AVRIO

 

So – it’s that time of year again when we remember to remind you all about Avrio. Each year, in Spring and Autumn, Avrio members gather together for a conference. The May 2018 conference is in Brighton, with 51 representatives there from 25 countries.

I’ve been involved with Avrio since Autumn 1990 (annoyingly, just missing the Spring 1990 meeting in Berlin – not long after the wall fell). Despite what of my colleagues have inferred, this hasn’t just been nearly thirty years’ of travelling and meeting (and eating and drinking) at their expense…..

We, and I, have learnt a lot in these years. One of the big lessons I learnt early on (when everyone from northern Europe responded to a questionnaire on time, and no-one from southern Europe did) is that neither is right or wrong: it is the way that things are done by those people. Similarly, when a German colleague wanted a two day response time from everyone with a progress report on a litigation matter, a colleague from Portugal said he would get a proforma response prepared – because nothing would happen for years. Again, that’s just the way it is: neither right nor wrong. But it does seem something that the UK has ignored in relation to the tortuous Brexit negotiations.

What have we gained from membership of Avrio? Some overseas customers that we wouldn’t have but for Avrio. The ability to get help for our customers from trusted colleagues elsewhere. And the ability for those involved in Avrio to get all sorts of training: not to get hung up on whether something should be subject to Scots law (because lawyers really like these jurisdictional points); when I was in the chair, how do deal with lots of lawyers used to getting their own way (think of herding cats…); and really thinking about and discussing cross-border issues.

Avrio and its members and connections are there for CCW’s customers to use. Broadly speaking, if we don’t have a member in the country that concerns you or that member doesn’t do the sort of law you need, we’ll find the right person for you.

John Clarke, Partner

 

For further information on AVRIO please contact John Clarke

Does your contract refer to Europe?

There are endlessly longs list of things that might be required in order to prepare for Brexit for businesses. Because the type of arrangements to be put in place post-Brexit are not yet clear, many of the items of those lists are still uncertain.

 

However, one thing that can be done now, which will put firms in a more robust place post-Brexit, is to check their new and existing contracts that have implications in more than one EU member state. Quite often such contracts will define the EU or Europe as a territory – perhaps for a licence of rights or a restriction of some kind.

 

Look closely at how “EU” is defined. Is it “the EU as it is composed from time to time”? Is it “the EU as at the date of the agreement”? Is it just “the European Union”? The definition used may result in either the UK being excluded from it shortly, or remaining in it when it is not any longer a member state. Even worse, vague definitions might be unclear and result in dispute.

 

Whichever way it is drafted, there is a real risk of unintended consequences come 30 March 2019 (or possibly at the end of a transitional period).

 

In many cases, the parties are likely to come together and agree how things are to be dealt with going forward, and that will be much easier to do in advance of the withdrawal date. However, in less friendly relationships, there is a risk that a party tries to take advantage of such drafting. Either way, it makes sense to check your contracts and approach other parties sooner rather than later.

 

It goes without saying that the other step to be taken is to look at any new contracts being entered into – especially if you use standard template contracts. Think carefully about how you define a European territory – perhaps list the specific states, if appropriate. Consider inserting clauses to deal with Brexit-induced changes, which might trigger a right to terminate or renegotiate should certain repercussions of those changes adversely affect the efficacy of the contract.

 

Many businesses are currently feeling a bit helpless in relation to preparing from Brexit, but these are real, practical steps that can (and should) be taken right now.

 

To discuss this matter or to find out more information please contact Alison Marshall

No breaks for Nestlé – “4 Fingered” Kit Kat found not to be distinctive by CJEU Adviser

In light of the opinion delivered from Advocate General Melchior Wathelet, Nestlé is facing up to losing its EU trademark for Kit Kat due to lack of acquired distinctiveness across the EU.

Facts

  • This decision is the latest development of the legal battle between Nestlé and Cadbury and subsequently Cadbury’s new owner Mondelez.UK Holdings & Services Limited.
  • To recap, Nestlé applied in 2002 for European trademark protection of the three-dimensional shape of the “four fingered Kit Kat”, which was granted by the European Intellectual Property Office (EUIPO).
  • Cadbury filed an application seeking a declaration of validity, this was initially accepted by the cancellation division of the EUIPO, but on appeal their challenge was rejected by the second board of appeal of the EUIPO.
  • This was appealed before the EU General Court Registry in 2013 and the General Court annulled the EUIPO’s decision on the basis that the distinctive character through use in the European Union has only been proven for a part of the territory of the EU.
  • The EUIPO and Nestlé then appealed the decision on the basis that the General Court had infringed Regulation No 207/2009 by considering that the proprietor of an EU mark must show that the trademark has acquired a distinctive character through use in each member state separately.
  • The AG however found that Nestlé’s appeal should be dismissed

 

The reasoning behind the AG decision was as follows:

  1. Whilst Nestlé provided market research for the majority of the members states, it can be seen that the information provided for Greece, Belgium, Ireland and Portugal was not sufficient to establish that the relevant public in those countries identified Nestlé as the commercial origin of the four fingered Kit Kat,
  2. The General court did not examine whether, with regard to the product covered by the trademark at issue, the acquisition of a distinctive character through use in those 5 member states could be extrapolated on the basis of the evidence provided for the other national or regional markets and Nestlé had not included evidence in the file that the evidence from the other member states could be extrapolated to the other 5 member states and therefore prove the distinctive character.
  3. Nestlé had not established in respect of the product, the comparability of the Belgian, Irish, Greek, Luxembourg and Portuguese markets with some of the other national markets for which it had provided sufficient evidence, therefore the General Court had no option but to annul the decision of the EUIPO.

Lesson to be Learned

  • Establishing distinctiveness of a 3d shape is still a high hurdle to overcome
  • Carefully consider the evidence that you will provide in order to prove the distinctiveness
  • If it is possible to extrapolate evidence for comparability from similar markets, then this should be expressly referred to.

If you have any queries regarding trademarks, please get in touch with Alison Marshall and Sophie Graham in our corporate team.

Ken Dodd’s last laugh

You may (just) have read that Ken had the last laugh on HMRC, by marrying his long term fiancée just before his death. That way, his assets passed to her without Inheritance Tax being paid – whereas up to 40% would have helped the Treasury otherwise.

There are also rumours that some high-profile divorces had at least a hint of tax planning about them.

While I am not advocating marriage or divorce for tax planning purposes, they are important – if delicate – things to take into account when looking at the shares in (for example) family companies. Is there a risk of family wealth being “lost” on divorce? Or, in taxes, on death? So, as well as having up to date wills and Powers of Attorney (and you do have both – don’t you?), you do need to have a think some time about, well, what next?

What will happen to your interest in the company when you want to retire? And, what happens on divorce?

From our perspective at CCW our prime interest is in our client businesses. We don’t pretend to understand the niceties of (for example) divorce law: we have good professional colleagues who we can call on should advice be needed there. But, we can do things to protect family ownership in those unfortunate circumstances, even if we can’t do much about ring-fencing value.

But the purpose of this article isn’t to make you think about the stability of, for example, your children’s relationships. No, it is to make you think. What will happen to the business should the worst happen? Just as you’ll probably have life insurance, you should think of this as “business insurance” and take the steps you can to protect the business.

If you would like to discuss any of the points mentioned above, please get in touch with John Clarke in our Corporate Team

 

TAYLOR SHAKES OFF THE HATERS

Copyright claim again Taylor Swift has been dismissed

The Court of California has granted Taylor Swift’s motion to dismiss the copyright claim originally brought by Sean Hall and Nathan Butler against her, which claimed that Swift had copied the lyrics “Playas gonna play… and haters they gonna hate” in her 2014 hit “Shake it off” from their song “Playas gon’ play”, which was released back in 2003 by the US girl band 3LW

First, let’s do a quick refresh on what copyright is. You are entitled to automatic protection under copyright law when you create:

  • original literary, dramatic, musical and artistic work, including illustration and photography
  • original non-literary written work, such as software, web content and databases
  • sound and music recordings
  • film and television recordings
  • broadcasts
  • the layout of published editions of written, dramatic and musical works

In the Taylor Swift case, the whole argument was reliant upon whether the combination of the lyrics was in fact original and creative. The phrases in question were popularly used from the 2000s onwards, therefore neither phrase was found to be original or creative. While it is true that a combination of unprotected words may qualify for protection, it is not true that any combination of words will qualify for protection.

The court held that “the allegedly infringed lyrics are short phrases that lack the modicum of originality and creativity required for copyright protection. Accordingly, if there was copying, it was only of unprotected elements of Playas Gon’ Play.”

Sean Hall and Nathan Butler were given leave to amend by 26 February but have failed to file an amendment before the deadline.

If you require advice on an intellectual property issue, please get in touch with Alison Marshall and Sophie Graham from our corporate team.

