One obligation, one remedy. Now it’s Eternal Bliss for charterers.


In K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm) the vessel was kept at the anchorage at Longkou in China for some 31 days due to port congestion and lack of storage space ashore for the cargo. In consequence when the cargo of soyabeans was discharged it exhibited substantial mould and caking. This led the receivers bringing a cargo claim against owners which they then, reasonably, settled and then sought to recover from voyage charterers by way of damages for breach of their obligation to discharge within the laydays. Charterers responded by saying that demurrage was the exclusive remedy for this breach.

At first instance, [2020] EWHC 2373 (Comm), Andrew Baker J heard a preliminary point of law on assumed facts as to whether demurrage was the sole remedy for this breach of the obligation to discharge within the laydays. He found that it was not. It was the remedy only where what owners were claiming was detention loss. Other consequences of the breach, in this case the sum owners paid to settle the receivers’ claim, were recoverable as unliquidated damages. In doing so he declined to follow the only clear decision on this issue, that of Potter J in The Bonde [1991] 1 Lloyd’s Rep 136 who had held that demurrage is liquidated damages for all the consequences of the charterer’s failure to load or unload within the laytime. Andrew Baker J also found that if demurrage was liquidated damages for all the consequences of the charterer’s delay at the discharge port, an indemnity would not be implied rendering the charterer liable for one of those consequences. Charterers appealed the finding on the extent of the demurrage remedy. Owners did not challenge the indemnity finding on appeal.

The Court of Appeal, EWCA/Civ/2021/1712, for whom Males LJ delivered the judgment of the Court, has today reversed that decision and concluded that in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime and not merely some of them. Accordingly, if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation. The Court noted that The Bonde was the only clear decision on this point and that both the academic texts and judicial dicta were divided.

The Court of Appeal gave the following six reasons for its decision.

 “First, while it is possible for contracting parties to agree that a liquidated damages clause should liquidate only some of the damages arising from a particular breach, that strikes us as an unusual and surprising agreement for commercial people to make which, if intended, ought to be clearly stated. Such an agreement forfeits many of the benefits of a liquidated damages clause which, in general, provides valuable certainty and avoids dispute.” [53]

”Secondly, we accept that statements can be found in the case law to the effect that demurrage is intended to compensate a shipowner for the loss of prospective freight earnings suffered as a result of the charterer’s delay in completing cargo operations… No doubt this is the loss which is primarily contemplated and, in most cases, will be the only loss occurring. But that does not mean that this is all that demurrage is intended to do. The statements cited were made in cases where the present issue was not being considered.” [54]

Thirdly, if demurrage quantifies “the owner’s loss of use of the ship to earn freight by further employment in respect of delay to the ship after the expiry of laytime, nothing more”, as the judge held at [61] and again at [88], and does not apply to a different “type of loss” (as he put it at [45]), there will inevitably be disputes as to whether particular losses are of the “type” or “kind” covered by the demurrage clause.”[55]

“Fourthly, as Lord Justice Newey pointed out in argument, the cost of insurance is one of the normal running expenses which the shipowner has to bear. A standard expense for a shipowner is the cost of P&I cover which is intended to protect it against precisely the loss suffered in this case, that is to say liability to cargo claims, whether justified or not. Thus a shipowner will typically have insurance against cargo claims, while a charterer will not typically have insurance against liability for unliquidated damages resulting solely from a failure to complete cargo operations within the laytime. Rather, the charterer has protected itself from liability for failing to complete cargo operations within the laytime by stipulating for liquidated damages in the form of demurrage. Accordingly the consequence of the shipowner’s construction is to transfer the risk of unliquidated liability for cargo claims from the shipowner who has insured against it to the charterer who has not. That seems to us to disturb the balance of risk inherent in the parties’ contract.”[56]

“Fifthly, The Bonde has now stood for some 30 years, apparently without causing any dissatisfaction in the market.” [57]

“Sixthly, that reason would have less force if we agreed with the judge (at [127]) that the reasoning in The Bonde “is clearly faulty” or that the judgment “is explicable only if a non sequitur lies at its heart”. With respect, however, we do not accept the judge’s criticisms of The Bonde.” [58]

The Court of Appeal then noted that allowing the appeal would produce clarity and certainty, while leaving it open to individual parties or to industry bodies to stipulate for a different result if they wished to do so.

It will be interesting to see if owners now try to draft clauses stating expressly that demurrage only covers certain stated categories of loss – and whether charterers accept that.

It will also be interesting to see whether the case eventually ends up before the Supreme Court.

Confidential information v trade secrets

Image by Aymanejed from Pixabay

Richard Baker Harrison Ltd v Brooks and others – [2021] All ER (D) 94 (Oct) offered the opportunity for a further exploration of the new legal relationship between trade secrets and confidential information, yet ultimately the case demonstrates how the legal community remains comfortable addressing trade secrets through the prism of confidentiality.

Richard Baker Harrison Limited (“RBH”) is a leading distributor of minerals and chemical raw materials which it supplies to manufacturers worldwide. Whilst not in itself a manufacturer it occupies a key position within the plastic, rubber, coating, adhesive and sealant, composite, ceramic and polishing sectors. In this case RBH sought to enforce obligations of non-competition, confidentiality, and post-termination restrictions against two former employees – Mr Brooks and Mr Sambrook – who had left RHB to establish SBS Sourcing Limited (a mineral sourcing and supply services business).

