Drafting trans-Atlantic IP agreements: legal differences to watch out for

International harmonisation of intellectual property (“IP”) rights began in the late 19th century, with the signing of international conventions on copyright (Berne) and industrial property rights such as patents, designs and trade marks (Paris). As more and more countries have adhered to these conventions, now mandated by the World Trade Organisation’s Agreement on the Trade-Related Aspects of Intellectual Property (“TRIPS”), the world’s national laws have become consistent to a degree far beyond most other areas of commercial law. Whilst this is helpful to a large extent, ensuring a good standard for the protection of IP in all major trading nations, it also sets the scene for numerous misunderstandings based on the expectation of similarity clashing with the many differences of detail which persist between the implementation of those principles at national and state level.

This article picks out a number of issues which seem to arise
most frequently and may cause the greatest confusion.

Patents

In commercial transactions, two major differences between
the way patent rights work in the US compared with Europe can have significant
consequences. 

First, joint ownership of a US patent is straightforward:
the joint owners can transact in (assign, license) their respective shares of
the patent without reference to each other. 
This makes joint ownership the natural and appropriate approach to
ownership of any patentable inventions arising from jointly conducted
research.  European patent laws, however,
are the opposite: joint owners have to act collectively in order to license,
assign or arguably even exploit the patent rights. As a result, joint ownership
of European patent rights is a recipe for arguments once the joint owners’
interests have begun to diverge, and best avoided. This can be done through a
mechanism giving one party ownership (and preferably responsibility for
prosecuting and maintaining the patent) and licensing to other participants
such rights as are necessary to them for exploitation.  Explaining this to a US lawyer can take some
time.

Second, English law recognises three forms of licence: sole,
exclusive and non-exclusive.  In US legal
terminology, the licence equivalent to an English exclusive licence is
described as “sole and exclusive”. 
But if this terminology is used in a contract governed by English law,
it is a literal contradiction in terms leaving the parties to argue after the
event over what was in fact intended.  The
fact that the words are identical, and sound so soothingly familiar, frequently
leads to English law agreements incorporating US terms, and thereby losing
certainty in the drafting.

There are numerous other differences which may also be
important depending upon the context. 
For instance, not all EU member states have a ‘doctrine of equivalents’
which can be applied for interpreting the scope of patent claims.  Thus, a patent claim which is identical in
wording in the US and around Europe may in fact confer a different scope of
protection depending upon the jurisdiction concerned. Including some knowhow in
addition to patent rights in a licence can help to ensure that the licensor is
indeed giving value for all of the jurisdictions in which the licence is to
take effect.

Trade secrets

The law on trade secrets is, at present, the area least
harmonised – which is to say barely consistent at all – between the various European
Union Member States.  But the US and UK
doctrines as to what may be protected as a trade secret are deceptively similar,
leading many to overlook the crucial distinction that unlike the laws of many
US states, there are no property rights in a secret under English law.  The protection conferred is purely a creature
of equity, so that references to ‘proprietary rights’ in confidential
information have no useful place in any agreement governed by English law.  All that the holder of a trade secret has is
the right to use the information and to choose whether or not to disclose it,
and if so to whom.  Nor can such rights
be ‘assigned’ (since that is a term having meaning only in relation to items of
property) so that in English law transactions a more cumbersome mechanism is
necessary: the holder of the information will disclose in full, and undertake
not in future either to use the information itself or disclose it to any others. 

The law of trade secrets is in the process of being
harmonised across the EU so that at least the standards of what can be
protected and the remedies available will become more coherent.  But for the time being, contracts dealing
with more than one EU member state can only address “rights in
confidential information” without being any more precise as to what those
rights may be.  Once again, references to
‘owning’ and ‘assigning’ information are simply misleading.  And unfortunately, even after the reforms the
issue of property rights will remain unreformed for some time to come.

Copyright

The key misunderstanding which arises over the copyright
laws of the US and Europe is the scope of exemptions, and in particular the US exemption
for “fair use” of copyright works, which is far broader and more
flexible than the equivalent exemptions under European laws.  This can give rise to a sense amongst US
copyright experts that in licensing their rights copyright owners from the EU
are attempting to overreach their real entitlement and prevent uses which are
perfectly fair and normal. 

But in fact the EU approach to exemptions simply is more
pedantic.  For instance, English law
permits limited copying of literary, dramatic, musical or artistic works as
‘fair dealing’ for the purposes of non-commercial research , or private study.
This relates to the use of abstracts and small excerpts from a complete work,
not wholesale copying of texts. No commercial research is capable of being
exempt on this basis.  It may equally be
fair to copy a copyright work of any kind (i.e. including films, broadcasts and
sound recordings) or a performance of a work, for the purpose of criticism or
review, provided that the work copied has already been lawfully made available
to the public. Thirdly, it may be fair dealing to use copies in the course of
reporting current events (as long as a sufficient acknowledgement is made as to
the source of the material copied, unless this is impractical). Notably, the
current events exception does not apply to photographs; this is to prevent
newspapers from ‘borrowing’ each other’s best shots for their own reports of
the same event.

