Inventors Friend Ltd v Leathes Prior (a firm)

A solicitor’s duty is measured by the ordinary standard of care applicable to the work undertaken. A limited retainer or fixed fee does not ordinarily reduce that standard. A commercial solicitor reviewing an intellectual property agreement should recognise that rights may be disposed of by licensing, assignment or other means, and should draft accordingly where the agreement provides protection on a disposition. Where breach depends on a third party’s hypothetical agreement, causation is assessed on a loss-of-a-chance basis. A breach does not generate substantial damages without proof of consequential loss.

The claimant instructed the defendant solicitors to review a distribution agreement for a newly invented adhesive applicator. The agreement gave the claimant a percentage of the price received on a sale of the intellectual property rights, but did not cover licensing and narrowed the period during which payment could be triggered.

The claimant alleged negligence concerning both compensation for lost profits following termination and protection against a sale or licensing of the intellectual property. The court also considered whether the drafting defects caused recoverable loss after the rights were licensed to a third party.

1. Retainer and standard of care. The retainer was to review the agreements and address specified key concerns. Although the budget was limited, the defendant remained obliged to perform the work to the ordinary standard of care expected of a normally competent solicitor. A solicitor undertaking work for a specific fee is generally required to complete it to that standard even if the work becomes unremunerative.
2. Loss-of-profits issue. There was no actionable breach in relation to the amendments making lost-profit compensation subject to the termination provisions and agreement by the company. The solicitor had informed the claimant that the amendments weakened its position. The limitation of liability clause did not exclude sums expressly payable under the other contractual provisions.
3. Intellectual property issue. The solicitor was negligent in confining the protection clause to a sale of intellectual property rights. A competent commercial lawyer should recognise that such rights may be disposed of by licensing or assignment, without requiring specific instructions on every form of disposition. The solicitor also should have preserved the original protection applying whenever the rights were disposed of, rather than limiting it to a disposition before or concurrent with termination.
4. Causation and loss. Applying Allied Maples v Simmons & Simmons [1995] 1 WLR 1602, there was a 90 per cent chance that the inventors would have accepted properly drafted terms. Nevertheless, the licensee paid no upfront consideration, made insignificant sales and paid no further sums. The claimant therefore suffered only nominal loss.
5. The claim was dismissed.