Services

HG News: Technology, IP and Outsourcing News - Mar 2009

Convergence of Technologies May Expand Trade Mark Protection

A recent decision of the Federal Court illustrates how the convergence of technologies is affecting trade mark law, recognising that, under certain circumstances, the scope of registered trade mark protection may be expanded to include the use of a trade mark in relation to new technologies which were not being used or necessarily contemplated by the applicant at the time the original trade mark application was filed.

Background

The respondent, Pioneer KK, owns the registered trade marks and Pioneer and Pioneer which, amongst other things, claims monopoly for “computers and computer peripherals”. It has been selling audio and audio-visual products since 1973, including audio systems, televisions and car electronic products under those registered trade marks. The applicant, Pioneer Computers Australia Pty Ltd sought to remove “computers and computer peripherals” from Pioneer KK’s trade marks, alleging that Pioneer KK did not use its trade marks in connection with those goods (non-use of a trade mark is a ground to cancel a registered trade mark).

Pioneer Computers had been using the mark “Pioneer” in Australia for the previous 10 years in relation to desktop computers, notebook computers, service and other computer related goods and also in relation to installation, repair and support services for computers.

The decision

The main issue in this case was whether some electronic goods sold by Pioneer KK, such as DVDROM drives, DVD writers and computer data storage jukeboxes, could also be considered “computers and computer peripheral devices”.

The Federal Court accepted Pioneer Computers’ proposition that there was no use of the Pioneer KK trade marks in relation to computers per se, but only in connection with audio-visual equipment. Under these circumstances alone, “computers and computer peripheral devices” should have been removed from these trade marks.

However, the Federal Court considered that as a consequence of the convergence of technologies within the relevant industries, entertainment (which includes audio-visual equipment) can no longer be distinguished from computer technologies, especially in relation to multimedia devices.

The Federal Court agreed with the comments made by the Trade Marks Assistant Registrar that “the rights arising from the registration of a trade mark should not be confined to the stage of technological development of goods specified when the mark was registered”.

The Court accepted that the convergence of digital technologies and “brand extension” in relation to a particular market should be considered in respect of the use of a trade mark.

“Brand extension” enables an existing brand with an established reputation in relation to certain product categories, to be adapted to expand trade mark protection to new product categories which are directly linked to the products under which the original reputation was built.

In this particular case, it was held that the distinction between computer products and audio-visual products had disappeared or diminished to the extent that the relevant consumers were not able to distinguish between them anymore.

The history of the development of technologies provided grounds for the conclusion that there is now a recognised connection between television, the Internet and video games, in which the television could be used for use of the Internet and for accessing data services.

The Federal Court accepted that although 20 years ago computers were used predominantly as business devices and audio-visual equipment was used predominantly in connection with entertainment, this has changed with developments in technology, enabling computers to be used as entertainment tools and home media to be used for storage of data, which may include sounds and images.

The development of broadband Internet changed the way in which computers were regarded, from being originally business tools to being devices possessing modern multimedia functions, including entertainment functions such as audio and visual operations.

The creation of the Ipod was cited as the most recent example of such convergence, as it can perform both computer and entertainment functions. This development in technology merged audio-visual and pure computer technologies into the same category of consumer goods, which are now retailed through the same channels of trade.

In this context, the Court accepted that Pioneer KK’s trade in Australia has expanded with the development in technology, to a stage where consumer electronic digital products could be used in conjunction with computers enabling digital information to be created, stored, manipulated and transferred from one digital product to another and then to a computer.

To keep its trade mark protection to “computers and computer peripherals”, Pioneer KK had to provide evidence that it had applied its trade marks on computers. The convergence of technologies provided the necessary support to the submission that, use of a trade mark in relation to audio-visual equipment was also acceptable as use in relation to “computers and computer peripherals”.

Basic Practical Issues in Software Development Agreements

Differences in the expectations of suppliers and customers regarding the development of bespoke software, frequently lead to disputes regarding development timeframes, scope, cost, and intellectual property ownership. It is not uncommon for software development projects to be delivered late, over budget, and without all of the expected functionality.

In order to ensure that both suppliers and customers have their expectations met, various practical matters should be considered from the outset of a software development project, with the view of being dealt with expressly in the agreement. Considering and addressing those matters will reduce the chances of encountering costly delays and legal problems down the track.

