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What lessons can be learnt from the Intellectual, Property and Enterprise Court’s (IPEC) judgment in an action for breach of implied terms of a contract between an advertising agency and its former client?
In Orvec International Ltd v Linfoots Ltd  EWHC 1970 (IPEC), the claimant traded in textile products, such as pillows and blankets, which it sold to airlines for use by their passengers. The defendant advertising agency produced for the claimant, under contract, photographs of products the latter offered to the airlines. The defendant retained the copyright in the photographs and granted the claimant a licence in respect of them. The claimant brought a claim for breach of contract and passing off in respect of the use on the website of a Hong Kong company of some of the photographs. The IPEC, in dismissing claims, held that, the defendant had not breached any licence which might be implied into the contract. On the facts, the claimant had failed to establish its claim of passing off.
What was the factual background to the case?
Orvec supplied textile products, such as pillowcases and headrest covers, to airlines. Some of these products were manufactured by Orvec and some by a third party, Intex. Linfoots provided advertising and marketing services to Orvec. As part of these services, Linfoots created printed advertising material including photographs of products that Orvec offered to the airlines. Orvec featured these on its website and in its printed advertising.
The parties’ business dealings ended. Orvec paid for certain uses of some of the images from the collection of photographs. Linfoots subsequently supplied some of the images to Intex, now a competitor of Orvec.
What claims did Orvec make?
There were two key claims by Orvec:
What was the issue on the terms agreed between the parties?
There was an express agreement between the parties by way of Linfoots’ standard terms and conditions which stated: ‘Copyright remains the property of the company unless otherwise assigned’.
It was agreed between the parties, that the terms and conditions contained an implied term that Orvec had a (copyright) licence to use the advertising material supplied by Linfoots.
On the extent of the licence, Orvec proposed that it had an exclusive worldwide perpetual licence. Note that it based this assumption partly on the fact that the photographs included images containing Orvec’s and its clients’ trade marks, referring the court to Griggs (R) Group Ltd v Evans  IP & T 870.
What did the IPEC decide?
On implied terms
The primary position on implying terms into contracts was that where a term is not expressly stated, the objective inference was that none was intended. The court cannot improve a contact or introduce terms to make it fairer or more reasonable. However, where a contract does not provide for what is to happen when a particular event occurs, a term may be implied. In these cases, the question for the court is ‘whether such a provision would spell out in express words what the instrument, read against the relevant background would reasonably be understood to mean’.
This question for the court is often referred to as the ‘officious bystander’ test or as the court giving ‘business efficacy’ to the contract. These approaches are not a series of independent tests but different ways that judges have tried to express the idea that the proposed term must spell out what the contract actually means.
The court added that, when assessing whether the reasonable person would identify an implied term in assessing what the contract means, the more complex the putative term, the less likely it is that the reasonable person would take it to be an implied part of the contract. The court also emphasised that a minimalist approach should be taken.
On Orvec’s Griggs argument—that Linfoots can have had no conceivable legitimate use for the photographs displaying trade marks, livery or logos and so the licence granted to Orvec in relation to these must have been exclusive and perpetual—the court distinguished the position of the case before it. In Griggs the designer was designing the logo whereas here the work created was a photograph including Orvec’s (or other) trade marks and Orvec would have rights in the trade mark to prevent others from using it.
The court found that Linfoots granted Orvec a non-exclusive licence under the copyright in the photographs. It was probably perpetual, but (there was squeeze):
‘[…] if more than a non-exclusive perpetual licence is to be implied, at most the licence is exclusive only where Orvec’s trade mark appears in the Photograph. The difficulty with this alternative, however, is that it may raise questions of fact and degree: are there any contexts in which the trade mark could legitimately be copied? This threatens to take one down the road of a term with a more complex formulation, which means that the term is less likely to have been implied. In any event, it was not established that any Photographs showing Orvec’s trade mark were supplied by Linfoots to Intex.’
Linfoots wasn’t in breach of any implied licence term.
On passing off
This post does not examine the passing off claim in any detail. Briefly, goodwill was established but the claim failed to establish misrepresentation. Orvec based its passing off claim on a reverse or Bristol Conservatories-type misrepresentation (Bristol Conservatories v Conservatories Custom Built  RPC 455). However, most of the products shown actually originated from Intex and those that did not were ‘generic’ products or encountered other issues in proving the false representation element.
What should lawyers advise their clients?
This is a common factual matrix for clients and that in itself is worth sharing. If a client ends up in Orvec’s position, it’s worth pointing out (at the beginning of such a case) that the court’s primary position is that there might not be any basis for an implied term and that English courts have a long history of not wanting to meddle, particularly in business-to-business contracts.
When a designer is commissioned to create a work such as a logo, it follows quite logically that at the time of the agreement between the parties they would have understood that no one other than the client making the commission could have a legitimate reason to copy the work and also that the client would expect to be able to prevent others from copying it (ie the Griggs scenario). For a client that finds itself in the position of the client in Orvec, where a photograph included the claimant’s logo or that of a third party, the position is much less clear cut. The client would be less protected and the courts less likely to imply a term granting exclusive rights. It is worth you drawing your client’s attention to the distinction between Griggs and Orvec.
The products shown in the photographs were in some cases manufactured by Orvec, but in many instances were supplied to Orvec by Intex. After the business relationship between Orvec and Intex ended, two of Orvec’s employees left to join Intex and Intex started to compete with Orvec in the supply of textile products to airlines. This is a common scenario. Because images are so easily and inexpensively transferable over the internet (and photo shop-able), clients in Orvec’s position should expressly agree terms covering such eventualities when contracting with advertising agencies.
This case and the court’s approach to it might provide a useful scenario for a seminar.
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