Naked Law

More on EULA hoops

Wendy Grossman writes an intetesting piece in The Guardian today about EULAs, following up on Sarah's recent post on the subject and picking up on the theme of confusing and convoluted drafting.  Wendy says "Eulas are becoming more, not less, important because so many devices mix hardware and software".  She also picks up on Sarah's observation that it's not always the lawyers who are to blame for bad drafting:

"One reason that so many Eulas seem so restrictive and so difficult to read, [Sarah] ... says, is that - contrary to appearances - they're often not drafted by lawyers, but instead pasted together out of pieces of text from other contracts."

When the chips are down

The Mills & Reeve team returned triumphant from the Court of Appeal recently after the Court held in favour of our client by upholding the High Court's decision in the case of (1) Laurence Wrenn (2) Integrated Multi-Media Solutions Ltd v Stephen Landamore [2007] EWHC 1833 (see IPKat's previous post on the High Court case). Rebekah Richards acted for Stephen Landamore in successfully opposing Laurence Wrenn's claim that the High Court had erred in its findings on the ownership of software written by Mr Landamore. Rebekah worked alongside the excellent Giles Fernando of 11 South Square.

I thought now would be a good time to get some inside information from Rebekah on the case. These are my questions with Rebekah's thoughts.

So remind us: what was the background?

In short, it is a software ownership dispute between our client (Mr Landamore) who is a highly skilled software engineer and Mr Wrenn who commissioned the software. The software in question enables OEM in-car audio devices to operate with other branded audio devices. Mr Wrenn is a businessman with an interest in the audio car market. In 1988, Mr Wrenn incorporated a company called In Car Developments Limited ("ICD") to market the interfaces to car manufacturers. From 2001 Mr Landamore wrote computer programs for use in different kinds of in-car audio interfaces which Mr Wrenn marketed through ICD (now insolvent). No written agreement was entered into dealing with the ownership of the software or payment of royalties. Relations between Mr Landamore and Mr Wrenn deteriorated. Mr Wrenn started to argue that he should have access to the source code. Mr Landamore claimed that there were outstanding royalties due to him from Mr Wrenn.

In April 2005, Mr Wrenn and Mr Landamore attempted to settle matters by incorporating a company known as Integrated Multi-Media Solutions Limited ("IMMS") and entering into an agreement known as the IMMS Agreement. The Agreement contained a clause relating to intellectual property in which the parties acknowledged and accepted that the rights in the software would be owned by IMMS. Mr Wrenn and Mr Landamore were joint shareholders and directors of the company. However, the IMMS Agreement was never brought into effect and IMMS remains a deadlocked company.

Eventually, in April 2006 Mr Wrenn issued High Court proceedings against Mr Landamore claiming that he owned the software and should have access to the source code of the programs. Mr Landamore counterclaimed against Mr Wrenn for unpaid royalties relating to chips which Mr Landamore had programmed with object code for Mr Wrenn.

What was the High Court's decision?

The case was heard by Robert Englehart QC (sitting as a deputy High Court Judge). The Judge held that prior to April 2005, the copyright in the software was owned by Mr Landamore subject to an exclusive royalty-bearing licence in favour of Mr Wrenn. The Judge gave effect to the IMMS Agreement in deciding that, from April 2005, the ownership to the software vested in IMMS.

As the Judge decided that the jointly owned company owned the software, he did not have to rule on the issue of whether it was owned by Mr Wrenn or Mr Landamore. However, he did go on to deal with the question of what terms the court will imply into agreements relating to the ownership of intellectual property, where there was no written agreement dealing with this issue. The Judge adopted the "minimalist approach" set out in the case of Ray v Classic FM (i.e. the court will imply the minimum term necessary to make an agreement between parties workable). In doing this, he concluded that an exclusive licence in favour of Mr Wrenn was all that would have been required to make the agreement work. It would not have been necessary to imply a term that the copyright should have been assigned to Mr Wrenn (which would give him full ownership of the software).

Turning to Mr Landamore's counterclaim for unpaid royalties, the Judge awarded him £45,324.24 plus interest. In reaching this decision, the Judge had to decide whether in making the agreement for Mr Landamore to write the software for the interfaces, Mr Wrenn was acting personally or on behalf of his insolvent company, ICD. Mr Wrenn argued that he was contracting on behalf of ICD and therefore not personally liable to pay Mr Landamore the royalties. Mr Landamore relied on various documents which suggested that Mr Wrenn viewed himself rather than ICD as the contracting party. The evidence on this issue did not paint a consistent picture as it pointed in both directions. However, on balance, the Judge concluded that the arrangement for Mr Landamore to write the software was made between them personally. Although ICD would be marketing the interfaces (and benefiting from the work), it was Mr Wrenn who had engaged Mr Landamore to do the work.

