Licensing Update - IPR in business (August 2003)

• Commission report on multi party licensing to assist the Directorate General for Competition in its review of Article 81 (1) and (3) to patent pools and cross-licensing of intellectual property. The report by Charles River Associates relates to the question of whether to extend the Technology Transfer Block Exemption to cover multiparty licensing or to cover multiparty licensing by guidelines.
  www.europa.eu.int/comm/competition/antitrust/legislation/multiparty_licensing.pdf

• Council Directive (EC) 2003/49 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States. Deals with the taxation problems between different Member States and ensures that interest and royalty payments are subject to tax once in a Member State. See:
  europa.eu.int/eur-lex/en/dat/2003/l_157/l_15720030626en00490054.pdf

• DTI consults on Government's proposals for realigning Competition Act 1988 in light of Regulation 1/2003 EC (the "Regulation"). The consultation paper outlines the Government's proposals on how exclusions and exemptions under the Competition Act should be treated after 1 May 2004 when the Regulation comes into force. The Regulation replaces Regulation 17/62 which establishes the Commission's powers, procedures and penalties for enforcing the EC treaty Articles on Competition (Articles 81 and 82). See:
  www.dti.gov.uk/ccp/consultpdf/modconsult1.pdf

• Government produces consultation paper on the definition of R&D for tax credits. A consultation paper on improving the definition of research and development (R&D) for tax credit was published on 17 July 2003 by Chancellor Gordon Brown. R&D tax credits were introduced for small and medium sized companies in 2000 to help boost business R&D investment and innovation. The Government hopes to make it easier for companies to calculate their R&D tax credits and clarify what qualifies (and what does not). In addition, changes could lead to new tax breaks including the licensing of software as part of an R&D project. The consultation closes on 10 October. See the consultation document at:
  www.hm-treasury.gov.uk/media/1B65C/Defining Innovation_360.pdf

• Commission adopt proposal of G10 Medicines Group. On 1 July 2003 the Commission adopted plans to boost competitiveness of EU based pharma industry. See:
  europa.eu.int/eur-lex/en/dat/2003/l_157/l_15720030626en00490054.pdf

  This was in response to the recommendations set out in the Report of the High Level Group on Innovation and Provision of Medicines (G10 Medicines). One of the aims is to meet the challenges of enlargement through establishing a level playing field on IP protection and providing support to new Member States to implement legislation.
  See full report on pharmacos.eudra.org

• FA premier league v Panini Ltd [2003] EWCA Civ 995 CA. Principle issue in this case was whether the defendant could rely on section 31 of the Copyright Designs and Patents Act 1988 and rely on incidental inclusion for its unlicensed and unofficial products. The defendant distributed an unofficial football sticker album and a sticker collection including players from the Premier league clubs. Nearly all the players were depicted in club strip bearing the logo of the club and of the Premier League. The Premier League acting on behalf of the clubs had granted exclusive rights to use and reproduce the official team logos to its licensee ("Topps"), which produced an official Premier League sticker collection. The Premier League and Topps and the clubs brought proceedings against Panini for copyright infringement and sought an injunction. Panini relied on its defence on s.31. The Judge at first instance held that use of the logos in the sticker photographs infringed copyright because it was not incidental. Inclusion of the logo as part of the strip was integral to the depiction of the footballer in his current strip.

  Appeal dismissed. See www.bailii.org/ew/cases/EWCA/Civ/2003/995.html

• A commitment to royalty-free standards on the web was pledged as the World Wide Web Consortium (W3C) announced approval of its Patent Policy. The W3C Patent Policy governs the handling of patents in the process of producing Web standards. The goal of this policy is to assure that recommendations produced under this policy can be implemented on a royalty-free basis. The policy requires patent disclosure by W3C In the past technology that has been approved for use by W3C.

  See: www.w3.org/Consortium/Patent-Policy

• Barcelona.com Incorporated v The City Council of Barcelona, Civ No. 02-1396, 4th Circuit, June 2, 2003. A recent US court case concerning a .com domain name referring to Barcelona may have interesting implications for domain name disputes occurring outside the US.

