The law of contracts & IP

DOUGLAS MACBETH: In this video, we will talk about the law of contract and about intellectual property. First of all, we need to recognise that there are essentially two different kinds of law in the world. And for an explanation of the differences between the Anglo-Saxon common law– which is largely created by the collective decisions of judges– and the civil law which applies in most of the rest of the world, in which the various parliamentary processes or government processes– define in great detail what the law is and what the rules of operation are. However, contract management is not just about law. And all those involved do not need to be lawyers.

But some basic understanding is useful, not least to know when to call for expert help.

It is important to recognise the nature of the laws in the customer and the supplier territories. And there’s usually a statement in any contract to indicate under which jurisdiction any disputes will be heard. We will first of all look at the essential features of English law simply as an explanation of some of the considerations. So first of all, a contract is an agreement between parties which is intended to be enforceable by the processes of law, for example, a contract to buy and sell goods. A contract requires a number of factors. These are an offer of terms for the contract, and an acceptance of those terms. Offer and acceptance are therefore crucial.

In addition, the parties to the contract must intend this to be legally binding. And in English law a contract needs some kind of consideration where each party provides something for the other. It is sometimes money but it doesn’t have to be money. Valid contracts are also variable in their format. They may be written or verbal. And in fact, sometimes the law itself is required to make a decision about what fair terms would be. The contracts automatically become void, i.e. they cannot be operated, if the agreement was made where one party was under some kind of duress. Contract is also void if there has been unintended or indeed intended misrepresentation. And no contract is legal if it’s for an illegal purpose.

A contract, if the terms and conditions of the agreement is broken– a breach of any obligation. Then there is some process by which the innocent party may end the contract or recover some compensation. For all of this, of course, there has to be a functioning and impartial legal system in the country in which the contract is operating. Intellectual property is a hugely important aspect in contracting. And there is a range of different types of intellectual property. So we’re going to look at some of them. Trademarks need registration. But that registration has an indefinite duration. And a trademark is simply some way to represent the entity to which it is associated.

These can be in words, in the form of logos, shapes and packaging, smells, sounds, actions or slogans. Copyright is largely associated with writing of various kinds and is automatic in many legal jurisdictions and can last between 50 to 100 years after the author’s death. Essentially, the copyright protects against copying– the argument being that the author of this document has used their intellect to create it. And anyone who wants to use those words should attribute their source correctly. Designs are, in some senses, less tangible. They can be more about the appearance, feel of an item and can be registered within the European Union and will last for 25 years. Patents or patents recognise the investment in major innovations.

The idea of the innovation gets translated into an invention. And that invention, if it’s patented, allows the inventor some opportunity to sell that knowledge to others and a financial return on his investment. The issue, however, is that patents have a finite life of 20 years. And they have to be filed in every legal jurisdiction where trade is going to occur. So this can become very expensive if you’ve got a global product because you have to file in every area in which you trade.

The cost of filing these and the fact that you have to define a lot of detail about how the product or the software has been designed in a sense gives away some of the ideas behind the intellectual property. So for really secret situations it’s sometimes better just to keep them secret and not to patent them at all. Database rights are somewhat similar to copyright in the main. And the same kind of thinking applies. But in most contracts there is a concern about speaking or releasing information too soon. And this would certainly be the case before a formal agreement was made. And so most business discussions have to recognise confidential information.

Most contract discussions will only really begin once both parties have agreed that certain information communicated in the discussion is actually confidential and cannot be used outside that discussion. It’s therefore quite normal for people to exchange confidentiality agreements or non-disclosure agreements so that the conversation can then become more productive and possibly lead to a contract later on. Intellectual property and supply contracts becomes really important. And we need to recognise that in this kind of relationship that each party to the relationship brings with them knowledge that they have built up over very many years. And that knowledge belongs to them. It is not in dispute. This is described as background intellectual property.

However, in a new contract, new intellectual property will be created. And this is described as foreground IP. And now we have to decide who owns the new foreground IP regardless of which of the parties did most work to create it. Often customers will try and claim ownership since they often fund the work. But there can then be a negotiation about the difference between ownership and access. A customer might be happy just to have access to the use of the intellectual property in their business at no new cost. While the supplier might be happy to agree to this if it means they can use the IP in new business relationships.

It is very important to agree this before the contract starts since it can be very difficult to do it amicably later.