Notesale: Turn your study into money

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Commercial Law
Part 1 Revision Notes
Agency
CONTRACTUAL RELATIONSHIPS IN AN AGENCY CONTRACT
Basic Rule:
Where an agent concludes a contract with a third party within the scope of his authority
(principal), privity of contract exists between principal and third party NOT the agent
...

The minimum function will be to find customers for a product or service
...

SOURCES OF AGENCY LAW
In answering any question on the rights and obligations of the principal and agent to each
other, we will almost always find ourselves looking in turn at three sources of law
...

2
...


The Agency Agreement
The Commercial Agents Regulations
Common Law

The Commercial Agents (Council Directive) Regulations 1993 (S
...
1993 No 3053)
REGULATION 2: ‘COMMERCIAL AGENT’

This means someone who is an intermediary with the authority to negotiate the sale of
goods on behalf of the principal
...

Why does the principal want to retain control over the terms of sale?
•
•
•
•

Uniformity in pricing
...

REGULATION 4: ‘PRINCIPAL’S OBLIGATIONS OWED TO THE AGENT’
This is all about:
•
•
•
•

Acting in good faith and dutifully
Assist with information to help achieve the purpose of the agency agreement
Make the agent aware of any reductions of product demand
Notify the agent of any transaction cancellation

REGULATION 5: THIS STATES THAT REGS 3 AND 4 CANNOT BE CONTRACTED OUT OF
...


But don’t worry the agency agreements we deal with in class and the exam will have
specific provisions for this
...
The agency agreement at the ‘Remuneration’ section will provide
specific percentages and additional conditions such as performing the general obligations
as an agent e
...
concluding deals within the territory
...
3, it states that there will be no
commission for post-termination transactions
...

NB There is no specific clause that states Reg 7 and Reg 8 can be contracted out of which
makes it unclear
...

Although these kinds of ambiguities can be litigated on
...

NB you cannot contract out of Reg 12

REGULATION 15: ‘MINIMUM PERIODS OF NOTICE FOR TERMINATION OF AGENCY
CONTRACT’
Any contractual provision in the agreement concerning notice is overridden by Reg 15 as it
specifically states that Reg 15 cannot be contracted out of – “the parties may not agree on
any shorter periods of notice”
...

REGULATION 17: TERMINATION PAYMENTS VIA INDEMNITY OR COMPENSATION
The Regs provide for automatic payment to the agent when the agency terminates under
most circumstances
...

For example, the principal can give lawful notice of termination, or the contract may simply
end because it has got to the end of a fixed period or the agent can give notice because he
is too ill or old to carry on his activities or he may die
...

However, the principal can elect in the contract which one the agent will be entitled to
...
- Reg
17(2)
...

Regulation 17(3):
A commercial agent shall be entitled to an indemnity if:
• The agent has brought new customers or significantly increased the volume of
business with existing customers
• The principal continues to benefit from this new/increased business
• The payment of indemnity is equitable
In other words, be a good agent
...

‘COMPENSATION’

Meaning of compensation under the Regs
Reg 17(6) “…the commercial agent shall be entitled to be compensated for the damage he
suffers as a result of termination of his relations with his principal
...
”
The UK does not need to follow the French approach of 2 x gross commission
...

Lonsdale v Howard -> Compensation is for the loss of the value of the agency agreement
i
...
Look at what the agent has lost by being deprived of his business – place a value on the
right to being an agent of that business
...

Therefore, the value will be the amount a hypothetical purchaser would be willing to pay
for it at the date of termination
...
e
...

Then from this calculation, deduct:
• Interest
• Expenses
King v Tunnock -> if the business is closed and this causes the termination, the agency is
worth nothing and P would not benefit from the good will anymore – no compensation was
payable
From this it can be seen that compensation can actually end up being quite expensive and
should be avoided in favour of indemnity instead
...
However, in accordance with this same provision and that of
Regulation 17 (1), should the agency contract provide that agents shall be
indemnified instead, then this shall occur instead of compensation
...

Some practical points:
Reg 17(5) states that just because indemnity is given doesn’t prevent a contractual
damages claim
...
There is no prescribed form
...

