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A recent High Court case has, once again, reminded owners and licensees of IP rights of the importance of making sure they carefully word IP licences. Otherwise, they may end up having to resolve their differences of interpretation before the Courts – a not altogether cheap or quick solution.
WHAT WAS THE CASE ABOUT?
In Evans & Anor v Joseph Joseph Limited & Anor  EWHC 192 (Ch), the Court was asked to grant various declarations as to the meaning of various clauses in a licence agreement relating to design rights. However, the principles discussed in the case have application across all IP rights and their licensing.
WHAT WAS DECIDED?
The Court held that the principles governing the Court's approach in interpreting an IP licence were no different to those governing other contracts. As the Deputy Master hearing the case said:
“Put simply, the Court is concerned to identify the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties at the time it was concluded, would have understood them to be using the language in the contract to mean. The Court does this by focussing on the meaning of the relevant words, in their documentary, factual and commercial context and seeks to ascertain the objective meaning of the contract, read as a whole.
"That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions…Clearly, contracting parties generally have autonomy over the words they use in order to express their rights and obligations. It therefore follows that the meaning of a contract is most likely to be obtained from the language they elected to employ… considerations of surrounding circumstances and commercial common sense should not undervalue the primacy of the words used.
"When engaging in the process of construction, it is of course important to note that the purpose of the exercise is to identify what the parties have agreed (in an objective sense), not what the Court thinks that they should have agreed. The Court should therefore guard against re-writing an agreement, or rejecting its natural meaning ‘in an attempt to assist an unwise party or to penalise an astute party’”
The Court proceeded to determine the meaning of various clauses in the licence agreement, including clause 3.7 and what, if anything, it required the Defendants to do in respect of the renewal of registrations of designs.
Clause 3.7 said:
“[JJL] warrants and undertakes to make it’s [sic] best efforts to protect and defend Joseph Joseph Rights including registration of the Designs in [JJL’s] name in all Territories (where the parties mutually agree it is beneficial) which the Design will be sold and potentially sold and where competitors may manufacture and sell potential copies of the Designs. In the event that JJL does not or does not wish to register in a particular territory (“Damian Evans Territory”) within the Territories then Damian Evans [the First Claimant] shall be free, at his own expense, to take out such registrations as he deems fit (“Damian Evans Registrations”).”
As the Deputy Master said: “…clause [3.7] is clearly focussed upon "first time" applications to obtain a registration for a given article, not ongoing renewals.” Had there been a clause in the agreement expressly dealing with renewals of design registrations there would have been no dispute between the parties as to who was to do what.
The Claimants submitted that the obligation of JJL to use “best efforts" to “protect and defend” the "Rights" meant that, once a registration had been obtained, JJL must renew the relevant registration for the maximum renewable duration of those rights.
The Defendants submitted that JJL has discretion to allow a registration to lapse when it does not wish to maintain it.
The Deputy Master held: “The natural meaning of the words "protect" and "defend" in this context anticipate JJL safeguarding or otherwise preserving the rights in question. To the extent that registered intellectual property rights require renewal, failure to renew can lead to lapse (absent restoration or grace periods), with the potential result that the registered right no longer exists. Non-renewal is therefore at odds with an obligation to "protect" and "defend" that right and in my view a reasonable reader would understand the words in that way. It follows that the ongoing obligation incumbent upon JJL to use best efforts to protect and defend the JJL Rights in this context translates into JJL being under an obligation to use best efforts to renew the requisite design registrations. This means that JJL is obliged to pursue all reasonable courses they can in order to renew a design registration in a given jurisdiction when such renewal becomes due, unless clause 3.10 applies…”
Clause 3.10 said:
“In the event that the Rights or any of them are not to be exploited by [JJL] [it] shall notify Damian Evans forthwith. Upon receipt of that notification Damian Evans shall, within 14 days of receipt of such notice, inform [JJL] that Damian Evans requires the transfer of the said Designs no longer to be exploited."
The Deputy Master held “..clause 3.10 contains the agreed mechanics of what shall happen "In the event that the Rights or any of them are not to be exploited by [JJL]".The term "exploited" is not defined in the Licence Agreement, but in my judgment, the reasonable reader would understand that word as encompassing circumstances in which JJL decides that it wishes to allow a [design] registration to lapse, for one reason or another…This is again a qualification to JJL's broad ongoing obligation to use best efforts to protect and defend the [JJL] Rights; the parties have agreed a mechanism by which JJL can elect to stop incurring the expenditure of renewing design registrations through to the end of its term, but it triggers their potential transfer to Mr. Evans…..The result may be regarded by JJL as commercially undesirable and I accept that in hindsight JJL may be said to be reluctant to agree that registration is "beneficial" if they potentially face either the cost of renewals for the entirety of a given design registration's term, or otherwise potentially ceding that right to Mr. Evans.”
LESSONS TO BE LEARNED
The Defendants in the case ended up with an interpretation of clause 3.7 that might be considered by many to be ‘generous’ to the Claimant, but this was always a risk due to the failure to include an express clause in the agreement that dealt with the issue of renewals of design registrations, whose responsibility it was and at whose cost. Indeed, all seven questions asked of the Deputy Master as to the meaning and effect of the various clauses in the licence agreement could have been avoided if greater care and attention had been given at the outset as to the drafting of the agreement.
If you, the reader, are asked to grant or take an IP licence, before doing so always consider:
- what (often commonly recurring) commercial and legal issues does the IP licence need to address?
- does it do so, in clear and plain English?
- whether the assistance of an experienced legal adviser, who specialises in IP licensing, might (in the long run) end up saving you money. Careful drafting at the outset can often avoid potential subsequent litigation over the meaning and effect of the agreement the parties signed.