Intellectual Property Claims are on the Rise: mitigating the risks to your business
The number of claims heard by the specialist Intellectual Property court in England and Wales (IPEC) hit a record high last year. This correlates with an increased understanding of IP rights generally; with more accessible guidance online, individuals and businesses perhaps feel more confident enforcing their IP rights.
In light of this, it is good practice for business owners to consider establishing an effective strategy for dealing with such disputes.
Dispute Resolution Outside of Court
Court proceedings can be an effective method of IP rights enforcement, however it’s important to note that with litigation comes risk, and court is not always the best place to resolve disputes. For example:
- It’s possible to tackle cybersquatting through the UDRP process, seeking the cancellation and/or surrender of a domain name registered in bad faith;
- The take-down of a website displaying stolen content (infringing Copyright) can be sought through a Notice and Takedown procedure, at a pre-issue stage; and
- Alternative Dispute Resolution (ADR) can provide a faster route to resolution, through for example Mediation, saving time and costs.
Dispute Resolution in Court
If, despite the above, you still wish to resolve the dispute in court, doing so is a serious step, exposing you to a potentially significant costs risk. It’s important to be aware:
- The value of the claim does not necessarily correlate with its legal complexity and even a Small Claim can still be a tricky claim to prove. There are common misconceptions with regard to the ownership of IP rights which can catch out the unwary, particularly with regard to Copyright;
- Once a claim is issued, you cannot discontinue without potentially being held liable for the other side’s legal costs;
- It can also be difficult or impossible to amend a claim once it’s issued, so you should begin with carefully drafted Particulars of Claim at the outset;
- Claims can typically take 18 to 24 months (or more) to reach trial, so it’s important to understand the strengths and also weaknesses of a claim early on, preventing nasty surprises at trial a year or 2 down the line; and
- If a claim is misconceived and completely groundless, a Defendant could apply to strike it out, and seek an order for its costs against you.
There are options available both inside and outside of Court, and a carefully thought-out IP enforcement strategy can mitigate the risks inherent in litigation.
Therefore, if you’re considering enforcing IP rights (in court or not), it’s recommended that legal advice is sought from a solicitor specialising in IP law, even before a threat of IP infringement is made (to avoid for example, the risk of being sued yourself under the Groundless Threats provisions).
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Facebook Faces Consumer Action
Following a recent EU ruling, ‘privacy activist’, Max Schrems, can bring an individual action as a consumer against Facebook. However, he cannot bring a class action on behalf of 25,000 others in relation to Facebook’s privacy practices. EU regulations generally state that proceedings can only be started in the member state where the defendant is domiciled (where the defendant lives). However, where a person is a ‘consumer’, they can bring a claim in the country that they, the consumer, live.
Mr Schrems used his private Facebook account for publishing books, lecturing, operating websites, fundraising and being assigned the claims of other Facebook users. Facebook tried to argue that these activities meant that he was not a consumer, but a ‘professional litigant’. The Court of Justice of the European Union (CJEU) however, ruled that he was still a consumer because the use of his account was ‘predominantly personal’. He therefore can bring an action in Austria, the country where he is domiciled.
A further question before the court was whether Mr Schrems could bring a class action and pursue claims assigned to him from 25,000 other Facebook users. The court directed that he would not be allowed to pursue a class action on behalf of others. The consumer exception is limited to the specific parties to the contract.
Mr Schrems has a long-running dispute with Facebook over their privacy policies and their data-sharing with US spy agencies. He was behind the recent decision that brought about the collapse of the EU-US Safe Harbour framework, which had allowed Facebook Ireland to transfer data to Facebook USA. Fundamentally it was a data sharing scheme.
This recent decision puts an end to Mr Schrems plans to bring a class action, however, he is now free to pursue Facebook as a consumer, where he is domiciled, in Austria. He insists that he will use this decision to bring a ‘model case’ against Facebook instead.
Case: Schrems v Facebook Ireland Ltd (Case C-498/16)
The Power of Injunctions – avoiding a trial
Injunctions are often called the ‘nuclear weapons’ of litigation. A recent case concerning the disclosure of documents shows the power that injunctions can have.
In this case party A sought an injunction to require the disclosure by Party B of documents relating to a proposed share sale. They had already issued a claim to require disclosure from Party B but the outcome of the trial of this claim would be too late as it would take place after the sale. Party B objected to the injunction as in effect Party A was asking the court to give them the documents they wanted without a full trial.
The Court of Appeal considered the basic principles in relation to granting injunctions and concluded that the court should consider the degree of likelihood of Party A succeeding in its claim at trial and apply the balance of convenience test (i.e. would one party suffer more as a result of the injunction being granted or not granted).
