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ZipTracker: Share the Profits

Employees' shares of profits, stolen ideas and base aroma carve-outs.

Ludo Lugnani profile image
by Ludo Lugnani
ZipTracker: Share the Profits

Hi ZipLawyer! I'm Ludo Lugnani and this is ZipLaw. This is a newsletter called ZipTracker where we cover court cases and deals which law firms have been advising on to make you stand out in applications and interviews and develop your Commercial Awareness!

Today's newsletter is a 10 min read:

  • ⚖️ In Court: Court cases featuring Kingsley Napley, Bird & Bird, Clarke Willmott, TLT, DLA Piper, Hogan Lovells and Reynolds Porter Chamberlain.
  • 🤝 Deals Time: Deals featuring Osborne Clarke, Allen & Overy, Cravath Swaine & Moore and Shearman & Sterling.

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⚖️ In Court

Fair Share of Profits?

In Summary: An employee of Convatec, David Parsons, has filed a claim in the High Court against the medical device company, alleging that he deserves a "fair share" of the benefits derived from inventions he devised outside his core job, which were incorporated into Convatec's Aquacel wound dressings. Parsons claims that the company was not paying him to invent, despite benefiting greatly from his patented inventions, which have accounted for a large proportion of Convatec's profits. He estimates that the company has netted more than $3 billion from the dressings as of 2021. Parsons is asking the court to award him around 10% to 15% of the benefits that Convatec has derived from his inventions.

Key Points:

  1. Patent Law: The case involves patent law and the concept of "suitable compensation" for certain inventions, as outlined in the Patents Act 1977. The Act states that an employee who makes an invention that belongs to the employer is entitled to "suitable compensation" if the invention is of "outstanding benefit" to the employer. This case will explore what constitutes "suitable compensation" for an invention. It will probably rely on previous court decision such as Kelly v GE Healthcare where it was held that compensation was to be paid to an employee inventor. In that case, outstanding” was held to mean “something special” or “out of the ordinary”; more than merely “substantial”, “significant” or “good”. The statute also requires that "outstanding benefit" be considered "having regard to the size and nature of the employer's undertaking.
  2. Employee Compensation: The case raises the issue of employee compensation for inventions created outside the scope of an employee's assigned tasks. Parsons alleges that he was not paid to invent and that his inventions were created outside his principal assigned tasks, but he believes that they have accounted for a large proportion of Convatec's profits. This case will determine the extent to which an employee is entitled to compensation for inventions created outside their assigned tasks and whether Convatec had a duty to acknowledge and reward Parsons for his inventive skill or contributions (we look forward to seeing and reporting what happens!).
  3. Disclosure of Information: The claim asks Convatec to disclose further information about the global sales of the Aquacel line. This raises the issue of the extent to which a company is required to disclose information about the profits derived from an employee's inventions, and whether such disclosure is necessary for determining suitable compensation. The court will likely explore the relevance of this information to the case and whether Convatec has a duty to disclose it.

Who advised on this?

  • David Parsons is represented by Patrick Green KC and Ben Norton of Henderson Chambers, instructed by Kingsley Napley.
  • Convatec Ltd. is represented by Bird & Bird.

⚖️ In Court

Fast Fashion

In Summary: A businessman, Paul Clements, had sued the founder of In The Style, Adam Frisby, alleging that Frisby had stolen his idea for the online sale of "fast fashion" in collaboration with influencers. Clements claimed that he had shared his business plan with Frisby in confidence during a series of meetings in 2013, and accused Frisby of unlawfully misusing confidential information, breach of confidence, breach of fiduciary duty, and breach of equitable and contractual obligations. However, the High Court found that Frisby had not conspired with his friend Jessica Devine to steal Clements' idea, and that the idea behind In The Style was that of Mr. Frisby and Mrs. Devine, and that Mr. Clements played no part therein. In The Style operates a unique business model in which it collaborates with a range of influencers and celebrities to create capsule collections and shares the financial proceeds with the co-creators to ensure they are invested in its success.

Key points:

  1. Confidentiality and Fiduciary Duty: The case highlights the importance of confidentiality in business dealings and the obligations of fiduciary duty. A person who receives confidential information is under a duty not to misuse or disclose it, and a fiduciary has a higher duty of loyalty and good faith towards the person to whom they owe the duty. In this case, the court found that Frisby did not owe a fiduciary duty to Clements, as there was no evidence of a relationship of trust and confidence between them.
  2. Intellectual Property: The case also illustrates the significance of intellectual property rights and their protection. In this case, Clements claimed that he had conceived the idea for the online sale of "fast fashion" in collaboration with influencers, which he alleged was his intellectual property. However, the court found that the idea was not original to Clements, and that Frisby and Devine had independently developed the concept.
  3. Burden of Proof: The case emphasizes the importance of the burden of proof in legal proceedings i.e. the obligation to prove a disputed fact or allegation in a legal case. In this case, the burden of proof was on Clements to establish that Frisby had misused his confidential information and breached his fiduciary duty. The court found that Clements had failed to provide sufficient evidence to support his claims, and therefore, his case was dismissed.