REGULATION 18: ‘GROUNDS FOR EXCLUDING COMPENSATION/INDEMNITY PAYMENT’
The Agent is not entitled to a payment where-

principal terminates due to default of agent; or,
agent himself terminates, unless termination due to default of principal,
or……
...

However, Reg 20(3) specifically states that even if the clause does comply with Reg 20,
common law rules still have to be taken into account
...
g
...
Common law right to recover
reasonable expenses

•

Lien – if principal owes money then agent has common law right of lien over
principals property
...
g
...
g
...
g
...

service contracts of directors
Assignment of leasehold
assignment/novation of contracts
• All contracts remain with the Target
• Assignment: can assign the benefit
company e
...
clients, suppliers
but can’t assign the burden at
• No assignment needed for the
common law; Legal assignment
property
under s 136: in writing, absolute (ie
• However, check for change of control
the whole benefit and burden to be
provision in key contracts- these
assigned), written notice to third
provide that in the event of a change
party
...
i
...
over 50%
assignments may exist
...

• Novation: three parties
...
The seller is released from its
obligation under the terms of the
agreement
...


Purchaser’s motives- Acquiring a competitor (expanding horizontally), acquiring a new
business that complements what the purchaser is doing, acquiring a supplier (expanding
vertically)
Seller’s motives- get rid of an underperforming subsidiary or a non-core business, raise
money for an expansion, insolvency

Valuation Methods:
a) Assets Basis- i
...
valuing by calculating the net assets using a balance sheet (Total
assets less total liabilities)
• Suitable for very asset-based companies
• Must be careful- it is only a snapshot
...
e
...
g
...


Completion accounts:

Most sale and purchase agreements will provide for a completion account for a specified
period after completion to reflect that the value paid is correct
• How its paid? Maximum and minimum payments- e
...
maximum amount to be paid
on completion, with the buyer being entitled to a repayment if net assets/
profitability fall short of the expectations
...

2
...

4
...

6
...

8
...
g
...

• If inaccurate- buyer will have claim in damages- subject to Hadley v Baxendale
...
Must show= Warranty
untrue + Loss+ attempts to mitigate
• Must avoid ‘sweeper’ or ‘looking forward warranties’ – e
...
‘company will be doing
well in x amount of years’ something so subjective/opinion/things you cannot know
for certain’
b) Get Indemnities from Vendor- ‘ a promise to reimburse the purchaser on a pound for
pound basis’
• Example: indemnity given by vendor in respect of unknown tax liabilities which the
purchaser will assume on completion (only relevant for share purchases)
• Where multiple sellers- must consider how the indemnity will be assumed- where
there are minority shareholders ‘joint and several liability’ is unsuitable; normally will
use pro-rata instead
How to protect the Vendor

a) Disclosure Letter- the purchaser won’t be able to bring a claim for something that
was disclosed
...
Usually will be treated as capital gains or
losses
...
Companies will be charged to corporation tax
on their capital gains
...

Seller’s position for share transfers:
a) If an individual: CGT at (10% or 20%) on Consideration for disposal Less Allowable
expenditure (initial expenditure, subsequent expenditure, incidental costs of
disposal)- if pre 31 March 1982, market value at that date
...

• The individual holds at least 5% of the company’s ordinary share capital and is
entitled to exercise at least 5% of the voting rights in that company
...

• Payment of tax is deferred until the new shares are sold or the loan notes are
redeemed
...
The new shares inherit the
base cost of the old shares

Condition: The purchaser must as a consequence of the transaction hold more than 25% of
the ordinary share capital of the target (usually satisfied in private acquisitions)
...
Entrepreneurs’ relief and annual exemption not available
Substantial Shareholding Exemption (SSE) available if:
1
...

2
...

Seller position for Business Sale
a) By corporate seller
• Consideration will be apportioned into capital assets e
...
property and income assets
e
...
stock
• Capital assets- will be treated as a gain so corporation tax will be paid on them
• Income assets-proceeds of sale will be treated as trading profits
b) By individual
c) Usual capital gains rules apply (as well as Enterpreuners relief, annual exemption)
Buyer’s position
1) Share sale- stamp duty at 0
...
NO VAT
...

