Publications
European IP Bulletin, Issue 7, December -
Hot Topics
Hot Topics
1. SPAM AND COOKIES – NEW UK PRIVACY LEGISLATION
It is estimated that spam accounts for approximately 60% of all email
traffic sent over the internet. In the EU alone the annual cost of spam to
internet users is €10 billion in wasted time and costs. On 11 December the
new anti-spam legislation, the Privacy and Electronic Communications (EC
Directive) Regulations 2003 SI 2003 No. 2426 came into force in the UK. The
Regulations implement the EU Directive 2002/58/EC of the European Parliament
and of the Council of 12 July 2002 concerning the processing of personal
data and the protection of privacy in the electronic communications sector.
The Regulations give individual consumers using the phone, fax and internet
more control over how their personal details are used, meaning that
companies will not be able to send unsolicited emails or text messages to
consumers, unless the recipient has agreed in advance to receive them, or
has an ongoing business relationship with the company, subject to certain
conditions. Business-to-business direct marketing by electronic means is not
yet affected by the new legislation - this may change by 2005 - but all
electronic direct marketing or promotional material must be identifiable as
such, include accurate sender and contact details, as well as means by which
the recipient can opt-out of receiving further material.
At present only 6 EU Member States have implemented the Directive. When
implemented by all the Member States the new legislation (with criminal
penalties) should provide a comfort zone for Europeans not wishing to
receive European originating spam. The problem is that the majority of spam
originates outside the EU from countries, including the US, without adequate
regulation in this area. As the new legislation can only be enforced against
people residing in the EU it is toothless against the torrent of externally
originated spam emails promoting cures for baldness, cheap mortgages,
get-rich-quick-schemes and sex aids that, uninvited, flood inboxes every
day.
Although aimed primarily reducing the amount of spam currently sent and
received in Europe, the Regulations cover all marketing or promotional
material sent electronically whether by email, text message, faxes or
telephone. The Regulations also cover the use of "cookies," or electronic
identifying programs which are commonly used on internet web sites. Use of
these must now be overt with companies informing the user about the use of
cookies and the information they collect as well as providing an opportunity
for the user to reject or disable the cookies. Failure to inform can result
in a fine.
Within 24 hours of the Regulations coming into force the Information
Commissioner’s Office, the body empowered with enforcing the Regulations in
the UK, had received a high volume of complaints regarding not only spam,
but also telephone calls and text messages. The Information Commissioner’s
Office has the power to take offenders to court on completion of an
investigation, but will only investigate spam complaints from users who
complete a form found on its site at http://www.informationcommissioner.gov.uk . For those seeking immediate
relief from the daily bombardment of spam this may seem a slow and onerous
process, but their frustration pales to insignificance when viewed against
the Herculean task faced by the group of 10 people at the Information
Commissioner’s Office responsible for policing, investigating and,
hopefully, prosecuting the spammers.
Despite the high volume of complaints at present there are no prosecutions
pending. When the Information Commissioner does take action it will be
interesting to see if the maximum fine, £5,000 in a trial before a
magistrate, or an unlimited fine in a trial before a jury, for those
breaching the Regulations is seen as a deterrent or merely a business cost
in what is a lucrative and, until now, under regulated market.
2. WHEN IS AN EXCLUSIVE LICENCE NOT AN EXCLUSIVE LICENCE?
Whether or not a contractually-based obligation of confidence in know-how
existed between the parties was considered in the recent case of Centria
v (1) Corus UK Ltd (2) Sigma Coatings Sa (3) Sigma Coatings Ltd [2003]
EWCH 2395 (Ch). The case highlights the fact that parties to an agreement
must not only use the correct wording and precise drafting to achieve their
commercial objectives, but also must construct other aspects of the
agreement in accordance with those objectives.
The action concerned an agreement purporting to grant a licence on terms
including “the perpetual and exclusive right to use anywhere in the world
the Shared Know-How” (the Know-How Clause). However, on the facts of this
case it was held that the parties had not considered the licence to be
exclusive. This construction of the licence was then used to rebut a claim
that the claimant retained a world-wide right to use of the know-how.
The licence referred to a number of other documents which detailed a complex
relationship between the parties beginning with a sale agreement dated 1991
between three unrelated parties by which one party, RC, sold part of its
business to a second party, DUE. However RC had continuing licences with a
UK company, HER UK, in relation to the use of the technology. HER UK was
purchased by the first defendant. That part of the business of which had
been divested under this agreement to DUE was subsequently acquired by the
claimant. The second defendant historically supplied RC with paint product
involving the technology and continued to supply the first defendant on
transfer of the business. In order to clarify the position regarding
intellectual property an IP licence was entered into by the parties. It was
this licence that contained the clauses at issue.
The claimant alleged that it was able to take a transfer of the full benefit
of the exclusive Shared Know-How anywhere in the world since DUE was
entitled to transfer the entirety of these rights on the purchase of the
business by the claimant. As a result the claimant complained that the
defendants were breaching the confidentiality in the know-how by continued
operation of the technology.
The case turned on the interpretation of Bud’s right to transfer the
know-how, which under a separate clause of the licence was non transferable
by the licensee except “the right to transfer the rights to use the Shared
Know-How within the American Territories” (the American Clause). The
claimant argued that the American Clause, expressly limiting the right to
transfer, related only in instances where the object of that transfer was a
company resident within the American Territories, but that the American
Clause was not a blanket limitation barring the transfer of the world-wide
rights to the know-how.