Who advised on this?

  • Clements was represented by Hugh Jory KC of 4 New Square Chambers and Elisabeth Tythcott of 18 St John Street Chambers, instructed by Clarke Willmott.
  • Frisby was represented by Giles Maynard-Connor KC and Stephen Connolly of Exchange Chambers, instructed by TLT.

⚖️ In Court

Uber

Some background: In March 2021, the UK Supreme Court ruled that Uber must treat its drivers as workers under UK law. This entitled them to receive the national minimum wage and other benefits. In October 2021, a group of drivers sued Uber, claiming that the company had failed to top up their pay in line with the national minimum wage, and had only applied the formula for determining minimum wage payments to time spent en route to customers. The drivers also alleged that Uber had failed to produce and maintain records of how the company calculates driver wages.

In Summary: Uber's London arm has denied claims made by a group of drivers that it has failed to top up their pay in line with the national minimum wage. The company stated that it currently assesses each driver's earnings at the end of a week and will reimburse them if the amount falls below the minimum wage and that it may be liable for arrears of historic wage top-ups for workers. Uber also said that it no longer applies the formula for determining minimum wage payments only to time spent en route to customers and that it has removed certain penalty arrangements that were in place up until the end of 2017.

Key Points:

  1. Legal Obligations of Employers: The case highlights the legal obligations of employers to treat their workers in accordance with UK law. Following the UK Supreme Court ruling, Uber was required to treat its drivers as workers, which meant that they were entitled to receive the national minimum wage and other benefits. Employers have a responsibility to ensure that they provide workers with the necessary benefits and protections under employment law.
  2. Calculation of Minimum Wage Payments: The case also raises the issue of how minimum wage payments should be calculated. The drivers claimed that Uber should apply the formula for determining minimum wage payments to all times that drivers have the app turned on, while Uber stated that it currently assesses each driver's earnings at the end of a week and will reimburse them if the amount falls below the minimum wage. The case highlights the need for clarity on how minimum wage payments should be calculated and the importance of ensuring that workers receive the correct amount.
  3. Record-Keeping: The case also raises the issue of record-keeping by employers. The drivers alleged that Uber failed to produce and maintain records for how the company calculates its driver wages. Uber did not address this section in its defense, but noted that there was "no legal requirement" for it to collect data on drivers' expenditures in order to ensure they are paid the minimum wage. The case highlights the importance of record-keeping by employers and the need for transparency in how wages are calculated and paid.

Who advised on this?

  • Uber is represented by DLA Piper.

⚖️ In Court

Construction Troubles

In Summary: The Prudential Assurance, a subsidiary of finance and insurance company M&G PLC, is suing McLaren Construction Ltd. for more than £14 million to cover repairs that are required due to the alleged substandard design and construction of an industrial distribution warehouse in northwest London. Under a building contract signed in 2009, McLaren agreed to design and construct two industrial distribution units, one of which was the property in question.

The claim argues that the ground slab is now cracked and unstable, and that this is due to design defects which have resulted in an inappropriately thin slab, with no top reinforcement and minimal bottom reinforcement, together with a lack of made ground improvements. Prudential Assurance contends that the damage has or will cause loss and damage and that McLaren had breached its contractual obligations due to the defects. The life and insurance company estimates that repair costs will be around £12 million, plus value-added tax.

Key Points:

  1. Building contracts and compliance with building standards: One of the key issues, in this case, is whether McLaren breached its contractual obligations by poorly designing and building the property. The claim argues that various provisions in the building contract required McLaren to act in a proper and "workmanlike manner," ensuring that the work complied with necessary building standards. It will be essential for the court to determine whether McLaren failed to comply with building regulations, and if so, whether this constitutes a breach of the building contract.
  2. Damages for defective construction: Another key issue, in this case, is the extent of damages that Prudential Assurance is entitled to recover if the court finds that McLaren breached the building contract. The claim estimates repair costs to be around £12 million, plus value-added tax, and also claims for loss of rent of around £2.3 million while work is carried out. In addition, the claim argues that the property is now worth less because of the defects, alternatively arguing that the diminution in value is equivalent to the cost of the works together with the loss of rent. The court will have to determine the appropriate measure of damages for the alleged breaches of the building contract.
  3. Implications for developers and insurers: This case has implications for both developers and insurers involved in construction projects. Developers need to ensure that they comply with building regulations and contractual obligations to avoid breaching the building contract and facing potentially significant damages claims. Insurers need to be aware of the risks associated with insuring construction projects and should review contracts and risk management procedures to mitigate these risks. It is also worth noting that this case highlights the potential for significant costs associated with repairing defective construction and the importance of addressing such issues promptly.

Who advised on this?

