Law
3.1 The English legal system
The English legal system is a historic one with roots dating back to the localized, tribal Anglo Saxon times of the first millennium. It has been less influenced by the Roman empire than neighbouring countries and is hence different to most European legal systems.
Norman invaders arrived in 1066 and over a 200 year period began to link these regional and custom variations through travelling judges (Assizes) and by establishing central courts. They hence established laws that were common throughout the land (‘common law’). Before written ‘year books’ were used, legal issues resolved by one case set an example for other similar cases (the principle of ‘precedent’). Special cases were dealt with by the chancery under the principle of ‘equity’ (fairness) which became precedential too. Common law and equity became combined under ‘the Supreme Court of the Judicature’ in 1873. Custom is hence now succeeded by precedent but may still be applicable in certain cases, particularly in business. The precedent or case law system is voluminous but is considered to be more flexible and realistic than the alternative Romanized code or list-based systems used elsewhere.
Over the past 150 years, governments have contributed to the legal system by introducing legislation and statutes which overrule common law. A government may also introduce a code (for example, highways, race relations, health and safety) which may not be actual law but may influence a court in reaching a decision.
Legislation is interpreted by courts who must obey the law. Responsibility may, however, be delegated from the courts to subordinate bodies via enabling Acts. A lower court is bound by the decisions of a superior court but not vice versa (although inferior court decisions and even commonwealth court decisions may guide superior courts).
The absence of a written constitution, however, which would allow courts to question legislation from the government, is sometimes considered as being unhelpful to the nation’s governance.
The Treaty of Accession with Europe in 1972 led to the European Communities Act which allowed European Community (EC) legislation to be incorporated into United Kingdom law.
Most EC legislation is related to commercial and economic issues surrounding Europe and the Community’s budget of around £50bn. EC legislation comes in a variety of forms:
• Articles, which apply from person to person (horizontal) and person to state (vertical).
• Regulations, which are general and binding to all.
• Directives, which are general but applied to particular states (vertical).
• Decisions, which are specific and have no legislative effect.
Common Market Law Reports, which are in themselves beginning to resemble a list of precedents, detail the legislation. The Council of Ministers are sovereign representatives who act on Commission proposals, and the European Court of Justice, assisted by the Court of Auditors, ensures that the legislation is implemented.
How the system works
Civil law concerns the resolution of disputes between individuals. The dispute could be over a variety of issues such as small claims, contract, personal injury, land disputes or insolvency and usually involves an individual seeking redress against another individual or against the crown. Cases are referred to as plaintiff v. defendant.
An act with an element of blame leading to civil wrong is known as a tort (tort comes from the Latin ‘tortum’ meaning ‘wrong’). Fault can be committed even without intention (‘mens rea’) which is known as strict liability. Buying stolen goods, for example, could make you liable even if you did not know the goods were stolen.
A careless action can lead to the tort of negligence provided that the ‘defendant’ had a duty of care, that the duty of care was broken and that damage was suffered as a consequence. Designers and engineers have a duty of care towards their customers and hence defective goods can lead to the tort of negligence (it can also lead to claims for a breach of contract). With negligence claims, the onus is often on the designer or manufacturer to prove their innocence. A vicarious tort occurs when a person is held responsible for a tort committed by others. For example, the partners or directors in a firm might be held responsible by plaintiffs for the actions of a company employee which they know nothing about.
Cases of civil law generally start in one of the country’s 400 county courts. A county court comprises circuit judges and solicitors in gowns but not usually juries. Cases that are more complex cases, involve a higher magnitude of damages or require juries (such as defamation) go directly to a High Court. There are 26 High Courts organized into three divisions; Queen’s Bench, Chancery and Family. It is the job of the District Registrar to determine where the case will start.
County courts particularly are outgrowing the small disputes they were originally set up to handle. Recent changes in proceedings for small claims are intended to make processing quicker and the use of Special courts is also becoming more widespread. Special courts are geared to specific cases such as restrictive trades court or patent disputes. They comprise lawyers and High Court judges and have High Court status. Because they specialize they can be much quicker. Administrative tribunals are also used. These are smaller, less formal bodies that are subordinate to a court. They comprise lay members (that is non-legal members of the public) looking at disputes such as social security, revenue or employment matters. If a tribunal oversteps its powers the decisions can be questioned in the High Court and this is known as a judicial review. A domestic tribunal will relate to matters such as trade unions and trade associations.
Court action takes the following steps:
• A writ (Queen’s Bench) or a summons (county court) is issued.
• A preliminary hearing is held by the District Registrar.
• A court appearance follows, usually by a solicitor(s) representing the parties. The plaintiff proceeds by trying to prove guilt and the action is then defended.
A number of steps are, however, advisable before taking civil action:
• Are you in time? There are strict time limits by which time action must be taken and which depend on the type of dispute.
• Can you win your case? The decision will rest on the balance of probabilities. Even though you may be the damaged party you will have to prove it.
• Can you afford to take action? Proceedings are expensive and you may have to pay the other party’s costs if you lose. Legal aid covers civil proceedings provided there is a reasonable case and insufficient personal funds although it does not now cover personal injury or administrative tribunals. Insurance may cover the legal costs of losing and in certain cases it is worth discussing with solicitors if they would take a fee only if the case is won (a conditional arrangement).
• Who should you sue? The purpose of suing is normally to extract damages and it is sometimes necessary to claim from the more affluent party rather than the more guilty party. A pedestrian injured by a poorly driven bus might sue the bus company rather than the bus driver, for example, because the bus company is more likely to be able to pay a substantial sum than the driver.
• Is it worth it? How much will you receive? How long and how stressful will it be? Will you get bad publicity even if you win? Will or can the loser pay up?
• Can you negotiate a solution? Consider arbitration to help, particularly for resolving a contract difference. Arbitrators are often based within the county court system and may refer just the legal aspect to a High Court (‘case stated’).
Criminal law
Criminal law is concerned with conduct and punishment for crimes against the state and public order, crimes against a person or property (a criminal act may therefore also lead to a tort) and others unclassified (such as traffic offences). Liability can again be strict. Cases are referred to as the Crown v. prisoner.
Magistrates’ courts contain a minimum of two Justices of the Peace (magistrates) who preside over minor offences, such as motoring, trades descriptions or breaches of the Factory Acts. Magistrates are lay persons appointed by committees and advised on legal issues by the Clerk to the Justices. Powers generally extend up to £5000 fine or 6 months’ jail, but they can decide whether remand is necessary or whether the case is reasonable to go forward to crown courts. Crown courts have four levels of seriousness ranging from trial by a High Court judge down to trials with barristers with juries.
In criminal action, the steps are:
• The accused is summonsed. In criminal law there is no time limit to action.
• The accused enters a plea and the prosecution (for example, the Criminal Prosecution Service or Factory Inspectorate) proceeds. Unlike civil cases which rely on the balance of probabilities, there are strict rules and standards of proof which require absolute certainty of guilt.
• If proved guilty, compensation may be awarded to a victim, which avoids a repeat case in the civil court.
• Appeals can be referred to a Divisional Court (two or three High Court judges) ruling on the procedure in questioned cases. The Court of Appeal (Master of the Rolls and Lord Justices) review the case based on court and judges notes. The House of Lords is the highest appeal source in the country and consists of ex-chancellors and life peer Law Lords. Cases can be appealed directly here if parties and the original judge agree. The European Court of Justice is obligatory if no further internal appeal rights exist.
Problems 3.1.1
(1) What is the purpose of a Green Paper?
(2) What is a Consolidation Act?
(3) Explain why in the creation of legislation the European Parliament is different to the British Parliament.
