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Commercial - Insight

Insight is a quarterly newsletter which aims to keep clients and contacts up-to-date with the latest legal developments in commercial law.

Latest Issue

In our latest edition of Insight Eleanor Markey looks at the recent pricing spat between Tesco and Unilever and other cases of interest with a reminder of the fines if firms don't comply with the EU regulations. We also look at oral variations to contracts and if some set-top boxes are infringing copyright. Finally, we bring you the latest team news outlining our recent appointments plus Hayley Morgan looks back at her recent visit to the AEL's IP Group's meeting in Madrid.

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Who sets the price?

Friday 9th December 2016

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Insight - Commercial Law Update - Issue 9

A recent spat between Tesco and Unilever regarding the sale price of Unilever goods has left consumers wondering exactly who sets the price for their favourite brands.

The dispute allegedly arose when Tesco rejected a 10% price hike in Unilever goods, leading to the suspension by Unilever of deliveries of consumer favourites such as Marmite to UK Tesco stores. Ultimately the share price of both Tesco and Unilever took a tumble; the Unilever brand image was damaged, and Tesco was praised for ‘standing up against’ a large multinational force. But who does set the price for the goods you buy?

It depends on the balance of power between a supplier and retailer. For example, imagine a fledgling food company which distributes its products to Waitrose. It is clear that the retailer holds power in this relationship. On occasion the opposite will be true, for example in the case of a car dealership, where the prestige of the product allows the supplier to demand favourable treatment. In an age when consumer protection is key, suppliers must take care to ensure that price negotiation with their retailers does not become Resale Price Maintenance (RPM), which can carry with it heavy fines.

A costly lesson awaits any supplier which wishes to ring-fence its in-store prices. Within the EU, businesses have a duty to comply with Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), which governs the law of collusive and monopolistic pricing. Within the marketplace, bodies such as the The Competition and Markets Authority (CMA) are engaged in punishing dominance and financial predation. They are also interested in rooting out, in accordance with the Articles, unscrupulous businesses which seek to maintain prices at a level higher than would be natural in the marketplace.

Article 101(1) covers RPM in its multiple forms. These include:

  • Direct RPM, which involves almost unashamed - or ignorant - contractually agreed price fixing. In this instance, suppliers and retailers would enter into an agreement regarding the minimum price to be charged for goods. Cases in this area range from direct RPM of newspapers, to musical instruments, and any product in-between.
     
  • Indirect RPM is more complex, and involves a number of more covert practices. For example, if a supplier was to fix maximum permitted discounts, threaten retailers with penalties for failing to observe a minimum pricing level, or mimic the resale price of competitors, then indirect RPM will be found to have taken place.

RPM involves an agreement between businesses that a product or service will be sold above an agreed price. Alternately, it may also arise if discounting is prohibited, if financial incentives are offered and/or penalties are enforced for failures to sell above a certain price. Despite some complex exceptions, as a general rule RPM is illegal as it prevents retailers from acting independently, and essentially constitutes vertical price fixing.

A recent textbook example of RPM arose in the bathroom fittings sector. Ultra Finishing Limited (Ultra) imposed a “recommended” minimum online sale price, which was backed up by fines for those retailers which did not sell at or above this recommended price. Ultimately, this practice hampered the ability of the retailers to set their own prices and as such, Ultra was found to have engaged in RPM. A £1,032,505 fine was issued to Ultra, although a 20% reduction was to be triggered if Ultra stuck to the terms of its settlement. The CMA awarded a further 5% discount as a result of Ultra’s agreement to establish a compliance programme. The final fine payable by Ultra was £786,668.

The case of Ultra is not an isolated one. In May 2016, £3 million of fines were imposed on businesses which were found to have engaged in online RPM agreements with their retailers. The UK Government has since published guidance for suppliers and retailers relating to RPM and how to avoid the practice.

Suppliers must detach themselves as far as practicably possible from the price offered for their goods in store. An attempt to make price fixing arrangements verbal, in turn removing the ‘formality’ of the agreement, is still committing RPM. It is recommended that suppliers create and observe a culture of compliance within their businesses. Contracts and pricing schemes must be scrutinised and transparent. Relevant staff should know what constitutes RPM and how to avoid it.

The punishments for RPM are heavy. Infringing businesses may be fined up to 10% of global turnover, which is particularly punishing for those businesses which enjoy large turnovers, but yield small profits which would not cover the cost of such a fine. It is clear that such a fine could easily render insolvent any business which returns a small profit. Directors may be disqualified from acting in the role for up to 15 years. In the most serious instances where competitors collaborate on price fixing, individuals may be imprisoned for up to 5 years. Such penalties could financially cripple a business, or end the career of any esteemed director.

It is a concern for directors and businesses to learn that the European Commission (EC) now acknowledges and accepts certain types of limited RPM, for example allowing short term pricing operations. Whether or not a business will be deemed to have committed RPM will now rest on the facts of its contracts. Such EC guidance throws this area of competition law into significant doubt, as suppliers and retailers walk a tight line between securing the best deal and facing penalties for their actions.

A quick search through the business section of any reputable news site will confirm that anti-competitive practices such as RPM are not a rare practice. The EC has further blurred the lines for businesses by allowing certain RPM practices, which in turn almost invites suppliers to enter the ‘grey zone’ between legal and illegal pricing. To fall foul of EU competition law is to render your business and those who run it vulnerable to damaging civil and criminal penalties, so when engaging in any contract in which a specific level of pricing is discussed or imposed by a supplier, the best practice is to seek legal advice.