It was not in dispute that Brooks and Sambrook owed express obligations to protect RBH’s confidential information under their contract of employment but both defendants accepted that their contracts of employment also included the implied term of good faith and fidelity. Deputy High Court Judge Margaret Obi noted, “[T]his abstract concept includes an obligation to refrain from conduct which would be regarded as unacceptable by reasonable and honest people. In essence, it is no more than an obligation to loyally carry out the role of an employee. However, unlike a fiduciary duty, it does not require the employee to act solely in the interests of the employer … and mere preparations to set up a competing business after the termination of the employment are not necessarily a breach of contract.”

Mr Brooks admitted that he was under a duty, whilst employed, to maintain the confidentiality of RBH’s trade secrets and/or confidential information, and not to use any information obtained in confidence as a consequence of his employment to the detriment of RBH. However, he denied that there were any equitable duties in relation to trade secrets and/or confidential information that were not covered by the express terms or applicable implied terms of the contract. Accepting this submission Judge Obi denied the existence of any equitable duty relating to misuse of trade secrets.

Finding it to be “trite law that during the currency of the employment relationship the employer is entitled to protect confidential information whether it amounts to a trade secret or not”, Judge Obi was satisfied that RBH’s “customer/supplier connections, the stability of its workforce and the protection of its confidential information are all legitimate business interests requiring protection”.

PROTECTING YOUR MARITIME TRADE SECRETS & COMMERCIAL REPUTATION

Image by Erich Westendarp from Pixabay

Salt Ship Design AS v Prysmian Powerlink SRL [2021] EWHC 2633 is the latest case to offer us a valuable insight into the operation of the Trade Secrets (Enforcement etc.) Regulations 2018 [TSR]. Heard before Justice Jacobs in the Queen’s Bench Division (Commercial Court) the case concerns the design of a Cable Laying Vessel to become named The Leonardo Da Vinci – a specialist vessel used to lay undersea cable for power transmission, telecommunications etc. – owned by the Prysmian Group.

In 2017 Prysmian held a competitive tender process to appoint a designer for the new vessel, which was won by Salt (an independent Norwegian ship design company), who were appointed as the “exclusive designer” for the Project under a Short Form Agreement (SFA) dated 13th July 2017.

In due course it was the Vard Group AS (part of the Fincantieri Group) which entered into a ship building contract for the vessel with Prysmian in April 2018, from which point Salt played no effective further part in the design of the vessel, as Vard Group AS used a wholly owned subsidiary, Vard Design AS, for future design work (despite Vard Design AS having been an unsuccessful competitor to Salt in the 2017 tender process).

Salt brought legal proceedings against Prysmian on two grounds, breach of contract and misuse of confidential information and it is the latter which is now our focus.

Jacob J notes Salt’s case is Prysmian (together with the Vard group of companies) wrongly used Salt’s confidential information to develop an alternative design for the vessel. Salt relies upon the speed at which Vard purported to develop an alternative design for the vessel between 21st December 2017 and 3rd January 2018, and described this at trial as “the Christmas miracle”. Salt also relies upon what it alleges to be striking similarities between aspects of this alternative design and Salt’s. It is therefore alleged that Salt’s design work was wrongly used as a springboard, with Vard piggy-backing on it, and being encouraged to do so by Prysmian, so as to win the design work and cut out Salt. [8]

Salt sought a determination of the applicability of TSR, relying upon these Regulations for remedial purposes, specifically the appropriate dissemination and publication of the judgement at Prysmian’s expense, given the “allegedly damaging effects of Prysmian’s conduct on Salt’s reputation in the market.” [448]

Referring to relevant case law Jacob J concluded that Prysmian had acted in breach of both clause 6.4 of the SFA and its equitable obligations of confidence. In so doing he felt entirely satisfied that the requirements of Regulations 2 & 3 of TSR had been fully satisfied. [474-475]

Whereas Regulation 14 of TSR provided for injunctive or similar relief for Salt, Regulation 16 provides for compensation instead of an order under Regulation 14, as follows:

“(1) A person liable to the imposition of an order under regulation 14 may apply for, and a court may make, an order for compensation to be paid to the injured party instead of an order under regulation 14 – a) if at the time of use or disclosure the person neither knew nor ought, under the circumstances, to have known that the trade secret was obtained from another person who was using or disclosing the trade secret unlawfully,

b) if the execution of the measures in question would cause disproportionate harm to the person liable to the measures, and

c) if it appears reasonably satisfactory to pay compensation to the injured party.”

Prysmian submitted that compensation should not be available under Regulation 16, because any infringement was not made with the knowledge that unlawful acquisition, use or disclosure of a trade secret was being engaged in. Nor ought it to have known that it was, given the assurances it had received from Vard, a well-respected and reputable shipbuilder. This argument was, however, rejected on the facts by Jacob J. who regarded this, “as a bad case of breach of confidence…Prysmian did engage in blatant misuse of confidential information to facilitate an outcome where it could obtain a ship built by Vard with the benefit of the Salt design, but at a significantly lower cost.” [470]

Prysmian went on to advance two further arguments to Jacob J in relation to TSR:-

“First, it contended that they do not apply outside the UK, [because] all the alleged infringements took place in Norway, Italy and/or Singapore. Salt submitted, and I agree, that that the Regulations apply in the present case because Prysmian is subject to the in personam jurisdiction of this court and English law is the applicable law for the claims made.