  • Prudential Assurance is represented by David Holland KC of Landmark Chambers, instructed by Hogan Lovells.
  • McLaren is represented by Reynolds Porter Chamberlain.

🤝 Deals Time

Medical Raise

In Summary: Creo Medical Group PLC, a medical device maker based in Chepstow, Wales, is planning to raise up to £30.2 million through the sale of its shares to institutional investors and existing shareholders. The company's advanced surgical devices are used in endoscopic procedures, and the fundraising will allow the company to accelerate the rollout of its core technology and bridge a funding gap to create a pathway to being profitable.

Key Points:

  1. Fundraising: Creo Medical Group's decision to raise up to £30.2 million through the sale of its shares to institutional investors and existing shareholders is a significant move to ensure the business maintains momentum. The fundraising is expected to provide the company with the necessary working capital to accelerate the rollout of its core technology and bridge a funding gap to create a pathway to being profitable.
  2. Discounted share price: The company is offering to sell its shares for 20 pence each, which is a discount of approximately 28% to Wednesday's closing price of about 28 pence. This discounted price may be seen as an attempt to make the shares more attractive to potential investors, but it also represents a significant drop in value for existing shareholders.

Who advised on this?

  • Osborne Clarke is acting as the legal counsel for the fundraising.

🤝 Deals Time

Merge and Delist

In Summary: International Flavors & Fragrances Inc. (IFF) has agreed to sell its Flavor Specialty Ingredients (FSI) business to UK-based private equity firm Exponent for $220 million in cash. The sale includes FSI's four manufacturing and distribution facilities in the UK, China, Mexico, Brazil, and Hong Kong, and is expected to close by the end of the third quarter of 2023, subject to customary closing conditions. FSI is a leading manufacturer of synthetic and natural base aroma chemicals used in the flavor market and generated more than $100 million in revenue over the past 12 months, serving more than 970 customers.

Key Points:

  1. Corporate Carve-Outs: The acquisition of FSI by Exponent underlines its "specialist expertise in corporate carve-outs." A corporate carve-out is a transaction in which a parent company sells or spins off a subsidiary or division into a separate, independent business entity. This is a complex transaction that requires a thorough understanding of the legal and financial implications of separating a business from its parent company. In this deal, Exponent's experience in corporate carve-outs is significant because it enables them to successfully transition FSI into an independent business, invest in its growth, and achieve significant returns.
  2. Focus on Core Business: The sale of FSI will allow IFF to focus on its core business to enhance growth returns. Core business refers to the main activities of a company that generate the majority of its revenue and profits. By divesting non-core businesses, companies can streamline operations, reduce costs, and improve profitability. In this deal, IFF's decision to sell FSI will enable it to strengthen its financial profile by reducing its outstanding debt and focusing on its core business.
  3. Value of Base Aromas Market: FSI is a global leader in the base aromas market, with a strong customer base and a differentiated portfolio of natural and aroma chemical products. Base aromas are the foundation of many flavours, and are essential to the flavour industry. The global base aromas market is expected to grow at a compound annual growth rate of 5.3% from 2020 to 2025, driven by increasing demand for natural flavours and the growing popularity of convenience foods. FSI's expertise in the base aromas market and differentiated portfolio of products are significant because they enable Exponent to tap into this growing market and accelerate FSI's growth.

Who advised on this?

  • Cravath Swaine & Moore advised IFF.
  • Allen & Overy advised Exponent.

🤝 Deals Time

Retirement Deals

Summary: Telecoms company Liberty Global, owned by American billionaire John Malone, has acquired almost 1.3 billion Vodafone shares, worth £1.2 billion, on the open market, which equates to 4.92% of Vodafone’s outstanding share capital. Liberty Global has stated that it has no plans to take over Vodafone. Vodafone's shares have dropped by almost a third over the past 12 months. The company has agreed to sell off its Hungarian subsidiary and is reportedly in talks to merge with rival mobile company HG Hutchison’s Three.

Key Points:

  1. The acquisition: Liberty Global’s acquisition of almost 1.3 billion Vodafone shares is significant because it gives Liberty Global a 4.92% stake in Vodafone’s outstanding share capital. This acquisition was opportunistic and presumably reflects Liberty Global’s belief that Vodafone’s current share price may not reflect the underlying long-term value of their operating businesses or their announced consolidation and infrastructure opportunities.
  2. Poor performance: Vodafone's financial performance has been underwhelming over the past year, with shares dropping by almost a third. The company has sold off its Hungarian subsidiary and is reportedly in talks to merge with rival mobile company HG Hutchison’s Three. These developments suggest that Vodafone is trying to restructure and refocus its business. The acquisition by Liberty Global may give Vodafone the necessary financial breathing space to continue with its restructuring efforts.

Who advised on this?

  • Shearman & Sterling has advised telecoms giant Liberty Global
Ludo Lugnani profile image
by Ludo Lugnani

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