What was the basis of Mr Wrenn's appeal to the Court of Appeal?

Mr Wrenn claimed that the Judge had erred in his findings and appealed to the Court of Appeal on two grounds:

The dealings between him and Mr Landamore relating to the commissioning of the software and programming work were not personal. Instead, Mr Wrenn argued that it was his company (ICD) that had contracted with Mr Landamore and so he should not be liable to pay Mr Landamore the royalties.

The Judge's finding that Mr Wrenn was an exclusive licensee to the software should have given him an entitlement to sue personally for alleged infringements. Mr Wrenn relied on s101 of the Copyright, Designs and Patents Act 1988 ("the CDPA") which allows an exclusive licensee to take advantage of all the rights and remedies available to the copyright owner.

What did the Court of Appeal decide?

The Court of Appeal refused Mr Wrenn's appeal.

On the first ground of appeal, it had been open to the Judge in the High Court to reach the conclusion that Mr Landamore contracted with Mr Wrenn personally and Mr Wrenn was liable to pay the outstanding royalties. Although the evidence did point in both directions, it was clear that the initial contract was personal and that ICD was Mr Wrenn's vehicle.

On the second ground of appeal, it was not open to Mr Wrenn to argue that he was entitled to sue personally for alleged infringements as an exclusive licensee. This was because, as at April 2005, the copyright in the software vested in IMMS. Mr Wrenn's counsel at trial had conceded in his closing submissions that, if IMMS owns the copyright, no remedy for infringement could be claimed by Mr Wrenn. A further difficulty for Mr Wrenn was that an exclusive licensee is only entitled to sue under s101 CDPA if his licence is in writing and is signed by the copyright owner. Mr Wrenn had no written licence and an implied exclusive licence would not suffice.

Are there any lessons for software developers (or people commissioning software)?

The case highlights the problem with oral contracts and the importance of dealing expressly with IP ownership in written agreements before entering into commercial relationships. It is a lesson that people commissioning software (who have paid for this work) do not necessarily own it.

The starting point is that the first owner of the software is the author (in this case Mr Landamore) unless the author is an employee and creates the work in the course of employment. Ownership remains with the author unless it is transferred by written assignment to the commissioner. Alternatively, the commissioner could have a licence to use the software.

Where the courts are forced to intervene (as in the present case), it will generally apply the minimum term necessary to make the agreement workable (following the principle in Ray v Classic FM). Courts are very reluctant to imply full transfer of copyright to the commissioner which is often what the commissioner will be seeking.

From the software developer's point of view, an agreement clearly recording who is liable to pay royalties and the amount of royalty is clearly advisable. Otherwise, the court will have to look at the evidence of both parties (which may well be contradictory, as it was in the present case) before reaching a decision. All in all, the message is that written agreements dealing with important issues such as IP ownership helps avoid the need for time-consuming litigation to determine ownership when the relationship deteriorates.

O what a tangled web we weave ...

I hate to blow my own trumpet but I was rather chuffed today to read on the BBC news website of signs that my Microsoft v Yahoo predictions might be ringing true.

It turns out that Yahoo has cleverly done a deal with the enemy - Google - which will see Google being able to place advertising alongside 3% of  Yahoo search results. The market obviously thinks this is a smart move; Yahoo shares have increased by 7%. It's hard to see how this can have any result other than to force Microsoft to increase its offer, which is what Yahoo has been hoping for all along.

Microsoft hasn't been sitting idle, however - turns out that it is in talks with News Corp about making a joint offer for Yahoo, which would combine the MSN, MySpace and Yahoo sites under one umbrella (what would the compeitition authorities have to say about that, I wonder?).

Microsoft will get its prize in the end, I think, but by the looks of things it's going to have to reach deeper into its pockets than it's doing at the moment ...

Just a matter of time?

I’ve been following the Microsoft -v- Yahoo saga with interest recently. You will almost certainly have been reading about it too, but, in case not, Microsoft is on a campaign to snap up Yahoo for the princely sum of around £22.4 billion (on a per-share basis, this represents an amount that Yahoo shares have not managed to achieve at any time in the last two years).

All the commentators seem to be agreed on why Microsoft wants Yahoo - it would a be a channel through which Microsoft could compete with the other techie giant, Google, in the search engine and web advertising sectors. Google would almost certainly not be in a position to acquire Yahoo itself; it already has 75% of the market share in this area and would be prevented by anti-trust laws from acquiring a larger share. Google's only available weapon, therefore, is to raise anti-trust issues about a Microsoft –Yahoo deal, and it has been doing this, saying that the merger “raises troubling legal questions”. Microsoft also wants Yahoo because a merger would erase a potential Microsoft competitor from the slate in one clean sweep; while it’s true that Yahoo’s fortunes have been on the wane lately, it does have strengths such as Flickr and plenty of software engineering talent that Microsoft would be delighted to get its hands on.