(4) Explain why it is possible to be held responsible for something you did not do?
(5) In the civil case of Hedley Byrne v. Heller and Partners (1963), a firm of advertising agents asked a bank to give a reference for a customer they were considering giving credit to. The bank provided this but expressly disclaimed liability when giving it. The advertising agency extended credit facilities but when the client failed to repay them the agency took the bank to court arguing that the reference was given carelessly. Who is the plaintiff and who is the defendant? Consider the issues and why the agency is suing the bank and not the customer. Consider whether you think the bank could be held responsible.
3.2 Product protection
A company’s products and services, including its know-how, are sometimes referred to as its intellectual property (IP). It is important that IP is protected to reduce the opportunities for other companies to copy it and to maximize its value.
There are many commercial ways of protecting IP including secrecy, technical complexity, being faster to the market place and branding. However, the law provides statutory methods known as the intellectual property rights. These are explained in the following section.
Intellectual property rights
The most common form of intellectual property rights (IPR) are patents, design rights, copyright and trade marks. There are different types of right because each protects a different aspect of intellectual property:
• Patents protect technical or functional innovation.
• Design rights protect shapes or configurations.
Note that it is difficult to protect the idea in itself and that there must be a tangible element to the idea. You cannot protect the principle of perpetual motion unless you have proved that it can be done!
Patents
Patents are governed by the Copyright, Design and Patents Act (CDPA) 1988 which specifies that a legal monopoly is granted to an inventor for a limited period in return for payment of a small fee and for making the invention known to the public. A patent can provide protection for a technical or functional innovation. This covers the composition, construction, manufacture of a substance article or apparatus of a product or process. Excluded from patenting are artistic creations, mathematical methods, software, schemes, rules, discoveries of nature, biology, methods of treatment, surgery or therapy for humans or animals. A number of exclusions, particularly in software, business methods and biotechnology, are, however, beginning to be accepted.
Benefits in owning a patent are not just in protecting the invention. It includes credibility, marketing tools and expansion through cross-licensing and technology transfer. It is also seen as helping to attract investment capital, particularly to internet companies which otherwise often lack tangible assets.
Requirements
In order to be patentable an invention must be new, inventive and valuable. To be valuable it must be useful in an industrial or agricultural context. There is no lower limit on the level of value.
To be new the idea must not have been disclosed in any way, whether written, oral or visually. Disclosure includes:
• Simply being made available to the public (it doesn’t even actually have to be seen by anybody).
• Using e-mail which is not encrypted.
• Trials to a third party or for profit.
• Being made available to too many people or given to particular key parties even if marked ‘confidential’. For example, a report marked ‘private and confidential’ was disclosed even though it was circulated to just 10 members of a 350 strong group.
There is no definition of what comprises an invention but to be considered inventive the idea must not be ‘common general knowledge, not be obvious and beyond what is currently “state of the art”. The simpler the invention is the harder it is to prove inventiveness. It is also hindered by hindsight. An inventive step can also be destroyed by a combination of documents which pieces together a solution (mosaicing). Success can be improved if the invention goes against generally accepted views or if the idea is commercially successful.
Application and procedure
Ownership
A patent will usually belong to the inventor, except where ownership has been contracted otherwise, for example with consultants. It also includes employment contracts and a company has ownership rights if an invention is made in the course of specified (express) duties or normal duties (expressed or implied). Innovation achieved in an employee’s own time is a grey area if it relates to their normal job.
Application
The patent must be applied for. It is a generally recommended rule of thumb not to apply for a patent if work to complete an invention will take more than one year. Time, however, is strictly of the essence because in the UK the first to file a patent is the owner.
It is hence better to patent little and often rather than waiting for ‘the big one’. It is also common practice to use many patents for one device. Kodak’s disc camera, for example, has over 100 patents. Some companies such as Canon create a citadel of patents, using many patents surrounding the concept but without actually patenting or revealing the key technology. The procedure for patent applications is straightforward but can be lengthy:
Unofficial search
Undertaking a patent search before applying prevents wasting time and money. You can search for free but there are 36 million patents and only recent applications are electronically stored. Their organization has also undergone several major revisions and in order to carry out a complete search over the whole period of time, three search classifications with backwards and forwards concordances have to be used. A professional search service is therefore advisable. Patent agents, for example, charge around £100 for overviews and £1000 for summaries (including translated texts). The Patent Office also offers a Patent On Line Search Service.
Filing
Filing an application involves completing Patents Form 1/77 and supplying the following information:
Any named inventor on the patent must have contributed to the intellectual effort.
• A description and title.Entries in the following sections:
| 5–9 | technical field |
| 10–31 | background |
| 35–50 | essential technical features |
| 54–90 | list of drawings |
| 91 + | particular description |
Careful wording is required. For example:
• ‘Display means’ for a monitor is far more encompassing than ‘screen’.
• ‘X for use as’ covers X for a wider range of uses than ‘the use of X as’.
• Use ‘between the range’ and ‘preferably’ when referring to numbers.
• Use ‘vertically, or nearly so’ in preference to saying just ‘vertically’.
• Claims entered in the following sections:
| 1 and 21 | the main claims |
| 2–20 and 22–28 | appendants (supplementary built on the main), |
| 29 | commercial reasons |
| 31 | omnibus (final catch all) |
Careful phrasing is also required. For example:
• It has to be detailed enough so that another person of equal knowledge to the inventor could recreate the invention. ‘Real’ patents are descriptive and intend to stop use by others. However, whilst these are easy to define in court they are more technically easy to infringe.
• ‘Defensive’ patents are vague and aim to have the widest scope for an invention so that it can be exploited to the maximum. An example would be Intel patenting ‘microchips’, or Henry Ford patenting ‘the car’. However, whilst these are harder to infringe they are harder to enforce.
Courts are moving towards a purposive rather than exacting definition of the text, meaning that text is viewed as a signpost rather than a fencepost (Catnic case). Software is available to help with composing but professional help is always advised. The charge for wording a simple invention might typically cost around £800.
Filing a UK applications is free and the day of filing establishes a priority date which is a key reference point for UK patents. The information is not released generally but the application is reported in the Official Journal (Patents) OJ(P), usually around three months after filing.
An official search
An official search must be started within 12 months of the priority date. This is done by the Patent Office and costs around £200.
Publication
The results of the search are usually published 18–21 months after filing and are reported as the ‘A’ specification.
Examination
Examination for the Patent/Office to consider whether the invention usually is patentable must be done within six months of publication. This is now 39 months after the filing date.
Grant
The final approval or grant of the patent is known as the ‘B’ specification. The normal duration for this stage is 51 months after filing. There is also a ‘fast track’ option for combined filing and searching at the same time. This approach helps to reduce the additional time needed for searching and hence quickens the entire process. Subject to renewal actions every four years, the patent can be held up to a maximum of 20 years.
Infringement
Patent infringement is a civil matter. The infringement can be direct or indirect but must be for commercial reasons. You should communicate the problem and the remedy to the infringer before taking legal action. A patent and number stamped on your product improves the argument that infringement has occurred intentionally. With cases of joint ownership, a single owner can sue for infringement. The joint owner can then be sided with the defendants but does not incur those costs. Damages are restricted to an account of profits or a loss of sales.
International
A UK patent can be infringed in other countries unless protection is also sought overseas. Under the Paris Convention of 1886, the priority filing date established in the UK allows a 12 month period between filing in other countries (with the exception of Taiwan). A UK patent must be sought before an overseas patent can be sought and, if necessary, permission must be sought from the Ministry of Defence and the Department of Trade and Industry. Patenting overseas is time consuming and expensive. Foreign patents must also be reproduced in the language of the host country (BASF, 1999).
