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Agent vs Distributor

Friday, September 3rd, 2010

When deciding whether you should use an Agency versus a Distribution Agreement you think about the nature of the relationship between the parties: Principal-Agent or Supplier-Distributor?

Companies rely on Agents and Distributors for selling their products and services. Whilst Agents are not direct sales persons, Distributors are the direct salesmen of the products. As such, they are different in many aspects; primarily in stock holding.

An Agent acting for a company that sells widgets – will market, present and represent the widget manufacturer in the marketplace. Whereas a Distributor buys the widgets or stock from the manufacturer, and re-sells the product to the end user.

Agents

Agents, have actual authority (express or implied), to create legal relationships between another, known as a “Principal” (in the above case, the manufacturer) and third parties.

Agents are essentially campaigners of the products and are usually familiar with their market. As the direct connection to the customer, they must know their customer requirements well. Although, they are responsible for selling the products, they do not have any direct connection with the company. They do not buy the products directly from the companies and are not involved in the delivery or after sales / maintenance services. Agents are usually paid on a fixed commission for their work.

Distributors

Moving on to Distributors, they have a direct connection with the company or “Supplier”. Unlike Agents, Distributors purchase the product directly from the company and distribute it in the market. Moreover, Distributors also provide after sales services, which the Agents do not provide.

While an Agent can be called the company’s representative, a Distributor cannot be called so, as he buys the product and then resells it. Agents can be direct employees of the companies or self-employed. On the other hand, Distributors are not employed. The legal relationship between the parties is therefore, totally different.

An Agent is responsible for finding the target people and negotiating with them to buy the product. Although they do not have the final word regarding sales; the last word is reserved to the company. Conversely, Distributors do not have any role in negotiating with the customers; they only perform the role of distributing the product in the market.

Summary

  1. Agents are not direct sales persons. Distributors sell the products direct.
  2. Agents are only responsible for selling the products.
  3. Agents are not involved in the delivery or after sales services. Distributors buy the products directly from the company, distribute it in the market and also provide after sales services, which the Agents do not provide.
  4. While an Agent can be called the company’s representative, a Distributor cannot, as he buys the products and then resells them.
  5. Agent are responsible for finding the target people and negotiating with them to buy the products. Distributors do not have any role in negotiating with customers; they only perform the role of distributing the product in the market.
  6. Think in the following terms:
    1. Agent = Representative
    2. Distributor = Customer

A Company’s Decision

A company’s choice between an Agent and a Distributor will depend on certain factors including; the market size, the type of product and the degree of control a company wants to exercise or is able to exercise in the market. As a rule, you should use an Agency Agreement when you are considering marketing the products of another company. Here are some other considerations:

1. Decide on whether the appointment of an Agent or Distributor is more appropriate in the circumstances.

2. Carry out research on local practices within the territory, if necessary, to help you decide.

3. Check local laws on the relative rights of Agents and Distributors, particularly on termination of the appointment.

Gregory Abrams Davidson LLP

If you or your business have any questions relating to Corporate Law matters and would like a free consultation with a member of our Corporate  Law Team, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.

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BBC vs. “The Stig” (Round 1?)

Friday, August 20th, 2010

Any Top Gear fans out there? If so, you might be interested in reading on…

Yesterday, I was asked by the Daily Telegraph to comment on an interesting case between the BBC and the person who plays the character on the programme Tog Gear known as “The Stig”.

The full details of the matter cannot be revealed publicly (you can read further here: http://www.telegraph.co.uk/motoring/news/7954523/BBC-facing-human-rights-battle-with-Top-Gears-The-Stig.html), however, the matter may potentially lead to a clash between the basic principles of Contract Law and Breach of Confidence, on the one hand, and the basic human right of Freedom of Expression as enshrined in the Article 10 of European Convention of Human Rights (enforceable in the UK under the Human Rights Act 1998), on the other.

Under Article 10, “Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by a public authority and regardless of frontiers. This Article shall not prevent states from requiring the licensing of broadcasting, television or cinema.”

The Convention continues; “The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for the maintaining of the authority and impartiality of the judiciary.”

Article 10 protects your right to freedom of expression. This includes the right to hold and express opinions yourself as well as to receive and impart information and ideas to others.

Prior to the Human Rights Act, the right to freedom of expression was a negative one (you were free to express yourself, unless the law otherwise prevented you from doing so). With the incorporation of the European Convention on Human Rights into English domestic law, the right to freedom of expression is now expressly guaranteed, albeit qualified by section 2 above.

In Handyside v UK (1976) the ECHR stated that freedom of expression constituted one of the essential foundations of a democratic society and one of the basic conditions for its progress and development of every person. It also made clear that Article 10 applied not only to information or ideas that are favourable and inoffensive but also to those that offend, shock or disturb the State or a sector of the population.

However, where an interference with expression has concerned anti democratic ideas and extreme right wing views contrary to the text and spirit of the Convention, the ECHR has varied between excluding the expression from the scope of Article 10 altogether or concluding that the interference is justified by Article 10(2).

The right to freedom of expression in Article 10 is not an absolute right. It is a qualified right. This means that formalities – including Contract Law as laid down by each member state, conditions, restrictions or penalties may be imposed on the exercise of this right if they are prescribed by law, pursue a legitimate aim and are necessary in a democratic society. This latter condition requires the means employed to be necessary and proportionate to the aim pursued. The legitimate purposes for which freedom of expression can be limited are set out in Article 10(2) set out above (see also section headed ‘A qualified right’ under Article 8).

At this stage it is unclear as to whether a challenge to the contract between the aforementioned parties under Human Rights law will be pursued by the “man behind the mask”. He may have a case, but then again, so does the BBC!

Article 10: Right to freedom of expression

1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by a public authority and regardless of frontiers. This Article shall not prevent states from requiring the licensing of broadcasting, television or cinema.

2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for the maintaining of the authority and impartiality of the judiciary.

Article 10 protects your right to freedom of expression. This includes the right to hold and express opinions yourself as well as to receive and impart information and ideas to others.

Before the Human Rights Act came into force, the right to freedom of expression was a negative one: you were free to express yourself, unless the law otherwise prevented you from doing so. With the incorporation of the European Convention on Human Rights into English and Welsh domestic law, the right to freedom of expression is now expressly guaranteed.

In Handyside v UK (1976) the ECHR stated that freedom of expression constituted one of the essential foundations of a democratic society and one of the basic conditions for its progress and development of every person. It also made clear that Article 10 applied not only to information or ideas that are favourable and inoffensive but also to those that offend, shock or disturb the State or a sector of the population.

However, where an interference with expression has concerned anti democratic ideas and extreme right wing views contrary to the text and spirit of the Convention, the ECHR has varied between excluding the expression from the scope of Article 10 altogether or concluding that the interference is justified by Article 10(2).

The right to freedom of expression in Article 10 is not an absolute right. It is a qualified right which means that formalities, conditions, restrictions or penalties may be imposed on the exercise of this right if they are prescribed by law, pursue a legitimate aim and are necessary in a democratic society. This latter condition requires the means employed to be necessary and proportionate to the aim pursued. The legitimate purposes for which freedom of expression can be limited are set out in Article 10(2) set out above (see also section headed ‘A qualified right’ under Article 8).

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Posted in Commercial Law, Media & Entertainment | 1 Comment »

Misleading websites – OFT takes action

Friday, August 13th, 2010

Having registered for a European Health Insurance Cards (EHICs) on the NHS website earlier today, the story that three organisations who deceptively sold consumers  EHICs (which allow UK residents to obtain state-funded healthcare in other EU member states and are available free of charge from an NHS website) have given undertakings to the OFT under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs).

Background on the Law

Consumer Protection from Unfair Trading Regulations

The Consumer Protection from Unfair Trading Regulations (SI 2008/1977) (CPRs) generally prohibits unfair commercial practices. A commercial practice is unfair if it contravenes the requirements of professional diligence and materially distorts the economic behaviour of the average consumer in relation to a product (or is likely to do so) (regulation 3, CPRs).

Commercial practices are misleading if they give false information which deceives (or is likely to deceive) the average consumer and causes or is likely to cause him to take a transactional decision that he would not otherwise have taken (even if the information given is factually correct) (regulation 5, CPRs).

