations leading to a new model of an existing product);

•

an entirely new product that creates its own new market (for example, a new vaccine for a previously incurable disease); or

•

a combination of the above, such as a new product that over time replaces existing products (for example, streaming services replacing CDs, which in turn replaced records).

Any analysis of the competitive effect of an R&D agreement may, therefore, have to include:22 •

existing product markets;

•

existing technology markets; and

•

the impact of the agreement on innovation.

19 2001 Guidelines, paras 40–42. They are quoted here to indicate the view of the Commission (as the current Guidelines do not have any statements which run contrary to them): ‘40. Cooperation in R & D may reduce duplicative, unnecessary costs, lead to significant cross fertilisation of ideas and experience and thus result in products and technologies being developed more rapidly than would otherwise be the case. As a general rule, R & D cooperation tends to increase overall R & D activities. 41. Small and medium-sized enterprises (SMEs) form a dynamic and heterogeneous community which is confronted by many challenges, including the growing demands of larger companies for which they often work as sub-contractors. In R & D intensive sectors, fast growing SMEs, more often called “start-up companies”, also aim at becoming a leader in fast-developing market segments. To meet those challenges and to remain competitive, SMEs need constantly to innovate. Through R & D cooperation there is a likelihood that overall R & D by SMEs will increase and that they will be able to compete more vigorously with stronger market players. 42. Under certain circumstances, however, R  & D  agreements may cause competition problems such as restrictive effects on prices, output, innovation, or variety or quality of products.’ 20 Guidelines, para 112. 21 Guidelines, para 112. 22 Guidelines, para 112.

908

Guidelines on horizontal agreements 14.07

These different types of market make the analysis rather complicated compared with the analysis of, say, a product distribution agreement, where only product markets may need to be considered. The Guidelines discuss how to identify existing markets, how to consider competition in innovation and the calculation of market shares.23 The concepts of product markets, technology markets and competition in innovation may appear nebulous and difficult to assess, and it is therefore useful to consider the Commission’s guidance on these areas. The Commission sets out how to determine whether there is a product or technology market as follows: •

product market: if the ‘co-operation concerns R&D for the improvement of existing products, those existing products and their close substitutes form the relevant market concerned by the co-operation’;24

•

technology market: if intellectual property rights are marketed separately from products, it is necessary to define the relevant technology market. If the co-operation concerns technology, the ‘technology markets consist of the intellectual property that is licensed and its close substitutes, that is to say, other technologies which customers could use as a substitute’.25

Regarding competition in innovation (R&D  efforts), which concerns the development of new products or technology: ‘which either may – if emerging – one day replace existing ones or which are being developed for a new intended use and will therefore not replace existing products but create a completely new demand,’26 23 Guidelines, paras 116–126. 24 Guidelines, para  113. The Guidelines (at paras 114–115) make some general points here, such as that if the R&D has the aim to make substantial changes to existing products or to replace existing ones, the substitution with existing products may be imperfect or long-term. In such a case the emerging and existing products do not belong on the same market. The existing product market may be affected ‘if the pooling of R&D efforts is likely to result in the coordination of the parties’ behaviour as suppliers of existing products, for instance because of the exchange of competitively sensitive information relating to the market for existing products’. If the R&D concerns a component of a final product, not only will the market for the component be affected but the market for the final product as well. This latter point will only apply where the component at which the R&D is aimed is a key element of the final product and the parties to the R&D agreement have market power with respect to the final products. 25 Guidelines, para 116. The Guidelines (at paras 117–118) state that the starting point is the technology the parties are marketing as well as those technologies to which customers can switch ‘in response to a small but non-transitory increase in relative prices’. After identifying those other technologies, it is then possible to calculate markets ‘by dividing the licensing income generated by the parties by the total licensing income of all licensors’. In assessing whether the R&D co-operation amounts to a significant improvement to an existing technology or is a new technology which will replace an existing technology, it is necessary to consider the party’s position in the market. But for technology markets it is especially important to consider potential competition. A potential competitor (who does not currently license their technology on a technology market) could restrict the parties to an R&D agreement being able ‘to profitably raise the price for their technology’. 26 Guidelines, para 119.

909

14.08  Guidelines on Horizontal Agreements and Regulations on R&D

the Commission distinguishes between situations in industries on the basis of whether it is possible to identify ‘R&D poles’ which will depend ‘on the nature of the innovative process in a given industry’. These poles occur where different types of R&D activity may be directed towards the same or similar products.27 For example, in the pharmaceutical sector, many different types of research are being directed towards finding a cure for particular types of cancer – for example, research into monoclonal antibodies, natural products, apoptosis (planned cell death), and gene therapy. Thus, even if an R&D  agreement significantly reduces competition in one pole of research, this may not be regarded as causing major competition law issues, if there are alternatives. When assessing the relevant market, the Commission considers any credible, alternative R&D  poles.28 In industries where there are no alternative R&D  poles, the Commission does not usually assess competition in innovation, but confines its analysis to product or technology markets.29 The Guidelines also outline the Commission’s method of calculating market shares and refer to the provisions of the R&D Agreements Regulation on this subject.30

Assessment of R&D agreements under Article 101(1) Main competition concerns 14.08 It is possible for R&D co-operation to restrict competition where: •

there is a reduction or slowing down in innovation which results in ‘fewer or worse products coming to the market later than they otherwise would’;31

•

on a product or technology market, R&D co-operation could lead: – outside the scope of an R&D  agreement, to a reduction in competition between the parties to the agreement; –

to the parties engaging in anti-competitive co-ordination on those markets (resulting in higher prices).32

A  co-operation may lead to foreclosure where ‘one player’ has significant market power ‘for a key technology and the exclusive exploitation of the results’.33 27 28 29 30 31 32 33

Guidelines, para 120. Guidelines, para 120. Guidelines, para 122. Guidelines, paras 123–126. Guidelines, para 127. Guidelines, para 127. Guidelines, para 127. Absent the player having the market power, there should not be a foreclosure problem. Market power does not have to mean that the player has dominance in the market.

910

Guidelines on horizontal agreements 14.10

R&D agreements which have as their object restrictions on competition34 14.09 An R&D agreement will restrict competition by object if it does not genuinely concern the carrying out of joint R&D, but it is really a vehicle for a disguised cartel. The Guidelines state that, where this occurs, the purpose of the agreement is, in effect, to include prohibited provisions, such as pricefixing, output limitation and market allocation. However, R&D agreements that provide for joint marketing of results are not necessarily restrictive of competition.35

R&D agreements which have restrictive effects on competition36 R&D agreements that are unlikely to fall under Article 101(1) 14.10 According to the Guidelines, most R&D agreements do not fall under Article 101(1).37 Examples of such agreements include: •

agreements concerning co-operation in R&D  at an early (‘rather theoretical’) stage far removed from the exploitation of a resulting new product or technology;38

•

R&D  co-operation between non-competitors, such as if the parties cannot carry out R&D independently because they have limited technical capabilities (by the companies bringing together complementary skills, technologies and other resources). Parties will not be competitors simply because they co-operate in order to carry out R&D;39

•

outsourcing to specialised companies, research institutes or academic bodies that are not active in the exploitation of the results. Article 101(1) does not apply because of the complementary nature of the co-operating parties in these scenarios.40

34 Guidelines, para 24 describes what are restrictions of competition by object: ‘by their very nature [they] have the potential to restrict competition within the meaning of Article 101(1)’. Once it is clear that the agreement has an anti-competitive object, ‘it is not necessary to examine the actual or potential effects of an agreement on the market’. 35 Guidelines, para 128. 36 Guidelines, paras 26–31 set out the criteria for analysing the restrictive effects on competition. If the agreement does not fall within the category of being an agreement which restricts competition by object, the agreement will need examining as to whether it ‘has appreciable restrictive effects on competition’. It is necessary to look at both actual and potential effects that it is likely to have. To have a restrictive effect on competition, there must be an adverse impact on ‘one of the parameters of competition on market, such as price, output, product quality, product variety or innovation’. 37 Guidelines, para 129. 38 Guidelines, para 129. 39 Guidelines, para 130. 40 Guidelines, para 131.

911

14.11  Guidelines on Horizontal Agreements and Regulations on R&D

With respect to this category, it should be noted that ‘specialised companies’ probably do not include young, technology-based companies that intend to commercialise their technologies, for example, by licensing. The term ‘outsourcing’ suggests a particular type of R&D cooperation, and it remains to be seen whether all R&D agreements with universities would fall within this category; •

R&D  co-operation that does not provide for the joint exploitation of possible results, such as an absence of provisions concerning licensing, production and marketing.41

Market share 14.11 The Guidelines discuss the circumstances in which the market power of one or both parties may cause R&D co-operation to have anti-competitive effects. Most R&D agreements involving less than a 25 per cent market share are exempted under the 2010 R&D Agreements Regulation, therefore only if the market share is greater than 25 per cent will restrictive effects need to be considered. A market share of more than 25 per cent does not necessarily mean that there is a breach of Article 101(1), but the stronger the combined market position of the parties, the more likely that it will be necessary to conduct a detailed analysis of the agreement under Article 101(1).42

R&D directed towards improvement or refinement of existing products or technologies 14.12 If the R&D  is directed towards the improvement or refinement of existing products or technologies, there may be effects on the relevant markets for these existing products or technologies. Only if the parties have a strong position, or entry is difficult and there are few other identifiable innovation activities, are there likely to be effects on ‘prices, output, product quality, product variety or innovation in existing markets’ (and the effect on competition will be very limited, particularly if the R&D concerns a small input into a final product).43 Pure R&D  agreements rarely breach Article  101(1), particularly where directed towards making a limited improvement to existing products or technologies. Where the R&D co-operation also concerns exploitation, but only by means of licensing, restrictive effects such as foreclosure problems are unlikely.44 41 Guidelines, para  58. The Guidelines go on to state that such ‘pure’ R&D  agreements will only concern a competition problem ‘if competition with respect to innovation is appreciably reduced, leaving only a limited number of credible competing R&D poles’. 42 Guidelines, paras 134, 135. 43 Guidelines, para 136. 44 Guidelines, para 137.

912

Guidelines on horizontal agreements 14.14

Where joint production and/or marketing of the slightly improved products/ technology are included, the co-operation has to be examined more closely, as restrictive effects on competition are more likely (such as increased prices or reduced output in existing markets) where there are strong competitors.45

R&D directed at a new product or technology46 14.13 If the R&D concerns an entirely new product or technology which creates its own new market, the Guidelines indicate that it is unlikely there will be price or output effects on existing markets. The analysis has to focus on possible restrictions of innovation, such as the quality and variety of new products or technology or the speed of innovation. Where there are a limited number of companies working on the development of a new product and two or more of them begin to co-operate when they are independently near to the launch of the product, there may be restrictive effects, even in pure R&D agreements (typically, such restrictive effects result from the agreement between the parties). Generally, though, R&D co-operation concerning new products is unlikely to result in restrictive effects on competition, unless there are only a limited number of credible alternative R&D poles existing, even where there is joint exploitation or joint marketing, unless there is foreclosure from key technologies. These problems would not arise where the parties grant licences to third parties. However, some R&D  agreements will fall between the two situations mentioned immediately above and can have restrictive effects on existing markets and a negative effect on innovation by means of slowing down the speed of development. Examples would be if significant competitors with substantial market power in an existing technology market, and significant R&D, co-operate to develop a new technology that may one day replace existing products, or if a major player in an existing market co-operates with a much smaller or even potential competitor who is just about to emerge with a new product/technology that may endanger the incumbent’s position.

Access 14.14 Even where the market share is small, R&D  agreements may fall outside the block exemption, for example because they restrict a party’s access to the results of the work. Agreements containing exclusive access rights may breach Article 101(1) but meet the criteria for exemption under Article 101(3) where exclusive access rights are economically indispensable in view of the market, risks and scale of investment required to exploit the results of the R&D.47 It is therefore dangerous to restrict the parties’ rights

45 Guidelines, para 137. 46 Guidelines, paras 138, 139. 47 Guidelines, para 139.

913

14.15  Guidelines on Horizontal Agreements and Regulations on R&D

of access to the results, particularly if the agreement does not meet the requirements for block exemption.

Assessment under Article 101(3) 14.15 The Guidelines acknowledge that an R&D  agreement can lead to efficiency gains where there is combining of complementary skills and assets which leads to the more rapid development of improved or new products and technologies, wider dissemination of knowledge and costs reductions – whether or not there is joint exploitation of results.48 The Guidelines indicate some of the criteria that the Commission follows when considering whether a restriction will meet the conditions under Article 101(3), using the criteria found in that Article. The Guidelines recite the usual tests applied by the Commission under Article  101(3), and give some limited examples in the R&D field of how these tests might be applied, including:49 •

indispensability: if a restriction is a hardcore restriction,50 it would be unlikely to meet the criteria of Article 101(3);51

•

pass-on to consumers: efficiency gains resulting from indispensable restrictions have to be passed on to consumers so that they outweigh the restrictions on competition that the R&D  agreement causes. For example: – the introduction of new product or improved product onto to a market would have to outweigh any price increases or other restrictive effects on competition; or –

that an R&D  agreement will bring about efficiency gains which benefit consumers if the R&D agreement leads to the combination of complementary skills and assets.52

If the parties have similar research skills, the result may be an elimination of some or all of the R&D of one of the parties. In such a situation, the parties to the R&D agreement would have the benefit of a reduction in costs, but the effect of this would be unlikely to result in benefits being passed on to consumers. When the parties have a high degree of market power, it is less likely that they will pass on sufficient efficiency gains to consumers to offset restrictive effects on competition;53

48 Guidelines, para 141. 49 Guidelines, paras 144–146. Article  5 of the R&D  Agreements Regulation set outs the ‘hardcore’ restrictions, see para 14.48 below. 50 2010 R&D Agreements Regulation, Art 5. 51 Guidelines, para 142. 52 Guidelines, para 143. 53 Guidelines, para 143.

914

Guidelines on horizontal agreements 14.16

•

no-elimination of competition: Article 101(3) is unlikely to be met if the parties have ‘the possibility of eliminating competition in respect of a substantial part of the products (or technologies) in question’.54

Case study examples 14.16 The Guidelines conclude with a number of examples: a set of facts concerning a fictitious R&D agreement is followed in each case by an analysis of whether the agreement breaches Article 101:55 •

The first example describes a situation where an individual exemption might be refused, involving two major companies having significant market share who pool their R&D efforts.

•

The second describes a situation where the agreement is unlikely to restrict competition, involving R&D  co-operation between a small biotech company and a large pharmaceutical company. In this example, there are several alternative poles of research and a number of other features that the Commission views with approval.

•

The third example describes a situation where the agreement is likely to give rise to restrictive effects on competition under Article 101, where a small company (Company A) has invented a new technology which will revolutionise a market where there is a monopoly producer (Company B), and there are no competitors to the monopoly producer. There are other companies at the same stage of development as Company A. An agreement between Company A  and Company B  (where Company B  would fund product development and receive an exclusive licence of Company A’s technology) is likely to lead to foreclosure effects on the other companies (who would not get funding) or other potential competitors who could not challenge the monopoly producer.

•

The fourth example describes a situation where a company (Company A) produces a drug and has market power. Company B  is engaged in pharmaceutical R&D  and active pharmaceutical ingredient (API) production. Company B has discovered a new process which makes the production of the API of Company A’s drug more economical, and for which it has applied for a patent. Company A’s compound (API) patent for the drug expires shortly but a number of process patents will remain relating to the drug. Company B believes that its new process will not infringe those remaining process patents and would allow generic production of the drug once Company A’s API patent expires.

54 Guidelines, para 144. 55 Guidelines, paras 147–149. This version of the Guidelines introduces two further examples (the third and fourth) which, as they are new, are set out in more detail for this edition of this book.

915

14.17  Guidelines on Horizontal Agreements and Regulations on R&D

Company B  could produce the process itself or license it to generic producers or Company A. But, before concluding development, Company B  grants an exclusive licence to their process to Company A  in return for a financial contribution. Although Company A’s market power will decrease when other companies can produce generic alternatives to its drug, Company A will still have an advantage with its exclusive licence from Company B, as competitors wishing to produce generic alternatives will be delayed in producing them. Such a scenario is likely to restrict competition within the meaning of Article 101(1). Company B’s patent application is not for the production of a new product (that is, creating a new market) but to improve an existing product. The R&D  block exemption will not apply because of the market share of Company A  and because Company A  and Company B  are potential competitors. The cost savings arising from a new production process is not enough to outweigh the restriction on competition and an exclusive licence is not indispensable to obtain savings in the production process. In such a case, the agreement would not fulfil the conditions in Article 101(3). •

The final example describes a situation where the agreement is likely to benefit from an individual exemption, involving parties with high market share but many competing technologies.

It is worth reading these examples in detail when assessing whether an R&D agreement breaches Article 101.

Chapter on production agreements Introduction 14.17 A production agreement is a simple enough concept: typically, two competing manufacturers agree that only one of them will manufacture certain products and the other will manufacture other products, thus saving costs of building factories, and achieving economies of scale. They also agree to supply one another with these products. Agreements for the production of goods and services may involve elements of technology transfer or R&D.56 In some cases the distinction between production agreements and technology transfer agreements or R&D agreements may not be great, such as in the case of agreements which permit a party to an R&D agreement to produce a product using the results of 56 Particularly now for R&D agreements, where the 2010 R&D Agreements Regulation more explicitly recognises that one party to an R&D agreement can receive an exclusive licence for producing contract products.

916

Guidelines on horizontal agreements 14.18

the parties’ R&D. However, in most cases it will be clear where the centre of gravity (a phrase found in the Guidelines) of the agreement lies – production or technology transfer or R&D.57 The Notice on sub-contracting agreements has already been discussed.58 That Notice is concerned, among other things, with agreements for the production of goods or services where the sub-contractor uses technology supplied by the contractor. Thus, a type of production agreement also becomes a type of technology transfer agreement. Because that Notice is so closely concerned with technology transfer issues, it is appropriate to mention it in a discussion of EU competition aspects of technology transfer. For similar reasons, as was mentioned at the beginning of this chapter, the EU rules on specialisation agreements (a type of production agreement) may occasionally be of help when assessing whether a technology agreement infringes Article  101. Specialisation agreements may form part of a larger technology-based relationship. An example of this is where a collaboration agreement covers all stages of research, development, production and sale, and where the parties to the collaboration divide up between them responsibility for all these different elements. It is therefore appropriate to mention, at least briefly, those paragraphs of the Guidelines on horizontal agreements that refer to production agreements.

What are production agreements? 14.18 The Guidelines acknowledge that production agreements can come in different guises, where production is carried out by one party or by two or more parties. The Commission distinguishes principally between two categories: •

joint-production agreements; and

•

sub-contracting agreements.

The structure which a production agreement can encompass can range from a joint venture (such as a jointly controlled company) to less formal cooperation (such as sub-contracting, where one party is responsible for making a product for another party). The Guidelines differentiate between horizontal and vertical sub-contracting agreements. Only horizontal sub-contracting agreements are the subject of consideration by the Guidelines, with vertical agreements covered by the

57 See para  14.05 above for how the Commission determines the centre of gravity of an agreement. 58 See para 12.77 onwards.