If you would like to discuss any pricing issues or for any other commercial law matter please do not hesitate to contact:


Eleanor Markey

Solicitor
Tel: 0151 600 3122
Email: eleanor.markey@brabners.com


AEL Intellectual Property Group meeting in Madrid 20-21 October

Friday 9th December 2016

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Insight - Commercial Law Update - Issue 9

Hayley Morgan, our Chartered Trade Mark Attorney and Intellectual Property Executive, attended the Association of European Lawyers (AEL) Intellectual Property Group’s recent meeting in Madrid on 20-21 October. The event was hosed by Spanish law firm Gómez-Acebo & Pombo and was attended by 15 colleagues from across Europe including Belgium, Finland, Germany, Ireland, Poland, Scotland, Spain and Switzerland.

The event started on the Thursday evening with a networking meal at local restaurant TEN CON TEN.  Attendees enjoyed five courses served in traditional Spanish sharing style.

On the Friday delegates arranged a number of presentations with topics including the revised EU trade mark regulation, the Unified Patent Court, goods in transit, advertising and unfair competition, and of course Brexit, with hearty discussion around each.

Hayley said “I particularly enjoyed discussions around the implications of Brexit, which was delivered by the Chartered Institute of Trade mark Attorneys’ President, Kate O’Rourke; and about the revised EU trade mark regulation, as these areas are likely to affect my clients and therefore my advice moving forward.”

The Association of European Lawyers (AEL) was founded in 1989 and now comprises 40 firms in 41 jurisdictions.  Brabners is an active member of the Association.

Hayley has also recently qualified as the firm’s first Chartered Trade Mark Attorney. To read more about Hayley's new expertise please click here.

For more information about the AEL intellectual property group or for any Trade Mark or IP advise you may need, please do not hesitate to contact Hayley.


Hayley Morgan

Chartered Trade Mark Attorney; and Intellectual Property Executive
Tel: 0151 600 3466
Email: hayley.morgan@brabners.com


Commercial team update: New appointments and our first Chartered Trade Mark Attorney

Friday 9th December 2016

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Insight - Commercial Law Update - Issue 9

We have recently strengthened our Commercial team with two new appointments and Hayley Morgan having qualified as the firm’s first Chartered Trade Mark Attorney.

Nik White provides an overview of the latest team news and how this will benefit our clients in the coming year.

Hayley becomes Brabners’ first Chartered Trade Mark Attorney

Hayley Morgan has now qualified as the firm’s first Chartered Trade Mark Attorney.

Hayley’s qualification, which was funded by Brabners, means she is regulated by the Intellectual Property Regulation Board (IPReg) and is a member of the Chartered Institute of Trade Mark Attorneys (CITMA).

Prior to joining Brabners in 2012, Hayley had a role at Shell Global Solutions providing insight on patent strategy, and by completing a Masters degree in Chemistry with Patent Law before this, Hayley has been studying and working in intellectual property for over 9 years.  The new qualification also enables Hayley to represent clients in court for intellectual property proceedings, and adds to Hayley’s experience and ability to advise clients on all types of intellectual property, including design rights, patents, copyright, and trade marks.

Nik White, Brabners’ head of Commercial and IP, said: “I’d like to congratulate Hayley for her hard work and dedication in completing what is a very rigorous qualification process. With her expertise, we are now in a position to offer the complete package of intellectual property services to new and existing clients as we help clients to define and protect their brand identity.”

Hayley Morgan

New Intellectual Property Administrator – Ioana Ghiuro

Brabners’ IP team has recruited a new Intellectual Property Administrator, Ioana Ghiurco.

Ioana successfully completed the Institute of Trade Mark Attorneys (ITMA) Trade Mark Administrator’s course prior to joining Brabners.

Ioana is also a qualified Spanish lawyer having graduated from University Complutense of Madrid in 2010 and joining the Madrid Bar Association that year.  In addition, she holds an LLM in Intellectual Property and New Technologies and is a native Spanish and Romanian speaker.

In her role as Intellectual Property Administrator, Ioana provides administrative support to fee earners on matters relating to intellectual property rights, including, in particular, trade marks, copyright and designs.

Ioana has responsibility for managing our Trade Mark Portfolio Management system, liaising with trade mark registries and foreign attorneys, searching trade mark databases and assisting with trade mark clearance search reports and prosecution work.

Ioana Ghiuco

New Associate – Victoria Trigwell

Victoria Trigwell has joined the firm as an Associate in the Commercial team.

Victoria joins from an in-house role at Optionis (a professional services umbrella organisation), having previously worked for a large private practice law firm for 11 years as part of their procurement and commercial department.

Victoria has a wealth of knowledge and expertise in procurement law, which she will add to Brabners’ already established procurement offering.

In her new position at Brabners, Victoria will also provide additional experience and depth to the wider commercial team.

Victoria Trigwell

If you wish to discuss any commercial law matters with us please do not hesitate to get in touch.


Nik White

Head of Commercial & IP
Tel: 0151 600 3103
Email: nik.white@brabners.com


Repackaging the tobacco industry

Friday 10th June 2016

This article was first published on Lexis®PSL IP & IT on 7 June 2016.
Click for a free trial of Lexis®PSL.


IP & IT analysis: The Court of Justice of the European Union (CJEU) recently ruled that the Tobacco Products Directive is valid. 

Colin Bell, partner at Brabners, considers the background to the cases behind the decision and the implications for the tobacco industry.
 

Original news

C-358/14: Republic of Poland v Council for the European Union [2016] All ER (D) 55 (May)

C-477/14: Pillbox 38 (UK) Ltd v Secretary of State for Health [2016] All ER (D) 27 (May)

C-547/14: R (on the application of Philip Morris Brands Ltd and other companies) v Secretary of State for Health [2016] All ER (D) 46 (May)
 
What is the background to this case?
 
In 2014, the EU adopted Directive 2014/40/EU concerning the manufacture, presentation and sale of tobacco and related products (the Tobacco Products Directive). The previous Directive 2001/37/EC on tobacco products dates from 2001. Since then, significant scientific, market and international developments have taken place. The EU and all of its Member States have ratified the World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC) which entered into force in February 2005 and the previous directive became outdated.
 
