BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INTELLECTUAL PROPERTY ENTERPRISE COURT
Fetter Lane, London, EC4A 1NL
B e f o r e :
(sitting as a High Court Judge)
|THE KENNEL CLUB LIMITED||Claimant|
|- and -|
Nicholas Brummitt (a director of the Defendant) for the Defendant
Hearing dates: 13th 14th May 2019
Crown Copyright ©
Mr Recorder Douglas Campbell QC:
Q. And it's therefore in your interests for Petlog to work as a reunification tool, correct?"
Q. And so it's very important, as we've discussed earlier on, I think, to keep contact details up-to-date if you want reunification to work; correct?
1. The Agreement
2. Alleged Breach of the Agreement
3. Alleged Database right infringement
I shall use these as the main headings and the thirteen more specific issues as subheadings.
Issue 1- What is the factual matrix against which the Agreement was made?
Petlog and Petlog Premium
The Birth Registry Database
The parties' knowledge of such facts
Issue 2 What is the correct construction of clause 2.1 of the Agreement?
"2 MAINTENANCE OF REUNIFICATION DATABASE
2.1 The [Claimant] agree with [the Defendant]:
2.1.1 to maintain the Database throughout the period of this Agreement and thereafter in accordance with the provisions of clause 8.4.2
2.1.3 to ensure that all registration forms are entered in date order of receipt within five working days of receipt, subject at all times to events beyond the reasonable control of the [Claimant], and that [the Defendant's] forms are treated with equal priority to those from Other Suppliers"
"As soon as reasonably practical and in any event within five working days of receipt of registration forms and subject to events beyond the reasonable control of the [Claimant] (ie periods of high volumes), the [Claimant] shall furnish confirmation of registration to the Pet Keeper(s) of each animal "
a) What does "maintain" mean in clause 2.1.1?
b) Does clause 2.1.3 require each registration form to be entered within 5 working days of receipt or would an average suffice?
c) Could periods of high volumes constitute "events beyond the reasonable control of [the Claimant]" for purposes of clause 2.1.3?
a) "Maintain" requires the Claimant to keep Petlog in operation, but there are no specific requirements about opening hours, staff, service levels, or even to have a website.
b) Each registration form has to be entered "within five working days of receipt" since that is what clause 2.1.3 says. The Agreement says nothing about an average, far less specifying which average (eg weekly, monthly, yearly).
c) Yes they could: see eg clause 3.2, although I would have reached this conclusion in any event.
Issue 3 - What is the correct construction of clause 6 of the Agreement?
The relevant clauses
"6. OWNERSHIP OF THE DATABASE AND DATA
6.1 The Data on the Database in respect of animals' [sic] microchipped with a Microchip manufactured/supplied by the [Defendant] shall be jointly owned by the [Claimant] and the [Defendant]. The [Claimant] will not market this data without prior agreement from the [Defendant].
6.2 Upon the request of the [Defendant], and with reasonable notice, the [Claimant] will make available to the [Defendant], and at no additional cost (subject at all times to such costs being in the reasonable opinion of the [Claimant] insignificant), such information forming all or part of the Data relating to the [Defendant's] Microchips. The [Claimant] agrees only to use the Data for the purpose of reunification of animals."
"(a) all data incorporated into [Petlog] by virtue of [the Defendant's] Microchip Registration form and/or supplied by the Nominated Agents on [the Defendant's] Microchip and
(b) such further information as [the Claimant] may enter into [Petlog] in accordance with the terms of this Agreement which is linked to the data in paragraph (a) above".
a) The first type of use consisted of emails sent to Petlog customers offering various forms of incentive to upgrade to Petlog Premium, such as a voucher for Iams dog food sold by Procter & Gamble. This was not the only such example (eg there was another relating to fireworks night) but it is representative and was fully explored in evidence so I will use this example to test the argument.
b) The second consisted of emails sent to Petlog customers offering 20% off the Claimant's dog tags.
c) The third consisted of approximately 2 325 emails sent to Petlog Premium owners in around 2014 offering an insurance policy from a company called Agria. The Claimant always referred to this as a "test" or "one off trial".
Alleged Breach of the Agreement
Issue 4 Did the Claimant act in breach of clause 2.1 of the Agreement?
Did the Claimant breach clause 2.1.1?
Did the Claimant breach clause 2.1.3?
