New Year, New You? What are the legal challenges for 2011

While 2010 was an amazing year for innovation and the creation of new technology, it is anticipated that 2011 will bring consolidation and further growth to the IT industry and as a consequence more scrutiny and attention to the underlying intellectual property. So, companies must consider and address certain intellectual property issues, which are discussed in this article.

2011 is expected to be the year when IT investment focuses on strategies rather than cost-cutting, although the dominating word will still be “value for money”. Along with a wave of enterprise resource planning deals and increasingly frequent but smaller operational outsourcing deals, increased used of online trading and social media both for business and personal use, we can expect to have to deal with the following intellectual property issues:

ISP liability: not a new issue but definitely one that continues to be relevant here because under the Copyright Directive and The Electronic Commerce Directive internet service providers can be liable for failing to take down offensive, defamatory or IPR-infringing content. In such circumstances, corporate customers should seek an indemnity for any loss suffered as a result of material being unnecessarily deleted or moved and should insist on being notified in advance if any content is to be removed. The Digital Economy Act is also making ISPs responsible in the event of online copyright infringement activities.

Interoperability and compatibility of equipment: with the convergence and synergy of action of various equipment/technology, trying to apportion liability and responsibilities in the event of IP infringement is going to get very difficult.

Content licensing: obtaining permissions from existing rights-holders for use of pictures, video or audio content, and the cost and complexity of enforcing IP rights within the UK and internationally. Generally, the standard terms and conditions include a broad licence allowing them to use any content stored on its servers. Customers should take particular care in identifying any rights they are agreeing to provide to the vendor. The content provider will look to exclude all liability for content stored or posted on its services and will normally include a right in its standard terms to remove any data from its servers.

Privacy: including online employees and children protection

Cloud computing: as service-based computing continues to move towards becoming a utility paid for by metered access, “platforms as a service” (PaaS) where third parties can host their software applications in order to distribute them to customers, software as a service and fabric-based infrastructure, where a system is aggregated from separate building block components by means of a fabric (a stack of switches on a backplane that connects together the functions that a PC or laptop performs today, like processor, memory, input/output and system software) will be used more often.

SaaS/PaaS vendors have very high numbers of contracts globally, they generally seek to offer their services on standard terms. These terms tend to be strongly supplier-centric, excluding all but the most limited of warranties and any liability for data loss or corruption or service failure. In the UK, standard terms (and in particular any exclusions or limits of liability) are subject to the Unfair Contract Terms Act 1977 (UCTA) and therefore must be reasonable but it is far safer to seek to negotiate key provisions in advance rather than rely on statutory protection after an issue arises. It is also likely that customers will need to ask for service levels and service credits to be proposed.

Also in a SaaS/PaaS scenario, appropriate software licences need to be granted to the customer. This is because users have online use of software at a PC and, without a licence, this would amount to copyright infringement.

The SaaS vendor will not always own the intellectual property rights in the software that is the subject of the SaaS arrangements. Where this is the case the SaaS vendor will need to arrange for the right to sub-license the software to its customers, or for a direct licence to be entered into between the customers and the relevant third party licensor. In these latter circumstances, the SaaS contract should make it clear that the SaaS vendor is responsible for the management of the third party licences, together with the payment of any licence fees. The third party licensor should also be informed that the licence arrangements relate to licensing only. All other issues relating to the provision of the software, such as delivery, installation and configuration requirements, should be dealt with in separate agreements between the customer and the SaaS vendor.

The inclusion of intellectual property indemnities in SaaS contracts is important, because SaaS customers have to rely on the SaaS vendor to ensure that software licensing issues have been resolved so as to entitle the customer to use the software as part of the SaaS. However, if the arrangements are not properly made, the customer may still infringe the IPR of a third party even though it may have no knowledge of the infringement. SaaS users need to be aware of the possibility of patent infringement through the use of SaaS arrangements. Patent protection is increasingly available for computer software in the US and, to a lesser extent, in the EU. Where SaaS arrangements are established on an international basis, the IPR indemnity needs to be sufficiently broad to protect the SaaS customer in all jurisdictions in which the software will be used.

In conclusion the attention and contract negotiation swifts but not disappears. Instead of software licensing or outsourcing contracts, attention will be given to services agreements, image rights and data protection issues.

All articles are for general purposes and guidance only and do not constitute legal or professional advice.
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