The European Patent Organization (EPO) does co-ordinate a ‘European patent’ (EPC) to which 19 states subscribe and which from 2002 will include East European countries. The European Commission has also adopted a proposal for the introduction of a single community patent, which should be available by the end of 2001. The World Intellectual Property Organization also administers a Patent Cooperation Treaty (PCT), which covers many of the industrial states but costs upwards of £20 000.
One problem with establishing a common ‘worldwide’ patent that would reduce the cost is that different countries have different patent rules. The US and Japan operate a first to invent system rather than a first to patent system. Filing can take place up to 12 (six) months after the disclosure of an innovation. Japan also has a less inventive ‘utility’ measure midway between a patent and a design. The US and Japan also have an ‘inventor owns’ system rather than a company owns system and assignment is then given to the company by deed or nominal payment.
Design rights
Design right is concerned with protecting the shape and form of an invention, as detailed in Part III of the CDPA. Work must be original, more than copyright but less than an inventive step and includes microchips but not 2D designs or surface decorations (such as wallpaper).
Design right is granted automatically to the designer or originator, again unless contracted otherwise such as in employment. In a commissioned work it usually belongs to the person who commissioned the work rather than the designer. It is not a monopoly as the same design can be repeated elsewhere if an originator comes up with the same creation independently. It does prevent outright copying or copying by reverse engineering for a period of up to 15 years from the time of the design or 10 years from the first sale. The design should hence be publicized as soon, as loudly and as widely as possible to try and diminish an argument that a similar design was produced independently.
Registered design
An invention that has an aesthetic element as well as shape and form can be registered, as detailed in the Design Act 1949. The act defines aesthetics as features that ‘appeal to the eye’ and includes patterns and 2D designs. ‘Must fit’ and ‘must match’ articles such as functional car body panels are however specifically excluded (BLMC v. Armstrong (1986)).
Registration is through the Patents Office. An application is around £260 plus any agent fees with subsequent five yearly renewals up to 25 years. In infringement cases, proof is by a consumer’s ‘imperfect recollection’. In other words would a user confuse a registered design with an infringing design.
Between 8000 and 10 000 designs have been consistently registered throughout the 1990s. Patterns and 2D designs are less frequently protected because they tend to go out of fashion fairly quickly, but high levels of filings are evident in electronic apparatus (walkmans, pagers, radios), containers and measuring instruments, with games, toys and packaging showing the biggest area of growth.
Protection is automatic in some countries, but protection in the UK does not automatically extend abroad as the UK does not subscribe to the international treaties that exist. Applications must therefore be sought in individual countries (at roughly double the UK cost per country). Registering a UK design right does though establish a six month priority date, which can be carried forward into other countries in much the same way as a patent application.
The European Directive 98/71/EC proposes a Community-wide right, similar to the UK’s design right but with a shorter term of three years. A Community-registered design will be a single right, which will be effective throughout Europe. Nominated national courts in each member state (for example, the High Court in the UK) have jurisdiction as Community trademark or designs courts in order to allow the enforcement of such rights. The Directive requires member states to implement the new legal framework into their law by October 2001. The Directive agrees to disagree on certain matters, most crucially the ‘right to repair’, leaving this up to national law for the time being.
Copyright
Copyright is the protection applied to the expression of an idea rather than the idea itself, as described in the CDPA. Originally this protection established the rights of ownership of literary work but now includes artistic works such as sculptures and period furniture, dramatic works, musical works and arts (LDMA) as well as graphics, typography and computer programs. Generally speaking if the expression of an idea is worth copying it is worth protecting and is therefore copyrightable. It requires intellectual effort through skill and labour and not necessarily novelty or innovation. Facts, ideas and names, for example, are not copyrightable but compilations of facts are.
Application
The originator of a work is the owner of the copyright although employers have an automatic right of assignment if the work is produced as part of the employee’s normal duties. Ownership of commissioned, consultative or independent consultant work is less clear but the originator is usually the owner unless agreed otherwise.
Copyright is granted automatically. It is not necessary to use the symbol ©, which has never officially been given legal status in the UK, but courts may find it helpful in establishing dates of authorship. Unopened, stored documents may also help in this respect. The ©, however, may be needed overseas and exports should always include a copyright warning.
Protection commences when the work is first recorded and lasts 70 years after death. The period of protection is reduced if items (typically more than 50) are sold as they are then to be considered industrially exploited. Protection is also less (50 years) for computer generated works, sound recordings (50 years) and typography (25 years).
Copyright is a ‘negative right’ in that it prevents copying, issuing, performing or adapting the work. Independent creation is not infringement. There are also certain automatic rental and public lending rights. ‘Fair dealing’ allows for some copying without owner’s permission.
Infringement, however, can be primary (for example, by direct copying) or secondary (for example, by using material that has been copied). Therefore assume that all works are copyrighted to someone, somewhere unless the work specifically states that it is for public use domain. Even basing work on someone else’s work requires permission, e.g. a story using somebody else’s characters (except for parody).
Current legislation imposes the burden of proof on copyright owners. At present, proceedings can fail because a well-advised and publicly funded defendant is able to drag out a good case by pleading not guilty and requiring the copyright owner to prove all aspects of copyright (subsistence of copyright, authorship, chain of title, assignments). This considerably increases the length and the cost of the trial, and often frustrates meritorious cases.
International
Unlike the UK, copyright in the US is not automatic and must be registered. Also, where work in the UK is copyrightable if it is formed with effort (i.e. skill or labour), in the US there must be some creative effort. The US also has a very low threshold of infringement which is deemed a criminal matter.
Generally, however, similar rules for copyright exist as they do for design. These are covered by the Bern Convention, Universal Copyright Convention, Rome Convention and various EC Directives (including the Protection of Computer Programs, Rental and Lending Rights, Television without Frontiers, Cable and Satellite, Terms of Protection, Protection of Databases).
WIPO attempts to harmonize global copyrights in 1997 led to the subsequent EU Copyright Directive and related Acts (Rights in the Information Society) which may ultimately give rise to changes in UK law. These might include:
• Broader reproduction rights (including temporary copying).
• Rights to communicate works to the public.
• Protection against technical circumvention.
• Copying some text commercially onto paper for fair compensation.
• Copying for private non-commercial in return for fair compensation.
• Copying in libraries and universities including use for teaching or science which is not commercial and which must be acknowledged.
Related rights
Moral rights
Moral rights are related to copyright but are concerned with the right to be recognized as the originator of the work rather than the owner of the work. Moral rights do not apply to computer programs, computer generated works, typefaces, news and current events work, collective reference works. A moral right is an inalienable right (which means that it cannot be transferred unless it is in a will) but it is a right which must be asserted. It covers the following for which infringers can be sued:
• Paternity or the right to be identified and credited as the originator of the work.
• Integrity and the right not to have work subjected to derogatory treatment. Work protected by moral rights should not be intentionally destroyed, damaged, altered, retouched, modified or changed in any way whatsoever without the written permission of the originator.
• The right not to have false or joint work incorrectly attributed to you or by others.
Performing rights
Performing such as street theatre or singing is normally considered as the delivery of a performance which is viewed as the supply of a service rather than a product. Current legislation implies that the free circulation of such services is freely applicable. However, more recently courts have determined that Article 59 of the Copyright Act applies which would exercise the same rights as exists for goods. The re-enactment of a performance may hence be an infringement if the performer is offering the performance in your guise. Rights in performance, however, represent protection against unauthorized recording, broadcasting, copying, issuing, showing of a live or pre-recorded show including the Web. Reproduction, distribution and rental rights are transferable property rights with protection that lasts for 50 years.