Commercial practices are misleading if, taking into account the circumstances of the commercial practice and the medium used to communicate it, they omit, hide, disguise or delay material information so as to cause the average consumer to take a transactional decision that they would not otherwise have made (regulation 6, CPRs).

Electronic Commerce (EC Directive) Regulations

The Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013) provide that website operators must provide certain information in a form and manner which is easily, directly and permanently accessible (regulation 6, E-Commerce Regulations).

Facts

European Health Insurance Cards (EHICs) provides UK residents with access to state-provided healthcare when they visit another EU member state. UK residents can obtain an EHIC free of charge from the NHS.

Five online traders were offering the EHIC, typically charging £10 per application without clearly stating that they were not the official NHS website. The OFT launched an investigation after complaints were made to the Department of Health and Consumer Direct.

The websites claimed to offer a “review and forward” service for the applications, for which they charged the fee. However, many consumers believed that they were using an official site and were unaware that EHICs were available free of charge from the NHS.

Most search engines use keyword advertising, via which an advertiser can have its messages displayed beside natural search results. Certain websites had purchased sponsored search engine links and therefore featured prominently when consumers searched for EHIC. There are ongoing proceedings in various European countries about such activities, which are often brought under trade mark or passing off/unfair competition laws. (Please see my previous blog post on this subject)

OFT Action

The OFT determined that these organisations had breached regulations 3, 5 and 6 of the CPRs and regulation 6 of the ECRs because they were misleading in their presentation. The websites mimicked the EHIC brand, used an official-sounding domain name and omitted important information by failing to clearly disclose that they were not the official provider of EHICs.

Three traders have signed formal undertakings not to engage in deceptive selling practices. A fourth had its website domain suspended by its domain name registrar and the fifth voluntarily ceased trading.

The OFT will monitor the organisations’ activities and, if they breach the undertakings, it may take court action including applying for an enforcement order under the Enterprise Act 2002.

Gregory Abrams Davidson LLP

If you or your business have any questions relating to Corporate or Media Law matters and would like a free consultation with a member of our Corporate or Media Law Teams, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.

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In The Red?… Companies House Annual Report

Tuesday, August 10th, 2010

Companies House has published its 2009/10 annual report (Read it here (pdf)).

This contains the expected operational information and financial statements as well as some fairly interesting stats.

For example, 362,317 new companies were incorporated in the year to 31 March 2010 and of these 229,147 (or 63.2%) opted not to appoint a company secretary. In other words, a company secretary was appointed in 36.8% of new incorporations – despite the fact that companies legislation (Companies Act 2006) no longer requires such an appointment by private companies.

Also, it appears that Companies House has fallen on hard times of late. It had a turnover of £66,401,000 but made an operating loss of £288,000 in 2009/10 as opposed to a surplus of £877,000 in 2008/09!

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Social Media: Keep It Clean… Even Between Friends

Monday, August 9th, 2010

On Wednesday July 27th, Metro.co.uk published the story about how a student won £10,000 in damages from a former friend after suing for libel over a Facebook “Joke” that went badly wrong.

Raymond Bryce, a law student, failed to see the funny side of former friend, Jeremiah Barber’s post of a paedophiliac picture on his Facebook page with the words “Ray, you like kids and you are gay so  bet you love this picture, Ha Ha”.

Mr. Bryce, who suffers from Asperger Syndrome said more than 800 people would have been able to view the page and that he was too scared to leave his home because he did not know who had seen it.

The posting caused a great deal of stress for both him and his family and Bryce duly sued Barber in the High Court for libel and won damages.  Barber ended up with a large money Judgment against him, a conviction for circulating indecent images of children and 150 hours’ community service… Not a laughing matter!

This is yet another illustration of how some people underestimate the power of the internet and social media from a legal context. Many users seem to forget (or are not aware) that defaming another person and publishing that defamation is libel, whether in print, using posters or through social media. In fact, due to the “targeted” nature of social media, Dr Ian Brown, from the Oxford Internet Institute, argues that it is “worse in some ways than putting offensive posters on lamp posts because it’s going directly to your friends”.