  The key facts were as follows:

  • Events started in1996, when a Mr Cobo registered the domain name barcelona.com in the name of his wife.
  • Mr Cobo then set up a web site under this domain name. The web site offered various web-related services for sale, including domain name registration and web site design. The web site also contained a limited amount of information about the city of Barcelona.
  • A few years later, Mr Cobo sent an e-mail to Barcelona City Council asking if the Council wanted to buy the domain name. There was no reply to this e-mail.
  • Mr Cobo then formed Baracelona.com, Inc. He also produced a business plan that was based on the development of the web site at barcelona.com into a web site that would contain a great deal more information about Barcelona and which would operate as a web portal in relation to other information about, and services relating to, the city.
  • Mr Cobo then received a letter from Barcelona City Council then sent a letter to Mr Cobo, asking him to transfer the domain name barcelona.com to them. Mr Cobo refised and, instead, he transferred the domain name to Barcelona.com, Inc.
  • Barcelona City Council started WIPO arbitration proceedings (under the Uniform Dispute Resolution Procedure) asking for an order that the domain name be transferred to them. The City Council said that the domain name infringed various Spanish trade marks owned by the Council. The trade marks concerned all contained the word barcelona.
  • The WIPO arbitrator ruled that the registration and use of the domain name by Mr Cobo and Barcelona.com, Inc. was improper and in bad faith. It was ordered that the domain name be transferred to Barcelona City Council.

  You might think that this would be the end of the matter, but you would be wrong. Barcelona.com, Inc then started proceedings in the US against Barcelona City Council for "reverse domain name hijacking".

  The concept of "reverse domain name hijacking" can be used where a registered owner of a domain name has had the domain name suspended, disabled, or transferred as a result of proceedings brought by a trade mark owner under the Uniform Dispute Resolution Procedure. In that event, it is open to the domain name registrant to start a civil action against the trade mark owner to in order to show that the registration or use of the domain name by the domain name registrant had not, in fact, been unlawful. If the court finds in favour of the domain name registrant it can (among other things) grant an injunction requiring (for example) the reactivation of the domain name or transfer of the domain name back to the domain name registrant.

  At first, Barcelona.com, Inc was unsuccessful. The District Court rejected the reverse domain name hijacking claim and decided that the use of the domain name barcelona.com by Barcelona.com, Inc was unlawful. It reached this conclusion on the basis of Spanish trade mark law. Not deterred, Barcelona.com, Inc appealed, and it is this appeal that has given rise to the most recent judgement.

  The appeal court decided as follows:

  • Because it had started proceedings under the Uniform Dispute Resolution Procedure for transfer of the domain name, Barcelona City Council thereby made itself subject to the jurisdiction of the United States courts. This in turn allowed the US courts to accept, and adjudicate on, a reverse domain name hijacking claim in relation to the relevant domain name.
  • In order to win, Barcelona.com, Inc had to prove the following things:
    • that it was the registered owner of a domain name;
    • that the domain name had been suspended, disabled or transferred due to proceedings under the Uniform Dispute Resolution Procedure;
    • that notice of the reverse domain name hijacking action had been given to the relevant trade mark owner; and
    • that the registration or use of the domain name by the registered owner was not unlawful.
  • All of the first three were satisfied, so the important question was the last one. In relation to that, the District Court had applied Spanish law in reaching its decision. The Appeal Court said that this was incorrect - the question was whether or not the use of the domain name was unlawful under US law (in particular, the Lanham Act).
  • Subject to a number of exceptions (none of which were relevant to this case), it is not possible under US law to register a trade mark that is the name of a geographical place. It followed that, because Barcelona could not be registered as a trade mark in the US, it could not be unlawful under US law to use the domain name barcelona.com.

  Accordingly, Barcelona.com, Inc won its case and was allowed by the Appeal Court to hang onto the domain name.

  So where does this leave us? A few thoughts provoked by the judgement are:

  • It makes life a more uncertain in relation to disputes over .com domains (or other such top level domains that are administered by a domain name registrar in the US). Just because you may have had the matter resolved by WIPO under the Uniform Dispute Resolution Procedure, does not mean that things are over.
  • As this case shows, just by starting proceedings under the Uniform Dispute Resolution Procedure you lay yourself open to the jurisdiction of the US courts. As a result, if you are a trade mark owner who has been successful in obtaining the transfer of a domain name to you, you may find yourself having to justify yourself all over again in front of a US court.
  • This may make the whole procedure more uncertain and more expensive. Although the proceedings before WIPO under the Uniform Dispute Resolution Procedure are on paper, the US court proceedings will probably not be, and the attendant expense is likely to be significant. Also, even if you won before WIPO you may then find that you lose before the US courts.
  • This brings us to point that it will be much more important to be in a position to show that use of the domain name would be unlawful under US law. If, like Barcelona City Council, you are fighting on the basis of a mark that could not be registered in the US, then you will have a problem.
  • Owners of important trade marks will often consider registering them in the US (as the world's largest market) even if their business there is not significant. The decision of the Appeal Court in this case would suggest that, if use of a .com (or similar) domain is important to you, it may be worth while to consider filing a suitable trade mark registration in the US in order to protect your rights to the domain name.
  • Because of the cost of having to deal with proceedings in the US as well as before WIPO, it may also be worth trade mark owners giving more thought to dealing with the transfer of (at least some types of) domain names by agreement, rather than via the Uniform Dispute Resolution Procedure. If a domain name registrant contracts to transfer a domain name to a trade mark owner, this will at least take away the uncertainty involved in proceedings. Although the price asked might be high when compared with the cost of an enforced transfer via the Uniform Dispute Resolution Procedure, if because of the nature of the domain name there is the possibility of a reverse hijacking claim in the US, the trade mark owner should factor in the potential costs of the US proceedings in deciding whether or not to buy the domain name rather than trying to obtain it via proceedings.

• Confetti Records & others v Warner Music UK Ltd (2003) Ch.D. To what extent are you bound by something you signed "subject to contract"?

  In the negotiation of an agreement parties often use the words "subject to contract" to make sure that a binding contract does not come into existence by accident during the negotiations, but only after all of the words have been agreed and all of the parties have signed the written agreement.

  Making negotiations subject to contract is a useful tool to make sure that everyone is only bound to the contract when they are ready and not before. If you make your negotiations subject to contract then in most cases you cannot rely on there being a binding contract until everyone has signed up. However, depending on what you do during the negotiations, you may still find that a contract can come into existence other than on everyone signing the full written terms.

  Confetti Records and others v Warner Music UK Ltd [2003] EWHC 1274 provides an example of how things might go wrong unexpectedly. It also contains some useful lessons on explaining rap terms to judges.

  • Confetti owned the recording of, and the rights to, a track called "Burnin". When it was released, the track sold well and, as a result, Warner Music approached Confetti to ask if the track could be included on a remix compilation album that Warner Music was intending to bring out.
  • Confetti agreed to license the track to Warner Music in return for an advance of £1,500. A 'deal memo' was created, setting out the basic terms of the agreement, and was sent by Warner Music to Confetti for signing. The deal memo was marked "Subject to contract". Confetti signed the deal memo and sent it back to Warner Music.
  • An invoice for £1,500 was then sent to Warner Music by one of the other claimants in the case, which was a management company related to Confetti. Along with the invoice was sent a recording of the track.
  • Unfortunately, Warner Music did not pay the invoice quickly. After a while, Confetti wrote to Warner Music saying that if the invoice was not paid by 4 February, the licence would be revoked. The invoice was still not paid, so on 27 March Confetti told Warner Music that the track should be excluded from the compilation album unless a new agreement was reached.
  • After a few weeks, Warner Music came back to say that:
    • it had not been properly notified that the licence would be withdrawn;
    • the track had already been included on the album; and
    • 30,000 copies of the album had (by this point) been manufactured.

  Confetti started proceedings against Warner Music. The questions that the court had to decide were:

  • Whether a binding contract was created by signature of the deal memo.
  • If the signed deal memo did not result in a binding contract, whether instead the sending of the copy of the track together with the invoice amounted to an offer which Warner Music was able to turn into a binding contract by making use of the track.
  • Irrespective of whether or not there was a binding contract, whether it was fair to allow Confetti to go back on its offer to grant a licence on the terms that had been agreed.

  Confetti lost its case and the judge decided in favour of Warner Music. Briefly, the reasoning behind the decision was as follows:

  • The term 'subject to contract' had a special meaning in law. It was used to stop contracts coming into existence until a formal written contract was signed. Although it was suggested by Confetti that the term "subject to contract" was not used in this way in the music industry, the judge was satisfied that this was not the case and that the music industry was no different from any other in its use of the term.
  • As a result, the signed deal memo did not create a binding contract.
  • If that was as far as things had gone, then there would not have been a contract. However, by invoicing for the £1,500 and by sending the copy of the track for Warner Music to use, Confetti was essentially making Warner Music an offer of terms on which it would be allowed to use the track. That offer remained open until it was accepted (thereby creating a contract) or until it lapsed or was revoked.
  • From the evidence, it appeared that Warner Music had not received the notice from Confetti in January threatening revocation of the licence. By the time Confetti contacted Warner Music again in March to revoke the licence, Warner Music had already gone to the expense of including the track on the album and of pressing 30,000 copies of it.
  • As a result, a contract had come into existence (having been accepted by the conduct of Warner Music). Also, because Warner Music had relied upon Confetti's conduct and gone to the expense of producing the album with the track on it, it would not be fair to allow Confetti to go back on the licence after it had done so.