Digital copyright
Electronic information receives the same copyright protection as written or printed matter. Unless covered by contract or fair dealing, infringement of copyright includes, scanning, rekeying, downloading or sending copyright material on a LAN or fax. Copyright was, however, created for a paper world and the facility to gather, clone, manipulate and distribute information without detection makes its application in the modern electronic world problematic. The problem is likely to increase as processing, compression and bandwidth technologies improve and as knowledge and ‘virtual companies’ become more important. Testing the law in the cyber world is also often new and untried.
Database right
Databases qualify for copyright protection under the ‘compilation’ rule of the CDPA. Hence copyright exists where authors have selected and arranged database contents using intellectual means. This would, for example, exclude a telephone directory. ‘Database rights’ also exist where a substantial investment has been made in obtaining, verifying, or presenting the contents of a database. It is an automatic right that prevents unauthorized use or extraction from the database. Protection lasts for 15 years but major revisions will continue to generate 15 year extensions.
The Web
Net published work is copyrighted with the exception of URLs and e-mail addresses which are facts and therefore not applicable. Reading a web page automatically involves making a copy of the page and storing it in a computer’s RAM which might in itself be viewed as a copying infringement and make both user and internet service provider (ISP) liable. It is, however, generally accepted that there is an implied licence to do this provided the provider has the right to offer the page initially.
In the UK, ISPs are considered publishers in common law because they have the power to store and delete information from authors (Godfrey v. Demon) and they are therefore liable to claims against infringement. Preventative steps should include limiting the number of newsgroups, restricting links and access to personal sites, publishing a contact’s name, observing information regularly and removing contentious information immediately. Beware also of the Obscene Publications Act 1959 which covers simply making such material available. An ISP would be responsible if it failed to remove the material once its obscene nature was determined.
The Shetland Times case has, however, raised the issue of copyright infringement of one site linking to another. An interactive site can be considered a web, with this implied licence for all to use, but a non-interactive site might be considered a cable television service which would put the onus of infringement on the viewer rather than the service provider.
This perspective stands more akin to US rulings which consider ISP as providers of equipment similar to telephone service providers. The US Online Copyright Infringement Liability Limitation Act gives greater power to copyright owners over digital reproduction but limits the liabilities of ISPs at the expense of users. The ISP must not be aware of infringement, should not receive a direct benefit from the infringing article and acts rapidly when made aware. The Digital Millennium Copyright Act (World Trade Organization) endorses the US stance of user rather than provider liability.
Software
Rules for software are covered by the Copyright (Computer Programs) Regulations 1992 appended to the Copyright Act 1988. Independent creation is allowed and software companies separate departments which analyse competitive and market information from departments which write software, to ensure that independent creation is seen to be done.
The United States Department of Justice, the Federal Bureau of Investigation and the United States Customs Service have established a law enforcement initiative aimed at combating the growing challenge of piracy and counterfeiting both domestically and internationally. The Intellectual Property Rights Initiative will focus on people who steal trade secrets, counterfeit chips and software, and pirate programs over the Internet. The US No Electronic Theft (NET) Act was passed in 1997 specifically to close a loophole in piracy laws, which previously meant that it was illegal only to sell copyrighted software and other electronic media.
Electronic mail
Technically even forwarding an e-mail sent to you requires the originator’s permission. E-mail messages sent to a public list are regarded as having an implied licence for publication, which will allow others to keep a copy, quote and forward the piece. Beware of distortion of the message and false attribution which may infringe moral rights, however.
Trade marks
A trade mark can be any representation that differentiates goods and services, goodwill and reputation. The common law of ‘passing off’ affords some protection against the copying of these trade marks but you must prove your historic ownership, an intention to confuse/deceive, a tangible loss and demonstrate rigorous active protection. Being proactive in trade mark protection helps, such as indicating your recognition of your trade marks by the use of the symbol ‘TM’.
It is, however, possible to afford stronger protection by registering the trade mark. Registration used to be limited to words and logos but following the Trade Mark Act 1994 the scope has widened to include other distinctive features such as three-dimensional shapes, three letter words, acronyms, uncommon words, foreign surnames, small places, foreign places, slogans, a descriptive word with a logo, sounds, colour and even smell. Registration is still excluded for common words, surnames or phonetical similarities which require proof of distinctiveness and where others have ‘honest concurrent use, shapes by nature or functions which add value’. Liability for breach is strict but the onus of proof of distinctiveness is with the originator.
Application
It is generally advisable to conduct a search before applying for a trade mark to assess whether the mark is likely to encounter any difficulties as a result of its use and registration. A self-search using proprietary CDs might cost £15 and the Patent Office may charge £100. The mark must then be registered within one or more of 42 classes of goods or services available. The registration is renewable every 10 years indefinitely costing around £200. Once granted, the ® symbol can be used to show that the mark is registered.
Internationally, the recommended approach is to search in the countries that are of interest. A typical search by patent agents may cost between £250 and £600 per country but it is also possible to do a ‘World Wide Identical Screening Search’ (WISS). WISS is limited to using identical and phonetically identical trade marks published since January 1976 but at £550 is a cheap and quick guide. Application costs vary per country but the average is around £700 to £800 per country per class.
The 1994 Trade Mark Act harmonized and simplified the rules within the EU enabling a commonly available Community Trade Mark (CTM). The cost of filing the application is approximately £700 but this covers up to three classes. When the mark is accepted there is an additional registration fee also equal to around £700.
Under the Madrid Protocol, an International Registration (IR) can also cover a number of associated countries worldwide. Each application is examined separately by the relevant national trade mark authorities so there is a risk that an objection concerning a common surname may be raised. The cost of filing an IR is about £800 for up to three classes with an additional cost payable for each designated country of approximately £100. The additional cost of a prior UK application should also be taken into consideration. The application can be filed centrally and is worthwhile if protection is sought in approximately three or more of the associated countries.
Domain names
The registration of trade marks and internet domain names is not linked. Domain names are allocated on a first come first served basis and ownership of a registered trade mark does not automatically entitle you to ownership of the domain site. The disparity has resulted in a great deal of confusion and litigation around this issue, particularly in relation to people owning domain names that trade mark owners would like (‘cybersquatters’). Where there is dishonest intention (such as ‘passing off’) then the trade mark owner is more likely to be successful in claiming against the domain name owner.
A small company with the same name as a large company with a similar name can legitimately register the domain name at the expense of a big company (Prince v. Prince Sportswear).
The World Wrestling Federation Entertainment claimed that the owner of the domain worldwrestlingfederation.com registered the newly available address and then attempted to sell it to the wrestling promoters for a hefty profit. The name was ordered to be handed over to the WWF.
WIPO has also upheld the claim of US actress Julia Roberts against the domain name owner of juliaroberts.com. The tribunal ruled that the domain name owner had ‘no rights or legitimate interest in the domain name’ and had registered it in bad faith. The domain name has also now to be transferred to the actress.
In Marks and Spencers v. One in a Million, One in a Million argued that they were not passing off because they were not intending to deceive, they merely intended to sell the domain name to M & S. The argument was overruled and M & S were given the domain name site and One in a Million (a collection of students) were handed a £65 000 legal bill.
However, failure to prove dishonest intention (particularly if the domain name owner has not attempted to sell the name) may be difficult. The owner of the domain name may be prevented from using it if it infringes a trade mark but will not necessarily result in the trade mark owner gaining ownership of the domain name (Shetland Times).
