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Blog Archives
easyJet’s woes worsen
As anticipated in our post on 22 May, the easyJet data breach story is getting worse for the company rather than better. A group action claim for compensation has now been launched on behalf of the pool of affected customers. If the case goes to trial or if a settlement is reached, the details of which are made public (which is unusual) it will be interesting to see what value is attributed to the loss of privacy of each customer. This is likely to depend on what data was exposed for the 4 month period. Only some customers had credit card details revealed, but all had passport and travel details compromised. It is still possible that the number of affected customers may change as the incident is investigated further.
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Disputes arising from COVID-19 disruptions – skipping to Court or skipping Court?
Commercial contracts would not have anticipated the current commercial pressures which have arisen from the coronavirus outbreak. Naturally, this has led (or will lead) to unfulfilled obligations in commercial contracts, without a clear contractual solution for how to proceed. While the non-breaching party could bring a claim for breach of contract, recourse to the Courts at this time may not be the most effective way forward. This is particularly so where the breach is clearly a temporal one and the relationship between the parties is expected to return to normal once the global emergency subsides.The downside of litigation during COVID-19Besides the obvious shortcomings of litigation (costly; time consuming), businesses should consider the following additional factors relevant to the current crisis:No interim relief: You are unlikely to be able to get interim relief from the Court, especially where there is an inability on the counterparty to perform its obligations. If the breach is having an immediate impact on cash-flow, filing a claim will not relieve this pressure.Uncertainty in the final outcome: Arguments relating to the doctrine of frustration or interpretation of Force Majeure clauses can be complex and are fact dependent. How the Court will ultimately deal with those arguments in each case is uncertain.Backlog: While the UK Courts have quickly adapted to ensure that cases can be dealt with remotely (e.g. video-link hearings), there will no doubt be a backlog resulting from adjourned hearings and other limitations on the Courts at this time. Similarly, the predicted rise in claims due to COVID-19 will no doubt place further strain on the Court system.To avoid these difficulties, businesses should assess whether commercial discussions could lead to an effective solution by agreement. If the parties cannot come to an agreement on their own, alternative resolution mechanisms should be considered.Possible alternative resolution mechanisms Mechanism Summary MediationA negotiation process where an independent third party (usually an experienced Solicitor or Barrister) acts as a “mediator”.The mediator does not make a decision, rather, they assist parties to identify issues, assess options and negotiate an agreement to resolve their dispute.Mediation will be particularly useful for those parties seeking to find an interim solution, with a view to preserving the longer-term commercial relationship.In normal circumstances, a face-to-face meeting would occur, however, video-conferencing could easily be utilised at this time. There have already been a substantial number of successful video mediations in the UK during the COVID-19 era, in particular, using Zoom.Early Neutral Evaluation (“ENE”) An independent evaluator (usually an expert within the relevant business sector, former Judge or Barrister) is appointed to give the parties an assessment of the merits of their case and express a view on what the outcome would be if the matter proceeded to Court.The evaluator does not resolve the dispute, but the intention is that the parties use the final evaluation as a basis for negotiation following the ENE.The ENE process is usually a paper exercise, so it would be suitable for the current lockdown measures.Expert determination Expert determination is a binding dispute resolution process that can offer a relatively quick means of determining disputes of a specialist or technical nature (where legal and factual issues are limited).It is commonly used in two contexts: (1) where some form of valuation is required; or (2) where an expert scientific or professional opinion is central to the dispute.Depending on the preference of the parties, the determination could be made on the papers or there could be an oral hearing (in the case of the latter, it would need to be undertaken by video-conference). As noted above, there are a number of disadvantages to proceeding down the path of litigation at this time. If businesses are currently entangled in a COVID-19 related dispute, it is recommended to seek legal advice on whether another resolution mechanism would be more effective at this time, particularly where the parties see the current position as temporary and wish to preserve commercial relations.Of course, however, if the relationship between the contracting parties has come to end (through termination or otherwise), businesses may wish to adopt the strategy of pursuing the above alternative resolutions in conjunction with more traditional litigation through the Courts.