Secondly, Prysmian contended that the regulations only came into force on 9th June 2019, after Vard’s design work … and… the conclusion of the shipbuilding contract. I agree with Salt that this is irrelevant. Regulation 19 provides that they apply to proceedings brought before a court after the coming into force of the Regulations, in respect of a claim for unlawful acquisition use or disclosure of a trade secret. In the present case, the claim form was issued on 12th July 2018 and the relevant temporal requirement is met.” [480 & 481]

DAMAGE LIMITATION: TAKING BACK CONTROL OF IP DAMAGES POST BREXIT

By Jane Foulser McFarlane

The civil enforcement of intellectual property (IP) rights, was altered fundamentally when the Civil Enforcement Directive 2004/48/EC or IPRED, came into force. It was implemented to address the disparities between EU Member States for the enforcement of IP rights. The objective was to approximate legislative systems, so as to ensure a high equivalent and homogenous level of protection in the internal market. The Directive contains detailed obligations concerning final sanctions, preliminary measures and the disclosure and preservation of evidence, but the greatest effect upon UK IP law has been in relation to awards of damages and injunctive relief. However, since the UK exited the EU, with Brexit finally taking effect on 31 December 2020, it is wrong to assume that the remedies of the Enforcement Directive may no longer apply, as the civil enforcement regime for IP is now contained within the Post Brexit Trade and Co-operation Agreement (TCA), a 1246 page document, with the IP provisions set out at Title V and which came into effect on 1 January 2021, although the general principles of EU law now no longer apply to the UK, with EU regulations only continuing to apply in domestic law by virtue of the European Union (Withdrawal) Act 2018, which repealed the European Communities Act 1972, to the extent that they are not modified or revoked by regulations under that Act.

The object of Brexit was to ‘Take Back Control’, but the UK will still have to comply with some aspects of the EU aquis communautaire, since every EU Free Trade Agreement with other non EU countries, such as Australia or New Zealand, has a detailed IP Chapter and these countries are bound by bi-lateral agreements with the EU.If the UK wants to take back control of its IP laws it should redraft the Copyright, Designs and Patents Act 1988 (CDPA 1988). Brexit has made the need for a new Act more pressing, not less so.

Under the CDPA 1988, damages are awarded for infringement under section 97(2). There is no provision for an award of damages under section 97(1) where the infringer did not know and had no reason to believe, that copyright subsisted in the work to which the infringement action relates. However, without prejudice to any other remedy, section 97(2) allows the court to make an award of additional damages, after having regard to all the circumstances and in particular, to the flagrancy of the infringement and any benefit accruing to the defendant by reason of the infringement, thereby creating an implied punitive, or at least deterrent basis for a further award. Section 97 was not the most lucid legislative provision prior to 2004 and it was further complicated by the application of Article 13(1) of the Enforcement Directive. Under Article 13(1), the IP right holder can apply to the court for damages against an infringer who has the requisite knowledge that they were engaging in an infringing activity. The basis for such awards are compensatory, in that the damages must be appropriate to the actual prejudice suffered as a result of the infringing activity.

Under Article 13(1), the court has two alternative options for assessing the level of damages where the requisite knowledge is present. The first alternative under Article 13(1)(a), directs the court to take into account, all appropriate aspects, which include the negative economic consequences, including lost profits, which the right holder has suffered, unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as moral prejudice. The second alternative under Article 13(1)(b), allows the court, in appropriate cases, to set the damages as a lump sum on the basis of elements such as, at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the IP right in question. Where the infringer did not have the requisite knowledge, Article 13(2) gives the court the discretion to order the recovery of profits or the payment of damages which may be pre-established. Recital 26 of the Directive expands on Article 13, by stating that the aim is not to introduce an obligation to provide for punitive damages, but to allow compensation based upon an objective criterion, while taking account of the expenses incurred by the right holder, such as the cost of identification and research. 

Section 97(1) of the CDPA 1988 does not explicitly refer to the compensatory principle where damages can be awarded for infringement with knowledge, although like Article 13, the court may order damages which are arguably implicitly punitive in nature, even though there is an absence of requisite knowledge. The courts are now grappling with the contrasting provisions of section 97 and Article 13, when there is a recognised need to compensate the right holder based upon the infringer’s lack of respect for the law and also as a dissuasion to the infringer in question, as well as to other potential infringers, to prevent them from committing such acts of infringement in the future.

Several cases have illustrated the interpretation and interplay between section 97 and Article 13. The first case is Absolute Lofts South West London Limited v Artisan Home Improvements Limited, [2015] EWHC 2608 (IPEC), a case in which the dispute was about the quantum of damages for the defendant’s infringement of the Claimant’s copyright in 21 photographs of loft conversions undertaken by Absolute in the course of their business as providers of home improvements. There was no dispute that Artisan had used the photographs on their website, infringing the copyright held by Absolute. The issue for the court was the level of compensatory damages due to Absolute and whether they were also entitled to additional damages in accordance with section 97(2) of the CDPA 1988, the level of those damages, or whether the Absolute was entitled to a claim under Article 13 of the Enforcement Directive.

