Drafting and Negotiation: The Devil is in the Detail 25 th September 2014

Drafting and Negotiation:The Devil is in the Detail

25th September 2014

2

Carl SteelePartner Solicitor and Registered Trade Mark AttorneyAshfords LLP01392 333997 [email protected]

Speaker

3

What this talk is about

"This talk will cover the speaker's experience of common drafting errors, misconceptions and incorrect legal assumptions by third parties engaged in drafting and negotiating contracts involving trade marks (e.g. licences, co-existence agreements, assignments, etc)"

- Mainly about contract/tort law and procedure, rather than TM specific law.

4

Oxonica Energy Limited v Neuftec Limited [2008] EWHC 2127 (Pat)

"How do we interpret a formal commercial agreement if it is ambiguous and we have reason to believe that its draftsman did not have a deep understanding of the relevant law? I think that this is what this case [talk] is about"

Peter Prescott QC (sitting as a Deputy Judge)

5

A Good Start

• Not marked 'Draft'!• Deed or Simple Contract (don't say both)? The difference matters• Name correct (and all) parties (at beginning and end of agreement) and

identify them properly (e.g. company name and registered address)• Who should be a party and who can the parties bind?

- Successors and assigns (e.g. in licences and co-existence agreements)?

"This agreement is binding upon and inures to the benefit of the parties and their respective successors and assigns"

- Contracts (Rights of Third Parties) Act 1999

- "Procure" may be the answer for binding them (indirectly)

- Subsidiaries and Associated Companies?

6

A Good Start (cont'd)

• Authority to Sign (not good enough to rely on "Each party represents and warrants that it has the right, power and authority to enter into this agreement and has authorised the person signing this agreement to enter into this agreement on its behalf"). Check status of signatory (e.g. Director)/ask for Board Minutes.

• Recitals – not (usually) legally operative clauses in the agreement, but could contain a misrepresentation

• Definitions clause – use one if definition is used in more than one clause. Don't then use a contradictory definition elsewhere in the agreement. If definitions used in the recitals, incorporate them properly

• Interpretation clause – edit it to remove unnecessary parts

7

Common issues for all TM contracts

• Ask "What if?" questions of yourself (and the client) before drafting• The difference between "effective date" and date of execution of

agreement (be careful of fraud – DON'T backdate agreements)• The difference between warranties and representations (and why

you don't want to give both)• The difference between conditions, warranties and intermediate

terms in a contract • The difference between a warranty claim (breach of contract) and

an indemnity claim (debt) – add 'duty to mitigate' language to the later

8

Common issues for all TM contracts (cont'd)

• Make sure consideration is exclusive of VAT and VAT is payable in addition

• "Reasonable", "Best", "All reasonable" endeavours/efforts – the differences

• Powers of Attorney – need to execute as a deed or not effective• Can't assign goodwill per se, unconnected with the business behind

it (Pinto v Badman)

9

Licences and Co-existence Agreements

• "Sole and Exclusive" licenses – there is a difference!• What marks are you consenting to? Word marks? Logo marks?

Future marks? Just the ones that have been registered/applied for already and are set out in a schedule? Similar marks?

• Adwords and similar schemes – silence is a killer• Withholding tax on royalties (grossing up) – see next slide

10

Licences and Co-existence Agreements (cont'd)

• "Royalties and other sums payable under this agreement are exclusive of VAT (or similar tax) and shall be paid free and clear of all deductions and withholdings whatsoever, unless the deduction or withholding is required by law. If any deduction or withholding is required by law the Licensee shall pay to the Licensor such sum as will, after the deduction or withholding has been made, leave the Licensor with the same amount as it would have been entitled to receive in the absence of any such requirement to make a deduction or withholding. If the Licensee is required by law to make a deduction or withholding, the Licensee shall, within ten (10) Business Days of making the deduction or withholding, provide a statement in writing showing the gross amount of the payment, the amount of the sum deducted and the actual amount paid."

11


• Confidentiality clause

- what information is the clause covering? Pre/post contract? In writing only and stamped confidential? Is that practical?

- is the agreement and the negotiations leading up to it to be kept confidential?

- is there already an NDA in place that would conflict with the clause?

- when and to whom can you disclose (e.g. potential purchasers of business/company)?

-should the obligations be limited in time?

-the difference between exclusions and permitted disclosures

-copyright material and copyright notices

12


• Exclusion of Implied Terms clauses, Exclusion/Limitation of Liability Clauses, Entire Agreement clauses, Non-Reliance Clauses – the differences and why they are all needed

• Exclusion of Implied Terms – to exclude terms that would otherwise be implied by statute/custom [note: sometimes you can't e.g. s12 SGA 1979]

• Exclusion/Limitation of Liability Clauses – to exclude/limit claims for certain types of loss [note: certain liabilities can never be excluded] and cap all losses that are recoverable. Q- Is it to include indemnity claims?