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Data protection in the time of coronavirus
Various news outlets are reporting that the UK government is considering using mobile device users’ location data as a means to monitor the spread of coronavirus and to track their endeavours at social distancing.Polling suggests that the wider population is generally supportive of implementing extraordinary measures to mitigate the COVID-19 crisis. However, the possibility of increased processing of personal data at a testing time when individuals’ freedoms have already been curtailed as part of the response to pandemic does raise privacy concerns. The civil liberties group, Big Brother Watch, has already warned that the Coronavirus Act 2020, which came into force on 25 March, risks weakening safeguards on mass surveillance powers.It has been suggested that individuals’ health data could be subject to large-scale processing so that nearby persons that those individuals pass (for example, on a public street when taking permitted exercise) are warned that they have been in the proximity of someone suspected to have coronavirus (an app that performed a similar operation was used in South Korea, where the infection rate has fallen dramatically). This would inevitably require the processing of ‘special category’ data, which is subject to extra protections under the GDPR and the Data Protection Act 2018.In a recent tweet linked to below, Matt Hancock, the Secretary of State for Health, stated that ‘GDPR does not inhibit use of data for coronavirus response’. It is likely Hancock is thinking of Articles 6(d) and 6(e) and Articles 9(2)(c), 9(2)(g), and 9(2)(i), which do allow for processing of such special category data where this is in the public interest, for public health reasons, and/or for protecting individuals’ ‘vital interests’. If the UK government were to rely on these grounds for such large-scale processing, then users’ consent would not be needed for data to be processed in this way.However, implementing such processing is not without risk: if rolled out too quickly, it would be all too easy for such wide-scale processing of special category data to contravene core principles of the GDPR, such as ensuring data is not kept for longer than it should and being transparent about the way it is processed. Another key tenet of the legislation is that personal data must be kept up to date, and it is not difficult to imagine how this might be a challenge to do for large swathes of the country’s population with regard to each person’s health status. Individuals may not be able to object to this processing if, as is likely, it can be demonstrated that there are legitimate grounds for the processing that override individual rights and freedoms. Furthermore, while the initial use of the data might be for the purposes of protecting individuals’ vital interests, there is a risk that such data might then be subjected to further use and processing for other purposes.If data can be anonymised before it is processed in the ways discussed, this might be a solution, since truly anonymised personal data falls outside of the GDPR’s scope. The European Data Protection Board has recommended that, in the first instance, public authorities should endeavour to process location data in an anonymous way. However, a recent news report has mentioned the possibility of reversing the anonymisation of such data in order to identify specific virus-carrying individuals. This would be a significant concern for the privacy of those individuals.Notwithstanding the above, a careful balance will need to be maintained between individual rights and the needs of public protection during this pandemic. It is important to remember that the GDPR and the Data Protection Act 2018 still apply to UK public authorities and to private organisations, and even during this public health crisis, any project involving the processing of personal data is expected to comply with this legislation.
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Coronavirus: Corporate Residence – Updated HMRC Guidance
Since last writing (published here yesterday), HMRC has responded to calls to update its guidance on corporate residence during the global coronavirus pandemic, here, and on permanent establishments here.This guidance, which mirrors that previously set out for individuals (here) is very welcome, and greatly to HMRC’s credit. HMRC expresses its sympathy to those affected in respect of the disruption being endured.Tax Residence of Foreign-Registered CompaniesIn summary, HMRC’s general view is that:”We do not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time. HMRC guidance makes it clear that we will take a holistic view of the facts and circumstances of each case.”This is helpful, though generic. HMRC points to existing guidance and states that each case will turn on its own facts.Fortunately, the UK has one of the most comprehensive sets of double tax treaties of any jurisdiction. Those treaties routinely contain “tie-breaker” provisions that can determine residence if, under their own domestic laws, a person or company would be resident in both jurisdictions. For companies, that test determines the “place of effective management” of the business *(“POEM”). The OECD issued its own reassuring guidance on those provisions here.HMRC’s updated guidance seems to accept the OECD’s view that:”It is unlikely that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty. A temporary change in location of the chief executive officers and other senior executives is an extraordinary and temporary situation due to the COVID-19 crisis and such change of location should not trigger a change in residency, especially once the tie breaker rule contained in tax treaties is applied.”HMRC’s case-by-case approach is less clear than that taken by the Irish Revenue, which simply states:”Where an individual is present in the State and that presence is shown to result from travel restrictions related to COVID–19, Revenue will be prepared to disregard such presence in the State for corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent.”Similarly, the Australian Tax Office states in its Coronavirus Q&A:”If the only reason for