June/July 2010 Issue

Q: What were the issues raised and lessons learned from the BSkyB v EDS Case?

A: The decision of Technology and Construction Court in the BSkyB v EDS Case* was long awaited and much publicised due to the broad potential ramifications for IT suppliers trying to win large IT projects. Below are some of the key lessons that arose from the facts.

Background: In March 2000, BSkyB invited tenders for a customer relationship management system to be used in its call centres. EDS were successful in winning the tender in November 2000. The system was to go live within nine months, with full completion in 18 months.

However, the system did not go live until March 2006. As a result, BSkyB began court proceedings against EDS claiming that, in order to be awarded the contract, EDS had made both negligent and deceitful representations in its initial bid response to the tender and in the pre-contractual negotiations.

Unlimited liability for fraudulent misprepresentation: The contract had capped EDS' liability at £30 million; however, this cap would not apply to any fraudulent misrepresentations made by EDS. Sky was therefore able to seek damages far in excess of the £30 million cap if they could prove that EDS had been fraudulent in making pre-contract misrepresentations.

EDS was found to have made misrepresentations on timings as to when the project would finish, but was not held liable for various statements made during the bidding and contracting process. Some statements made by EDS were held to be negligent misstatements, but not deceitful. The key point in this case was that it was just one EDS employee working on the bid and it was this individual who was held by the Judge to have made deceitful representations in terms of EDS’s ability to deliver within an extremely tight timeframe. While the final amount of damages has not yet been determined, it is anticipated to be at least £200 million.

A cautionary warning: As a result, it is clear that IT suppliers must be very careful what statements are made in pre-contract discussions/bid for new business. It also highlights the importance for IT businesses to have set procedures in place when trying to win business, for example, to ensure that a minimum of two bid managers work on any tender to avoid the above scenario happening, however innocent that might be.

This case also serves as a reminder to ensure that bid managers should be appropriately trained on the representations that they can/cannot make to the potential customer and those promises that should only be dealt with in a contract.

* BSkyB Ltd v HP Enterprise Services UK Ltd (formerly Electronic Data Systems Ltd) and another [2010] EWHC 86 (TCC)

Q: What are my main duties as a director?

A: The Companies Act 2006 introduced a statutory statement of directors' duties that replaced many of those existing common law and fiduciary duties. Below are some of the common questions that arise in relation to director’s duties:

Broadly speaking, these can be divided into the following seven categories:
1)    Duty to act within powers: a director must act in accordance with the company's constitution and must only exercise his powers for their proper purpose.
2)    Duty to promote the success of the company: a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
3)    Duty to exercise independent judgment: a director must exercise independent judgment.
4)    Duty to exercise reasonable care, skill and diligence: a director must exercise the care, skill and diligence which would be exercised by a reasonably diligent person with both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company (the "objective" test) and the general knowledge, skill and experience that the director actually has (the "subjective" test).
5)    Duty to avoid conflicts of interest: a director must not, without the company's consent, place himself in a position where there is a conflict, or possible conflict, between the duties he owes the company and either his personal interests or other duties he owes to a third party.
6)    Duty not to accept benefits from third parties: a director must not accept any benefit (including a bribe) from a third party which is conferred because of his being a director or his doing or not doing anything as a director.
7)    Duty to declare interest in proposed transaction or arrangement with the company: a director must declare to the other directors the nature and extent of any interest, direct or indirect, in a proposed transaction or arrangement with the company.

What are the consequences of a breach?

The duties are owed to the company and only the company will be able to enforce them, although in certain circumstances shareholders may be able to bring a derivative action on the company's behalf.

The remedy for a breach of the duty to exercise reasonable care, skill and diligence will usually be damages. However, remedies for breaches of other general duties may include an injunction, the setting aside of the relevant transaction, restitution and account of profits, the restoration of company property held by the director or the termination of the director's service contract.
What practical steps can I take to avoid breaching my duties as a director?

In summary, directors should:
•    Ensure that they are aware of their duties under the 2006 Act.
•   Ensure management, those employees responsible for preparing board papers and presentations, the business review and others involved in governance, are also aware of the new duties of directors.
•    Review the terms of reference of board committees.
•    Familiarise themselves with the constitution of the company, in particular any limitations on the powers of the company or the directors.
•    Determine whether the articles of the company should be amended to permit independent director authorisation of conflicts of interest.

April/May 2010 Issue

Q: Will a new pan-European contract law solve and prevent cross-border transaction problems, perceived to inhibit businesses and individuals from benefitting from a single market?

A: As online trading becomes more prevalent, it is interesting to discover that in 2008 (almost pre-recession) only 7% of transactions carried out over the internet were cross-border in nature.  It raises the question: “why don’t consumers buy from abroad?”

The 27 jurisdictions of the EU are thought to be the problem!  However, major changes to laws that govern cross-border distance selling are afoot and could provide consumers with more flexibility when buying from abroad. 

Viviane Reding, EU Commissioner for Justice, Fundamental Rights and Citizenship, has recently set out what she thinks will strengthen the single market and increase growth in Europe; a new, pan-European contract law, to run parallel to national laws and provide a standard set of terms and conditions that could apply to consumer sales across the EU.

