Locations
It is also an important reminder that the courts will not step in to correct a bad bargain.
Background
Mr E designed a number of commercially successful kitchen utensils and devices, including a distinctive set of chopping boards. He licensed some of his designs to Joseph Joseph (JJ) (well-known producer of homeware goods known for their modern design). Pursuant to that licence, where JJ applied for any registrations these had to be in both JJ and Mr E's names as joint proprietors.
A few years later, the parties entered into a deed of variation whereby inter alia, Mr E assigned his worldwide rights to JJ. JJ warranted to make its "best efforts to protect and defend" those rights which included registering the designs in all territories "where the parties mutually agree" would be "beneficial".
Mr E had the right to have the rights assigned back if JJ did not wish to exploit the rights.
IPEC judgment
Principles of contract interpretation
The court nicely summarised the key contractual interpretation at paragraphs 28 – 35 noting that its job is to identify the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties at the time it was concluded, would have understood them to be using the language in the contract to mean.
As to the date when the clauses needed to be interpreted: some provisions were replaced by the deed of variation and so had to be interpreted as at the date of the deed. Others were still in place from the original licence and had to be interpreted as at the date of the licence.
Admissibility of factual material
The court drew a distinction in the evidence submitted by Mr E between factual background and assertions, slotting much of the material in the latter pot and holding it inadmissible. It also held that:
- The awareness of the parties as to the importance of registrations to prevent counterfeiting was admissible background evidence, but its probative value was not clear
- It was irrelevant whether the parties expected JJ to continue its international growth.
- It was irrelevant that Mr E's designs (as produced by JJ) were successful and had been the subject of copying and counterfeiting.
- It was however relevant that different factors and competing considerations contributed to JJ's decision whether to register a design. That, the Court held, reflected common sense as it existed at the date of the licence and deed of variation.
- Aspects of design law (including that designs are territorial and registered design protection is generally longer than unregistered protection) were not legitimate aids to construction.
- It was relevant the parties were aware that applications and maintenance of design registrations were likely to incur costs (but little if anything turned on this point).
"parties mutually agree"
The court found that this was a simple mechanism agreed by the parties regulating whether or not JJ would register a design. In essence they both needed to agree. This did not impose any obligation to discuss in good faith. This construction was supported by additional language in the same clause which provided what would happen if the parties didn't agree.
That a registration be "beneficial"
The court did not explain what this positively meant, but it did rule on what it did not mean: it did not mean (as contended by Mr E) that there was a presumption that registration of a design was beneficial unless one of the parties could show registration would not result in a benefit. It added that the clause did not fix the parameters or perspectives of the assessment of whether a registration was "beneficial".
Using "best efforts" to protect and defend rights
The court noted that "best efforts" is no different to "best endeavours". It was accepted that JJ was required to try to achieve a result in accordance with a particular standard of conduct.
At para 93 of the judgment there is a useful summary of the formulations in decided cases. The court noted that it is a fact-sensitive inquiry; it is not an absolute obligation and will be limited according to the specific facts.
It also noted that the obligation was ongoing, extending throughout the term of the licence. It held that it was incumbent upon JJ to use best efforts to renew the requisite design registrations. This meant that JJ was obliged to pursue all reasonable courses they could in order to renew a design registration in a given jurisdiction when such renewal becomes due (unless another provision applied).
The court noted that on the facts (and the operation of another provision in the Agreement), this could lead to the commercially undesirable position for JJ whereby it decides that it does not wish to renew a design registration and is then required to transfer it to Mr E. But that was not at odds with the overall commercial purpose of the licence or commercial common sense. The parties agreed these obligations and consequences as part of their bargain.
Key practical takeaways
Most simply, this case clarifies that an obligation to use "best efforts" to defend and protect IP rights will likely include the obligation to renew. So there are real costs implications in agreeing to these efforts.
More broadly, this case reiterates the importance of clarity in drafting. If you want good faith discussion, or a presumption in favour of registration, then make sure you expressly say so.
The ruling therefore reminds us to "measure twice and cut once" when it comes to drafting licence agreements – and ensure any presumptions on both sides are captured within the agreement itself. For you are bound by what you signed, no matter how you want to slice it.
With special thanks to trainee, James Russell, co-author of this article.