The Data Series Part 3: Non-financial remedies in data disputes
With the increasing prevalence of data use audits, many data licensors are proactively trying to regularise licence compliance and shut down instances of data misuse…. Read more
With the increasing prevalence of data use audits, many data licensors are proactively trying to regularise licence compliance and shut down instances of data misuse. The primary driver will undoubtedly be revenue generation. However, as a sword, the threat to cut-off access to the data in question, or obtain an interim injunction to prevent such access, is a card that is often played by data licensors. As important, but often not given the same focus, is the data user’s option of deploying the interim injunction as a shield when faced with a threat to terminate access to data.
This article will explore when such non-financial remedies are available in data disputes and follows on from our first two articles on top tips for data licensees and damages for data misuse. The series will continue with articles focusing on practical tips for dealing with data audits, and drafting tips for data licences.
Who’s in control?
In considering when interim injunctions are available in data disputes, one of the fundamental issues will be which party is in control of access to the data in question. This is an important consideration and will dictate how quick and easy it will be for the licensor to take action and what route the licensor takes.
If the licensor controls access (for example, via a data feed provided to the licensee), then it should have the technical means to switch off access to the data, quickly and without cost. This may or may not be provided for in any applicable licence/terms and conditions. However, either way, in order to prevent the licensor shutting off access to the data, the user’s only option would be apply for an interim injunction to prevent such action.
On the other hand, if the user controls when and how it accesses the data (for example, if the data is obtained by scraping websites), or if the licensor does control access but believes that a licensee is misusing historic data already delivered to it, then the licensor will not have an easy remedy. In such circumstances, it would be licensor that would need to apply for an interim injunction to prevent further misuse of the data.
When will an injunction be granted?
Regardless of which party is seeking the interim injunction, under English law the test is the same. The applicant will need to show that:
- there is a serious issue to be tried;
- damages would not be an adequate remedy; and
- the balance of convenience lies in its favour i.e. the applicant will suffer more damage if the injunction is not granted, than the respondent will suffer if the injunction is granted.
Licensor seeking an injunction against the user
A serious issue to be tried?
In most scenarios where data misuse has been alleged by a licensor, there is likely to be a serious issue to be tried, as the licensor will normally be able to advance a reasonable argument that it has some sort of claim against a data user.
This is where the presence of a contractual relationship between licensor and user would assist the licensor, as it is likely to be easier to advance a claim for breach of contract than infringement of IP. This is especially the case if the alleged misuse is explicitly prohibited by the relevant contractual document.
Adequacy of damages and the balance of convenience
Therefore, the question of whether injunctive relief is available will depend on position in relation to parts 2 and 3 of the above test. The answers to those questions are normally intertwined and it will often be the case that one will affect the other.
In assessing whether damages would be adequate and where the balance of convenience lies, one needs to look at all the surrounding circumstances, such as how widely available the data is, whether the licensor has granted licences to third parties covering the misuse in question, the nature of the alleged misuse and the effect that it has (or will have if allowed to continue) on the licensor’s business.
Clearly, if it can be shown that the licensor does, as a matter of course, permit the type of misuse alleged by the licensor, for example because the licensor has standard pricing for it, then it will be very difficult for the licensor to show that damages would not be an adequate remedy. Extrapolating that further, the same would probably apply even if the licensor does not ordinarily grant licences of that type but would, for an appropriate fee, be prepared to do so.
However, the position becomes more complex in a situation where: (i) there is no precedent for the licensor granting licences covering the alleged misuse and (ii) the licensor can demonstrate a compelling reason why it would never grant such a licence (for example because it would enable a third party to create a competing product or service and is therefore likely destroy the licensor’s business model). In that scenario, it is much more likely that damages would be either be very difficult to calculate and/or that no amount of damages could compensate the licensor for the alleged misuse. It is a separate consideration, but it follows that there would also be a very good argument that the balance of convenience must lie with the licensor.
That said, it is also important to consider the effect of the injunction on the data user and its business. By way of illustration, if the data was used in products that are traded on financial markets, an injunction might have a catastrophic effect on the relevant markets and on other third parties (brokers, traders, etc). In that scenario, despite the alleged misuse having a significant effect on the licensor, a Court may well hold that the balance of convenience lies with the user and that it should not be stopped from using the data in question.
It follows that the assessment of whether an injunction should be granted can be difficult and complex. This is particularly the case where data is allegedly misused in a way in which downstream products, services and markets, or other third parties, are affected.