The parties had agreed the ‘user principle’ for the basis of calculating the compensatory damages, being the licence fee of £300.00 that Artisan subsequently paid for the use of the photographs. The court, with Hacon J sitting, went on to determine the issue of additional damages, which creates difficulties, as both regimes, under section 97(2) and Article 13 fall to be considered. Section 97(2) requires the court to assess whether the infringement is flagrant and the Article 13 criteria for assessment is the right holders lost profits, the infringer’s unfair profits and any moral prejudice caused to the right holder. The court accepted that the Director of Artisan had the requisite knowledge for the infringement and found that his ‘couldn’t care less’ attitude was sufficient to merit an award under section 97(2). However, the court’s conundrum did not end there, as Hacon J had to assess whether in fact, section 97(2) still applied, or whether Article 13 took precedence. In doing so, he referred back to his own decision in the case of Jodie Aysha Henderson v All Around the World Recordings Limited [2014] EWHC 3087 (IPEC), a case involving performers rights and liability for additional damages under section 191J(2) of the CDPA 1988 which is equivalent in all material respects to section 97(2). In that case, Hacon J had questioned whether the CDPA 1988 provisions continued to apply, but he had not been required to decide the point, whereas in Absolute v Artisan, the continuing applicability of section 97(2) was unambiguously in issue and had to be determined.

The complexity required in the court’s assessment of this issue cannot be understated and can only be briefly summarised here. Regulation 3(3) of the UK Intellectual Property (Enforcement etc) Regulations 2006, provide that this Regulation does not affect the operation of any enactment or rule of law relating to remedies for the infringement of intellectual property rights except to the extent that it is inconsistent with its provisions. The court found that this suggested that existing national law with regard to knowing infringement is preserved unless it is inconsistent with Regulation 3. Hacon J dismissed the proposition that either national law is consistent with Regulation 3 of the 2006 Regulations and therefore must be taken to have the same effect as Article 13(1) of the Directive and so to apply it in parallel is pointless, or it is contrary to the Regulations and should not be applied, with the implication that any national provision that falls short or goes beyond the relief contained within the Directive, is contrary to EU law. The court found that Article 2(1) of the Enforcement Directive preserves national legislation that provides for more favourable remedies than the Directive, which went no further than setting out a minimum level of EU wide remedies, it remained the position that a successful right holder can rely on either section 97(2) or Article 13(1), whichever provides the higher level of damages.

The court considered the distinction between punitive and compensatory damages, as English law is compensatory in nature, putting the Claimant back into the position they would have been in, but for the wrongful act. However, it was held that it would be wrong to limit the award of damages to a purely compensatory level under Article 13(1), as that provision allows the concept of unfair profits to be awarded. These can be indirect, as well as direct. In the case of Absolute and Artisan, Artisan suffered reduced profits leading to liquidation after it was forced to remove the infringing photographs from its website. The court implied that the company may have been liquidated sooner had it not relied upon the photographs and to that extent they had profited from the infringement on the back of Absolute’s intellectual creativity, whilst Absolute had not lost profits in the true sense. The strictly compensatory award of £300.00 would therefore lack the dissuasive element required by Article 3(2) of the Enforcement Directive and an award of £6,000 was made. A second assessment based on flagrancy was then made under section 97(2) and the same figure of £6,000 was awarded, but not on a cumulative basis, the total award being £6,300.

Hacon J revisited the the relationship between section 97(2) and Article 13 again, in the case of Phonographic Performance Limited v Raymond Hagan [2016] EWHC 3076 (IPEC) (PPL v Hagan). PPL brought a claim against Hagan for additional damages under section 97(2) to include a claim for unfair profits under Article 13(1), the issue of compensation having been dealt with at an earlier hearing. Both provisions require requisite knowledge, but whilst this is explicit under Article 13(1), it is not under section 97(2), where the court has to take flagrancy into account, which implied knowledge. Hacon J considered that it would be difficult to imagine circumstances in which additional damages would be appropriate without that knowledge. This case made the important point, in that it identified as an important factor, the extent to which an award of damages is likely to be dissuasive, the dissuasive element being to deter the infringer from infringing again and that other, potential infringers should be dissuaded from engaging in infringing activities.

It would have been reasonable to assume, having considered the inherent complexities involved when the courts award damages for IP infringement and the stated need to dissuade infringement, that greater consideration would have been given to the IP provisions of the TCA. IP Article 47 of that Agreement is materially the same as Article 13 and the UK has failed to take back control of its ability to determine how damages for IP infringement shall be awarded, with both regimes still  requiring consideration and assessment.

The time has now come, when the CDPA 1988 is torn up and placed in the legislative shredder and the remedies for IP infringement are clarified and simplified. For example, there should be two elements to an award of damages, with compensation determined first and a dissuasive element second. The requisite knowledge and issues such as flagrancy and unfair profits should go to the assessment of the level of the award and any new legislation should reflect the basis of Article 13 or Article IP 47 of the TCA in the new Act, thereby negating the need to balance one provision against the other, as the courts are currently having to do. Only then, will we go some way to taking back control of our IP and exercise some damage limitation.