The US approach, in contrast, specifies that copying a
copyright work for purposes such as
criticism, comment, news reporting, teaching (including multiple copies for
classroom use), scholarship, or research, is not an infringement of copyright.
The fact that a work is unpublished does not itself bar a finding of fair use
if such finding is made upon consideration of all the appropriate factors
regarding fairness – which are very similar to those applicable under English
law.

The key difference from the English approach is the non-exhaustive
nature of the US list of purposes which may be fair use: the purposes listed
are almost identical, but the US statute does not exclude any other uses from
potentially falling within the exception. 
Thus, the US courts have been free to apply the exception in a far wider
range of circumstances, the principal issue being whether or not in each case
the use is fair.  Consequently, for uses
which are exempt in the USA, it may well be necessary to obtain a formal
licence before using the same work in the EU.

It is also important to be aware that, whilst no EU Member
State gives copyright less than the life of the author +  70 years’ protection, one or two states
(including Spain) still give life + 80, and France gives life + 100 to authors
who die on active military service. 
Accordingly, US companies planning to exploit copyright content in
Europe may inadvertently infringe unless careful to limit distribution of a
product only to those countries where copyright has definitely expired – or to
obtain the necessary licences. 

Similarly, there is no realistic prospect of the Court of
Justice of the EU following the US Supreme Court’s decision in the Wiley case and ruling that copyright is
exhausted by the sale of a product outside the EU: the wording of the copyright
 legislation is different on that point.

Another crucial difference between US and European copyright
law is that the concept of ‘works for hire’ is unknown in Europe.  This doctrine provides that the commissioner
of a work automatically owns the copyright without assignment language being
needed in the agreement between the parties. 
Under European copyright law it is vital to grasp that specific words of
assignment are required, even if the commissioning party is paying significant
sums to the party hired, to create the work. 
On the other hand it is possible to agree today to assign future
copyrights in works which have not yet come into existence , something which is
not possible under US copyright law. 

Finally, although copyright has been harmonised in certain
respects (such as the potential exemptions which may apply) across the EU, it
has not been harmonised as to the fundamental issue of what categories of works
may be protected.  Although once again UK
law is closely aligned with the US on this point, other countries give
additional protection to works such as smells (Netherlands) or hair styles and
fashion shows (France).  Again, local
advice is advisable before copying from anything which might be argued to be an
author’s creative expression.

Trade marks

In the case of Trade Marks the differences between European
and US law are more nuanced.  This is
neatly symbolised by the fact that the in the USA the term is trademark, whereas the EU legislation
refers to trade marks.  This is helpful
when presented with a precedent: the governing law clause may have been
changed, but very few lawyers will be so nit-picking as to change the form of
the term.  A draft trademark agreement can therefore be assumed to have started life
as a creature of US law, and liable to contain various provisions (such as the
inevitable clause printed illegibly in capital letters warning the licensee
that they may be subject to “injunctive relief” for breach), or
marking requirements around the use of the symbols ® or ™, which are
unnecessary under English or other European laws.  More seriously, it may also contain
restrictions on competition which would be permitted under US anti-trust laws
but breach the EU competition rules.  If
so, the entire agreement may be unenforceable.

As regards the scope of rights conferred by a trade mark,
European law recognises a number of defences some of which equate broadly to
the US fair use but some of which go beyond that, including the use of one’s
own name.  Nor is there any doctrine of
initial interest confusion. Accordingly, a licence may not be necessary for the
use of a trade mark solely within the EU if the licensee is in fact going to be
using the mark within the confines of uses permitted in the EU.  However, in its recent decisions the CJEU has
tended to rule more and more favourably to trade mark owners, bringing in
concepts of US law such as dilution and ‘free-riding’, so that the effective
level of protection is at least as good as that in the USA. 

There are substantive differences as regards the trade marks
themselves, as well, principally around the scope of what can be registered. The
USA is currently more generous, permitting both smells and trade dress to be
registered; the EU does not permit either in practice but is changing its law
to permit smells in the near future. The 2014 approval of Apple’s application
to register the layout of a retail store as a trade mark indicates that the EU
may over time come to be as flexible as the USA as to what may be a registrable
sign.  In the meantime, unregistered
rights over trade dress may be protected under either the tort of passing off
(England & Wales) or more generously, as unfair competition under various
continental legal systems. 

Conclusions

A lawyer well versed in IP law on either side of the
Atlantic is likely to feel relatively comfortable as to the concepts and issues
which may need to be considered in any IP transaction, but in some
circumstances this sense of familiarity can be a false friend.  Where the drafting process begins with a
document produced with an eye to US legal approaches, there are likely to be
many underlying assumptions which do not in fact hold water when considered
carefully.  Although in many cases this
may not cause problems – only a very small proportion of agreements ever come
to be challenged – in some circumstances a failure to recognise which
assumptions are being made can lead to avoidable disputes, or even an
unenforceable contract.