 

Data Protection Update: Morrisons Supermarket Responsible for Data Breach Caused by an Employee

The High Court in England and Wales has issued its long-awaited judgement on the Morrison’s data breach, an action that was brought by 5,518 employees. The judgement provides employers with plenty of food for thought as the court found Morrisons vicariously liable for the act of its rogue employee, despite the Court finding that Morrisons had not failed in its duties.

The Facts

In 2014 Morrisons became aware that a file relating to 99,998 employees’ personal data had been shared on online by a senior online IT auditor who had been harbouring a grudge due to a previous disciplinary. The file (which had also been sent to several national and local newspapers) contained employee names and addresses, dates of birth, bank account details. Morrison’s was alerted to the web page by one of the local newspapers and had the link taken down within a few hours.

The employee was subsequently arrested and convicted to 8 years imprisonment for offences under the Computer Misuse Act 1990 and the Data Protection Act 1998 (DPA).

A claim was then brought against Morrison by its employees which alleged:

  • claim compensation both for breach of statutory duty (under Section 4(4) of the DPA) and at common law (the tort of misuse of private information, and equitable claim for breach of confidence).
  • The claims are put on the basis that Morrisons has both primary liability for their own acts or omissions, and secondary (vicarious) liability for the actions of one of their employees harming his fellow workers.
  • In respect of the DPA, primary liability is said to be absolute or strict, rather than a qualified liability only arising if Morrisons failed to observe appropriate standards: but in the circumstances that the DPA does not impose liability, it is asserted that in any event Morrisons failed to observe those standards and is liable on that alternative basis

 The main queries dealt with by the Court were:

  • whether an employer is liable, directly or vicariously, for the criminal actions of a rogue employee in disclosing personal information of co-employees on the web,
  • whether under the DPA 1998, an action for breach of confidence, or in an action for misuse of private information.

 Conclusion:

It was held that:

  • The DPA does not impose primary liability upon Morrisons.
  • Morrisons are not at fault by breaking any DPA principles, apart from one:
    • Morrison fell short of their duty of principle 7 of the DPA in respect of not having an organised system for data deletion for guarding against unlawful disclosures/ data loss – but this neither caused nor contributed to the data breach.
  • Morrisons were vicariously liable, as they were responsible for the actions of their employee during the course of his employment.

Implications for Employers

This English decision could leave the door wide open for claims brought by employees that have been victims of data breaches. However, there was a tone of reluctance from Mr Justice Langstaff to find Morrisons liable, and he gave Morrisons leave to appeal, so watch this space.

In any event, employers will have to think about how they balance employee surveillance with the right to privacy. We will be updating you on the General Data Protection Regulation which comes into force on 25 May 2018.

In the meantime, if you need any assistance regarding Data Protection you can get in touch with Sophie Graham and Emma Arcari.

Are You Up To Date? – Companies House Filing Requirements

Q: When do the changes take place?
A: 26 June 2017

Q: Who is affected?
A: Companies, Scottish Partnerships and Scottish Limited Partnerships

Q: What are the filing requirements?

Companies:
A: From 26 June 2017, whenever there is a change in the PSC register, companies must use forms PSC01 to PSC09 to report these changes, instead of waiting to until the confirmation statement (CS01) is due. Companies will have 14 days to update their registers and another 14 days to send the information.

Scottish Partnerships:
A: From 26 June, Scottish Partnerships (either eligible by being registered under the Limited Partnership Act 1907 or a general partnership constituted under the law of Scotland) where all the partners are corporate bodies, need to identify their Persons with significant control (PSC). By 24 July 2017 they must register this information with Companies House. SP’s are obliged to report any changes to Companies House within 14 days and then also confirm this by lodging a confirmation statement with Companies House every year.

Scottish Limited Partnerships:
A: From 26 June, active Scottish Limited Partnerships (SLPs) must identify their Persons with Significant Control. Then, on 24 July 2017 SLPs must send this information to Companies House within 14 days. In other words, the very last date that you can submit this information by is 7th August 2017. If there are any further changes after that date, then SLPs must report these to Companies House within 14 days of the change.

If you are registering a new SLP from 24 July 2017, then you must immediately send information regarding your PSC to Companies House.