Following these developments, requests from the European Parliament and the Council of Ministers as well as commission reports, the new the Tobacco Products Directive was proposed in December 2012.
 
The Tobacco Products Directive harmonises several aspects of law relating to the manufacture, presentation and sale of tobacco and related products within EU Member States (including cigarettes, roll your own tobacco, pipe tobacco, cigars, cigarillos, smokeless tobacco, electronic cigarettes and herbal products for smoking). The Tobacco Products Directive imposes several new rules relating to standardised cigarette packaging, minimum unit contents, e-cigarette packaging and regulation, and manufacturer’s reporting requirements. In particular, the Tobacco Products Directive:
 
  • prohibits cigarettes and roll-your-own tobacco with characterising flavours
  • requires the tobacco industry to submit detailed reports to the Member States on the ingredients used in tobacco products, in particular cigarettes and roll-your-own tobacco
  • requires that health warnings appear on packages of tobacco and related products combined (picture and text) health warnings must cover 65% of the front and back of cigarette and roll-your-own tobacco packages
  • sets minimum dimensions for warnings and eliminates small packages for certain tobacco products
  • bans all promotional and misleading elements on tobacco products
  • introduces EU-wide tracking and tracing to combat illicit trade of tobacco products
  • allows Member States to prohibit internet sales of tobacco and related products
  • sets out safety and quality requirements for consumer electronic cigarettes, and
  • obliges manufacturers to notify novel tobacco products before placing them on the EU market
A number of cases seeking to delay or prevent implementation of the Tobacco Products Directive across the EU were referred to the CJEU— Republic of Poland v Council for the European Union, Pillbox 38 (UK) Limited and Philip Morris Brands. The cases sought clarification on whether the prohibition of menthol cigarettes, the introduction of various reporting and notification rules relating to e-cigarettes, and the introduction of rules implementing standardised packaging are valid.
 
What issues did this case raise?
 
Each case raised different issues.
 
Republic of Poland v Council for the European Union

The main issues raised were whether the wording of the Tobacco Products Directive, relating to the prohibition of the marketing of tobacco products with ‘characteristic flavours’, including the total ban on menthol products by 2020:
 
  • infringed the EU principles of proportionality and subsidiarity, and
  • was incorrect in using article 114 of the Treaty on the Functioning of the European Union (TFEU) as the legal basis for the Tobacco Products Directive—as the prohibition does not contribute to improving the functioning of the internal market
Pillbox 38(UK) Limited
 
The main issues raised related to whether the Tobacco Products Directive, art 20, which seeks to obligate e-cigarette manufacturers to fulfil numerous notification requirements with national authorities, warning requirements, and packaging requirements relating to ingredient contents and product quality, among other things:
 
  • infringed the principle of proportionality and subsidiarity
  • infringed the principle of equal treatment and unlawfully distorted competition within the EU single market, as the e-cigarette provisions differed so notably to the provisions relating to other tobacco products
  • infringed fundamental rights under the Charter of Fundamental Rights of the European Union (the Charter)
Philip Morris Brands
 
The main issues raised were whether the wording of the Tobacco Products Directive relating to the prohibition of ‘any element or feature’ (including symbols, words and trade marks) that promotes a tobacco product or encourages its consumption by creating an ‘erroneous impression about its characteristics’ infringed:
 
  • the EU principles of proportionality and subsidiarity
  • various articles of the TFEU, and
  • the right to freedom of expression under the Charter
This case also addressed to what extent Member States would be able to adopt more stringent national rules than those implemented in the Tobacco Products Directive relating to the standardisation of tobacco packaging.
 
What did the CJEU decide in relation to the arguments concerning the adoption of the Tobacco Products Directive?
 
Republic of Poland v Council for the European Union
 
In respect of the prohibition of menthol cigarettes, the CJEU concluded that the wording of the Tobacco Products Directive was valid.
 
It considered that tobacco products containing ‘characteristic flavours’, regardless of whether such flavour was menthol or not, made tobacco products more appealing to consumers. As such, tobacco products which contained these flavours made consumers more likely to start smoking and more likely to prolong smoking over time, particularly as they masked the harshness of smoking tobacco, so in this respect the prohibition was justified.
 
It also found that numerous Member States had adopted diverging rules relating to the regulation of flavoured tobacco products. Therefore, as the Tobacco Products Directive prohibits all tobacco products with a characteristic flavour, the functioning of the internal market in respect of tobacco products would be improved.
 
Pillbox 38(UK) Limited
 
The CJEU concluded that the numerous requirements of the Tobacco Products Directive in relation to e-cigarettes did not infringe the principle of equal treatment as e-cigarettes have objectively different characteristics to other tobacco products. As such, the CJEU deemed it appropriate to subject e-cigarettes to a separate legal regime.
 
The CJEU concluded that the principle of equal treatment could not be infringed as the provisions relating to e-cigarettes were not as harsh as the provisions relating to other tobacco products, and that manufacturers of e-cigarettes would therefore not be treated unequally.
 
The CJEU also held that the requirement for e-cigarettes to comply with certain notification requirements relating to product contents and quality were not disproportionate to the EU’s objective to secure a base level of protection for human health, given the health risks linked to the use of electronic cigarettes.
 
Philip Morris Brands
 
The CJEU held that its objective in implementing the Tobacco Products Directive was to protect consumers against the potential risks related to tobacco use. As such, the prohibition of any element or feature of product packaging which promotes or encourages consumption (which was considered to include cigarette packs containing ten cigarettes) was proportionate to achieve the objective, given the potential health risks to consumers.
 
The CJEU also held that EU Member States would be able to adopt more stringent rules in relation to the packaging of cigarette products, but only to the extent that such requirements do not affect those parts of the tobacco packaging which are harmonised under the Tobacco Products Directive.
 
