UK legislation

We've seen a number of other interesting developments relevant to the tech, data and consumer sectors this year. In the UK, these have centred on the post-Brexit legal framework. We have also seen some interesting commercial cases both in the UK and from the CJEU.

With the UK out of the EU, the government has been reviewing existing legislation, not only to fix any gaps created by Brexit, but also to assess in which areas new law might be beneficial.

Proposed changes to consumer, product liability and data protection law are considered in the relevant sections of this update.

Law Commission consultation

The Law Commission published its views on possible reforms in a March consultation.  Key suggested areas of focus include:

• Reform of the law on deeds and variation of contracts.
• A review of EU retained law to decide where legislative repair is needed or whether there are specific areas in need of reform.
• A review of the legal framework around public decision-making and algorithms to assist human decision making.
• Conflict of law issues in emerging technologies, for example, in relation to smart contacts.
• How to protect individuals entering online marketplaces (peer to peer sales) as currently there is limited protection of consumers making peer to peer sales.
• Product liability and emerging technology, in particular, whether the strict liability product regime should be extended to cover all software and tech developments.

The consultation closed on 31 July.  The final programme is expected to be published in the first half of 2022.

CMA consultation on EU Vertical Block Exemption

The CMA is recommending that the UK replace the retained EU VBER with a UK Vertical Agreements Block Exemption Order when the former expires on 31 May 2022.  It concludes that largescale changes would be inappropriate but does plan to make some changes to the current rules on hardcore restrictions.  These include:

• clarifying the boundary between passive and active sales in relation to territorial and customer restrictions
• removing the prohibition on dual pricing and the requirement for overall equivalence from the list of hardcore restrictions
• adding wide parity obligations (most favoured nation clauses) to the list of hardcore restrictions.

The UK Order would expire after six years. 

The CMA published further recommendations following the consultation in November.

The CMA thinks the current rules on hardcore restrictions remain largely appropriate but suggests some additional clarifications including:

• definitions of active and passive sales should be added to territorial and customer restrictions which should continue to be treated as "hardcore"
• the CMA recommends the removal of the prohibition of dual pricing and the requirement for overall equivalence from the list of hardcore restrictions where these are indirect measures restricting online sales.

BEIS consultations

BEIS consultation on reforming the framework for better regulation

BEIS consulted on reforming the framework for better regulation.  It is seeking views on a range of options including:

• the adoption of a less codified common law approach to regulation
• a review of the role of regulators
• delegation of more discretion to regulators
• streamlining the process of assessments of impact
• considering options for measuring the impact of regulation
• re-introducing regulatory offsetting and establishing a baseline of the UK's regulatory burden.

Reform of competition law

BEIS also consulted on reforming competition and consumer law (see section on Consumer law for more).  In terms of competition law, BEIS made a range of proposals including:

• making the market inquiry process more flexible and efficient
• revising the jurisdictional threshold for mergers to £100m
• revising certain merger procedures
• revising the size, composition and role of the CMA panel
• strengthening competition enforcement and giving the CMA more effective investigative and enforcement powers.

Both consultations closed on 1 October.

In its response, the CMA commented that the issue is not how much regulation there is, but whether the regulation we have promotes or inhibits well-functioning competitive markets.  The CMA does not think that, for the most part, there is a need to strengthen the existing competition duties of sector regulators.  It has no view on areas of law (particularly retained EU law) that would benefit from reform to a less codified, more common-law approach.

Reforms to the Human Rights Act

In October, the government   announced that there will be a reform of the Human Rights Act 1998 this Parliament.  This will prevent convicted criminals from using the HRA for their own gains.  The announcement comes despite the fact that a government-commissioned review has not yet delivered its findings, and that the Joint Committee on Human Rights concluded in July this year that there was no case for changing the HRA.

National Security and Investment Act 2021

The National Security and Investment Act 2021 gained Royal Assent on 29 April and was published in final form on 5 May.  It will commence in full on 4 January 2022.  It establishes a new statutory regime for government scrutiny of and intervention in investments for the purposes of protecting national security.  You can read more here.

Law Society Q&As on electronic signatures and virtual execution

The Company Law Committee of the Law Society published Q&As on how to use electronic signatures and complete virtual executions.  This was particularly timely given the numbers of people, especially from the corporate workforce, working from home.  You can read a summary here. 

Law Commission update on smart contracts, digital assets, and conflict of laws

The Law Commission published an update on three of its emerging technology projects covering smart contracts, digital assets and conflict of laws in November.  The update confirmed that the Commission considers current law is able to support the use of smart legal contracts without a need for statutory reform, although some problems were identified.  