Problems 3.2.1
(1) In Evans & Sons Ltd v. Spritebrand Ltd (1985), a company was sued for breach of copyright. Could a director be held personally responsible as well?
(2) Comment on the application of copyright, design right and registered design right protection for computer generated kitchen scales created for the commercial market.
(3) In January 1995, Glaxo announced a bid for the company Wellcome with the intention of forming a combined business called Glaxo Wellcome plc. A day after the announcement, X registered the company name of Glaxowellcome Ltd and offered the name to Glaxo for £100000. Glaxo took X to court to insist that X did not have the rights to register the name in the first instance. Was Glaxo successful?
(4) If you receive an e-mail from a friend, explain why you might need to be careful if you decide to forward it to someone else.
3.3 Contracts
Agreements are made between suppliers and buyers of goods but can be made between people or organizations for a variety of reasons. Agreements form a regular and important part of business and this section provides an overview of the formal creation of an agreement.
Requirements
The definition of contract from the Oxford English Dictionary is that in its simplest form it is ‘a mutual agreement between two or more parties that something shall be done or foreborne by one or both’. It is also commonly interpreted as ‘an agreement enforceable by law’. A contract is hence a step beyond a promise or an understanding that forms a legally binding agreement. It can be implied, by actions or understandings, or it can be expressed in written terms. Certain essential elements are, however, necessary to form an enforceable contract and these are intention, consideration and agreement.
Intention
Both parties must have an intention to create a legally binding contractual relationship.
The ‘offer’ is an expression of willingness by one party (usually the seller) to enter into a legally binding relationship. The offer must be communicated to the offeree by the offerer or his agent. It may be expressed or implied and the test of whether a statement is an offer is objective. Its legal validity depends on whether the offerer would reasonably have been understood as making an offer and not whether he thought he was making an offer. The following are normally held to be offers:
Distance selling includes offers by e-commerce, mail order and telephone sales and legislation includes the Mail Order Transactions (Information) Order 1976. The legislation excludes one-off transactions. The minimum information required for electronic transactions must include the identity of the sending party. E-mail is now considered to have the same status as letters so that all e-mails must bear the company’s place of registration, registration number and registered address (section 351 of the Companies Act 1985). The seller must also provide information on the main characteristics of goods, special conditions, price, payment details and details on the right to withdraw information. Hard copy details must include a seven day right to retract, without reason or penalty starting from the date of goods received. There is also a requirement to identify further junk mail (spam).
An offer may be made in a conditional form which is divided into two groups. Conditions precedent (suspensive conditions) and conditions subsequent (resolutive conditions). Clauses inserted into offers which are commonly encountered in commercial transactions include the phrase ‘subject to contract’ (i.e. subject to the making of a formal, written contract) and ‘effectiveness clauses’, covering matters such as the obtaining of licences, finance and so forth necessary for the performance of the contract. Clauses of this type usually create a condition precedent, but in some cases a party may be under a contractual liability in respect of the condition, for example there may be a duty to obtain an import licence.
An offer may lapse for a number of reasons:
• Because the time specified for its validity expires.
• Because the offer is communicated as being terminated. The offerer can also withdraw the offer at any time, even if he has promised to keep the offer open, unless he has contracted (for good consideration) to keep it open.
• Because of a counter-offer which kills off the original offer.
An offer is usually contrasted with an invitation to treat which is an invitation to the other party for them to make an offer. The following are usually held to be invitations to treat:
• Tenders. When a contract is made by tender, the invitation to tender is construed as an invitation to treat, the tenders are construed as offers and it is then up to the invitor to decide which tender (if any) he will accept. Particular care should be exercised in dealing with ‘acceptances’ in the form of letters of intent. These almost certainly do not create a binding contract, except in so far as they induce the tenderer to do specific things in response to the terms of the letters of intent.
Consideration
A contract must be supported by consideration. This means money to be paid or obligations undertaken in return for the goods or services to be provided. Any party wishing to sue upon the contract must prove that they put something into the bargain struck between the parties. The obligations and contents of the contract are called its terms and consist of the consideration and other promises which the parties have made to one another in respect of their duties under the contract.
A distinction is drawn between express terms (the things which the parties explicitly agreed) and implied terms (whose existence a court would infer from the circumstances surrounding the making of the contract). Terms may then be discovered from any documents which the parties used to record their agreement and/or any oral communications between them forming their agreement or part of it.
In any disputes, a court will attempt to decide upon the basis of the written and oral evidence what the parties intended to include in the contract. The court will usually imply only such terms as are necessary to give the contract ‘business efficacy’. It is particularly influenced by the relative importance of what was said or written in relation to the subject matter of the contract. However, courts do not permit oral evidence to be given which would vary, contradict or add to the written terms if the parties have reduced the whole of their agreement to writing (the parol evidence rule).
Careful wording is required when drafting sentences, otherwise problems can also be encountered in interpreting terms even when they are expressed in writing. Unless undertaken by a qualified legal expert, contracts should be drafted in simple language, avoiding the use of Latin, jargon or slang, and progress in a logical fashion using clear punctuation.
Incoterms as defined by the Institute of Chambers of Commerce are common ways of clarifying the point at which ownership (and risk) are transferred from one party to another. For example, FOB is the delivery of goods by the seller ‘Free on Board’ to a ship. They become the responsibility of the buyer as they pass the ship’s rail (see Fig 3.3.1 overleaf). Other examples include:
A convenient solution to the problem of ascertaining the terms of the contract is to employ a printed standard form containing terms suitable for a variety of transactions of the same type. These must still be used with caution, however, as they effectively reduce the ability of one party to negotiate and are hence open to criticisms of unfairness. An unfair term is one that has not been individually negotiated and causes an imbalance to the detriment of the consumer. This may render the contracts ‘champertous’ (illegal). Consumers are protected against unfair terms by the Consumer Contracts Regulations 1999 which have replaced the unfair terms legislation of 1994. The new Act allows Trading Standards to prosecute on behalf of the consumer. Standard forms are also restricted on exemption clauses that they can include.
Making quotations and placing orders with standard conditions attached, usually in small print, can also produce a ‘battle of forms’ between organizations where each side seeks to impose its terms and conditions over the other. The best solution to this problem is not to get involved in it at all, but to endeavour to reach an agreement with the other party on disputed terms.
Terms of the contract must be distinguished from ‘representations’ which are statements that do not form part of the contract but which induced the making of the contract. When such a statement is false, this amounts to misrepresentation. No damages for misrepresentation can be made with respect to the contract but tort damages are available for fraudulent or negligent misrepresentation. Any remedy for misrepresentation will depend on factors such as the degree of fault of the maker of the statement:
• Incorporated into written contract.
• Indication of importance of issue.
• Special knowledge of statement maker.
• Made on purpose to induce contract.
• The state of mind of the maker of the statement and whether the statement was fraudulent (where the maker of the statement knew it to be false, negligent (where the maker of the statement was careless in determining the truth) or innocent (where the maker of the statement believed it to be true and had reasonable grounds for believing that).
Agreement
In order to complete the agreement the offeree must accept the offer and communicate his acceptance to the offerer. This means that there will be an agreement where one party has made an offer to the other to enter into a contract on certain terms, and the other has accepted on those terms. If the other party fails to accept all of the conditions and terms of the offer, or adds any further conditions and as such supersedes the previous offer, this is in itself a new offer which can be open to acceptance. In order for a party to show that the other party is bound by a particular offer he must show that the other party either (a) signed it, or (b) entered into the contract with notice of it. This notice must be given before the contract was made.