• Entire Agreement clause – to exclude collateral contracts and collateral warranties/earlier contracts

• Non-Reliance clause – to exclude liability for misrepresentations (made pre contract and/or those included in the contract) but not exclude liability for fraud

13


"To the fullest extent permitted by law, all implied warranties,

terms and conditions, whether statutory, customary or otherwise, are excluded and do not apply."

"Nothing in this agreement shall limit or exclude the liability of either party for:•death or personal injury resulting from negligence [or the negligence of its employees, agents, consultants or sub-contractors]; or•fraud or fraudulent misrepresentation [or wilful default]; or•for any other matter for which it would be unlawful for either party to exclude or limit or attempt to exclude or limit its liability. "

14


"Subject to clause[s] [XXX], neither party shall under any circumstances whatsoever be liable to the other party, whether in contract, tort (including negligence), restitution, for breach of statutory duty, misrepresentation and/or otherwise howsoever arising under any legal theory whatsoever, for any of the following losses (whether direct or indirect):-

15


– loss of profit or revenue (which terms do not, for the avoidance of doubt, include the price of the Products, plus interest (if any)); or

– loss of reputation or depletion of goodwill; or– loss of business; or– loss of contracts or loss of business opportunity; or– loss of anticipated saving; or– wasted management and/or staff time and/or office time; or– loss or corruption of data or information,

nor any other special, indirect, or consequential loss, cost, damage, charge or expense suffered by the other party that arises under or in connection with this agreement."

16


"Subject to clause[s] [XXX], each party's total liability to the other party arising under or in connection with this agreement, whether arising in contract, tort (including negligence), restitution, for breach of statutory duty, misrepresentation and/or otherwise howsoever arising under any legal theory whatsoever, shall be limited to [XXX]"

17


"This agreement constitutes the entire agreement between the parties and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to its subject matter."

"Each party acknowledges that, in entering into this agreement, it has not relied on, and shall have no right or remedy in respect of any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this agreement, except in the case of fraud. Each party agrees that it shall have no claim for innocent or negligent misrepresentation or negligent misstatement based on any statement in this agreement."

18


• Breach – "damages are not an adequate remedy" clause (does it create an estoppel?):

"Without prejudice to any other rights or remedies that the Licensor may have, the Licensee acknowledges and agrees that damages alone may not be an adequate remedy for any breach of the terms of this agreement by the Licensee. Accordingly, the Licensor shall be entitled to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the terms of this agreement."

• Liquidated damages – state they are an exclusive remedy and can't sue for other damages. Need to be a genuine pre-estimate of loss

• Force Majeure – when applies/what are consequences?

19

Licenses and Co-existence Agreements• Do you (ever?) need termination provisions in a co-existence agreement or

should the agreement continue indefinitely? - what about change of control and competitor buying other party?- what about where there is a breach of the agreement?- 'material breach', or spell it out (e.g. non payment of royalties)? - what about insolvency? CHECK the definitions carefully! - what about if party ceases to use/own/renew registered TM?

• Consequences of termination (e.g. survival of certain clauses, such as ongoing obligations of confidence; indemnification; payment of royalties and audit rights; insurance; limitation of liability, non-assignment of rights, etc.)

• Post termination restraint of trade clauses and severance clauses – the blue pencil test

• Prevent assignment of benefit of agreement? • No assignment of trade marks unless assignee agrees to be bound by co-

existence agreement? • Can't bind sub-licensees, but can licensee

20

Assignments

• The difference between assignment and novation • Assignment has to be in writing, signed by assignor (UK registered

TM)/both parties (Community TM)• "Hereby Assigns" or "Agrees to/will assign" (e.g. in Asset

Sale/Purchase Agreement)• If the later – you need a formal assignment• "All right, title and interest" or "All its right, title and interest"• "Full title guarantee", "Limited title guarantee", or "All its right, title

and interest" plus specific warranties?

21

Full Title Guarantee

• Full title guarantee implies that:

• The disposing party has the right to dispose of the property (section 2(1)(a) Law of Property (Miscellaneous Provisions) Act 1994).

• The disposing party will do all it reasonably can to give the title it purports to give, at its own cost (section 2(1)(b) and (2)).

• The disposal is free from all charges, encumbrances and adverse rights, except any charges, encumbrances or adverse rights about which the seller does not know and could not reasonably be expected to know, that is, free from all known encumbrances (section 3(1)).

