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This Update deals with an interesting determination of the Court of Appeal before Lord Justices Lewison, Asplin, and Arnold where they overturned a finding of anticipation (lack of novelty) made by Justice Mellor in the High Court.
The appeal was for Technical Trial B, one of a number of trials between the parties relating to standard essential patents (SEPs) and FRAND. The patent in suit (European Patent (UK) No. 3,355,537) related to a procedure for selecting an upper limit on the amount of data transmitted by a mobile device. Mellor J held that the claimed invention mapped to the 3G standard and was therefore essential and infringed by Lenovo.
Claim 5 was a method claim, including the step of
“limiting [data multiplexed into a data unit], to the largest [one of a group of pre-set sizes] that is smaller than [an amount of] data allowed by [grants] and available for transmission”
Claim 1 was an apparatus claim, directed to a “means for” performing the limiting, the limiting being described using the same language as claim 5. The use of ‘means for’ language in a patent claim is now relatively uncommon due to the very narrow construction applied in the US. In this UK case, it was common ground at appeal that this should be interpreted as means “adapted for” or “programmed to”.
The Prior Art
The prior art (“Filiatrault”) was a proposed revision to the then-current version of the technical standard (TS) 25.309 v6.2.0 and alleged by Lenovo to anticipate the claims. Although, in certain circumstances, the processing described in Filiatrault would result in the same outcome (amount of data) as the claimed procedure, Filiatrault did not select a pre-set size in arriving at a limit.
Anticipation and Claim Construction
At first instance, it was held that the claims lacked novelty over Filiatrault based on a construction of ‘means for’ in the apparatus claim (and the corresponding method step) which required only the outcome to match: Mellor J stated that “it is satisfied by any means which bring about the stated result”. He found that it was therefore not necessary that the outcome was reached using the specific approach recited in the claim, and the claim was therefore anticipated by the scope of the disclosure of Filiatrault.
The Court of Appeal decided two key issues as follows:
1. ‘Means for’
First, the language ‘means for’ did not require the means to be used all the time because “the method claims plainly cover use of the method some of the time even if it is not used at other times, and … it follows that the apparatus claims should be interpreted in the same way”.
At first instance, it was determined that the method of claim 5 is not used all the time, meaning that the data limit specified by the standard would not always match the data limit determined according to claim 5. Thus, as at first instance, the assessment of this “temporal issue” was answered by reference to the method claim.
2. Same construction for method and apparatus claims
Second, agreeing with InterDigital, both the apparatus and method claims should be construed to require that the particular one of the pre-set sizes is selected and used in the limiting: “it is not sufficient that, at the end of a process, the … data happens to fit within the [pre-set size selected according to the claim]”. On the contrary, the claim requires “the [pre-set size] to be identified (or selected or chosen) and used to limit the … data”.
Lenovo had argued that this construction involved writing words into the claim. It further argued that it would make sense to direct the claim only to the result and not the specific manner in which it was obtained, because the standard specified only what was ultimately transmitted over the air (i.e. the result), and the patentee would not have wanted to restrict the scope of the claim to a particular method. These arguments were not persuasive. Rather, the Court of Appeal pointed to
The Court of Appeal also found it helpful to refer to the principle set out in Virgin Airways Ltd v Premium Aircraft Interiors UK Ltd, that where prior art is acknowledged in the patent (in this case, by reference to the standard on which Filiatrault was based), “the court should lean against a construction” which would cover that prior art.
On this construction, Filiatrault (which only ‘incidentally’ arrived at the correct result, some of the time) was found not to anticipate the claims, thus overturning the first instance decision of Mellor J. The Court of Appeal noted in particular that at first instance, Lenovo’s expert witness confirmed that, in Filiatrault, “the UE would limit the amount of [data] to be within the [size]”. This was considered to be “a sleight of hand in the cross-examination”, as the expert was not asked whether the size was used to limit the amount of data.
Holding that the first instance decision on Infringement/Essentiality was based on a claim construction not materially different from this claim construction, the Court of Appeal confirmed that, if valid, the patent was infringed and essential.