The only spanner in the works as far as Microsoft is concerned is that, at the moment, it looks like Yahoo doesn’t want to do the deal. At the end of March, Microsoft sent a strongly worded letter to the Yahoo board in which it expressed disappointment that no progress had been made and threatened to make a direct approach to Yahoo shareholders in a “hostile takeover” if there is no deal by 26th April. The letter contained an “incentive” to the Yahoo board in the form of a threat to lower the offer price if Microsoft has to resort to an offer that is not backed by the Yahoo board. Yahoo yesterday responded to that letter, saying that while it doesn’t have any objections to a deal in principle, the current terms of Microsoft’s offer undervalues the company. It has also yesterday unveiled a new platform called AMP which it says will revolutionize online advertising and increase the value of the company. This platform will go live in the third quarter of 2008 and is touted as making the business of buying and selling online advertising much more efficient and user-friendly.

So far, then, Yahoo’s stance has been defiant in the hope that a third bidder (often referred to in the market as a “white knight”) will come along and make a better offer that the board feels able to recommend. However, some commentators have argued that, in the end, Microsoft is actually the only buyer with deep enough pockets who could buy Yahoo and also avoid competition issues.

For what is worth, I’ll put my neck on the line and have a punt on the likely outcome: at some point before 26th April and perhaps encouraged by Yahoo talking to potential white knights, Microsoft will up its offer slightly and the Yahoo board, now able to show that their tactics have produced some increased value for shareholders, will go ahead and recommend the Microsoft offer. Even if the merger goes ahead, however, it seems to me that Google is so far ahead (at least in things like search engine and online mapping) that even a merged Microsoft/Yahoo giant will struggle to make up the lost ground.

EULA hoops?

Consumer group the National Consumer Council plans to lobby the OFT and European Commission to insist that terms and conditions in End User Licence Agreements (EULA) are available to consumers at the point of sale, in plain English, in local law and on fair terms. In a recent report the NCC surveyed 25 well known products noting that many agreements sprung EULAs on consumers after purchase, with lengthy impenetrable terms and governed by the law of the place of origin not the user.

Over half of the EULAs contained no information on the external packaging that a licence agreement was required and only 4 gave an option to preview the agreement online before purchase. It seems only fair that consumers should have a right to read the terms of use prior to purchase (and in any event providers need to be careful EULAs are properly incorporated into their contracts with consumers if they want to be able to rely on them at a later date).

The agreements were littered with terms such as 'does not affect your statutory rights' which would be enough to bring the Plain English Campaign out in protest.  It certainly seems that when dealing with consumers short, clear licences are the order of the day!

The NCC suggest that licence terms should vary for the country in which the product is purchased. Perhaps it would be relatively easy for large US multinationals to adapt their agreements for EU countries, but one could argue that it would be unfair to insist that software providers to make all of its product licences nation specific especially in countries with poorly developed copyright law.  Equally, or perhaps of more pressing concern, the costs of localising the EULAs and obtaining legal advice in each country are likely to be prohibitive for many small software providers.

Treading softly where the European Patent Office boldly go

In another case in the saga of whether software is patentable, the UK Patents Court has attempted to close the gap between UK case law and the European Patent Office by confirming that software, on its own, whether or not recorded on a recording medium or operating in a computer IS PATENTABLE, apparently defying a common sense in interpretation of the words that “computer software” is not patentable “as such”.

In a sleight of hand, which surely has more in common with an unpatentable business method or playing a game, David Kitchen J. decided in Astron Clinica to complete the previously (apparently) incomplete element of the jigsaw of UK caselaw on software patents. This decision confirms that, in the UK, a computer programme, in abstract and on its own, but which when used has a technical effect, is potentially patentable – subject of course to the usual questions of novelty and obviousness.

Part of the rationale is that this would allow the patent owner to sue a person in the UK where that person exports software to another jurisdiction, rather than equipment containing it. It reflects a modern appreciation of the way in which technology works – software, and real value, is often distributed without any physical embodiment being created, such as by direct distribution to a mobile telephone.

If somewhat giddying, this approach does have the distinct benefit of bringing this aspect of UK law closer to the European Patent Office, although leaving (as he had to do) the question of how you determine what technical effect is relevant. This remains governed by the case of Aerotel v Macrossan. We will have to wait a while before seeing what happens to that rule, as the EPO has curtly dismissed Jacob LJ’s suggestion that the issues be reviewed by an enlarged board of appeal at the EPO.