917

14.19  Guidelines on Horizontal Agreements and Regulations on R&D

Vertical Agreements Regulation and the Guidelines on vertical restraints.59 The Guidelines indicate that a sub-contracting agreement is ‘concluded between companies operating in the same product market irrespective of whether they are actual or potential competitors’. The Guidelines then draw a distinction between different types of horizontal sub-contracting agreement: • unilateral60 and reciprocal specialisation agreements;61 and •

subcontracting agreements which have the aim to expand production.62

The Guidelines covers all types of joint production and horizontal subcontracting agreements, but joint production agreements and unilateral and reciprocal specialisation agreements may also have the benefit of the block exemption in the Specialisation Agreements Regulation.63

Detailed treatment of production agreements64 14.19 The Guidelines consider in detail the competitive effects of production agreements, following the same structure for analysis as for R&D agreements. Much of the detailed discussion seems far removed from technology-transfer or R&D agreements, as the analysis in the Guidelines is not focused on any one type of industry but is about production agreements in general. For example, there is not the same amount of detail for the specific types of agreement which would not fall under Article 101(1) as there is in the chapter on R&D agreements. A particular concern of the current Guidelines is a production joint venture which would cause the parties to align their output levels and quality and the price they charge for their products (even if the parties market the products independently). The Guidelines indicate that, if the parties have market power, there is a danger of such agreements leading to a ‘collusive outcome’ if there is a co-ordination of the parties’ competitive behaviour because they are 59 Guidelines, para 154. 60 Unilateral specialisation agreements are ‘agreements between two parties which are active on the same product market or markets, by virtue of which one party agrees to fully or partly cease production of certain products or to refrain from producing those products and to purchase them from the other party, which agrees to produce and supply the products’: Guidelines, para 152. 61 Reciprocal specialisation agreements are ‘agreements between two or more parties which are active on the same products market or markets, by virtue of which two or more parties agree, on a reciprocal basis, to fully or partly cease or refrain from producing certain but different products and to purchase those products from the other parties, which agree to produce and supply them’: Guidelines, para 152. 62 Subcontracting agreements with the aim of expanding production concern where ‘the contractor entrusts the subcontractor with the production of a good, while the contractor does not at the same time cease or limit its own production of the goods’: Guidelines, para 152. 63 Guidelines, para  153 and the Guidelines state that a vertical subcontracting agreement is one ‘concluded between companies operating at different levels of the market’: Guidelines, para 151. 64 Drawn from the Guidelines, paras 153–184.

918

R&D Agreements block exemption Regulation 14.20

suppliers. The collusive outcome can result from a ‘commonality of costs’ or where the parties exchange information. If they have sufficient market power, then if they operate their joint production operation in an upstream market, they could raise the prices of key components for a market downstream. None of the other paragraphs in the chapter on production agreements would seem to merit highlighting here. Clearly the chapter should be read in its entirety when assessing a production agreement.

R&D AGREEMENTS BLOCK EXEMPTION REGULATION Introduction 14.20 An agreement may have automatic exemption under Article 101(3) from consideration under Article 101(1) if it meets the criteria specified in one of the Commission’s block exemption Regulations. The EU Regulations that are most likely to be relevant to R&D agreements, or agreements that include obligations to conduct R&D, are: •

the 2010 R&D Agreements Regulation;65

•

the 2014  TTR.66 This Regulation mostly concerns patent, know-how and software licensing agreements (or combinations thereof) and where there is a focus on the production of products or services. However, the 2014 TTR now contains a provision that it does not apply to licensing in R&D agreements which are within the scope of the 2010 R&D Agreements Regulation.67 This provision is stating, in effect, that the 2014 TTR does not apply to licensing between the parties. Licensing between the parties will be subject to the 2010 R&D Agreements Regulation, although that Regulation will not cover licensing to a third party, as the third party is not a party to the R&D agreement;68

•

the Specialisation Agreements Regulation.69 This block exemption concerns ‘specialisation’ in production – for example, one party

65 Commission Regulation (EU) 1217/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, replacing Commission Regulation (EC) 2659/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of research and development agreements (Text with EEA relevance). 66 Commission Regulation (EU) 316/2014 ([2014]  OJ  L  93/117) of 21  March 2014 on the application of Article  101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (‘2014 TTR’). 67 2014 TTR, Art 9. 68 Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), paras 73–74. 69 Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements, replacing Commission Regulation (EC) 2658/2000 ([2000] OJ L304/3).

919

14.21  Guidelines on Horizontal Agreements and Regulations on R&D

manufactures one product and the other party manufactures another product. Although of marginal relevance to most R&D  agreements, occasionally it may be relevant.

Introduction to the 2010 R&D Agreements Regulation 14.21 The 2010 R&D Agreements Regulation has increased the flexibility in the terms of R&D agreements, more than any of its predecessors.70 The Commission’s traditional view had been that R&D  agreements are generally not anti-competitive if they are concerned only with the conduct of R&D  itself, and until the 2010  R&D  Agreements Regulation, did not contain restrictive provisions such as non-compete clauses and exclusive licences. The 2010  R&D  Agreements Regulation does now permit noncompete clauses (such as permitting the imposition of restrictions on a party relating to the exploitation of results through restrictions on fields of use or territories, etc) and exclusive licences in certain circumstances. Although the 2010 R&D Agreements Regulation is more attuned to the type of agreements parties are likely to enter into, this view is qualified in situations where the parties have market power (for example, a high market share). Accordingly, the 2010 R&D Agreements Regulation accords more with how parties enter into R&D  agreements, in permitting provisions concerning commercialisation (‘exploitation’) of the results of the work done under the agreement. The Commission now recognises that many R&D  agreements do not infringe Article  101(1), or if they do they should be considered as pro-competitive overall and should be exempted. The following comments assume that the parties wish to bring an R&D agreement within the scope of the 2010 R&D Agreements Regulation on the basis that there is at least a risk that it would be regarded as breaching Article 101(1).

The changing, and current, view of the Commission concerning R&D agreements 14.22 The 2000  R&D  Agreements Regulation was more liberal in its provisions relating to commercialisation over its 1985 predecessor,71 such as permitting the allocation of exploitation to a particular party, but the extent to which this was possible (or whether exclusive licensing to a party was permitted) was not clear. The 2010  R&D  Agreements Regulation is more liberal than the 2000 R&D Agreements Regulation particularly in explicitly 70 Commission Regulation (EC) 1218/2010 (2010]  OJ L335/43), replacing Commission Regulation (EC) 2659/2000 ([2000]  OJ L304/7), came into force on 1  January 2011 and expires on 31 December 2022. 71 Commission Regulation 418/85.

920

R&D Agreements block exemption Regulation 14.22

mentioning that exclusive licensing is permitted, as well as indicating that one party’s contribution to an R&D  project may be limited to only providing financing. However, some problems of interpretation remain in some of the other provisions that it has added, as discussed below. Some of the Commission’s traditional approach continues to be found in the 2010 R&D Agreements Regulation. For example, Recital 6 remains virtually unchanged from the 2000  R&D  Agreements Regulation (and, indeed, stretching back to the 1985 Regulation): ‘Agreements on the joint execution of research work or the joint development of the results of the research, up to but not including the stage of industrial application, generally do not fall within the scope of Article  101(1) of the Treaty. In certain circumstances, however, such as where the parties agree not to carry out other research and development in the same field, thereby forgoing the opportunity of gaining competitive advantages over the other parties, such agreements may fall within Article  101(1) of the Treaty and should therefore be included within the scope of this Regulation.’ Other Recitals in the 2000 R&D Agreements Regulation were completely new. These remain, together with some additions, in the 2010 R&D Agreements Regulation, suggesting that the enthusiasm for R&D  agreements lives on. They include the following, none of which may be thought particularly controversial, but their inclusion indicates a significant change of emphasis by the Commission over the years: •

a reference to EU  Treaty, Article  179(2) which calls upon the EU to encourage undertakings, including small and medium-sized enterprises, in R&D activities;72

•

the statement: ‘Below a certain level of market power it can in general be presumed, for the application of Article 101(3) of the Treaty, that the positive effects of research and development agreements will outweigh any negative effects on competition’;73

•

that co-operation in R&D  and the exploitation of the results of the R&D ‘promotes technical and economic progress if the parties contribute complementary skills, assets or activities to the cooperation’. And new to the 2010 R&D Agreements Regulation is the statement that it is possible to promote technical and economic progress ‘where one party merely finances the research and development activities of another party’;74

• the statement: ‘Agreements between undertakings which are not competing manufacturers of products, technologies or processes capable of being improved, substituted or replaced by the results of the

72 2010 R&D Agreements Regulation, Recital 2. 73 2010 R&D Agreements Regulation, Recital 4. 74 2010 R&D Agreements Regulation, Recital 8.

921

14.23  Guidelines on Horizontal Agreements and Regulations on R&D

research and development will only eliminate effective competition in research and development in exceptional circumstances. It is therefore appropriate to enable such agreements to benefit from the exemption established by this Regulation irrespective of market share and to address any exceptional cases by way of withdrawal of its benefit’.75 The 2000  R&D  Agreements Regulation began the approach, closely followed in the 2000 Technology Transfer Agreements Regulation and the Implementation Regulation,76 requiring an economic analysis (through market share) to be undertaken to establish whether a particular agreement or provision would have the benefit of the block exemption. In the 2000 R&D Agreements Regulation there was a move away from including provisions which are permissible (a ‘white list’) which was followed in the 2000 Technology Transfer Agreements Regulation. And since the introduction of the Implementation Regulation where a party has doubts about whether a particular agreement comes within a block exemption or wishes to seek clarification from the Commission, it is no longer possible for the party to notify the agreement to the Commission, or apply for ‘negative clearance’, an individual exemption or a comfort letter. The party will have to carry out their own assessment and hope, if challenged, that the Commission, a national competition authority or court agrees with their assessment that the agreement has the benefit of a block exemption.

Summary of main differences between the 2010 R&D Agreements Regulation and its (2000) predecessor 14.23 The main differences between the 2010 R&D Agreements Regulation and the 2000 R&D Agreements Regulation77 are: 2010 R&D Agreements Regulation

2000 R&D Agreements Regulation Duration In force for 10 years from 1 January 2001 to 31 December 201079

In force for 12 years, from 1 January 2011 to 31 December 202278

75 2010 R&D Agreements Regulation, Recital 18. 76 Council Regulation (EC) 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. 77 This table only provides a summary of the changes and will be most useful to readers who are familiar with these Regulations. More detail is provided later on. 78 2010 R&D Agreements Regulation, Art 9. 79 2000 R&D Agreements Regulation, art 9.

922

R&D Agreements block exemption Regulation 14.23 2010 R&D Agreements Regulation

2000 R&D Agreements Regulation

Changes in definitions The addition of a number of definitions, including: research and development agreement80 • the 2000 R&D Agreements Regulation contained no separate definition but defined three types of agreement to which it applied (see right-hand column) (Article 1(1)(i), (ii), (iii)) • the 2010 R&D Agreements Regulation adds three further types to those in the 2000 R&D Agreements Regulation Additional types of R&D agreements to which the 2010 R&D Agreements Regulation applies:81 • paid-for R&D and joint exploitation of results (Article 1(1)(iv)) • joint exploitation of paid-for R&D (no R&D) (Article 1(1)(v)) • paid-for R&D (no joint exploitation) (Article 1(1)(iv))

Types of R&D agreement:82 • joint R&D and joint exploitation of results; • joint exploitation of results (no R&D); • joint R&D (no joint exploitation of results)

specialisation in the context of exploitation;83 and specialisation in the context of research and development84 and replaces some wording (see right-hand column) in the 2000 R&D Agreements Regulation The definition of specialisation in the context of exploitation takes in the wording from Article 3(2) of the 2000 R&D Agreements Regulation and now more clearly permits that it is possible to allocate tasks such as production, impose restrictions on a party such as in relation to territories, and to grant an exclusive licence to one party for the production of contract products etc

Replaces wording: • in the definition of ‘joint’ which stated ‘specialisation in research, development, production and distribution’ • some wording in Article 3(2) (one of the conditions for the block exemption to apply)

Paid-for research and development; and Financing party Paid-for research and development is used in the definitions of the new types of research and development agreements

Not present

80 81 82 83 84

2010 R&D Agreements Regulation, Art 1(1)(a). 2010 R&D Agreements Regulation, Art 1(1)(a). 2000 R&D Agreements Regulation, Art 1(1). 2010 R&D Agreements Regulation, Art 1(1)(o). 2010 R&D Agreements Regulation, Art 1(1)(n).

923

14.23  Guidelines on Horizontal Agreements and Regulations on R&D 2010 R&D Agreements Regulation

2000 R&D Agreements Regulation

Conditions for exemption Article 3(2) – • (amended) parties must have full access to final results of the joint R&D or paidfor R&D and including any resulting intellectual property rights and knowhow • if parties limit their right to exploitation (such as specialisation in context of exploitation), it is possible to limit access to results

Article 3(2) – • parties must have access to results of joint R&D

Not present

Article 3(3) – if the agreement provides only for R&D, each party must be free to exploit results and any pre-existing knowhow

Article 3(3) – if there is only joint R&D and paid-for R&D (that is, no exploitation), the agreement must stipulate that each must have access to pre-existing know-how of the other party – it is possible that a party receives compensation for the access (but at not too high a level)

Not present

• not present

Hardcore restrictions Modified version – but now an ‘excluded restriction’ (Article 6(a))

Article 5(1)(b) – No-challenge clauses – intellectual property rights

Modified version – but now an ‘excluded restriction’ (Article 6(b))

Article 5(1)(b) – Restrictions on third-party manufacture

Article 5(b) – This hardcore restriction is the same, but now has four exceptions

Article 5(1)(c) – Restriction on limiting output or sales

Article 5(c) – Restriction is the same but with an exception (the fixing of prices charged to intermediate customers within specific circumstances)

Article 5(1)(d) – Restriction on fixing prices

Excluded restrictions Not present

New provision in 2010 R&D Agreements Regulation (but see above): Article 6(a) – No-challenge clauses – intellectual property rights Article 6(b) – Restrictions on third-party manufacture

924

R&D Agreements block exemption Regulation 14.24 2010 R&D Agreements Regulation

2000 R&D Agreements Regulation Market share Article 4(2) – for competitors, duration of exemptions set out in Article 4(1) shall apply where the market share of the parties to the R&D, at the time they enter into the R&D agreement, is 25%

Article 4(2)(a) – the same as Article 4(2) but limited to R&D agreements which do not involve paid-for R&D (that is, it applies to Article 1(1)(i), (ii), (iii)) New Article 4(2)(b) – which applies to R&D which is paid-for (that is, it applies to Article 1(1)(iv), (v), (vi)) – for competitors, duration applies as long as the combined market share of financing party and all the parties it has entered into R&D agreements does not exceed 25%

Structure of 2010 R&D Agreements Regulation 14.24 The structure of the 2010  R&D  Agreements Regulation is very similar to its immediate predecessor and includes: •

lengthy Recitals, which need careful consideration in order to understand the scope and meaning of the operative provisions;

•

Article 1 – detailed set definitions, including: –

research and development agreement;*

–

research and development;

– joint;+ –

exploitation of results;

–

specialisation in the context of research and development;*

–

specialisation in the context of exploitation;*

–

paid-for research and development;*

–

financing party;*

–

contract product (formerly product);

–

contract technology;*

* means a new definition, + means an amended definition. •

Article 2 – a statement that, pursuant to Article 101(3), Article 101(1) does not apply to R&D agreements (as defined), as long the R&D agreements contain restrictions within the scope of Article 101(1);

•

Article 3 – a list of conditions which must be satisfied in order for the exemption to apply, including provisions which it is necessary to include in an R&D agreement; 925

14.25  Guidelines on Horizontal Agreements and Regulations on R&D

•

Article  4 – provisions as to the duration of the exemption, including some special conditions for agreements involving a high market share or between competitors;

•

Article 5 – a list of ‘hardcore restrictions’ that must not be included in an agreement, if the agreement is to benefit from the block exemption;

•

Article  6 – a list of ‘excluded restrictions’ that, if included in an agreement, will mean those restrictions will not have the benefit from the block exemption;

•

Article 7 – rules for calculating market share;

•

Articles 8 and 9 – transitional provisions and stating the duration of the 2010 R&D Agreements Regulation.

What is research and development? 14.25 Perhaps the most important initial question is determining what exactly constitutes R&D. The 2010 R&D Agreements Regulation provides a definition of the types of activity which constitute R&D. The definition is more wide-ranging than simply carrying out experiments, studies, testing etc. The definition indicates that R&D concerns:85 (1) the acquisition of know-how which relates to products, technologies or processes; and (2) the carrying out of theoretical analysis, systematic study or experiments. This meaning of R&D can also include: (3) experimental production, technical testing of products or processes; (4) establishing the necessary facilities to carry out the R&D; and (5) obtaining intellectual property rights for the results. Items (1), (2) and (3) are most probably the traditional views as what constitutes R&D but the way the definition is worded is likely to mean that, unless items (1) and (2) are present, none of the other three items would be sufficient to constitute R&D for the purposes of the 2010 R&D Agreements Regulation. Items (4) and (5), in the conventional drafting of R&D  agreements, are more likely to be provisions which relate to activities which respectively precede and follow on from the carrying out of activities such as (1), (2) and (3).

85 2010 R&D Agreements Regulation, Art 1(1)(c).

926

R&D Agreements block exemption Regulation 14.28

The purpose of the 2010 R&D Agreements Regulation 14.26 The 2010  R&D  Agreements Regulation disapplies Article  101(1) from an R&D agreement where the R&D agreement includes ‘restrictions of competition falling within the scope of Article 101(1) of the Treaty’.86 The exemption provided by the R&D Agreements Regulation also applies to provisions in an R&D agreement that relate to: •

the assignment; or

•

the licensing;

of intellectual property rights to one or more the parties. However, such provisions cannot constitute the primary object for the R&D  agreement but must be ‘directly related to and necessary for their implementation’.87 The equivalent wording in the 2000 R&D Agreements Regulation was less specific as to the type of provisions that an R&D could contain.

Duration of the 2010 R&D Agreements Regulation 14.27 The 2010  R&D  Agreements Regulation is valid from 1  January 2011 to 31 December 2022 (that is, 12 years).88 The 2000 R&D Agreements Regulation was in force for 10 years. It is likely that, after the 2010 R&D Agreements Regulation’s expiry date at the end of 2022, agreements which have benefited from the exemption of the 2010 R&D Agreements Regulation but do not meet the conditions of any future R&D Agreements Regulation will continue to do so for a period of time.89

Number of parties 14.28 An R&D agreement must involve two or more parties.90 86 2010 R&D Agreements Regulation, Art 2(1). 87 2010 R&D Agreements Regulation, Art 2(2). The assignment or licensing of the intellectual property rights can also be to an entity that one or more of the parties establishes to carry out the joint R&D, paid-for R&D or joint exploitation. 88 2010 R&D Agreements Regulation, Art 9. 89 In the same way that R&D  agreements concluded when the 2000  R&D  Agreements Regulation was in force could benefit from the block exemption in the 2000 R&D Agreements Regulation for a period of two years after that Regulation’s expiry. 2010 R&D Agreements Regulation, Art 9 provided that agreements in force at 31 December 2010 and which satisfied the conditions for exemption under 2000  R&D  Agreements Regulation (but not under the 2010 R&D Agreements Regulation) would continue to do so until 31 December 2012. 90 2010 R&D Agreements Regulation, Art 1(1)(a). The equivalent wording in 2000 R&D Agree­ ments Regulation provided that the R&D agreement needed to be entered into between two or more ‘undertakings’. Whether there is an intention by the EC to create a substantive difference in the choice is unclear, because elsewhere the word ‘undertaking’ remains, as in the definition of ‘agreement’ (see note 91 below) or ‘joint exploitation’ (see para 14.27).

927

14.29  Guidelines on Horizontal Agreements and Regulations on R&D

Qualifying R&D agreements 14.29 The 2010 R&D Agreements Regulation applies to certain types of agreement between parties which are concerned with: •

joint R&D and/or joint exploitation of the results of R&D; and also

•

where one party finances the R&D  (whether or not there is joint exploitation of the results).

The 2010 R&D Agreements Regulation exempts six main types of agreement91 from Article  101(1). It is possible to summarise these agreements in two groups:92

Group A: R&D agreements involving joint R&D and/or joint exploitation where funding of R&D is not mentioned93 14.30 (1) joint R&D  and joint exploitation: joint R&D  of contract products or technology (‘Joint R&D’) and joint exploitation of the results of that R&D (‘Joint Exploitation’); or (2) joint exploitation only: Joint Exploitation of the results of Joint R&D which was carried out pursuant to a prior agreement between the same parties; or (3) joint R&D only: Joint R&D excluding Joint Exploitation.