Court Entitled to Revisit Claim Construction
There was a dispute as to whether the construction advanced on appeal by InterDigital (which required the pre-set size to be selected) was a new one or not. InterDigital contended that it was not new, and relied on the report and cross-examination of Lenovo’s expert at first instance, which was said to be consistent with the construction relied upon at appeal.
Construction is a matter for the court, and expert evidence on construction per se is not admissible. However, as Arnold LJ explained “[i]t is nevertheless often appropriate, and indeed necessary, for the experts to set out their understanding of the meaning of the claims, because the opposing side and the court need to know the interpretation upon which the expert’s evidence as to issues such as novelty and obvious[ness] is premised”.
Upon the finding that Lenovo’s expert had understood the claim in a manner consistent with InterDigital’s construction, it was held that the construction was not new and that Lenovo could not be prejudiced by it being advanced on appeal.
The Court of Appeal therefore affirms in this decision that it is entitled to revisit a claim construction issue, by reference to evidence given at first instance and without the need for further evidence.
Link to judgment: InterDigital v Lenovo  EWCA Civ 105
The appellant ("Instagram") appeals against a decision (“the Decision”) of George Salthouse, a hearing officer of the UK Intellectual Property Office (the "Hearing Officer"). The Hearing Officer allowed the word mark "Soundgram" (the "Soundgram Mark") to be registered as a trade mark in Class 38 for services such as telecommunication services, despite Instagram's opposition. The Decision was made on 25 January 2022.
Instagram is the proprietor of two word trade marks; (i) UK00003123325 ("INSTAGRAM") registered on 15 January 2016 and (ii) 017632729 ("GRAM") registered on 23 March 2019 (together the “Instagram Marks”). The respondents in the case (“Meta 404 Limited”) applied to register the Soundgram Mark on 28 July 2020. Instagram opposed the Soundgram mark, relying on ss5(2)(b) and 5(3) of the Trade Marks Act 1994 (the "Act").
Key conclusions made by the Hearing Officer in the Decision
With regards to s5(2)(b), the Act states that:
"A trade mark shall not be registered if because it is similar to an earlier trade mark and is to be registered for goods or services identical with or similar to those for which the earlier trade mark is protected, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association with the earlier trade mark”.
1.Similarity of the Instagram Marks to the Soundgram Mark
When considering the similarity of the INSTAGRAM and GRAM marks to the Soundgram Mark, the Hearing Officer concluded that both were similar to the Soundgram Mark to only a low degree. His conclusion came from consideration that while both INSTAGRAM and Soundgram ended with the suffix "-gram" the first five letters of the two marks were completely different.
With regards to examining likelihood of confusion on part of the public, the Hearing Officer examined the characteristics of the "average consumer" of the parties' goods and services and the manner in which that average consumer would make purchasing decisions. The Hearing Officer concluded that the average consumer would be the "general public including businesses” and that they would be likely to pay "above average" attention to their purchase.
The Hearing Officer also looked towards the distinctiveness of the Instagram Marks. When looking at GRAM at the end of each mark the Hearing Officer concluded there was low distinctiveness as it only conveys that the mark involves a messaging service such as a “Telegram or kissogram”.
With regards to s5(3), the Act states that:
“A trade mark which is identical with or similar to an earlier trade mark, … shall not be registered if, or to the extent that, the earlier trade mark has a reputation in the United Kingdom and the use of the later mark without due cause would take unfair advantage of, or be detrimental to, the distinctive character or the repute of the earlier trade mark”.
Instagram relied only on the INSTAGRAM mark in its opposition under s5(3). The Hearing Officer noted that the Soundgram Mark would need to “call to mind” the INSTAGRAM mark, however he was not content that this was satisfied. The Hearing Officer noted that the opposition date was 28 July 2020 and that at this time, Instagram had “reputation in its mark INSTAGRAM in relation to its renowned photo/video sharing and editing services, software application and social network […]”. The Hearing Officer acknowledged that Instagram’s services were identical to those of Meta 404 Limited. Ultimately, however, he decided that “the only point of similarity is the element GRAM at the end of each mark which is of low distinctiveness” and the marks did not form a link as “they are so different that they do not rise even to the "bringing to mind" stage.”
For the reasons set out above, the Hearing Officer rejected Instagram’s opposition and allowed the Soundgram mark to be registered.