How does the CJEU ruling compare with the Advocate General’s (AG) opinion in the case?
 
The CJEU ruling concurs with the AG opinion. The AG opinion concluded that the Tobacco Products Directive was lawfully adopted. The AG’s opinion considered the main queries relating to the standardisation of packaging of tobacco products, the prohibition on menthol products and the differing requirements relating to e-cigarettes.
 
In concluding that the Tobacco Products Directive was valid, the AG considered that the requirements imposed by the Tobacco Products Directive did not exceed the legitimate aim of securing a base level of human health within the EU. The AG also considered that the Tobacco Products Directive had been implemented on the correct legal basis and that its provisions did not infringe the principles of proportionality or subsidiarity.
 
To what extent is the judgment helpful in clarifying the law in relation to standardisation of the labelling and packaging of tobacco products, prohibition on menthol cigarettes and specific rules for e-cigarettes respectively?
 
The judgment is clear in that the wording and provisions of the Tobacco Products Directive have been ruled to be valid within the EU. As such, Member States must now ensure that the requirements of the Tobacco Products Directive, which are comprehensive, are complied with through the introduction of national regulations.
 
Most notably, the Tobacco Products Directive:
 
  • requires that tobacco products being sold within the EU have health warnings on packages of tobacco and related products—combined (picture and text) health warnings must cover 65% of the front and back of cigarette and roll-your-own tobacco packages
  • sets minimum dimensions for warnings and eliminates small packages for certain tobacco products
  • requires that cigarette packs are a cuboid shape and each pack contains a minimum of 20 cigarettes
  • bans all promotional and misleading elements on tobacco products and
  • requires that roll-your-own products must have a cuboid or cylindrical shape, or be in the form of a pouch, with each pack containing a minimum of 30g of tobacco
Other tobacco products such as pipe tobacco and cigars must also contain a general warning and an additional text warning on all packaging. However, if Member States choose, such products may be exempt from the requirement relating to graphical colour images.
 
Smokeless products will also need to have health warnings displayed on the two largest surfaces of the pack. There are specific rules for the size and positioning of all warnings.
 
The judgment also confirms that Member States may implement more stringent regulations relating to standardised packaging. It is clear that the UK, through the implementation of the Standardised Packaging of Tobacco Products Regulations 2015, SI 2015/829 (the Regulations)—which came into force on 20 May 2016—has done. The Regulations do not just ensure that tobacco product packaging is standardised, but also substantially limit and restrict the tobacco industry’s use of their ‘valuable brands, trade marks and designs upon tobacco packaging and products’ entirely.
 
Further, the UK High Court has handed down its judgment in R (on the application of British American Tobacco Ltd and others) v Secretary of State for Health, and other applications [2016] EWHC 1169 (Admin), [2016] All ER (D) 143 (May) that the Regulations are valid and lawful in all respects. The UK High Court found that the restriction was for entirely proper and legitimate reasons and struck a balance with public health interests. In addition the tobacco companies were not entitled to any compensation from the state for preventing them from ‘engaging in an activity which facilitates a health epidemic and imposes vast costs on the state’.
 
What guidance does the judgment provide in relation to the interpretation of EU directives and the associated principles of EU law?
 
This decision makes it clear that the CJEU are increasingly likely to consider more stringent rules, such as the ones implemented by the Tobacco Products Directive, to be proportional and not infringe other fundamental rights if they are necessary to achieve a legitimate objective, particularly if this relates to public health.
 
This case also demonstrates that the CJEU, is content with allowing Member States to maintain some level of sovereignty in relation to the implementation of EU directives, only to the extent that, in doing so, the EU rules and CJEU decisions are also complied with. As such, the CJEU are happy to allow the UK to implement rules relating to plain packaging within the UK, but also state that the EU rules must be complied with.
 
UK position
 
As indicated above the UK has implemented even stricter regulations. The UK government has run its own consultations (in 2012 and 2014) on standardising packaging of tobacco products and produced draft regulations which include the following proposals:
 
  • the external packaging would need to be Pantone 448 C with a matt finish
  • the only colour permitted for the internal packaging would be white or Pantone 448 C
  • a packet of cigarettes must be made of carton or soft material and be cuboid in shape (though may have bevelled or rounded edges)
  • the packet may contain an opening as long as it is a flip top lid or shoulder box hinged lid and
  • a unit packet of cigarettes must contain a minimum of 20
The UK proposals are stricter than the minimum EU requirements, with no branding permitted whatsoever other than plain font brand name and variant name.
 
What are the key takeaways for lawyers advising businesses operating in this market?
 
Lawyers should be mindful that the Tobacco Products Directive is likely to have a significant impact upon the strength of tobacco companies’ branding, as well as reducing their current product lines and potentially increasing cost through stringent regulatory requirements. Such companies should ensure that their businesses are able to withstand such rapid changes.
 
UK lawyers should also remember that the Regulations are stricter than the Tobacco Products Directive and, by the High Court’s own admission, ‘substantially limit and restrict the use’ of valuable brands and trade marks within the UK. As such, lawyers should ensure that their clients are aware of the further impact this may have on their UK operations, over and above the impact within the rest of the EU. Lawyers will also need to be aware of differences across the different Member States of the EU and internationally as tobacco industries trading and branding is now likely to significantly vary from territory to territory.
 
The UK Regulations are now in force, although British American Tobacco and Japanese Tobacco International are expected to seek leave to appeal the High Court decision. It remains to be seen exactly how the tobacco industry will react. In one sense the new Regulations arguably benefit existing companies as it will be very difficult for new companies and brands to enter the market due to the limitations on advertising and branding.
 
It should also be noted that the UK regulations include a transitional period—namely under the reg 20—that products produced in accordance with pre existing legislation before 20 May 2016 can continue to be sold until 21 May 2017.
 