Group B: where one party funds R&D and with the R&D agreement involving joint R&D and/or joint exploitation94 14.31 (1) paid-for R&D and joint exploitation: where R&D is paid-for95 and there is Joint Exploitation; (2) joint exploitation only: where there is Joint Exploitation of paid-for R&D which was carried out pursuant to a prior agreement between the same parties; or

91 An agreement can mean a contractual agreement, a decision of undertakings or a concerted practice. 92 2010 R&D Agreements Regulation, Art 1(1)(a). The 2000 R&D Agreements Regulation did not divide the categories of R&D agreement in this way. 93 These three categories of R&D  agreement are the same as in the 2000  R&D  Agreements Regulation. 94 These three categories of R&D agreement are new to the 2010 R&D Agreements Regulation. 95 2010 R&D Agreements Regulation, Art 1(1)(p). See para 14.34 below.

928

R&D Agreements block exemption Regulation 14.33

(3) paid-for R&D  only: where there is paid-for R&D  but excluding Joint Exploitation. The 2010 R&D Agreements Regulation introduces a definition for ‘Research and Development Agreement’ (setting out the meanings of the above six types of agreement),96 but does not alter the meaning of the three types of agreement (in Group A) present in the 2000 R&D Agreements Regulation.

Meaning of certain defined terms used in the different types of R&D agreements 14.32 As is standard with many EU  Directives and Regulations, many defined terms are based on or contain multiple other definitions, which can make their understanding more difficult and can require continual crossreferencing. The definitions of the different types of R&D  agreement are a good illustration of this. For example, the definition of the first type of R&D agreement in Group A makes reference to five other definitions: • ‘joint’; •

‘research and development’;

•

‘contract products’;

•

‘contract technologies’; and

•

‘exploitation of results’.

And ‘joint’ itself makes reference to two further important, and new, definitions: •

‘specialisation in the context of exploitation’; and

•

‘specialisation in the context of research and development’.97

Each of these definitions (including ‘paid-for research and development’ and its accompanying definition) are briefly considered below.

‘Joint’, ‘specialisation in the context of exploitation’, ‘specialisation in the context of research and development’ 14.33 For the purposes of the 2010 R&D Agreements Regulation, the ‘joint’ carrying out of R&D, or exploitation of the results, does not necessarily mean that the parties to an R&D agreement work together. 96 2010 R&D Agreements Regulation, Art 1(1)(a). 97 As a matter of drafting style, it is less than ideal to create a definition (such as ‘specialisation in the context of research and development’) and then use it once (in the definition of ‘joint’). The ‘specialisation in the context of exploitation’ definition does appear in several places in the 2010 R&D Agreements Regulation besides the definition of ‘joint’: in the definition of ‘research and development agreement’, and Arts 3.3, 5(b)(i), 5(b)(ii), 5(c) and 6(b).

929

14.33  Guidelines on Horizontal Agreements and Regulations on R&D

‘Joint’ (the defined term in the 2010 R&D Agreements Regulation) is defined as meaning where the activities under an R&D agreement: •

are carried out by a joint team, organisation or undertaking;

•

are jointly entrusted to a third party;98 or

•

are allocated between the parties by way of ‘specialisation in the context of research and development’ or ‘specialisation in the context of exploitation’.99

These meanings of the first two limbs of ‘joint’ are the same as those for the 2000  R&D  Agreements Regulation. The third limb in the 2000  R&D  Agreements Regulation was worded as ‘allocated between the parties by way of specialisation in research, development, production or distribution’. The third edition of this book contained a number of observations and criticisms as to whether the definition of ‘joint’ would permit exclusive licensing. The 2010 R&D Agreements Regulation has taken a step forward in expressly permitting, among other things, that one party can obtain an exclusive licence from the other parties to the R&D  agreement to exploit (that is, produce and distribute contract products). This development of the meaning of ‘joint’ is carried out by adding further definitions (‘specialisation in the context of exploitation’ and ‘specialisation in the context of research and development’) in the 2010  R&D  Agreements Regulation. The meaning of each of these further definitions is set out here (reformatted): Specialisation in the context of exploitation ‘means that the parties: •

allocate between them individual tasks such as production or distribution, or

•

impose restrictions upon each other regarding the exploitation of the results such as restrictions in relation to certain territories, customers or fields of use;

[and] this includes a scenario where only one party produces and distributes the contract products on the basis of an exclusive licence granted by the other parties;’ 98

This could be where the parties create a vehicle for conducting the research. An implication of the wording of this limb of the definition is that one party to the R&D agreement cannot itself entrust activities under an R&D agreement to a third party. 99 2010 R&D Agreements Regulation, Art 1(1)(m).

930

R&D Agreements block exemption Regulation 14.33

Specialisation in the context of research and development ‘means that: •

each of the parties is involved in the research and development activities covered by the research and development agreement; and

•

they divide the research and development work between them in any way that they consider most appropriate;

[and] this does not include paid-for research and development.’ As noted above, the addition of the definition of ‘Specialisation in the context of exploitation’ answers, to an extent, the criticism made in the third edition of the book as to whether exclusive licensing is permitted for the exploitation (or commercialisation) of the results. Besides this new definition indicating that one party can have the exclusive licence for production, it also goes on to indicate that the parties can include, in effect, non-compete provisions by expressly permitting that one party is restricted to a particular territory, field or use or a group of customers. The effect of this additional definition is that one of the ‘conditions of exemption’ present in the 2000 R&D Agreements Regulation was removed, which indicated that agreements which provided for only joint R&D by the parties must leave them free to exploit the results of the R&D, although it was possible for them to limit their respective exploitation rights to one or more technical fields of application where their R&D agreement did not provide for joint exploitation.100 The criticism in the previous edition of this book, which stated: ‘Thus, party A may have exploitation rights in one field, whilst party B has exploitation rights in another field. It would seem illogical for this to amount to joint exploitation, because the premise of Article 3 is that the agreement provides only for joint R&D. That the R&D Agreements Regulation is unclear on this point is a serious shortcoming, as many R&D agreements include similar terms on exploitation.’ will no longer apply, because the definition of ‘joint’ is now modified to include the possibility of exclusive licensing as well as removing unclear wording from the conditions for exemption. The wording for the definition of specialisation in the context of R&D needs some consideration. Its use is confined to the definition of ‘joint’ and clearly indicates that both parties must be involved in the activities, but they can allocate the work as they wish. It is not clear how far they can go in allocating the work, and whether it would cover the situation where all of the work was allocated to one party and the other party was confined simply to rubberstamping what was to be undertaken under the R&D  agreement. 100 2000 R&D Agreements Regulation, Art 3(3).

931

14.34  Guidelines on Horizontal Agreements and Regulations on R&D

What is clearer is that any R&D which is paid-for would not come within the definition of specialisation in the context of R&D. It appears that a Group B  (3) type of agreement (which provides for only paid-for R&D  with no exploitation) would not come within the meaning of the definition of ‘joint’, as it is specifically excluded from the definition of specialisation in the context of R&D; and, as it contains no provisions relating to exploitation, it would not come within the definition of specialisation in the context of exploitation.

‘Paid-for research and development’ 14.34 As noted above, the 2010 R&D Agreements Regulation introduces three further types of R&D agreement which are subject to its provisions, all of which turn on whether the R&D is paid-for. The 2010 R&D Agreements Regulation, in addition to the further types of agreement, includes two further definitions: • ‘paid-for research and development’ meaning ‘research and development that is carried out by one party and financed by a financing party’;101 and • ‘financing party’ meaning ‘a party financing paid-for research and development while not carrying out any of the research and development activities itself’.102 These definitions do not appear to cater specifically for the situation where one party finances the R&D but both parties carry the R&D. Presumably in this situation the type of R&D agreement would fall within Group A rather than Group B.

‘Exploitation of the results’ 14.35 If the type of R&D  agreement includes the exploitation of results (that is, Group A (1), (2); Group B (1), (2)), it can mean:103 •

the production or distribution of contract products;104

•

the application of contract technologies;105

• the assignment or licensing of intellectual property rights (or communicating the know-how):

101 102 103 104

2010 R&D Agreements Regulation, Art 1(1)(p). 2010 R&D Agreements Regulation, Art 1(1)(q). 2010 R&D Agreements Regulation, Art 1(1)(g). A  ‘contract product’ means ‘a product arising out of the joint research and development or manufactured or provided applying the contract technologies’: 2010  R&D  Agreements Regulation, Art 1(1)(e). 105 A ‘contract technology’ means ‘a technology or process arising out of the joint research and development’: 2010 R&D Agreements Regulation, Art 1(1)(f).

932

R&D Agreements block exemption Regulation 14.37

–

for the production or distribution of contract products; or

–

for the application of contract technologies.

This definition states the type of activities which come within the scope of the 2010  R&D  Agreements Regulation as well as indicating that the 2010 R&D Agreements Regulation does not, as such, determine how the parties (or which of the parties) should own the intellectual property rights resulting from the R&D. The definition caters for the different situations concerning ownership of intellectual property which can arise under an R&D agreement. Although the 2010  R&D  Agreements Regulation permits exploitation, the exploitation will only come within the block exemption under 2010  R&D  Agreements Regulation where it is between the parties and to any joint entity that the parties establish106 – for example, if the parties agree in the R&D  agreement that the licensing of the results or the intellectual property generated by the R&D will be to one of them. The parties to the R&D agreement will not have the benefit of the block exemption where they enter into an agreement with a third party. The parties’ R&D agreement can include provisions relating to licensing the results of the R&D  to a third party, but those provisions will not have the benefit of the block exemption in 2010 R&D Agreements Regulation (as the third party is not a party to the licence agreement).107

Conditions for exemption 14.36 The exemption of certain R&D agreements from Article 101(1) of the EU Treaty is subject to certain conditions, which are set out in Article 3 of the Regulation: •

full access by parties to the final results;

•

access to pre-existing know-how which is indispensable for exploitation;

•

joint exploitation may be only in respect of results protected by intellectual property rights ‘indispensable’ for manufacture of contract products or application of contract technologies; and

•

specialisation in production.

Provisions that must be included in an R&D agreement 14.37 A change in Article 3 of the 2010 R&D Agreements Regulation over the equivalent provision in the 2000  R&D  Agreements Regulation is that 106 See Guidelines on the application of Article  101 of the Treaty on the Functioning of the European Union to technology transfer agreements (2014/C 89/03), paras 73, 74, and Chapter 13 [R&D Agreements Regulation]. 107  Ibid.

933

14.38  Guidelines on Horizontal Agreements and Regulations on R&D

an R&D  agreement must ‘stipulate’ that the parties have access to results and access to pre-existing know-how. The equivalent provisions in Article 3 of the 2000 R&D Agreements Regulation were also expressed as a ‘must’ obligation but did not state that the R&D agreement itself had to ‘stipulate’ these obligations. Although this is not further explained, it is likely to mean that an R&D agreement must include clauses which deal with these matters. As far as the authors can tell, this prescriptive approach does not appear in other Directives or Regulations which are relevant to the subject matter of this book.

Access by parties to the results 14.38 The R&D Agreements Regulation provides that:108 ‘[A] The research and development agreement must stipulate that all the parties have full access to the final results of the joint research and development or paid-for research and development, including any resulting intellectual property rights and know-how, for the purposes of further research and development and exploitation, as soon as they become available. [B] Where the parties limit their rights of exploitation in accordance with this Regulation, in particular where they specialise in the context of exploitation, access to the results for the purposes of exploitation may be limited accordingly. [C] Moreover, research institutes, academic bodies, or undertakings which supply research and development as a commercial service without normally being active in the exploitation of results may agree to confine their use of the results for the purposes of further research. [D] The research and development agreement may foresee that the parties compensate each other for giving access to the results for the purposes of further research or exploitation, but the compensation must not be so high as to effectively impede such access.’ For [A], the equivalent provision in the 2000 R&D Agreements Regulation was more limited, in that ‘all the parties must have access to the results of the work for the purposes of further research or exploitation’. This newer provision in [A] goes further in stating that: •

the research and development agreement must ‘stipulate’ the following points;

•

parties must have ‘full’ access (not just access) to the ‘final’ results of the R&D;

108 2010 R&D Agreements Regulation, Art 3(2). Reformatted and letters added to ease exposition.

934

R&D Agreements block exemption Regulation 14.38

•

the access must be to the intellectual property rights and know-how as well as the results;

•

the parties must have access to the full results etc as soon as they become available; and

•

the ‘final’ results must be made available.

As noted above, the requirement to ‘stipulate’ the obligation contained in [A] is new to the 2010 R&D Agreements Regulation, but what is not clear is whether this obligation is to all of this Article or just [A]. The requirement on the parties to have full access to the results and intellectual property rights and know-how is likely to be part of the Commission’s apparent aim to more clearly define to what the parties are entitled.109 The last change (that there must be access to ‘final’ results) might appear to limit the wording coming before, as the use of the word ‘final’ could imply that any results generated by the joint R&D which are not final need not be made available. In the previous edition of this book, the authors noted that contract terms that would cause an R&D agreement not to meet this condition may include the following: •

in an agreement between two commercial companies that are active in intellectual property exploitation, an exclusive licence to one party to use the results for the purposes of further research or exploitation, or (having the same effect) a prohibition on the other party from using the results for these purposes;

•

in an agreement between a university and a company active in intellectual property exploitation, an exclusive licence to the company to use the results for further research, or (having the same effect) a prohibition on the university doing so.

These limitations are now superseded because new to the 2010  R&D Agreements Regulation is [B], so that, where the parties restrict their rights of exploitation, they can limit their access to results also. Key is the phrase ‘where they specialise in the context of exploitation’, which will relate to the new definition (see above). This definition permits the imposition of restrictions on a party.110 [B] provides that it is possible to ‘limit’ the rights to access to results when there is a limitation on the exploitation of results, but the extent of limitation 109 The 2000 R&D Agreements Regulation left open an ambiguity in just stating that the ‘results’ are made available; that is, having access to them for further R&D  might not include the intellectual property rights as well. 110 The reference to ‘specialisation in the context of exploitation’ can permit the imposition of restrictions on field of use, territories and customers. The wording of this definition in relation to imposing restrictions does not appear to make these types of restriction the only ones that it is possible for the parties to impose, as this condition for exemption appears to permit. See also para 14.33 above.

935

14.39  Guidelines on Horizontal Agreements and Regulations on R&D

is not further explained. Can the limitation amount to a limitation of non-use altogether? A further new provision, [D], concerns the situation where the parties may have to pay to have access to another party’s results if needed for further research or exploitation, with a limit on the amount payable so that it is not so high as to impede access.111 No further guidance is given here as to how a party or the parties will be able to determine when an amount is so high as to impede access. [C] remains largely unchanged from the previous R&D  Agreements Regulation, but it is noted, as before, it only applies to where, for example, a university provides contract research as a commercial service. Other types of R&D agreement would not fall within [C].

Access to pre-existing know-how 14.39 New to the current R&D  Agreements Regulation is that, if the R&D agreement is limited to: •

joint R&D (Group A (3));

•

paid-for R&D (Group B (3)); (that is, the R&D  agreement does not contain provisions for joint exploitation)

the R&D agreement must ‘stipulate’ provisions that each party has to have access to the pre-existing know-how of the other parties, as long as the knowhow is indispensable for the purpose of exploiting the results.112 A  party can charge for access to its know-how, so long as the amount charged does not impede access. The aim of this provision is to ensure that a party is not prevented from exploiting the results of the R&D for which it needs the preexisting know-how of other parties. What is not entirely clear is how this requirement to provide access to preexisting know-how (even at a charge) coincides with other EU measures, for example the Framework 2020 agreements, where a party can declare that some of its pre-existing know-how is unavailable to other members of the

111 Recital 11 to the 2010 R&D Agreements Regulation sets out the rationale for allowing a party to charge to allow access to its results in the following way: ‘Depending on their capabilities and commercial needs, the parties may make unequal contributions to their research and development cooperation. Therefore, in order to reflect, and to make up for, the differences in the value or the nature of the parties’ contributions, a research and development agreement benefiting from this Regulation may provide that one party is to compensate another for obtaining access to the results for the purposes of further research or exploitation’. 112 2010 R&D Agreements Regulation, Art 3(3).

936

R&D Agreements block exemption Regulation 14.40

research consortium.113 If there are no provisions for exploitation, then it is unclear how an agreement made under Framework 2020 where access is limited to pre-existing know-how will have the benefit of block exemption in the R&D Agreements Regulation, unless that pre-existing know-how is not indispensable from exploiting results of the R&D.

Joint exploitation must be in respect of ‘indispensable’ intellectual property 14.40 The 2010 R&D Agreements Regulation provides that: •

any joint exploitation must pertain to results which are protected by intellectual property rights or constitute know-how; and

•

the results must be indispensable for the manufacture of the contract products or the application of the contract technologies.114

This condition is very similar to the 2000  R&D  Agreements Regulation and seems to reflect a concern by the Commission that the block exemption should not be used for agreements that are not genuinely concerned with the exploitation of joint R&D.115 There is one difference: in the 2000 R&D Agreements Regulation the intellectual property rights or knowhow were qualified by the phrase ‘which substantially contribute to technical or economic progress’,116 but this is not present in the 2010 R&D Agreements Regulation. It not clear whether this makes a substantive change to the meaning of this condition for exemption. Whilst this condition is one to watch out for, it will probably not cause problems in relation to many joint R&D agreements.

113 The EU  Framework Programme for Research and Innovation – Horizon 2020 Multibeneficiary General Model Grant Agreement, at Clause 25: ‘The beneficiaries must give each other access – on a royalty-free basis – to background needed to implement their own tasks under the action, unless the beneficiary that holds the background has – before acceding to the Agreement –: (a) informed the other beneficiaries that access to its background is subject to legal restrictions or limits, including those imposed by the rights of third parties (including personnel), or (b) agreed with the other beneficiaries that access would not be on a royalty-free basis’. This provision is far more limiting on a party to limit access to pre-existing know-how than under previous Framework agreements. 114 2010 R&D Agreements Regulation, Art 3(4). 115 2010 R&D Agreements Regulation, Recital 11 states: ‘In order to justify the exemption, the joint exploitation should relate to products, technologies or processes for which the use of the results of the research and development is decisive’. 116 The equivalent wording in 2000  R&D  Agreements Regulation, Art 3(4) read: ‘Any joint exploitation must relate to results which are protected by intellectual property rights or constitute know-how, which substantially contribute to technical or economic progress and the results must be decisive for the manufacture of the contract products or the application of the contract processes’.

937

14.41  Guidelines on Horizontal Agreements and Regulations on R&D

Specialisation in production 14.41 ‘Parties charged with the manufacture of the contract products by way of specialisation in the context of exploitation must be required to fulfil orders for supplies of the contract products from the other parties, except where the research and development agreement also provides for joint distribution within the meaning of point (m)(i) or (ii) of Article  1(1) or where the parties have agreed that only the party manufacturing the contract products may distribute them.’117 The condition addresses a situation that is not often encountered in earlystage R&D agreements, and which is unlikely to cause a problem in most such agreements. This provision is similar to that which appeared in the 2000 R&D Agreements Regulation, but the exception for where the R&D  agreement provides for joint distribution is now more clearly spelt out, so that two types of joint activity are mentioned (from the definition of ‘joint’): •

the activities under the R&D agreement are carried out by a joint team, organisation or undertaking;

•

the activities are jointly entrusted to a third party;118

or where the parties agree that one party only will manufacture and distribute contract products. The likely effect of this latter part of the exception is that the parties have to explicitly agree that only one party can manufacture contract products and also distribute them. For further guidance on what is acceptable in specialisation agreements, see the Specialisation Agreements Regulation and accompanying Guidelines.119

117 2010 R&D Agreements Regulation, Art 3(5). 118 This is a reference to the first two limbs of 2010 R&D Agreements Regulation, Art 1(1)(m) (i), (ii). The wording used here indicates that the third limb is not applicable (‘allocation between the parties by way of specialisation in the context of research and development or exploitation’). This third limb in turn refers to further definitions, which include wording permitting the granting of exclusive licences, for example. See para 14.33 above. 119 Commission Regulation (EU) 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, and Guidelines on the applicability of Article  101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01).

