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European IP Bulletin, Issue 23, June - Hot Topics

Hot Topics

1. The Many Parts of a Patent

Intellectual property used to be something talked about mostly in a university classroom. Not anymore. These days, intellectual property represents an increasing share of the value of many portfolio companies.

Patent protection, at the very least, signifies some amount of novelty and future capital potential to insure against the risks associated with innovative technology. The procurement of a patent, for instance, provides a government- authorised monopoly for a period of time for the patented technology. Patent laws generally provide three incentives: to invent; to disclose; and to risk capital in their procurement.

Patent protection is on the rise. Large companies can receive thousands of issued patents each year. The creation of a large patent portfolio typically does well with investors who look to patents as the future building blocks of a technology company.

The Tricky Criteria
To obtain a patent, inventors must not only demonstrate the novelty of their invention but must also show that it was non-obvious at the time of the invention.

It’s this last criterion that presents the greatest challenges today. Non-obviousness is perhaps the most difficult of the obstacles that a company faces in seeking patent protection. The non-obvious requirement considers all of the known information and discoveries in the field of invention and requires that the invention not be “obvious” to a person of ordinary skill in the field of the invention.

Patents consist of three parts: a drawing, a specification and a claim. Drawings, obviously self-explanatory, are an illustration of the invention. A patent’s specification is a written description of the invention, and it  often includes a detailed description of certain embodiments of a claimed invention. The claims of a patent are numbered paragraphs at the end of patent that set forth the scope of the invention. More importantly, the claims of a patent are the metes and bounds of the patent property right, much like a deed to a piece of real property.

Patents can be obtained in a variety of fields, although there are some exceptions, which vary from country to country; for example methods of medical treatment can not be patented in Europe (although medicines and medical devices can be). Obtaining a patent in a particular field can confer substantial competitive advantages in an increasingly competitive marketplace.

Advantages of a Licence
A patent confers a bundle of rights upon the patent owner, namely, the exclusive rights to make, use, sell, offer for sale or import the invention. Patent holders may elect to retain these exclusively, or they may license their patents to others.

A licence grants the right to operate under the patent without the threat of being sued for patent infringement. In exchange for this right, the licensee ordinarily pays royalties to the patent holder. Some licence agreements call for a payment when it is signed; others require an annual payment; and still others require the ongoing payment of royalties.

A company can choose to licence a portion or all of its patent rights to a licensee. Therefore, a patent holder can license different rights, such as the right to make or the right to sell the invention, to different licensees. In this way, license agreements can be very lucrative for companies. Creative licensing arrangements are one way to maximise revenue.

Licensing arrangements can vary, and agreements can be exclusive or nonexclusive. In an exclusive license, the company that owns the patent agrees not to license the patent to anyone other than the exclusive licensee.

In a non-exclusive license agreement the patent holder will be able to license similar rights to multiple parties. Thus, an exclusive licence will generally cost a licensee much more. However, with thoughtful, strategic planning of nonexclusive licence agreements, a patent holder can maximise the revenue stream of its intangible assets.

Another interesting aspect of patent licences in terms of their value as a revenue stream generator is how the bundle of rights can be divided into geographic territories. Licences can also be restricted to a particular geographical region. For example, a licensee may have the right to sell the patented invention in a particular country or countries, while another licensee may have a similar right in a different region.

Another aspect of licensing that is gaining some popularity is the ability to licence patents on a claim-by-claim basis, as opposed to granting a license to the entire patent. These arrangements sometimes allow for different market segments of similar technology to be licensed separately. For example, a company’s patent may cover a novel way of designing a microprocessor. The patent may also contain claims to the use of the novel processor in a computer system.

2. The Douglases & OK! v Hello! Ltd

The next chapter in the much publicised case of Douglas & Ors v Hello Ltd & Ors [2005] EWCA Civ 595 was handed down on 18 May 2005 in a judgment by the Court of Appeal.

The well known facts are as follows.On 18 November 2000, Michael Douglas married Catherine Zeta-Jones. The publishers of OK! and Hello! magazines approached the Douglases to obtain the exclusive right to publish photographs of the wedding reception. The Douglases contracted with OK!, however, a paparazzo managed to take some unauthorised photos and sell them to Hello!  The Douglases' claimed damage to their commercial interest in the information about their wedding and invasion of privacy. OK! claimed breach of confidence and tortious interference against Hello!