The offerer can specify the way in which the offeree is to signify acceptance. This could be assigning of the contract by hand or under seal but any reasonable means of communication is acceptable, including:
The acceptance must usually come to the attention of the offerer, but there are some exceptions such as the rule that a postal acceptance is effective as soon as it is posted. Unilateral contracts are made to an unspecified party and also differ in that:
• The offeree does not have to communicate to the offerer the fact that he is accepting the offer.
• (Probably) it is unnecessary for the offeree to know of the offer at the time when he performs the act required in order to bind the offerer.
• The offeree is never bound to perform the act required by the offerer.
In the event that legal action is required to determine whose terms are valid in a battle of forms dispute, the courts usually consider the procedural circumstances of offer, counter-offer, rejection, acceptance and so forth (Trollope & Coils Ltd v. Atomic Power Constructions). Courts will determine whether they have reached agreement on all material points, even though there may be differences between the forms and conditions printed on the back of them. Applying this guide, it will be found that in most cases when there is a ‘battle of forms’ there is a contract as soon as the last of the forms is sent and received without objection being taken to it. In some cases the battle is won by the man who fires the last shot. In other cases, however, the battle is won by the man who gets the blow in first. The deciding factor is often the scope of any differences and whether or not these were pointed out.
It has been argued that this traditional analytical approach to battles of forms is out of date. The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. The better way may be to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, the intention (Lord Wilberforce, New Zealand Shipping Co. Ltd v. A.M. Satterthwaite). In other words extend the evaluation over a wider area and look into the minds of the parties to make certain assumptions. In this way there may be a concluded contract in which the terms and conditions of both parties can be construed together to give a harmonious result. If the differences are irreconcilable, so that they are mutually contradictory, then the conflicting terms may have to be scrapped and replaced with a reasonable implication.
Performing the contract
Once a contract has been concluded between the parties, it should then be clear what each party is obliged to do in order to perform the contract effectively, and the extent to which each party will undertake liability. If these obligations are not met, then an action for breach of contract can be brought leading to damages and other remedies. The general rule is that liability for failure to perform is strict, i.e. it is not a defence to show that you did your best to perform the contract.
The doctrine of ‘discharge by frustration’ is concerned with the situation which arises when, by reason of some event occurring after the contract was made, it is physically or commercially impossible to perform the contract. The effects of frustration upon the rights of the parties to payment is governed by the Law Reform (Frustrated Contracts) Act 1943, which provides that all sums paid or payable by a party before the frustrating event may be recovered or cease to be payable as the case may be, subject to the right of the other party to claim payment for expenses properly incurred by him before the frustrating event. The kinds of event capable of frustrating a contract include:
• A change in the law making performance of the contract illegal.
• Destruction of the subject matter of the contract.
Because of the very narrow scope of this doctrine it is sound practice to include in contracts a force majeure clause which relieves the parties from obligations if the duty to performance becomes onerous or impossible because of some clearly unforeseeable event, such as strikes or delays in transport.
A difficult issue arises when a party wishes to know whether a breach by the other party entitles them to refuse to continue their obligations of the contract. The basic approach of the courts is to draw a distinction between ‘conditions’ which are more important terms and ‘warranties’ which are less important terms. A breach of condition will give rise to a right in the innocent party to terminate the contract, whereas a breach of warranty merely gives rise to a right to claim damages. However, recent cases have held that minor breaches of condition may not in themselves entitle the innocent party to terminate.
A failure by a party to perform the contract strictly on time does not usually entitle the innocent party to terminate the contract, unless:
• The parties have expressly agreed that time is to be of the essence.
• Where the contract is of such a nature that a time fixed for performance must be strictly complied with.
• Where time was not originally of the essence, but one party has been guilty of delay and the other has given notice requiring performance within a reasonable time.
Misrepresentation can also render a contract voidable and the injured party may seek to have the contract rescinded (set aside) which puts the parties back into their original positions. No rescission is available where the injured party delays too long or where third party rights have intervened so that there is no possibility of restoring parties to their original positions. Contracts created by duress may also be voidable.
Licensing
Often it is more preferable for others to exploit your ideas or products on your behalf. In return for a lump sum payment and/or a royalty IP ownership could be transferred to others via an assignment. Ownership can also be temporarily transferred in return for a lump sum and/or a royalty and this form of agreement is detailed in a licence. Most licences are reduced to the written form as per a normal contract. Because they are tailored to a variety of situations there standard forms are less likely. They also have specific terms that relate to the grant of rights, consideration and specific obligations.
Grant of rights
The grant of rights establishes the details behind what is being licensed and how:
• Is it the product and/or the ‘know-how’ behind the product that is being licensed? Is it defined by a patent? Potential licensors should always check to ensure that the licensee actually has the rights to own or license what is being offered (‘due diligence’).
• Is the product/know-how being transferred in part or in totality?
• Is the transfer a simple once and for all deal or does it include future improvements?
• Are the rights existing or prospective?
• What is the geographical extent to which rights are granted?
• What is the duration of the grant of rights?
• Will the licence convert to an assignment?
• Is the grant exclusive to the licensee in which case only the licensee has the right of use? The licence may otherwise be non-exclusive in which case the licensor may grant rights to other parties. It may also be a sole licence in which case both the licensee and licensor have rights.
In establishing the rights it is important to avoid unfair terms and create monopoly situations. These are prohibited by the Treaty of Rome (Article 85(1)) and enacted in the UK by the Competition Bill 2000. Exceptions to this can be allowed for technical or economic progress (Article 85(3)). For example, price fixing would not be allowed and feature on a ‘black list’ of unacceptable exclusions. Allowances on a ‘white list’ would include sole or exclusive licences if granted in specific areas. Any doubts should be referred to the EU for clarification.
Consideration
Consideration in respect of the grant of rights might be a lump sum payment or a royalty. Often it is a combination of both with an upfront lump sum payment followed by a royalty stream. A royalty stream is the licensor’s remuneration based on the licensee’s use of the transferred goods. It is usually based on a percentage of the profits the licensee can make. A reducing sliding rate is normal and it is often preferred that the return is based on the number and price of trade sales, rather then enduser sales, as this is easier to check. There may also need to be clarifications on whether sales include or exclude any taxes.
It is important not to undervalue the goods and services you are intending to license. IP is traditionally underrated because the technical expert who developed the IP may not have the same commercial expertise. The value should be based not on the cost incurred in making the goods or in replacing the goods but on the sales value to the licensee.
Specific obligations
Because there are now two parties with an interest in the goods or services, i.e. the licensee and the licensor, it is important in the licence agreement to clarify which party has any specific obligations. These might include:
• What happens if the licensee does not meet a minimum level of performance?
• Accountability and penalties for late payments.
• Who will maintain any intellectual property rights such as patents and who will confront any infringers?
• What happens if either party makes any improvements to the goods?
The changes in the privity law also affect licences. For example, a software developer may enforce licence terms on a user even if a contract only exists between the user and the selling organization.
Problems 3.3.1
(1) What is a letter of intent?
(2) What are the three components necessary to form a legally binding contract?
(3) Decide if there is a valid contract and if so, is it subject to the buyer’s terms or the seller’s terms?
(a) Buyer sends an enquiry to seller (no condition of contract proposed).
(b) Seller submits a quotation together with his standard conditions of sale which include a Contract Price Adjustment formula. The quotation also includes the sentence ‘Our conditions of sale attached override any conditions incorporated in any resulting purchase order’.
(c) Buyer sends purchase order with his Standard Conditions of Purchase which state that contract price is fixed. The purchase order has a tear-off acknowledgement slip.
(d) Seller signs and returns the acknowledgement with a letter in which it is stated that the agreement is in the seller’s terms.
