White SW Computer Law

Intellectual Property, Information Technology &
Telecommunications Lawyers

Postal Address: PO Box 452 Collins Street West, Melbourne Victoria 8007 AUSTRALIA

GPO Box 2506, SYDNEY New South Wales 2001 AUSTRALIA

Telephone: +61 3 9629 3709 Facsimile: +61 3 9629 3217

Email : wcl@computerlaw.com.au Internet : http://www.computerlaw.com.au

INTELLECTUAL PROPERTY & INFORMATION TECHNOLOGY NEWSLETTER - MAY 1997

In this issue:

Stamp Duty

Internet Framing and Copyright

Suppliers - beware of third party claims

Another case of an overconfident sales pitch

What computer records are your employees allowed to access?

What damages are recoverable when a system doesn’t work?

Have you made an agreement or an agreement to agree?

Is your product name someone else’s trade mark?

Stamp Duty

Victoria Stamp Duty Deed on Intellectual Property and other Deeds Deeds executed after 1 May 1997, which do not otherwise attract duty executed in Victoria, will no longer require $10.00 stamp duty to be paid. Commonly used deeds to which this applies includes Confidentiality Deeds, Non-Disclosure Deeds and Intellectual Property Assignment deeds.

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Internet Framing and Copyright

Many internet sites indiscriminately link to other sites. However, that may soon change. In February 1997, a Complaint was lodged by The Washington Post, Time Inc, Cable News Network, Times Mirror, Dow Jones and Reuters New Media against Totalnews in the New York District Court. The plaintiffs claim that Totalnews has, by "framing" and "linking" to their content on the Totalnews site, amongst other things, misappropriated valuable commercial property, engaged in false representation and advertising, committed Federal Trademark dilution, infringed their registered trade and service marks and copyright (including domain names). Totalnews, which was launched in October 1996 has stated its intention to defend its actions. The outcome of this case will be important in shaping the future of the use of trade marks and copyright material and the "linking" to same on the Internet.

As income derived from advertising on the Internet continues to grow, so to do the risks and potential damages which may be awarded against an infringing party. As with all other forms of media such as books, films etc permission should be obtained from the author prior to using the work in any way to avoid risky and expensive litigation.

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Suppliers - beware of third party claims

In the UK decision of DSL Group Limited v Unisys International Services Limited, Unisys, a supplier of hardware was found prima facie liable to pay DSL, a software developer, damages in relation to a settlement paid by DSL to a end user (in excess of $1,000,000) and DSL’s legal costs (in excess of $344,000) for a software development project that went wrong as a result of, in part, inadequate hardware and system software. DSL was providing the programming services and was found to have relied upon misrepresentations made by Unisys staff as to the capability of certain hardware and software to perform the required tasks. The project had been scheduled to take six months but after two years was still not complete. The end user sued DSL and subsequently settled the litigation. Because the settlement was a reasonable one, DSL was prima facie entitled to recover the settlement amount (including costs) from Unisys. It was significant that at least one Unisys sale staff member who made the representations knew them to be false.

When considering your liability for defective systems, you need to consider that your customer may not be the end user of the product being sold and hence the risks involved might be much greater than initially considered. The damages which may be incurred may be far greater than the value of the sale.

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Another case of an overconfident sales pitch…

The Australian case of Chippendale Printing Co Pty Limited v Spunaline Pty Limited & Anor saw an award of damages of $26,000 and legal costs to Chippendale resulting from a supply of software and hardware which did not live up to the promises of Spunaline. A director of Chippendale, having no knowledge of computers, engaged Spunaline to provide a computerised solution to calculate and record estimates and invoices for print jobs. A director of Spunaline was known to be an expert in the area of costing for print jobs and claimed to have knowledge of computers. It was made clear that the supplier would have to assist Chippendale in implementing the computerised system. The supplied hardware and software failed to provide the capabilities Spunaline had claimed they would (and as a side issue the supplied software and manuals appear to have been unauthorised copies). The director of Spunaline and Spunaline were both found to have engaged in misleading and deceptive conduct.