holding board meetings in Australia or directors attending board meetings from Australia is because of impacts of COVID-19, then we will not apply compliance resources to determine if your central management and control is in Australia.”Nevertheless, assuming that HMRC is true to its word about its sympathy for individuals and businesses affected by the coronavirus lockdowns, then the result ought in almost every case to be the same. One would expect that the only exceptions to such an outcome would be where HMRC has cause to attack the arrangements for reasons unrelated to the coronavirus pandemic.Permanent EstablishmentHMRC summarises its general position as follows:”We do not consider that a non-resident company will automatically have a taxable presence by way of permanent establishment after a short period of time. Similarly, whilst the habitual conclusion of contracts in the UK would also create a taxable presence in the UK, it is a matter of fact and degree as to whether that habitual condition is met. Furthermore, the existence of a UK PE does not in itself mean that a significant element of the profits of the non-resident company would be taxable in the UK.”HMRC’s updated guidance on Permanent Establishments seems more heavily reliant on pre-existing advice and practice than its approach to company residence. A few headline points arise:HMRC accepts that Permanent Establishments are not brought about “after a short period of time”: the length of time in question is open to some doubt, but in the context of the global coronavirus-related lockdowns, it would seem fair to suppose that the duration of the UK’s lockdown restrictions, at least, would be such a “short period”.To avoid the question of whether contracts are “habitually” concluded in the UK, it should be avoided wherever possible. Good records should be kept of the place all contracts are concluded, and they should be stored outside the UK – preferably in the jurisdiction in which the company is registered (e.g. at its registered office).As the OECD noted in its recent guidance, pointing to the degree of permanence required to create a Permanent Establishment:”it is unlikely that the COVID-19 situation will create any changes to a PE determination. The exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 crisis, such as working from home, should not create new PEs for the employer. Similarly, the temporary conclusion of contracts in the home of employees or agents because of the COVID-19 crisis should not create PEs for the businesses.”The OECD guidance is clearer than HMRC’s about the low risk of bringing about a “dependant agent” Permanent Establishment:”An employee’s or agent’s activity in a State is unlikely to be regarded as habitual if he or she is only working at home in that State for a short period because of force majeure and/or government directives extraordinarily impacting his or her normal routine.”This seems to us to be the correct analysis, and it is one we would expect HMRC to share in relevant cases.General CommentsThe tax challenges caused by the global coronavirus pandemic are being faced by every central revenue authority. Some, like Ireland’s and Australia’s, have responded by clear statements of principle on which affected individuals and businesses will expect to rely. HMRC has taken a rather different approach, emphasising that decisions will depend on case-by-case analysis, whilst making general (but non-binding) statements indicating that it will take a sensible view. This is perhaps a consequence of the poor standard of discussions about tax in the UK and the pressure that HMRC faces from its political masters and the press: potential for abuse would abound if HMRC nailed its colours to the mast. Nevertheless, one trusts that HMRC will be true to its commitments and decide cases on a rational and just basis.Meanwhile, affected companies and directors – especially those stuck in the UK – would be well-advised to take advice on this new guidance and its implications for their businesses. Two points will arise in every case:Exemplary records must be kept throughout the lockdown period to satisfy HMRC if the need arises in future; andOnce the lockdown (in the UK, at least) comes to an end, then individuals and businesses should expect that HMRC will dis-apply its coronavirus guidance and revert to the status quo ante.
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Covid-19 cooperation: A new world for intellectual property rights
Intellectual property is by definition restrictive. The various rights – copyright, trade marks, patents and designs – give the owner exclusivity to exploit the right or permit someone else to do so. Anyone who uses the right without permission will infringe the right unless they can call on one of the few, limited, defences.In normal times someone who “reverse-engineers” (i.e. copies) a product designed by someone else would expect a complaint of infringement. And if the original designer has permitted the adaptation of its design in this way, the improvements made by the adapter would probably qualify for separate protection. There would normally be a scramble to exploit the adapted product for maximum profit, and any unauthorised copying would also be subjected to infringement policing.But as well are all acutely aware, these are not normal times. So it is a development to be applauded that the ultra-competitive world of F1 Racing has used its formidable engineering prowess not to shave a couple of hundredths of a second of a lap time, but to help in the fight against Covid-19.Working with a group of collaborators including University College London and UCH, the Mercedes F1 team has adapted and refined an existing breathing-aid design (so that it uses 70% less oxygen), obtained regulatory approval, and enabled high volume manufacturing capacity in record time. Furthermore the team has made the design freely available to others who wish to use it. No IP rights being claimed or fought over – but instead making a much more efficient design available in the fight against this rapidly spreading virus. That deserves a round of applause for the entire design, testing and manufacturing team – a world championship performance.