938

R&D Agreements block exemption Regulation 14.44

Duration of exemption and market share criteria 14.42 The duration of the block exemption under the 2010 R&D Agreements Regulation depends, in part, upon whether the parties to the agreement are competing undertakings120 and upon their combined share of the relevant market.

Non-competing undertakings 14.43 For non-competing undertakings, the block exemption applies for the duration of the R&D.121 Where the results are jointly exploited, the exemption continues to apply for seven years from the time the contract products or contract technologies are first put on the market within the internal market.122 At the end of either of the above periods, the block exemption will continue to apply as long as the combined market share of the parties does not exceed 25 per cent of the relevant product and technology markets.123

Competing undertakings 14.44 Where the parties are competing undertakings, the two periods for the duration of the block exemption mentioned for non-competing undertakings above shall apply, but only if at the time the parties enter their R&D agreement their market share is less than 25 per cent. How this market share is calculated differs depending on whether or not one party is financing the R&D.

120 A ‘competing undertaking’ is ‘an actual or potential competitor’, and an ‘actual competitor’ means ‘an undertaking that is supplying a product, technology or process capable of being improved, substituted or replaced by the contract product or the contract technology on the relevant geographic market’, and a ‘potential competitor’ means ‘an undertaking that, in the absence of the research and development agreement, would, on realistic grounds and not just as a mere theoretical possibility, in case of a small but permanent increase in relative prices be likely to undertake, within not more than 3 years, the necessary additional investments or other necessary switching costs to supply a product, technology or process capable of being improved, substituted or replaced by the contract product or contract technology on the relevant geographic market’: 2010 R&D Agreements Regulation, Art 1(1)(r), (s), (t). The latter two definitions are only used in the definition of ‘competing undertaking’. 121 2010 R&D Agreements Regulation, Art 4(1). In effect, not for the length of the R&D agreement. It is necessary to pay attention to the definition of R&D, which can include ‘the obtaining of intellectual property rights for the results’. 122 2010 R&D Agreements Regulation, Art 4(1). 123 2010 R&D Agreements Regulation, Art 4(3).

939

14.45  Guidelines on Horizontal Agreements and Regulations on R&D

For parties who are competing undertakings and their agreement does not involve a financing party (Group A)124 14.45 The block exemption shall continue to apply as long the combined market share of the parties to an R&D Agreement does not exceed 25 per cent on the relevant product and technology markets.125 This method of calculating the market share is, in effect, the same as in the 2000 R&D Agreements Regulation.

For parties who are competing undertakings and where one party is funding the R&D (Group B)126 14.46 The block exemption shall continue to apply as long as the combined market share of the financing party and all of the parties with which the financing party has entered into R&D  agreements does not exceed 25 per cent on the relevant product or technology markets.127 This second method of calculating market share is new to the 2010  R&D  Agreements Regulation and amounts to a significant change. This change can lead to practical problems. For a party who is receiving funding, it may be difficult or impossible to determine whether the other, financing, party has a greater than 25 per cent market share, if the first party is not aware of what other agreements the financing party has entered into, particularly if the financing party does not wish to divulge information about the other contracts. The financing party may have legitimate reasons for not disclosing such information (if the other research it is financing is at an early stage). As a practical solution it is possible, where the financing party does not wish to disclose the other R&D contracts it has entered into or how it arrived at its calculation of market share, to give a warranty in the R&D  agreement that it does not exceed the market share set by the 2010 R&D Agreements Regulation or it has not entered into other contracts where it finances R&D. Another issue will be determining which are the relevant markets on which to base the market share calculation. It will be necessary to give careful consideration to the Chapter on R&D agreements in the Guidelines, considering such factors as whether all the R&D which is financed relates to new or existing products and technologies, for example.

124 That is, those set out in 2010 R&D Agreements Regulation, Art 1(a)(i)–(iii). See para 14.30 above. 125 2010 R&D Agreements Regulation, Art 4(2)(a). 126 That is, those set out in 2010 R&D Agreements Regulation, Art 2(a)(iv)–(vi). See para 14.31 above. 127 2010 R&D Agreements Regulation, Art 4(2)(b).

940

Provisions which prevent application of the block exemption 14.48

PROVISIONS WHICH PREVENT APPLICATION OF THE BLOCK EXEMPTION Introduction 14.47 The 2010  R&D  Agreements Regulation has made a number of changes to the hardcore restrictions, including: •

moving two hardcore restrictions present in the 2000 R&D Agreements Regulation to a new category of ‘excluded restrictions’, which are: –

no challenge to validity of IP, and

–

prohibitions on licensing to third parties;

•

the addition of a new category of excluded restrictions (containing the restrictions mentioned immediately above) – which operate in the same way as the excluded restrictions in the 2014 TTR; and

•

the introduction of exceptions to the following hardcore restrictions: –

the limitation of output or sales;

–

the fixing of prices; and

–

the restriction on passive sales.

Hardcore restrictions 14.48 The inclusion of hardcore restrictions in an R&D  agreement will prevent the block exemption from applying to the agreement in its entirety. Such provisions are considered particularly anti-competitive, as they ‘are not indispensable to the attainment of the positive effects generated by a research and development agreement’.128 The block exemption that the 2010 R&D Agreements Regulation provides does not apply to R&D  agreements which have, ‘directly or indirectly in isolation or in combination with other factors under the control of the parties’,129 as their object any of the following: •

Restriction on the parties to carry out R&D: that is, to restrict the freedom of a party to carry out R&D independently or in co-operation with third parties:

128 2010 R&D Agreements Regulation, Recital 15. The recital goes on to state on this point: ‘In principle, agreements containing certain types of severe restrictions of competition such as limitations on the freedom of parties to carry out research and development in a field unconnected to the agreement, the fixing of prices charged to third parties, limitations on output or sales, and limitations on effecting passive sales for the contract products or contract technologies in territories or to customers reserved for other parties should be excluded from the benefit of the exemption established by this Regulation irrespective of the market share of the parties.’ 129 2010 R&D Agreements Regulation, Art 5.

941

14.48  Guidelines on Horizontal Agreements and Regulations on R&D

•

–

in a field unconnected with that to which the R&D relates, or

–

after completion of the joint R&D or the paid-for R&D, in the field to which the R&D relates or in a connected field.130

Limitation of output or sales: that is, to limit output or sales, except it is permissible:131 –

to set production targets where there is joint exploitation of results which includes the joint production of contract products;132

–

to set sales targets where there is a joint exploitation of results which include the joint distribution of contract products or the joint licensing of technologies (where ‘joint’ means that the activities under an R&D agreement are carried out by a joint team, organisation or undertaking or jointly entrusted to a third party);133

– to have practices constituting specialisation in the content of exploitation;134 –

•

to have a restriction on the freedom of the parties ‘to manufacture, sell, assign or license products, technologies or processes which compete with contract products, or contract technologies during the period for which the parties have agreed to jointly exploit the results’.135

Price restrictions: the fixing of prices when selling the contract product or licensing the contract technologies to third parties, except: –

where there is a fixing of prices or licensee fees which are charged to immediate licensees; and

–

where the joint exploitation of results includes joint distribution of the contract products or the joint licensing of the contract technologies; and

130 2010 R&D Agreements Regulation, Art 5(a). See also Art 6(b) which contains an excluded restriction on the granting of certain third-party manufacturing licences. 131 2010 R&D Agreements Regulation, Art 5(b). 132 2010 R&D Agreements Regulation, Art 5(b)(i). 133 2010 R&D Agreements Regulation, Art 5(b)(ii). The meaning of ‘joint’ here is drawn from the first two limbs of its definition: 2010 R&D Agreements Regulation, Art 1(1)(m)(i), (ii). This means that the third limb which permits ‘specialisation in the context of exploitation’ does not apply. See para 14.33 above. 134 2010  R&D  Agreements Regulation, Art 5(b)(iii). The reference to ‘specialisation in the context of exploitation’ can permit the imposition of restrictions on field of use, territories and customers. The wording of this definition in relation to imposing restrictions does not appear to make these types of restriction the only ones that it is possible for the parties to impose. Given the wording of the previous exception, which permits the setting of sales targets in a specific circumstance, but apparently not where distribution is allocated to one party, it is not clear how far the ‘practices’ in this exception can go. That is, by the parties relying on this exception, could they impose a restriction on sales on a party by citing the wording of the definition of ‘specialisation in the context of exploitation’? See also para 14.33 above. 135 2010 R&D Agreements Regulation, Art 5(b)(iv).

942

Provisions which prevent application of the block exemption 14.48

– where ‘joint’ means the carrying out of activities under an R&D agreement by a joint team, organisation or undertaking or are jointly entrusted a third party.136 Price restrictions are generally regarded as anti-competitive, and are mentioned specifically in Article 101. They are also specifically provided for under domestic UK competition law, in the Competition Act 1998, and should generally be avoided in most types of commercial agreement, unless they can come within the exceptions to this restriction. •

Restrictions on passive sales: restricting the territory in which, or the customers to whom, the parties may make passive sales of the contract products or license the contract technologies. This restriction is subject to an exception, namely where there is a requirement to exclusively license the results to another party.137 An example of a passive sale is where the supplier does not advertise or have a presence in the relevant territory but a sophisticated customer finds the supplier nevertheless. The purchase of software from the website of an online retailer based in Europe by UK buyers is an example of a passive sale. This wording is different from the 2000 R&D Agreements Regulation, as the latter indicated that the prohibition was in ‘territories reserved for other parties’. The current wording does not contain the restriction in such wording, but practically it is likely to mean the same, as any other interpretation would rob the prohibition of much of its effect.138 New to the 2010 R&D Agreements Regulation is the exception to the prohibition, that a restriction on territory is possible where there is an exclusive licence of the results to another party.

•

Restrictions on active sales: an obligation not to make or limit active sales of the contract products or contract technologies in territories or to customers unless the parties have agreed to exclusively allocate territories or customers by way of specialisation in the context of exploitation.139 The 2000  R&D  Agreements Regulation limited this prohibition to territories in the EU and applied at the end of seven years after the products are first put on the market within the EU. The 2010 R&D Agreements Regulation has removed these elements from the prohibition. It also expressly recognises that it is possible to include a provision that

136 2010 R&D Agreements Regulation, Art 5(c), (b)(iv). See note 133 above for the meaning of ‘joint’ as used in this exception. 137 2010 R&D Agreements Regulation, Art 5(d). 138 2010 R&D Agreements Regulation, Recital 15 implies that, despite the effect of the change in wording, the meaning is the same as with the previous R&D  Regulation: ‘In principle, agreements containing certain types of severe restrictions of competition such as … limitations on effecting passive sales for the contract products or contract technologies in territories or to customers reserved for other parties should be excluded from the benefit of the exemption established by this Regulation irrespective of the market share of the parties’. 139 2010 R&D Agreements Regulation, Art 5(e).

943

14.48  Guidelines on Horizontal Agreements and Regulations on R&D

only allows one party to make active sales (by use of the definition of ‘specialisation in the context of exploitation’) – for example, where the parties have entered into an R&D agreement which provides for joint exploitation of the results and they have allocated to one party the task of producing and distributing contract products.140 Consequently, it appears that an R&D agreement which does not provide for joint exploitation and where the parties wish to limit the making of active sales to a territory or to a group of customers would be caught by this prohibition. •

Restrictions on third-party manufacture: the ‘obligation not to grant licences to third parties to manufacture the contract products or to apply the contract technologies unless the agreement provides for the exploitation of the results of the joint research and development or paidfor research and development by at least one of the parties and such exploitation takes place in the internal market vis-à-vis third parties’.141 This wording is a little different from the equivalent provision in the 2000  R&D  Agreements Regulation. For the 2010  R&D  Agreements Regulation the restriction on not granting licences to third parties to manufacture does not apply if the parties enter into an R&D agreement which permits the exploitation by one party of the results of the joint research. The equivalent provision in the 2000  R&D  Agreements Regulation did not expressly require the parties to enter into an R&D  agreement (simply that the ability of the parties to exploit the results was not provided for or did not take place). The Commission is concerned to ensure that the results of R&D  are not completely blocked from exploitation, as this would be regarded as anti-competitive.

•

Restrictions on ‘grey’ sales: An obligation which is a ‘requirement to refuse to meet demand from customers in the parties’ respective territories, or from customers otherwise allocated between the parties by way of specialisation in the context of exploitation, who would market the contract products in other territories within the internal market’;142 or an obligation which is a ‘requirement to make it difficult for users or resellers to obtain the contract products from other resellers within the internal market’.143 These provisions are similar to the 2000 R&D Agreements Regulation except for the following concerning the second ‘grey sale’ restriction:

140 For example, if the R&D is one of the defined types of agreement which provide for joint exploitation (see 2010  R&D  Agreements Regulation, Art 1(1)(a)(i), (ii), (iv) and (v)), and that ‘joint’ exploitation can mean that a party can receive an exclusive licence to produce or distribute products limited to territories (see 2010 R&D Agreements Regulation, Art 1(1)(m) (iii) and (o)). 141 2010 R&D Agreements Regulation, Art 6(b). 142 2010 R&D Agreements Regulation, Art 5(f). 143 2010 R&D Agreements Regulation, Art 5(g).

944

Provisions which prevent application of the block exemption 14.49

the equivalent provision in the 2000 R&D Agreements Regulation was worded somewhat differently. Although it commenced in a similar way to the 2010  R&D  Agreements Regulation, it went on to state ‘and in particular to exercise intellectual property rights or take measures so as to prevent users or resellers from obtaining, or from putting on the market within the common market, products which have been lawfully put on the market within the Community by another party or with its consent’. Given the wording, it is likely that what it was spelling out was implicit in the start of this restriction and does not signal any substantive change.

Excluded restrictions 14.49 If an R&D  agreement includes a provision with one of the following two restrictions, only that provision will not have the benefit of the block exemption in the 2010 R&D Agreements Regulation; the rest of the R&D  agreement can have the benefit of the block exemption. The use of excluded restrictions is new to the 2010  R&D  Agreements Regulation; however, the two excluded restrictions are slightly modified versions of restrictions which were hardcore restrictions in the 2000 R&D Agreements Regulation: •

No-challenge clauses – intellectual property rights: an obligation which: –

after the completion of the R&D, permits the challenging of the validity of the intellectual property rights that a party holds and which is relevant to the R&D;

–

after the expiry of the R&D agreement, permits the challenging of the validity of the intellectual property rights that a party holds and which protects the results of the R&D;

without prejudice to the possibility to provide for termination of the agreement in the event of one of the parties challenging the validity of such intellectual property rights.144 •

Restriction on third-party manufacture: ‘the obligation not to grant licences to third parties to manufacture the contract products or to apply the contract technologies unless the agreement provides for the exploitation of the results of the joint research and development or paidfor research and development by at least one of the parties and such exploitation takes place in the internal market vis-à-vis third parties’.145

144 2010 R&D Agreements Regulation, Art 6(a). By way of comparison, there is a similar type of excluded restriction in Art 5(1)(b) of the 2014 TTR: ‘any direct or indirect obligation on a party not to challenge the validity of intellectual property rights which the other party holds in the Union, without prejudice to the possibility, in the case of an exclusive licence, of providing for termination of the technology transfer agreement in the event that the licensee challenges the validity of any of the licensed technology rights’. 145 2010 R&D Agreements Regulation, Art 6(b).

945

14.50  Guidelines on Horizontal Agreements and Regulations on R&D

The second excluded restriction is worded a little differently from the equivalent provision in the 2000  R&D  Agreements Regulation. In the 2010  R&D  Agreements Regulation, this restriction in effect does not apply if the parties enter into an R&D  agreement which permits the exploitation by one party of the results of the joint research. The equivalent provision in the 2000 R&D Agreements Regulation did not expressly require the parties to enter into an R&D agreement (simply that the ability of the parties to exploit the results was not provided for or did not take place). The Commission is concerned to ensure that the results of R&D  are not completely blocked from exploitation, as this would be regarded as anti-competitive.

SPECIALISATION AGREEMENTS REGULATION 14.50 The relevance of the rules on specialisation agreements to technologybased agreements has already been discussed.146 The following paragraphs provide a brief summary of the provisions of the Specialisation Agreements Regulation.147 The Specialisation Agreements Regulation has a similar, but not identical, format to the R&D Agreements Regulation. It is possible to summarise the main provisions as follows: •

Meaning of ‘specialisation agreements’: the Specialisation Agreements Regulation148 sets out a detailed set of definitions, beginning with the types of specialisation agreement149 that are block exempted by the Specialisation Agreements Regulation.150 Three types of specialisation agreement are identified: –

unilateral specialisation agreements, which are agreements between two or more parties who are active on the same product market and where one party agrees to fully or partially stop producing certain products or agrees not to make them and to buy them from

146 See para 12.44. 147 Commission Regulation (EU) 1218/2010 of 14  December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements. 148 In the previous Specialisation Regulation there was a limited set of definitions. The current Specialisation Agreements Regulation (as with the 2010 R&D Agreements Regulation) has many more definitions and has definitions which refer to other definitions. Other than moving the meaning of the type of agreements to which the Specialisation Agreements Regulations covers to the definitions article, the Specialisation Agreements Regulation introduces a number of new definitions, such as ‘preparation of services’, ‘specialisation product’, ‘downstream product’ etc. 149 Specialisation Agreements Regulation, Art 1(a), which defines a ‘specialisation agreement’ as being one of the types of agreement set out immediately below in the text here. 150 Specialisation Agreements Regulation, Art 2(1).

946

Specialisation Agreements Regulation 14.50

a competing undertaking, and the competing undertaking agrees to supply them;151

•

–

reciprocal specialisation agreements, which are agreements between two or more parties who are active on the same product market and where each party on a reciprocal basis accepts the obligations described in the previous paragraph (that is, each party accepts such obligations in respect of different products);152 and

–

joint-production agreements, which are agreements where two or more parties agree to produce certain products jointly.153

Agreements with ancillary IP provisions: the block exemption also applies where the specialisation agreement includes provisions concerning the assignment and licensing of intellectual property to one or more of the parties, as long as those provisions: ‘do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation’.154

•

Exempted terms on purchasing and marketing: a provision that clarifies that the block exemption applies to specialisation agreements which contain provisions concerning: –

the parties accepting exclusive purchasing and supply obligations; or

– the parties jointly distributing specialisation products (and not independently selling them).155 •

Market-share threshold: the block exemption applies on condition that the combined market share of the parties does not exceed 20 per cent on

151 Specialisation Agreements Regulation, Art 1(1)(b). A change over the previous Specialisation Regulation is that a unilateral specialisation agreement and a reciprocal specialisation agreement must now involve parties who are active in the same product market. ‘Product market’ is not a defined term but the rationale for this limitation is set out in a new recital in the Specialisation Agreements Regulation (at Recital 8): ‘The nature of unilateral and reciprocal specialisation agreements presupposes that the parties are active on the same product market. It is not necessary for the parties to be active on the same geographic market. Consequently, the application of this Regulation to unilateral and reciprocal specialisation agreements should be limited to scenarios where the parties are active on the same product market. Joint production agreements can be entered into by parties who are already active on the same product market but also by parties who wish to enter a product market by way of the agreement. Therefore, joint production agreements should fall within the scope of this Regulation irrespective of whether the parties are already active in the same product market.’ This appears to mean that, by their nature, unilateral and reciprocal specialisation agreements require the parties to be actively involved with the same type of product, while for a ‘joint product agreement’ one or more of the parties may not need to be present in the product market yet. 152 Specialisation Agreements Regulation, Art 1(1)(c). See also note 151 above. 153 Specialisation Agreements Regulation, Art 1(1)(d). See also note 151 above. 154 Specialisation Agreements Regulation, Art 2(2). 155 Specialisation Agreements Regulation, Art 2(3). A  ‘specialisation product’ is a product produced under a specialisation agreement: Specialisation Agreements Regulation, Art 1(1) (j).