  As well as the contract case, Confetti also claimed that by adding a rap over the top of the music that contained references to drugs and violence, the defendants had subjected the track to "derogatory treatment" and so infringed the composer's moral rights. Confetti lost that argument as well, on the basis that the "street" meaning of the words had not been proved and there was no evidence that the treatment was derogatory. I would have loved to be in court to hear the meaning of various rap terms explained in evidence as the judge tried to establish their "street" meaning! High Court judge gets down with the street - must be a world first.

  Leaving rap terms and their street meaning aside, what can we learn from this?

  If your negotiations have been subject to contract, then the normal position is that you don't have a binding contract until everyone signs up to the final, agreed, written terms. If Confetti had not sent the invoice or the track, then Warner Music probably would have lost its case and would not have been safe to go ahead and include the track on the album without first having got a proper, signed agreement that was not subject to contract.

  Lesson number one is: don't rely on anything agreed "subject to contract". Get a proper, full, signed agreement first. Don't start performing before then.

  If you are going to make negotiations subject to contract, stick to what you have done and follow them up with a proper, signed agreement. If you start performing on the basis of what has been said during the "subject to contract" negotiations, you are only likely to cause trouble. Either you will find that there is no contract at all or, alternatively, you may find that you have succeeded in creating a separate contract. You may also put yourself in a position from which you can no longer withdraw from the agreement in principle reached on a "subject to contract" basis.

  Lesson number two is: be consistent. If you are going to bother with "subject to contract negotiations", then finish them off with a proper, signed agreement that is not subject to contract. Don't jump the gun and start performing before the final agreement is signed.

  If you are going to complain about rap, then make sure you can prove what is meant by the terms used. Of course, you will need to start by being able to understand what is being said, which is not always easy. You then need to be able to produce satisfactory evidence as to the meaning of the words. Which should make for some interesting witnesses.

  Lesson number three: legal terminology is complicated enough as it is without trying to bring rap into it.

  See: www.courtservice.gov.uk/view.do?id=1787

• Cyprotex Discovery Ltd v University of Sheffield [2003] All ER (D) 174. Problems relating to ownership of IPR in specifically developed software.

  Have you ever:

  • got someone to develop some software for you; or
  • developed some software for someone else?

  Did you have an argument about who was to own the intellectual property rights in the software? Alternatively, did you deal with this in the contract relating to development of the software? Would you like to go to court in order to resolve an argument about this? No? Good. In that case, read about this case.

  The case is interesting, because it illustrates:

  • the kind of problem that can crop up if your contract does not deal properly with the ownership of intellectual property rights; and
  • some of the mistakes that can be made in trying to deal with this in a contract.

  The key facts were:

  • Two people at the University of Sheffield were working on a project to create a computer-based simulation of how drugs were absorbed by, and eliminated by, the human body.
  • The University tried to raise finance for the project from external sources, including by trying to find some financial sponsors under a research agreement. Instead of providing cash, Cyprotex agreed to provide a computer programmer to help with the work. The programmer started working before the research agreement was signed.
  • Important clauses of the research agreement included:
    • The University agreed to carry out the research agreement in order to create the computer program.
    • Under clause 9(c), all rights to "resulting intellectual property" under the programme of research were to belong to the University. For these purposes, "resulting intellectual property" meant "…all inventions, improvements and/or discoveries relating to the programme of research which are conceived and/or made by one or more members of other agents of the [University] acting either on their own or jointly with one or more employees of the sponsors in performance of the programme of research".
    • Under clause 9(d), rights to inventions, improvements and/or discoveries relating to the programme of research that were made solely by employees of the sponsors (of which Cyprotex was one) were to belong to each relevant sponsor.
    • The University was allowed to licence third parties and sponsors to use the "resulting intellectual property".
  • The research programme was not completed but, by the time it ended, some programming work had been done.

  Cyprotex and the University got into a dispute about which one of them owned the copyright in the programming that had taken place. Each of them argued that the terms of the research agreement (referred to above) gave them ownership of the copyright in the program.