If your client makes it clear that it is relying upon your advice it will be even more difficult to defend a claim of misleading and deceptive conduct made against you.

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What computer records are your employees allowed to access?

If your employees or contractors have access to computerised records but you wish to restrict the access in some way, you should consider including a clause in your employment agreement which clearly states the remedies you will have available to you should the employee abuse their access to your records. The use of on-screen messages can also be used to reinforce the message that unauthorised access will be viewed as misconduct.

In the UK case British Telecommunications PLC v Rodrigues, Rodrigues was an employee of BT who worked in debt recovery. Rodrigues obtained unauthorised access to various databases and this activity was discovered by the BT Investigation Department. Rodrigues was dismissed. However the Courts found that it was a case of unfair dismissal because BT had not informed their employees that computer misuse could result in automatic dismissal and ordered that Rodrigues be reinstated.

It is a lot easier to introduce terms of employment when an employee is first hired rather than to amend an existing agreement. Thought should be given to the scope of possible duties that the employee may be given both initially and in the future to ensure adequate protection for the employer’s position.

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What damages are recoverable when a system doesn’t work?

In some transactions, the Trade Practices Act may not apply. In such cases, the parties are still subject to a contractual duty to exercise due skill and care and a duty not to act negligently.

In the UK case of Stephenson Blake (Holdings) Limited v Streets Heaver Limited, Stephenson, a family company whose office holders had little knowledge of computers, sued Streets, a company which recommended computer systems. Stephenson wanted to update their computerised accounting system and engaged Streets to recommend and implement the upgrade. Streets recommended an inadequate and unsuitable system. In assessing the damages payable by Streets, the Court decided that the costs involved with (a) keeping the original hardware and changing the software; (b) keeping the original hardware and having a programmer improve the existing software; and (c) changing both the hardware and the software all had to be calculated and compared. In this case, Stephenson had chosen to replace both the hardware and software which may have involved a higher cost than the replacement or modification of the software alone and hence the additional expense may not have been recoverable.

If you are seeking damages, the Court will consider the reasonableness of your claim and may not award the full amount of expenses incurred if there had been a cheaper solution, or if you failed to mitigate your losses.

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Have you made an agreement or an agreement to agree?

Parties often sign a "heads of agreement" document prior to a formal agreement being prepared and agreed.

The question of whether such a document is binding was examined in The Reark Group Pty Ltd & Anor v Data Connection Pty Ltd. Due to nature of the "heads of agreement" document, it being made prior to final negotiations, there were a number of areas which needed further clarification. Reark sought to sell part of its business to a third party and Data Connection sought to rely on a clause in the agreement which it claimed gave it the first right of refusal in such a sale. Reark was attempting to sell the goodwill, plant and equipment, work in progress and other assets of its research business, whereas Data Connection’s heads of agreement involved laser printing and mail house activities. The Court found that the heads of agreement was enforceable, however, it did not extend to give Data Connection the right of first refusal in relation to the research business and hence the sale could proceed. If you are entering into a pre-contractual agreement, ensure that the scope of the agreement is sufficient to protect your interests.

It should be remembered that such an agreement is written with the intention of being replaced with a formal contract and cannot be relied upon to give the same protection that a formal contract provides.

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Is your product name someone else’s trade mark?

In Colbeam Palmer Ltd v Stock Affiliates Pty Ltd, Stock Affiliates was found to have infringed Colbeam’s registered trade mark by selling a product with a name the same as the trade mark. In this case, Stock Affiliates imported the product from a US supplier. There was also a UK supplier of the same product (Colbeam). Although there had been no agreement between the two suppliers as to which party had the rights to distribute in the Australian market, by registering the trade mark, Colbeam had the right to insist that no other party market a product using a name which would infringe its trade mark.

A similar situation may arise with respect to a business or company name. If another party registered a trade mark which is similar to your firm’s name you may have to cease trading under that name.

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This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquires and seek appropriate legal advice.