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Zoom under increased scrutiny as popularity rises
Privacy issues are often a low priority for companies, especially as they grow as quickly as Zoom. Zoom went public last year and has already doubled in value. It has clearly given some thought to its data protection policies and procedures and is now trying to address issues as they come to light, although this is undoubtedly too late. For example, after it was revealed that Zoom was sharing some of its users’ personal data with Facebook, it immediately stopped this. However, its problems are multiplying. German data protection authorities are eyeing an investigation as it is revealed that users’ emails and other personal data are accidentally being leaked to malicious actors, putting Zoom at risk of significant fines being issued against them.
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The New Global Talent Visa
The government has announced a new fast-track visa scheme that will open on 20 February 2020. The new ‘Global Talent’ visa is a significant boost for UK science, technology and research institutions and it is aimed at enhancing their ability to attract top research talent to the UK.The new visa will create a new fast-track route for UK-based research projects to recruit top global talent. This will be of particular benefit to higher education institutions, research institutes and public sector research establishments. The new scheme will also have no limit placed on the number of ‘Global Talent’ visas that can be issued.The new visa will offer a greater level of flexibility than the previous Tier 1 (Exceptional Talent) visa. It will allow applicants to apply for settlement when they have been in the UK for three years, and provide an exemption from the absence rules for researchers, and their dependents, should they be required to travel overseas during their research work or employment. This is a significant exemption because it means they will not suffer any penalty for such periods of absence if they subsequently apply for settlement in the UK.From the 20 February 2020, UK Research and Innovation will be able to endorse applicants from the scientific and research community to qualify for this accelerated path to obtain a visa. UK-based institutions and research projects that have received recognised awards are at the front of the queue for getting their ‘top talent’ fast-tracked using this new route.The new Global Talent Visa will therefore provide a flexible immigration route into the UK and is aimed at enabling UK institutions to attract top global talent. We await further announcements of the detail of the scheme from the government in due course.
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It’s time to AI-xplain
The Information Commissioner’s Office (ICO) in a collaboration with The Alan Turing Institute (The Turing) has created Project ExplAInto which aims to create practical guidance to assist organisations with explaining artificial intelligence (AI) decisions to the individuals affected.The ICO and The Turing conducted public research to gather information about the views held on AI. The ICO has said that they are working on the project as they believe that AI presents ‘some of the biggest risks related to the use of personal data’. The ICO wants to provide ‘effective guidance’ on how to address data protection risks from new technology. The current lawThe GDPR makes no specific provisions for technology or AI. There are several provisions which are relevant to the use of AI:• Principle 1. (a) requires fair, lawful, and transparent processing of data. • Articles 13-15 give individuals the right to be informed of the existence of solely automated decision-making and the consequences. • Article 22 gives individuals the right not to be subject to a solely automated decision producing legal or similarly significant effects. It obliges organisations to adopt measures to safeguard individuals when using solely automated decisions; and• Article 35 requires organisations to carry out Data Protection Impact Assessments when what they are doing with personal data, particularly when using new technologies, is likely to have high risks for individuals.Project ExplAIn plans to advise and assist organisation with meeting the requirements for use of AI in terms of data protection. They also intend to promote ‘best practice’. The ReportThe interim report published by the ICO sets out their findings from research into the current understanding of AI. This research will inform the guidance. EducationOne of the key findings was a need to improve education and awareness surrounding AI, so that individuals are better informed to understand the implications the technology has on their data. They hope that improving education will improve public confidence in AI decisions. This is particularly important in the wake of recent discussions on the use of AI in decision making and in Online Courts. The research suggests that there is a lack of understanding which leads to a lack of faith in the decision. The conclusion reached also posed the alternative view that over-normalising the use of AI decisions could lead to individuals being less likely to question its use and expect explanations. Though they want to avoid