Update IP/IT Law

Update IP/IT Law Autumn 2009 Update on developments in intellectual property law and information technology Welcome to our update on developments in intellectual property and information technology law. In this issue: Trade Mark Infringement and eBay – the next chapter Termination of Contracts Without Cause Exclusion clauses after NetTV Trade Mark Infringement and eBay – the Next Chapter In L’Oreal S.A. and others v eBay International A.G., the High Court took the same line as the US, French and Belgian courts in actions brought by L’Oreal against eBay, in holding that eBay was not jointly liable with individual sellers who were using eBay’s auction site to sell counterfeit products. Background L’Oreal owns various UK and EU Community trade marks for perfume, cosmetics and hair care products and brought trade mark infringement proceedings against several individuals who had allegedly sold counterfeit products on eBay’s auction site, using L’Oreal’s trade marks. L’Oreal claimed that eBay was jointly liable for the trade mark infringements committed by the individual defendants and claimed an injunction against eBay to restrain future infringements under Article 11 of the EU Directive on the enforcement of intellectual property rights (the “Enforcement Directive”), which allows intellectual property rights owners to obtain an injunction against intermediaries whose services are used by a third party for infringement purposes. Decision The High Court held that the sale of the counterfeit products by the individual defendants infringed L’Oreal’s trade marks, but that eBay was not jointly liable, as it had not participated in a “common design” to infringe L’Oreal’s trade marks nor had it “intended and procured” the individual infringing acts and was under no duty to prevent infringement of third parties’ trade marks. Although eBay were aware of, had facilitated and profited from, the infringements, these factors were insufficient to make eBay jointly liable. The issue of whether Article 11 of the Enforcement Directive required the court to grant an injunction against not only an infringing defendant, but also a non-infringing facilitator of such infringement, such as eBay (as had been granted by the German courts), was referred to the European Court of Justice for guidance. Comment This case reinforces the high threshold required to establish secondary liability for trade mark infringement under English law and shows that it will be very difficult for brand owners to pursue claims against intermediaries whose services facilitate, without procuring or participating in, infringement. However, brand owners can take some comfort from the fact that it was noted that eBay should do more to prevent the sale of infringing goods on its site and it remains to be seen whether a court would take a different view of a service provider who does not have in place a similar anti-infringement policy to that operated by eBay. Despite eBay’s anti-infringement policy, it was thought that eBay could take further measures to protect brand owners: • eBay could include filters to detect listings of testers and other not-for-sale products and unboxed products; • filter descriptions of listings as well as titles before they are posted on the site; 1 • require sellers to disclose their names and addresses when listing items; • impose additional restrictions on the volumes of high-risk products, such as fragrances, that can be listed at any one time; and • take greater account of feedback concerning counterfeits and apply sanctions more rigorously. Termination of Contracts Without Cause Background When a contract is silent as to termination, or contains provisions allowing termination with cause (but is silent as to whether there is a right to terminate for convenience), it has generally been accepted that the parties to such a contract will be able to terminate it at will upon giving the other party “reasonable notice”. This position has recently been considered by the courts. In the case of ServicePower Asia Pacific Pty Ltd v ServicePower Business Solutions Ltd, the agreement expressly stated that it had a term of 24 months which would automatically renew for a further 12 month term unless terminated by either party pursuant to the termination provisions. The agreement stated that either party could terminate for the substantial breach by the other party of a material provision following a cure period. ServicePower Business Solutions Ltd purported to give notice of termination stating that “where there is no express provision for termination of the agreement on notice, we are advised that the agreement is subject to an implied term that the agreement can be terminated on reasonable notice”. The court decided that, where the parties had given detailed expression to the circumstances in which the agreement is terminable (e.g. upon material breach), one cannot imply any additional provisions. Further in, Jani-King (GB) Limited v Tum Yeto Inc., the court held that, if a contract is for a fixed term and does not allow for termination without cause before the expiry of such fixed term, a party would only be entitled to terminate the contract before the end of the term if it could establish that a term providing for this should be implied into the contract on the basis that this is what the parties had commonly intended when entering into the agreement (which is unlikely where such right has not been documented), but neither party could identify any case in which an implied term as to termination on reasonable notice was implied into a contract with a fixed term. The court concluded that this was unsurprising: the point of a commercial contract which will last for a particular period is that the contracting parties are committed to both the contract and the other for a known period. It would be commercially impractical if either party could give notice of termination at any time during the term with minimal consequences. Accordingly, the court held that it could not imply a term allowing the defendant to terminate a fixed- term agreement on reasonable notice because: (a) there is no authority that suggests that there can ever be an implied term of the sort alleged in a fixed-term contract for; (b) there is no basis in fact or law for implying a term into the agreement that is contrary to its express terms; and (c) it could not be said that the agreement was unreasonable merely because it did not give the defendant contractual rights of termination – they would still have had common law rights to terminate if the claimant had breached the agreement. The court cannot introduce terms to make a contract fairer or more reasonable. What can be learnt? Where a contract is silent as to its term and contains no provision allowing for termination without cause, but does allow for termination with cause (e.g. in the event of breach or insolvency), then there will be no implied provision that the contract is terminable on reasonable notice. Further, where a contract is for a specified fixed term, it will be difficult to imply a term that it could be terminated on reasonable notice for convenience before the expiry of the fixed term, as this would 2 undermine the commitment that the parties had made to each other to be bound by the contract for an agreed period and there is no basis for implying a term contrary to the express terms of the contract. Exclusion clauses after NetTV Background The issue of exclusion clauses used by businesses was highlighted in the recent case of NetTV v MARHedge. The parties entered into an agreement under which NetTV agreed to set up a dedicated internet television channel to broadcast hedge fund presentations provided by MARHedge. The agreement contained an exclusion clause which stated that neither party would be liable for, among other things, loss of profit. MARHedge committed a breach of the agreement by ceasing to supply broadcast content to NetTV, which resulted in NetTV suing for loss of profits. MARHedge sought to rely on the exclusion clause, arguing that, as the clause allowed NetTV to claim for direct losses, it permitted MARHedge to commit a deliberate breach of its obligations. NetTV decision The High Court has held that there is a rebuttable presumption that an exclusion clause should not apply to a deliberate personal repudiatory breach of contract. In this case, MARHedge had wrongfully repudiated the agreement, relying on the exclusion clause to protect it from liability. It was held that the exemption clause was ineffective because it did not expressly state that it was intended to exempt the parties from liability for deliberate wrongdoing, let alone deliberate personal repudiatory wrongdoing. What can be learnt from this case? • Exclusion clauses must be drafted clearly if they are intended to cover deliberate repudiatory breaches, especially if the breach is of a personal nature, such personal element being more likely to be present in entities that are controlled by a sole person or where the decision making in respect of the entity is highly concentrated, meaning that the acts or omissions of the entity can be attributed to the will of a particular individual. • Words that, in a literal sense (as opposed to expressly) cover a deliberate repudiatory breach (for example, “neither party shall be liable for any loss of profit”) cannot be relied on if they create commercial absurdity in allowing a party to breach his obligations with impunity. • If the deliberate repudiatory breach cannot, or is unlikely to, be insurable then particularly clear language is needed to rebut the presumption, such as “including deliberate repudiatory acts by the parties to the contract themselves”. • When drafting exclusion clauses, options include: (a) amending your exclusion clause to state that the clause does not exclude or limit liability for deliberate personal repudiatory breaches; or (b) making no changes and relying on the presumption that an exclusion clause should not apply to a deliberate personal repudiatory breach of contract.

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