Party B argued that the documents were being sought for an improper purpose and a trial should be held so that a judge could properly consider all the facts. Party A disputed this and pointed out that by then it would be too late for Party A to use the documents.
It was held that the balance of convenience was with Party A and the documents should therefore be disclosed. They had properly sought disclosure of these documents to enable them to challenge the sale of the shares before this process was completed. As Party A had good grounds to establish that they were entitled to such documents, the balance of convenience lay with them. The injunction was therefore granted.
This was obviously a good result for Party A as they obtained the documents they wanted without the need for a trial. From the perspective of Party B it was a harsh outcome as they were deprived of an opportunity to properly argue their case at trial.
What it clearly does is illustrate that in the right circumstances an injunction really can be a nuclear weapon in your arsenal.
The case in question is Global Gaming Ventures (Group) Limited v Global Gaming Ventures (Holdings) Limited  EWCA Civ 68.
Are heads of terms or letters of intent legally binding?
We’re often asked by clients whether heads of terms or letters of intent they’ve already agreed with another party are binding. This ultimately comes down to what has been agreed, what the parties’ intentions were and whether the terms are sufficiently certain to be legally enforceable.
What are heads of terms?
Heads of terms (also known as letters of intent) are usually entered into when parties are not yet in a position to sign a detailed contract. They can be used to set out the parties’ agreement in principle on the key commercial issues at an early stage of a transaction and are not intended to be binding. They may however also be used as a binding preliminary agreement to cover any immediate work before a full contract is signed.
If not carefully drafted, there can be uncertainty and doubts over whether or not the parties intended to be legally bound by all or some of the terms.
No intention to be legally bound
An agreement made on the basis that the parties don’t intend to be legally bound until they enter into a more formal contract, is not itself usually legally binding but it can create a strong moral commitment which it might be difficult to later move away from.
To ensure that no implied contractual relationship is created, case law shows the importance of:
- Expressly stating that the terms are not intended to be binding;
- Ensuring that any further documents envisaged by heads of terms are drafted and executed as quickly as possible; and
- The parties carefully considering whether to take any action to implement the heads of terms as doing so might suggest that they intend to be bound.
‘Subject to contract’
The use of the phrase “subject to contract” in commercial negotiations creates a strong presumption that the parties do not wish to be bound, particularly if this is understood from usage in the industry, however, again, if the parties start to perform the contract envisaged by the heads of terms, beware that this presumption will not always apply.
If the whole agreement or some of the provisions are intended to be binding by the parties, this should ideally be clearly stated. Further, the legal requirements for creating a valid contract must be satisfied:
- The terms must be sufficiently certain to be enforceable;
- All essential terms crucial to the existence of a binding contract must have been agreed;
- Unless the heads of terms are executed under seal or as a deed, there must be consideration moving from the party benefiting from the agreement to the other party. In practice this is usually a promise, payment or action, or a delay in enforcing a legal right; and
- The parties handling the negotiations must have authority to enter into the agreement.
As is usually the case, the key to avoiding uncertainty is careful drafting in the first place.
Beware of gentleman’s agreements in family companies
Just because an agreement is not legally binding does not mean that a court cannot give it effect. This principle was forcibly re-stated in a November 2017 judgment in a case brought against the Oyston family, owners of Blackpool FC.
The Collins Dictionary definition of a gentleman’s agreement is an informal agreement in which people trust one another to do what they have promised. The agreement is not written and does not have any legal force.
In the Blackpool case it was held that a gentleman’s agreement existed between the Oyston family and the minority shareholder, Mr Belokon, that notwithstanding his minority shareholding Mr Belokon would be treated as an equal partner. Despite the fact that the agreement did not give rise to specific legal rights it amounted to a legitimate expectation on the part of Mr Belokon.
On the facts of the case, Mr Belokon was not treated as an equal partner, was excluded from management of the company and from participation in profits. The Judge additionally found that the Oyston family had sought to avoid paying out profits via dividends but as a matter of fact payments totalling millions of pounds were disguised dividends to the family.
The actions of the Oyston family were therefore in breach of the legitimate expectations of Mr Belokon and consequently unfairly prejudicial to him pursuant to s.994 of the Companies Act 2006.
As a result of the Judge’s findings the Oyston family were required to buy out Mr Belokon for the sum of £31m, which far exceeded the value of the shares on a normal valuation basis, but reflected the disguised dividends.
The lesson to be drawn from this is that shareholders should not assume that informal agreements or arrangements between them cannot give rise to significant legal rights and responsibilities.
As an aside, many lawyers recognise the alternative definition of gentleman’s agreement that was put forward by Sir Harry Vaisey who was a High Court Judge from 1944 to 1960. His definition is as follows:
A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.