However, uncertainty lies in whether the benefits outweigh the enormity of codifying consumer law across Europe, and also whether it would add significantly to consumer protection. 

Consumer purchasing habits are also thought to be an underlying concern.  People are typically shopping at local or regional level; with such habits perhaps developing recently due to economic pressures, as people find less risk and cost involved when buying from domestic suppliers.

Alternatives to this pan-EU law are two-fold:

•    ensuring the laws of 27 Member States agree on certain important points of consumer contract law; and/or
•    harmonise the different contract laws, giving a high level of consumer protection.

Work is set to begin on a Directive that is far more flexible in approach following the second alternative being ruled out by the Commission last month.

It seems that proposals for such an approach will be issued in April and a report produced by September, for consideration in the full European Parliament in November.

If and when a solution is determined, it needs to be flexible and sophisticated enough to ensure consumers feel like they are buying from the local shop!
 

Q: What are the implications of the Google Adwords ruling for advertisers?

A: The European Court of Justice ("ECJ") handed down its long-awaited judgment in relation to whether or not Google's 'AdWords' system, which allows the sale of keywords, could amount to trade mark infringement.

The ECJ agreed with the Advocate General in finding that the purchase and sale of keywords which were third party trade marks did not amount to an infringement.  However, if the display of the sponsored advertising link could mislead an 'average internet user' as to the origins of the goods/services, it may result in an infringement by the advertiser.

The "use" of third party trade marks as keywords

The ECJ distinguished between the "use" of the mark by Google in allowing the keyword to be registered and the "use" made by the advertiser who purchases the keyword in order to generate advertising by sponsored links. The former use does not result in infringement, but the latter could.

The ruling stated that owners had the right to stop the use of their trade marks in AdWords when the adverts displayed suggested they were linked to the trade mark owner or caused confusion about who was behind them.

While Google have been given a “get out of jail free card” due to the peculiarity of AdWords, this is not a precedent that people can look to and apply to themselves on a more general level.  The use of such trade marks by any other means in the normal course of business amounts to a trade mark infringement and would therefore produce a very different result!

Although the decision means that brand owners cannot prevent Google selling trade marks as keywords to third parties, there are other enforcement options available. The ECJ's finding that a trade mark can be infringed in a sponsored link advertisement if an Internet user cannot identify the origin of the advertised goods/services opens up a new battleground for enforcement.  So there may be more to come!

February/March 2010 Issue

Q: I’m updating our website and need to make sure it complies with English law.  What do I need to cover?

A: There is a considerable amount of legislation that applies to websites.  The short summary below is just the tip of the iceberg, but includes some of the key considerations.

It is important for your website to have terms and conditions of use. These will need to cover the issues of liability, use of cookies, content control, law and jurisdiction. If you are making online sales, you will also need a separate set of terms covering key issues such as contract formation and provisions that limit your liability to the customer as far as legally possible.

If you are dealing with consumers, your website needs to comply with the Unfair Terms in Consumer Contracts Regulations 1999 which require your terms and conditions to be in plain, intelligible language and make certain types of clauses unlawful (and therefore unenforceable) on the grounds of unreasonableness. If you sell goods and/or services to consumers you must provide a cooling off period (although there are limited exceptions to this).  Also, assuming that your site will collect personal data for various purposes, you must get the right types of consent based on those purposes from the customer (and ensure compliance with the Data Protection Act more generally).   

The UK’s E-Commerce Regulations require certain information (for example, VAT information and delivery costs) to be made available on every website that sells goods or services.  As a general rule, you must ensure that all your contact details and registered office details are readily available.

To protect the copyright in your web pages, you should incorporate a copyright notice on each page of your site and include express restrictions on copying any trade mark/logos in your terms of use. If you have any registered trade marks, the usual symbols should be used to demonstrate this.

You should also consider how accessible your website is as the Disability Discrimination Act 1995 requires you to make reasonable adjustments to make it accessible to all.

Q: I am an employer.  Do I automatically own the copyright in work produced by my employees and/or contractors?

A: This is a good question; the position is different depending on whether the work is created by an employee or a contractor to your business.

The basic position is that the author (or creator) of a work owns the copyright in it.   However, contrary to that statement, an employee will not own the copyright in works created by him during the course of his employment.  In other words, the copyright vests in you, the employer, subject to any agreement that suggests otherwise.

Even though copyright law is on the side of the employer (for once!), often an employer will consider copyright ownership in any works made by its employees as so fundamental to the business that an express assignment of copyright from the employee to the employer is drafted into the contract of employment.

If you were to commission a piece of work from a contractor, the owner of copyright in that work would be the contractor and NOT you, even though you have paid for that work to be done.

Whilst it might sometimes be possible for you to argue otherwise, it is far better to ensure that copyright ownership is dealt with as part of the contract between you and the contractor at the outset. 

Any assignment of copyright must be in writing and signed by the creator (or current owner) of the work in order to be effective.  It can also be drafted to incorporate any future copyrights in works not yet created.

If you would like any further information or a fixed price quote to provide wording for an assignment of copyright, please contact Christine Jackson at Wright Hassall LLP.