This Communications & Media e-bulletin contains summaries of recent developments in law and regulation in the EU and the UK:  

  1. Going straight to the Source: Judgment on escrow and access to source code
  2. Putting the plural into plurality: Ofcom consults on measurement framework for media plurality
  3. Reviewing the Strategy: Ofcom announces Strategic Review of Digital Communications
  4. Throwing out the rule book? Government consultation on deregulation of broadcasting  

1. Going straight to the Source: Judgment on escrow and access to source code

A recent judgment in the High Court considered the interpretation of various clauses of a commercial master services agreement, including the intellectual property and escrow provisions. The judge sought to determine whether or not FilmFlex was entitled to delivery up of the source code to an online delivery platform developed and maintained by Piksel. The judgment provides important practice points for those involved in the drafting of IT and IP agreements (FilmFlex Movies Ltd v Piksel Ltd [2015] EWHC 426 (Ch) (24 February 2015)).

Background

FilmFlex, the claimant and a video-on-demand service provider, had entered into a Master Services Agreement ("MSA") with Piksel, the defendant, under which Piksel would design, build and maintain the platform used by FilmFlex in the delivery of its services to clients (the "Platform"). Herbert Smith Freehills advised on the drafting and negotiation of the MSA for FilmFlex.The Platform performed a number of functions for FilmFlex. In particular, these included delivering the video content itself, managing which content is made available to each of FilmFlex's clients, and interfacing with the billing systems of those clients (so that they could incorporate the fees for viewing video content into the bills for their individual end customers). 

The MSA was entered into in June 2012 and included specific provisions in relation to: (i) the ownership and licensing of intellectual property rights in the Platform; (ii) the escrow arrangements in relation to elements of the software being developed (including the circumstances which would trigger the release of the source code for the software from escrow); and (iii) additional access rights in relation to the software.

An Escrow Agreement was subsequently entered into by the parties and NCC Group Escrow Limited ("NCC") as the escrow agent in November 2012. This agreement also set out "release events", pursuant to which the source code deposited would be released from escrow. However, the release events contained in the Escrow Agreement did not mirror the trigger events separately set out in the MSA.

In September 2014, FilmFlex requested Piksel to provide a copy of the source code to the Platform. Piksel provided a file which it believed complied with the request but which FilmFlex claimed was functionally useless. In November 2014, FilmFlex appointed a third party developer to work on developing the Platform (a trigger event for release of the source code under the MSA), but Piksel refused to provide the source code. FilmFlex subsequently sought delivery up of the source code and related materials, and damages for breach of contract.

The Judgment

Mrs Justice Rose DBE found in favour of FilmFlex. The judgment raises several interesting points from a drafting and interpretation perspective.

Escrow Agreement: The judge found that, although the release events listed under the terms of the Escrow Agreement did not mirror the trigger events listed in the MSA, they were not inconsistent with each other. The broader trigger events in the MSA (including the specific event which had been triggered by FilmFlex appointing a third party developer) dealt with the obligations of FilmFlex and Piksel as and between themselves to bring about release of the source code. In contrast, the release events listed in the Escrow Agreement dealt with the circumstances in which FilmFlex could unilaterally demand release of the source code from the NCC.

Although none of the release events in the Escrow Agreement had been satisfied, there was an implied additional requirement for NCC to release the source code where both FilmFlex and Piksel agreed that it should be released. FilmFlex was therefore entitled to require Piksel to procure NCC to release the source code pursuant to the trigger event in the MSA which had been satisfied. In addition, it did not matter that the Escrow Agreement had been entered into after the date of the MSA. Piksel had argued that the narrow terms of the Escrow Agreement superseded the broader terms of the MSA. However, the judge found that there was no evidence to suggest that that was the case.

The meaning of "access": The case considered the meaning of the term "access" pursuant to a provision of the MSA which provided that FilmFlex would have "access" upon request to the source code throughout the term of the MSA. This provision was separate to the "trigger events" for release of the source code already discussed. Piksel had argued that "access" did not entitle FilmFlex to a copy of the source code. However, the judge found that what is included in a right of access to something must depend upon the nature of the thing and the purpose for which access was given. If a contract gives one party access to certain material and the scope of that material is defined as including everything necessary to carry out certain specific activities, then it makes sense to construe the access granted as including whatever is needed to carry on those activities. In this instance, given that FilmFlex was granted the right to use, reproduce, modify or enhance the software, it must not only be able to look at the source code but also have a copy of such source code that it could use.

Intellectual Property ownership and licensing: The final aspect of the case considered whether the terms of the intellectual property licence in the MSA also entitled FilmFlex to delivery up of a copy of the source code from Piksel. Counsel for Piksel argued that omission of the words "source code" from the scope of the licence and subsequent use of the words in the escrow provisions meant that source code was only relevant to escrow. The judge however disagreed that such significance should be attached to the precise phrase "source code" and looked instead at the purpose for which the licence was granted. Under the terms of the MSA, the intellectual property licence granted to FilmFlex allowed it to carry out various activities (use, copy, modify) which, according to the unchallenged evidence of the expert witness put forward by FilmFlex, could only sensibly be carried out if FilmFlex had a copy of the source code.

