IT Lawyers’ Cases in Brief

June 13, 2010

Each of the cases summarised below is covered in a news item elsewhere on the SCL web site. Consult those reports for fuller versions, including extracts from the judgments and links to the full judgments on BAILII and elsewhere. 

Software Patents: The EPO Ruling 

The Enlarged Board of Appeal of the European Patent Office has handed down its opinion on the referral concerning software patents.

The appeal ruling was on what is technically known as referral G 3/08. The conclusion seems to be that the referral should never have been made in the first place. Roughly 20 of the 56 pages of judgment are concerned with that point (and arguably all 56). The Board does however take  the opportunity to set out and confirm the approach of the EPO regarding the patentability of computer programs under the European Patent Convention (EPC) and offer useful analysis of each of the questions that were referred. The net result is, at the EPO at least, it is business as usual.

The opinion relates to four questions referred to the Enlarged Board in October 2008 by the President of the EPO concerning points of law of fundamental importance for the Office’s patenting practice in this field.

The Enlarged Board analysed in detail the development of relevant case law, and found that there was a divergence between two decisions of Technical Boards of Appeal. However, recognising that the ‘case law in new legal and/or technical fields does not always develop in linear fashion, and that earlier approaches may be abandoned or modified’, the Enlarged Board found that this constituted a legitimate development rather than a conflict of case law.

In the absence of conflicting Board of Appeal decisions, the Enlarged Board concluded that the legal requirements for a referral were not met. Nevertheless, the Board affirmed the right of the President of the EPO to ‘make full use of the discretion granted by Article 112(1)(b) EPC’ in making a referral, and provided further guidance on how the requirements for such a referral should be interpreted. 

Red Sky in the Morning: Sellers’ Warning 

A High Court ruling on software exemption clauses is a further reminder of the need for suppliers to give full and accurate information to potential buyers. The supply of booking software to a hotel that proved to be a nightmare to operate, and that led to an award of damages totalling over £110,000, is the context for this judgment from the Technology and Construction Court on limitations of liability and the Unfair Contract Terms Act 1977. 

In Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd [2010] EWHC 965 (TCC), His Honour Judge Toulmin CMG QC ruled that the attempt to limit damages by the seller (Red Sky) was ineffective and that failures to provide information undermined any claim that the limitation clauses were reasonable. In a long judgment that focuses primarily on the facts (see [231]-[258]), he summarises the main points of interest on the law, although practitioners may also be interested in the arguments concerning the allowable damages. As the learned judge observed:

‘Red Sky’s contract is predicated on the basis it was able to sell its software as off the shelf rather than customised software and that the manuals, together with the demonstrations of the software, would enable a customer to understand the strengths and the limitations of the software and thus to decide whether it would fulfil its needs. The representations in the manuals would be crucial in explaining to potential customers whether the system provided the level of sophistication and speed which they required. Of course, the operating documents could later be supplemented by further documents which set out the benefits of updates etc.

Without the manuals being supplied before the contract was entered into, it was not possible for potential customers to understand this and to make up their minds whether or not the system would be suitable for their needs. There is no evidence that such documents were provided at the time when the contract was signed.’ 

Online Insurance Intermediaries and VAT 

A Court of Appeal ruling has upheld a claim to a VAT exemption for insurance price comparison web sites. 

In Commissioners for HM Revenue and Customs v Services Limited [2010] EWCA Civ 422, the Court gave judgment on a claim concerning the Insurance Intermediary Exemption from VAT made by two price comparison web site operators offering indicative insurance quotes to customers. The exemption from VAT is contained in Group 2, Item 4 of Schedule 9 to the Value Added Tax Act 1994 and is more fully described as an exemption for the provision of services by an insurance broker or insurance agent of any of the services of an insurance intermediary. The significant feature of both appeals is that each taxpayer claimed the exemption by virtue of the facility which they provided through their respective web sites for a member of the public to have access to an insurer or an insurance broker or insurance agent, with or through whom an insurance contract could be made. 