Issues For Employers

Consider the above scenario in a business context. What if employees use their employer’s computer to access Facebook? What if or defamatory comments are placed upon a corporate Facebook page, twitter account, blog?  In such a situation the victim would probably be advised to sue both the individual who posted the comment and the company for not taking action: it is usually going to be more likely that the company has deeper pockets to make a payment and will chose to settle sooner rather than later.

In law a company can be held “vicariously liable” for the actions of its employees. For instance, the employer of a delivery driver who knocks over and injures a pedestrian whilst on his rounds will be sued alongside the employee driver.  So what about an employee who posts inappropriate material at work? One answer would be for the company to argue that the employee was not acting in the course of his work duties that he was, in the legal phrase, “on a frolic of his own”.  However, things aren’t so simple.

The case of Lister & Ors v Hesley Hall Ltd [2001] UKHL 22 dealt with the issue of vicarious liability, specifically, when it will be appropriate to place liability upon the employer.  The House of Lords held that the employer could be held liable for the action of an employee where it was held that the employer should be held vicariously liable where the act complained of is reasonably incidental to the type of business carried on. In the later case of Dubai Aluminium Co Ltd v Salaam & ors HL 2003 IRLR 608, Lord Nicholls said that for vicarious liability to be established the act complained of “must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm or the employer to third parties, the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm’s business or the employee’s employment”.

This should protect an employer in the Bryce – Barber type scenario above.  If an employee posts defamatory material on his personal PC in his own time that should not impact on the employer unless the company is specifically mentioned or linked in some way.  However, if the employee has been specifically authorised by the employer to tweet, blog or update Facebook, Myspace (does anybody still use Myspace??) etc. to market the business and libels a third party, it could be argued that the business should have controlled the employee’s actions and is therefore vicariously liable. Worse still, if the employee is home-based, the company may be held liable and could end up with a nasty bill, which may not be covered by the employers’ liability insurance policy.

Risk Reduction

What the prudent employer ought to do:

1) Social media usage policy: This sets out what is acceptable and what is not. Ideally, this would include a prohibition on disseminating any inappropriate or pornographic images or text and state that the employer will not tolerate any misuse of its social media networks that would breach the confidentiality of it or its clients or cause embarrassment or financial loss to them. (NOTE: There is no reason why that restriction should not extend to employees’ use of social media in their home life.) The policy should also make it clear that any breaches will be treated seriously and may constitute a disciplinary offence leading to dismissal for gross misconduct.   This will enable an employer to argue, should the need arise, that the employee was not authorised to make the comment. (PLEASE CONTACT ME IF YOU REQUIRE A NEW SOCIAL MEDIA USAGE POLICY)

2) Publication: There is a growing trend amongst many companies to publish their Social Media Usage Policy; providing clients, customers and other stakeholders with a degree of comfort about the employee actions and management in this area.

3) Monitoring: The employer should monitor their networks to make sure any offending articles or comments are removed as soon as possible.

4) Access: Limit to a few individuals.

5) Password Protection: The employer should ensure that its own social media profile passwords are kept confidential by those with access. If necessary, change passwords every few months.

6) Reputation: Keep an eye on what is out there. There could be a disgruntled former employee or an unhappy client or customer who sets up a false page and decides to defame others. Although you may be able to proved that the page or site is a fake and you won’t be held “vicariously liable”, it may have damaging effects to your reputation!

7) An Outright Ban?: Some (including Dragon Theo Paphitis) might argue that the solution is to ban social media from the workplace. The recent news story that social networking websites are costing the British economy up to £14 billion a year in lost working time might add substance to that argument.

However, whilst I can understand why certain businesses would want to ban the use of social networks – they are a time consuming distraction – the fact that they are important promotional and communication tools would trump this argument. (Indeed, due to the proliferation of mobile technology into our daily lives, a company would need to go the unlikely extra length of prohibiting its employees from bringing their smartphones to work, in order to fully enforce its social media  ban!)  Instead, I would contend that good management and a sound usage policy (see 1 above) will keep your employees happier… and hopefully, your customers satisfied.