The following is a brief summary of some limitations in software development agreements which may arise from overlooking the basics:

  • Failing to clearly define and describe the software which is being developed and failing to link the software to the functional requirements.  Having a detailed set of the main functional requirements prior to any development is crucial.  Ultimately all the functional specifications should be incorporated into the agreement so that the scope and functionality of the software required to be delivered by the supplier is clearly set out.
  • Failing to clearly express a timeframe for the various stages of the software development, including failing to stipulate the consequences of those milestones not being met. Which failures should allow the customer to terminate and which should merely entitle the customer to a pre-agreed sum of liquidated damages?
  • Failing to adequately deal with intellectual property issues, including:
    -  not addressing who is to own the intellectual property rights in the software and any updates and new releases of the software; and
    -  failing to obtain a warranty and indemnity from the supplier that the software does not breach the intellectual property rights of a third party.
  • Failing to clearly specify what acceptance tests are to be performed in respect of the software, when those tests are to occur and the consequences of a failure of the software to satisfy those tests.
  • Failing to clearly deal with what (if any) support and training services are to be provided.

Pre-Contractual Considerations for Outsourcing Agreements

The following is a reminder of four important matters for consideration by customers and suppliers prior to entering into negotiations for many types of outsourcing agreements, such as business process outsourcing and facilities management agreements.

Clear service definition

Although the service to be provided is the fundamental purpose of entering into the contract, a sufficiently detailed and clear description of the type and scope of service to be provided is often lost amongst the other, often lengthy and legalistic, components of an outsourcing agreement. This often leads to time consuming and costly disputes, and contract variation discussions with respect to what services are included in the contract price.

In agreements which are negotiated quickly, the temptation to describe the services more generally in the contract and leave the detail to be worked out operationally on a day-to-day basis can be hazardous for both the customer and supplier. Having a clear understanding, which is preferably documented, of the functional and technical requirements of the goods and services to be delivered prior to entering into detailed negotiations, can help avoid this problem later on when there is pressure to have contract negotiations completed quickly.

Service levels and service credits

Closely related to the above is the issue of the standard of service to be delivered by the supplier, and any service credits which will apply as a reduction of the purchase price in the event of a failure to meet those service standards as agreed. Consideration should also be given as to how this will be monitored and reported on by the parties, with an emphasis on finding a balance between effective contract management and performance without creating unnecessary red-tape and compliance procedures which increase costs and hamper performance.

Liability and indemnities Risk and reward

As a general rule, the amount of risk a party adopts under a contract will generally rise or fall commensurately with the reward it receives. A supplier will wish to insist upon a higher price for adopting greater risk under the contract, whereas if a customer agrees to take on more risk (by allowing the supplier to have lower limits on liability), it will expect to be rewarded with a cheaper price. As these matters are generally the most hotly negotiated in any outsourcing arrangement, customers and suppliers would benefit from considering the following matters, in addition to the risk/reward matrix, well in advance.

A customer should carefully consider the kind and extent of any damage it may suffer if the supplier were to breach the contract. Thinking through the likely financial consequences (both direct costs and indirect costs such as lost management time) of a potential breach by the supplier, is essential prior to agreeing to and documenting any limits or exclusions on liability which a supplier requests. Bringing the type and extent of likely damage to the attention of the supplier during negotiations may also strengthen the customer’s position if it later wishes to litigate in order to attempt to recover damages for a breach by the supplier.

The supplier should think carefully about any particular types of liability it may wish to exclude, to the extent possible. For example, where software is provided for use in Australia only, it may wish to consider excluding liability for breach of a third party’s intellectual property rights which may arise by the use of that software outside of Australia by the customer in breach of the licence.

Prior to agreeing the amount of any contractual limits on liability, the supplier should liaise with its insurance advisors and brokers to consider whether adequate insurance is available. Similarly, if a customer is to agree to particular limits or exclusions, particularly those which amount to wide “hold harmless” clauses, the customer should check its insurance to ensure those clauses do not invalidate or limit its insurance policies.

Exit planning

What should occur if everything goes wrong, or simply at the end of the service period, is naturally often the last thing on the minds of the parties once a decision is made to proceed with a mutually beneficial transaction. However, having in place an effective and enforceable exit plan is essential to the customer in most outsourcing arrangements. Particularly in complex and lengthy arrangements, the supplier will at some point become the custodian of most, if not all, of the detailed and specific knowledge and assets (both physical and intangible) which are required to provide the service to the customer. Accordingly, the customer will need a plan in place which:

  • requires the supplier to assist with the transition of the service to a new provider or to bring the service back in-house to the customer; and
  • outlines procedures for the transfer to the customer or a new provider of the assets, data, and necessary rights to intellectual property and information technology which are required to deliver the service.

If you have any queries in relation to the above, or if we can assist you in any way with your technology, IP or outsourcing requirements, please contact HopgoodGanim’s Technology, Intellectual Property and Outsourcing team.