Instagram appealed against the Decision on the following grounds:
This focussed on the GRAM mark. Instagram submitted that the Hearing Officer erred in his assessment of the distinctiveness of the GRAM mark. Counsel acting for Instagram alleged that the “error of principle" … was one of "perversity": no reasonable hearing officer could have reached the Hearing Officer's conclusion on the basis of the evidence and submissions before him”. The Judge, Mr Justice Richards, stated that “that formulation of the challenge presented a high obstacle for Instagram to overcome since the court will not lightly assume that an expert tribunal, making evaluative determinations in a specialist field, will have gone so wrong as to reach a perverse conclusion.”
Instagram argued that the GRAM mark had at least average inherent distinctiveness as the word gram is understood to be a unit of mass and is therefore in no way descriptive of telecommunications services. Richards J found it reasonable that the Hearing Officer considered other uses of the word “gram”. The Hearing Officer focused on the suffix use in “telegram” and its allusiveness to the telecommunication services. Instagram argued that the Hearing Officer should have also considered other suffix uses such as “histogram” which do not allude to telecommunication services. Richards J confirmed that the Hearing Officer was not obliged to set out all possible suffix meanings considered.
The Court considered dictionary evidence provided by Instagram. This evidence included use of the word “gram” in the online Urban Dictionary and the Cambridge English Dictionary. Instagram argued that the Hearing Officer was wrong to downplay the significance of some of this dictionary evidence due to it being undated. Further, some media evidence was submitted included a transcript from the Graham Norton show which referred to "gram" and reference to the title of the Craig David song “For the Gram.” This evidence was to signify that people intending to refer to Instagram's products could make themselves understood by referring to "the gram".
Richards J agreed with the Hearing Officer’s conclusion and was not persuaded that Instagram had satisfied him that the mark GRAM had enhanced distinctiveness through use on basis of the media evidence.
Richards J concluded that the Hearing Officer’s conclusion was not perverse and therefore rejected Ground 1.
Instagram argued that the Hearing Officer erred in concluding that the GRAM and INSTAGRAM marks were similar to the Soundgram Mark only to a low degree. Specifically, Instagram suggested that the Hearing Officer did not explain what was the dominant and distinctive character of the two marks, the similarity of the “-gram” suffix was not taken into account and the prefix “Sound” is allusive to telecoms and combined with “gram” has a greater effect on similarity.
Richards J stated that the “overall conclusion and reasons are clear from reading the Decision as a whole” and that Instagram’s submission was “unduly to “pick-over” the words of the Decision”. Richards J did not think that Instagram's argument based on the prefix "Sound" was so strong as to compel the conclusion that the two marks were similar to a medium to high degree.
Ground 2 was therefore dismissed.
Instagram argued that The Hearing Officer's conclusions as to the characteristics of the average consumer and the degree of attention that the average consumer would pay to a purchasing decision were flawed. Instagram argued that there are customers who wish to receive free telecom services such as free apps or pay as you go services. Instagram suggested that customers who download free apps are likely to take risk-free decisions and therefore pay a low level of attention.
Instagram also stated that they have over a billion users worldwide and the trade mark “INSTAGRAM” is renowned. The Hearing Officer should have taken into account that the customers of both parties are likely to be similar and the “average consumer” should not have been treated as a single person but instead a full range of possible consumers.
Richards J stated that whilst Instagram's arguments may have had plausible grounds on which the Hearing Officer might have made a different decision, they did not satisfy the Court that the decision he did make was "plainly wrong" or vitiated by any error of principle.
The appeal on Ground 3 was therefore rejected.
Instagram stated that the Hearing Officer's errors under Grounds 1 to 3 led him to make a flawed finding that "likelihood of confusion" was not present.
Richards J confirmed that as Grounds 1 to 3 were dismissed, Ground 4 also failed.
Instagram argued that the Hearing Officer erred in finding that the Soundgram Mark would not even bring to mind the INSTAGRAM mark.
Instagram stated that “the Instagram mark will be called to mind by a substantial section of those consumers” when taking into account the fact that “the services are identical, the high inherent distinctive character, the enhanced distinctive character acquired by reason of use, [and] the repute of the mark”.
Richards J agreed that the argument had force but, even if the Hearing Officer could permissibly have reached a contrary conclusion, it did not make the decision he did reach "perverse".
Ground 5 failed and therefore the entire appeal was dismissed.
It could be said that Instagram gave themselves too high a hurdle to jump by alleging that the Hearing Officer’s decision was “perverse”. As noted by Richards J, the Court will “not lightly assume that an expert tribunal, making evaluative determinations in a specialist field, will have gone so wrong as to reach a perverse conclusion”. When summarising his conclusions, Richards J occasionally agreed that Instagram had put forward a reasonable argument, but this was regularly then rejected by concluding that whilst the Hearing Officer may have been able to reach a contrary conclusion, his decision was not perverse enough to be overturned.
Richards J iterated in the Judgment that “appellate courts have repeatedly, and recently, been warned that they should not lightly interfere with factual findings of a first-instance tribunal”. This principle has also been recently confirmed in the case of Volpi v Volpi  EWCA Civ 464. Richards J was clear that he would also bear in mind the approach taken in the Reef Trademark case that “an appellate court should show "real reluctance" but not the "highest degree of reluctance" to interfere with a hearing officer's conclusions on multi-factorial assessments.”
With these approaches already showing hesitancy to interfere with findings of first instance tribunals and hearing officers, it is not surprising that Richards J would take real reluctance in concluding that the Hearing Officer’s Decision was incorrect, much less “perverse” as put forward by Instagram.
Written by India Badini.
 More precisely, a predecessor in title of Meta 404 Limited called EE&T Limited made the initial application to register.
This Wednesday (March 15) we welcomed clients and contacts to the beautiful Opera Terrace (Operaterrassen) for an afternoon of topical sessions followed by drinks and canapés. The event marked six months since the opening of EIP’s Stockholm office, our first office in the region. On a bright and clear day in Stockholm the venue offered stunning panoramic views across the water to sights such as the Royal Palace and Grand Hotel.
Guests enjoyed talks on topical subjects of generative AI, semiconductors, UPC, and IP sustainability. There sessions raised many questions from guests and provided lively discussion which continued into the evening. To read recent articles on semiconductors click here, and to read more about UPC litigation visit EIP Amar.
Head of EIP’s Sweden office Inga-Lill Andersson comments: “It was lovely to be able to host this event and for myself and my colleagues to meet contacts in person. The sessions touched upon many hot topics and gave attendees an insight into the expertise at EIP.”
Entertainment One UK Limited & Anor v SCN Media Ltd & Ors  EWHC 3295 (Ch)
A seemingly global battle has begun between the owners of Peppa Pig and the makers of Wolfoo.Russia recently refused a trademark application for Wolfoo following objections from Entertainment One and the makers of Wolfoo are rumoured to be lobbying the Vietnamese government to prevent its cartoons from being taken down on YouTube.
The main battle ground seems to be the UK where proceedings initially got off to a slow start following procedural complaints raised by the Defendants, Wolfoo. However, at the end of last year the High Court delivered a judgment which should now allow the proceedings to begin in earnest.
The Claimants are the owners of Peppa Pig works, including the visual representations of Peppa Pig and the scenery and backgrounds to each Peppa Pig episode. Episodes of Peppa Pig are broadcast over the internet on various channels and in January 2022 Peppa Pig had 84 million subscribers worldwide of which 1.85 million were from the United Kingdom. The Claimants also own three relevant UK registered trademarks, and three EU registered trademarks.
The First and Second Defendants (Vietnamese and US entities) produce and transmit the Wolfoo cartoons. The Fourth Defendant, an individual, is involved in the management of both. They deny targeting the UK market, saying that the UK represents 3% of their total viewers. The Third Defendant is an English company, which has been struck of the register and played no substantive part in the proceedings.
The Claimants allege copyright and trademark infringement and passing off by the Defendants, including by:
Claimants' application regarding service by email
In pre-litigation correspondence, the solicitors acting for the Defendants stated that they would accept service by email and provided two email addresses for this purpose.Some months later, on 24 January 2022, a Claim Form and Particulars of Claim were sent by e-mail to the Defendants’ solicitors using the email addresses provided.Receipt was confirmed and fourteen days later the Defendants filed an acknowledgment of service indicating that the Defendants’ intend to contest jurisdiction.