Income Assets - Stock will usually be a deductible item of expenditure
...

• There must be no significant break in the normal pattern of trade either before or
immediately after the transfer
...


Part 3 Revision Notes
Competition Revision Notes
Article 101(1) TFEU –
This PROHIBITS… ‘all agreements between undertakings, decisions by associations of
undertakings and concerted practices which may affect trade between MS and have as
their object or effect the prevention/restriction/distortion of competition within the
internal market’
Key elements from this:
• 2 or more undertakings
• Collusion via agreements, decisions of associations of undertakings and concerted
practices
• Object or effect of negatively impacting competition
• Effect on trade between MS
We will be focussing on formal agreements
Article 102 TFEU –
This PROHIBITS… ‘Any abuse by one or more undertakings of a dominant position within
the internal market or in a substantial part of it shall be prohibited as incompatible with the
internal market insofar as it may affect trade between Member States’
But we will not be assessed on this (I think)
The ‘ESCAPE ROUTES’ for prima facie anti-competitive agreements in breach of Article
101(1) TFEU
1
...

3
...


De Minimis Principle
Block exemptions
SMEs often get exempted as their impact is small
Legal exception under 101 (3)

Principle of De Minimis
An agreement will not be caught by Article 101(1) TFEU if it does not have an appreciable
impact on competition
...

The market share thresholds are as follows:
• 15% market share held by each of the parties for agreements between noncompetitors (vertical agreements)
HOWEVER:
The De Minimis notice however does not apply to agreements that contain hardcore
restrictions, examples include (specific to vertical agreements):
o
fix prices (imposing a maximum sale price or recommending a sale price is fine;
imposing a fixed or minimum sale price is not); or
o
impose export bans (a territorial protection clause which includes a restriction on
active sales into the exclusive territory of another is allowed; a restriction on passive sales
into the exclusive territory of another is not)
...

Article 2 (1) Block Exemption: Application
o
Applies to vertical agreements only
...

Article 4 Block Exemption: Restrictions that remove the benefit of the block exemption –
HARDCORE RESTRICTIONS
If the agreement contains any of the Article 4 hardcore restrictions the result is that the
agreement is in its entirety outside the scope of the BE
...
e
...


However – imposing a maximum sale price or just recommending sale prices are okay and
will not prevent the exemption from applying but this depends on the facts
...
Important to remember that you
can only ban these active sales from other territories if they are subject to exclusive
distributorships or its reserved i
...
you cannot restrict active sales where those other
territories are not subject to exclusivity/reserved by the supplier
...
(paragraph 51 of Comm Guidelines)
An example of passive selling is via the internet e
...
websites or unsolicited emails
(paragraph 52 Comm Guidelines)
Paragraph 52 of the Comm Guidelines also gives examples of passive selling restrictions
that count as hardcore restrictions
...

Paragraph 165 of the Comm Guidelines defines wholesale level of trade as those who do
not sell to the final customer – they sell to the retailers
...
The Commission states that any obligations that
dissuade those within the network from using the internet to reach a greater number of
customers = hardcore restriction (paragraph 56 Comm Guidelines)

Article 1(1)(e) – defines ‘selective distribution system’ as where the supplier appoints
distributors on the basis of certain criteria and those distributors cannot sell to other
unauthorised distributors
...

Legal Exemption under Article 101(3) TFEU
Article 101(3) TFEU sets out an exception rule to Article 101(1) TFEU
...


Article 101(3) TFEU recognises that co-operation between competitors may be desirable
because overall it may result in positive benefits e
...
economies of scale, research and
development, restriction of intra-brand competition to promote inter-brand competition
...

The Commission Notice – Guidelines on the effect on trade concept does acknowledge
that agreements between small and medium-sized undertakings are not capable of
appreciably affecting trade between Member States
...
This defines small and medium-sized undertakings as
those which:
• have fewer than 250 employees and
Satisfy at least one of two further criteria, namely:
• an annual turnover not exceeding €50,000,000 and/or

• balance sheet total notexceeding €43,000,000
Definition of the ‘market’ and ‘market shares’ Why is this important?
Article 101 TFEU - market share is important in deciding whether certain exemptions are
available
...
g
...

