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

Proportionality is the key in music copyright pre-dispute

The Court of Justice of the European Communities gave its ruling this morning in Case C‑275/06, Productores de Música de España (Promusicae) v Telefónica de España SAU, this being a reference for a preliminary ruling by the Juzgado de lo Mercantil No 5 de Madrid, Spain.

In short, Promusicae is a non-profit-making organisation of producers and publishers of musical and audiovisual recordings. In November 2005 it sought a preliminary order against Telefónica, a commercial company whose activities include the provision of internet access services, asking that Telefónica be ordered to disclose the identities and physical addresses of certain persons whom it provided with internet access services, whose IP address and date and time of connection were known. According to Promusicae, those persons were users of the KaZaA peer-to-peer file exchange program and provided access, through shared files on personal computers, to phonograms in which the members of Promusicae held the exploitation rights. According to Promusicae the KaZaA users were engaging in unfair competition and infringing intellectual property rights, so it was entitled to disclosure of their personal details so that civil proceedings could be brought against them. The Juzgado de lo Mercantil No 5 de Madrid agreed and ordered the disclosure.

Telefónica appealed, contending that the communication of the data sought by Promusicae was authorised only in a criminal investigation or for the purpose of safeguarding public security and national defence, not in civil proceedings or as a preliminary measure relating to civil proceedings. Promusicae disagreed, arguing that there relevant provisions of Spanish law must be interpreted in accordance with Community law. The Juzgado de lo Mercantil No 5 de Madrid decided to stay the proceedings and referred the following question to the Court for a preliminary ruling:

"Does Community law, specifically Articles 15(2) and 18 of Directive [2000/31], Article 8(1) and (2) of Directive [2001/29], Article 8 of Directive [2004/48] and Articles 17(2) and 47 of the Charter … permit Member States to limit to the context of a criminal investigation or to safeguard public security and national defence, thus excluding civil proceedings, the duty of operators of electronic communications networks and services, providers of access to telecommunications networks and providers of data storage services to retain and make available connection and traffic data generated by the communications established during the supply of an information society service?".

Today the court has given its answer, in a single paragraph which makes up for, in its length, what it loses in its clarity:

"Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’), Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, and 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 (Directive on privacy and electronic communications) do not require the Member States to lay down, in a situation such as that in the main proceedings, an obligation to communicate personal data in order to ensure effective protection of copyright in the context of civil proceedings. However, Community law requires that, when transposing those directives, the Member States take care to rely on an interpretation of them which allows a fair balance to be struck between the various fundamental rights protected by the Community legal order. Further, when implementing the measures transposing those directives, the authorities and courts of the Member States must not only interpret their national law in a manner consistent with those directives but also make sure that they do not rely on an interpretation of them which would be in conflict with those fundamental rights or with the other general principles of Community law, such as the principle of proportionality".

Says the IPKat, put more simply, the ECJ means this:

"The various European IP and telecoms directives doe not require the Member States to lay down an obligation to communicate personal data in order to ensure effective protection of copyright in the context of civil proceedings, but they do require those countries to take care that, when transposing directives, they rely on an interpretation of them which allows a fair balance to be struck between the various fundamental rights protected by the Community legal order. National law must be interpreted in a way which is consistent with those directives and the courts should not rely on an interpretation of them that conflicts with those fundamental rights or with the other general principles of Community law, such as the principle of proportionality".

Left: the IPKat faces the reality of proportionality in EU law

Says Merpel, now it's all up to the Spanish courts -- and proportionality is a much easier principle to enunciate than it is to apply to any set of facts, particularly where proportionality can take into account so many different considerations but the result in this case is binary: either the personal details of KaZaA users will be disclosed or they won't.

Music and proportionality here and here
An Equal Music here and here

How agreements lead to disagreements; Schlumming it

Mr Justice Flaux is not a judge known to the IPKat, but he popped up in a recent IP-related dispute before the Commercial Court for England and Wales in Satyam Computer Services Ltd v Upaid Systems Ltd [2008] EWHC 31 (Comm) in which he gave judgment yesterday. You can read it in full here on BAILII.

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 etc etc etc... Fortunately, 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. 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 refused injunctive relief and ruled that, 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.

Says the IPKat, it's the same old story. If more attention had been paid to the conversion of the parties' shared understanding at the very beginning into a cohesive form of words, there would have been no need for the assignment agreement which contained the service agreement which led to the settlement agreement which led to a four-day hearing in the High Court. Merpel agrees, adding "It's much easier to settle disputes before they have arisen and when the parties are still fond of each other, rather than trying to hit upon the commercial and legal means of bridging an ever-widening gap between them after the relationship has gone sour". Tufty adds: "I can't help it: I just keep reading the name 'Upaid' as 'Unpaid'".


A more familiar judicial name in patent circles is that of Mr Justice Floyd, who gave a ruling yesterday in Schlumberger Holdings Ltd v Electromagnetic Geoservices ASA, an application to the Patents Court for England and Wales for the disclosure of documents relating to an invalidity action. The IPKat found this on LexisNexis Butterworths' subscription-only service but (as yet) nowhere else.

Schlumberger was the holding company for other companies which comprised the world's largest oilfield services operation, covering some 80 countries. EG filed for three patents relating to controlled sonar electromagnetic surveying equipment that could be used when detecting subterranean reservoirs. It was expected that such technology would become a key part of the future of surveying and, over a period of years, revenue deriving from such technology would reach $1 billion a year. Before EG's patents came along, Schlumberger had expressed no interest in investigating EG's technologies but, once it spotted EG's patents, Schlumberger sought to have them declared invalid on the ground that they lacked an inventive step. After EG sought disclosure of documents from Schlumberger and its group on which it based its contention that its patents were obvious, Schlumberger disclosed a single document relating to documents it held but added that it had no obligation to supply documents of relevance held by companies within the group, since the duty to disclose was limited to documents that were, or had been, in its control. EG was not happy about this, to put it mildly, and sought the wider disclosure.

Floyd J allowed EG's application. In his view, on the evidence the relevant documents had been within the control of Schlumberger and it could be considered that Schlumberger had the general consent of the companies within its group. Further, such documents would be of relevance to the parties in the case.

Says the IPKat, without being in possession of the facts and without having seen the decision it is unwise to comment, but it's difficult to see how Schlumberger could have seriously expected the court to rule in its favour on this point. Any billion-dollar business is entitled to spend its money as it pleases, but this looks like a waste of money for the sake of spite, in order to cause inconvenience and annoyance for its own sake.

Background to Schlumberger here. Little-known fact: the company was founded by a pair of Alsatians.