Regarding conflict of laws, the Commission identified that there is a problem in ascribing real-world locations to digital actions and objects.  The Commission has therefore agreed to undertake a project looking at conflict of law rules as they apply to emerging technology including smart contracts and digital assets, to decide on whether or not reform is needed.  This is likely to start in mid-2022. The Commission is not expecting to complete its digital assets project until mid-2022.   

Interesting commercial cases

UK

Case on equitable obligation of confidence

In January, the Court of Appeal dismissed an appeal against a decision that a company breached confidentiality obligations by using a business rival's client information which was received through an ex-employee of the rival.

The appellant argued that the High Court had applied the wrong legal test and that it was not the case that if a reasonable person would have made enquiries as to whether or not information received by them was confidential, that would be sufficient to create an obligation of confidence.

Arnold LJ disagreed and said the test was:

• If the circumstances are such that to bring it to the notice of someone in the recipient's position that the information or some of it might be confidential to a third party, then the reasonable person's response may, depending on context and facts, be to make enquiries.
• If the reasonable person would make enquiries but the recipient does not then an obligation of confidentiality will arise.
• By contrast, where the issue is not one of primary liability for misuse of confidential information but accessory liability for misuse by another person, actual knowledge or 'turning a blind eye' may be required to create the obligation of confidentiality.

This potentially places a greater burden on the recipient to raise questions than previously although Arnold LJ cited precedent including a 2020 Court of Appeal decision in Racing Partnership v Done Brothers (EWCA Civ 1300).

High Court decisions on liability cap and mitigation clauses in SPA

We discussed High Court connected decisions on liability caps and mitigation clauses in SPAs here.  Cases which revolve around the minutiae of drafting are often highly specific to the circumstances but these judgments contain some more widely relevant points including:

• Think carefully about whether you want to require a 'best endeavours' level of effort in a mitigation clause. A requirement to take "all reasonable action" will mean action it would be unreasonable not to take, particularly where the party required to mitigate is not at fault.
• Be careful how you define a breach of an SPA.
• If you want to ensure interest and litigation costs are included in the liability cap, you should say so.

EU

CJEU Opinion – inaccurate health advice in newspaper not a "defective product" for purposes of Product Liability Directive

AG Hogan gave an Opinion in April that inaccurate health advice in a hardcopy newspaper was not a "defective product" for the purposes of the Product Liability Directive.  He said that inaccurate advice which led to injury to the claimant was not covered by the Directive because the Directive only applies to tangible, physical products rather than intellectual content.  The injury was not caused by a physical defect in the newspaper.

In addition, the advice in the newspaper was a service not a product.  While the distinction between the two is blurring, a wide interpretation would open a floodgate of claims relating to defective or negligent supply of services and exposing service providers to open-ended strict liability to a large class of claimants.  Extending the interpretation to scenarios where information is contained in a movable product would also lead to inconsistences.  For example, it might result in strict liability for information contained in a publication but not for information contained in a radio or TV broadcast.

The Directive is implemented in the UK by the Consumer Protection Act so the Opinion and the ultimate judgment may have a bearing on interpretation of the CPA should the same issue arise in the UK.

CJEU says electronically supplied software is 'goods' for purposes of Commercial Agents Directive

As we reported in October, the CJEU ruled on a reference from the Supreme Court of England and Wales on the meaning of 'sale of goods' in Article 1(2) of the Commercial Agents Directive.  The term is not defined in the Directive which has led to disputes over electronic supplies of software. 

As the reference was made from the UK before the end of the Brexit transition period, the decision applies and the Supreme Court will rule accordingly. 

The Commercial Agents Directive has been implemented differently across the EU with some jurisdictions including services and software as well as goods within scope of their implementing legislation. 

This ruling puts electronically supplied software firmly within scope as a sale of goods provided its supply is paid for and comes with a perpetual licence. 

This potentially impacts commercial agency agreements for the sale of downloadable software which would previously have been presumed to be outside the scope of the Commercial Agents Regulations.  We await the Supreme Court ruling.

CJEU ruling on decompilation rights under the Software Directive

The CJEU ruled in October, that a lawful acquirer can use decompilation to correct errors or to make the changes necessary for lawful use under Article 5(1) of the Software Directive.  This can be without any of the Article 6 conditions around using decompilation to achieve interoperability ie that the acts were performed by the licensee or other authorised person, that the information necessary to achieve interoperability was not already made available to the licensee and that the acts were confined to the parts of the original programme necessary to achieve interoperability, and for no other goals.

However, the lawful purchaser would be entitled to carry out decompilation only to the extent necessary to make the correction and in compliance, where appropriate, with contractual conditions made by the right-holder.