The UK Regulations have also included special intellectual property provisions, to allow tobacco industries to continue to protect their brands and trade marks subject to certain criteria. The provisions are intended to prevent rights owners losing rights due to invalidity for non-use, bad faith and/or other grounds. There may be scope for arguing how such provisions should be interpreted and implemented.
 
Are there any patterns/trends emerging in the law in this area? How does this case fit in that context?
 
Australia have led the way in relation to the law in this area, with the EU and the UK largely following suit. France and Ireland are expected to impose similar provisions to the UK and there will be pressure on other jurisdictions to implement similar laws, with reviews being undertaken across the world and new legislation being considered, for example, in Asia.
 
It is clear that public health interests are being given significant importance by the EU. This may be due to numerous Member State’s cutting spending in the healthcare sector, as well as a shift in focus to a more long term health strategy across the EU looking at what impacts on the costs of the healthcare sector.
 
In the UK alone stricter laws have already been considered and implemented in relation to alcohol and high sugar products. As such, there is a concern that the EU or UK could soon implement other legislation, similar to that implemented by the Tobacco Products Directive, but in relation to products other than tobacco which have the potential to damage health, in particular such as alcohol and sugar.
 
Trade mark lawyers and attorneys have raised concerns about the potential for standardised or plain packaging and restrictions on use of trade mark rights (in particular stylised marks and logos) in other areas which could impact the value and strength of rights holder’s brands. The concern is that the Tobacco Products Directive and UK regulations pave the way for similar draconian legislation in other sectors. That said, the weight of evidence to justify such legislation (and support, for example, from bodies such as the WHO) would need to be similarly strong for any such legislation to withstand scrutiny.
 
Partner 
Tel: 0151 600 3281
 

 

 


From the Queen's Speech 2016: Intellectual Property (Unjustified Threats) Bill and the Digital Economy Bill

Thursday 26th May 2016

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Insight - Commercial Law Update - Issue 8

Intellectual Property (Unjustified Threats) Bill
 

As part of the Queens Speech, the government introduced a new Intellectual Property (Unjustified Threats) Bill on 19 May. This draft legislation has been expected as the law in relation to unjustified threats has been under review since 2012. Unjustified threats actions exist in the UK to protect against spurious claims being sent to certain parties (such as retailers) who rather than defend any potential claim might simply do as asked in the letter to avoid further action. This can lead to the detriment of manufacturers and suppliers of legitimate products whose resellers are scared into submissions by a “groundless threat” from a rights holder and simply remove the product from stock leading to a loss in sales for the manufacturer/supplier. There are already a number of exceptions that apply under which it is not possible to bring a groundless threat action.
 
The new Bill has two main purposes (i) to clarify and ensure consistency of the threats provisions in relation to different IP rights; and (ii) to include an exemption for professional advisers (where they are acting on instructions of a third party and they have identified that third party in the “threatening” communication). Previously a claim for groundless threats could have been brought against a professional adviser (both their firm and in an individual capacity) for sending the letter – this new Bill will remove that risk for professional advisers acting on instructions of their clients. 
 
 
Digital Economy Bill
 

The Queen's Speech also announced a new Digital Economy Bill.
 
The bold aim behind the Bill is to make the UK a leader in the digital world.
 
Although it has not yet been published, the Queen outlined some of the key elements, which include:
 
  • The building of a world-class digital infrastructure including fast broadband and mobile networks;
     
  • Addressing the difference in online and offline copyright laws, and enabling registered design holders to give notice of their rights more cheaply and flexibly;
     
  • Support for new digital industries;
     
  • Reform of the way government uses data to deliver public services;
     
  • Fast broadband (defined as 10 megabits per second) for all households and businesses;
     
  • Strengthen protections for citizens in the digital world.  
Once the Bill is published we shall update you as to how government specifically intends to address these issues.
 
For  more information the new Bills please do not hesitate to please contact Colin Bell or Jacob O'Brien:
 
Partner
Tel: 0151 600 3281
Solicitor
Tel: 0161 836 8803

 

 
 
 
 

General Data Protection Regulation: Time to think about compliance

Thursday 26th May 2016

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Insight - Commercial Law Update - Issue 8

Ratification of the General Data Protection Regulation (GDPR) means that business have until 25 May 2018 to comply with the new law. It sounds far away but the long lead-in time is going to be necessary for most businesses, given the amount of work that will need to be done to achieve compliance. Ensuring compliance is essential, especially in light of the new tough penalties: up to 4% of annual global turnover or up to €20million, whichever is greater.

The GDPR brings in stronger individual rights, tougher penalties for data breaches, and mandatory reporting of breaches.

The reporting requirements in the event of a data breach are stringent - businesses will have 72 hours from awareness of a breach to self-report to the ICO, and to inform those individuals affected. That means that within 72 hours, businesses will have to be able to:

  • pinpoint which data assets have been targeted;
  • assess the risks concerned;
  • make the report to the ICO;
  • inform the client or consumer base of their exposure.

Businesses would be wise to familiarise themselves with the GDPR, and start putting procedures and policies in place to ensure readiness now.

A thorough data audit, including deletion of data no longer required, is a good starting point. Extending good data-hygiene by limiting access to data to only those who absolutely need it, and thorough training on keeping data secure are measures likely to help, given how many serious breaches are due to inadvertent human error. 

The two year lead-in window should be taken advantage of, rather than being seen as an opportunity to ignore the GDPR until absolutely necessary. 

In another blog post, we have addressed the key changes brought about by the GDPR which are likely to affect your business, including some key tips that we recommend you to follow.

Need advice or wish to talk to us?

If you would like to discuss any matters about this please do not hesitate to contact:

Partner
Tel: 0151 600 3302

Five top legal tips for start-up businesses

Thursday 26th May 2016

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Insight - Commercial Law Update - Issue 8

When you start out on your journey from start-up to established business, there can seem to be a million things on your to-do list – a list on which legal issues often feature a long way down.

