UK: Apples And Crystal Balls: Settling Disputes Once And For All?

As part of a settlement in 1991, the parties in Apple entered into an agreement to share the use of the apple mark on goods and services in the future - essentially, music for Corps and computers and data transmission for Computer. However, neither party foresaw the development of Computer’s iTunes Music Store. Corps claimed that the various uses of the apple mark in the Store were in connection with the music tracks available for sale, thereby breaching its exclusive rights in relation to musical content. Computer argued that the Store was permitted data transmission of musical content and that it was obvious that Computer did not create or own the 3.5 million songs the Store contained.

In attempting to construe the 1991 agreement, Mr Justice Mann recognised the need to keep it in its correct place in the chronology of events and technological developments. He nevertheless came to the view, having looked at the relevant background facts, that while the development of iTunes itself was not foreseen, the prospect of technological development was in both parties’ minds when they made the agreement. Computer was a recognised innovator. The dispute settled by the 1991 agreement had, in fact, been caused by the development of a computer programme designed to create, edit, and record music. The risk of a development involving the delivery of musical content by a computer-based service had, therefore, been considered by the parties. This risk had been allocated by the provision in the agreement recognising that goods and services legitimately within Computer’s field of use were (or could be) capable of delivering content which was within Corps’ field of use.

Consequently, Mr Justice Mann found for Computer, ruling that the use of the apple mark by Computer in the Store was a permitted use of the mark in connection with the data transmission service provided by the Store. He found that a reasonable user of the service would understand that the apple mark referred to the service provided not the individual tracks. Corps has already indicated that it is likely to appeal this decision on the grounds of incorrect interpretation of the contract.

Many disputes about apparently settled litigation arise in connection with the contractual interpretation of settlement agreements. The problems faced by Computer and Corps in applying a 1991 agreement to 2006 facts can apply to all types of dispute and the agreements settling them.

How do the courts deal with a situation where an event occurs that truly has not been foreseen by either party to a contract? By considering the words used in the contract and, where the literal interpretation of the contract is unclear, by reference to the surrounding events, the court must determine what the parties would have intended had the event been contemplated at the time of entering the contract. This approach was confirmed by the Court of Appeal in Bromarin AB v IMD Investments Limited (1999) in relation to a change in tax law.

What about unforeseen grounds for future claims? The employment case of BCCI v Ali (1999) demonstrates the court’s reluctance to infer that a person surrenders rights that neither party was aware of, even where the agreement is "in full and final settlement of all or any claims". This wording was not sufficient to prevent the claimant from bringing a successful claim for stigma damages.

A defendant will usually want to ensure that the wording of the settlement agreement avoids similar claims arising from the same circumstances in the future. But generic "catch all" wording similar to that used in Ali may well not be sufficient; very specific language is required to exclude future claims effectively. The court is also likely to construe wording such as "in full and final settlement of all and any claims arising from the agreement" as applying to both parties, not simply claims brought by the claimant against the defendant. A defendant and his lawyer should therefore also consider if the defendant has any future claims or whether there are any counterclaims which would be wrapped up in the settlement.

In settling any dispute, therefore, knowledge of the present state of the law is not enough.

Possible future legal developments need to be considered as well. However, just as important is the need for a thorough understanding of the environment in which the business operates and the impact of factual changes, whether technological developments or otherwise, on any settlement agreement. If new and unforeseen technologies are developed at a later date, who is to get the benefit of them - and who stands to lose?

In Apple, each party incurred an estimated £2 million in costs disputing what they had thought was a "done deal". Changes in technology and business opportunities may make similar disputes in the future unavoidable but considering the issues briefly outlined above will help minimise the risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.