947

14.50  Guidelines on Horizontal Agreements and Regulations on R&D

any relevant market.156 Detailed rules for calculating market share are set out later in the Specialisation Agreements Regulation.157 •

Hardcore restrictions: the inclusion of certain hardcore restrictions in a specialisation agreement will cause it not to receive block exemption from Article 101(1). Those restrictions, which are familiar from other competition legislation,158 are: –

the fixing of prices to third parties (except where there is the fixing of prices charged to immediate customers if there is joint distribution159 of products);160

–

limitation of output or sales except where: (i) (a) there are provisions setting out the agreed number of products (for unilateral or reciprocal specialisation agreements); or (i) (b) there is the setting of the capacity and production volume (for joint production agreements); and (ii) there is a setting of sales targets where there is joint distribution;161

–

allocation of markets or customers.162

156 Specialisation Agreements Regulation, Art 3. ‘Relevant market’ is defined as ‘the relevant product and geographic market to which the specialisation products belong, and, in addition, where the specialisation products are intermediary products which one or more of the parties fully or partly use captively for the production of downstream products, the relevant product and geographic market to which the downstream products belong’ (Art 1(1)(i), with ‘specialisation product’ and ‘downstream product’ each getting their own definition). Compare this definition to the definition in the previous Specialisation Regulation that the relevant market means ‘the relevant product and geographic market(s) to which the products, which are the subject matter of a specialisation agreement, belong’. 157 Specialisation Agreements Regulation, Art 5. They remain unchanged from the previous Specialisation Agreements Regulation. 158 As with the 2010 R&D Agreements Regulation, there are now exceptions to the restrictions in the current Specialisation Agreements Regulation, which were not present in the previous Specialisation Agreements Regulation. Unlike 2014  TTR and 2010  R&D  Agreements Regulation, the 2010 Specialisation Agreements Regulation does not contain a list of excluded restrictions. 159 New to the current Specialisation Agreements Regulation is a definition of the meaning of ‘joint’ in the context of distribution, which means ‘that the parties: (i) carry out the distribution of the products by way of a joint team, organisation or undertaking; or (ii) appoint a third party distributor on an exclusive or non-exclusive basis, provided that the third party is not a competing undertaking’ (Specialisation Agreements Regulation, Art 1(1)(q)); and ‘distribution’ means ‘distribution, including the sale of goods and the provision of services (Specialisation Agreements Regulation, Art 1(1)(r)). 160 Specialisation Agreements Regulation, Art 4(a). 161 Specialisation Agreements Regulation, Art 4(b). The exceptions to this restriction were also present in the previous Specialisation Agreements Regulation, but in that Regulation the exceptions applied to all of the restrictions, not only to the restriction on limiting the output or sales. 162 Specialisation Agreements Regulation, Art 4(c).

948

Specialisation Agreements Regulation 14.50

•

Other provisions: the Specialisation Agreements Regulation includes some other provisions, familiar to readers of block exemption Regulations, including a right for the Commission to withdraw the block exemption in individual cases.

• Expiry: the Regulation is stated to expire on 31 December 2022.163

163 Specialisation Agreements Regulation, Art 7. As with the R&D Agreements Regulation, the period of validity is also extended to 12 years from 10.

949

CHAPTER 15

UK Competition Law Introduction951 Brexit952 The four different types of competition law 954 UK statutory (and other legislative) provisions concerning competition 955 Introductory points 955 Competition Act 1998 957 When will an agreement breach Chapter I of the Competition Act? 957 Within the United Kingdom 958 Between undertakings 959 Whether the effects are ‘appreciable’; is it a ‘small agreement’? 960 Agreements962 Void agreements 962 Exclusions and exemptions under UK law 963 Consistency and harmonisation between UK and EU competition law 965 Consistency and harmonisation between UK and EU competition law – post the UK leaving the EU 967 Common law rules on restraint of trade 969

INTRODUCTION 15.01 EU competition law has had a significant impact upon commercial agreements, particularly those concerned with the development or exploitation of technology; an impact which has strengthened over the life of this book.1 Anyone drafting such an agreement must consider whether Article 101 of the EU Treaty applies to the agreement and, if it does, whether the proposed terms meet the detailed requirements of the Commission. Earlier chapters consider the requirements of several block exemption Regulations and Commission Notices in this field. With such extensive regulation of technology-related agreements under EU competition laws, it is easy to overlook the separate requirements of domestic UK competition laws. The latter are just as important, as breach of their

1

Particularly following the introduction of Council Regulation (EC) 1/2003 ([2003] OJ L001/1) on the implementation of the rules on competition laid down in Articles  81 and 82 of the Treaty, which is summarised in para 15.13 below and in Ch 14.

951

15.02  UK Competition Law

requirements can lead to an agreement being void or may result in fines.2 And since the coming into force of the Competition Act 1998, much of modern UK competition law, as contained in that Act, aims to mirror the provisions of Articles  101 and 102, together with a drive for there to be consistency between EU and UK competition law.3

Brexit 15.02 The above points must now be seen in the context of the UK’s decision to leave the EU (‘Brexit’) in 2016. At the time of writing, it is too early to state the extent to which UK competition law will change and diverge from the EU.4 The following are no more than some preliminary points: •

the main part of the Competition Act 1998 relevant to this book (the Chapter I  and Chapter II prohibitions, which mirror Articles  101 and 102) will remain unchanged on the UK leaving the EU;5

•

the agreements to which the Chapter I and Chapter II prohibitions do not apply also do not change on the UK leaving the EU;6

•

prior to the UK leaving the EU, compliance with an EU block exemption provides an automatic exemption from the Chapter I  prohibition on anti-competitive agreements. This rule will continue to apply, after Brexit, in respect of the current EU block exemptions which are most relevant to this book: the 2010 R&D Agreements Regulation, the 2014 Technology Transfer Agreements Regulation, the 2010 Specialisation Agreements Regulation and the Vertical Agreements Regulation.7 The ‘Brexit’ amendment to the Competition Act 1998 does not state what will happen on their expiry;

•

much of the UK case law (whether before the Competition Appeals Tribunal or the UK courts) in recent years has been decided on the basis that it is necessary to achieve consistency with (or implement) EU competition law (or how the ECJ has interpreted EU competition law). The requirement to do so, on the UK leaving the EU, will no longer be in force. However, there is now a substantive body of decisions and precedent which has interpreted UK competition law in a way that is consistent with EU law (or at least has applied EU competition law,

2 3 4

See para 15.05 onwards below. See Competition Act 1998, s 60. Some parts of the Competition Act 1998 will be repealed on the date that the UK leaves the EU: European Union (Withdrawal) Act 2018, such as Competition Act 1998, s 60 referred to in the previous note. Competition Act 1998, s 2. Competition Act 1998, s 3. Section 10(A1) will be inserted into the Competition Act 1998: Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93), regs 2, 3. For example, the R&D Agreements Regulation is not due to expire until 31 December 2022.

5 6 7

952

Introduction 15.02

adapted to the UK context) and which will continue to be binding precedent after the UK leaves the EU; •

from the date that the UK leaves the EU: –

the CMA, tribunals and courts will no longer be required to achieve consistency between UK and EU competition law;8 however

– the CMA, tribunals and courts will still need to maintain consistency between UK and EU competition law, but only with EU competition law that is in force at the date the UK leaves the EU.9 There are a number of exceptions to this new requirement. As noted below, the UK and EU competition law regimes are, up to now, parallel regimes rather than the UK regime being a subservient one to the EU competition law regime (even though the UK was required to maintain consistency with the EU competition law regime). On the UK leaving the EU the requirement, as noted immediately above, to achieve consistency will be removed. But this will not address how disputes regarding competition law will be addressed between two separate trading blocs (or, rather, one country and a trading bloc), in a similar way to a dispute between a party based in an EU country and one in the USA. This is likely to involve the UK and the EU entering into a treaty (or the UK joining another trading entity, such as the EEA). At first sight, Article  101 of the EU  Treaty concerns trade between members states and the equivalent provision in UK competition law concerns trade within the UK. So neither would appear to deal with a competition law dispute between a UK party and an EU-based party, since neither Article 101 nor the equivalent UK provision would apply. However, there is EU case law which indicates that, where undertakings are established outside the EU and they engage in collusive behaviour which affects customers within the EU, such behaviour may have the object or effect of restricting competition within the meaning of Article 101 and EU competition law could apply.10 The above is no more than an overview of some points that will need consideration, which is all the authors feel confident in stating at the time of writing. Accordingly, it was too early to speculate what will happen to UK competition law and what will happen in the event of a competition law dispute between the UK and the EU after the UK leaves the EU. To date,  8 The provision requiring consistency between UK and EU competition (Competition Act 1998, s 60) will be repealed on the date the UK leaves the EU: Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93), regs 2, 22.   9 On the date the UK leaves the EU, Competition Act 1998, s 60A will be inserted. 10 A. Ahlström Osakeyhtiö and others v Commission of the European Communities, Joined cases 89, 104, 114, 116, 117 and 125 to 129/85.

953

15.03  UK Competition Law

the focus in the UK of the government and its negotiators has not been in dealing with the practicalities of managing the long-term relationship with the EU. The authors tentatively believe, in the short term post Brexit, it is unlikely that, where any competition law issues arise, there will be any significant differences on how such issues are decided than in the period before Brexit, particularly in the transition period to 31 December 2020 (after the UK and the EU conclude their Withdrawal Agreement).11

The four different types of competition law 15.03 Before proceeding further, it may be useful to distinguish between four types of ‘competition’ laws relevant to the UK: (a) European competition laws, which protect the European markets from larger-scale economic abuses, particularly under Articles  101, 102 and 34–36 of the EU  Treaty, in respect of European Union member states, and extending to most other western European countries (with the notable exception of Switzerland) under the European Economic Area Agreement.12 Article  101 forms the main subject matter of Chapter 12. (b) The application of European law directly by relevant UK national bodies (the Competition and Markets Authority, ‘CMA’ in this chapter), the Competition Appeals Tribunal (‘CAT’) and the UK courts under the Implementation Regulation.13 (c) UK domestic competition laws (particularly through the Competition Act 1998 (the ‘Act’ in this chapter)) which protect the UK markets from economic abuses which are considered not to be in the public interest. (d) So-called ‘unfair competition’ laws, which seek to prevent a person from trading in a way which is ‘unfair’ with respect to competitors. This category of laws, which should not be confused with the abovementioned types of competition law, is more highly developed in some countries than others. It is not generally recognised as a separate category in English law, unlike the position in some continental European countries.

11 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25  November 2018, Article  126. There is limited reference in this agreement to competition law (see Art 92). 12 See further Ch 12. 13 Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

954

UK statutory (and other legislative) provisions concerning competition 15.04

However, there are areas of English law that are analogous to continental unfair competition laws. For example: •

the common law (case-based) English law of ‘passing off’ which prevents a person from deliberately trading off another’s reputation in certain situations; and

•

some statutory provisions in UK intellectual property law which might be classified as ‘unfair competition’ laws, most notably under the law relating to registered trade marks.

This book does not consider the subject of ‘passing off’, nor registered trade marks, as these areas of law do not protect technology as such. In a broader sense of the term, ‘UK competition laws’ are now concerned with (b), (c) and (d) in the list above. Item (b) provided new powers to the CMA (and the CAT and the UK courts) to apply EU competition law directly and, like item (c), is policy-based and inquisitorial in nature – the competition authorities may require parties to justify their conduct in relation to the public interest. Item (d) tends to be more concerned with the protection of individual interests and is adversarial in nature – for example, where a party makes use of such laws in a private dispute with another party.14 This chapter is principally concerned with item (c), that is UK competition laws. Since 1998, this area consists principally of the Competition Act 1998 (as amended principally by the Enterprise Act 2002), but also includes the common law on agreements in restraint of trade. This chapter also includes consideration of item (b) above.

UK STATUTORY (AND OTHER LEGISLATIVE) PROVISIONS CONCERNING COMPETITION Introductory points 15.04 The relevant statutory rules governing UK competition in relation to technology-related agreements are now contained in the Competition Act 1998 (‘the Act’ in this chapter), which came into force on 1 March 2000.15 From 1 May 2004, following the bringing into force of the Implementation

14 Eg in the case of Chiron v Organon [1993] FSR 567, where (the now repealed) Patents Act 1977, s 44 was used as a defence in patent infringement proceedings. 15 As extensively amended by the Enterprise Act 2002 (including changes which are largely outside the scope of this book, such as introducing a system of market investigations, providing for controlling mergers, providing for criminal sanctions where a person is involved in a cartel, and the disqualification of a director of a company where the director infringes competition law).

955

15.04  UK Competition Law

Regulation,16 the UK acquired the power to apply EU competition law directly (primarily through the CMA).17 Therefore, the CMA can apply, in any particular situation, either UK competition law, EU competition law or both to an agreement. UK competition law was changed principally as follows: •

the CMA has investigative powers (such as obtaining evidence, powers regarding searching premises, etc) that equally apply (as well as being strengthened) to an infringement of UK or EU competition law;18

•

the CMA was designated as the national competition authority;19

•

the CMA is allowed to apply the powers provided in the Implementation Regulation;20

•

the CMA is no longer able to grant individual exemptions;21

•

agreements can no longer be notified to the CMA;22

•

in particular cases where novel or unresolved questions of law arise, guidance may be provided by the CMA (in the form of an ‘opinion’).23

The CMA is under a duty to publish ‘general’ advice and information about the CMA’s application and enforcement of Articles 101 and 102.24 A large amount of documentation was issued in 2004 (by the CMA’s predecessor, the Office for Fair Trading, OFT). Much of it still applies (unchanged) since then 16 Council Regulation (EC) 1/2003 ([2003] OJ L 001/1) on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. The changes are summarised at para  12.84 onwards; Enterprise Act 2009, s  209 gives the Secretary of State the power to amend the Competition Act 1998 as ‘he considers appropriate for the purpose of eliminating or reducing any differences between (a) the domestic provisions of the 1998 Act, and (b) European Community competition law which result (or would otherwise result) from a relevant Community instrument made after the passing of this Act’. 17 The CMA replaced the Office for Fair Trading from 1 April 2014: Enterprise and Regulatory Reform Act 2013, ss 25, 26 and Sch 4. 18 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 4 and Sch 1, making a number of amendments to the Competition Act 1998 including s 25 etc. The powers granted to the CMA to carry out investigations in relation to EU competition law will be repealed on the day that the UK leaves the EU: Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93), regs 2, 6. 19 Competition Act 1998, s  54, as amended by Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 3. 20 Competition Act 1998 ss  25–29, 61–66, as amended by Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 3, Sch 1. 21 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 4 and Sch 1, paras 2, 3, repealing Competition Act 1998, ss 4, 5. 22 Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), reg 4 and Sch 1, para 9, repealing Competition Act 1998, ss 12–16, 20–24. 23 This is the equivalent of the approach of the Commission: see Commission Notice on informal guidance relating to novel questions concerning Articles 101 and 102 of the EU Treaty that arise in individual cases (guidance letters) ([2004] OJ C101/78). The CMA’s approach as to when and the conditions on which it will issue such an opinion can be found in Section 7 of their guideline Modernisation (OFT 442). 24 Competition Act 1998, s 52. The publications relevant to competition law are available from www.gov.uk/cma, none of which address intellectual property directly.

956

UK statutory (and other legislative) provisions concerning competition 15.06

and the CMA has also published some further guidance subsequently; much of it appears to indicate that the CMA takes the same approach, whether UK or EU competition law is involved. For the purposes of this chapter, the following are the most relevant documents: •

Agreements and concerted practices – Understanding competition law (OFT 401);

•

Modernisation – Understanding competition law (OFT 442);

•

Market definition – Understanding competition law (OFT 403); and

•

Public Bodies and competition law – Understanding competition law (OFT 1389).

Relevant parts are referred to in this chapter, but much of what they contain closely reflects the application of EU competition law with, at appropriate points, adaptations to reflect the situation in the UK.

Competition Act 1998 15.05 The Act introduced two prohibitions: •

of agreements (whether written or not) which prevent, restrict or distort competition and which may affect trade within the UK (known as the ‘Chapter I prohibition’); and

•

of conduct by undertakings which amounts to an abuse of a dominant position in a market and which may affect trade within the UK (the ‘Chapter II prohibition’).

The Chapter I prohibition is the most relevant when drafting and advising on technology-related agreements and which this section discusses. The elements of the Chapter I  prohibition correspond with provisions of Article 101. Currently section 60 of the Act requires that the UK authorities must act in such a way as to ensure consistency with EU law when handling cases. However, the UK regime was not introduced in order to comply with a specific European law as such. Whilst it has adopted virtually all of the same way of thinking as the European competition regime, and this facilitates the UK as a member state in upholding its treaty obligations, nevertheless the UK regime is more of a parallel scheme as opposed to a subservient one.

When will an agreement breach Chapter I of the Competition Act? 15.06 Section 2(1) of the Act provides that: 957

15.07  UK Competition Law

‘Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which– (a) may affect trade within the United Kingdom; and (b) have as their object of effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited unless they are exempt in accordance with [this part of the Act]’.25 The wording of section 2(1) is very similar to that of Article 101, the main difference being the substitution of ‘within the United Kingdom’ for ‘between member states’. The prohibition only applies if the agreement, decision or practice is, or is intended to be, implemented in the UK. It is not proposed to discuss all the different requirements for a breach of section 2(1) as most of these are the same as under EU competition law and subject to consideration in Chapter 12. Instead, this section discusses the main differences from EU competition law as well as some practical points that arise, namely: •

‘within the United Kingdom’;

•

‘between undertakings’;

•

whether the effects are ‘appreciable’; immunity for ‘small agreements’;

• agreements; •

void agreements;

•

excluded and exempted agreements; and

•

consistency and harmonisation between UK and EC competition law.

Within the United Kingdom 15.07 UK competition law will apply if ‘the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom’.26 The ‘United Kingdom’ means England and Wales, Scotland and Northern Ireland and there is no requirement in the Act that it should be a significant part of the country.

25 26

While Competition Act 1998, s 2(2) lists the types of agreements, decisions or practices which are prohibited. These are the same as those listed in Art 101. Competition Act 1998, s 2(3). In this context the meaning of the United Kingdom will include the situation where an agreement operates or is intended to operate in only a part of the UK (Competition Act 1998, s 2(7)).