While your focus should always be on building your business and developing your product, there are a few simple things which any start-up can do to save some serious headaches down the line.

Agreement between co-founders

Start-ups thrive on the spirit of cooperation which exists in the exciting early days. However history is littered with friends who fell-out as their business began to succeed (or fail). A fairly simple agreement at the outset setting out things such as the roles, ownership percentages and capital contributions of each of the co-founders can go a long way to ensuring disagreements get settled quickly, or in the worst-case scenario ensure a relatively simple and low-cost divorce!

Non-disclosure agreement

Non-disclosure agreements are critical if your start-up is based around a novel idea or invention. A simple non-disclosure agreement will prevent a partner, developer or investor from using your confidential information for its own purposes.

Often potential investors will resist any attempt to sign them up to a non-disclosure agreement. In such cases, it is important to tread carefully on how much information you disclose. If you are overly secretive you risk putting off a potential investor, however any fan of the TV series Silicon Valley can tell you the risks of giving away too many of your trade secrets.

Intellectual Property ownership

It is crucial to understand that, without an agreement to the contrary, most intellectual property rights vest in the creator of the work. This means, for example, that if you engage a developer to write code for you, then in the absence of a written agreement they will be the owner. You should always check the terms and conditions of any outside consultants you engage, and consider signing them up to your own terms.

Plenty of start-ups get a few months down the line and, on the eve of launch, receive a letter of claim from an existing business with the same, or a similar, name that they are proposing to use. Rather than proceeding for months under a taken name, consider carrying out a brief trade mark and domain name search on your proposed business name to uncover any potential issues before they arise.

Incorporation

It will normally be a routine decision to incorporate a new company through which to run your business. As a separate legal entity the company, and not the owners themselves, will be party to the contracts and ultimately liable for any failure to meet its obligations or liabilities. Incorporation can provide tax advantages and may give third parties contracting with the business some level of comfort as to the transparency and legitimacy of the business.

Terms and conditions

Having a well-drafted set of standard terms will reduce your business’s liability, offer mechanisms for recovery when customers default and provide certainty in your favour when issues arise. An up-front investment in a favourable set of standard terms brings uniformity and certainty to every contractual relationship of your business. It can be difficult to impose your terms after the event, and therefore putting together a solid set of terms and conditions as soon as possible should always be a priority for any business.

Need advice or wish to talk to us?

At Brabners we advise businesses from start-up stage right through to large PLC’s and private corporations. If you run a start-up and would like an informal steer on any steps your business can take to minimise its exposure please do not hesitate to contact us.


Jacob O’Brien

Solicitor
Tel: 0161 836 8803
Email: jacob.obrien@brabners.com


Business Rocks 2016: The tech innovation event held on 21-22 April

Thursday 26th May 2016

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Insight - Commercial Law Update - Issue 8

On 21 and 22 April, Manchester Central opened its doors to Business Rocks 2016. The brainchild of founder Jonny Cadden, Business Rocks takes inspiration from SXSW and Dublin’s Web Summit and is aiming to become Europe’s largest gathering of techies.

This year Nik White, Richard Hough, Sam Mabon and Jacob O’Brien attended to explore and chat with the huge number of tech businesses exhibiting at the event, from small start-ups right up to giant corporations. The biggest draw was of course the appearance of Steve ‘Woz’ Wozniak, who gave the keynote address to a packed house with standing-room only.

You can view a short video clip of the event along with a picture gallery by visiting the Business Rocks website.

Next year’s event will be held on 3-4 May and we look forward to seeing you there for an even bigger event than 2016!

In the meantime, if you need any advice with your legal matters please don’t hesitate to get in touch with us.


Jacob O’Brien

Solicitor
Tel: 0161 836 8803
Email: jacob.obrien@brabners.com


Brexit - pursued by a Bear: How Intellectual Property rights would likely be affected

Friday 6th May 2016

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Commercial Law Update

The EU Referendum Act 2015 received royal assent on 17 December 2015 and sets out the framework for the holding of a referendum in the UK and Gibraltar on whether the UK should remain a member of the European Union (EU). With a referendum date now set for 23 June 2016, many are wondering what the consequences of a ‘no’ decision (or Brexit) will be.

In reality, many areas of UK law and policy would likely be affected by a Brexit, particularly in relation to those areas which are based upon, and influenced by, EU provisions. The UK intellectual property law framework is particularly likely to be affected in the event of a Brexit, especially in light of its cross-border interests with the EU.

In this article, we will consider how intellectual property rights within the UK would likely be affected in the case of Brexit. There is an uncertainty as to how specific laws will be affected, however. No specific intellectual property points were raised in David Cameron’s renegotiation summit in Brussels in February. Equally, the most significant European treaties and regulations contain no provisions which address a member state’s exit of the EU, so it is difficult to accurately determine the impact a Brexit will have upon the implementation and validity of EU law in the United Kingdom.                              

However, having considered the current EU intellectual property law framework and the manner in which it is implemented in the UK, we can attempt to predict how a Brexit would affect the operation of intellectual property law within the UK.

The European Union Trade Mark (EUTM) and Registered Community Design (RCD) Systems

As already highlighted by many critics, a Brexit is most likely to affect the EUTM and RCD systems, both of which operate in a similar manner.

The recently amended European Union Trade Mark Regulation (207/2009) (the Regulation) governs the operation of the EUTM system. Any individual can apply to register a trade mark as a EUTM under the Regulation, and if successfully registered, such a right provides the EUTM owner unitary protection within all 28 member states of the EU (including the UK).