Jane Foulser McFarlane ©
September 2021

Breach of the new Trade Secret law strengthens a claim to the application of the Rome II Convention

In his latest judgement in Fetch.ai v Persons Unknown & Others [2021] EWHC 2254 (Comm) His Honour Judge Pelling QC makes clear that not all claims in equity under Breach of Confidence will fall within the scope of the Rome II Convention, “[S]ome will where they involve unfair competition and acts restricting free competition, but many others will not.”[para.12]

Image by VIN JD from Pixabay

The case relates to confidential information in the form of an access key code, allowing an operator to trade in assets nominally credited to a cryptocurrencies Exchange Account. This confidential information had been acquired by persons unknown and used to perpetrate alleged fraud against the account holder, generating losses in excess of $2.6m.

It was contended that the decision of the Court of Appeal in Shenzhen Senior Technology Material Company Limited v Celgard, LLC [2020] EWCA (Civ) 1293; [2021] FSR 1 would lead one to the conclusion that all breach of confidence actions come within the scope of Rome II, Chapter II, Article 4.1., because the principles in Article 6 apply. Judge Pelling noted, however, what Article 6 is concerned with is anti-competitive practices and anti-competitive conduct, “Celgard had sought to restrain the defendant from placing its rival lithium-ion battery separators on the market in the UK or importing them into the UK on the basis that the defendant had obtained access to the claimant’s intellectual property in relation to its product; and, thus, what the defendant in that case was seeking to do was not merely a breach of confidence in equity, but was also contrary to reg.3.1 of The Trade Secrets (Enforcement, etc) Regulations 2018.” [para.11]

Applying the Rome II Convention in this instance allowed Judge Pelling to provide injunctive relief and various orders for disclosure in favour of the account holder.

Tinker, tailor, online spy

Image by Peter Wiberg from Pixabay

Corporate/industrial espionage has been a fact of business life since time immemorial, but as Adam Bernstein notes in his latest article for The Company Secretary’s Review ,”It’s just that modern technology has made the process so much simpler…[and]…firms that don’t understand what’s at risk are playing with fire.”

By its very nature corporate/industrial espionage, along with corporate spying, can be hard to define but typically involves the illegal or unethical use of trade secrets to achieve commercial advantage. Be it hard or otherwise to define cyber espionage is with us and an ever-growing threat. Ian Bremmer of Time Magazine has recently warned, “Among the world’s most powerful countries, each government knows that an attack on the critical infrastructure of another invites retaliation…[which is]…why most of the action in cyberspace among cyber sophisticated nations is focused on stealing secrets and intellectual property.”

In addition to attacks on intellectual property, corporate/industrial espionage targets more general aspects of online activity. Unethical reviews, be they fake negative reviews about a rivals products or fake positive reviews to establish an undeserved market position, are an obvious example. Less obvious would be utilising negative search engine optimisation (SEO) tactics to impact adversely on a competitors search engine rankings, the illegality of which is open to question. Indeed, firms looking to protect themselves by countering such threats can, without prior recourse to professional advice, make matters worse for themselves by inadvertently generating even more adverse negative publicity.

In summary Bernstein concludes,”Competition is natural, but all firms of all sizes need to be on their guard for abuse. They shouldn’t be misled into thinking that espionage is all highbrow and involves spying that 007 would be proud of…”. The world of spying today has a much more anonymous face.

Image by Michael Treu from Pixabay

IM-MEDIATE NOT LITIGATE

The use of ADR to resolve intellectual property (IP) conflicts is a subject that “lies at the intersection of two rapidly growing branches of law.” IP comprises exclusive rights to novel ideas as contained in tangible products of cognitive effort, which, due to its complexity and need for expert evidence, creates a lengthy and expensive litigation process. Mediation has the potential to offer an inexpensive, faster and more user friendly solution for the protection of IP rights and also for the defence against claims that can be brought or threatened by larger corporations against SME’s or individuals, by way of intimidation due to the threat of extensive legal costs and it should be mandatory.

The evolution of the Intellectual Property Enterprise Court (IPEC) in london, has gone some way to reducing the burden of IP litigation, since its inception. The court is run by a specialist IP judiciary, who manage the cases, so that discovery and the use of expert evidence is kept to a minimum. There are three case Tracks, the Multi-Track (MT) for cases with a value in excess of £50,000, a Fast Track (FT) for cases valued between £25,000 and £50,000 and a Small Claims Track (SCT), for cases worth £10,000 and £25,000. Damages and costs are capped. The SCT in particular, is of particular benefit to holders of IP rights that are valuable to the holder, but which do not have extensive commercial value, as there are fixed costs of £260 and IP owner can conduct the case as a litigant in person. The IPEC also sits on circuit in a number of court centres around the country, where the specialist judges hear these cases. The weakness in the SCT is that injunctive relief is not yet available, unlike in the MT and FT. This undermines the benefit of these reforms to IP litigation, as the Claimant in an IP case is more often seeking an injunction than an award of damages, the object being to bring the infringing act to a conclusion.