Q: Can I limit what information is available on the public register?
A: Yes, when Companies, LLPs, SLPs and SPs submit their PSC information to Companies House, the protection regime becomes available to them. This means that Companies, LLPs, SLPs and SPs can apply to restrict what information is available on the public register. At the moment, only specified public authorities have access this restricted information. The new anti-money laundering legislation extends this to credit and financial institutions, as these carry out customer due diligence.

Q: How do I identify who the PSC is?
A: Companies:

A PSC is an individual who meets any one or more of the following conditions in relation to a company:

1. Directly or indirectly holding more than 25% of the shares
2. Directly or indirectly holding more than 25% of the voting rights
3. Directly or indirectly holding the right to appoint or remove the majority of directors
4. Otherwise having the right to exercise, or actually exercising, significant influence or control
5. Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual

A: SLPs and SPs:
A person has significant control over an eligible Scottish partnership if one or more of the specified conditions are satisfied.

1. the rights to more than 25% of the surplus assets on a winding up,
2. holding more than 25% of the voting rights, and
3. the right to appoint or remove the majority of management.
4. The fourth condition is that X has the right to exercise, or actually exercises, significant influence or control over eligible Scottish partnership Y

5. The fifth condition is that
a) The trustees of a trust or the members of a firm that, under the law by which it is governed, is not a legal person meet any of the other specified conditions (in their capacity as such) in relation to eligible Scottish partnership Y, or would do so if they were individuals, and

b) X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

If a person has significant control over an eligible Scottish partnership by meeting one or more of the first three specified conditions it is unnecessary to inform the registrar, if that person also has significant influence or control by virtue of the fourth condition.

If you need any further advice regarding your PSC reporting requirements, we would be happy to help. Please contact Alison Marshall or Sophie Graham in the corporate team for assistance.

Black holes and other strange phenomena – will Entrepreneur’s Relief survive?

Don’t worry: a legal blog hasn’t morphed into something that Professor Brian Cox might write (although, if they re-run it, I do recommend the Astrophysics of Light evening class run by St Andrews University). No: it is financial black holes that interest me here.

There was a good article in the April 27th edition of the Economist (A Form 10-K for America’s government) which in turn talked about Steve Ballmer’s USAFacts website. One of the themes is to treat the US government as a company and see what the results looked like. And if it works in the US….

In Britain, there are increasing and vociferous calls and claims on the income that Britain Inc has. The cash out includes both revenue items (such as pension payments, NHS costs and so on) and capital items (such as infrastructure spending and debt repayments). The cash in comes from taxation in all of its forms. But one major (and really rather worrying) difference between UK Inc and your business is the lack of any real accruals. The major example relates to pensions: a 35 year old pays taxes now with the promise of a pension some time after they are 65 (whatever the rules then are). But, today’s income is being used to pay today’s pensioners – not put to one side for the 35 year olds. Their pensions will depend on the people who are now babies paying enough tax to fund those pensions. Put another way, those pensions are completely unfunded: black hole # 1.

Less worrying but more imminent is black hole # 2. Assuming that the Conservatives are re-elected next month (and even I might put some money on that) then they will attempt to balance the current books of UK Inc (including some debt repayment).That’s going to be tough, and at its simplest they will have to (a) cut more (and that will be hard); (b) tax more (and that will be unpopular – but do watch the manifestos); and/or (c) not repay debt (and what does that do to credit ratings?). It’s (b) that I am most interested in here: the potential tax black hole.

We saw in the budget and subsequent about-turn that the Chancellor was trying to raise some of the less obvious taxes in order to plug gaps. The National Insurance paid by the self-employed and tax free dividend income were two targets before “her next door” called the election. But after the election, the new manifesto will be in place; the government will have five years (I assume) to get over any problems caused by changes now; and the black hole still needs filled. And, from the point of view of our clients, the tax – more properly a relief – that worries me most is Entrepreneur’s Relief.

Many of you will know that, subject to meeting qualification requirements, you can sell your business and pay CGT of 10% on the next proceeds. Short of dying, that’s the lowest tax rate in the UK. It encourages people to build up value in their business, keep it in the business and then realise the benefit on sale. But – is that 10% rate tempting? What if it were raised to, say, 15%? The business community would complain, but at 15% it would still be a low rate; it would help the “just about managing” families (who seem to have dropped off the radar); and if a “rich” business person sold their business for £1M and ended up with £850K and not £900K – who are they to complain?

So – where am I going with all of this? Entrepreneur’s Relief results in a low CGT rate and that has been the case for some time. It may be just too tempting a target for the Chancellor. Therefore, there must be a real risk of an increase in the effective rate in the next budget, whenever that is. We would never recommend disposing of a business for purely taxation reasons, but it is part of the mix: what will be your net proceeds of sale now compared with next year? If you are thinking about selling in the near future, have a good think – now.

