Commercially Connected Shorts

Welcome to Commercially Connected shorts, our weekly bitesize newsletter summarising the latest updates in UK commercial law.

This week we look at:

• Reform of UK data protection law in the pipeline

• Contract law: drafting royalty payment provisions clearly

• Public sector: PPN 03/23 on standard selection published

• Technology: call for evidence on use of AI in weapons systems

Reform of UK data protection law in the pipeline

The Data Protection and Digital Information (No. 2) Bill has been introduced to Parliament by the Government. This replaces the previous version of the Bill that was introduced last summer and which has now been withdrawn.

The purpose of the Bill is to update and simplify the UK data protection framework in order to reduce compliance burdens for businesses, whilst ensuring that the UK’s high data protection standards are retained. The Government has publicised the Bill as a “common-sense led” UK version of GDPR which will “cut down pointless paperwork for businesses and reduce annoying cookie pop-ups”. The reforms will impact all UK businesses.

Headline reforms include:

• organisations will only need to keep records of personal data processing if their processing activities are likely to pose high risks to the rights and freedoms of data subjects

• creation of a new lawful basis for the processing of personal data where such processing is necessary for a recognised legitimate interest set out in secondary legislation

• addition of non-exhaustive examples of the types of processing that may be necessary for a legitimate interest of the controller, including direct marketing, intra-group transmission that is necessary for internal administrative purposes and processing that is necessary to ensure the security of network and information systems

• improved clarity on when safeguards for solely automated decision-making apply

• broadening the circumstances in which organisations can refuse to answer a data subject access request, so that requests can be refused where they are vexatious or excessive

• clarifying rules on international transfers of personal data, with a focus on data protection outcomes

• making it easier to use personal data for scientific research

• increasing fines for nuisance marketing

• creating a framework for the regulation of UK digital verification services

• facilitating creation and operation of smart data schemes

• reform of the Information Commissioner’s Office

We will be monitoring the Bill’s progress, so watch out for future updates.

Contract law: drafting royalty payment provisions clearly

The High Court case of Eteboxagu AB v Cycle Pharmaceuticals Ltd reminds us of the importance of drafting royalty provisions clearly.

A contract provided for a royalty payment to be calculated as a percentage of “Relevant Revenues”, which were defined as “[Defendant’s] gross income from the sale of and/or generated by the Product excluding VAT and transport costs”. A dispute arose as to whether “gross income” meant income before or after the Defendant had deducted rebates given to customers purchasing the Products.

The Court found in favour of the Defendant, namely that it was entitled to deduct the rebates before calculating the royalty payment. This was a matter of contract construction, largely based on the fact that the natural meaning of “income” is monies actually received, and it makes little or no sense for this figure to include monies that are never received (because they have been netted off as rebates). The judge also sense checked his conclusion against accountancy treatment of rebates on the basis that it was objectively unlikely that the parties would have intended to use a definition that was materially inconsistent with the way the Defendant was required to prepare its accounts; that sense check revealed that revenue is generally treated as being net of discounts for accounting purposes.

The key takeaway from this case is a reminder that when you draft royalty payment provisions you must make it clear what monies are in and out of scope when working out the figure used to calculate royalties. For example, if the starting point is the price of contract products sold in a specified period, is this inclusive or exclusive of VAT and sales taxes, rebates, discounts, delivery and packaging costs, etc.

Public sector: PPN 03/23 on standard selection published

The Cabinet Office and Crown Commercial Service have published Procurement Policy Note 03/23: the standard selection questionnaire. This comprises statutory guidance for above threshold procurements under Part 2 of the Public Contracts Regulations 2015 on the selection stage of a procurement and standard selection questions (per Regulations 59 and 107 of the Public Contracts Regulations 2015). It updates and replaces PPN 08/16 and replaces the European Single Procurement Document with the Single Procurement Document, in the form of a selection questionnaire template.

Updates include improved guidance for contracting authorities and the introduction of new questions on ESG-related topics, including health and safety, supply chain, data protection, modern slavery, carbon emissions and payments.

The updated standard selection questions have to be used by 1 April 2023 at the latest, but can be used sooner.

Technology: call for evidence on use of AI in weapons systems

The Artificial Intelligence in Weapons Systems Select Committee has issued a call for evidence on the use of AI in weapons systems. This forms part of its broader inquiry into the use of automated weapons systems which focuses on issues such as risks and benefits; technical, legal and ethical safeguards; and the adequacy of current UK policy and international policy in this area.

Responses are due by 10 April 2023. Businesses in the defence and AI sectors should consider responding to the call for evidence to help inform policy in this area.

This report is intended to give you a general overview of legal developments in certain areas. It is provided for information purposes only and is not intended to be comprehensive or to constitute advice on which you may rely.

For further information, please email your usual contact or our Commercial PSL team: