As with most other industries, the potential impact of Brexit on the UK film industry is still very uncertain, with much depending on the type of Brexit which the UK government decides to implement. We set out below some of the key threats and opportunities that Brexit may present for the UK film industry.
Loss of EU funding
Perhaps the biggest threat facing the UK film industry is the potential loss of EU film funding. The UK film industry benefits from a wide range of EU funding programmes, including the Creative Europe Programme and Media Programme. Any loss of EU funding could be very damaging to the UK film industry and the UK government is likely to face enormous pressure to replace it.
British content less attractive to European broadcasters
Some EU countries impose quotas on the amount of European content their TV broadcasters must show. In the past, such quotas have led to an increased demand for UK films and television shows. If the UK leaves the EU and therefore UK programming no longer counts towards these quotas then UK content may become less attractive to broadcasters in the future.
Restrictions on non-UK talent
The effect of Brexit on free movement of people will depend on the manner in which Britain exits the EU. If free movement of people is restricted after Brexit, then the imposition of additional visa requirements or work permits may deter producers from filming in the UK, because of the administrative headaches of having to apply for multiple visas for non-UK talent. Furthermore, non-UK talent such as actors, technicians and writers could be prevented from contributing to UK film productions.
Co Production Treaties
Co-productions between UK and EU countries are governed by the European Convention on Cinematographic Co-Production (ECCC). There is a question whether, post-Brexit, UK productions will continue to be classified as European productions, thereby enabling UK co-productions to be classified as a “European work”. It is generally expected that Brexit will not have an effect on the ECCC, which involves the Council of Europe, as opposed to the EU. Conversely, the UK’s current treaty with France may require to be renegotiated, as it is currently underpinned by EU legislation.
Rise in homegrown talent
The addition of visa requirements or work permits for non UK talent could lead to an increase in producers engaging UK talent, rather than bringing over whole teams of talent from overseas.
UK more cost effective
Films are primarily financed in dollars so if the Pound continues to lose its value, then films will become cheaper to shoot in the UK. As a result, the UK may become more attractive as a film location, due to the corresponding reduction in costs such as wages, equipment and location hire, accommodation etc.
UK Film Tax Relief
EU rules on state aid and distortion of competition currently prevent the UK from favouring British productions through UK film tax relief. Leaving the EU would allow the UK government to promote/encourage British productions by introducing more favourable tax credits. This could result in increased output from home grown filmmakers.
Brexit poses a whole host of uncertainties for the UK film industry. Whilst there may well be some immediate benefits to the industry, particularly as a result of the recent fall in the Pound’s value, the corresponding threats faced by the industry in the future have the potential to reverse its recent growth.
The High Court’s recent decision in Lachaux v Independent Print Ltd (and Ors) on the construction of the “serious harm” requirement in section 1(1) of the Defamation Act 2013 (“DA 2013”) provides welcome clarification on the new thresholds introduced by DA 2013 for defamation claims.
In Lachaux, the court had to decide, as a preliminary issue, whether certain articles published in the defendant’s newspapers had caused, or were likely to cause, serious harm to the applicant’s reputation within the meaning of section 1(1) of the DA 2013. The newspaper articles contained allegations made by the applicant’s ex wife about the applicant, which included claims of domestic abuse and kidnapping.
Section 1(1) of DA 2013 provides that a statement is not defamatory unless its publication has caused, or is likely to cause, “serious harm” to a claimant’s reputation. Since DA 2013 came into force, there has been some uncertainty as to the construction of “serious harm”.
The key issue for the court to decide was whether section 1(1) required:
- that the relevant statement had a tendency to, or was inherently likely to, cause serious harm to the applicant’s reputation; or, alternatively
- whether, on the balance of probabilities, the relevant statement had, in fact, caused, or was likely to cause, serious harm to the applicant’s reputation.
The court construed section 1(1) in accordance with the latter, more narrow interpretation of that provision. It said that the intention of the legislature when enacting DA 2013 was to go beyond showing a “tendency” to reputational harm. Following DA 2013, claimants should have to prove as a fact, on the balance of probabilities, that serious reputational harm has been caused by, or is likely to result in the future from, the relevant publication. Furthermore, the court was entitled to have regard to all the relevant circumstances, including evidence of what actually happened after publication. Importantly, the court stated that the question of whether a statement caused serious harm is to be judged on the date on which the issue falls to be determined. This should provide applicants with an extended time during which to gather evidence demonstrating that serious harm has, or is likely to, occur.
It appears that, as a result of Lachaux, in order for a statement to be actionable, there is now a requirement to show proof that it caused actual or likely serious harm to the applicant’s reputation. It has been argued that this requirement may have the effect of making it especially difficult for applicants to successfully establish a claim in defamation, due to the obvious difficulties of providing evidence of serious harm in certain instances. However, it is important to note that the court did indicate that serious harm could be evidenced by inference, which inference should be judged on the basis of the gravity of the imputation, together with the extent and nature of the publication’s audience. In instances involving statements published by an entity with a large readership, a court is more likely to draw an inference of serious harm.
In Lachaux, the court found that the articles complained of had caused serious harm to the claimant’s reputation, which harm could be inferred based on: (i) the seriousness of the allegations complained of; (ii) the reputable nature of the newspapers; and (iii) the inherent likelihood that the publications had been read by a substantial number of people who knew, or knew of, the claimant (considering the length of time he had been in the UAE, together with the large number of professional and personal contacts that he had in the UK). These are useful examples of the types of factors that a court may take into account when deciding whether serious harm may be inferred in a particular case.
Accordingly, while the court’s interpretation of section 1(1) seems to support the legislature’s intention of minimising the risk of trivial defamation claims being brought before the courts, it should not create an impossibly high hurdle for claimants to surmount, particularly given the fact that serious harm may, in certain instances, be established by inference.
The main provisions of the Consumer Rights Act 2015 (“CRA”) came into force on 1 October 2015. The CRA consolidates and clarifies existing consumer rights legislation into one comprehensive source and makes certain changes that affect all businesses selling to consumers. The key aspects are:
Sale of goods
- Rules relating to satisfactory quality, description, fitness for purpose and sale by sample under the Sale of Goods Act 1979 will continue to apply. In addition, the goods must now match a model seen or examined by the consumer.
- Contracts under which goods which are to be manufactured or produced and then supplied to the consumer will be treated as sales contracts and the goods will be treated as goods and not the end product of services.
- Where goods are both supplied and installed by a trader, the goods will not conform to the contract if not installed correctly.
- Pre-contract information required under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (for example, the identity of the trader) will be treated as included as a term of the contract.
- A new system of remedies has been introduced. Consumers will now have a 30 day “short-term right to reject” goods that do not conform to the contract. After expiry of this period, the consumer will have the right to repair or replacement. The trader will only have one opportunity to repair or replace the goods before the consumer has the right to a price reduction or a final right to reject.
- The CRA recognises digital content as a new category of product. It clarifies the position in relation to digital content not provided on tangible media (for example, where digital content is downloaded) by giving consumers of digital content the same rights as if they were buying goods, regardless of the way the digital content is supplied.
- Where digital content is provided on tangible media (for example, on a disk), and the digital content does not conform to the contract to provide that content, then the goods themselves (i.e. the disks) will not be in conformity with the contract. The significance of this is that the remedies available for goods (rather than digital content) will apply (including the two express rights to reject as set out above).
- There are no rights to reject digital content and no corresponding obligations on the consumer to return or delete that content. A right to a full refund is only available where the trader has no right to supply the digital content. In respect of other breaches, the consumer has the right to repair or replacement. In contrast to the remedies for goods, the trader has more than one opportunity to repair or replace the content. The consumer also has a right to a price reduction (potentially as much as a full refund) where repair or replacement is impossible or not carried out within a reasonable time and without significant inconvenience to the consumer.
- Where digital content supplied causes damage to a device or to other digital content, the trader must either repair the damage or financially compensate the consumer for the damage if the consumer can demonstrate that the damage was caused by the trader’s failure to exercise reasonable care and skill.
Supply of services
Any information provided to the consumer about the trader or service, by or on behalf of the trader, will now be treated as a term of the contract if taken into account by the consumer. This recognises that consumers may be disadvantaged where they rely on a trader’s statement and the trader later does not comply with it. Thus, businesses selling to consumers should review their marketing materials and make their consumer-facing staff aware of the changes and new risks involved in making voluntary statements to consumers which are later not complied with.
Unfair contract terms
The requirement of reasonableness under the Unfair Contract Terms Act 1977 is replaced with a fairness test. A term is not binding on a consumer if, contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. There are two exclusions from the assessment of fairness: the main subject matter of the contract and the price payable under the contract, provided that these terms are prominent and transparent.
It is important for businesses selling to consumers to understand the changes brought about by the CRA and adapt their practices accordingly. Most importantly, existing terms and conditions and marketing materials should be reviewed and staff trained to avoid potential future compensation claims.
Benefits of the Community trade mark (“CTM”) system
Since 1996, the CTM registration system has been widely used by businesses all around the world as a way of obtaining protection for their brands in the EU, and for good reason. For those that have or plan to have a presence in some or all of the Member States, the system offers excellent value for money. For the price of two or three national registrations, a brand owner can, via the CTM system, obtain protection in all the Member States of the EU (currently twenty-eight).
The CTM systems has attracted even those businesses that have a presence in only one Member State (with no immediate plans for expansion), the system has still been an attractive one. For a relatively small price, a CTM acts almost as a form of insurance against a conflict in the future (with a later user of a confusingly similar brand) should the business ever decide to extend its trade into neighbouring European territories.
The ‘use it or lose it’ rule
At least, that has been the case until now. As with most trade mark systems around the world, the CTM system enforces a ‘use it or lose it’ rule. This means that a CTM can become vulnerable to cancellation if it is not used within five years of registration. As a unitary right for a single European market, it has always been considered (although hotly debated) that use of a CTM in a single Member State equals use in the ‘Community’ (i.e. the EU), shielding it from any attack or allegation that it should be cancelled on the grounds of non-use.
Not anymore. The UK Intellectual Property Enterprise Court (IPEC) recently held in The Sofa Workshop Ltd v Sofaworks Ltd  EWHC 1773 (IPEC) that Sofa Workshop’s CTMs for the “Sofa Workshop” trade marks should be revoked in their entirety despite evidence that the marks had been used on an extensive scale in the UK over a number of years. The Court was firmly of the view that use of a CTM in just one Member State (irrespective of the size of that Member State) is not enough to maintain a CTM.
The IPEC deals with intellectual property issues and forms part of the Chancery Division of the High Court in the UK. It’s far from clear whether or not the Court of Appeal or the Court of Justice of the European Union (CJEU) would share the same view as the IPEC in its decision in the Sofa Workshop’s case, but it’s unlikely that we will find out very soon. This is because the challenge against The Sofa Workshop’s CTMs was filed in response to an action for trade mark infringement and passing off brought by The Sofa Workshop against Sofaworks. Although The Sofa Workshop failed in its trade mark infringement claim, it succeeded in the passing off claim, and therefore emerged as the “winner” in the case, despite losing its CTMs.
Time for a review
As a result of the IPEC’s decision in The Sofa Workshop case, and unless and until a higher court comes to a different decision, businesses should think carefully before embarking upon trade mark litigation in the UK based on CTMs that are over five years old. Unless the trade mark in question is used in at least one other territory (as well as in the UK), steps should be taken either to acquire a national UK trade mark registration to supplement the CTM, or to convert the CTM into a UK trade mark registration (but this would involve giving up the CTM at a time when we may not have heard the last word on the matter) before any litigation is commenced. Ideally, all businesses (whether or not any imminent enforcement action is required) should review their trade mark portfolio to check for any vulnerability.
For new applicants, it will be important to decide at the outset whether to file a CTM or a national trade mark application, or indeed both, depending on their plans for use of the trade mark beyond the first five years.
There is an infinite number of legal matters on which filmmakers seek advice. Nevertheless, certain questions frequently arise: is permission required to use material from a book? Does a contract have to be in writing? May classical music be used in the background of a scene? Does an interviewee need to sign a release? How do I protect my share of net profits if the film is successful? Marriott Harrison’s Head of Media, Tony Morris, has written the Filmmaker’s Legal Guide which addresses the practical legal needs of those producing, financing and exploiting all manner of audio-visual productions – features, documentaries, shorts, television programmes and other audio-visual content.
The book’s pitch is not to lawyers and the Guide is not intended to be a legal text book. The key issues that require consideration in the context of contractual or other legal imperatives are analysed and explained in a manner that concentrates on the practical needs of filmmakers. The text makes extensive uses of examples that are both instructive and, frequently, a reminder of how to avoid problems.
Divided into five parts, the Guide addresses in turn: content, rights, a general introduction to contracts, cast and crew agreements and, finally, production contracts. In turn, each part comprises a number of sections that cover a wide range of subjects including copyright, protecting ideas, moral rights and performers’ consent, clearing third party rights, fair use, moral rights, defamation, music, titles, documentaries, interviews and trade marks. The contract section includes useful tips on how to create a binding agreement – or indeed, to avoid being bound in negotiations. The structure of different contracts in film/audio-visual production is analysed. The Appendices include eight sample contracts.
Although written from the standpoint of an English lawyer applying English law principles, much of the practice described is of more general application. Intellectual Property Law has been largely harmonised throughout the EU; nevertheless, there are some differences of application – one example being that of moral rights. In relation to certain subject matter, the US First Amendment may enable a documentary maker to use a broader palate from which to analyse and comment than the equivalent English law. There are references to these similarities and differences in the text.
While addressing the practical needs of the filmmaker, the Guide is not intended to be a substitute for tailored advice on the specifics and intricacies of individual projects. Filmmakers are recommended to take informed advice at a level that will equip them to deal effectively with the legal requirements of any particular project in which they are involved – and in some cases that may involve lawyers practising in more than one jurisdiction.
The Filmmakers’ Legal Guide will be published in October 2015 as an e-book by Brown Dog Books and The Self-Publishing Partnership. More information may be obtained from email@example.com.
The UK Patent Box enables companies to apply (subject to certain phasing-in rules) an effective 10% corporation tax rate to profits earned from its patented inventions. After initial announcements of a proposed tax break for intellectual property in 2009, the Patent Box finally came into effect on 1 April 2013. However, following a campaign led by Germany arguing that the UK scheme is unfairly competitive, the regime (which is still in its infancy) is already set on course to be transformed.
The Patent Box, in its current form, will be closed to companies that have not elected into it by June 2016, and will be closed altogether by June 2021. Companies could, therefore, still benefit from the tax break under the existing rules for a few more years, but must act swiftly if they have not yet elected into the scheme. Although a replacement scheme will likely be introduced, any new scheme will almost certainly have a narrower application.
About the Patent Box
The introduction of the Patent Box in the UK, which was designed both to boost R&D investment in the UK and to encourage UK companies to commercialise their R&D and resulting innovation, has been welcomed by many high-tech companies with a tax domicile in this country.
Although the UK is not alone in Europe in offering such a scheme, the UK scheme is in some respects more attractive. It applies to profits derived from the worldwide income arising from the exploitation of qualifying patents. To qualify, a patent must have been granted by an approved patent-granting body, including the UK Intellectual Property Office, the European Patent Office and the national patent office of certain designated European territories. However, income arising from the exploitation of a qualifying patent can take one of many forms: it includes income from the sale of the patent or an item incorporating it, worldwide licence fees and royalties from rights in relation to the patent that the company grants to others, income or gains from the sale or disposal of the patent, as well as amounts received from others accused of infringing the patent.
Importantly, companies are able to reap the benefits of the scheme whether the R&D underpinning the qualifying patent occurred in the UK or elsewhere. It is this aspect of the scheme that has generated the most controversy, and that has recently forced the UK government to agree to make changes to it.
Foreign opponents of the UK Patent Box (and other similar schemes operated elsewhere) have been arguing that it encourages the artificial shifting by companies of profits away from where the real economic activity takes place (i.e. where the R&D takes places) to the UK.
The UK government, which has been at the forefront of international attempts, through the Organisation for Economic Cooperation and Development (OECD), to stop harmful tax practices, ultimately struggled to defend the Patent Box against these allegations. It has, therefore, agreed with Germany to adopt a new tax break regime based on the location of the R&D expenditure incurred in developing the patent or any product incorporating the patented invention. Whilst the aim of this is to deter multinationals (whose R&D expenditure or part of it is located outside the UK) from moving their tax domicile to the UK, the details of how this will be applied in practice are yet to be agreed. In particular, concerns have been expressed about how to identify and calculate qualifying R&D expenditure where this expenditure is spread across multiple territories.
What is clear is that the existing regime will be closed to new entrants by June 2016, and will be abolished altogether by June 2021.
The ECJ’s recent judgment in the case of Google Spain SL and Google Inc v AEPD and Mario Costeja González raises serious concerns over the potentially censorial effect of the “right to be forgotten” on search engines.
The applicant, Mr. Gonzaléz, lodged a complaint against Google Spain and Google Inc. in relation to the appearance of an auction notice for his repossessed home among search results based on his name. The case eventually made its way to the ECJ, and in May 2014, the court delivered its ruling.
The ECJ held that, firstly, even if the physical server of a company processing data is located outside Europe, EU rules apply to search engine operators who set up a branch or subsidiary in a Member State, if they promote and sell advertising space, and their activities target people, within a Member State. Secondly, the ECJ held that search engines could constitute “controllers” of personal data within the meaning of the Data Protection Directive (the “Directive”) and, further, that the finding, publishing, indexing, automatic storing and making available to internet users of information placed on the internet by third parties would constitute the “processing” of personal data within the meaning of the Directive. Finally, the ECJ held that, if the conditions in either Article 12(b) or Article 14(a) of the Directive were met, then, upon receipt of a request from a data subject, a search engine must remove from search results based on the data subject’s name links to third party webpages which contain the offending information.
Article 12(b) of the Directive provides that data subjects may obtain from a controller the rectification, erasure or blocking of data the processing of which does not comply with the provisions of the Directive, particularly where data is incomplete or inaccurate. Article 14(a) provides that data subjects may object, on compelling legitimate grounds, to the processing of data relating to a data subject. The ECJ said that these Articles required a balance to be struck between, on the one hand, an applicant’s rights and interests (most importantly, its right to privacy) and, on the other hand, the interests of internet users in having access to the relevant information. As a general rule, the former would override the latter, although the balance could be swayed by factors such as the nature and sensitivity of the information, and whether or not the applicant had a role in public life. Interestingly, the ECJ suggested that these principles may also apply to information which is true, or which was lawfully published, if that information becomes irrelevant, inadequate or excessive over time.
The importance placed by the ECJ on a data subject’s right to privacy in this context is somewhat alarming and, arguably, could have a chilling effect on search engines. As of 18 July 2014, Google received more than 91,000 removal requests involving more than 328,000 URL (including 12,000 requests made under English law). Google confirmed that it removed around 53% of URLs in respect of which removal requests were made. Only 32% of requests were rejected (further information was required in respect of 15% of requests). This is a significant number of removals in a short space of time. Google has indicated that it has put in place procedures for assessing requests; however, smaller search engines may not have such resources at their disposal, and could instead decide to err on the side of caution by immediately removing material without engaging in a proper analysis of the interests that are at stake. If this is the case, then there is a certain truth to the House of Lords’ recent pronouncement that the decision “does not reflect the current state of communications service provision, where global access to detailed personal information has become part of the way of life“.
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (“Regulations”) came into force on 13 June 2014 and replace the Distance Selling Regulations and the Doorstep Selling Regulations for consumer contracts made on or after that date. The Regulations implement the Consumer Rights Directive aimed at harmonising consumer protection rules across the EU increasing the information that consumers should receive from traders and the rights that consumers have as part of a consumer transaction. The Regulations also introduce the concept of digital content in consumer law.
Subject to certain exceptions the Regulations cover three types of contract:
- “off-premises” contracts where the consumer and trader are, or have been, present together at a location other than the trader’s business premises (for example, the consumer’s home);
- “distance” contracts where the consumer and trader are not present together at a location and the contract is made by distance communication methods such as telephones, email or a website (for example, purchasing goods through a website); and
- “on-premises” contracts where the consumer and trader contract at the trader’s premises.
Whilst the information that is required to be given by the trader varies between the three types of contract, there are some requirements that apply to all contracts within the scope of the Regulations:
- consumers must give express prior consent before additional payments are taken – pre-ticked boxes are no longer allowed;
- where a delivery date is not specifically agreed, goods must be delivered within 30 days;
- a ban on the use of premium rate telephone lines for contacting the trader about an existing contract; and
- a ban on excessive payment surcharges (i.e. charging the consumer excessively for the cost the trader incurs for processing the consumer’s payment).
For on-premises contracts, the Regulations introduce a list of required pre-contract information which includes prices, complaint handling procedures and, for digital content, any applicable technical or hardware requirements. The provision of this information is not required for every day transactions, which are performed immediately or where the information is readily apparent from the context of the contract, for example the price is clearly displayed on the product.
Traders entering into distance and off-premises contracts must provide the information set out in schedule 2 of the Regulations, which is much the same as the information required for on-premises contracts and the information which was required under the Distance Selling Regulations. However, there are some additions such as the requirement to provide any relevant codes of conduct and, more importantly, information about the consumer’s right to cancel the contract.
The right to cancel
A cancellation period of 14 days now applies to both distance and off-premises contracts and runs from the day on which the trader provides to the consumer a valid notice of its right to cancel, regardless of how long this is after the conclusion of the contract. Failure to do so will see the cancellation period extended by up to a further 12 months from the beginning of the initial 14 day cancellation period and, in the case of an off-premises contract, may expose the trader to criminal liability. If a consumer cancels a contract, then typically the goods must be returned within 14 days and traders are now permitted to withhold a refund until this happens. Traders may also deduct an amount from any refund in respect of any diminished value.
The Regulations establish the concept of digital content in English consumer law for the first time and may be the forerunner of legislation distinguishing between contracts for physical and digital goods and services. Where a consumer purchases digital content not on a tangible medium the Regulations stipulate that the supply (the download) must not begin before the end of the 14 day cancellation period unless the consumer gives express consent and acknowledges that they will lose the right to cancellation. Given the inherent attraction of the instantaneous delivery of a digital product it seems unlikely that any consumer would ever withhold such consent.
The Regulations increase the responsibility of traders to fully inform their consumer customers, especially when entering into distance or off-premises contracts. Now could be a prudent time for all traders to assess their existing terms and conditions and practices used when dealing with consumers.
Cyber Security and Online Datarooms
With the encouraging signs of economic recovery comes the inevitable increase in corporate finance activity including mergers and acquisitions, investments and IPOs.
Often the largest task in such activity is the due diligence undertaken by the buyer/ investor on the company it is looking to buy or invest in. To do this the ‘target’ gathers together commercially sensitive and other confidential information to be analysed by the buyer’s or investor’s advisers, help inform the terms of the purchase or investment and manage, primarily, the buyer’s or investor’s risk.
Over the past five years there has been a shift to online solutions for hosting this information, online data storage services such as OneDrive, Google Drive, DropBox etc or bespoke services, typically provided by an adviser, are replacing physical ‘datarooms’.
These services are more efficient and convenient, but the risk that this information can be compromised online is arguably higher than using a physical dataroom. Unauthorised access to confidential information can have a dramatic impact on a transaction and the target.
The Corporate Finance Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW) recently published a short paper (Cyber Security in Corporate Finance) highlighting the cyber security risks associated with sharing such information online.
The paper highlights the various stages of a transaction, providing guidance and detailed considerations for businesses, and examples of security breaches and their consequences.
We briefly consider below the limited legal protections and some practical measures to reduce the risk of a breach.
What legal protections are there?
The ICAEW recommends that everyone with access to the online dataroom should be subject to confidentiality agreements, prohibiting them from disclosing or using such information outside of the transaction.
Additionally, where an online data storage service is used, the users and provider will be bound by the terms for the service. A breach of security, where the provider is responsible (e.g. insufficient security measures) may breach these terms.
Effectiveness of these protections
Confidentiality agreements and the law on confidentiality may provide a remedy (e.g. damages and/or an injunction to prevent distribution of compromised information) but the immediacy of the damage caused by a breach and the potential time to remedy or counteract it may mean such remedies are too little too late.
Additionally, it is generally perceived that the security of transmitting or storing information online cannot be relied upon (and seemingly less so with each report of an IT security breach or DDoS attack). Any service which suffers a security breach, resulting in unauthorised access to confidential information, is likely to exclude or limit the losses which the user can claim.
These potential contractual protections will not cover all risks and more importantly are unlikely to provide instant or sufficient relief from a security breach where key confidential information is compromised. In the extreme a breach may cause the potential buyer or investor to abort the transaction and cause irreparable harm to a target.
Practical steps to take
As legal protections may not provide effective remedies to breaches, there is added importance to the steps that can be taken to reduce the risk of such breaches. The ICAEW provides detailed guidance and considerations for businesses. Some of the simpler steps which can be taken are:
- restrict access to the information to individuals who need access;
- keep highly confidential information offline, provide this by other means and subject to restrictions regarding copying and printing; and
- where possible, consider advisers who adhere to higher standards of information security (e.g. some advisers have achieved the ISO’s Information Security Management certification (ISO27001)).
In addition to the ICAEW’s recommendations, businesses may consider, where possible, using an adviser’s bespoke dataroom solution rather than a generic service provider. As a product specifically designed to store confidential information, security measures may be similar to, if not better than, those used by service providers whilst the adviser or buyer may be less of a target from cyber security attacks than well known service providers.
The rise of online datarooms has its obvious advantages in ease of access but their use must be combined with consideration of the legal protections available and practical steps that businesses should take to protect their information. The ICAEW provides considerations and guidance for all businesses these should be looked at in context of the size, resources and acceptable risk for each such business when involved in a corporate finance transaction.