However, subsequently the Fourth Defendant instructed his solicitors “to withdraw its consent to electronic service and asked them to respond to [solicitors for the Claimants] requesting service in the respective jurisdictions”. The Defendants’ solicitors then wrote to the Claimants’ solicitors informing them that their client had requested that service be made directly to the Defendants and that they were no longer instructed to deal with the documents that had been sent by email on 24 January 2022.
The Defendants brought an application for a declaration that the English court did not have jurisdiction over the claims or that it should not exercise that jurisdiction as a) service had been defective and b) “the Defendants do not target the UK market”. The Claimant then made an application seeking a declaration that service of the claim form by email had been effective and in the alternative an order for service by an alternative method.
Part 6.7(1) of the Civil Procedure Rules governs service on a solicitor, providing that where a solicitor has indicated that they are instructed to accept service, the claim form must be served at the business address of that solicitor. That is supplemented by CPR 6.3(1)(d), which provides that a claim form may also be served by“fax or other means of electronic communication in accordance with Practice Direction 6A”.
Practice Direction 6A provides, in relation to service by email that where a document is to be served by fax or other electronic means the party who is to be served or the solicitor acting for that party must previously have indicated in writing to the party serving that the party to be served or the solicitor is willing to accept service by fax or other electronic means; and the e-mail address to which it must be sent.
PD6A 4.2 provides:
Where a party intends to serve a document by electronic means (other than by fax) that party must first ask the party who is to be served whether there are any limitations to the recipient’s agreement to accept service by such means (for example, the format in which documents are to be sent and the maximum size of attachments that may be received).” (emphasis in the judgment)
The Defendants argued that service in this case was not valid as their own solicitors had provided more than one email address and because the Claimants’ solicitors had not enquired about limitations on the agreement for email service. The judge considered the authorities on the requirements of PD6A and commented “the fact of non-compliance with the letter of PD6A means that the Court is left to grapple with prickly issues that are likely to lead to a delay and encourage unnecessary litigation”.
The judge noted “The language used in PD6A is mandatory but the task for the Court is to focus on the consequences of failure”.He held it would be wrong to imply into the wording of PD6A paragraph 4.2 that a failure to inquire about limitations would be fatal to service and stated “[i]n my judgment where a solicitor is on the record and signals acceptance of service by electronic means without providing any limitation, it is reasonable to infer that there are no limitations that are out of the ordinary” but “[i]f there has been a failure to ask about limitations, the risk of service not being achieved is firmly on the shoulders of the serving party.”
In relation to the provision of multiple email addresses for service, the judge noted that to force the parties to use just one e-mail address for service, as had happened in the recent decision of Tax Returned Ltd  EWHC 2515 (Admin), may have unintended consequences and heheld “the insistence that service can only be effected by one e-mail address represents on any view an over-technical interpretation that pays insufficient regard to the Interpretation Act”.
He went on to give his view that this required the court to consider whether the purposes of service had been achieved.This includes the receiving party knowing that they have been served with the Claim Form, rather than that they have just been informed about it.The judge held that in this case the purposes had been met and concluded that there had been valid service.
There are significant difficulties associated with the protection of intellectual property on the Internet. One issue is whether a party’s intellectual property is being infringed in the UK by work on the internet.A key element in determining this is whether the potentially infringing act ‘targets’ consumers in the UK.
The judge reviewed the case law regarding the term “targeting”, noting that the term “targeting” is recognised as unhelpful. He quoted Arnold LJ’s observation in Lifestyle v Amazon  EWCA Civ 552 at : “The issue is whether there is “use”of the sign in the relevant jurisdiction.In making that assessment, it is important not to be distracted by the label of “targeting”.
Having assessed the evidence of the Defendants’ actions in the present case, the judge concluded that there was clear evidence that there had been “use” in the UK as viewed through the eyes of the average consumer, that the average consumer would conclude that the Defendants themselves consider the market for their creative works as including the UK andthat the courts of England and Wales are seized of jurisdiction.