The Regulation clearly details how the EUTM system will operate in the event that the EU expands. However, it is silent as to how it will operate in the event that a member state leaves the EU. The wording of Article 1(2) of the EUTMR, which says that the use and existence of EUTMs shall not operate other than “in respect of the whole European Union”. This suggests that in the event of a Brexit, EUTM owners shall have no continuing EUTM rights within any countries outside of the EU. If this wording were taken literally, and no transitional provisions were put in place to allow EUTM owners the opportunity to ensure protection of their marks within the UK, EUTM owners would most likely have no registered trade mark rights within the UK.

However, it is probable that some transitional provisions would come into force which would allow the jurisdiction of EUTMs to extend to the UK, or for EUTM owners to convert their marks to UK marks following a Brexit. Such provisions could be implemented by the EU or the UK, but it seem doubtful that any legislation effectively extending the jurisdiction of EUTMs to the UK would be passed by the UK government, as doing so would effectively reduce the UK’s sovereignty in respect of trade mark law.

The adoption of subsequent EU legislation equally seems unlikely. This is particularly the case given that its trade mark legislation has been drafted and implemented in respect of the “European Community” or “European Union”. New legislation allowing a non-EU country to be included within a system, and benefit from rights, intended for those within the EU could potentially be seen as a slippery slope which defeats the purpose of having a clearly define EU. 

RCDs operate in a much similar manner to EUTMs and, like EUTMs, are registered with the EU IPO. Therefore, it is highly likely that RCD rights would be affected in a similar fashion to EUTMs.

So what could this mean for UK-based EUTM and RCD owners?

Taken literally, the wording of the Regulation suggests that if the UK were to leave the EU, the protection a EUTM and RCD affords owners would effectively be reduced so as to no longer include protection within the United Kingdom. As such, owners would need to ensure that their marks and designs are also registered as UK trade marks or UK registered designs with the UK Intellectual Property Office, if they wished for them to be protected within the UK, and would have to cover the cost of such applications. This would only be the case if no transitional provisions were implemented, however.

Are transitional provisions likely to be implemented?

Possibly.

Despite the concerns the UK and EU legislator may have implementing transitional provisions, as highlighted above, it seems unlikely that the EU and UK would allow EUTM owners to simply lose all of their trade mark rights within the UK. But how could transitional provisions operate?

The UK or EU legislator could implement provisions which allow EUTM owners to maintain their EUTM registrations and convert such marks to UK registrations for an additional fee. This method was historically used when Ireland became independent to the UK in the early 20th century, which provided UK registered trade mark owners with protection in Ireland whilst marinating their existing UK rights.

Pending EUTM application owners may also be offered a choice of whether to proceed with such applications in relation to the EU or simply convert their application to a UK-based application.

If such methods were exercised, it is also likely that each EUTM benefitting from seniority, would also benefit from such seniority within the United Kingdom.

Therefore, we suggest that EUTM owners, and particularly those with large portfolios of EUTMs, should begin to consider whether protection of their marks within the UK or EU, or both, is necessary and plan accordingly.

Would UK trade mark law be affected?

The majority of UK trade mark law is based upon EU legislation. For example, the Trade Marks Act 1994 is based almost exclusively on the wording of the EU Trade Marks Directive. However, legal critics believe that it is unlikely to be repealed in the event of a Brexit, particularly given that it has governed the operation of trade mark law within the UK for over 20 years.

UK trade mark law would be likely to diverge, however, and develop in a different manner to that of the European Union. Even to this extent though, any changes to the UK trade mark framework are unlikely to be substantial, particularly if the UK remains in the European Economic Area (EEA). This is because the UK will seek to maintain close ties with other EEA members, and the UK significantly changing its current national trade mark laws would likely be unpalatable to those members, the vast majority of whom remain within the EU and therefore have a harmonised trade mark law framework.

UK judges would have the benefit of exercising a greater level of freedom in their trade mark decisions, however. This is because they would no longer be required to interpret UK legislation in accordance with EU legislative provisions and case law. Whether judges would actually depart from EU decisions is a different matter, though, particularly if the UK remains in the EEA, as explained above.

On the other side of the coin, it must be remembered that some UK judges have previously disagreed with a number of EU trade mark decisions. These decisions were subsequently implemented into UK law. As such, it is possible that judicial freedom could result in such decisions being reviewed.

What about Patents and Copyright?

A Brexit would have much less of an impact on the operation of patents registered by the European Patent Office (EPO) and copyright.

In relation to patents, this is because, unlike EUIPO, the EPO was introduced by the European Patent Convention which a treaty entered into by European (as opposed to EU) countries. As such, a Brexit would not affect the UK being a party to the European Patent Convention.

Equally, a patent granted by the EPO is effectively converted into a package of national patents, and as such, will continue to be effective in each country which was a member state at the time of the grant, regardless of whether or not that country subsequently leaves the EU.

Brexit would also be unlikely to significantly impact upon the operation of UK copyright law as although some aspects of it are based upon EU Directives, the majority of it has developed independently of the EU and in that sense is territorial.

Unitary Patents and the Unitary Patent Court

Additionally, a separate type of patent known as the European Unitary Patent (EUP) (implemented under the Unitary Patent Court (UPC) agreement) which is proposed to come into force in 2017, could potentially be affected by a Brexit.

Unlike the EPO system, EUPs will only have effect within the EU and must be ratified before they have effect. A Brexit would require the existing draft of the UPC agreement to be re-written so as to extend its jurisdiction to either all non-EU countries, which seems unlikely, or just to the UK.

The UK would also be required to ratify the UPC agreement as the three member states with the highest number of European patents (France, Germany and the UK) are required to ratify it before it takes legal effect.

However, it is unlikely that the UPC agreement will be ratified before the referendum on the 23 June. Therefore, it is possible that the UK would choose not to ratify the UPC agreement in the event of a ‘no’ vote, as doing so would result in the UK entering into the UPC agreement in the knowledge that it would only participate for a limited amount of time, until its full exit from the EU. It is unlikely that the UK government would allow its sovereignty to be diminished by the UPC agreement for such a short period of time, so it is likely that the UK would choose not to ratify the UPC agreement in the event of a ‘no’ vote.  

