You may be surprised!

The following categories of “works” are protected under UK copyright law:

• “original” literary, dramatic, musical or artistic works which, in the case of literary, dramatic or musical works are recorded in some way.
• Sound recordings, films or broadcasts.
• The typographical arrangements of published editions.

“Original” means that the author must have created the work through his own skill, judgment and individual effort and that it is not copied from other works.

Licence to chill

Whether it’s a relaxing classic, or the latest chart topper, many of us enjoy having music playing in our place of work.  But did you realise that by listening to your favourite band you could be infringing copyright law?

Most forms of music are protected “works”.  This means you need the copyright owner’s permission to play their music in a public domain (i.e. not your house).  Failure to obtain such permission could result in a legal claim being brought against you. This is likely to be brought by the Performing Rights Society (PRS), who act as a collecting society for songwriters, composers and music publishers.  Their website details are: www.prsformusic.com

You are likely to require a licence if you:

1. play copyright music (including the radio);
2. within the workplace; and
3. that music can be heard by more than one person.

Licences can be obtained directly from the PRS and vary depending on your type and size of business and the nature of your music usage.

Don’t be a copycat

The need for a licence doesn’t just stop with music.  Often you will require a licence if you make regular use of other published information in the course of your business such books, magazines, journals or newspapers.

‘Use’ includes photocopying, scanning, distributing content by email or via an intranet system whether distributed internally or externally.

In the same way as the PRS act for musicians etc, there are agencies, which act on behalf of publishers. These are:

• the Copyright Licensing Agency (CLA: http://www.cla.co.uk/) which provides licences for copying books, magazines, journals in both print and electronic formats; and
• the Newspaper Licensing Agency (NLA: http://www.nla-web.co.uk/ ), which provides licences for copying UK national and regional newspapers, worldwide newspapers, select business titles in both print and electronic formats. They also provide various services for the effective delivery of newspaper content to businesses.

Internet Images

You may not realise that most of the images on the Internet are owned by others including professional image providers.  There is therefore a danger that if you were to copy an image from a website that you will be tracked down by the original owner and asked for a fee.

This is not so far fetched as we have been approached by several clients within the last few years who have received demands for licence fees from image providers such as Getty Images.

What happens is that Getty Images will have access to sophisticated image tracking technology.  If they find you are using their images you may receive a demand for a licence fee.

One client legitimately bought an image but was then charged £2,500 for the use of a second image. The fee was based on the duration of time the image had been used.

It is often more cost effective for businesses to outsource “non core” services to third party suppliers. For example, cleaning, IT support, photocopying, coffee and confectionery machines, payroll and accounting, recruitment and data entry services.  However, the cost benefits of using these services can be compromised by the problems caused if you fall foul of the “small print” in the service provider’s contract.

What to look out for   

We recognise that we all have busy lives with conflicting priorities and it is therefore not always possible to read these contracts from cover to cover.

However, we would advise you to always look at the following provisions as an absolute minimum:

Description of goods and services - it is essential to check the description of goods and services to be provided and time for delivery of those goods and services.  If the goods or services are business critical you should consider including a statement that “time is of the essence” so far as the delivery timetable is concerned.  This will strengthen your right to get out of the contract if the timetable is not observed.  See our earlier Newsletter for further information:

http://www.maitlandwalker.com/News/What-does-time-is-of-the-essence-mean.aspx

Remember – it is not always possible to rely on promises made by the supplier before the contract is signed as many contracts will exclude any prior agreements or representations from forming part of the contract.

Price:

• make sure that the price quoted is as agreed;
• check whether VAT is payable and whether the price is quoted exclusive of VAT;
• check carefully to see if the supplier has the right to charge expenses on top of the price quoted. If so, make sure that the supplier cannot charge expenses without your prior written approval of each item.
• make sure that the supplier has no unilateral rights to increase the fees payable without your written agreement. The only exception that you may be prepared to accept is a fee increase provision that is linked directly to a well known inflation index appropriate to the goods or services you are receiving such as the “Retail Prices Index” or the “Average Earning Index” as published by the National Office of Statistics.

Term (Duration) and Termination - in other words the minimum commitment you are providing to the supplier in terms of the duration of the contract and your rights to get out of (terminate) the contract when the goods or services are no longer required.

Whilst perhaps less prevalent than they used to be we have recently seen a number of service contracts (such as cleaning contracts) with committed minimum monthly fees and a minimum term of five years with no right to get out of (terminate) the contract early!

Our advice is to always insist on a right to “terminate for convenience”. This means you can simply write to the supplier stating that the contract will end after an agreed period of “notice” rather than having to show any breach or fault.  Preferably the period of “notice” should be no more than three months and you should be able to serve that notice if possible at any time after the contract starts. If the supplier will not agree to this or you need to commit to a minimum period (for example to achieve a better price from the supplier) we would advise you think very carefully before accepting any commitment longer than one year. 