Back to the real black holes. As I understand it (and my understanding is sketchy despite trying really hard) at time zero, everything in the universe – matter, energy, the whole damn lot – was in a super-concentrated small ball. At least, that’s how I imagined it. The big bang happened and, after an infinitesimally small gap, the universe started expanding broadly in terms of the rules about gravity and so on that we now know about. Today’s question is this: if the universe only started with the big bang, where was the black hole before the big bang? Answers, on a postcard……

Office and meeting rooms

We are re-arranging our space within our Dunfermline office at Crescent House from 15 May 2017. What does this mean for you?

  • our address, phone numbers, etc will remain unchanged, but
  • all future meetings will take place on the ground floor rather than the first floor, so
  • you’ll be directed to turn right at reception next time you visit us!

We look forward to welcoming you in our new meetings rooms soon.

Data Protection and Brexit – Are you ready for the General Data Protection Regulation?

 

As of 25 May 2018, the UK Data Protection Act 1998 (DPA) will be replaced by new legislation which will apply across the EU, primarily comprising the General Data Protection Regulation (GDPR).

The UK Government has confirmed that the UK’s decision to leave the EU will not affect the commencement of the GDPR.

This means that businesses and public bodies across the UK and the EU will have just over a year to make sure they are compliant with the new rules imposed by the GDPR.

The UK Information Commissioner gives the following guidance on the significance of the GDPR:

  • The GDPR applies to ‘controllers’ and ‘processors’. The definitions are broadly the same as under the DPA – i.e. the controller says how and why personal data is processed and the processor acts on the controller’s behalf. If you are currently subject to the DPA, it is likely that you will also be subject to the GDPR.
  • If you are a processor, the GDPR places specific legal obligations on you; for example, you are required to maintain records of personal data and processing activities. You will have significantly more legal liability if you are responsible for a breach. These obligations for processors are a new requirement under the GDPR.
  • If you are a controller, you are not relieved of your obligations where a processor is involved – the GDPR places further obligations on you to ensure your contracts with processors comply with the GDPR.
  • The GDPR applies to processing carried out by organisations operating within the EU. It also applies to organisations outside the EU that offer goods or services to individuals in the EU.

This is particularly important if your business transfers personal data outwith the EU – you will need to confirm that the process of transferring the data is compliant with the new regulations.

  • The GDPR does not apply to certain activities including processing covered by the Law Enforcement Directive, processing for national security purposes and processing carried out by individuals purely for personal/household activities.

What information does the GDPR apply to?

  • Personal Data – this definition is similar to the DPA, which is data that can identify the identity of an individual whether directly or indirectly, for example, their name, date of birth, address etc. The GDPR will expand on this to include online identifiers such as an IP address
  • Sensitive Personal Data –  this is similar to the DPA, and includes, racial or ethnic origin, political opinions, religious and philosophical beliefs, trade union membership, health or sex life and will now include genetic or biometric information which when processed can indentify an individual

So remember to get your systems ready for the GDPR by 25 May 2018.

Corporate and business

Going into business together? Get a Shareholders’ Agreement

Let me tell you a story of two individuals (A and X) who formed a beautiful working relationship and decided to go into business together.

They incorporate the company, appoint themselves as directors and take a 50/50 shareholding each.

All goes well for the next few years, profits are growing and their client base blooms.

Then, over time, cracks begin to form in the working relationship, things aren’t working out anymore and eventually the situation becomes unbearable meaning working together is impossible.  A wants to buy X out of the company, but X refuses to sell, or cooperate.

A seeks advice from a lawyer, and is asked – is there a shareholders’ agreement? The answer is of course no. There is no agreement on the valuation of shares, and A cannot terminate X’s directorship.

After a long-drawn-out dispute, with the business’s future being put in jeopardy, A and X agree a settlement, with vast sums, going on lawyers and court fees.

If you are starting up a new business, you may think a shareholders’ agreement is just an extra expense which you don’t really need – which is understandable when you are juggling other costs for your business. However, after seeing many clients learn the hard way, and waste so much time and money in resolving deadlock disputes, we cannot stress how important it is to get things right at the beginning.

It may be that things are working well for you in the present, but you cannot predict what the future holds. Protecting your position by planning is the best way to avoid a commercial disaster.