The procedural history of the case is complex.  Two days after the wedding, an injunction was granted to prevent publication of Hello!’s photographs which was subsequently lifted by the Court of Appeal some three days later.  On 11 April 2003, Lindsay J held that the Douglases were entitled to damages and a perpetual injunction for breach of confidence as the wedding was a private event.  He also held that OK! were entitled to damages for breach of confidence of OK!’s trade secret but dismissed OK!’s claims for tortious interference.  A further judgment on 7 November 2003 awarded the Douglases £14,600 and OK! around £1 million by way of damages.

OK! appealed the finding of breach of confidence and Hello! cross-appealed the finding that no economic torts had been committed.  Hello! also appealed the quantum of damages.

The Court of Appeal held that insofar as the protection of private information is concerned, the Courts are obliged to develop the English law of confidence in such a manner as to give effect to both Articles 8 and 10 of the European Convention of Human Rights and must therefore have regard to the jurisprudence of the European Court of Human Rights.  As such, the personal and private nature of the Douglases’ wedding gave rise to an obligation of confidence.  The Court of Appeal also went on to consider that, although the right of a celebrity to make money out of publicising private information was breaking new ground, there was no reason why the protection should not extend to such circumstances where the “owner” reasonably expects to profit from publication.

On the other hand, the Court distinguished between the law of confidence when used to protect “private information of a personal nature” contained in photographs, and when used to protect other types of information, such as trade secrets.  Thus, publication of authorised photographs in OK! did not defeat the obligation of confidence, nor did the agreement authorising publication of certain photographs provide a defence to a claim for publishing unauthorised photographs.  The offence is caused because something the claimant could reasonably expect would remain private has been made public and the intrusion into the private domain is, of itself, objectionable.

Furthermore, it was held that the Douglases’ “interest in the private information about events at the wedding did not amount to a right of intellectual property” and that “confidential or private information, which is capable of commercial exploitation but which is only protected by the law of confidence, does not fall to be treated as property that can be owned and transferred”.  This was because the right “depends on the effect on the third party’s conscience of the third party’s knowledge of the nature of the information and the circumstances in which it was obtained”. 

Notwithstanding the statement of law that such information is not property that can be owned and transferred, the Court of Appeal went on to consider whether the Douglases’ contract with OK! extended the protection of the law of confidence to the magazine.  Since the Douglases had reserved to themselves any residual rights of privacy, or confidentiality, in those details of their wedding which were not portrayed by the authorised photographs, it was held on the facts that the rights were not transferred to OK!.  Thus, OK!’s previously successful claim against Hello! for breach of commercial confidence was overturned.

It was therefore necessary to consider whether OK!’s alternative claim for economic torts was well founded.  The dispute centred on the level of knowledge or intention required on the part of the tortfeasor in order to establish liability.  The Court of Appeal held that it must be shown that the object or purpose (but not necessarily the predominant object or purpose) of the defendant is to inflict harm on the claimant, or that the conduct is in some sense aimed or directed at the claimant.  Whereas Hello! were aware of the likely effect on OK! of their actions, it was not established that they had such an intention and so the claims for economic torts failed.

Finally, the Court commented on the discharge of the interim injunction by the Court of Appeal in November 2000, stating that it appeared to be the wrong decision.  First, they considered that the panel discharging the injunction did not give sufficient weight to the strength of the case brought by the Douglases for breach of private confidence, nor to the adequacy of damages that might be awarded.  It was said that, had the decisions in Campbell v MGN and von Hannover v Germany (which were handed down after the injunction was discharged) been available at the time, it might well have been seen that the Douglases had such a strong case as to be capable of summary judgment in their favour.  Furthermore, the award of damages of such a small sum could not fairly be considered an adequate remedy for breach of their privacy, nor an adequate deterrent to a publication contemplating the publication of photographs which infringed an individual’s privacy.  On the other hand, Hello!’s interest was purely financial and could adequately have been protected by an appropriate cross-undertaking in damages. Thus, only maintenance of the interim injunction would have achieved a fair result.