Be aware also of contracts that require you to terminate on, or a given period before, a specific date (such as a contract anniversary).  If you miss these dates, you might find you are tied to a service you do not want or are unhappy with for a considerable further period.

Again the way to avoid this is to insist on a right to “terminate for convenience by giving x months notice in writing at any time.”

Practical advice - Negotiate!

Always check the above points.

Don’t feel pressured into accepting any standard terms that you are not happy with. Due to the current economic climate, many more suppliers are prepared to negotiate a compromise.

Anyone who is involved in reviewing or negotiating contracts for their business will have come across “indemnities”.  They are often expressed in the following way: “A agrees to indemnify and hold harmless B from all losses and liabilities arising from any breach by A of the terms of this Agreement.” 

Terms of this nature are common but do you know what such a commitment really means?

An indemnity is a promise to be responsible for another's loss.

If A promises to indemnify B for the consequences of a specified event, and the event occurs, then B can ask A to cover all the loss B suffers.

The correct use of an indemnity in our view is therefore to allow parties to remedy a situation where they feel that a party should not have to bear a particular loss.  This typically happens if A can create a risk which B will have to bear.

A classic example is where a software vendor licenses software to a customer.  The customer will often want assurance in the licence agreement that the vendor does indeed own the software that is being licensed.  As part of that assurance it is now common for software vendors to “indemnify” their customers against any losses the customer may suffer if a third party brings a claim against the customer claiming that:

• The software vendor does not own the software that has been licensed; and
• The customer’s use of the software therefore constitutes a breach of the third party’s intellectual property rights.

Breach of contract – normal principles

In the absence of any indemnities in a contract, under normal legal principles if A breaches a contract with B then B would have the right to claim “damages” (financial compensation) sufficient to put B in the position he would have been in had the contract been performed properly.

However over centuries of case law, the courts have developed a number of further principles designed to ensure that the rights of the innocent party are reasonably balanced with those of the defaulting party.

The following two key principles have emerged:

• Remoteness of damage. The courts have decided that it is not always fair to hold a defaulting party responsible for all the consequences of its breach. On occasion, the damage that occurs is so improbable and so difficult to foresee that the loss cannot be claimed unless the parties had special knowledge of the circumstances. One example would be if a business asked a utility firm to install telephone equipment and it was late doing so. It is possible to foresee that there will be some disruption, but possibly not that a key client was so irritated at being unable to make contact that he took a lucrative contract elsewhere.
• Mitigation of loss. The courts require parties to take reasonable steps to “mitigate their loss” following a breach by another party. A party cannot recover loss which it has either avoided, or which the court feels it should reasonably have avoided. For example, if an employee is wrongfully summarily dismissed, the court would expect him to attempt to find another job. If he is, or should have been, able to do so, the salary from the new job will be deducted from his damages claim for wrongful dismissal.

Dangers for the unwary

If indemnities are used in targeted ways for specific issues like the software vendor example above then they are unlikely to lead to unintended consequences.

However, in our experience it is common for customers, particularly larger customers with their own standard purchase agreement or terms, to include very wide ranging indemnities.  For example, it is common to see a provision in which a supplier is asked to indemnify the customer for all losses arising from any breach of the terms of the contract.   

Clauses of this nature have potentially dangerous implications for suppliers. 

The reason for this is that a claim under an indemnity is not strictly a breach of contract claim.  As a result, it is possible that the party who has given the indemnity will not be able to rely on the principles of “remoteness of damage” and “mitigation of loss”.  In short, such a clause potentially allows the party with the benefit of the indemnity to recover more money more easily than would be the case under normal contractual principles.

Practical advice for suppliers

If you are supplier, our advice is, where possible, to avoid giving indemnities on the basis that they are exceptional remedies and customers are protected any way via their rights to claim compensation for breach the contract under normal legal principles.

If customers are insistent:

• Try to narrow down the scope of the indemnities to address specific issues or concerns raised by the customer only;
• Always ensure that the contract includes a reasonable financial limit on the total liability that the supplier is exposed to which explicitly includes any claims made under any indemnity.

If you have any questions about issues raised in this update please contact Stephen Thomas on 01242 225586 or by email on steve.thomas@maitlandwalker.com

As this information has been prepared by Maitland Walker LLP as a general guide, we recommend you seek specific professional advice before acting on any information contained within it.  No liability can be accepted by Maitland Walker LLP for any action taken or not taken as a result of this information. 

Maitland Walker LLP is regulated by the Solicitors Regulation Authority.