If you or your business have any questions relating to Media Law or Reputation Management matters and would like a free consultation with a member of our Media Law Team, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.

About GAD LLP’s Media Law Practice:

Gregory Abrams Davidson’s Media Department is experienced in acting for a variety of media, technology and entertainment companies, celebrities, sports personalities, investors and professionals involved in the sector.We cover many media-focused legal issues, including reputation management, privacy and defamation, Intellectual Property, Entertainment, I.T., telecommunications and E-Commerce, film, TV, music and publishing. We provide a reliable and efficient service, constantly striving to provide practical, commercial, cost-effective legal advice to achieve the right result for our clients in the shortest possible time.

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Emergency Budget 2010 – Better For Business?

Monday, June 28th, 2010

The Chancellor of the Exchequer, George Osborne may never deliver a more significant Budget speech than his first, last week, after just seven weeks in office.

The Government is faced with twin economic missions:

(1) Curbing public borrowing, and
(2) Encouraging growth in the private sector.

Missions Accomplished?

Describing his maiden Budget as “tough but fair”, Mr Osborne set out a strategy of fixing public finances through a balance of 77 per cent in spending cuts and of 23 per cent in tax rises.

In addition to public sector spending cuts (one of which is a 2-year freeze on public sector pay), there were, inevitably, hikes in personal taxation. The 2.5 per cent rise in VAT planned for January next year was the headliner. It was widely predicted and is estimated to generate £13 billion annually for the Government. The worry is that it may also dampen consumer spending and delay any recovery.

The increase in capital gains tax made its much-heralded bow, too, up to 28 per cent. Low and middle income tax payers were rewarded with a status quo rate of 18 per cent. The personal income tax threshold has begun its slow creep up to the £10,000 mark, edging up by £1,000 for next year.

“What about businesses?” I hear you ask.

Well, they fared relatively well and received the tax incentives they were seeking.

Corporation tax falls for both large companies (4 per cent over 4 years) and small companies (a 1 per cent drop next year). While the threshold at which employers start paying national insurance contributions is to rise by £21 a week.

Among a raft of initiatives George Osborne also extended the enterprise guarantee scheme, providing a boost for 2,000 small businesses, many of whom “struggle” to get credit. Under the scheme, the Government offers to guarantee 75 per cent of loans to small companies.

A temporary increase in the level of rate relief for small businesses for a year from October was also announced, with small tourism businesses receiving further tax concessions.

Mr Osborne said the cut in corporation tax would mean Britain would have “the lowest rate of any major Western economy, one of the lowest rates in the G20, and the lowest rate this country has ever known.”

It is the Chancellor’s hope that the path his Budget treads over the coming months and years, between trimming the public sector and encouraging the private sector to take up the reins of growth, will lead to a sustained economic recovery, and not a double-dip recession.

The Federation of Small Businesses (FSB) welcomed many aspects of the emergency Budget, but criticised the rise in VAT.

“The measures announced in the Emergency Budget will go a long way to reducing the deficit,” said John Walker, national chairman of the FSB.

“The increase in VAT to 20 per cent will, however, hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.”

The FSB also said it was concerned at Mr Osborne’s failure to reverse the rises in employer National Insurance contributions brought in by Labour last year.

Stephen Robertson, the director general of the British Retail Consortium, said: “Lowering corporation tax will support private sector investment and entrepreneurship. It also sends a positive message to the rest of the world that the UK has a competitive tax system which makes it a good place in which to do business.”

Let’s give our new Coalition Government a chance with this and hope whatever measures are taken help put the country as a whole back on its feet and in a better place than where we are today… After all, what other options do we have?

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Advertising: The Never Ending Story

Friday, June 25th, 2010

Advertising Standards Authority (”ASA”) upholds complaint about “never-ending sale”

The ASA has upheld a complaint about an advertisement for a “retiree’s” clearance sale which did not have an end date.

The supposed “retiree” took out a regional press ad for Scarborough Racing Developments, stating “CLEARANCE SALE (RETIREMENT) Everything must go!”

The complainant – a reader of the regional paper – challenged the ad, contending that the claim was misleading and could not be substantiated. The reader said that the ad had appeared for more than a year and during that period, the advertiser had continued to buy stock.