(4) Consider the following cases:
(a) In Neale v. Merrett, the seller offered to sell a piece of land to a buyer for £280. The buyer ‘accepted’ this offer and sent a cheque for £80 with a promise to pay the remainder by instalments of £50. Was there a contract or not?
(b) In Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd, the Newman laundry firm ordered a new boiler which arrived late causing Newman to consequently lose a large new contract. Were they entitled to recover damages for normal loss of profits from the supplier?
(c) In the Heron II case, a ship was late in delivering a cargo of sugar to the busy port of Basra, and by the time the delivery was actually made the market price had fallen. Could the normal loss of profits be recovered from the ship owner?
(d) In Tulk v. Moxhay, the owner of land which included Leicester Square in London sold the Square itself but retained some land round it. The buyer contracted not to build on the Square. He later sold the land and it then passed through several hands. Ultimately the new owner proposed to build on it. Could they build or not?
3.4 Liability
Liability for the production and sale of products has emerged through a series of legislation over a number of years. This section provides a summary of the relevant legislation and the key issues that they cover.
Sale of Goods Acts 1893 and 1979
The Sale of Goods Act was created to protect the interests of both businesses and individuals with respect to both buying and selling (excluding bartering and hiring). The legislation clarifies and defines terms and makes it easier for one party to take action against another in the event of any irregularities.
A summary of rights in relation to selling is:
• To be free to sell goods without interference.
• To have agreements (which may be oral with the exception of credit arrangements).
• To claim for damages (the difference between contracted price and subsequent resale), withhold delivery and reclaim goods where title as been reserved for non-payment or acceptance of an agreed sale.
• To quantify the point at which ownership transfers from the seller to the buyer.
A summary of rights in relation to buying is:
• To be recognized as an outright owner (quiet possession).
• To buy goods that match their description.
• To buy goods that are of merchantable quality (unless defects are highlighted).
• Buy goods that are reasonable for the purpose required.
• Have terms of sale created by implication in the way the goods are used.
If any of the buyers rights are broken, the conditions of contract are broken (‘breach of contract’) and damages for injury and loss of profit may be claimed from the seller. Liability is strict. Note that the contract itself is not invalidated if the buyer has paid or accepted the goods.
Privity has traditionally allowed only the contracting parties to take action against each other, hence the buyer must sue the immediate seller. If goods have passed through a series of sellers this may become a chain of actions, but time, or one good argument, may break the chain, protecting the first seller (e.g. the manufacturer). The changes in privity law may reduce the protection afforded by privity. A collateral contract (e.g. manufacturer’s guarantee, manufacturer’s advertised claims) may pass on to subsequent buyers and hence may also render a manufacturer liable.
A tort action, such as negligence, will also overcome the issue of privity and allow the buyer to take action beyond the immediate seller, e.g. to the manufacturer directly. It also allows people affected by but did not buy the product to take action (i.e. not the buyer of a car but a passenger). Negligence occurs when the common law duty of care is not applied creating physical or (more rarely) economic harm. It is not ‘strict’ but would include design or manufacturing faults, inadequate testing or poor quality control. The burden of proof of innocence may fall on the producer.
Where it is financially prohibitive for a buyer to take a private tort action against suppliers of faulty products then they may be able to claim breach of the Trades Descriptions Act to enable criminal liability. Similarly a breach of warranty may provide an avenue for damages if advertising promotes an image of a product that does not bear witness in reality.
Consumer Protection Act 1987
As a result of the European Directive on Product Liability, safety regulations after 1987 became proactive rather than reactive. The Consumer Protection Act (CPA) provides civil remedies for injuries or damage to property to individual consumers by defective goods which are devoid of contract or negligence issues. The Act includes non-consumer goods including raw materials and components but not buildings, printed matter, stated poor quality or older products (superseded by newer, safer products).
Defective is defined as ‘there is a defect in a product … if the safety of the product is not such as persons generally are entitled to expect, and for those purposes “safety” in relation to a product shall include safety with respect to products comprised in that product’. There may be three types of defect – design (generic), manufacturing (one off) or marketing (poor instructions).
Liability on the supplier or manufacturer is strict and all parties may be sued. Claims must begin within three years. Defences include contributory negligence by user, that goods were not faulty at the time of sale, that the product conformed to the state of knowledge at that time, that the component was placed later into someone else’s system which was faulty (or vice versa) or that the component supplied was requested with poor specifications.
Further protection is afforded to the consumer by the Data Protection Act 1998 which seeks to prevent misuse of data. The Act has established a Data Protection Commissioner, ensures enhanced privacy and increases access to health, education and credit files. It includes manual registers as well as computer processed records.
General Product Safety Regulations 1994
The General Product Safety Regulations (GPSR) introduced the concept of a ‘safe product’ with a duty not to knowingly distribute, supply or intend to supply unsafe products. It applies to new, used and reconditioned consumer products (except antiques) that are bought for commercial purposes but includes industrial goods that may end up in the consumer market. The regulations are intended to support rather than supersede specific protective legislation and are enforceable by the Trading Standards Office.
The duties of anybody supplying goods are:
• Supply appropriate information including the risks involved using the product and the precautions needed.
Liability is strict with designer, senior managers and/or the corporation all liable. Infringement is a criminal offence. The degree of safety is conjunctive and assessed on:
• Instructions for assembly, use and disposal.
• Those at risk (e.g. children).
• Conformity to standards – voluntary, EU, community technical specifications, industry codes of practice.
Defence includes demonstrating that all reasonable steps have been taken, that due diligence had been exercised and that relying on the information of others had been reasonable to do (which might then make these people liable).
Some products carry further legislative consumer protection, particularly, for example, food and vehicles. The European New Approach Directives detail requirements for specific products such as toys and personal protective equipment.
The Competition Act 2000
Free trade is a cornerstone of westernized market principles and in Europe is defined by Articles 81 and 82 of the European Union Treaty which seeks to restrict anti-competitive practices.
The Competition Act represents the incorporation into English law of the European legislation. It focuses on effects rather than the purposes of actions formerly detailed by the Restrictive Trades Act 1976, the Resale Prices Act 1980 and the Fair Trading Act 1973 which it has replaced. Uncompetitive undertakings and practices (such as price fixing) which restrict or distort competition or trade are illegal and the prevention of unfair dominant trading positions is sought. The legislation comes in two parts:
There must be no agreements or practices which prevent, restrict or distort competition between organizations. This includes fixing prices or trading conditions, controlling technology, production, marketing or investment, market or supply sharing, and discriminatory obligations against businesses.
Exemptions from this can be sought from the Office of Fair Trading (OFT) if the benefits to the public can be demonstrated to outweigh any anti-competitiveness. The EU can also create block exemptions. Tests for anti-competitive behaviour are based on an analysis of the public interest and the degree of competition. The prohibition is unlikely to effect businesses with less than a 25% share of a market.
Prohibits abusive behaviour by any business in a position to dominate a market, either by nature of the product they are selling or by geography. This includes, for example, actions which may inhibit new entrants to a market such as loss leaders, seasonal exploitation, technical innovation without purpose, or holding technology back. Consideration of whether the action is illegal includes the actual likelihood of new competition arising, the prices charged, conduct, vertical restraints (that is the number of suppliers and buyers in the supply chain) and refusals to supply. It may not apply if the market share of the dominant company is less than 40%.
