The impact of legislation and case law on drafting commercial contracts

Background

Legislation and case law is not the same in each country of the global market and it is unlikely that you would have knowledge of each legal system. There may be restrictions, definitions and boundaries imposed by legislation, case law and codes of practice. It is possible however to adhere to the background of the governing law of the contract and to take it into account when drafting, but not seek to replicate the exact words in the legislation.

The legislation may be drafted in such a manner that the agreement would not make any sense if you followed the definitions in the legislation. Legislation is not a comprehensive statement of all matters relating to contracts. The legislation may be drafted very widely and so cover a range of topics not intended to be included in the agreement. There are also many terms used in contracts which are not in either legislation or case law.

Predicting future forms of exploitation

The legislation and case law is relevant in that it may affect the interpretation of the contract. That does not mean however that the agreement should be drafted to exactly fit the current legislation. You must anticipate new materials, technology and unexpected forms of exploitation of rights. The rule is to grant narrowly and to acquire widely.

The drafting of the definitions and rights in a contract is based on an understanding of how text, film, sound recordings, photographs, music, trade marks, data and other rights are described and protected in the legislation. It is also necessary to make it clear who owns those rights and all the physical material including prototypes, new variations and marketing material.

Time lapse between commercial practice and legislation

Legislation never keeps pace with the reality of new projects particularly where new technology, software, intellectual property rights and data are concerned. New developments may not fall within the ambits of current legislation. Computer software rights were not recognised in any legislation at first, but this did not prevent the licensing of computer software rights to third parties. Computer programmes are now protected by copyright and the apparatus of any computer program or software related invention by patent.

There were many agreements in the feature film, radio and television industry for the placement and advertising of commercial products; despite policies that it was not permitted. Now it is accepted as a lucrative method of promotion. The Ofcom Broadcasting Code www.ofcom.org.uk/tv-radio-and-on-demand/broadcast-codes/broadcast-code

Where a company has created a successful programme such as a quiz or dance competition and licences it to a distributor to replicate it in another country. The contract is referred to as a ‘format rights agreement’, even though no such rights are set out in legislation. The aim in the agreement is to describe in detail each element of the programme including the set, costumes, rules, title, logos and music. Each of these key components will be protected by different aspects of copyright, trade marks and intellectual property rights. You then specify how the rights in the programme may be exercised and in which countries.

Acquisition and grant of rights

The legislation specifies that certain rights exist for the ‘full period of copyright ‘‘and any extensions or renewals’ or some other period. Despite this fact there is nothing ‘illegal or immoral’ or ‘against public policy’ about seeking to grant or acquire more than set out in the legislation. You may agree to acquire those rights ‘in perpetuity’ or ‘for the full period of time and forever’ or any other variation. The question is whether the longer term would be enforced by the courts in the event that it was challenged.

The legislation may apply to a specific country, associated islands and its territorial waters. However, businesses routinely acquire rights in territory which is defined much wider. Even where it may not be clear if the rights even exist in legislation in those other countries. You can acquire the rights ‘throughout the world’ or ‘throughout the universe and galaxy’; the issue is whether the rights exist in any particular country and whether they would be enforced by a court in a legal action.

 Illegal, immoral or against public policy

If an agreement is not ‘illegal or immoral’ or actually prohibited by legislation or ‘against public policy’; then two commercial companies may choose to conclude terms. The court will not however enforce a contract which is based on an ‘immoral or illegal act’. Either party to a contract may potentially seek to have the contract declared unenforceable on those grounds.

Where a contract seeks to replace or remove any statutory rights which you may have as a consumer. The contract is not in itself ‘illegal’ the issue is one of enforceability by the courts. Where legislation prohibits certain conditions being included in an employment contract. If it is decided by a court that there is an’ illegal’ term in the contract they may declare the contract void or refuse to enforce it. Where a contract has a severance clause the court may seek to interpret the contract without regard to the terms which are now considered deleted from the rest of the agreement.

A court may reach a decision that a contract is against public policy and refuse to benefit either party. There have been cases where both parties have agreed terms for an ‘illegal purpose’ relating to property, but the courts have given judgement in favour of one party.

‘No court will lend its aid to a man who founds his case on an illegal or immoral act’ Lord Mansfield 1778. What constitutes ‘an illegal or immoral act’ does not have fixed criteria and has changed over centuries. One party may raise a defence of an illegal or immoral contract which if successful will result in the contract being void. The test however is not one of the public conscience, but whether the claim under a contract can be raised without recourse to the underlying fraudulent or illegal purpose.

Deborah Fosbrook is the author of Contract and Copyright Drafting Skills, The Complete A-Z of Contract Clauses Pack and The Media and Business Contracts Handbook

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