The judge also considered whether there was a forum would provide a better alternative to the courts of England and Wales, the Defendants arguing that Vietnam is such an alternative. The judge considered the two limb test in The Spiliada  1 AC 460.The first limb requires that the Defendant must establish that an alternative court is both available and clearly and distinctly more appropriate.The case law also explains that the burden of proof on the first limb lies with the Defendant and if it is not satisfied, then the enquiry should stop there.
The judge held that the Defendants had not shown that the courts of Vietnam are “available” in the requisite sense or that Vietnam is clearly or distinctly more appropriate. The judge held England and Wales was the appropriate forum and the reasons he gave included that the Claimants' goodwill, copyright and trademarks could not be effectively protected outside the UK, and damage to goodwill and other losses claimed have occurred in England and Wales.
We will watch the UK proceedings with interest as it will be interesting to see who the court finds to be the ‘average consumer’ of Peppa Pig. If the average consumer is found to be young child it will be interesting to see what the impact is, as they might readily distinguish Peppa from Wolfoo and give no thought to commercial origin!
Written by Alona Andrieieva with Angela Jack
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On 3 February 2023, the Court of Appeal in England ruled that the dispute between the Claimant, Tulip Trading Limited (“Tulip Trading”) and the Defendants, who are sixteen bitcoin developers involved with the development of blockchain software underlying digital currency assets (the “Developers”), should proceed to trial on the basis that the facts show there is a serious question to be tried. In doing so, the court decided that a claim against the Developers based on breach of their fiduciary or other duties to users of that technology was arguable on the facts.
It is important to appreciate that this decision is not determinative of the issue – it was a decision relating to an interim application to serve proceedings out of the jurisdiction because all of the Developers reside overseas. But, for the reasons set out below, it is of great interest to the blockchain and crypto asset communities.
The dispute relates to the question of whether fiduciary duties and duties in tort (in particular a duty of care) are owed by the Developers to those using the software they develop for holding and trading in cryptocurrencies. Tulip Trading claimed that it owned approximately $4 billion worth of Bitcoin, on a variety of networks run by the Developers. Tulip Trading claimed its access to that Bitcoin was lost (likely stolen) following a hack on the home computer of its CEO, Dr Craig Wright (who disputedly claims to be the identity behind the pseudonym Satoshi Nakamoto – inventor of Bitcoin and by extension blockchain-based cryptocurrency in general). As a result of the hack, private encryption keys needed to access the Bitcoin claimed to be owned by Tulip Trading were deleted; there is no other method available to Tulip Trading to take steps to recover the Bitcoin. Following Tulip Trading’s loss of access to the private encryption keys, Tulip Trading, as the true owner of the Bitcoin, brought a claim against the Developers, claiming that the Developers owe Tulip Trading fiduciary and/or tortious duties to restore Tulip Trading’s ability to access and use the digital assets which they could do by transferring the assets to another online wallet under their control. The Developers deny they have the power or control to do this.
This case is the first-of-its kind to consider the existence and scope of fiduciary duties or duties of care in the context of cryptocurrency software development. As such, the outcome of the trial (and expected appeals) will be of significant interest with wide-ranging implications to the world of digital assets and will be watched closely by the international crypto community.
Issues to be addressed by the trial of this claim
At the first instance, Mrs. Justice Falk was persuaded that there was no serious issue to be tried. In other words, she decided that there was no realistic possibility that a court would decide that the Developers owed fiduciary and other duties to Tulip Trading on the case pleaded. However, the Court of Appeal unanimously reversed Falk J’s decision, finding that the facts of the case gives rise to a “serious issue to be tried”, and Lord Justice Birss, in giving the unanimous decision of the Court of Appeal, concluded his judgment by saying that if Tulip Trading is right that the “decentralised governance of bitcoin is a myth, then in my judgment there is much to be said for the submission that bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property”.
The basis for this view is that such developers have, in their role as the engineers of such technology, the power to exercise authority given to them by their control of access to the source code to make decisions which affect the users of that technology. The Bitcoin can be said to have been entrusted to their care and, As a result, It was arguable that the Developers had duties to put the interest of bitcoin owners as a class ahead of their self-interest. As a result, this duty might encompass a duty to make changes to the underlying code in a manner which permitted the transfer of digital assets in circumstances such as those alleged by Tulip Trading.