The advertiser blamed the poor economic climate for the fact that his retirement process was taking longer and claimed he had to re-stock every-day consumables to help clear slow-moving items. He also said he had sought advice from his local trading standards authority (”TSA”) in connection with his advertisement and believed it was in line with their guidance.

The TSA informed the ASA that they did not consider it reasonable for the ad to still be appearing after 18 months.

Due to the sale continuing for longer than 6 to 12 months and the advertiser continuing to re-stock some items, the ASA ruled that the ad breached rules 7.1 (Truthfulness) and 16.8 (Availability of products) of the CAP Code.

The bottom line and the advice that I give to my clients, is that advertising sales without an end date, or claiming that you are about to cease trading when you are not, is likely to be an offence under the Consumer Protection from Unfair Trading Regulations 2008… Don’t do it, unless of coarse, it’s the truth!

If you or your business have any questions relating to Commercial or Media Law matters and would like a free consultation with a member of either Team, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.

About GAD LLP’s Media Law Practice:

Gregory Abrams Davidson’s Media Department is experienced in acting for a variety of media, technology and entertainment companies, celebrities, sports personalities, investors and professionals involved in the sector.We cover many media-focused legal issues, including reputation management, privacy and defamation, Intellectual Property, Entertainment, I.T., telecommunications and E-Commerce, film, TV, music and publishing. We provide a reliable and efficient service, constantly striving to provide practical, commercial, cost-effective legal advice to achieve the right result for our clients in the shortest possible time.

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TRADEMARK HIJACKINGS

Monday, May 24th, 2010

Your Brand As A Search Term

ATTENTION BRAND OWNERS: Is your brand being hijacked and used by a 3rd Party as a search engine term?

Following a landmark European Court of Justice (ECJ) decision in the “Google AdWords” case (Google France SARL, Google Inc. (C-236/08 to C-238/08), 23 March 2010), we would strongly advise you to find out.

Background – Natural vs Sponsored Links

When typing a search term into a search engine (such as Google, which alone is responsible for processing approximately 90% of the World’s search queries), the search engine responds by returning a list of sites which appear best to correspond to the search term, in decreasing order of relevance. These responses are known as “natural” results.

In addition to these natural results, the search engine also displays “sponsored” links that are relevant to the term searched.

For example, a search for “Computer” on www.google.co.uk will show “About 746,000,000 results”, with a Wikipedia entry at the top of the pile, in addition to “sponsored links” or paid adverts above and to the right, from Apple, Dell and others. Next to each link will appear a few lines of slightly more descriptive text, which the advertisers hope will encourage you to follow the link. The sponsors pay Google a ‘maximum price per click’ for each sponsored link and the search engine will rank each sponsored link in order; highest to lowest max. price per click, the number of previous clicks on the link, and the quality of the sponsor’s advertisement.

Sponsored Links and Trademarks

If your search term is also a trademark (TM), the problem from the TM owner’s point of view is that users might then click through to the 3rd party website – and not to the TM owner’s website – to buy their products or services.

Instances of this form of TM infringement have led to TM owners taking court action against Google and against the sponsors using their brands as sponsored links. A number of these cases were referred by the French and Austrian national courts to the ECJ, which answered the following key points:

1) Is Google primarily liable for TM infringement on the grounds that it stores the TMs as search terms, and profiting from that storage?

The ECJ ruled a clear ‘no’. (Article 5 of Trade Marks Directive, 89/104 states that for a party to be said to have infringed a TM, they must themselves have used that TM.) By creating the technical environment for 3rd parties to use TMs, Google is not itself “using” the TM, even if it was profiting from the activity.

2) Are 3rd party advertisers liable for TM infringement, on the grounds that they select the TM as a key word and use it to generate sponsored links to websites offering identical goods and services?

The ECJ responded that 3rd party advertisers could potentially be liable, “in the case where the advert does not enable the average internet user, or enables that user only with difficulty, to ascertain whether the goods and services referred to therein originate from the proprietor of the TM or an undertaking economically connected with it or, on the contrary, originate from a 3rd party”.