An alternative way to bring a swift end to infringing activity is to mediate. In a global world where the markets are chasing ‘The Next Best Thing’ most businesses cannot afford to litigate, either time wise or cost wise. Once a product is successful in getting to market, other creators are looking to cash in on that success by creating something newer and better. IP must be enforced in an efficient, effective and proportionate way. When a report to evaluate the IPEC was published in June 2015, all respondents stated that litigation was typically a last resort, but there were a number of negative comments on the usefulness of ADR/mediation and the Report did not find strong support for expanding its role. There was however, a view that the Allocation Questionnaire could be redesigned to force parties to take further steps to convince the court that they had engaged in settlement or mediation negotiations before commencing litigation. This is insufficient and shortsighted and contrary to the findings of the 2006 Gower’s Review which focused on the use of alternative methods of dispute resolution, which not only provide a low cost alternative to litigation but could help to avoid the negative aspects of conflict, such as damage to reputation, lost customers, damage to company morale, as well as the large costs implications.

At the date of the Gower’s Review, the cost of mediating was £3,000 with a high proportion of cases, 70%, referred to mediation, going on to reach settlement. The World Intellectual Property Organisation (WIPO) established the WIPO Arbitration and Mediation Centre in 1994 on a not for profit basis. This has been recognised as an international and neutral forum and the Centre also works as a resource centre to raise awareness of the valuable role that ADR can play in different sectors. As the Gower’s review pointed out, mediation and other ADR methods are currently poorly used and understood for IP. The old Department for Constitutional Affairs (DCA) promoted the use of ADR for years, but some judges were reluctant to encourage parties to mediate and large companies were also reluctant to engage, in case they were perceived as being weak. The Gower’s Review recommended strengthening the Practice Directions to provide greater encouragement for parties to mediate, which would raise the profile of mediation with the judiciary. The Review hesitated to impose further incentives to mediate, such as mandatory mediation as individuals have a right of access to the courts under Article 6 of the Human Rights Act 1998. This view does not bear scrutiny because mediation does not prevent access to the court system, it is an alternative method or resolution or an early step in the overall litigation process.

A working example can be found in the Philippines, where the Intellectual Property Office (IPOPHL) has taken steps to establish a strong and balanced IP regime that is conducive to business and industry. One of the challenges to the enforcement of IPR’s in the Philippines was the speedy disposal of cases and to address that concern, a number of reforms were introduced and implemented. One of these reforms was the introduction of the mandatory referral of IP cases for mediation. Once a case had been filed in the Originating Office, it was referred to ADR Services and the parties can choose between IPOPHL or WIPO mediation. Amongst the Best Practices in Mediation identified by the IPOPHL, was the mandatory referral for mediation, which gives the parties an opportunity to explore their own option for settlement without necessarily limiting their position in the litigation process. There is also the benefit that as the mediation is mandatory, parties such as large corporations will not see themselves as being weak by participating in it, as they have no choice.

Mediation has been described as the ‘sleeping giant of IP disputes’ and in the US, its use in patent disputes has been lauded. In addition to the many benefits that ADR provides to the parties, judges are seriously looking for new ways to reduce their caseloads and are turning to ADR to assist with case management, as referring a case to ADR means that between 60 to 80% of the time, the case will settle, thereby relieving the judges caseload. In the UK, the use of mandatory mediation may be the best method of early case management for IP judges, who then have the benefit of taking the case once the issues have been narrowed down, prior to the pleading stage. The Gower’s Review and subsequently, the Hargreaves Review in 2011 both missed a valuable opportunity to encourage this scheme in the UK.

Whilst the IPEC may be less overburdened than other sections of the legal system after the Covid 19 lockdowns, there will undoubtedly be a backlog of cases. On a positive note, the use of remote hearings has proliferated in the last 18 months and this cannot be underestimated in the overall reduction of costs. The UK Intellectual Property Office (IPO) which has long offered a mediation service, now offers that service online. The IPO website sets out details of the service, but the cost of mediation is about £250 per person for an eight hour mediation session, with the price reduced accordingly for shorter sessions. This compares to just over £400 per person plus room hire, for the same period of time.

The IPO mediation service represents a particularly cost effective way for individuals and SME’s in particular, to settle IP disputes with the assistance of an experienced IP mediator. The IPO has the independence, expertise and resources to provide mediation in a cost effective way, if the Government were to make it mandatory. This would reduce the burden on the IPEC and the judiciary and ensure that IP right holders could obtain maximum benefit from their IP. There is no detriment to the parties from engaging in this process and there is everything to gain. There will still be cases that proceed to litigation, but early independent intervention has the potential to take the heat out the situation and identify what exactly the parties are hoping to achieve, whether that is injunctive relief or a financial settlement.

JANE FOULSER MCFARLANE © 2021

UK IPO invites IP Wales to explain new trade secrets law for SMEs

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Shh! The importance of keeping your trade secrets, secret
We receive many customer queries on patents, trade marks, copyright and designs, but we find less is known about trade secrets. We asked Andrew Beale OBE of IP Wales, an award-winning SME business support initiative, to explain what a trade secret is, how it applies to businesses and how it can be protected.” (UK IPO Blog 5th July 2021)

IP Wales is indebted to the UK Intellectual Property Office for this invitation, as an “industry expert from the world of IP”, to explain on its blog for its readers these important matters.

The introduction into UK law of the Trade Secrets (Enforcement etc.) Regulations 2018 has proved a useful reminder to all firms, whatever their size, that trade secrets can be a valuable business asset.