958

UK statutory (and other legislative) provisions concerning competition 15.08

Between undertakings 15.08 As with the EU Treaty, the Act does not provide a definition of the meaning of ‘undertaking’ but the following explanation of an undertaking is used by the OFT: ‘the concept of an undertaking, encompasses every entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed’.27 An undertaking would cover:28 • companies; • firms; • businesses; • partnerships; •

individuals operating as sole traders;

•

associations of undertakings (trade associations);

• non profit-making organisations (presumably such as (research) charities, universities); •

public entities offering goods and services on a given market.29

According to the CMA guidance the key point for consideration is whether the undertaking is engaged in economic activity (although the economic activity does not have to be in all its functions). Presumably, for example for an organisation such as a university, it could fulfil this criteria, as the provision 27

In Case C-41/90, Höfner and Elser v Macroton GmbH [1991] ECR I-1979, [1993] 4 CMLR 306, para 21. This definition has been used in a number of succeeding ECJ cases (such as Case T-319/99, Fenin v Commission [2003] ECR IT-357. Also see the CMA publication Agreements and concerted practices (OFT 401), para 2.5. 28 Drawn from the CMA publication Agreements and concerted practices (OFT 401), para 2.5. 29 Whether a public body is subject to competition law, see the CMA publication Public bodies and competition law – A guide to the application of the Competition Act 1998 (OFT 1389). In effect, the key issue is whether the public body is offering or supplying goods and services on a given market. If the public body purchases goods and services, it is necessary to determine what is the end use it makes of them. If it does not directly supply goods or services (not necessarily the ones it purchases) on a market, the public body is unlikely to be an undertaking. Purchased goods and services will be classified as an economic activity if directly related to the goods and services the public body offers or supplies on a market (that is, if the offer or supply on the market is deemed an economic activity). In Case No 1006/2/1/01 BetterCare Group Ltd v Director General of Fair Trading [2002] CAT 7, [2002] Com AR 299, a health trust purchasing social care from the private sector (ie contracting out some of the trust’s activities) amounted to an economic activity. But a decision by the ECJ has taken a different view, that where there is the purchase of such a service in order to provide a public service by a public body, the public body will not do so as an undertaking (Case C-205/03 Fenin v Commission [2006] ECR I-695, [2006] 5 CMLR 559), although the facts between the cases are different.

959

15.09  UK Competition Law

of education (as long as this is not seen as economic activity) would take the university outside of the definition of an ‘undertaking’. But where it engages in research work and any subsequent use of the results in the hope of future financial gain, such as licensing or assigning intellectual property rights to a spin-out company or to an existing commercial organisation, such activity could bring the university within the definition of an ‘undertaking’. In determining whether any type of organisation, such as a university, would be an undertaking, it is necessary to consider the following factors (not all of which need to be satisfied):30 •

functional approach – it is necessary to use a functional approach to determine whether, among the various activities that an organisation carries out, the one under consideration is a discrete function – if it is, the organisation is an undertaking;

•

core function of the state – if the activity is a core function of the state, the organisation will not be an undertaking;

•

profit motive – it is a relevant, but not determinative, factor if the activity is carried out for profit;

•

a private body also carries out the activity – if a private body also carries out the activity that the organisation does, the activity is an economic activity and the body will be an undertaking;

•

whether the body can decide on what it charges – if the organisation does not decide on the amount it charges but a public body sets out what it charges, the organisation is not an undertaking; and

•

directly exercising power – if the organisation exercises its powers directly from legislation, the state or on behalf of a public authority, it is not a undertaking.

Whether the effects are ‘appreciable’; is it a ‘small agreement’? 15.09 It is well-established under EU competition law that for there to be a breach of Article 101, the effects on competition must be ‘appreciable’. The same principle would be applied under UK law, by virtue of section 60 of the Act, particularly following the coming into force of the Implementation Regulation. The CMA guidelines indicate, as a general proposition, that an agreement will not fall within an Article 101 or a Chapter I prohibition if it is covered by the Commission Notice on Agreements of Minor Importance.31 30 Drawn from UKRS Training Limited v NSAR Limited [2017] CAT 14, para 67. The factors are based on a review of EU case law. 31 Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01). See the CMA publication Agreements and concerted practices.

960

UK statutory (and other legislative) provisions concerning competition 15.09

The Commission Notice is set out in detail in Chapter 12, but the key points are that the Commission considers that: •

an agreement must not have as its object the restriction of competition in the internal market, such as an agreement containing restrictions which fixes prices on goods sold to third parties, limiting output or sales, or otherwise contains any hardcore restriction appearing in a block exemption Regulation;

•

an agreement between undertakings which affects trade between member states and has as its effect the restriction of competition will not appreciably restrict competition (within the meaning of Article 101(1)) if: – the combined market share of the parties to an agreement does not exceed 10 per cent and the parties are actual or potential competitors; –

the market share of each party to an agreement does not exceed 15 per cent and the parties are not actual or potential competitors.

Furthermore, where the parties have used good faith in relying on the terms of the Commission Notice, the CMA will not impose a financial penalty where in fact there is an infringement of an Article 101(1) and/or Chapter I.32 Although the CMA’s view on what is ‘appreciable’ is not legally binding, it is likely to influence the UK courts. Under section 39 of the Act, there is a limited immunity from fines for ‘small agreements’, provided they are not price-fixing agreements.33 This immunity does not affect the question of whether the agreement breaches Part I of the Act;34 thus an agreement could be immune from fines but still void. Small agreements are defined as: ‘all agreements between undertakings the combined applicable turnover of which for the business year ending in the calendar year preceding one in which the infringement occurred does not exceed £20 million’.35 32 See CMA publication Agreements and concerted practices (OFT  401), para  2.19. This document was prepared in 2004 and the CMA has not updated it since then. It was prepared on the basis of the previous 2001 Commission Notice. The current Commission Notice (from 2014) has changed the circumstances when it will not impose its fine, but OFT 401 has not been updated to reflect the change. For the Commission Notice, see Ch 12 for details. 33 A  price fixing agreement is one ‘which has as its object or effect, or one of its objects or effects, restricting the freedom of a party to the agreement to determine the price to be charged (otherwise than as between that party and another party to the agreement) for the product, service or other matter to which the agreement relates’. 34 Even after the amendments made as a result of the Implementation Regulation, this section still only applies to UK competition law. 35 Under Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000 (SI 2000/262), reg 3. These Regulations set out definitions for the meaning of certain phrases used in the wording quoted. In particular, ‘applicable turnover’ means the amounts derived from the sale of products and provision of services less VAT and other taxes and less sales rebates: Sch, para 3.

961

15.10  UK Competition Law

Agreements 15.10 Although there is no difference in the approach between UK and EU competition law as to the meaning of an ‘agreement’, with the starting point being that there should be ‘the existence of a concurrence of wills between at least two parties’,36 the CMA has provided some practical pointers as to what is meant by an ‘agreement’, including: •

that the word ‘agreement’ has a wide meaning;

•

agreements which are legally enforceable;

•

agreements which are not legally enforceable;

•

so-called ‘gentlemen’s agreements’;

•

an agreement which is reached without there being any physical meeting of the parties;

•

an exchange of letters or telephone calls.37

A party to an agreement will include: •

a party who played only a limited part in setting up the agreement;

•

a party who is not fully committed to its implementation;

•

a party who only participated due to pressure from other parties.38

Although a person may be a party to an agreement, the CMA may take these three circumstances into account when deciding on the level of financial penalty.

Void agreements 15.11 As with Article 101(2), an agreement or decision which is prohibited by Chapter I is void.39 In one case, a UK court held that an agreement which infringes Article 101(1) is not only void and unenforceable but also illegal.40 It could make certain restitutionary measures which are available, at least under English law, unavailable to a party who has paid money under an agreement. Such an all-encompassing approach has not been followed in European case law. In one case, it has been held that national law can stop a party who 36 Quoted in Argos Ltd and another v Office of Fair Trading; JJB Sports plc v Office of Fair Trading [2006] EWCA Civ 1318, para 23. 37 See CMA publication Agreements and concerted practices (OFT 401), para 2.7. 38 See CMA publication Agreements and concerted practices, para  2.8. See also Decision of the Director General of Fair Trading, No CA98/9/2002, Market sharing by Arriva plc and FirstGroup plc, 30 January 2002 (Case CP/1163-00) at paras 29–33. 39 Competition Act 1998, s 2(4). 40 Gibbs Mews plc v Gemmell [1999] 1 EGLR 43, CA.

962

UK statutory (and other legislative) provisions concerning competition 15.12

is responsible for restricting competition in an agreement from obtaining damages from another party to the agreement.41 Presumably this reasoning would be followed where a Chapter I infringement occurred (ie in pursuance of section 60 of the Act). Where an agreement is the subject of litigation and it is found that that is in breach of section 2(1) of the Act, the agreement should be void according to the wording of the Act.42 However, concerning Article 101(1) the ECJ has held that it is possible for just the provision which is in breach of Article 101(1) to be void, with the question of whether the rest of the agreement remains in force being subject to national law.43 The UK courts have held that, where certain provisions are in breach of Article 101, the provisions of the rest of the agreement may continue to be enforceable.44 In effect, the courts will sever the provisions which breach competition law.

Exclusions and exemptions under UK law 15.12 The main types of excluded or exempted agreement which are not subject to Chapter I of the Act are the following: (a) Exclusions under Schedules 1 to 3 to the Act:45 (i)

mergers and concentrations: ○

agreements which would result in two enterprises ceasing to be distinct enterprises for the purposes of Enterprise Act 2002, Pt 3;

41 Crehan v Courage Ltd, Case C-453/99, [2001] ECR I-6297, [2001] 5 CMLR 1058. However, Art 101 would prevent national law forbidding a party to an agreement (which restricts or distorts competition) being totally barred from claiming damages for loss of performance of that contract on the sole ground that it is a party to the agreement. 42 Competition Act 1998, s 2(4). 43 Société de Vente de Ciments et Bétons de I’Est v Kerpen and Kerpen GmbH, Case 319/82. 44 Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des Résines Industrielles SA [1977] FSR 181. In this case a French company licensee was under an obligation to pay a minimum royalty to a UK company. The French company did not make payment and the UK company obtained a judgment in default. The French company applied to have the default judgment set aside because certain provisions infringed what is now Article 101(1). The Court of Appeal held that, despite the breach under Article 101, the rest of the agreement was not invalidated. It was necessary to consider the whole agreement after removing the offending provisions and to determine whether the contract would ‘fail for lack of consideration or on any other ground, or whether the contract would be so changed in its character as not to be the sort of contract that the parties intended to enter into at all’. If none of these situations occurred, the remaining part of the agreement would be enforceable. Subsequent UK cases have applied this decision. 45 Competition Act 1998, s  3. Which type of agreements are not subject to Competition Act 1998, Chapter I has changed over the life of this book, and is now subject to scrutiny by other regulators. For example, financial services under the Financial Services Act 2012 are now subject to regulation by various other bodies, including the Financial Conduct Authority.

963

15.12  UK Competition Law

○ (ii)

agreements which are subject to the exclusive jurisdiction of the Merger Regulation;46

some planning agreements;47

(iii) EEA regulated financial markets;48 (iv) services of general economic interest;49 (v)

compliance with legal requirements;50

(vi) avoidance of conflict with international obligations;51 (vii) public policy;52 (viii) coal and steel;53 (ix) agricultural products.54 (b) Land agreements and vertical agreements can be subject to exclusion or exemption if an order is made under section 50 of the Act. There were orders in force, up to the time of the previous edition of this book, but they are now repealed.55 For vertical agreements the repeal was primarily due to the coming into force of the Implementation Regulation, so that the way vertical agreements are treated under UK law should be aligned with EU law, and thus, where appropriate, could benefit from the EU block exemption for vertical agreements.56 (c) Agreements covered by a UK block exemption order made by the Secretary of State.57 To date, no such orders have been made in relation to R&D agreements or IP licence agreements and it is understood that there is unlikely to be any such order in the foreseeable future. Apparently, the predecessor to the CMA (OFT) took the view that, given the EU block exemption Regulations for R&D  agreements and technology transfer agreements (as to which, see (d) below), there is no need for a separate UK block exemption.

46 47 48 49 50 51 52 53 54 55

Competition Act 1998, s 3(1)(a) and Sch 1. Competition Act 1998, s 3(1)(c) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998, s 3(1)(b) and Sch 3. Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000 (SI 2000/30), the Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 (SI 2010/1709). 56 See (d) below. 57 Competition Act 1998, s 6. To date, only one block exemption order has been made under the Competition Act 1998, concerning public ticketing (allowing purchasers to buy one ticket which can be used on more than one transport operator’s services): Competition Act 1998 (Public Transport Ticketing Schemes Block Exemption) Order 2001 (SI 2001/319).

964

UK statutory (and other legislative) provisions concerning competition 15.13

(d) Agreements which meet the requirements of an EU block exemption Regulation, under the parallel exemptions provisions of the Act, will also be exempt from the Chapter I  prohibition.58 Therefore an individual block exemption under Chapter I will not be necessary for an agreement which is restricted to the UK but otherwise contains a Chapter I prohibition to benefit from an EU block exemption. Although the UK will be leaving the EU (still an event in the near future at the time of writing), some of the current EU block exemption Regulations will continue to apply, including the current versions of the ones most relevant to this book: the 2010 R&D Agreements Regulation, the 2014 Technology Transfer Agreements Regulation, the 2010 Specialisation Agreements Regulation and the Vertical Agreements Regulation.59

Consistency and harmonisation between UK and EU competition law 15.13 On the day the UK leaves the EU, the section of the Act (section 60) that strives60 for consistency and harmony with EU competition law will be repealed.61 However, at the time of writing, that had not occurred, and what follows was still the current law. At the end of this section there is an outline of the law that will replace section 60. How it will work in practice is not known. Section 60 does not implement Article101 as such, but has the aim to achieve consistency with EU competition law. Section 60(1) states: ‘The purpose of this section is to ensure that so far as is possible (having regard to any relevant differences between the provisions concerned), questions arising under this Part in relation to competition within the United Kingdom are dealt with in a manner which is consistent with the treatment of corresponding questions arising in [EU] law in relation to competition within the [European Union].’ However, following the adoption of the Implementation Regulation, the differences between UK and EU competition have, to some extent, narrowed

58 Competition Act 1998, s 10. See next note for the position after the UK leaves the EU. 59 Competition (Amendment etc) (EU  Exit) Regulations 2019 (SI  2019/93), regs 2, 3. The effect of this amendment is to insert a new section 10(A1) (‘An agreement is exempt from the Chapter I  prohibition if it falls within a category of agreements specified as exempt in a retained block exemption regulation’), and the ‘retained block exemption regulations’ are listed in a new section 10A. The amendments make no mention whether the guidance issued by the EU concerning those Regulations will continue to apply. However, the new section 60A may encompass the guidance (see further below). 60 Eg see Competition Act 1998, s 60, which requires that questions arising under UK competition law are dealt with in a manner that is consistent with EC competition law. 61 Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93), reg 1(1).

965

15.13  UK Competition Law

or been removed.62 It is still possible for the EU and the UK to come to conflicting views of an agreement, but the Implementation Regulation has lessened the chances of this: •

where the Commission has come to a decision on an agreement, decision or practice under Article  101 or Article  102, the CMA cannot take a decision which runs counter to the Commission’s decision;63

•

similarly, the UK courts cannot hand down a judgment which runs counter to a Commission decision on an agreement, decision or practice under Article 101 or Article 102.64

In addition, where the CMA or a UK court wishes to apply national competition law to an agreement which may affect trade between member states (within the meaning of Article  101(1)), the CMA or UK court no longer has the choice but now must apply Article 101. Specifically, the CMA or a UK court in applying UK competition law cannot prohibit an agreement which may affect trade between member states: •

where competition is not restricted within the meaning of Article 101(1); or

•

which fulfils the conditions of Article 101(3); or

•

which is covered by an EU block exemption.65

As the text quoted above from the Act indicates, the requirement to achieve consistency is only to be achieved as far as it is possible to do so. But where there is a difference, the UK courts and the CAT should deal with a case in a way that the ECJ would, using the principles and reasoning that the ECJ would use.66 The remaining significant differences are not directly relevant to mainstream issues relating to advising on and drafting agreements concerning technology transfer or intellectual property matters.67 To illustrate the effect of the changes made in recent years: •

in-house lawyers’ advice on competition law issues can be withheld from a CMA investigation on the basis that it is subject to legal professional privilege.68 However, under EU law, in-house lawyers’ advice is not privileged and, following the bringing into force of the Implementation

62 See the previous edition of this book for some of the differences. 63 Regulation 1/2003, Art 16(2). 64 Regulation 1/2003, Art 16(1). Where the Commission has initiated proceedings, the court cannot make a decision which would run counter to a decision which is contemplated by the Commission. 65 Regulation 1/2003, Art 3(2). 66 Bettercare Group Limited v The Director General of Fair Trading, [2002] CAT 7, para 32. 67 These are usefully summarised in Whish & Bailey, Competition Law (9th edn, Oxford University Press), , at pp 388–389, referring to exclusions from the Chapter I prohibition. 68 Competition Act 1998, s 30.

966

UK statutory (and other legislative) provisions concerning competition 15.14

Regulation, would in any case not be available to the CMA where it is acting on a request from the Commission or another member state;69 and •

fines may not exceed 10 per cent of the parties’ turnover. The former restriction (before the adoption of the Implementation Regulation to limit the amount to turnover in the UK) is removed.70

Consistency and harmonisation between UK and EU competition law – post the UK leaving the EU 15.14 Some points, in outline, are made at the start of this chapter about the headline changes that will occur immediately on the UK leaving the EU. One of these is that the requirement to achieve consistency between UK and EU competition law will be repealed.71 In its place will be a replacement measure, which will only come into force on the day the UK leaves the EU.72 The replacement measure requires the CMA or a court or a tribunal, where it considers there is a question in relation to competition in the UK, to deal with the question as follows:73 1. the CMA, court or tribunal must secure there is no inconsistency between: 1.1 the principles it applies (and the decision it reaches) in deciding on a question in relation to competition; and 1.2 the principles set out by the EU Treaty and the ECJ, or decisions of the ECJ, before the exit date applicable in deciding on any corresponding question arising in EU law;74 69 Regulation 1/2003, Arts 20, 21. However, in certain circumstances a person subject to an inspection under these articles is not required to produce or disclose privileged communications, see Competition Act 1998, s 65B. For further details on the circumstances that might apply, see the CMA publication Guidance on the CMA’s investigation procedures in Competition Act 1998 cases, CMA8, January 2019, 16.9–16.13. 70 Competition Act 1998, s  36. Calculated in accordance with the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000 (SI 2000/309) (as amended). See also para  15.09 above concerning the limited availability of immunity from fines. For further information on the CMA’s position concerning the imposition of penalties, see Guidance as to the appropriate amount of a penalty (OFT 423) and, in particular, where an undertaking has committed an infringement of both Article 101 and Chapter I, the undertaking will not be fined twice (see para 1.17). 71 The provision requiring consistency between UK and EU competition (Competition Act 1998, s 60) will be repealed on the date the UK leaves the EU: Competition (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/93), regs 2, 22. 72 European Union (Withdrawal) Act 2018, s 20(1)–(5). 73 Competition Act 1998, s 60A(1). 74 Competition Act 1998, s 60A(2). Although the principle may be set out or the decision made before exit date, if any effect of them occurs after the exit day then the effect will be ignored: Competition Act 1998, s 60A(8). This is likely to mean that, for example, if the ECJ makes a decision regarding the meaning of a provision of the R&D Agreements Regulation after the exit date which is different from any interpretation of the provision prior to the exit date, the CMA, tribunal or court can ignore it.

967

15.14  UK Competition Law

2.

the CMA or court or tribunal needs to have regard to any decision of the Commission made before the exit date;75

3.

the requirement in 1. above is subject to the following: 3.1 the requirement to achieve consistency in 1. above does not require the CMA, court or tribunal to achieve consistency to a principle or decision referred to in 1.2 above where the principle or decision is excluded from UK law on or after the exit date.76 Presumably this means that a legislative measure is passed in the UK which repeals or disapplies a principle set out by the EU Treaty or a decision of the ECJ. 3.2 1. above does not apply where the CMA, tribunal or court is bound to act otherwise because of a principle laid down by, or a decision of, a court or tribunal in the UK;77 3.3 1. above also does not apply where the CMA, a court or tribunal ‘thinks that it is appropriate to act otherwise’ concerning: ‘(a) differences between the provisions of this Part under consideration and the corresponding provisions of EU law as those provisions of EU law had effect immediately before exit day; (b) differences between markets in the United Kingdom and markets in the European Union; (c) developments in forms of economic activity since the time when the principle or decision referred to in subsection [3.2] was laid down or made; (d) generally accepted principles of competition analysis or the generally accepted application of such principles; (e) a principle laid down, or decision made, by the European Court on or after exit day; (f) the particular circumstances under consideration.’78

Wording such as ‘thinks it is appropriate to act otherwise’ and the general nature of some of the exceptions included would appear to allow, for example, the CMA to easily move away from continuing to achieve consistency between UK and EU competition law. How this will work out in practice will only become clear in the coming years.