campaigns emphasising risks and negative impacts of AI. It was decided that it was important to be aware of this point and to include diverse voices in the work. The report identified the need to translate complex decision-making rationale into an appropriate language for a lay audience.ContextAnother key point from the report was that the content of AI explanations will depend on the context , including: timing and urgency, impact of decision, the ability to change influencing factors, scope for bias and interpretation, type of data and the recipient. The individual’s ability to challenge or respond to the decision will increase the need for an explanation. For example in criminal justice decisions. Whereas in situations where individuals are more focused on a quick decision, the explanation may be less relevant. The level of expertise of the individual alongside the technicality of the decision will also be relevant. Therefore, the ‘appropriate explanation’ is likely to be different in different cases. This will be factored into the guidance. Cost The report also concludes that cost will be a major challenge in providing explanations and will affect how they pitched. Industries are also concerned with revealing commercially sensitive information. This can be both in relation to third party details and to competitors. Next steps The report will be out for public consultation over the summer. The guidance is due to be published this autumn. The ICO’s AI auditing framework is due to be finalised in 2020 and it is likely that these findings will influence the framework. The guidance may serve to legitimise the use of AI and improve public confidence in its use. However, if the best practice is too onerous, it may hinder the development of AI in smaller businesses.
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Ofcom has fined Royal Mail £50 million for abuse of dominance
The fine follows a complaint made by Whistl after Royal Mail changed its wholesale customer contracts in 2014. At the time, Whistl (then known as TNT) was expanding its business to compete with Royal Mail in the delivery of business letters (“bulk mail”) in some parts of the UK. The contract change increased the prices Whistl had to pay Royal Mail to deliver such letters in the parts of the UK that Whistl did not itself cover. As a result, Whistl decided to suspend its plans to extend its bulk mail delivery.Royal Mail has indicated it will challenge the decision. For its part, Whistl is seeking damages. If the decision is not overturned, Whistl will be spared the need to prove Royal Mail’s liability in the litigation, as Ofcom’s decision will be binding on the Court.Such “follow-on” damages actions by victims of anticompetitive conduct are becoming increasingly popular. At present, the breach of competition law which is spawning by far the most follow-on actions is the price-fixing agreement by Europe’s leading truck manufacturers. The first action in England against the trucks cartel was brought by … Royal Mail.
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Breaking Point for KitKat?
KitKats may have been helping people take breaks since 1935, but the European Court of Appeal would not give Nestlé a break as they refused to register as a trademark the 3D shape of the chocolate bar. The arguably iconic four-fingered shape of the KitKat underpins their tear and snap ad campaigns which have seen stars such as Jason Statham slice through the foil and snap off a finger. Nonetheless, the ‘four trapezoidal bars aligned on a rectangular base’ as it was snappily put, can be recreated by other confectioners.The Court held that, although the shape of the KitKat bar is well known, most consumers would not recognise the four-finger chocolate bar without the KitKat logo or packaging and that the consumer is more likely to be influenced by the brand name on the bar and the wrapper than solely the shape.Nestlé has spent over a decade fighting the trademark dispute, which the likes of Cadbury have opposed. The shape is protected in Australia, Canada and South Africa, and following four years of back-and-forth was registered as a trademark in the EU until rivals opposed the registration. In 2007, the case came to court, and this week’s decision saw Nestlé’s appeal thrown out and the EU Trademark office ordered to reconsider its decision, annulling KitKat’s claim.The mark is now in the hands of the EU Trademark office and it is likely that it will be removed from the register for now, as there is not sufficient evidence that the shape is distinctive across all EU member states. This leaves scope for own-brand imitations, and allows less well known, identical bars such as Norway’s Kvikk Lunsk to continue production.The bar, four-fingers or not, has been set high in regards registering trademarks for 3D shapes. The Court has reiterated the need for distinctiveness in the shape alone, and not when considered with a logo and other branding.The KitKat case has shown that consumer awareness and knowledge and association of a shape with a brand is not enough for the Court to consider registering a 3D shape as trademark, and brands will have to show that their shape is distinct in order to stand a chance of registration.
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