Monday, 1 March 2010

"Good business, shame about the lawyering"

Subscribers to the Journal of Intellectual Property Law & Practice (JIPLP) will be pleased to know that the March 2010 issue is available online (you can view the contents of this issue here). The Editorial, "Good business, shame about the lawyering", is a bit of a rant against the rush to sign off IP-driven licence agreements, which leaves it to subsequent litigation to iron out the legal creases and/or to deal with the consequence of the failure of a party know what to watch for once the ink is dry. The Editorial reads as follows:
"In recent weeks, I have become increasingly concerned at the content of some of the legal disputes coming before the courts, both in my home jurisdiction of England and Wales and more widely in Europe. I suspect that the same malady will be found elsewhere, but I shall content myself with the local evidence of its existence.
These disputes typically involve the licence of one or more high-profile trade marks, whether for the purpose of manufacturing under the licence or the promotional purposes such as sponsorship. A deal is struck, for licensee acts upon it and then, somehow, at a later stage, it appears that things have gone out of control. At that point, the parties get back to the contract and suddenly it appears that its terms either never did correspond to the business expectations and needs of the parties or, having originally done so, remained obdurately fixed while the business to which they relate underwent some form of change.

I have on each occasion commented to colleagues along one of the two lines: I have asked either (i) how it was that the businesses in question could have been persuaded to sign contracts for the use of IP which were clearly deficient in content or which failed to capture the true intent of the transaction or (ii) how it came to pass that, once the contract was signed, one or both parties neglected to look at its terms. The general response which I receive to these questions is that there is a business imperative which requires that the document be signed and the deal be done and that if lawyers were instructed to draft the document which perfectly summarized the nature of the deal and the intention of the parties, no deal would ever be done—and once the deal is done, it is up to the parties to decide whether to look at the contract or not.

There is of course more than a grain of truth in this. Businessmen cannot be expected to appreciate the almost aesthetic quest for the perfect trade mark licence for which their legal advisers may hold a desire. However, we are not talking about insignificant brands and trivial businesses. Intellectual property such as the trade marks DIESEL, UMBRO, ETIHAD, and LONSDALE have all been at the heart of complex and costly litigation over accidents that should never have been allowed to happen. If it is the lack of a legal budget which forces parties to run the risks of poorly drafted or poorly conceived contract drafts, which accurately record woefully bad business judgment or which are signed, sealed, and then ignored till it is too late, it seems that a budget is always conjured up for the litigation which resolves these problem issues, not to mention the cost of an appeal or a reference of a preliminary issue of law to the European Court of Justice.

So what can be done to rectify the situation? Not a lot, one might say, in a world in which business is driven by factors quite unrelated to the quality of an IP licence: currency fluctuations, shifts in fashion or popular style, cash fluidity, seasonal markets, and so on. Even so, there are some suggestions that can be cheaply and easily adopted in most cases. For example, for the avoidance of doubt, every IP licence should expressly state—whether it is provided in local law or not, since the parties may not know the local law and therefore ignore it:
  • Whether a sublicence may be granted and whether the IP licensor has any say over the choice of sublicensee;
  • Which law governs the contract and which country's courts will hear disputes arising from it;
  • Whether it makes any difference if the licensor or licensee ceases trading, goes bankrupt, or undergoes a change of control;
  • What factors entitle either party to terminate the licence—and how they do so;
  • Whether the licence can be extended or renewed, and on what terms.
These are all such basic things that no IP licence should ever be without them, and wise and experienced readers of this journal will have far longer checklists of their own. However, if the parties can be advised that there are matters, such as these, which do end up in court if they are not dealt with, they might be more sensitive to the importance of listening to respectable legal advice on other licence terms too".

2 comments:

  1. In my experience there are two reasons why contracts may be poorly drafted. One has to do with the way business people regard the role of lawyers, and the other has to do with the legal precedents themselves.
    Business people tend to negotiate terms without involving lawyers, and then throw it at the lawyers to incorporate the deal into a terms which need to be signed, often under unrealistic time constraints. They really don't appreciate the value that a good lawyer can bring to the table in negotiating terms in the first place.
    Many precedents that I come across are mind bogglingly boring because they include so many petty details and minutiae along with really important business critical issues for the transaction in question. So lawyers look like they can't see the wood for the trees, and appear to be deal breakers. What would be nice would be a radical review of the approach to legal precedents, so that procedural issues could be removed from the main body of the agreement, while the heart of the agreement could be the focus of the document. The procedural details might be the day to day matters which are likely to evolve and change over the life of the agreement. These probably need a different approach altogether, in terms of the formalities required to alter and update them.

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