30. For the purpose of this litigation, the average working day turnaround for the Defendant's paper registrations in a given year was calculated by looking at the working day turnaround each month, and then coming to an average figure for the year (after appropriate rounding up or down to full days). On making these calculations, annual average paper application working day service levels relating to the Defendant, for the period 2010 2017, were never above 5 working days. Paper applications were entered within four days of receipt on average in 2010, 2011, 2012, 2015 and 2016; within three working days of receipt on average in 2013; within two days of receipt of average in 2014; and within 5 days of receipt in 2017. A document prepared by the Claimant summarising these averages is at pages 28-29 JE1. Because of the system by which incomplete batches were left over to the next day (as explained above), the averages are a conservative estimate of the service levels, since if even a few applications from one batch for a single date were not completed, then all the applications for the whole date would be counted as incomplete, whereas in reality the majority of applications for that date might well have been entered.
Issue 5 Did the Claimant act in breach of clause 6 of the Agreement?
"We wish to progress with a campaign with Procter and Gamble which will support the costs of the £15 Petlog Premium with £15 worth in vouchers for Iams dog and cat food, Fabreve fabric spray and Flash antibacterial wipes. This is a great opportunity for us to promote the additional benefits of Petlog Premium members and we hope will allow us to encourage customers to update their details and provide email contacts".
"Feedback from group on PP is that there should be a commission route. [The Claimant] explained that at present as all activity for PP is driven by Petlog, we need to work to get a better uptake hence Iams offer. Once PP has reached an acceptable level to ensure long term running costs, we can revisit commission (updating of process to accommodate later in year)."
Alleged Database right infringement
Issue 6 Who is the owner of the database right in the Database?
Reg 14: The maker of a database is " the person who takes the initiative in obtaining, verifying or presenting the contents of a database and assumes the risk of investing in that obtaining, verification or presentation "
Reg 15: "The maker of a database is the first owner of database right in it."
Reg 16: " a person infringes database right in a database if, without the consent of the owner of the right, he extracts or re-utilises all or a substantial part of the contents of the database."
Issue 7 Has the Claimant extracted or reutilised a substantial part of the contents without the consent of the Defendant?
Issue 8 Is the Defendant estopped from denying that it has consented to the acts complained of?
a) loss of business reputation (see Defence paragraph [12.1]),
b) lost profit of £45 000 due to lost sales from 1 May 2016 to 30 June 2017 (see paragraph [12.2])
c) a "reasonable sum", described at trial as a buy-out fee, for releasing the Claimant from its obligation under clause 6.2 (see paragraph )
d) an account of 50% of the Claimant's profits from database right infringement, alternatively a reasonable sum for releasing the Claimant from its obligations in that respect (see paragraphs -).
(a) failed to provide any information on loss of business reputation;
(b) alleged that by April 2017 the Defendant "had lost 42 Vet clients and 43 non vet clients specifically due to Petlog's non-performance";
(c) gave details "of our losses relating to Petlog non-performances for our non-vet clients", all of which were said to have placed their last orders with the Defendant between 4th January 2016 and 29th April 2016; and
(d) gave a reasonable buyout fee of £379 000, based on a number of components.
Issue 9 What loss and damage (if any) has the Defendant suffered by reason of the alleged breach of clause 2.1 of the Agreement?
"We are disappointed as I am sure you are that we were unable to keep up our payment schedule.
The past 2 months have been disastrous and have left us with a huge cash flow problem. I can safely say that it was mainly due to Brexit. June was the worst month for over 3 years
I know it is asking a lot but we would like [the Claimant] to considering holding off on the account whilst we get back to a normal trading situation".
Hence even when Mr Fry was asking the Claimant's indulgence for late payment in July 2016, he blamed Brexit for the Defendant's recent financial situation. He did not mention any failure by the Claimant to process registrations or any customer complaints about the same. So even if I focus on what is in fact the wrong time period for purposes of this breach, it is not at all clear to me that any losses suffered were due to the Claimant rather than due to Brexit.
Issue 10 Has any such loss and damage already been compensated by the Claimant's credit note of 11 May 2016
Issue 11 What loss and damage (if any) has the Defendant suffered by reason of the alleged breaches of clause 6 of the Agreement?
1) I have to consider what sum would have been arrived at in hypothetical negotiations between the parties bearing in mind such matters as the commercial context: see Henderson at [18(ii)].
2) Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain: see [18(v)].
3) The negotiation is between the actual parties with their respective strengths and weaknesses, at least up to a point, and in the circumstances at the time of the hypothetical negotiation: see [19(vi)-(vii)].
4) Non-infringing alternatives can be taken into account, even if not as advantageous: see [19(ix)-(x)].