The cross-undertaking in damages
The question of whether the injunction test can be met is not the only consideration for a data licensor. In making an interim injunction application, the licensor must give a cross-undertaking in damages. This is a mandatory requirement when seeking an interim injunction and is, in effect, a promise to pay damages in respect of the losses suffered by the respondent if the injunction is later found to have been wrongly granted.
Clearly, this could be a significant issue for data licensors, especially in cases where the alleged breach of contract and/or infringement of IP is not clear cut. The degree of risk that the cross-undertaking presents will obviously depend on the nature and size of the data user’s business, how important the relevant data is and the impact that loss of the data will have on the data user’s revenue streams. The greater the impact, the greater the risk will be for the data licensor. The licensor will need to weigh up the overall strength of its case and the strategic benefit that would be gained by obtaining the injunction, against the risk of eventually losing the case and the likely scale of damages if the cross-undertaking is triggered. This may not always be enough to dissuade a licensor from seeking an injunction, but it should be a material consideration.
User seeking an injunction against the Licensor
The interim injunction is often seen as a licensor’s tool – a weapon to force data users into licence compliance. However, it can also be utilised as a shield by data users, for example to prevent a licensor from proceeding with a threat to cut-off access to data.
This scenario is only likely to arise where there is a contractual relationship between the parties, in particular where there is a licence in place. Faced with a threat to cut-off access to the data, the licensee is likely to respond by arguing that doing so would constitute a material (and possibly) repudiatory breach of the relevant agreement; and the licensor must therefore be stopped from doing so.
A serious issue to be tried?
The terms of the relevant agreement are going to be central to the question of whether there is a serious issue to be tried. The nature and flagrancy of the alleged misuse are important considerations. However, the key question will be whether the relevant agreement gives the licensor the right to cut-off access to the data. This is of course a very common clause in commercial data licences, however, the parties would need to look at whether the licensor is contractually entitled to exercise the right as a result of the alleged misuse. Although a common clause, it can come with evidential burdens, be an objective (rather than subjective) test, and/or sometimes have a remedy period. However, if the contractual right to cut-off access to the data has not been triggered (or there is doubt about it), or where no such right exists, the licensee will have a much stronger argument that there is a serious issue to be tried.
Adequacy of damages and the balance of convenience
Whether damages would be an adequate remedy will be a question of fact and a licensee will need to adduce evidence of why damages are difficult to quantify.
This should normally be relatively easy for a licensee, unless there is a clear and direct correlation between use of the data and revenue generation (such that financial loss would be easy to calculate). However, even then, there may be other factors which would need to be taken into account including, for example, impact on share price as a result of falling revenues.
As to where the balance of convenience lies – the considerations are essentially the same as set out above in the case of a licensor seeking an interim injunction against a licensee. The licensee will need to show that the impact on its business will be more significant than the impact on the licensor if it is prevented from cutting-off the licensee’s access to the data, such as being unable to fulfil downstream contractual obligations, or having to pull products from the market.
Cross-undertaking in damages
As with a licensor’s application for an interim injunction, the licensee would also need to give the licensor a cross-undertaking in damages. This would compensate the licensor in respect of the losses that it suffers as a result of being prevented from cutting-off the licensee’s access to the data, if the injunction is later found to have been wrongly granted.
The financial risk that the licensee exposes itself to will depend on the size of the licensor’s business and the nature of its use of the data in question. If the licensor is a large organisation and the licensee’s use of the data is destroying the licensor’s business model, then the potential exposure is huge. In such circumstances, the licensee will need to be very confident in its case before seeking an injunction. On the other hand, if the impact on the licensor’s business is not particularly great, then the risk that the cross-undertaking presents might be manageable.
It’s fair to say that no data licensor would want to take legal action against its customers for data misuse, or have a customer take action to prevent it cutting-off access to the data, as such steps may irrevocably damage the relationship between licensor and licensee. Further, licensors be reluctant to have the validity of the IP rights in their data tested in Court.
Therefore, in most cases, any threat to obtain an injunction to prevent data misuse, or to cut-off access to data, will be a strategic ploy by the licensor to encourage the data user to enter into a settlement in respect of the alleged misuse. However, given the importance of some data supply arrangements and the potential for damage to be caused to licensor business models, there will be some circumstances where the threat is very real. In those situations, data users will need to tread very carefully in terms of how they deal with a licensor’s demands.
Feel free to reach out on areas you would specifically like to see covered.
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