22

Limited Title Guarantee

• Limited title guarantee implies that:• The disposing party has the right to dispose of the property (section

2(1)(a)). • The disposing party will do all it reasonably can to give the title it

purports to give, at its own cost (section 2(1)(b) and (2)). • The person disposing has not, and as far as it is aware no one else

has, since the last disposition of the property for value, charged or encumbered the property or granted any third party rights over it which still subsist (section 3(3)).

23

"All its right, title and interest" plus warranties

"Subject to the matters Disclosed in the Disclosure Letter, the Assignor warrants that:• he is the sole legal and beneficial owner of the Trade

Marks;• he is registered as the registered proprietor of/applicant for

the Trade Marks;• all application, registration, renewal and other official fees in

respect of each of the Trade Marks that are or were due at or before the date of this agreement have been paid and no renewal fees are due within six months after the date of this agreement;

• he has not given any third party permission to use any of the Trade Marks, granted to any third party any rights over or in respect of the Trade Marks or otherwise licensed, charged or assigned any of the rights under the Trade Marks;

24


• each Trade Mark is free from any security interest, option, mortgage, charge or lien;

• he has not acquiesced in the unauthorised use of any of the Trade Marks;

• each registered Trade Mark is subsisting and is not subject to, or (so far as the Assignee is aware as of the date of this agreement) likely to be subject to, amendment, challenge to validity, removal or surrender, and (so far as the Assignee is aware as of the date of this agreement) there is nothing that might prevent any pending application for the registration of any of the Trade Marks proceeding to grant;

• he is unaware of any infringement or likely infringement of any of the Trade Marks;

• no claim has been made by a third party that disputes the right of the Assignor to use/register any of the Trade Marks, and he is unaware of any circumstances likely to give rise to a claim;

25


• so far as he is aware, exploitation of the Trade Marks will not infringe the rights of any third party; and

• all previous assignments of the Trade Marks are valid and were registered within applicable time limits.

Notwithstanding the foregoing, nothing in this agreement shall constitute any representation, warranty, or assurance by the Assignee that any registration existing now and/or in the future for any of the Trade Marks is/will be valid and/or that any application for registration (whether existing now and/or in the future) shall proceed to grant."

26

Boilerplate

• Governing Law clause (to cover contractual and non-contractual disputes and obligations):

"This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales." NOT UK OR BRITISH LAW!!

• Governing Language clause:

"This agreement is drafted in the English language. If this agreement is translated into any other language, the English language text shall prevail."

• Jurisdiction clause (but, if exclusive, don't forget interim proceedings/overseas other party):

"Each party irrevocably agrees that the courts of England and Wales shall have [non-]exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this agreement or its subject matter or formation (including non-contractual disputes or claims)."

27

Boilerplate

• Courts or Arbitration (esp. if overseas party involved or want to keep matter confidential)?

• Compulsory Mediation/Settlement Discussions (why?)

"If any dispute arises in connection with this agreement, the parties will attempt to settle it by mediation in accordance with the Centre for Effective Dispute Resolution (CEDR) Model Mediation Procedure. Unless otherwise agreed between the parties, the mediator will be nominated by CEDR."

"In case of any dispute or claim arising out of or in connection with or under this agreement ... the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived at between the Parties for a continuous period of 4 ... weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration".

28

Boilerplate

• What do these clauses mean? Are they certain and enforceable? Should there be a cut-off date for the first clause? Do they allow for interim relief from the Courts?

• The Golden Rule – if in doubt, spell it out.• Third party rights clause (do you really want to exclude?)

"A person who is not a party to this agreement shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this agreement."

• Notices clause and Service of Legal Proceedings on overseas party

29

Boilerplate

Severance clause – do you want it (e.g. 'blue pencil test' and limitation of liability/restrictive covenants and EU competition law issues)?

"If any provision or part-provision of this agreement is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable. If such modification is not possible, the relevant provision or part-provision shall be deemed deleted. Any modification to or deletion of a provision or part-provision under this clause shall not affect the validity and enforceability of the rest of this agreement.“"If any provision or part-provision of this agreement is invalid, illegal or unenforceable, the parties shall negotiate in good faith to amend such provision so that, as amended, it is legal, valid and enforceable, and, to the greatest extent possible, achieves the intended commercial result of the original provision." – agreement to agree!!!

• Execution Clauses – esp. if by deed/non-standard party (e.g. university; charity; overseas company). Does execution clause bind signatory?

30

THANK YOU

Any questions?

Documents

Drafting and Negotiation: The Devil is in the Detail 25 th September 2014