The ‘de minimis’ exception is not available if the combined market share of the parties to a
horizontal agreement exceeds 10% of the relevant market, or if the shares of each of the
parties to a vertical agreement exceed 15% of the relevant market
...
f
...
Commission-‘is there a substitute readily
available at a similar price?’)
...
Why?
• IP rights create monopolies rights to companies etc whereas comp authorities seek
to prevent monopolies BUT IP is essential
• Conflicts with the concept of a single European market and free movement of
goods
Resolutions?
• Block exemption (eg block exemption for ‘Technology Transfer’ agreements)
Rationale for Block Exemption?
If IP holder has monopoly therefore any IP license is good – Commission appreciates this as
sharing is occurring
...
BUT IP holder will restrict rights of license holder

by imposing anti comp restrictions
...

• Temporary nature of IP rights
The monopoly right given to IP holder is of a limited duration except trade marks
Once the protection has ended the IP is in the public domain
• Exhaustion of IP rights – See Exhaustion of rights Vodcast
Reminder of the key elements of Exhaustion of rights
• Consignment of goods are put on the within the EU
• With the consent of the IP owner
• Then the goods must be allowed to move freely within the EU and cross national
borders
Example: Suppose that (say) Levi Strauss Inc
...
Levi Strauss Inc
...

Traders Ltd buys the jeans in Spain (where they are comparatively cheap) and imports them
into the UK (where they are more expensive)
...
If there is a significant price differential between the two
territories, the IP right holder is likely to wish to restrict the movement of goods between
those territories
...

How can this be reconciled with the concept of the single market, and with the principle of
free movement of goods within it?
The CJ has tried to draw a distinction between the existence of IP rights, and their exercise
...
The CJ has, however, consistently tried to restrict the extent to which
those rights can be used to restrict free movement of goods within the ‘common market’ of
Europe
...

DISTRIBUTORSHIP AND COMPETITION LAW
For this we will look at the Block Exemption Regulation and apply it to specific clauses we
have seen in a Distributorship agreement – so cross refer to this for completeness
...


Appointment

The Principal appoints the Distributor as its exclusive distributor for the resale of the
Products in the Territory and the Distributor agrees to act as such upon the terms and
conditions of this Agreement
...
That’s it for this clause
The 2
...
6

if and so often as orders or enquiries for purchase of Products are received from

prospective Customers outside the Territory, promptly to refer such prospective Customers
to the distributor for that other territory
...
e
...
Not allowed under Article 4(b)
This is also trying to potentially ban cross border sales which is not allowed under Article
4(b)
...

3
...
1

solicit orders for the Products outside the Territory, whether by advertising on the
Internet or by any other means;

3
...

3
...


3
...

3
...
8sell Products to any person operating other than at the retail level of trade
This is an attempt to restrict the market i
...
cannot sell to non-retailers
...
This is defined as someone who only deals with retailers for example and
never the end user (Paragraph 165 Commission Guidelines)
5
...
5not itself market the Products in the Territory
This goes to the heart of what exclusivity is and would be allowed
...
2 The Distributor will sell the Products to Customers at the Prices plus the Distribution
Margin
...

11
...
This
obligation will not apply where:
11
...
5 the Products have been sold outside the Territory
This infringes Article 4(b) because the lack of the warranty for cross border sales therefore
acts as a disincentive to sell outside the territory
...

Agency and competition law
Art
...

BASIC RULE:
The Commission is of the opinion that Art 101(1) does not apply to genuine agency
agreements
...

What is the test for a ‘genuine agency agreement’?
An agency agreement is considered to be a genuine agency agreement if the agent does
not bear any or only insignificant financial, commercial or economic risk
...
Indeed the criteria under Art 101 are not satisfied
as there are not TWO or more undertakings colluding/cooperating, only one
...
There may be other distributors in the
territory already, and others may come on board in the future
...
Eg distributors
may be reluctant to spend money on advertising if they are not given exclusivity since the
other distributors/manufacturer in the territory could benefit from their advertising
...
We will be looking at exclusive agreements due to them being the most
common
...
The distributor, however, does!
In agency the agent never contracts with a third party
...

This struggle does not concern supplier

•

•

•

•

•

•

o Example: Supplier sells 100k goods to Distributor who sells goods on credit to
retailer
...
e
...
g
...
g
...
If they are poor then you lose money so incentivise
performance with targets?
o Failure of the distributor to do well may damage the brand

o If the supplier sells the goods to the Distributor and then the distributor
becomes insolvent before paying then this is not recoverable
• Competition Law
o Distributorship agreements are far more likely to fall foul of competition law
than agency agreements
▪ For detailed notes on this, check the Competition Revision Notes
regarding the Block Exemption/De Minimis/SMEs

IMPORTANT ISSUES TO DEAL WITH IN THE AGREEMENT ITSELF
• Intellectual Property Rights
o The distributor will want/need to market and advertise the product so will
need a license
o The supplier will want to control how their brand is used
▪ So, give a trademark license but impose conditions regarding use of IP
rights
• Distributor will want a warranty stating that the IP rights can be used without
infringing 3rd party IP rights together with an indemnity
...
e
...
17 SGA – Title in goods is transferred to the buyer when the parties intend it to be
transferred
...
18 SGA – If there is no express clause on title, title will pass at the time of the contract
...
g
...
This means that if the buyer becomes insolvent before payment, the goods
are still the supplier’s and so can reclaim them as title has not passed
...
20 SGA – Risk passes when the title passes
...

The supplier will want risk to pass on delivery
...
25 SGA:
EXAMPLE – Supplier sells goods on credit to D e
...
ROT clause exists that D has 2 months
to pay
...
But this is how it is paid for
in practice – D can only pay supplier by selling them on to retailers to raise finance
...

Retailer will want title
...

S
...
Therefore, the retailer will get good title to the product
even though the D did not have title himself
...
g
...
g
...
g
...

service contracts of directors
Assignment of leasehold
assignment/novation of contracts
• All contracts remain with the Target
• Assignment: can assign the benefit
company e
...
clients, suppliers
but can’t assign the burden; Legal
• No assignment needed for the
assignment under s 136: in writing,
property
absolute (ie the whole benefit to be
• However, check for change of control
assigned), written notice to third
provision in key contracts- these
party
...
May be a
of control in the target
...
e
...

may have a right to end the
• Novation: three parties
...
The seller is released from its
obligation under the terms of the
agreement
...

Purchaser’s motives- Acquiring a competitor (expanding horizontally), acquiring a new
business that complements what the purchaser is doing, acquiring a supplier (expanding
vertically)
Seller’s motives- get rid of an underperforming subsidiary or a non-core business, raise
money for an expansion, insolvency

Valuation Methods:

c) Assets Basis- i
...
valuing by calculating the net assets using a balance sheet (Total
assets less total liabilities)
• Suitable for very asset-based companies
• Must be careful- it is only a snapshot
...
e
...
g
...


Completion accounts:
Most sale and purchase agreements will provide for a completion account for a specified
period after completion to reflect that the value paid is correct
• How its paid? Maximum and minimum payments- e
...
maximum amount to be paid
on completion, with the buyer being entitled to a repayment if net assets/
profitability fall short of the expectations
...
Preliminary negotiations
10
...
Enter Confidentiality Agreement
12
...
Pre-contract inquirues/ searched/ due diligence
14
...
Execute contract
16
...
g
...

• If inaccurate- buyer will have claim in damages- subject to Hadley v Baxendale
...
Must show= Warranty
untrue + Loss+ attempts to mitigate
• Must avoid ‘sweeper’ or ‘looking forward warranties’
d) Get Indemnities from Vendor- ‘ a promise to reimburse the purchaser on a pound for
pound basis’
• Example: indemnity given by vendor in respect of unknown tax liabilities which the
purchaser will assume on completion (only relevant for share purchases)
• Where multiple sellers- must consider how the indemnity will be assumed- where
there are minority shareholders ‘joint and several liability’ is unsuitable; normally will
use pro-rata instead
How to protect the Vendor
c) Disclosure Letter- the purchaser won’t be able to bring a claim for something that
was disclosed
...
Usually will be treated as capital gains or
losses
...
Companies will be charged to corporation tax
on their capital gains
...