These decisions show a serious problem is looming in the software field. This is that the law in the EPO changes, and the law in the UK may try and change to follow it; and both do so in timescales which are significantly less than the life of a patent. It is perhaps better that a patent now be granted in respect of subject matter which is later shown to be unpatentable – when the law next changes – than vice versa, but what is good for patent owners if often an extra burden for the competitive innovative environment, and is likely to result in yet further costly problem solving in the courts.

A beer and open source cocktail

We are planning to mix up a heady concoction of ale and conversation (about open source software) in a Cambridge drinking establishment on Wednesday next week (27 February). 

We are hoping to bring together some interested (and, with a bit of luck, interesting) parties to chat about some of the perennial issues around open source (its "viral effect", the extent to which it can be used by businesses to make money, the concerns of investors in early stage software businesses) - as well as some more recent issues (such as changes in the new GPLv3 last year).

We have already invited a number of clients and contacts along, but if you would be interested in joining us, please send me an email, and (space allowing) I will let you know the details.

Is IP any good?

I was at a Society for Computers and Law event this week entitled IPR - is it good or bad for business? The speakers were a good mix of lawyers, commercial managers and patent attorneys. Most of the audience were lawyers or patent attorneys, keen to discuss some of the issues, with a particular focus on the approaches to managing IP.

A variety of speakers managed to fit in a range of topics as broad as open source software, managing IP dispute risks and dealing with IP in a public procurement context. The floor was then open to any questions, which allowed people to pose questions about the potential impact of the Gower's review, the demise of 'look and feel' and how businesses manage the risks in practical terms.

Personally I rather enjoyed Stephen Bennett's talk on IP dispute management. He started the talk in dramatic fashion with 'nearly 80% of US murders are committed by someone the victim knows'. Not the sort of thing you expect from a talk on IP! How would he go on, the audience were wondering. His point was that the majority of patent disputes are between parties who are already aware of each other. Whether licensor or licensee or simply participants in the same market, patent owners know who their principle threat is. Simply considering this at the outset had the potential to seriously reduce the risks for a business.

The overall theme of the night was that managing IP does not simply involve calling the lawyers when an issue arises. It involves considering the potential for future problems, putting policies in place internally to manage IP, considering how your IP is created and by whom and thinking about whether anyone might object to your conduct in the future based on IP rights. It is an almost universal truth among lawyers that trying to tackle an IP problem long before it occurs is far cheaper and more likely to have a positive result than only taking action once IP becomes an issue. There's no point in shutting the stable door once the horse has bolted.

Intel Deadline

Intel are due to file their defence today to charges bought by the European Commission that they have abused their dominant position contrary to article 82 of the EC treaty.

The original charges, stemming from an investigation begun in 2001, assert (in summary) that Intel abused their position by exerting a degree of control over the market for PC processors. In doing so they were attempting to undermine chief competitor Advanced Micro Devices (AMD), by attempting to exclude use of AMD chips in a wide range of PCs.

It is alleged that Intel provided rebates to partners in vertical markets that agreed to obtain the majority of their chips from Intel. In turn these vertical partners have either delayed or cancelled products containing AMD chips. It is also alleged that Intel provided discounted chips to certain customers 'in the context of bids against AMD'.

Competition law (often called anti-trust in the US) in the EU censures, amongst other things, the abuse of a dominant position. European decisions in this area have tended to focus on ensuring the marketplace is competitive for all participants, rather than taking the US style consumer focused approach.

New (and improved?) GPL v 3

The Free Software Foundation (FSF) has announced the release of version 3 of the GNU General Public License.  The FSF had issued various drafts before now of this version 3 and sought consultation on the provisions before reaching a final version. 

Those familiar with the previous version 2 will know that the General Public Licence is the most widely used licence for open-source software.  This new version carries with it some key amendments since version 2, including a prohibition on the use of digital rights management software within GLP v 3 licensed programs to prevent modification of those programs (a process known as tivoisation by some).  This particular change is seen as controversial by many, see comments made by Technollama.

This new version also tries to support the aim of open source software systems to guarantee freedom to every user to use, run, modify etc the program in question.  No users of GPL v 3 licensed software will be liable for infringing any patents owned by distributors or creators of all GPLv3 licensed programs by modification of the program and each user would be granted a patent licence (where necessary) in respect of use of such programs.  This goes further than version 2 which did not grant this right expressly.

There is no need to worry about the new GPL v 3 where you are using GPLv2 licensed software, except where you are using a program which combines both GPLv2 licensed code with v3 licensed code. GNU advises making use of the new version, however, in cases where the new provisions may be useful.