The Court considered the only plausible explanation put forward by the
claimant for this construction: the licence was said to be “perpetual and
exclusive”, on which basis RC was clearly alienating itself from the use of
the technology. However, if UD were to disappear the know-how to the
technology would “wither on the vine” at least in respect of territory
outside the American Territories since there was no mechanism to deal with
those rights outside that geographical area. The rights could only be
retained within the American Territories.
The claimant argued that their construction of American Clause was the only
way to make sense of the commercial intention of the parties. The Court
decided however that the only way to interpret the agreement sensibly in
light of the commercial reality was that the licence was not an exclusive
licence and therefore that the claimant had no argument to undermine the
clear intention of the American Clause to limit any transfer to rights to
the technology in the American Territories. Thus the claimant could only
have purchased from UD rights to the technology within the American
Territories.
The Court said that RC had on-going licence obligations with companies such
as HHR UK which meant it was in no position to provide UD with an exclusive
licence. Further RC and UD appeared to accept through continued use of the
technology by both that RC intended to continue to deal with the technology.
Internal to the agreement the dealing was described as a licence, not an
assignment that would have been simpler to construct contractually. This was
supported by the direct agreement between the parties to share improvements
in the technology developed by either party.
The Court rejected the claimant’s submission that UD could be seen to be
stepping into RC’s shoes. RC did not contemplate giving up its rights as
licensor to existing subsidiaries. Further the linguistics of the claimant’s
construction of the American Clause could not be supported.
3. FADE – THE BRIGHT COPY-PROTECTION SYSTEM
A new system of software copy-protection, FADE, has been developed by
Macrovision, a Californian company that specialises in digital rights
management and the British games developer Codemasters.
FADE represents a new and somewhat radical anti-copying strategy. While
traditional protection software disables the functionality of illegally
copied software, the radical difference with FADE is that users initially
have unfettered use of the illegally software. The development being that
with use FADE begins to corrupt the illegal copies. The degrading process is
slow initially cars no long steer, guns cannot be aimed and footballs fly
away into space then the illegal copy ceases to work. FADE’s creators
believe that if they can hook users of illegal software during first use
then when FADE renders the illegal software inoperable the user will be
forced to buy a legal copy of the material.
FADE exploits the system for error correction that computers adopt to read
scratched CD-ROMs or DVDs. Software protected by FADE contain fragments of
“subversive” code which look like scratches. The bogus scratches are
carefully arranged in a pattern that the game’s master program will look
for. If the pattern of abrasions is detected, the game plays with no
trouble. However, if the disk is copied, the error-correction system of the
computer will automatically delete the fake scratches. As the game is
played, the master program can identify it as a fake when it fails to detect
that preset pattern. Instead of switching off the program and preventing it
from play at all, FADE will slowly disable it.
The use of FADE will be displayed during game installations, saying
“Original discs don’t FADE” in order that players who experience problems
will be aware that their CD is potentially an illegal copy.
Next year, Macrovision plans to release a DVD movie protection system called
Safe DVD, which will use a similar technique to make copied discs stop
playing at a key point in the movie’s plot.
4. BELGIUM FOUND IN BREACH OF EU COPYRIGHT OBLIGATIONS
The Member States were obliged to implement Council Directive 92/100/EEC of
19 November 1992 on rental right and lending right and on certain rights
related to copyright in the field of intellectual property, into their
national laws by 1 July 1994. Article 1 of the Directive requires Member
States to recognise that authors have the exclusive right to authorise the
public lending of various copyright works. However, Article 5 allows states
to derogate from this exclusive right if remuneration is made to the author.
Belgium did recognise the lending right and created an exception under
Article 23 of the Belgian Loi relative au droit d'auteur et aux droits
voisins for “lending [that] is organised for an educational and cultural
purpose by institutions recognised or organised officially for that purpose
by the public authorities”. Article 62 of the law allowed for authors to be
remunerated in those circumstances and Article 63 stated that the King would
fix the relevant amount by decree. However, no such decree was ever made and
so no rate of remuneration was fixed for derogation cases. Belgium said that
this was because of opposition to the lending right by the Belgian federated
entities, which are responsible for cultural matters in Belgium. The
European Commission brought this action claiming that Belgium had failed to
fulfil its obligations under Articles 1 and 5 of the Directive.
The ECJ found in favour of the Commission. The Court rejected Belgium’s
argument that Articles 1 and 5 of the Directive were not precise enough to
be incorporated into its national law, finding that where directive
obligations are unclear, states must determine the relevant criteria in
their own territory rather than just completely refusing to implement what
is called for by the Directive. Additionally, Directive 92/100 authorised
Member States to exempt certain categories of undertaking from paying but
did not require them to do so. In so far as it was unclear which
undertakings this authorisation applied to, the States should have not
exempted any undertaking rather than completely failing to implement the
relevant articles.
It was deemed irrelevant that, according to the Belgians, no remuneration
was paid in France, Greece or Luxembourg among others. A State cannot
justify its failure to perform its obligations under EU law by pointing to
similar failings on the part of other Member States. The hostility of the
federated entities also provided no excuse for the failure to implement
because a Member State cannot rely on provisions, practices or circumstance
in its internal legal order to justify a failure to comply with obligations
and time-limits laid down by a Directive.
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