Representing parties before Community Courts
Vonage Holdings Corporation v OHIM (CFI; T-453/05; 29.06.06)
Vonage brought an action in the CFI against the decision of the first Board of Appeal regarding an application for a CTM registration. Vonage was represented by a Swedish trade mark attorney.
The CFI dismissed the application as manifestly inadmissible. Article 19 of the Statute of the Court of Justice provides that two cumulative conditions must be satisfied in order for a person to be able validly to represent parties (other than Member States and Community institutions) before the Community Courts: that person must be a lawyer (‘advokat’, according the Swedish version) and must be authorised to practise before a court of a Member State or of another State which is party to the EEA Agreement. According to Swedish legislation, the title of ‘advokat’ is reserved to persons who have a Master’s qualification in law and have been admitted to the Bar.
The trade mark attorney representing Vonage was not admitted as a member of the Swedish bar and therefore was not a lawyer (‘advokat’) within the terms of Article 19 of the Statute of the Court of Justice. Consequently, he was not authorised to represent Vonage before the CFI.
Ellerman Investments Ltd & The Ritz Hotel Casino Ltd v C-Vanci & Anr* (Judge Havery Q.C.;  EWHC 1442 (CH); 16.6.06)
The judge granted summary judgment against the defendants for infringing the claimants’ trade marks incorporating the word RITZ, in particular, a UK registration in class 41 for gaming services. The first claimant ran a website called ritzclublondon.com. The Defendants first registered ritzpoker.net and then five further domain names incorporating the words “ritz” or “ritzy” and “poker”. These sites had links to gaming sites.
The judge held that there was no infringement under Article 5(1)(a) of the Directive. He did not accept the claimants’ submission that the word “poker” was wholly or specifically descriptive in such a way as to add nothing at all to the word “ritz”. However, under Article 5(1)(b) he held that the mark RITZ had a highly distinctive character because of its use and accordingly there was a likelihood of confusion between it and the defendants’ signs. Further, the public were likely to associate the mark and signs in such a way as to believe wrongly that the respective services come from the same, or economically linked, undertakings. Although there was no evidence as to specific instances of confusion, such evidence was not necessary to establish the claimants’ case.
COPYRIGHT AND DESIGN RIGHT
Vitof Ltd v Altoft* (Richard Arnold Q.C. sitting as Deputy High Court Judge;  EWHC 1678 (Ch); 11.7.06)
There were a number of applications before the Deputy Judge, including an application by the claimant for summary judgment. The facts of this case were complex and this report only deals with the issues of copyright, design right and confidential information.
The litigation arose following the falling out of two business men, Mr Altoft, the defendant, and Mr Chiovitti. Both had considerable experience in the labelling industry. Together they set up and were directors of Vitof Ltd, whose business was to make and sell a new labelling machine called the PDFM. Much of the dispute arose around the contributions of both men, in particular, with regard to the software and the circuit designs for the PDFM label printer.
The Deputy Judge held that Vitof was entitled to summary judgment on its claims that Mr Altoft held the legal title to the copyright in the source code on trust for Vitof. As a consequence, he ordered that Mr Altoft execute an assignment in favour of Vitof. On a summary judgment application, the Deputy Judge could not resolve a number of questions of fact, including Mr Chiovitti’s claim to joint authorship in the source code. However, he accepted that, through a series of steps, Vitof had equitable title to the copyright in the source code and that Mr Altoft had no real prospect of succeeding in any contrary claim. The steps were as follows:
- Mr Altoft claimed that 90% of the software was owned by Label-Aire, the company he had worked for before joining Vitof, because he had taken a copy from them and had not had time to rewrite it. However, on Mr Altoft’s own evidence, 10% was different, or at least modified. Thus, since the software for the PDFM label printer was not a slavish copy of Label-Aire’s software, it was an original literary work in which copyright subsisted
- Mr Altoft accepted that 8-9% of the software was created after the incorporation of Vitof. Therefore the Deputy Judge held that, although Mr Altoft owned the legal title to this portion, he held it on trust for Vitof. As one of two of Vitof’s directors, Mr Altoft owed a fiduciary duty not to place his interests in conflict with Vitof’s interests with regard to the design of labelling equipment (as this is what Vitof had been set up as a company to do). Furthermore, under the Shareholder’s Agreement, Mr Altoft agreed to devote substantially the whole of his time to Vitof’s business and therefore he could say he had other legitimate business interests.