So, the question to ask is whether “the average internet user” is under the impression that the goods or services advertised in a sponsored link come from the TM holder or someone “economically connected” with them e.g. an exclusive agent or a TM licensee. The ECJ did not specify the exact phases advertisers should use, so this area is still slightly grey. However, the presumption is that by clearly labelling the sponsored link as a separate, 3rd party brand, this is enough avoid confusion.

3) Can Google rely on a defence under Article 14 of the E-Commerce Directive (2000/31), which states that the provider of an “information society service” cannot be held liable for data which is stored at the request of a user?

Under Art. 14, ISPs have a defence to claims in defamation for comments published by users through their services. Correspondingly, do sponsored links constitute an “information society service”, falling into this protected category? The ECJ answered yes, provided that the service provider has not (a) equipped the user with the knowledge of or control over the stored data and (b) removed or disabled access to the data as promptly as possible, if it becomes aware of the unlawful activities. In other words, a search engine could be liable if it is given notice of an advert that infringes a TM and then fails to act quickly to remove it.

Conclusion

Despite what appears to be a successful outcome from the brand owners’ and Google’s perspective, the rulings were not quite as definitive as they could have been and the door is still open for litigation between brand owners and their competitors who continue to use their TMs as search terms. The main question is whether and how the advertisers sufficiently distinguish the competitor from the “Real McCoy”? For the answer to this question, we will need to wait a little longer, perhaps for the ECJ or the national courts to determine, or as is often the case with the web, for the informal online practices to become more established codes of conduct.

If you have own a TM that is being infringed either as a Google Adwords, or otherwise and would like a free consultation with a member of our Media Law Team, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.

About GAD LLP’s Media Law Practice:

Gregory Abrams Davidson’s Media Department is experienced in acting for a variety of media, technology and entertainment companies, celebrities, sports personalities, investors and professionals involved in the sector.
We cover many media-focused legal issues, including reputation management, privacy and defamation, Intellectual Property, Entertainment, I.T., telecommunications and E-Commerce, film, TV, music and publishing. We provide a reliable and efficient service, constantly striving to provide practical, commercial, cost-effective legal advice to achieve the right result for our clients in the shortest possible time.

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Posted in Commercial Law, Media & Entertainment | 1 Comment »

P.G. Tips

Friday, May 7th, 2010

I am frequently asked by clients whether they should give a personal guarantee (“PG”) on behalf of their business or for a friend or family member. The short answer to this question is: “No!” and failing that, “Not if you can help it”.

However, there may be personal situations where you may be asked to provide a PG and where it might be difficult to say “No”… I remember, when I was at university in Leeds I asked my father to guarantee my rent (I cannot recall whether or not he agreed) and most mortgagees are asked to guarantee their mortgage payments.

If you start a business and apply for funding by way of a loan or overdraft, it is more than likely that you will be asked to give a PG in the unthinkable event that the business fails. You may also be required to give a guarantee if you purchase a franchise.

The Bottom Line Is…

You should only provide a guarantee after you have given full and proper consideration to the potential liabilities to which you will be exposing yourself. In particular, unlimited guarantees are to be avoided if at all possible, especially in relation to business.

Financial Lending Guarantees

There are several ways in which lenders seek to obtain PGs:

1)               from directors of a limited company

2)               from partners in a partnership

3)               from people otherwise involved in the business

4)               from an external guarantor, who may not be willing to invest directly but will risk providing a guarantee. (In these circumstances the guarantor is usually paid a regular fee or a one-off payment of generally between 2-3% of the total amount guaranteed.)

Limited Liability and PGs

One of the benefits of setting up your business using a limited liability structure is that in the even of failure of your business, the limited liability element will prevent directors and/or shareholders from being sued by creditors for your personal assets. However, businesses that do not have a track record may not be able to obtain credit of their own volition, hence the need for PGs.

In the event that the bank demands repayment of the loan, the guarantor will be liable for the amount that they have guaranteed. If you have guaranteed an amount with one or more other individuals, you may be liable for the debt on a ‘joint and several liability’ basis, i.e. that each individual guarantor is liable for the whole amount in the event that the other guarantors cannot pay it. As previously stated you should beware of unlimited guarantees for the same reason. However, the Banking Code requires that guarantees for unlimited amounts should not be given in relation to bank account borrowing.