Drafting Points

The judgment provides important practice points for those involved in the drafting of IT and IP agreements:

  • Escrow: Whilst not a determining factor on the facts of this case, it is nonetheless advisable for parties to ensure that the release events set out in any escrow agreement mirror any specific trigger events provided for in the main commercial agreement. This will save the parties from arguments as regards order of precedence of the agreements.
  • Access to source code: In order to avoid confusion, when granting access rights in relation to software, the parties should consider ensuring that the agreement either specifies delivery up of source code and/or the purpose for which access is required (being a purpose for which delivery up of the source code is necessary).
  • Definitions: The definition of "intellectual property rights" does not need to specifically include the words "source code". However, the parties should consider whether or not to include such words or else make it clear in the purpose of the licence that delivery up of a copy of the source code would be necessary.

To view a copy of the judgment, please click here

2. Putting the plural into plurality: Ofcom consults on measurement framework for media plurality

Ofcom has published a consultation on its proposed measurement framework for media plurality in the UK.

Ofcom defines plurality as:

  • Ensuring a diverse range of independent news media voices across TV, radio, print and online, high overall consumption across different demographic groups and consumers actively using a range of different news sources.
  • Ensuring balance amongst organisations and news sources so no one voice has too much influence over public opinion or the political agenda.

Following a request from the Department for Culture, Media and Sport ("DCMS"), Ofcom published a Call for Inputs on the issue of media plurality in October 2014. Ofcom has not been asked to measure media plurality but is instead consulting on a set of indicators to inform a proposed measurement framework for media plurality. Ultimately, policy on media plurality and what would constitute "sufficient" media plurality will be a matter for government and Parliament.

Ofcom has developed a proposed framework based on advice it gave to DCMS in 2012 following its consideration of plurality in relation to the then proposed NewsCorp/BSkyB transaction. Ofcom’s proposed media plurality measurement framework is structured according to the following categories of metrics:

  • Availability: the number of providers and indicating the potential for a diversity of viewpoints.
  • Consumption: the reach of different news sources, their share of consumption and the extent to which consumers source their news from a range of news sources.
  • Impact: the potential for news sources to influence opinion.
  • Contextual factors: additional qualitative factors which cannot be quantified in metrics, but are an important part of measuring media plurality.

The closing date for responses is 20 May 2015.

To view a copy of the consultation, please click here

3. Reviewing the Strategy: Ofcom announces Strategic Review of Digital Communications

Ofcom has announced an overarching review of the UK’s digital communications markets, to ensure that communications providers and services continue to meet the needs of consumers and businesses.

The Strategic Review of Digital Communications will examine competition, investment, innovation and the availability of products in the broadband, mobile and landline markets. The review will take account of so-called "over the top" services delivered over the internet but Ofcom does not intend to include content services within the scope of the review (whilst noting the increase in take-up of bundled services).

Ofcom anticipates that the review will focus on three aspects in particular:

  • ensuring the right incentives for private-sector investment, which can help to deliver availability and quality of service;
  • maintaining strong competition and tackling obstacles or bottlenecks that might be holding the sector back; and
  • identifying whether there is scope for deregulation in some areas.

The first phase of the review will examine current and future market factors that may affect digital communications services, and current regulatory approaches. To inform this work, Ofcom intends to engage with a wide range of stakeholders – including industry, consumer groups, the UK Government and devolved administrations – through meetings and workshops. To this end, the first of its stakeholder forum meetings will take place on Monday 11 May 2015 to outline the scope of the review, and to invite feedback. This phase of the review is expected to conclude with a discussion document in summer 2015.

Ofcom then expects to conclude the review’s second phase by outlining initial conclusions around the end of the year.

To view a copy of the review terms of reference, please click here

4. Throwing out the rule book? Government consultation on deregulation of broadcasting

The UK Department for Culture, Media and Sport ("DCMS") has published a consultation on three areas of broadcast regulation, seeking views on the potential impact of deregulation in such areas, including how these areas of regulation affect content investment, the creative sector and consumers.

The consultation describes the balance of commercial and public policy goals the Government must consider. On the one hand, de-regulation may limit the availability of public service content on a plurality of platforms. However, on the other hand, de-regulation may increase investment in UK original content. The Government is therefore seeking to understand the potential impact of de-regulation for viewers.

The three areas of regulation the subject of the consultation are:

  • Section 73 of the Copyright, Designs and Patents Act 1988: The legislation provides a defence against copyright infringement for retransmissions by cable. It was originally introduced to encourage the roll-out of analogue cable services. Given that the policy rationale for this provision has now passed, the Government proposes repealing it.
  • Must offer/Must carry rules: The Communications Act 2003 requires public service broadcasters to offer their channels for carriage on all major platforms. It also requires electronic communications networks to carry such channels. The Government proposes amending these rules to create more free negotiations between platforms and public service broadcasters.
  • Electronic Programme Guides: The Communications Act 2003 established the EPG Code which requires EPG providers to give appropriate prominence to all public service channels. The Government proposes deregulating or amending the current framework to take account of technological and other developments.

Responses to the consultation are required by 16 June 2015.

To view a copy of the consultation, please click here