- Likewise, with regard to the remaining 1-2% of the source code which was created before the incorporation of Vitof, Mr Altoft held it on trust for Vitof as the work was done in contemplation of the incorporation and for the benefit of Vitof.
The Deputy Judge accepted that the claim to confidential information in the source code stood or fell with the claim to copyright and consequently Mr Altoft owed a duty of confidence to Vitof in relation thereto.
The Deputy Judge held that Vitof was not entitled to summary judgment on its claims that it owned the design right in the circuit designs or the copyright in the design documents produced by a third party, UKE. However, he held that Mr Altoft did not own these rights and would make a declaration to that end. It was common ground between the parties that Vitof sent the circuit diagrams to UKE and that, from those, UKE produced design documents for the production of printed circuit boards. The Deputy Judge rejected the argument that the latter were mere copies of the circuit diagrams and therefore design right did not subsist in them; UKE had some latitude as to where to position the components on a particular circuit board and as to the layout of the copper connectors. As to ownership, however, there was some evidence of an agreement between Mr Altoft and UKE which meant that Section 215(2) of the CDPA [legal ownership of design right belongs to the commissioner of the work] did not bite on the equitable title or possibly on both the legal and equitable title. As to copyright in the design documents, the conclusion was the same, although there was no equivalent to Section 215(2) in Part III of the CDPA.
Vitof also contended that Mr Altoft infringed its copyright in the source code by sending a complete copy to Label-Aire, which he said he did in order to “come clean”. The Deputy Judge did not grant summary judgment on this point. He found that Mr Altoft may have been trying to provoke Label-Aire into suing Vitof and therefore he might just about have a real prospect of establishing a defence; Section 45(1) of the CDPA provides that copyright is not infringed by anything done for the purposes of judicial proceedings and this arguably extends to the making of copies before proceedings are commenced.
The Deputy Judge’s parting comment in this case was that this dispute cried out for mediation if settlement could not be achieved by negotiation and, if the parties were not able to reach an accommodation, he was minded to order a stay with a view to mediation.
Software Directive – application to refer to ECJ
Nova Productions Ltd v (1) Mazooma Games Ltd & Ors (2) BellFruit games Ltd* (Lord Justice Jacob;  EWCA Civ 1044; 25.07.06)
Giving judgment for the Court of Appeal, Jacob LJ refused an application from games designer Nova to refer a question to the ECJ. Nova’s copyright infringement claims against Mazooma and Bell Fruit in relation to one of Nova’s computer games was dismissed at first instance. Pending an appeal, Nova applied to refer to the ECJ the question of whether the High Court Judge had erred in discounting the preparatory design materials in his consideration of whether the respondents had taken a substantial part of the computer program. It was submitted on behalf of Nova that the Software Directive envisages that preparatory materials should be treated as part of the meaning of “computer program” rather than as something separate.
Jacob LJ did not express an opinion on this point; however, Nova’s application was refused on the following basis:
(i) There was a real prospect that Nova will fail on the facts, whatever view of the law the Court of Appeal takes. Even taking into account the computer program and all the preparatory materials, it by no means follows that what the respondents did would amount to the taking of a substantial part;
(ii) Even if at the end of the hearing the court decided to refer, it would be able to do so with its own opinion on the question to be referred;
(iii) A referral could cause a delay of the appeal by up to four years; and
(iv) The court was not satisfied that a referral would result in a substantial saving in costs.
Publication of draft judgments
Baigent v Random House & The Lawyer* (Peter Smith J.;  EWHC 1131 (Ch); 3.5.06)
Before judgment was handed down, but after the draft had been released to the parties, The Lawyer published on its website the fact that the defendants had prevailed; that is, Dan Brown had not copied the central theme of The Holy Blood and The Holy Grail in writing The Davinci Code.
Both the Practice Direction and the notice attached to all draft judgments make clear that publication of a draft is a contempt of court. However, in this case, the judge accepted that The Lawyer did not act in contempt of court, nor did he consider it to be in the interests of justice to seek to establish the journalist’s sources.