This judgment further develops the law concerning the relationship between an individual’s right of privacy and confidential information.  The Court of Appeal’s comments on the inadequacy of damages are also likely to have practical consequences in cases where a breach of privacy is alleged, as the grant or otherwise of an interim injunction at an early stage is likely to have even greater significance to proceedings.

3. What Future for a Treaty on the Protection of Broadcasting Organisations?

On 2 May 2005, the World Intellectual Property Organisation (WIPO) Standing Committee on Copyright and Related Rights released a second revised consolidated text for a Treaty on the Protection of Broadcasting Organisation.

Broadcasting has always been an important aspect of the exploitation and diffusion of copyright content, with particular focus on the music sector. The WIPO Committee, which was appointed to draft the provisions of a Treaty to protect the investment of Broadcasting Organisations, emphasised  the need to base future regulation on the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT), whilst also respecting the Berne and Rome Conventions.

In its current form, the Treaty is to contain a basic definition of broadcasting organisations, being legal entities taking the initiative and the responsibility for the transmission and the management of assembly and scheduling of the content for transmission (Article 2). From this definition, it is clear that the text is not addressed to the entities that only retransmit, unless they retransmit their own broadcastings. On-demand services and interactive transmission would also fall outside the scope of the Treaty.

One of the most debated features of the draft text is Article 15, concerning the term of protection. Some suggest that the protection should be awarded for a period of 50 years. Others claim that it should last for no more than 20 years. 

This last point brings into focus the difficulty involved in finding a balance between the interests of the different stakeholders. On the one hand, broadcasting, as such, traditionally does not enjoy the same legal protection as copyright, whilst on the other broadcasters’ rights are appropriate in order to incentivise broadcasters. A treaty in this field should seek to provide a set of laws which would allow broadcasters to bring actions to prevent unauthorised appropriation of their work. However, as indicated in the draft treaty, the protection of broadcasting should not be confused with the protection given to the creators of the content transmitted by broadcasters.

4. BHB Enterprises PLC -v- Victor Chandler (International) Limited – Action and Counterclaim – Cost to Produce Bears No Resemblance to Value

This is a case in the English High Court which was decided by Mr Justice Laddie on 27 May 2005.  The British Horse Racing Board administers British horse racing and has a database which it sells to produce the daily feed of pre-race data.  It does this through its trading arm British Horse Racing Board Enterprises plc (“BHBE”).  The question had arisen as to whether this database is entitled to sui generis intellectual property rights under the Database Directive and it was held in an earlier case of William Hill -v- BHBE, in the European Court of Justice, that it did not.

Victor Chandler International (“VCI”) are a leading firm of bookmakers.  They entered into an agreement with BHBE to receive the feed of data.  As a result of the ECJ Decision they stopped paying for the data feed because they say that the agreement pursuant to which they agreed to pay for the data feed, is void.  VCI continued to use the data and so BHBE sued for breach of contract and has threatened to cut VCI off from the data feed.  VCI counterclaimed by saying that the agreement between it and BHBE is void citing competition law, namely Section 18 of The Competition Act 1998 and Article 82 of the EC Treaty.  Its complaint was that prices were unjustifiably high.

However, the relevant legislation under Section 18 of The Competition Act 1998 and Article 82 of The EC Treaty sets out product conduct and abuse of a dominant position in terms that it may be prohibited if it affects trade within the UK and/or EU and if it consists, “in particular, directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions…” (emphasis added).

The question, therefore, was whether the trading conditions were unfair.  VCI’s case was brought on the basis that the allegation was that prices were too high, not that they were unfair.  Unfair means taking all matters concerning the price into consideration and not merely, in this case the cost to produce the service, but also for example what the service supported.  To consider value there are numerous factors which need to be taken into account to determine whether pricing is unfair and therefore unjustified.  In this case, the monies earned from the database are ploughed back into racing for the benefit of the general public and also for those who have a commercial interest in horse racing such as VCI. 

Therefore whether pricing was fair or unfair depends on an examination in the round.  High pricing does not per se make it unfair.  It all depends on what is done with the funds.

This is a classic case where value is disconnected from cost, which is an important issue in IP valuation. 

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