Seller’s position for share transfers:
c) If an individual: CGT at (10% or 20%) on Consideration for disposal Less Allowable
expenditure (initial expenditure, subsequent expenditure, incidental costs of

disposal)- if pre 31 March 1982, market value at that date
...

• The individual holds at least 5% of the company’s ordinary share capital and is
entitled to exercise at least 5% of the voting rights in that company
...

• Payment of tax is deferred until the new shares are sold or the loan notes are
redeemed
...
The new shares inherit the
base cost of the old shares
Condition: The purchaser must as a consequence of the transaction hold more than 25% of
the ordinary share capital of the target (usually satisfied in private acquisitions)
...
Entrepreneurs’ relief and annual exemption not available
Substantial Shareholding Exemption (SSE) available:
The seller's shareholding in target (the "shareholding condition")
The seller must:
• hold an interest of at least 10% of the target's ordinary share capital;
• be beneficially entitled to at least 10% of the profits available for distribution to
ordinary shareholders as well as certain loan note holders; and
• on a winding up, be beneficially entitled to at least 10% of the assets of the target
available for distribution to such ordinary shareholders and certain loan note holders
...
For example, for a disposal in July 2018 to qualify for SSE it would have been
sufficient for the 10% interest to have been held for the 12 months from July 2012 to July
2013
...


Seller position for Business Sale
d) By corporate seller
• Consideration will be apportioned into capital assets e
...
property and income assets
e
...
stock
• Capital assets- will be treated as a gain so corporation tax will be paid on them
• Income assets-proceeds of sale will be treated as trading profits
e) By individual
Usual capital gains rules apply (as well as Enterpreuners relief, annual exemption)
Buyer’s position
3) Share sale- stamp duty at 0
...
NO VAT
...
Income Assets - Stock will usually be a deductible item of
expenditure
...

• There must be no significant break in the normal pattern of trade either before or
immediately after the transfer
...

Contract
Completing an acquisition

Completion documentation
Documents to Prepare

Vendors to prepare
• Resignation letters of officers (NB may be drafted by Purchaser
...
In particular the purchaser will
wish to ensure that they retire without claims against the target
...

• Letter of resignation of auditors (as with above may be drafted by Purchasers)
...

• Disclosure letter (NB-the terms of this letter will be negotiated/agreed in advance, in
some detail)
• Board minutes of Vendor approving sale, contract, and deed of indemnity, and
authorising signature of same
...
This meeting might take place ahead of
completion, or could be held at the completion meeting
...

Purchasers to prepare:
• Engrossed versions of contract x 2
• Engrossed versions of deed of indemnity x 3 (the terms of the contract and indemnity
will of course have been negotiated and agreed in advance)
• Statutory forms to notify Companies House of the resignation of the old directors
(TM01) and the appointment of the new (AP01)
...

• Statutory Form to notify Companies House of change of Registered Office (AD01)
...

• Board minutes of Purchaser approving purchase contract and indemnity, and
authorising signature of same
• Bank draft
...

Real property/chattel leases
Contracts to which the Target is a party

•
•
•
•

Employment records
Accounting records (last 6 years, this being the HMRC limitation period)
Insurance policies
Banking records

Agenda for the completion meeting

1
...
(Either way, each party to supply the other with certified copy of board
minutes as evidence
...


Contracts exchanged
...


Stock transfer forms executed
...


Deeds of indemnity executed
...


Board meeting of target takes place, approving changes to it
...


New officers of target to sign necessary Companies House forms
...


The minutes of the Board meeting of the Vendor company should include:

• Approval and authorisation of execution of contract for purchase
• Approval and authorisation of execution of deed of indemnity
...