The judge warned that, in future, the consequences that might be visited upon anyone who publishes a draft judgment might well be severe. It was important that a mechanism which was introduced to aid the parties was not abused.
Subconscious use of confidential information
Norbrook Laboratories Ltd v Bomac Laboratories Ltd* (Privy Council, Judgment delivered by Lord Bingham of Cornhill; No. 41 of 2005; 4.5.06)
The Board overturned the decision of the New Zealand Court of Appeal, which in turn had come to the same conclusion as the High Court, that is, that the defendant, Bomac, had not breached a secrecy agreement with Norbrook. The order of the Court of Appeal would be set aside and the case remitted to the High Court for determination of the issues consequent upon the Board’s decision.
Bomac is a distributor of animal health products and, in 1988, signed a secrecy agreement with Norbrook, manufacturers of an antibiotic intramammary dry cow remedy called Bovaclox DC Xtra. This cloxacillin containing product is coated with x% of lecithin. Whilst the ingredient cloxacillin and the lecithin coating was information in the public domain, the percentage of lecithin was, and remains, confidential. In 2000, Bomac began to explore means which it could continue to sell Bovaclox DC Xtra if its collaborative arrangement with Norbrook were to end. To this end, it was in touch with an Argentinian company called Rosenbusch SA and asked them to develop a lecithin coated cloxacillin product. On 11 September 2001, representatives of Bomac and Rosenbusch spoke on the telephone. During that conversation, the Rosenbusch representative mentioned another product with x% penicillin coating and that the product to be made for Bomac should also contain x%. The next day, the Bomac representative included a specific reference to x% in a spreadsheet and a letter which he then sent to Rosenbusch, believing that the percentage figure was in the public domain.
The New Zealand Court of Appeal held that there was no deliberate breach of the secrecy agreement nor had Bomac subconsciously misused the confidential information. In coming to this conclusion the court held that it was important that the Rosenbusch representative had mentioned x% first and had thought that this was the probable figure for Bovaclox DC Xtra. It was also important that the Bomac representative appeared not to have completely understood what the x% applied to.
Lord Bingham stated for the Board that the breach of the secrecy agreement had been very clearly established. There was no other way to read the 12 September letter and spreadsheet except as an express and precise statement of the figure of x%. The figure was confidential and Bomac was not at liberty to disclose it to Rosenbusch.
There was one final point and that related to onus of proof. The claimant has the onus of proof in any breach of confidence case. However, the Board held that the application of common sense dictated that if A entrusts B in confidence with secret information, and B is precluded by contract from using that information, and the relationship between them ends, and B puts on the market a product which could not ordinarily be made without using A’s secret information, a claim by A for breach of contract was likely to succeed unless B could show that it obtained the information from another legitimate source, or as a result of independent research, or in some other manner not involving misuse of A’s information.
Calculation of damages
Gorne v Scales & Ots* (L.JJ. Ward, Arden & Moore-Bick;  EWCA Civ 311; 29.3.06)
By a majority (L.J. Arden dissenting), the Court of Appeal allowed the appeal from the decision of Master Bragge on an enquiry as to damages. The matter was sent back for a fresh enquiry before a judge of the Chancery Division.
In summary, the facts were as follows: On the dissolution of a partnership called Seeds Direct, two of the directors (being the first and second defendants) set up a new partnership, taking with them a highly detailed card index which contained a continuous business record of Seeds Direct and its predecessors going back 10 years. In a judgment in 2002, it was held that Mrs Gorne was a partner in Seeds Direct and entitled to damages or an account of profits in respect of the misuse of the confidential information in the card index. She elected a damages inquiry and was awarded £258,979.70 (including interest) by the Master.
The Master had accepted Mrs Gorne’s expert’s opinion on the method of calculating the damages. He considered that the card index represented the bulk of the goodwill of Seeds Direct’s business and he therefore calculated its value by valuing the business of Seeds Direct as a whole and deducting from it the value of its other assets so as to produce a value for the goodwill. It was then a matter of judgment as to what percentage related to the card index. The expert also considered that the last accounts of Seeds Direct were not representative of the period up to the date of dissolution, so he also used the trading accounts of the defendants’ partnership for approximately the first year of trading because it was, in effect, a continuation of the business of Seeds Direct.
