The recent case of Cureton -v- Mark Insulations Limited highlights the importance of robust contracts when using agents to expand your sales network. It is dangerous to assume that any database created by an agent belongs to the company which engages him, as Mark Insulations found out to its detriment.
A key aspect of agency relationships is that any agent is likely to compile and maintain a database of customers and potential leads. This is business critical, especially as the agent often has a better knowledge of the local marketplace than the client or principal.
In this case, Mark Insulations (principal) supplied home insulation products. Cureton (agent) and the principal had a verbal agreement under which the agent would generate sales of the principal's products to end-customers. Several claims arose from termination of the agreement, the relevant one here being the principal's counterclaim for declaration of ownership and delivery up of the customer database compiled by the agent.
Database ownership is determined under the Copyright and Rights in Databases Regulations 19971 unless there is a specific written agreement otherwise. Under the Regulations, a database right exists if there has been 'a substantial investment in obtaining, verifying or presenting the contents of the database'. Investment can be financial, human or technical.
The person who takes the initiative to obtain, verify or present the contents of the database and who assumes the investment risk is the maker of the database and owns the database right. Databases made by employees in the course of employment are deemed created by the employer under the Regulations. There is no corresponding provision benefiting principals as regards their agents.
The database in the Cureton case was owned by the agent even though:
- the principal's name was used on the agent's business cards when creating the database;
- the agent operated a phone line in the principal's name, paid for by the principal; and
- the principal also paid for other marketing expenses.
However, there was no suggestion that the principal had specifically commissioned the database, which seemed to have been compiled by the agent on its own initiative. This may explain why the judge did not even find an implied licence allowing the principal access to the database. No delivery up of the database was ordered.
The case highlights the need to address the following in agency agreements:
- regular reporting on customers and potential leads during the term of the agreement;
- an assignment to the principal of any intellectual property rights (including database rights) created as a result of the agent's performance of the agreement;
- a confidentiality obligation in favour of the principal, with the database specifically defined as part of the principal's confidential information;
- an obligation on the agent to compile and maintain a database in accordance with applicable data protection laws. The principal should have input into the collection of customer data so that it can ensure that sufficiently wide consents are being obtained from individuals to allow full utilisation of the data within its business; and
- an obligation on the agent to deliver up copies of the database on request and in any event on termination of the agreement.
1 Please see http://www.opsi.gov.uk/si/si1997/19973032.htm
© Penningtons Solicitors LLP, 2007.
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