The Defendant's case
a) 50% of the proceeds from Petlog Premium upgrades made to customers supplied by the Defendant. This is said to come to £221 000.
b) 3% of £3.6 million paid to the Claimant by Procter & Gamble, ie £108 000.
c) £45 000 to reflect losses incurred by the Defendant as a direct result of the Claimant's failure to maintain the database.
d) A percentage of the fee paid by Ceva Animal Health for marketing activities, estimated at £5 000.
a) I cannot see how 50% of the proceeds of the sums paid to upgrade to Petlog Premium can be relevant.
b) Ms Fox explained that the payment from Procter & Gamble related to a range of activities, primarily sponsorship of Crufts: see Fox . She maintained this evidence under cross-examination. Mr Brummitt sought to make further arguments about Procter & Gamble in his post-trial submission but this is far too late. I accept Ms Fox's evidence.
c) I have also rejected the Defendant's case on failure to maintain the database so it cannot be relevant here either. In addition, I am not sure where the £45 000 figure comes from.
d) There was no evidence about the Ceva payment on either side, merely competing assertions. I make no findings about this either.
The Claimant's case
(a) If considering a buyout fee, the Claimant would have taken into account the potential sales revenue potential, ie the value of probable sales against the cost of the data and cost of delivery: see Fox .
(b) For the Agria emails, the benefit to the Claimant would have been extremely unpredictable because insurance is normally sold at the beginning of a pet's life and this was a trial to see if a later offer could be of interest. In these circumstances, the Claimant would have suggested doing the trial without an upfront payment to see if it worked, and only if successful in generating a reasonable number of sales would the Claimant have agreed to make a payment: see Fox .
(c) In fact there were no sales and only 2 contacts even bothered to follow up the offer: see Fox  and .
(d) Furthermore the Claimant received no money from Agria in relation to these emails: see Fox . There was evidence that the Claimant received money from Agria for other purposes, but it was not shown that this money had anything to do with these emails.
(e) Petlog was not a profitable business at the relevant time anyway: see Fox .
a) Given the commercial context (as per [87(1)) I agree that the figure offered would be low for the reasons given by the Claimant generally. However I do not accept that the Defendant would have agreed to a figure as low as Ms Fox suggested. At a rate of £40 per 1000 names for 4 mail shots, the Claimant's approach would produce a figure of less than £80 (2325 names were used, but only in 1 mail shot rather than in 4).
b) Secondly I consider that the parties would have agreed on a combination of an upfront fee and a commission, rather than simply a commission. The Defendant would have had no incentive to agree to a commission only basis since it might end up with nothing if the campaign failed.
c) Having regard to the parties' respective positions, as per [87(3)], I conclude that the parties would have settled on an upfront fee of £400 and some sort of commission on successful sales. The fee of £400 is sufficiently low that the Claimant (which is, after all a substantial organisation) could afford to pay it to see if the test worked and it still gave the Defendant something if the campaign failed. It also reflects the higher value of the Petlog data used in this campaign as opposed to that which could be purchased, and the fact that if the campaign were successful it could open up a new and potentially profitable line of business for the Claimant.
d) Since there were no successful sales, I do not need to decide what level of commission would have been agreed on them. Hence the total buyout fee is £400.
Issue 12 Is the Defendant entitled to an account of 50% of the Claimant's profits or damages (and if so, how much) by reason of the alleged database right infringement?
Issue 13 What interest is payable on the debt claim?
8 Circumstances where statutory interest may be ousted or varied.
(2)Where the parties agree a contractual remedy for late payment of the debt that is a substantial remedy, statutory interest is not carried by the debt (unless they agree otherwise).
9 Meaning of "substantial remedy".
(1) A remedy for the late payment of the debt shall be regarded as a substantial remedy unless
(a)the remedy is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment; and
(b)it would not be fair or reasonable to allow the remedy to be relied on to oust or (as the case may be) to vary the right to statutory interest that would otherwise apply in relation to the debt.
(2) In determining whether a remedy is not a substantial remedy, regard shall be had to all the relevant circumstances at the time the terms in question are agreed.
(3) In determining whether subsection (1)(b) applies, regard shall be had (without prejudice to the generality of subsection (2)) to the following matters
(a)the benefits of commercial certainty;
(b)the strength of the bargaining positions of the parties relative to each other;
(c)whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise); and
(d)whether the supplier received an inducement to agree to the term.
a) The claim succeeds in relation to the sum of £123 843.03.
b) The Claimant has breached clauses 2.1.3 and 6 to the extent indicated above.
c) The Defendant is entitled to set off (1) the sum of £1 nominal damages for breach of clause 2.1.3 and (2) the sum of £400 by way of a buyout fee for breach of clause 6.
d) The claimed set off for database right infringement fails.
e) The claim for statutory interest fails. Interest is awarded at the contractual rate.