L.JJ. Ward and Moore-Blick held that the correct measure of damages was the market value of the confidential information on a sale between a willing seller and a willing buyer (Seager v Copydex (No. 2)  1 WLR 809). The method used by the Master was wrong for the following reasons:
It assumed that Seeds Direct was a well established and stable business capable of being valued as a going concern and whose earnings could be expected to continue in a broadly consistent manner. This was not the case. The new partnership was not the same business in the sense of taking over the business of Seeds Direct as a going concern, although it recreated broadly the same enterprise.
It introduced a substantial measure of hindsight in that it used the trading results from the new partnership. As such, the Master was moving away from the position in which any potential purchaser of the card index would have found himself at the dissolution of Seeds Direct. He should not have considered the subsequent use made of the card index.
L.J. Ward considered that the index undeniably had a value; the imponderable was what price the new partnership would have been prepared to pay for it. There was no evidence of anyone else willing and able to seek Seeds Direct’s business and more importantly to perform the business. There was moreover a narrow window of opportunity for use of the index; the new partnership had to get up and running quickly to capture a seasonal market. In judging what a proper market price would be, L.J. Ward considered that some regard had to be had to the ability of the new partnership to drive a hard bargain.
In dissenting, L.J. Arden accepted that, where an asset was valued on an earnings basis, there was some resemblance to an account of profits. However, she did not consider that using such a method converted an inquiry as to damages into an account of profits and pointed out that if that were not so, the court could never adopt an earnings basis as a method of valuing an asset on an inquiry.
Shepherd Investments Ltd & Anr v Walters & Ots* (Etherton J.;  EWHC 836 (Ch); 12.4.06)
The claimants claimed damages and an account of profits due to certain breaches of fiduciary duty, the obligation of fidelity and express contractual terms and the misuse of confidential information by the defendants. Etherton J. held that certain of the defendants were in breach of certain of these claims. The following is a very much simplified summary of the judgment.
Two of the individual defendants had been directors and employees of the second claimant. As such, they owed a fiduciary duty to the second claimant and, because of the close links between the first and second claimants (the second claimant was the parent company of the first claimant and advised the first claimant on investment policy under an agreement), they also owed such a duty to the first claimant. A third defendant was an employee of the first claimant, but because he was in the position of a de facto director, also owed a fiduciary duty to the first claimant. The judge held that in breach of these fiduciary duties (and in the case of one of the defendants, in breach of his contract of employment), the defendants took steps to set up a rival business to that of the claimants prior to their resignation.
However, the claimants failed in their claim to misuse of confidential information. Firstly, they alleged that in the draft business plan for the new business, the reference to the defendants identifying “significant improvements that could be made to the Shepherds model” demonstrated that the defendants used and developed the claimants’ confidential business model. The judge rejected this allegation. The “model” was not an actuarial model, it was simply a shorthand for the type of investment made by the claimants which was general market knowledge. Secondly, the claimants alleged that one of the defendants had taken and used a list of contacts. They pointed to an email sent by the defendant to an independent financial advisor (IFA). The defendant said that he brought IFAs with him to the claimants and some were his personal friends. The judge held that the allegation had not been established to the requisite standard of proof. He was not satisfied that there was any need for the defendant to have copied such a list and make subsequent use of it.
As to remedies, the judge held that the claimants had failed to establish that the defendants’ activities had caused them any loss. In theory, damages would be assessed on the diminution in the claimants’ fees, commission or other income in consequence of the adverse affect of the promotion of the defendants’ new businesses two months earlier than could have been done if the defendants had complied with their fiduciary duties. However, the claimants were unable to establish any causal link between the defendants’ breach and their loss. Finally, the judge held that the claimants were entitled to an account of profits; this would be heard at a later date.
Reporter’s note: We are grateful to our colleagues at Bird & Bird, Celine de Andria and Jenny Brand, for their assistance with the preparation of this report.
The reported cases marked * from the High Court, Court of Appeal and Privy Council can be found at http://www.bailii.org/databases.html#ew. ECJ and CFI decisions and orders can be found at http://curia.eu.int/en/content/juris/index_form.htm