  It may help at this point to explain what the normal rules are. The person that writes a computer program will own the copyright in it, UNLESS:

  • they were employed by someone else and wrote the program in the course of their employment - in which case their employer owns the copyright; OR
  • the copyright in the program has been assigned in writing and the assignment has been signed by the person who owned the copyright (either the programmer or their employer, as the case may be) - in which case the person to whom it is assigned owns the copyright.

  You will notice that the relevant clauses of the research agreement did not expressly refer to "copyright". Indeed, the clauses concerned did not even refer to the computer program. Also, the provisions concerned were quite confused when it came to work done by an employee of a sponsor, since in that case ownership seemed to depend on whether the employee had worked on their own or jointly with the employees of the University.

  The parties having failed to resolve the problem between themselves, the argument ended up in front of the High Court, which ruled as follows:

  • Looking at things from a commercial perspective, it would not make much sense if the relevant terms of the research agreement applied to improvements to the computer program but not to the computer program itself.
  • On that basis, the relevant terms of the research agreement ought to be interpreted as including reference to the program, even though placing this meaning on the relevant clauses rather strained their wording.
  • Clause 9(d) would not work so as to allow the copyright in the whole computer program to be owned by Cyprotex, because:
    • that clause did not relate to the whole programme of research, but only to various matters that related to it; and
    • the computer program had not been 'made' solely by an employee of Cyprotex.
  • In addition, it was clear that:
    • Cyprotex and the University had intended that the University should own the copyright in the computer program; and
    • the research agreement would only work from a practical perspective if the University owned that copyright,
  • Accordingly, there could be an implied term that the copyright in the computer program would be owned by the University.

  It followed that the University owned the copyright in the program, either because the research agreement said so or because a term to that effect could be implied into the research agreement.

  This case is quite interesting, for a number of reasons:

  • It is a good illustration of the court using the rules in order to do justice between the parties, rather than coming to the result that the law would ordinarily have reached. Going back to the basic rules referred to above, in the absence of a signed, written assignment of copyright, the copyright in the computer program would be owned by the employer of the programmer - in this case Cyprotex. The research agreement did not refer expressly either to the computer program or to copyright. Strictly speaking, therefore, it ought to be ineffective to transfer the copyright to the University.
  • As the judge admitted, it was bending the wording of the relevant clauses somewhat to hold that they covered copyright in the computer program. Nevertheless, the court held that they did.
  • The court also used the argument that it was clearly intended by the parties that the copyright would be owned by the University and, therefore, a term could be implied into the contract to that effect (you can imply terms into a contract if it is absolutely necessary in order to give business efficacy to what had been agreed between the parties).
  • Strictly speaking, such an implied term cannot be effective to transfer the copyright, since the Copyright Designs and Patents Act 1988 says that this needs an express written term signed by the copyright owner. However, the existence of the implied term would then allow the court to order Cyprotex to execute a formal written assignment to the University.

  Lessons to learn:

  • The main intellectual property right that exists in computer software is copyright. If you are involved in the writing of a computer program and you want to spell out who owns the intellectual property rights in it, it is therefore a good idea to refer in the relevant clause of the contract to:
    • the computer program itself; and
    • the copyright in the computer program.
  • Terms like "invention", "discovery" and "improvement" have a specific meaning in the context of intellectual property law. Do not use them unless you know what you are doing.
  • Make sure that the clause that deals with ownership of intellectual property rights in the program is absolutely clear and does not contradict itself. This case gives a good example of a clause that was far from clear.
  • Although it is possible that a court might come to your rescue later (either by bending the interpretation of the contract to fit the circumstances, or by implying an extra term), don't bank on it. Bear in mind the basic rules referred to above. In most cases, he (or whe) who writes it will own the intellectual property rights in it (or their employer will). The fact that they were doing it for someone else will not necessarily make any difference, unless you take the trouble to have a proper written contract that assigns the copyright (and other intellectual property rights) to a specific person.
  • Make sure you have a contract that deals with this. No written contract at all (or no term dealing with ownership of intellectual property rights) makes it more likely that the normal rules apply.

  There is one other very important point. These are the rules in UK. The rules in the US (and in a number of other countries) are different! So things like:

  • who carries out the development (and where they are based);
  • what law governs the development contract;
  and similar issues are very important. The key point to remember is not to make any assumptions about ownership of intellectual property rights. If it is important, deal with it expressly, and clearly, in a contract. Don't leave it to chance.