Questions addressed for businesses during the course of the article include:-

How do I recognise my trade secrets?

What constitutes the “reasonable steps” now demanded of business in order to protect their trade secrets?

How does a business legally preserve its trade secrets?

Why is it important to educate and train staff about trade secrets?

How does my business risk manage its cybersecurity?

The online threat to trade secrets during the current pandemic has never been greater, which is why IP Wales has developed free guidance to help SMEs better manage their IP cybersecurity (see www.ipcybersecurity.com).

Hit the targets. Climate change litigation in Belgium and Germany.

On 17 June 2021, the Brussels French-Speaking Court of First Instance (the “Court”) released a  ruling that the four Belgian governments were in breach of Article 1382 of the Belgian Civil Code and Articles 2 and 8 of the European Convention on Human Rights (“ECHR”) by failing to take all necessary measures to prevent the impacts of climate change on the Belgian population. However, as opposed to Dutch courts in Urgenda, the Court refused to order an injunction to meet stricter targets for the reduction of greenhouse gas emissions due to the principle of separation of powers. The case was brought on behalf of 58,000 Belgian citizens and by an NGO,Climate Change. The Court was asked to recognise the failure of the governments to decrease by 2020 the global volume of annual greenhouse gas emissions originating on Belgian territory by 40% (or at least 25%) compared to the 1990 level. They also sought an injunction to compel have the Belgian governments to make further reduce greenhouse gas emissions originating on the Belgian territory: by 48% (at least 42%) compared to 1990 by 2025; a reduction by 65% (at least 55%) compared to 1990 by 2030 and zero net emissions reached in 2050.

The Court acknowledged the standing of the 58,000 Belgian Citizens in holding governments liable under Article 1382 of the Belgian Civil Code due to the real threat of dangerous climate change, which poses a serious risk to current and future generations living in Belgium and elsewhere that their daily lives will be profoundly affected. The NGO also had  standing due to case the case law of the Belgian Supreme Court according to which an environmental protection association has the personal and direct interest required by Article 17 of the Belgian Judicial Code to bring a claim for compensation on the basis of Article 1382 of the Belgian Civil Code, if it believes that damage has been caused to the environment whose defence it has set itself as its statutory object.

The Court found that the federal government and the governments of the three Belgian regions failed to comply with their duty to exercise due caution and diligence in pursuing their climate policy. The Court noted that in 2019 the overall volume of annual greenhouse gas emissions from the Belgian territory had not decreased by 20% compared to the 1990 level. Therefore, Belgium does not comply with the objective set by the 2012 Doha Amendment to the Kyoto Protocol. Nor had it complied with the EU 15% reduction target for 2020 as targets in EC Decision 406/2009  because Belgium, as of October 2020, had only achieved a reduction of 11% compared to 2005. Looking to the future, the reduction of greenhouse gas emissions by 35% compared to 2005 levels imposed by the EU Regulation 2018/842 on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 would not be met. Further experts were of the view that the federal government’s target of reducing the emissions by 80 to 95% by 2050 compared to 1990 levels would also not be met.

As regards the ECHR Articles 2 and 8 imposed on public authorities a positive obligation to take necessary measures to repair and prevent harmful consequences of global warning which threatens their life and private and family life – which, at this time, the four governments do not. However, the Court could not infer from Articles 6 and 24 of the UNCRC any positive obligation on the part of the signatory states, as the text leaves the authorities full latitude to meet the objectives they set out.

So far so good for the applicants, but the Court did not grant the requested injunction. Belgium was not required under European or international law to meet the targets referred to by the Applicants, and the only binding target is the one established by the EU Regulation 2018/842 which imposes a reduction of 35% by 2030 compared to 2005 levels. Second, the jurisdiction of the Court was limited to the finding of a deficiency on the part of the public authorities, but did not extend to setting itself  Belgium’s targets for the reduction of greenhouse gas emissions, as this would violate the principle of separation of powers. This is in contrast to the position of the Dutch Supreme Court in Urgenda.

The Belgian decision follows hot on the heels of a decision on April 30 2021 by Germany’s Constitutional Court  that that Germany’s Climate Action Law was partly unconstitutional in that it postponed the decision for emissions reduction targets post-2030 to a later date.The German legislator was ordered to regulate the continuation of the reduction targets for the post-2031 period by 31 December 2022 at the latest.

Things go better for Shell? Not in the Netherlands (again).

Judgment has recently been given by a first instance court in the Netherlands in an action brought by various NGOs in which Royal Dutch Shell has been ordered to take as a guideline that the Shell group’s CO2 emissions (Scope 1, 2 and 3) in 2030 must be net 45% lower relative to 2019 levels, with net referring to the sum of the reduction of CO2 emissions of the Shell group’s entire energy portfolio (Scope 1, 2 and 3).

The Judgment covers three sources of emissions. Scope 1 concerns direct emissions from sources that are fully or partly owned or controlled by the organisation (such as a refinery). Scope 2 is for indirect emissions from third-party sources from which the organisation has purchased or acquired electricity, steam, or heating for its operations. Scope 3 includes all other indirect emissions resulting from activities of the organisation, but occurring from greenhouse gas sources owned or controlled by third parties such as other organisations or consumers, including emissions from the use of third-party purchased crude oil and gas. Scope 3 includes the emissions from cars using the fuel purchased from companies of Shell and the court took as a basis that 85% of Shell group emissions were in this category. Emissions.