Minutes of the Board meeting of the Target company should include:
• Approval of share transfers

•
•
•
•
•
•
•
•

Acceptance of resignation of directors and secretary*
Acceptance of resignation of auditors
Appointment of new directors and secretary*
Appointment of new auditors
Change of A
...
D
...
What is the maximum amount that can be paid for the shares?
Here o find the answer you had to look at consideration- it mentions a completion payment
but also a final payment (those two added is the maximum you’d get)

2
...

If is proves that the NAV is zero, the entire sum would be reimbursed
3
...
The Completion Payment is £4,000,000
...
Try to speculate as to how that figure might have been arrived at
...
What will the Final Payment be if the 2019 Accounts show a NAV of £3,750,000?
Reimburse the buyer £250,000
6
...

7
...

Acceptance of resignation of directors and appointment of new directors
Acceptance of resignation of company secretary and appointment of new secretary
Alteration of accounting reference date
Change of registered office
8
...

9
...

10
...
’ benefit the Purchaser?
Means that if the purchaser sells its shares it can assign current warranties rather
than having to give their own
...
If untrue, and the buyer
suffers loss, they will have claim for damages (and there is a duty to mitigate loss)
Indemnity-a promise to reimburse the buyer in respect of a designated type of liability on a
pound for pound basis
How can a seller limit liability under warranty?
• Disclose all you can
• Amend if necessary

• Vendor protection (time limit, de minimuc cap, third party claims, claim on insurance
first)
• Insurance cover
Approving indemnities:
Some indemnities you can give unamended:
• E
...
A, B and C are our directors- you know that is true and theres no one else so it
wont come back to bite you in the ass
-Some you should disclose against them:
-Some you shouldn’t give: e
...
when something is a matter of opinion
Or everything we have told you is true no matter the source
-Some just amend to show the truth
-Some only give after confirming

Part 6 Revision Notes
Franchises
Franchising is ‘the grant of the right to use a total system of doing business’
...

Advantages of franchising from franchisee’s point of view:
• Can take advantage of someone else knowledge which has proven to be successful(
They can be told what works, Can get help with location)
• Buying into a proven brand
• Access to use successful, proven brand names and trade marks
Key elements of a Franchise:
1
...
g
...
Control by franchisor:
• Franchisor wants all Franchisees to run in a particular way i
...
as far as legally possible
what they can do
• Franchise agreement stipulates how business is to be run
...
g
...
Assistance by franchisor:
• This is done with the use of the ‘Operator’s Manual’: this will both assist the
Franchise at running the business, but it also puts on obligation on them to follow it,
meaning the brand is protected
4
...
This is usually a
substantial sum

Types of Franchises:
1
...
g
...
Man and Van Franchise- e
...
oven cleaning companies

Issues for the Parties:
Things the Franchisee will ensure in their due diligence:
1
...
Licence over IP- this is essential and will usually be contained in the franchise
agreement
3
...
Know-how- must ensure they obtain all relevant details on how the business is
run from the Operator’s manual
5
...
Assistance from franchisor- again things such as employee training
7
...
Here franchisor has
greater control; can monitor turnover; OR
• Franchisee buys direct from supplier (with Authorised Supplier Agreement between
franchisor and supplier)
3 contracts needed here:
1
...

Authorised supplier agreement
3
...
Advertising marketing- again who pays? Does the franchisee have any control on
advertising or is it all down to the franchisor?
9
...
Will the business model work, i
...
can it be replicated
2
...
The more outlets, the more valuable the brand
• Economies of scale
• The Franchisee will be motivated for it to work, as they will be the owner
not just an employee

•
•
•
•
•

But there are disadvantages:
Change in the nature of the business- can they handle the demands?
Profit margin per outlet is lower if they expanded themselves- but at the
same time if they expand this way-> more franchisees-> more in royalties
Loss of control- if something goes wrong their brand will be associated with
it
You are essentially training your competitors
Prices issues/ competition law (this would be a vertical agreement):
o Franchisor will want to control prices F’ss can sell goods for – but this
is a Hardcore restriction in Vertical Agreements block exemption

o Hardcore to fix min price BUT can recommend price or fix max- can
suggest a price (e
...
at participating restaurants)

Franchise documentation:

...