While the judgment focuses on the finer details of the Insurance Intermediary Exemption and the Directive from which it stems, it does also cast light on the legal status of online web sites offering access to a range of services. The HMRC argument opposing the availability of the Insurance Intermediary Exemption was that neither claimant could show that it acted as an insurance broker or insurance agent because they merely provided a click through facility to a broker, agent or insurer; in the absence of any legal relationship with either the insurer or the insured or the prospective insured, and in the absence of any involvement in the negotiation of the terms of the insurance contract or its preparation or the collection of premiums or the handling of any claims, their activities were not such as to constitute them an insurance broker or insurance agent for the purposes of the Insurance Intermediary Exemption. HMRC claimed that the minimum requirement is the carrying on by the taxpayer of a business activity, the principle purpose of which is the putting together of the insured and the insurer and with an impact on the terms of the contract and a negotiating role for one or other of the prospective insured and the prospective insurer as a go-between. 

Etherton LJ, giving the lead judgment, gave this argument short shrift (at [86]-[87):

‘Although HMRC’s case is that the relevant functions performed by InsuranceWide and Trader Media were nothing more than the provision of a “click through” facility to a broker, agent or insurer, it is plain that both taxpayers were doing much more than that. They identified, and provided those looking for insurance with access to, insurers who provided a range of competitive insurance products. In both cases the evidence indicated that the insurers were appraised and selected bearing in mind the competitiveness of their pricing and products and their level of consumer service. In the [later] phases, InsuranceWide provided those seeking insurance with a means of directing them most effectively and efficiently to the most appropriate insurers, whether directly or through another intermediary, to match their requirements. In the case of Trader Media the evidence was that it not only had an input into the questions to be answered by those seeking insurance, but, importantly, it made suggestions for the composition of the insurance panel based on its understanding of the experience and demographics of the consumers and with a view to providing customers with insurers who would quote competitive prices. Neither of them were … a mere “conduit”. Their relevant activities can fairly be described as the business of bringing together insurers and those seeking insurance, by contrast with the taxpayers in Skandia, Taksatorringen and Arthur Anderson, who were sub-contractors. For the reasons I have given, I reject the proposition of law advanced by HMRC that neither InsuranceWide nor Trader Media can claim the benefit of the Insurance Intermediary Exemption’. 

Data Protection and Three Strikes in Ireland 

A very interesting High Court judgment in Ireland has tackled the data protection implications of ISPs sharing data for the purpose of limiting illegal file-sharing. 

The long-running dispute between Irish record companies and Eircom took a further twist following the settlement between the parties. In EMI Records v Eircom [2010] IEHC 108, Charleton J had to consider whether the terms of the settlement, about which the Irish Data Protection Commissioner had raised concerns, was data protection compliant. The issues and the judge’s view on them are summarised in the judgment itself at considerable length. Charleton J also offers his views on a wider range of issues relevant to ‘three strikes’ in the full judgment which are well worth the attention of those interested in this area. 

Internet Libel: Archive, Context and Snippets 

In Budu v BBC [2010] EWHC 616 (QB), an action for libel was struck out where the original article was archived and could only be read in the context of later pieces which removed any sting. Moreover, it was held that a publisher could not be liable if a Google search snippet was defamatory when the original material from which it was derived was not. 

The claimant alleged that the BBC libelled him in an article written in 2004 which suggested that he had been rejected for a job with the Cambridgeshire Police because he was an illegal immigrant. There were further articles which gave the claimant’s side of the story, including a clear denial of the status of illegal immigrant. The claimant was not named in the first article but it was clear from the linking of the articles that he was the person referred to in the first piece. Budu delayed any action and was confined to complaining about readers of the articles post-May 2008, by which time the only means of accessing the first article was by links from the subsequent articles. There were also difficulties in producing evidence that any person accessed the articles during the relevant period. 

Giving judgment, Mrs Justice Sharp DBE said that attention had to be paid to the ‘composite meaning’ of the articles and that it was fanciful to suggest that a reader would somehow come across the first article and know that it referred to the claimant, but not go on to read the later articles. In essence, she considered that what was left of the claim was so thin and of so little import that further proceedings and further expense were not justified. 

The main point of interest in this seriously flawed claim is the suggestion that the BBC was liable by virtue of republication for the search snippet on Google that read as follows:

‘BBC NEWS| England | Cambridgeshire | Candidate denies illegal status

Ghanaian Sam Budu, Ipswich and Suffolk Council racial equality director, was later rejected as diversity manager after security vetting…’

Mrs Justice Sharp DBE considered this issue at some length (at [59]-[77]). She concluded that ‘it would not be appropriate or just in my view to make the publisher of the original webpage responsible in law for a snippet which makes a defamatory allegation (for example, because it detaches certain words from their context) not made in the original webpage itself’. However, her reasoning bears detailed examination and an extended extract is available on the SCL web site.