At the heart of this dispute are two key questions:
(1)Are digital currency networks in fact decentralised?
This case is the first time that the English court will need to examine the concept of decentralisation. Decentralisation in the context of blockchain technology is the replacement of traditionally centralised functions, such as the validation of transactions and other elements of control and decision-making from a centralised entity (e.g., individual or group), by a democratic process in which a distributed network of users must agree on any proposed change. Proponents of decentralised networks claim that the intention behind the structure is to reduce the level of trust that participants must place in one another and deter their ability to exert authority or control over one another in ways that degrade the functionality or integrity of the network. If this decentralised structure effectively prevents developers from independently making changes to the network, then the developers do not have control of the networks, and, as such, could not owe a fiduciary duty to the users of that technology. In the contrary, if decentralised governance of bitcoin is actually a myth, then it is arguable that the claimed benefits of decentralisation (e.g., immutability and anonymity) fall away. In order to address this question, the court referred to international academic literature. In particular, the court highlighted that the paper entitled "In Code(rs) we trust: Software Developers as Fiduciaries in Public Blockchains" by Angela Walch provides independent support of Tulip Trading’s view that it is a myth. It will be interesting to see whether the court will look more extensively at the views of the international crypto community when addressing this point at trail, especially as that community seems divided on this point.
(2)Does the development of a digital currency network give rise to fiduciary and/or tortious duty?
Under English law, the key characteristics of fiduciary duties are that a person “has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”.[i] Therefore, the question for the court to determine at trial is whether the developers of a given network have control of the underlying blockchain source code and have the ability to re-write it and, if so, whether that gives rise to a relationship of trust to the bitcoin owners. If this is the case, the Developers’ failure to take those steps could amount to a breach of duty justifying an order mandating the software amendment or, in the alternative, equitable compensation.
A decision in the English courts that a blockchain network can be controlled by the engineers that operate it and, as a result, such engineers owe duties to those that use the technology will have considerable and wide-ranging repercussions around the world– it is certain that the outcome of this question will be one that is watched closely internationally; if such a duty is found at trial, the decision could result in many claims for breach of fiduciary duties by victims who have had their digital assets lost or stolen as a result of a hacker’s unauthorised access to crypto networks.
This judgment has already triggered significant international debate. This is not just because the case is the first-of-its-kind concerning fiduciary duties in the context of cryptocurrency assets from an English court; it is also interesting because of the multi-jurisdictional nature of the dispute and more generally the possible repercussions globally for software developers of digital assets. If Tulip Trading is successful, the contractual framework (or lack thereof) of the development of such networks will likely need a complete overhaul so that the risks involved are allocated in a manner acceptable to system providers and users. How this might be done will be of interest as well – will the market decide or will the issue need to be regulated at a governmental or supra-governmental level - and what part could consumer protection laws play?
Another interesting point relates to Mrs. Justice Falk’s judgement at first instance that the distinguishing feature of a fiduciary relationship is the obligation of “undivided loyalty”. The judge found that Tulip Trading’s demand that the Developers re-write the source code resulted in divided loyalties. This is because it was solely for the purpose of enabling Tulip Trading to access its private key and was not for the benefit of the networks’ users more broadly. Accordingly, the court at first instance ruled that a duty of loyalty could not arise in favour of Tulip Trading to the "exclusion of the interests" of other users. The Court of Appeal acknowledged this point but, looking at this power of control more objectively, the court noted that the Developers had control of the choice whether to act or not, and that this could give rise to the concept of a fiduciary duty. It also pointed out that it was not uncommon for trustees with fiduciary duties to have to make decisions which might favour one beneficiary over another.
Lastly, the court, after accepting that it had the jurisdiction to hear the case, held that the law of the state where assets are located for the purposes of cryptocurrency is likely to be the place where the owner is resident, not where they are domiciled. This could be relevant for determining the governing law and jurisdiction applying to other disputes relating to digital asset in the future.
In a follow-up article, our colleagues at EIP will take a closer look at the central issue of the upcoming trial from a technical perspective, namely whether an individual or group can be said to have de-facto control over a cryptocurrency network (question (1) above).
[i] See the leading case of Bristol & West Building Society v Mothew  Ch 1, 18