Franchise agreement

Key Matters for consideration in Franchise Agreement:

•
•
•
•
•
•
•
•
•
•
•

IP rights- Usually contained in the franchise agreement
Territory Franchisees usually wants some territorial protection
Pricing/Targets Issue with competition law- vertical agreement- cant fix prices
...


Lease of Premises

A longer term is obviously desired for a franchisee if they paid a big capital sum
Suppose the business needs premises
...
Supply agreements/Authorised Supplier Agreement
Between franchisee and the supplier, and authorized supply agreement between
franchisor and supplier
5
...


Employee Contracts

Part 7 Revision Notes
Revision

Trademarks
Trade Marks Act 1994
S1- Any sign capable of being represented graphically which is capable of distinguishing
goods or services of one undertaking from those of another undertaking
...
Lasts 10 years, need to renew
...
The buyer mistakenly believes the product to be that of a
reputable and established manufacturer
...

Need: goodwill (show you are an established brand) + misrepresentation/confusion in the
minds of the public + damage (loss)
Copyright
CDPA 1988
S
...
in the following descriptions of worka)
original literary, dramatic, musical or artistic works
b)
sound recordings, films, broadcasts or cable programmes, and
c)
the typographical arrangement of published editions
these are defined in s 3,s4
Basic requirement for protection is that whatever is produced must be the product of skill,
judgement and labour of the creator
...

Test from Exxon Corp v Exxon Insurance- Does the ‘work’ convey ‘information, instruction
or pleasure?’
Duration:
70 years from death of author (s 12)
Primary Infringement (s 16-21)
Secondary- s 22-26

S 51 CDPA
"It is not an infringement of any copyright in a design document or model recording or
embodying a design for anything other than an artistic work
...
"
Remedies (s 96-100)
Registered designs
Registered Designs Act 1949
S 1 has all the relevant definitions
S7 for infringements
S8 for duration ( 5 years, may be renewed up to 4 times- so max total 25 years)
Unregistered designs
Copyright Designs and Patents Act 1988 ss213 – 235
What is protected?
Only protects features of shape or configuration
Surface decoration is specifically excluded
Design must be "original" i
...
not commonplace in the design field in question
...
(electric toothbrush charger)

Registration
No need to register - right comes into existence once article recorded either in two or
three-dimensional forms
...

Patents
Patents Act 1977
‘A patent may be granted only for an invention in respect of which the following conditions
are satisfied
...
39, S
...
25
•
•
•
•
•
•
•
•
•

4 years from priority date, thereafter annual renewal
Maximum 20 years
Miss by not more than 6 months
...
It is retros[pective
In the meantime someone started infringing, you van renew and bring infringement
action
If you are instructed by a prospective infringer wait for 6 months
6-19 out of time
...
Anything
that’s commenced within the lapsed period can be continued
19 months + patent lost forever

Infringement- s 60
Groundless threats-70
Defences:
S74- patent invalid for one reason or another
Patent lapsed:
• Less than 6 months out of time-ok, retrospective
• More than 6 months- as far as they’re concerned, you have lost
Not actually infringing: invention is different, developed their idea etc
Exhausting of IP rights
All ip rights except for trademarks have time limits (provided trademarks get renewed every
10 years)
Once the protection is ended the IP is in the public domain

The doctrine of exhaustion of rights is based on (and relies on) the concept of a single
European market for goods, with free movement of goods within that market irrespective
of national boundaries or laws
...
Only then are the IP rights exhausted
...
The owner of the IP rights has no further control over that particular
consignment of goods
...
However, once that consignment of
goods has been placed onto the European market by, or with the consent of, the IP right
holder, the IP rights are exhausted, and can no longer be used to restrict the movement of
that consignment of goods
...

Levi Strauss v
...
Tesco argued this was
OK- exhausting of rights-put on market with consent of Levi
Held that not exhaustion- not put on EU market with consent- put on US market
No concept of global exhaustion



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