If the UK did not ratify the UPC agreement, Italy or the Netherlands would be able to ratify it instead, but would only be able to do so once the UK fully exits the EU, which could take as long as two years. Seemingly though, this would require the wording of the current UPC agreement to be amended if it was to be entered into prior to the UK leaving the EU.

Other parts of the UPC agreement would also likely need to be amended in the event of a ‘no’ vote. Currently, the Central Division of the Unified Patent Court is set to be located in Paris, Munich and London. Obviously, having part of the Central Division located in the UK when it is not a member of the EU (and potentially not even the UPC agreement), is likely to be considered unappealing, although there is nothing in the current wording of the UPC to prevent this.

Conclusion

Although the above outlines how various types of intellectual property rights are most likely to be affected in the event of a ‘no’ vote, there is uncertainty as to what will actually happen.

We recommend that those who currently benefit from intellectual property right protection within the EU and UK take steps to plan for how such rights will continue to take effect in the UK in the event of a ‘no’ vote.

Need advice or wish to talk to us?

If you would like to discuss any matters about this please do not hesitate to contact us as soon as possible.


Colin Bell

Partner, Commercial team
Tel: 0151 600 3281
Email: colin.bell@brabners.com


 

You can find out more about how we can help you by visiting our IP & IT page


Have technological advances diluted ‘variation’ clauses?

Friday 26th February 2016

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Insight - Commercial Law Update - Issue 7

It is fairly common practice for contracts to contain a clause stating that any variation must be in writing and signed by both parties. These variation clauses are designed to ensure that both parties have clearly agreed to any changes in the terms of a contract. Traditionally this has been through a written document that is then signed by both parties to the contract.

However, two recent decisions of C&S Associates UK v Enterprise Insurance Company and Hughes v Pendragon Sabre Limited T/A Porsche Centre Bolton have had to look at whether the terms of a contract can be effectively varied through an exchange of emails.

C&S Associates UK v Enterprise Insurance Company

This case was between Enterprise, an insurance company, and C&S, an insurance claims handler. The parties had a binding agreement that C&S would handle third party moto insurance claims for Enterprise.

Enterprise required C&S to provide certain information to its external auditors, but C&S refused to do so. Enterprise considered this to be a repudiatory breach of contract, and combined with C&S’s alleged poor performance, Enterprise decided to terminate the agreement.

One issue which arose following termination was whether or not the parties had validly varied the terms of the agreement through email exchange between two companies, resulting in an increase of C&S’s fees. The agreement contained a standard variation clause which stated that variations could only be made to the contract if made in writing and signed by both parties.

The Court held that the parties had effectively varied their written contract through an exchange of emails. The decision was grounded on the rationale that generally variation clauses are included in agreements to ensure that their terms are not varied by unintentional oral agreements or informal documents. The Court concluded that such a clause should not prevent variations which, although not in paper-form or containing manuscript signature, otherwise satisfied the usual requirements of contract formation. As such, emails sent on behalf of the Directors of each company satisfied the requirement for variation as they were in writing, contained the necessary signatures in the form of an email footer, and there was evidence of clear intention by both parties that they would be bound by the email content.

Hughes v Pendragon Sabre Limited T/A Porsche Centre Bolton

This case was between Mr. Hughes, the owner of a classic car workshop, and Pendragon Sabre Limited (Pendragon), a Porsche sales executive.

In 2011, Porsche announced that it was going to produce a highly sought after limited edition car. Mr. Hughes contacted Pendragon via email, stating that he would like to place an order for the new model, subject to cost and availability. Pendragon confirmed receipt of his “intent to purchase” on the same day and stated that it would update him with any further information it received about the new model.

A few days later, Pendragon contacted Mr. Hughes and informed him that he needed to pay a £10,000 deposit for the vehicle and that he needed to visit its showroom that day in order to have priority on its order list. He did so, also signing a Vehicle Order Form which stated that “the Seller shall not be obliged to fulfil orders in the sequence in which they are placed”. It also contained a standard variation clause.

Pendragon then emailed Mr. Hughes stating that he would be given the first model that Pendragon received from Porsche. Pendragon was subsequently allocated a vehicle but sold it to another customer. Pendragon the argued that no contract existed between itself and Mr. Hughes and that all the parties had entered into was “an agreement to agree”. It also argued that if a contract did exist, there was no breach due to Pendragon having no obligation to fulfil orders in sequence.

Mr. Hughes brought a claim for breach of contract, however the County Court agreed with Pendragon that no valid contract had been entered into. The Court of Appeal subsequently overturned this decision. It stated that the email sent by Pendragon which stated that Mr. Hughes would receive the first vehicle did create a “collateral contract” which varied the terms of the Vehicle Order Form. This was because the statement in that email was intended to have contractual effect as it clearly reflected the terms of what both parties had agreed to in principal.    

Lessons to be Learnt

In order to ensure clarity of contractual terms, contracting parties should bare the above decisions in mind when discussing the terms of a contract via email.

In light of the above decisions, parties should consider expressly stating that the contract cannot be varied by email. This, combined with an express statement at the outset of any email discussions confirming that such discussions are subject to formal contract and not legally binding, should ensure that the terms of an agreement are clear and that neither party is bound by a term that it did not wish to be bound by

Parties should also consider expressly including a caveat to any standard variation clause to the effect that only specifically named individuals are able to vary an agreement.

Parties should also be aware that the outcome of the above decisions, despite being in the context of email exchange, could potentially extend to any form of electronic communication. As such, it is not inconceivable that a text message exchange could vary contractual terms.

If you would like more information about the issues in the article please contact either:


Jacob O'Brien

Solicitor, Commercial
Tel: 0161 836 8803
Email: jacob.o’brien@brabners.com

 

 


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