75 76 77 78

Competition Act 1998, s 60A(3). Competition Act 1998, s 60A(4). Competition Act 1998, s 60A(5). Competition Act 1998, s 60A(7)(a)–(f).

968

Common law rules on restraint of trade 15.15

COMMON LAW RULES ON RESTRAINT OF TRADE 15.15 Under the common law, all restrictions contained in contracts are potentially unenforceable if they are in restraint of trade.79 It should be emphasised at the outset that in practice this doctrine is unlikely to affect most commercial transactions involving technology, such as licences, assignments, distribution agreements and so on, which are freely entered into between commercial parties. Nevertheless, the doctrine should not be entirely overlooked, particularly if unusual or very onerous contract terms are included in the agreement. The courts have applied the doctrine in case law dating back as far as the 16th century; it is probably fair to say that there is no single court judgment which states definitively the scope of the doctrine. As Lord Wilberforce commented in one of the leading modern cases:80 ‘… the common law has often … thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this or any aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason’. There have been a number of attempts to describe the scope of the doctrine in different situations. It seems the doctrine will affect certain types of contract more frequently than others. For example, there have been many cases concerned with employment contracts where, for example, restrictions on the employee’s activities after his or her employment is terminated have been held to be unenforceable for being in restraint of trade. It is generally regarded as difficult to draft such restrictions in employment contracts in such a way as to be confident that they will be upheld by the court.81 Rather different approaches have been taken to restrictive terms in, respectively, contracts for the sale of a business (including goodwill),82 partnership and joint venture agreements, contracts for the supply of goods, and contracts concerning the use of land and other property. There would seem to be no 79 See Chitty on Contracts (33rd edn, Sweet & Maxwell, 2018), Vol 1 at para 16–106. 80 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269. 81 Invista Textiles (UK) Ltd and another company v Botes and others [2019]  EWHC  58 (Ch) provides a recent illustration of the difficulties in drafting such clauses, and is considered further in Ch 8. 82 An illustration of the flexibility of the doctrine of restraint of trade is illustrated in Buchanan v Alba Diagnostics Ltd [2004] UKHL 5, [2004] SC (HL) 9, [2004] All ER (D) 73 (Feb), where the doctrine of restraint of trade was applied to an assignment of patents (and improvements) as security for a loan to the patent. It was held that a perpetual restraint in an assignment of a patent entitling the assignee to the rights of any improvements in the patent (even those made after the assignment) was valid. Lord Hoffman held it was in the public interest for any of the inventors to be able to borrow money on the security of future rights as well as lenders to protect the value of the patent.

969

15.15  UK Competition Law

separate version of the doctrine for intellectual property transactions such as licences and assignments, and the lack of case law in this field makes it difficult to draw strong conclusions as to the application of the doctrine to such agreements; the cases concerning sale of goods and use of land and other property probably provide the best guidance.83 However, the common law doctrine and at least European competition law appear incompatible, as in a case involving restraints in a vertical agreement, where it was held that an agreement to which European competition law applies, such as Article 101, could not be subject to the common law of restraint.84 Cases concerned with contracts between musicians and record companies are also of interest.85 If a contract term is found unenforceable at common law for restraint of trade, it is likely to have some or all of the following features: •

it restricts the trading activity of one of the parties to the contract (for example, in the case of a tying clause which prohibits a party from purchasing goods from a third party);

•

it goes further than is necessary to protect a legitimate business interest of the party who benefits from the term (for example, in scope, territory or duration);

•

it is unreasonable, unfair or oppressive;

•

it is against the public interest;

83 A series of cases earlier this century involving leases of shoe manufacturing machinery may provide the closest factual analogy to intellectual property licences. These cases are thought to have led to the introduction of the (now-repealed) Patents Act 1977, s  44, which made unenforceable certain types of ‘tying’ clause in contracts concerned with patented inventions and patented articles. See eg United Shoe Machinery Co of Canada v Brunet [1909] AC 330. However, Chitty (see note 79) comments (at para 16–106) that the reasons given in that case are unsatisfactory. See also the leading case of Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1  WLR  761; that case concerned a manufacturing licence under a patent. 84 Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004]  EWHC  44 (Comm). This case involved the distributorship of mobility scooters. The judgment is long and complex, but the relevant paragraphs concerning this point are to be found at 258 to 266. The judge indicates that, in considering the wording of Implementation Regulation, Art 3, it was not possible to apply the common law restraint rules because of EU law. In effect the judge was applying Implementation Regulation, Art 3(2) that indicates that the ‘application of national competition law may not lead to the prohibition of agreements, decisions by associations of undertakings or concerted practices which may affect trade between Member States but which do not restrict competition within the meaning of Article 81(1) of the Treaty, or which fulfil the conditions of Article 81(3) of the Treaty, or which are covered by a Regulation for the application of Article 81(3) of the Treaty …’. The judge also found that the common law restraint of trade did not ‘pursue an objective different from that pursued by Articles [101] and [102] of the Treaty’. This quoted wording comes from Implementation Regulation, Art 3(3), which would permit a national competition authority or a member state court not to follow EU competition law if national law did have a different objective to EU competition law. 85 Eg the case of Panayiotou v Sony Music Entertainment (UK) Ltd [1994] EMLR 229 and other cases, discussed in Copinger and Skone, James on Copyright (15th edn, Sweet & Maxwell, 2009) at, Vol 1, para 29–305, p 1754 onwards.

970

Common law rules on restraint of trade 15.15

•

it is not a term that has gained general commercial acceptance in the past;

•

it forms part of a contract entered into between parties of unequal bargaining power.

A  full discussion of the doctrine of restraint of trade, including analysis of the many court judgments in which the doctrine has been applied and developed, is beyond the scope of this section (see specialist books for such a discussion).86 The following general observations may be of assistance when considering whether the doctrine applies to a technology-related agreement: •

Restrictive covenants: the doctrine is most frequently encountered in non-compete and non-solicitation clauses in employment contracts and contracts for the sale of a business. Very broadly speaking, it is more difficult to impose enforceable restrictions on an employee than on the seller of a business, as the courts are reluctant to prevent an individual from earning a living. The case law for employment contracts may also be relevant to some contracts that have similar features to employment contracts, such as a consultancy or agency agreement with an individual.87 An example of such an agreement would be an agreement between a company and an inventor, under which the latter is contracted to carry out research activities for the former, but is not an employee of the company. The doctrine seems to be less frequently encountered in relation to commercial agreements concerning ongoing trading activities.

•

Contracts involving individuals: contracts involving individuals may be affected by the doctrine more than contracts where both parties are companies, particularly if the individual has less bargaining power than the company or is not properly advised. See, for example, the line of cases concerning contracts between young pop stars and their record companies. However, it is rare, under English law, for a contract to be found unenforceable simply because of the unequal bargaining power of the parties.

•

Very unusual or onerous terms: very unusual or onerous contract terms should be considered with particular care – for example, if an exclusive licence agreement is stated to continue for 50 years without the opportunity for earlier termination, this would be highly unusual and might well be unenforceable, depending on the circumstances.

•

Giving up a pre-existing freedom: restrictions on the exercise of intellectual property rights by a licensee or assignee seem to be regarded as less anti-competitive under domestic English competition laws than under EU laws. An example of such a restriction would be a term

86 Eg Chitty on Contracts (33rd edn, Sweet & Maxwell, 2018), Vol 1, Ch 16. 87 Invista Textiles (UK) Ltd and another company v Botes and others [2019]  EWHC  58 (Ch) provides a recent technology-related example, concerning scientists who were employees of the claimant. See Ch 8.

971

15.15  UK Competition Law

preventing a licensee from selling outside its licensed territory. Arguably such a term is not in restraint of trade since the licensee or assignee is not giving up a pre-existing freedom – in the absence of the agreement, the licensee would have no rights to use the intellectual property.88 In practice, the requirements of the Act and Article 101 are more likely to affect most technology-related agreements than the common law of restraint of trade. Where the terms of an agreement meet the detailed requirements of Article 101 (for example, by coming within the scope of a block exemption Regulation), it is unlikely that they will then be found to be unenforceable under the English common law. It seems that an agreement that operates in restraint of trade only outside the jurisdiction of the English courts may not be in breach of English law.89

88 This point was addressed, in the context of the Restrictive Trade Practices Act 1976, in Ravenseft Properties v Director General of Fair Trading [1977] 1 All ER 47. To take another example, in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd, HL 72 RPC 209 (1955) it was held that an agreement to pay compensation for exceeding an agreed level of production is not void for being in restraint of trade. 89 Fyffes v Chiquita Brands [1993] FSR 83, per Vinelott J in interlocutory proceedings relating to a trade mark agreement.

972

CHAPTER 16

Valuation of Technology and Products Introduction to this chapter for this edition 973 Introduction974 Calculation of value 975 Going rate or benchmarking 975 Ball-park figures 975 Factors affecting valuation and pricing 976 Methods of calculating value 976 Calculations based on costs 977 Calculations based on net present value 977 Greatly simplified example 977 Discount rate 979 More detailed description of NPV calculations – biotechnology industry979 Probability of successful development to market 980 Example of NPV calculation in biotech industry 980 Input data for the NPV calculation 983 Using NPV calculations to help decide on the best deal structure 984 Going rate/benchmarking 986 Value assessment by benchmarking 986 Headline figures 986 Use of benchmarking in determining royalties 987 Pharmaceuticals/biotechnology987 Chemical industry 989 Computer industry 989 Miscellaneous manufacturing 990 Industries generally 990 Factors that may affect valuation 992 25 per cent rule 994 Past court decisions 995

INTRODUCTION TO THIS CHAPTER FOR THIS EDITION 16.01 When preparing the current edition of this book, the authors considered whether any changes of substance needed to be made to this chapter on valuing technology in the previous edition. The chapter is not concerned with developments in the law, and on re-reading it, the authors felt it said all that needed to be said. 973

16.02  Valuation of Technology and Products

A  possible addition would be to discuss the recent, international case law on licensing standards-essential patents (SEPs) on fair, reasonable and nondiscriminatory (FRAND) terms, and in particular what the cases tell us about how royalty rates should be calculated in SEP licensing. While no doubt useful, the authors feel there is an entire book to be written on that specialist subject, while this chapter is designed to give a simple overview of (mainstream, consensual) licensing. For an in-depth article by one of the authors on drafting SEP licence agreements (including setting their financial terms) in light of the important English case of United Planet v Huawei, see here.1 Briefer, blog articles on the case at High Court, Court of Appeal and (in due course) Supreme Court level can be found on the authors’ blog.2 This chapter includes numerous footnotes citing articles in which valuation issues have been discussed. The authors have not, since the last edition of this book was published, kept cuttings of more recent articles on valuation, and with hindsight perhaps they should have. No doubt some readers have been more diligent than the authors on this aspect, and could help us with material for the next edition. Please let us know if you are willing to help. Another, useful source of information on valuation issues is the authors’ blog. See, for example, Standard Royalty Rates? Ain’t No Such Thing,3 in which the authors explain some of the difficulties of valuing technology.

INTRODUCTION 16.02 Much has been written on the subject of valuing technology and technology-based products.4 Typically, articles and books on this topic will describe a number of different theories or techniques for valuation. Some of these techniques provide a method for calculating the value of a high-tech company or its technology or product portfolio. The same techniques can also be used to calculate the ‘correct’ price that should be paid for the grant of rights to develop and exploit a company’s technology or product. At the outset, it should be mentioned that a distinction is often made between ‘technology’ and technology-based ‘products’. In general, it is easier to value a product than an area of technology as the latter may have different fields of application which are more difficult to quantify in terms of market, size etc.

1 https://academic.oup.com/jiplp/article-abstract/13/5/377/4774998?redirectedFrom=fulltext. 2 www.ipdraughts.wordpress.com. 3 https://ipdraughts.wordpress.com/2013/01/05/standard-royalty-rates-aint-no-such-thing/. 4 See, for example, the many articles in Les Nouvelles, the Journal of the Licensing Executives Society. See also articles in the European Intellectual Property Review, eg Romary, ‘Patents for Sale: Evaluating the Value of US Patent Licences’ [1995] 8 EIPR 385.

974

Introduction 16.05

Calculation of value 16.03 Many of the valuation techniques use a financial model or algorithm for calculating value, for example those used by financial analysts working in the high-tech sector. Usually, the model depends upon ‘net present value’ (‘NPV’) calculations, which are discussed further below. Unfortunately, different valuation models can result in widely differing valuation figures for the same product. Even where a single model or technique is used, it is possible to establish different valuations for the same product. Often the model requires assumptions or predictions to be made as to future market size, market share, cost of production, strength of patents, etc. Different people make different assumptions. Changing each of the assumptions, even by a small amount, can substantially affect the overall valuation. One reason for these uncertainties in valuation is that technology is often licensed or assigned at a time when its market potential has yet to be realised. Sometimes, parties will agree licensing terms even before the technology has been developed, for example as part of a research collaboration agreement. At such an early stage, it may be very difficult or impossible to predict such matters as the market size and share of an undeveloped product. Some other methods of calculating the value of a technology, which do not depend on NPV calculations, are discussed later in this chapter.

Going rate or benchmarking 16.04 Another approach to valuation and pricing is to look to the going rate for licensing a particular type of technology, based on general experience in the relevant industry. Another term that is sometimes used for this approach is ‘benchmarking’. Some writers have prepared tables of so-called standard financial terms, including royalty rates, for particular technologies. Use of such tables may be the best solution available in a particular case, but will not take account of any special facts in that case (eg particularly high or low profit levels for the product in question), which arguably should affect the royalty level. Some published information on royalty rates is included later in this chapter.

Ball-park figures 16.05 Sometimes, parties may decide a ball-park total figure for the value of the technology (perhaps, but not necessarily, using an NPV calculation), and then propose different elements – research payments, licence fees, royalties etc – which add up to the ball-park sum. In the authors’ experience, parties do not always engage in detailed analysis when determining the price to be paid for technology, particularly early-stage 975

16.06  Valuation of Technology and Products

technology. Instead they may rely on their intuition, and an assessment of what the other party in the negotiations is likely to accept. They may also have ball-park figures in their minds, particularly on possible royalty rates. This is understandable, given the limitations of investment theories in this field. Nevertheless, it is surprising how little preparatory work is sometimes done before setting a price, and equally surprising how large is the initial gap between the expectations of each party as to the financial terms.

Factors affecting valuation and pricing 16.06 A large number of factors can affect the price for acquiring rights to technology and products.5 Some of these factors are discussed further below.6 They can include matters that are difficult to quantify or put a value on, such as how badly a party wants to do the deal and how effective the licensed intellectual property will be to deter potential infringers. Despite the presence of these and other variable factors, a number of ‘standard’ methods for establishing a value have emerged, some of which have already been mentioned. The methods most frequently suggested are the following: •

calculation of value, including NPV calculations;

•

going rate/benchmarking;

•

25 per cent rule;

•

past court decisions.

Each of these methods will now be discussed in more detail.

METHODS OF CALCULATING VALUE 16.07 The assessment of the value of products or technologies is paramount not only in licensing but also in mergers and acquisitions of businesses, including technology-based businesses. There are a number of approaches to determine such value; however, in general, a truthful absolute figure cannot be obtained, whichever method is used. It will always be an estimation, the accuracy of which depends largely on the data available, which in turn depends on the product/technology itself and on the stage of development. There are two main methods of calculation, which are fundamentally different from one another: calculations based on costs, and calculations based on projected income. 5 6

For a list of 15 factors identified by the court in a leading US decision, see Georgia-Pacific Corporation v United States Plywood Corporation 318 F Supp 1116 (SDNY 1970), affirmed in principle on appeal 446 F 2d (2nd Cir 1971). See ‘Factors affecting valuation and pricing’.

976

Methods of calculating value 16.10

Calculations based on costs 16.08 Calculations can be based on either: •

the costs that have been incurred to date to develop the product or technology; or

•

the replacement cost, which takes into account any increase/decrease in cost that would be incurred if the product or technology was developed today.

The cost incurred in developing a technology often does not reflect the present or future value of the technology. For example, the development could be very expensive in relation to future income from sales, but the contrary could also apply. In addition, the costs are to some extent subjective when replacement costs are concerned; for example, a different company could theoretically develop the product or technology at lower cost or in less time. Therefore costs may not be a realistic assessment of future value. Nevertheless, this is a method that is sometimes used.

Calculations based on net present value 16.09 Calculation based on income from future sales is a commonly used method to evaluate the present value of a product or technology. This can be the most complex of the standard methods for determining value but it may also lead to the most equitable result. The term ‘net present value’ is a shorthand expression for a valuation method that makes use of NPV calculations. These are based on the concept that payment of a sum today is always worth more to the recipient than payment of the same sum to the recipient at a future date. If paid today, the sum can increase, for example by paying it into an interest-bearing bank account. By performing certain calculations (including making assumptions on appropriate interest rates) it is possible to work out the present value of a future sum. The following paragraph is intended to provide an introduction to the subject for non-specialist readers (together with two examples).

Greatly simplified example 16.10 A very simple example of a net present value calculation follows: Assume that the available interest rate is 5% per annum. Thus, if £100 is banked, it will earn £5 in one year, making a total after one year of £105. In other words the present value of £105 payable in one year’s time is £100. Equally, the present value of £100 payable in one year’s time is £95.24 (£95.24 × 1.05 = £100). 977

16.10  Valuation of Technology and Products

The discount factor, to convert a sum due in one year’s time to its NPV, is therefore 0.9524. Multiply the sum due in one year’s time by this figure and you arrive at the present value. If a sum is due in two years’ time, the calculation is slightly more complicated: £100 invested today will be worth £105 in one year (£100 × 1.05), and £110.25 in two years (£105 × 1.05), assuming interest rates remain constant and assuming annual compounding of interest. The initial £100 will have increased to 1.1025 times its original value. The present value of £110.25 due in two years’ time is therefore £100.00. Equally, the present value of £100 due in two years’ time is £90.70 (£90.70 × 1.1025 = £100.00). The discount factor is the amount by which future sums must be multiplied to arrive at the present value. In arithmetical terms, the discount factor may be calculated as follows: DF = 1/(1 + IR)n where DF is the discount factor; IR is the annual interest rate expressed as a fraction (ie in the present case 0.05); and n is the number of years until the sum is due. Thus, for the next five years, if interest rates remained at 5%, the discount factors for each year would be: Year 1 Year 2 Year 3 Year 4 Year 5

0.9524 0.9070 0.8639 0.8227 0.7835

To calculate the present value of a stream of royalties, on the assumption in a particular case that: (i) there will be sales of licensed products for a period of five years; (ii) royalties of £10,000 per year will be earned at the end of the first year; and (iii) the royalties will increase each year by £2,000 as the business becomes more successful. Consequently the sale of licensed products will generate (a total of £70,000 in royalties over the five-year period). Assuming a constant interest rate of 5% per annum as above, the present value of this royalty stream will be: + 0.9524 × £10,000 + 0.9070 × £12,000 + 0.8639 × £14,000 + 0.8227 × £16,000 + 0.7835 × £18,000 + PRESENT VALUE

= = = = = =

£9,524.00 £10,844.00 £12,094.60 £13,163.20 £14,103.00 £59,728.80

It can be seen that the present value figure is considerably less than the total amount of royalties payable, ie £70,000. In practice, a person 978

Methods of calculating value 16.12

would not only calculate the royalty stream of a product but would also calculate the net present value of the whole project. This is the difference between the present value of projected revenues (eg up-front payments as well as royalties) and the present value of costs (including capital investment, operating costs, etc as well as any payments to be made to third parties, eg under other licences).