Guaranteeing Someone Else’s Business

You may think that you are being supportive to a spouse, partner, family member or associate but all too often people sign PGs without having given thought to what could happen in the event of default. Consider the effects of relationship break-ups, divorce and lost friendships – any one of these could leave you to carry the burden for a debt that you haven’t personally incurred, in a business that you never had anything to do with… Don’t leave yourself unnecessarily exposed – it would be far better to disappoint someone at the outset than put yourself, and your relationship with them at risk later when you’ve lost your assets and bitterly regret ever having signed on the dotted line.

Before You Sign

Consider whether you really do need to give a PG in the circumstances. Most financial experts advise strongly against giving such assurances (and I would agree with these experts). The harsh reality is that if the business fails, or payments cannot be made for other reasons, you stand to lose your home and you may still be responsible as a guarantor after the business has been dissolved, or after you leave the business or resign as a director.

For a lesson in why you shouldn’t give a PG if you can avoid  doing so, Google Lloyd’s Names, or simply follow this link: #mce_temp_url#

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Companies Act 2006 – The Main Changes

Monday, March 1st, 2010

The Companies Act 2006 is a piece of primary legislation that is changing the law for companies operating in the United Kingdom and largely applies to companies directly.

Passed in 2006, the Act reached the final stage of implementation on 1st October 2009; a number of its provisions are currently being set out in secondary legislation, mainly through regulations or orders made by statutory instrument.

The Companies Act 1985 has been changed in order to meet four key objectives:

  • To enhance shareholder engagement and a long term investment culture;
  • To ensure better regulation and a ‘Think Small First’ approach;
  • To make it easier to set up and run a company; and
  • To provide flexibility for the future.

A copy of the Companies Act 2006 is available from the Office of Public Sector Information http://www.opsi.gov.uk/acts/acts2006a.htm, or from the Companies Act Publications page of the Companies House website. Further info about the Companies Act 2006 is available on the Department for Business, Enterprise and Regulatory Reform website at http://www.berr.gov.uk/bbf/co-act-2006/index.html

The Companies Act will be supplemented by a series of Regulations using powers given to the Secretary of State in certain parts of the Act. It will be supplemented by Commencements Orders which bring the Act into force. As they are published, details can be at http://www.berr.gov.uk/bbf/co-act-2006/made-or-before-parliament/page35232.html

Some of the key effects resulting from the Act include:-

All Companies:

  • A clear statement of directors’ general duties clarifies the existing case law based rules.
  • Companies will be able to make greater use of electronic communications for communications with shareholders.
  • Directors will automatically have the option of filing a service address on the public record (rather than their private home address).
  • Directors must be at least 16 years old, and all companies must have one natural person as a director – i.e. they cannot have all corporate directors.
  • There will be improved rules for company names.
  • Companies will no longer be required to specify their objects on incorporation.
  • The articles will form the basis of the company’s constitution.

Private companies:

  • There will be separate and simpler model Articles of Association for private companies.
  • As part of the “think small first” agenda, there will be a separate, comprehensive “code” of accounting and reporting requirements for small companies.
  • Private companies will not be required to have a company secretary.
  • Private companies will not need to hold an annual general meeting unless they positively opt to do so.
  • It will be easier for companies to take decisions by written resolutions.
  • There will be simpler rules on share capital, removing provisions that are largely irrelevant to the vast majority of private companies and their creditors.

Key benefits for Shareholders:

  • There will be greater rights for nominee shareholders. These will include the right to receive information electronically or in hard copy if they so wish.
  • There will be more timely accountability to shareholders by requiring public companies to hold their AGM within 6 months of the financial year-end.

Should you have any further questions regarding the Companies Act 2006, please contact Jonathan Abrams, Senior Associate Solicitor in our Corporate department on 0151 236 5000 or direct via email on jabrams@gadllp.co.uk. (Jonathan is also a licensed US Attorney and can answer questions and advise no US Corporate Law matters).

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