The Act is concerned mostly with large organizations and the ‘Small Agreements’ regulations will exempt companies with a turnover under £20 million. All companies, however, are advised to take basic precautions such as:
• Checking management procedures
• Checking specific regulations
• Installing quality assurance systems
• Maintaining business insurance
• Monitoring and record keeping
• Undertaking risk assessments
• Providing continuing Professional Development (CPD) for staff
Breaches of the Act are investigated by the OFT. The OFT powers are strong and include seizure and ‘dawn raids’. Penalties for infringement are based on turnover (nominally around 10%) but do not preclude the termination of agreements and being sued by damaged parties. Guidance on proposed actions can be obtained in advance from the OFT and usually cost between £4000 and £10000.
Health and safety
In addition to protecting the consumer, there is a great deal of legislation framed to protect employees. There are broad Acts including, for example; the Management of Health and Safety 1992, the Provision and Use of Weights (PUWER II), Workplace Health and Safety Welfare, and there are specific regulations that relate to focused areas such as dealing with asbestos or use of compressed air. Legislation used to be prescriptive but is now wider and more vague placing the onus on employers to ensure that they are acting reasonably.
• The Health and Safety at Work Act (HSWA) 1974 requires that employees have a safe place to work.
• The Factories Act 1961 and the Offices, Shops and Railway Premises Act 1963 have been largely superseded by Work Place Health, Safety and Welfare Regulations 1992, and the Management of Health and Safety and Welfare at Work Regulations 1992 still applies requiring care on temperature, conditions etc. Registration of offices and shops is required.
• Good practice requires a written statement on safety covering hazards, evacuation, medical emergencies etc.
• Employers Liability Insurance certificates must be displayed.
Employing more than five staff requires:
• A written statement on safety covering hazards, evacuation, medical emergencies must be published and available.
• There is a duty to ensure adequate staff training and a safety committee if requested by the unions. More stringent requirements on fire precautions are required by the Fire Precautions Act 1971.
• The Health and Safety (First Aid) Regulations 1981 advise one first aider per 50 staff and a first aid room for staff numbers over 400.
• Injuries must be recorded and reported to the Health and Safety Executive if serious (Records and Notification of Injuries, Diseases and Dangerous Occurrences Regulations 1985).
• The Management of Health and Safety Regulations 1992 requires that health and safety risks are assessed against industry standards and accident prevention measures are taken.
Tort actions may also be taken against employees who feel that employers are liable for injuries they have received.
The Health and Safety Executive (HSE) frames the legislation behind employee protection. Its mission is ‘to ensure that risks to people’s health and safety from work activities are properly controlled’. The Health and Safety Commission ensures that the legislation is complied with.
Chapter review questions
(1) Comment on the application of copyright, design right and registered design right protection in the following inventions:
(b) a specially made suit from a new design (comment also on the issue of ownership between designer and wearer).
(2) X registered the name Harrods.com long before the Harrods store wanted to claim it. Harrods took the case to interNIC who suspended the name but X refused to give the name up. Harrods took X to court claiming trade mark infringement, passing off and conspiracy to injure. Was Harrods successful?
(3) The trefoil rotary shaver head was registered by Philips as a trade mark but the legitmacy of this was challenged by Remmington. Was Remmington’s challenge successful?
(4) In the US, X conceived an idea but although being diligent in ‘reducing the invention to practise’ Y was the first to actually complete the product. X filed for a patent in the US but Y objected. Who should win the patent rights?
(5) X commissions Y to paint a portrait but is so incensed with the painting that he destroys it. Y sues claiming under the integrity of moral ownership issue, X has treated his painting in a derogatory manner. Is Y successful?
(7) The small son of an inventor accidentally picks up some of his father’s papers which includes a draft patent application. He then leaves the papers at school on his desk overnight. In the morning, the inventor rushes to the school and collects the application which is undisturbed on the desk. Can he still pursue the patent?
(8) A plaintiff made a short film, Joy, which he sent on a show reel to the first defendant, an advertising agency. It was a film of one man dancing to music. The plaintiff had made extensive use of jump cutting, an editing process whereby pieces of the film within a sequence of movements by the actor were excised. The result was that the actor appeared on the edited version to have performed successively and without an interval movement, which in reality could not have succeeded each other. The first defendant, wishing to make an advertisement based on Joy, produced Anticipation, a film with a different actor and different story but with extensive use being made of the plaintiff’s jump cutting technique. Anticipation was subsequently used as a Guinness advertisement. Was the plaintiff successful in suing the defendant for copyright infringement?
(a) In Mutual Life Assurance v. Evatt (1971), an insurance company made negligent statements to Mr Evatt about the financial state of an associated company. In reliance on this, Evatt invested money in the other company and, as a result, suffered financial loss. Could he recover damages from the insurance company?
(b) In Sayers v. Harlow UDC (1958), Mrs Sayers found herself locked in a public lavatory. Unable to summon help, she tried to climb out over the top of the door. She found this impossible and, when climbing back down, allowed her weight to rest on the toilet roll which ‘true to its mechanical requirement, rotated’. Mrs Sayers fell and was injured. Could she sue the council?
Activities
(10) Machine Tool Company v. Corporation LtdA Corporation (the buyer) made an enquiry to a Machine Tool Company (the seller) concerning the purchase of a machine tool. In response, the sellers made a quotation offering to sell a machine tool to the buyers for the price indicated with delivery in ten months’ time. The offer was stated to be subject to certain terms and conditions which ‘shall prevail over any terms and conditions in the Buyer’s order’. These conditions included a price variation clause providing for the goods to be charged at the price ruling on the date of delivery.
The buyers replied by placing an order for the machine. The order was stated to be subject to certain terms and conditions, which were materially different from those put forward by the sellers and which in particular, made no provision for a variation in price. At the foot of the buyers’ order was a tear-off acknowledgment of receipt of the order stating that ‘we accept your order on the Terms and Conditions stated thereon’.
The sellers completed and signed the acknowledgment and returned it to the buyers with a letter stating that the buyers’ order was being entered in accordance with the sellers’ quotation.
When the sellers came to deliver the machine costs had increased so much that the sellers claimed an additional sum due to them under their price variation clause. The buyers refused to pay the increase in price and the sellers brought an action claiming that they were entitled to increase the price under the price variation clause contained in their offer.
The sellers argued that they had stipulated there would be an increase in the price if there was an increase in costs and so forth in the terms and conditions on the back of their quotation form. The buyers rejected the excess charge, relying on their own terms and conditions. They said: ‘We did not accept the sellers’ quotation as it was. We gave an order for the self-same machine at the self-same price, but on the back of our order we had our own terms and conditions. Our terms and conditions did not contain any price variation clause’.
Who is correct, the buyers or the sellers? Discuss the issues in determining this case. What would your judgment be?
(11) Produce a product protection plan for a product of your choice. A product protection plan in the main should be applied to the actual protection of a particular product in question within the context of the real world. It should hence show a consideration of the competition, evidence of commercial understanding and a logical application of techniques and ideas.
(12) By following and reviewing the history of an innovation which has ended up in litigation, your role is to provide an appraisal of ‘what went wrong’. You should be able to broaden your analysis so that it applies to all new innovation. You should also familiarize yourself with the workings of the legal system.
(13) List the points you would need to agree on if you were negotiating with a colleague who wanted to borrow your computer or car for the week. A list of points is referred to as ‘heads of agreement’. Using the heads of agreement draft a formal licence.
Further reading
Barker, D. & Padfield, C. (1996). Law. Butterworth Heinemann.
Clayton, J. (1999). Law for Small Business. Kogan Page.
Dworking, G. (1996). Copyright, Designs & Patents. Blackstone.
Marsh & Soulsby (1996). Business Law. Stanley Thomas.
Smith, J. and Thomas, ? (1992). Cases on Contract. Sweet and Maxwell.
Whincup, Michael (1999). Sales Law and Product Liability. Gower.