The court decided, and that class action was appropriate for the suits brought by NGOs on account of the interests of current and future generations of Dutch residents and (with respect to the Waddenvereniging) of the inhabitants of the Wadden Sea area, a part of which is located in the Netherlands. Class action was not appropriate for the suits which looked to that the interests of current and future generations of the world’s population. The interest served with the class action must align with the objects stated in the articles of association and must also actually be promoted. Milieudefensie, Greenpeace Nederland,Fossielvrij NL, Waddenvereniging, Both Ends and Jongeren Milieu Actief met this requirement, but not that of ActionAid as it did not promote the interests of Dutch residents sufficiently for its collective claim to be allowable

The Court held that Dutch law applied, under art. 7 of the Rome II Regulation. Every contribution towards a reduction of CO2 emissions may be of importance, and these distinctive aspects of responsibility for environmental damage and imminent environmental damage must be included in the answering the question as to what in this case should be understood as ‘event giving rise to the damage’ in the sense of Article 7 Rome II. Although Article 7 Rome II refers to an ‘event giving rise to the damage’, i.e. singular, it left room for situations in which multiple events giving rise to the damage in multiple countries can be identified, as is characteristic of environmental damage and imminent environmental damage. When applying Article 7 Rome II, RDS’ adoption of the corporate policy of the Shell group therefore constituted an independent cause of the damage, which may contribute to environmental damage and imminent environmental damage with respect to Dutch residents and the inhabitants of the Wadden region.

RDS’ reduction obligation derived from the unwritten standard of care laid down in Book 6 Section 162 Dutch Civil Code, which means that acting in conflict with what is generally accepted according to unwritten law is unlawful. This standard of care entailed that when determining the Shell group’s corporate policy, RDS had to observe the due care exercised in society. The interpretation of the unwritten standard of care called for an assessment of all circumstances of the case in question, and the court considered fourteen factors.

 (1.) the policy setting position of RDS in the Shell group, (2.) the Shell group’s CO2 emissions, (3.) the consequences of the CO2 emissions for the Netherlands and the Wadden region, (4.) the right to life and the right to respect for private and family life of Dutch residents and the inhabitants of the Wadden region, (5.) the UN Guiding Principles, (6.) RDS’ check and influence of the CO2 emissions of the Shell group and its business relations, (7.) what is needed to prevent dangerous climate change, (8.) possible reduction pathways, (9.) the twin challenge of curbing dangerous climate change and meeting the growing global population energy demand, (10.) the ETS system and other ‘cap and trade’ emission systems that apply elsewhere in the world, permits and current obligations of the Shell group, (11.) the effectiveness of the reduction obligation, (12.) the responsibility of states and society, (13.) the onerousness for RDS and the Shell group to meet the reduction obligation, and (14.) the proportionality of RDS’ reduction obligation. The court went on to weigh the policy, policy intentions and ambitions of RDS for the Shell group against RDS’ reduction obligation

RDS’ responsibility was defined by the influence and control it can exercise over the Scope 1 through to 3 emissions of the Shell group and what is needed to prevent dangerous climate change. The most disputed aspect was in relation to Scope 3 emissions. RDS did not contest that it could exert control and influence through its energy package, and the composition thereof, produced and sold by the Shell group. This was not altered by the circumstance, emphasized by RDS, that the Shell group has contractual obligations as well as obligations ensuing from long-term concessions, which may limit its freedom of choice as regards the Shell group’s energy package. Rather surprisingly, the court noted that “it is internationally endorsed that companies bear responsibilities for Scope 3 emissions. The court has included this widely endorsed starting point in its interpretation of the unwritten standard of care.”

RDS was subject to an obligation of results as regards the Scope 1 emissions of the Shell group as well as a significant best-efforts obligation as regards the business relations of the Shell group, including the end-users, whereby RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by them, and to use its influence to limit any lasting consequences as much as possible.

The Court went on to note: “Moreover, RDS has insufficiently contested the standpoint of Milieudefensie et al. that RDS’ planned investments in new explorations are not compatible with the reduction target to be met. The Shell group’s policy, as determined by RDS, mainly shows that the Shell group monitors developments in society and lets states and other parties play a pioneering role. In doing so, RDS disregards its individual responsibility, which requires RDS to actively effectuate its reduction obligation through the Shell group’s corporate policy.”

The reduction made was provisionally enforceable but the claim 1(b), pertaining to the future actions of RDS, was rejected as it was not an established fact the RDS would act unlawfully in the future, and there were no indications that RDS would not comply with the order and not meet its obligations.

The judgment is very much an ‘Urgenda moment’ for RDS Shell, although the judgment will almost certainly end up being appealed and then proceeding to the Dutch Supreme Court. However, the prospects for any similar claim in tort against English companies in the oil and gas industry look far less promising. The decision of the New Zealand court in Smith v Fontera Co-Operative Group Ltd and Ors  [2020] NZHC 419 https://iistl.blog/2020/03/11/a-new-climate-change-tort-in-new-zealand/ looks a far more likely bet on the issue of liability in negligence and in public nuisance.