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Tuesday, 13 May 2008

Three agreements -- but plenty of disagreement

Satyam Computer Services Ltd v Upaid Systems Ltd [2008] EWCA Civ 487 was heard by the Court of Appeal for England and Wales (Lords Justice Waller, Lawrence Collins and Rimer) on Friday of last week. You can read it in full here on BAILII. It's a case involving the construction of three IP contracts. Helpfully, the Court of Appeal has appended the text of all three of them to its BAILII transcript, so you can test your interpretational skills against those of the judiciary.

Upaid developed software and payment processing technologies. In about 1996, Upaid's founders developed the idea of converting any telephone into a de facto pay-phone through the use of a pre-paid account associated with a caller personal identification number (PIN). Opting to outsource its development, they identified Satyam -- an Indian IT company -- as being suitable to do that work. In May 1997 Upaid and Satyam concluded a short and relatively informal memorandum of understanding.

All went well till June 1998 when Upaid, seeking a US patent, had to demonstrate 'unity of ownership' of the intellectual property rights in its invention. This meant that Satyam would have to assign any rights in the work to Upaid. In fact Satyam normally did this -- but the memorandum of understanding said nothing about it having to do so. Following three months of negotiation the parties entered into an assignment agreement, under which all Satyam's IP would be transferred to Upaid in return for a cash payment. The assignment agreement also referred to a service agreement which, as it turned out, was not concluded until May of the following year. Under the service agreement Satyam would pick a dedicated team to work exclusively on Upaid's projects.

By 2002 the relationship had deteriorated. Upaid complained about Satyam's work. Satyam complained at not being paid and said that the IP rights reverted to it. Upaid said Saytam was infringing its IP rights. At the end of that year the parties struck a settlement agreement, this being subject to the exclusive jurisdiction of the English courts. In June 2005 Upaid commenced patent infringement proceedings in Texas against two third parties and sought Satyam's assistance, which was fothcoming. Having settled that action on unfavourable terms, Upaid then applied to the Texas courts for a declaration of validity of its patents, damages for Satyam's alleged fraud in providing Upaid with forged documents in the earlier Texas proceedings, plus damages for an alleged breach of the assignment agreement back in 1999.

In these English proceedings Satyam argued that either (i) Upaid's claims against it in Texas had been brought in breach of the settlement agreement, which compromised all such claims, or (ii) the exclusive jurisdiction clause in the settlement agreement required the claims to be brought in England.


Right: latest products from the Catphone Warehouse ...


Flaux J had to rule in this instance on three issues: (i) which, if any, of Upaid's claims had been finally compromised by the settlement agreement; (ii) did any (and, if so, which) claim fall within the scope of the English jurisdiction clause contained in the settlement agreement and (iii) was Satyam entitled to a final injunction?

Flaux J (whose decision this January was noted by the IPKat here) refused injunctive relief. On its true construction the settlement agreement did not deprive Upaid of the future right to claim damages for breach of the assignment agreement or for alleged fraud in relation to documentation produced pursuant to that agreement. Nor was there anything in the relevant agreements that required these actions to be pursued in England.

On Friday the Court of Appeal dismissed Satyam's appeal. It agreed with Flaux J's construction of the agreements. The settlement agreement did not supersede the assignment agreement: Upaid retained all relevant intellectual property; the assignments continued to apply in accordance with their terms. Claims under the assignment agreement were governed by that agreement and not by the settlement agreement.

The IPKat notes that Lord Justice Lawrence Collins, delivering the main judgment, felt that this case was somewhat orver-argued. He said (at para.2):

"The case was most elaborately argued before the judge and before this court, with an attention to the linguistic detail of the agreements more appropriate to the interpretation of tax legislation which has received close scrutiny at all committee stages than to the interpretation of commercial contracts. The main points of interpretation on this appeal depend primarily on the ascertainment of the commercial purpose of the agreements in the light of the commercial and factual background".
In other words, what were the parties trying to do -- not what was the meaning of the words by means of which the parties expressed their intentions? Merpel mourns the fact that this dispute has run up as far as the Court of Appeal on a dispute as to the resolution of preliminary issues, five and a half years after the parties reached a settlement agreement. Surely there must be better ways than this to lubricate the friction of a commercial relationship.

Payphones here
The Payphone Project here

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