Discount rate 16.11 A further complication when calculating an NPV, not referred to in the above example, is deciding on an appropriate rate of interest at which to discount the cash flows, ie  the discount rate. Selecting the appropriate discount rate is an important factor. High-tech projects are usually regarded as high risk, and therefore investors will expect a higher rate of return than bank interest rates. The discount rate will usually reflect the higher level of risk and may take account of both the company’s cost of debt (ie the interest rate it is charged on borrowings) and its cost of capital (ie the rate of return that investors expect from investing in the company).7 The calculation of the discount rate is a complicated process, which is often carried out by specialist groups and cannot be explained here in further detail.8 For illustration of the range of percentages, discount rates of 11 per cent9 and 30 per cent10 have been used for biotech companies in analyst reports.

More detailed description of NPV calculations – biotechnology industry 16.12 The following paragraphs provide a description of how a biotechnology product or technology might be valued. Although more detailed than the greatly simplified example given above, the following description is still in a simplified form. For the calculation of the NPV of a product or a technology, a number of inputs need inclusion, which are further detailed below. However, in many cases, data for these inputs are not available and assumptions have to be made, in particular where technologies or products at an early stage of development are the subject of the valuation. For example, as the properties and benefits of a product are not finally established, the ultimate population which is targeted to use the product cannot be defined. Similarly, the cost of the product or   7 The combination of these costs is known as the company’s weighted average cost of capital (WACC).   8 For further reading, see Pratt and Grabowski, Cost of Capital (3rd edn, John Wiley & Sons Inc, 2008).   9 Altium Capital, Sector Review, January 2002. 10 Credit Suisse First Boston, Xenova, November 2001.

979

16.13  Valuation of Technology and Products

technology at a commercial scale of production will often be different from the cost of production at a small scale for development purposes. In contrast, it is easier to value products that are developed into a marketable form and therefore are closer to market, although assumptions would also have to be made, albeit with greater confidence.

Probability of successful development to market 16.13 A further critical factor, especially in the valuation of pharmaceutical products, is the probability factor, which is dependent on the stage of development of a product. Each stage of development has a specific attrition rate, which reflects the risk of failure or, in other words, the probability of success intrinsic to that stage. The attrition rates of the current and all future stages of development are multiplied to give the probability of success of the product considered. This implies that a product close to market has a higher probability of success compared to an early-stage product. Attrition rates for pharmaceutical products are based on historically determined rates of success for the various stages of the clinical trials process. In practice, a probability factor relevant to the stage is applied to each cost or revenue in an NPV calculation. For example, a milestone payment, due when a product enters Phase III of development, will have a probability factor which is the product of the probabilities of Phase III and regulatory submission.

Example of NPV calculation in biotech industry 16.14 The following is a simplified illustration of a calculation of an NPV (excluding a probability weighting), with the following assumptions: •

Product A is licensed today, and today is the beginning of year one.

•

Royalty payments to the licensor are 18 per cent of sales price.

•

Launch is expected in two years.

•

The patent expires seven years from launch, and no sales are made thereafter.

•

Peak sales (at maximum penetration rate) are reached four years from launch and build up in a linear fashion.

•

The target population which would buy Product A  is theoretically 100,000 in every year.

•

There are two other competing products which take up 60 per cent of the total market share, which gives a penetration rate of 40 per cent for Product A.

•

The product has a fixed price of £50. 980

Methods of calculating value 16.14

The first step in an NPV calculation is the calculation of present and future annual cash flows, such as for example revenues from sales. The calculation of such revenue requires first the calculation of total sales, which are calculated by multiplying the price of the product or technology with the target population. A proportion of these total sales will represent the revenues and this proportion depends on which route to market is taken, where principally three options exist: direct sales, joint ventures with shared profits, or licence with royalty obligations. The annual cash flow of revenues, which are in the example a licence with royalties, can then be calculated in a simple spreadsheet as illustrated in Table 1:

981

Year (all figures in UK £)

1

Target population Price of product Penetration rate

2

3

982

Discount factor

6

7

8

9

10

100,000

100,000

100,000

100,000

100,000

100,000

100,000

100,000

100,000

50

50

50

50

50

50

50

50

50

50

40% 18%

Cash flow of revenue from sales for licensor Discount rate

5

100,000

Total sales Royalties

4

10%

20%

30%

40%

40%

40%

40%

500,000

1,000,000

1,500,000

2,000,000

2,000,000

2,000,000

2,000,000

0

90,000

180,000

270,000

360,000

360,000

360,000

360,000

0

90,000

180,000

270,000

360,000

360,000

360,000

360,000

0

12% 0.89286

0.79719

0.71178

0.63552

0.56743

0.50663

0.45235

0.40388

0.36061

0.32197

Discounted cash flow of revenue from sales for licensor

0

0

64,060

114,393

153,205

182,387

162,846

145,398

129,820

0

NPV of revenue from sales for licensor

952,109

16.14  Valuation of Technology and Products

Table 1

Methods of calculating value 16.15

The second step in an NPV calculation is applying a discount factor to the annual cash flow, whereby the discount factor for each year is calculated by the following formula:

CFn (1 + r) n where: CF = Cash flow

Present value =

n = period (year) r = discount rate) Assuming the Present Value = 1, the number of periods is 10, and the discount rate is 12 per cent, it is possible to calculate the following discount factors for each of the ten years: Year 1 2 3 4 5 6 7 8 9 10

Discount factor (12% discount rate) 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 0.452349 0.403883 0.360610 0.321973

Applying the calculated discount factors to the annual cash flows, in the example revenues from sales, discounted cash flows are obtained. Finally, the NPV is obtained by adding up the values of all periods considered. In the example in Table 1, the NPV for revenue from sales would be £952,109 for the licensor (for reasons of keeping the example simple, neither financial terms of the licence agreement nor any costs are included).

Input data for the NPV calculation 16.15 It is possible to calculate the NPVs in a very simple manner, or in a more sophisticated model, depending on the accuracy required, the availability of data, the complexity of the commercialisation of the product/technology and on the degree of flexibility which would be necessary to assess different scenarios of commercialisation. Regardless of the simplicity of the model, it is possible to base NPV calculations on a specific market or on specific population data. If a market is 983

16.16  Valuation of Technology and Products

well defined by existing products, historic data can be used, for example sales figures or prescriptions. New products or technologies are more difficult to forecast, and here a population-based market calculation can be used, built up from a particular population such as a specific age group, patients, or end users in general. In a more refined model, a growth or decline factor can be applied to the population over time, and also another factor, which narrows a population down further to a more realistic sub-population, for example only patients with early-stage disease or a population with a certain income. With both factors, a target population can be estimated, which is necessary to calculate the total sales and cost of goods.

Using NPV calculations to help decide on the best deal structure 16.16 An important consideration, particularly for a small company, is to have options for selecting the route to market as mentioned earlier (direct sales, licence arrangements or joint ventures with profit share). As cash flows of cost and expenses vary between each route to market, it is therefore important to select the most appropriate one for the company concerned. Alternatively, different scenarios could be evaluated, such as the route to market which would identify the most profitable or rewarding, and also the most or least expensive, route. For that reason it would make sense to split the NPV calculation into costs and revenues, possibly also into pre- and post-launch costs and revenues. By doing so, cash flows will become more apparent and it would be easier to influence them by modifying certain inputs such as the route to market, which could be helpful in the short- and longerterm financial strategy of a company. For instance, where a company may not have the funds or infrastructure to sell a product directly, or needs a cash injection to survive until other revenues start to happen, an NPV model can help in laying out alternative options whilst retaining a comparable NPV of the product. •

Pre-launch costs: these consist typically of R&D costs, which can be split into internal costs and external costs, for example payments to contractors. Pre-launch costs can also include payments to third parties either for licensing of the product/technology in the first place or for licensing additional IP to protect the product or technology. These thirdparty payments can include a licence fee and milestone payments upon achievement of specified development milestones. If a joint-venturetype arrangement is selected, R&D  costs and third party payments would have to be proportioned according to the anticipated profit share.

•

Pre-launch revenues: these are normally not anticipated prior to launch, except when the product is licensed, where in most cases an up-front payment and development milestones are paid by the licensee. Up-front 984

Methods of calculating value 16.16

payments can be in the form of an option fee, an option extension fee, a licence fee or a deferred licence fee, either as a cash or equity component or a mixture of both. In addition, in a licence arrangement, further revenues could be realised in some cases in the form of payments towards the R&D costs, or even total funding. •

Post-launch costs: these include, in the case of direct sales or a jointventure-type arrangement, the cost of goods (COGs), launch costs and sales and marketing costs, whereby in the joint venture costs would have to be proportioned as described under pre-launch costs. In a licence arrangement, cost of goods, launch costs and sales and marketing costs are borne by the licensee and therefore would not be calculated. Sales and marketing costs are often assumed to be a certain percentage of sales, except for products that are close to market and where more accurately estimated forecasts will be available. ‘Cost of goods’ is calculated by multiplying the production cost per unit by the number of applications per individual of the target population. Irrespective of the route to market, any third party payments would have to be indicated here, whether they are royalty rates from sales or a percentage of the licensor’s net income or in-market milestones. Tax on net income would be another parameter to consider.

•

Post-launch revenues: for these, a factor for a certain market share is added in practice, which is defined as the maximum market penetration and which value largely depends on the number of competing products or alternative approaches intended for the same target population and their combined share of the market. Maximum sales are reached typically after a number of years of sales, which is achieved in the calculation by increasing the market penetration factor in a linear mode or any other type of curve over the period from launch of product to peak sales, which, by definition, have the maximum penetration rate. For example, the time to peak sales is generally assumed to be five to six years for pharmaceutical products. It is important that assumptions about the price are carefully made, giving consideration to factors such as the acceptance of a particular price by end-users, competition in the market and, in the case of pharmaceutical products, reimbursement practices in the respective territories of sale. Further post-launch revenues include in-market milestones, which might be paid by a licensee to the licensor once specified annual sales levels are reached.

An essential input, for both post-launch costs and post-launch revenues, is the year in which the patent for a product or technology expires. It is possible to make assumptions as to whether sales reduce to zero, or whether residual sales remain and decline over time as generic products take up some market share. As patents are granted on a territorial basis, it would make sense to include options for different territories in the NPV calculation, particularly when patents expire on different dates in different territories. Again, the case for having the NPV calculations performed on a territorial basis has the advantage that it is possible to assume different prices for different territories, 985

16.17  Valuation of Technology and Products

which might be necessary due to differences in the market configuration and dynamics. Similarly, it might be necessary to take into account differences in sales and marketing costs and target population, for example age structure.

GOING RATE/BENCHMARKING Value assessment by benchmarking 16.17 In contrast to calculating a value, benchmarking is comparing a product or technology with similar products or technologies which already exist and where a value has been assigned and is ‘accepted’, eg verified by a published licence agreement. However, this approach is not as straightforward as it seems. It might often be quite difficult to identify similar products, which are comparable in stage of development, which have a comparable field and frequency of application, similar cost of goods and similar costs of sales and marketing, IP protection etc. Even if there are comparable products, data might not be available. Another complicating factor is that technology-related agreements often include several financial elements as well as royalties, including lump-sum payments, milestone payments, minimum royalties, payments for research work, and even the issue of shares by one of the parties to the other party. This can make it very difficult to compare past transactions to the one under review, even where the past agreements are in the same area of technology. Moreover, it is rare for public announcements on technology deals to mention all the financial elements of the transaction. For example, press releases on such transactions often mention up-front payments but not royalty rates. Companies that are listed on US stock exchanges will generally need to file copies of agreements that are ‘material’ to their business with the Securities and Exchange Commission, and those copies are publicly available. However, the financial details of such agreements tend to be redacted (ie deleted) with the consent of the SEC in the publicly available version. If sufficient data are available, benchmarking can be a useful tool in licensing negotiations, to justify for example up-front and milestone payments or certain royalty rates, or to support assumptions in an NPV model. Whether an NPV calculation, benchmarking, or a combination of both is used, is in the end a matter of judgement on the individual technology or product concerned.

Headline figures 16.18 When companies disclose financial details of product or technology licences, frequently so-called headline values are given. Again, these figures need careful evaluation as they may include every theoretically possible payment by the licensor, which may be a very ambitious judgement of the 986

Going rate/benchmarking 16.20

success of a technology or product. In comparing technology alliances, attention should also be paid to the overall timeframe of the alliance, which is correlated to the overall headline value. In most cases royalty rates are not published, whereas up-front payments are more readily available and on some occasions also development milestones and R&D funding.

Use of benchmarking in determining royalties 16.19 Royalty rates (as distinct from up-front and milestone payments) are often not disclosed in public announcements of the headline value of technology deals. Nevertheless, some going rates have emerged and are commonly used as a reference point when negotiating the terms of licence agreements. A  typical licensing deal may include other financial elements as well as a royalty, so that using the going rate method for royalties only really makes sense if the other financial components of the deal, eg up-front payments, are comparable. A  number of writers have made following suggestions on typical royalty rates.11 Except where otherwise stated, these rates are based on the sales price of the licensed product.

Pharmaceuticals/biotechnology 16.20 ‘In general, life sciences products, and in particular pharmaceuticals, once they are proven or once well on the way to being so, are able to secure a much higher royalty than is available in other industries as the gross margins that are available on a successful product are so large that they will support a substantial royalty.’12 ‘The average fixed rate for preclinical products was 4.3%, with the average rates for biological products being slightly higher than small molecules. The ranges of tiered rates by stage of development were 5–8% for preclinical, 7–10% for pre-proof of concept and 14–18% for post-proof of concept.’13 11 Most of these suggestions have appeared in articles in Les Nouvelles, the journal of the Licensing Executives Society, on the dates indicated in later footnotes. Other sources include analyses of filings with the US  Securities and Exchange Commission (www.sec.gov), and commercial providers such as www.royaltysource.com, www.royaltystat.com and Morningstar Document Research (www.10kwizard.com). A  major annual publication is Battersby and Grimes, Licensing Royalty Rates (Aspen Publishers). 12 Cook, Pharmaceuticals, Biotechnology and the Law (2nd edn, LexisNexis, 2009) 55. 13 As above, at 56, drawing on a survey carried out by the Licensing Executives Society (USA and Canada) of over 150 deals in 2006 and 2007.

987

16.20  Valuation of Technology and Products

‘In a typical alliance for development of a drug with significant preclinical data, royalties will range between 8% and 12% [of the sales price], with an outside range of 5% to 15%.’14 ‘[One pharmaceutical industry] respondent indicated that his or her company typically pays 0–2% royalties for process, formulation or software technology, 2–5% for preclinical compounds, 5–10% for early-stage clinical compounds, and 10–15% for late-stage clinical compounds.’15 ‘The average royalty rates on sales by R&D  stage at signing of agreements were reported by Mark G. Edwards of Recombinant Capital at the 1995 LES (USA and Canada) Annual Meeting in Orlando. These figures are averaged rates of many deals and are shown [below].’16 R&D stage

Biotech company to university

Major pharmaceutical company to biotech company

Discovery

3%

7%

Lead molecule

4–5%

9%

Pre-clinical

6–7%

10%

–

15%

Phase II–III clinical

McKinsey and Medius associates have reported the following average upfront and milestone payments and royalty percentages (monetary values are $M).17 The ‘improved’ average figures are those suggested by McKinsey as what would be expected if the deal terms generate a high enough rate of return. The Medius numbers are based on a larger survey of 68 pharmaceutical companies. McKinsey Up-front Development Phase

Milestones

Medius Royalty %

Royalty %

current

improved

current

improved

current

improved

low

high

2

5

15

37

7

17

0

5

Phase I

5

10

25

50

10

20

5

10

Phase II

10

12

35

42

20

25

8

15

Phase III

15

15

50

50

25

25

10

20

Preclinical

14 Clark and Sharron, ‘State of the Art in Biotechnology Alliances’, Les Nouvelles, June 1994. 15 Reported by McGavock and others in ‘Factors Affecting Royalty Rates’, Les Nouvelles, June 1992, an interesting survey of licensing professionals across a range of industries. 16 Yamasaki, Les Nouvelles, September 1996. 17 Jousma, ‘Considering Pharmaceutical Royalties’, Les Nouvelles, June 2005, 65–77, at 73.

988

Going rate/benchmarking 16.22

A survey of publicly available royalty rates in the period from 1984 to 2006 produced the following results. The authors of the survey also found a gradual increase over that period.18 Industry

95% Confidence interval Number of observations

Average royalty rate

(+)/(–)

Lower bound

Upper bound

Medical device

77

4.35%

0.64%

3.71%

5.00%

Pharmaceutical

90

5.66%

0.91%

4.75%

6.57%

Chemical

21

3.70%

0.88%

2.82%

4.57%

Chemical industry 16.21 ‘Dr Khoury, with the help of Arthur D  Little, developed the value grid for the chemical industry [shown below].’19 Economic impact

Process

Product

Application/composition of matter 1–3%

Compact

0.1%–1%

1–2%

Speciality

1–3%

2–5%

3–7%

High performance

3–5%

5–7%

7–10%

Computer industry 16.22 ‘[In the computer hardware industry] the percentage rate is the most difficult to obtain. Nevertheless there is virtually unanimous agreement that this figure is found between 1% and 5% [of the price of the licensee’s manufactured unit].’20 ‘After two years of experimentation … licensing experience with actual licensed software, and price comparisons with market products, it was found empirically that taking 5% of the modified replacement cost yielded a reasonable first estimate of a nonexclusive selling price … It is a one-time purchase price for a single user, nonexclusive, executable code, license, with no right to sublicense.’21

18 Porter, Mills and Weinstein, ‘Industry Norms and Reasonable Royalty Rate Determination’, Les Nouvelles, March 2008, 47–64, at 50. 19 Presentation at LES Annual Meeting 1998, reported by Khoury, Daniele and Germeraad in Les Nouvelles, September 2001. 20 Sullivan, Les Nouvelles, September 1994. 21 Betton, Les Nouvelles, September 1999.

989

16.23  Valuation of Technology and Products

Miscellaneous manufacturing 16.23 ‘A  5% royalty level is commonplace for many manufactured products.’22 ‘Typical percentage royalties based on ex-factory price:’23 Type of product

Volume

General consumer

Margin

Royalties

High

Low

0.5–4%

Specialist consumer/ general industrial

Medium

Medium

4–10%

Specialist industrial

Low

High

10–15%

‘[In typical franchising agreements] the price paid by the franchisee is principally by a royalty equal to 5% of the turnover tax free … [Some] franchising agreements of computer equipment [include] a royalty that is equal to about 8% of the turnover tax free. In license agreements between [organisations] of similar technical standard and the purpose of which is the manufacturing of measuring apparatus … protected by a few patents and a little know-how, the royalties are close to 5% of the tax free selling price of the apparatus.’24

Industries generally 16.24 The following royalty rates have been stated to have been ‘published as industry averages’ in the US.25 These figures are for a non-exclusive licence. The author of the article in which these figures appeared quotes other authors who suggest an average 20–50 per cent premium for an exclusive licence, and in the case of the pharmaceutical field up to a 300 per cent premium for exclusivity: Overall average

5–6%

(1984)

3–10%

(1988)

3–5%

(1979)

3–5.9%

(1993)

5%

(1975)

22 Erlich (Chief Patent Adviser, US Air Force), Les Nouvelles, June 1994. 23 Comerford, How to Find and License New Products (Gower Publishing Company, 1990). 24 Collette, ‘Assessing Technology Values’, Les Nouvelles, June 1989. 25 See Romary, ‘Patents for Sale: Evaluating the Value of US Patent Licences’ [1995] 8 EIPR 385. This article quotes the sources of these suggested rates, mostly from US books and articles published between 1975 and 1993.

990

Going rate/benchmarking 16.24 Chemical

2–5%

(1984)

2–5%

(1975)

1–3%

(1991)

Petroleum

1%

(1975)

Wood products equipment

4–5%

(1975)

Folding cartons

1–1.5%

(1975)

Electronics