Australia: Unjustified Threats of legal action: tread carefully when enforcing IP rights

Last Updated: 3 November 2017
Article by Gavin S Stuart

Intellectual property (IP) rights come in a number of different forms – patents, trade marks, designs and copyright to name a few. In our experience, clients that have gone to the time and expense of acquiring IP rights want to ensure that they protect those rights against potential infringers.

The most common approach in protecting IP rights is to threaten an injunction stopping the infringing conduct along with a claim for damages or an account of profits.

Often, the reaction of infringers is to issue a counter claim when an allegation of IP infringement is made. Depending on how the counter claim is conceived, it may include a claim against our client for making 'unjustified' or 'groundless' threats of legal action.

In this bulletin, we explore what these claims are and why they are important to bear in mind when enforcing IP rights, or defending against a rights holder's claim of IP infringement.

What are unjustified or groundless threats?

The right to take legal action against threats of IP infringement proceedings arise under legislation, including the Patents Act, Designs Act, Trademarks Act and Copyright Act.

Each of these Acts provides for a person or company to take legal action against another person or company if they feel that they have been unjustifiably threatened with IP infringement proceedings.

While there are some differences in the wording of the prohibitions in each Act, the basis for bringing the action is largely the same – that a threat of IP infringement proceedings has been made and that the threat was unjustified. This is the case in respect of registered trade marks, patents, designs or copyright materials.

When is a threat made?

The question of whether or not a communication, in whatever form, is a threat is considered objectively by the court.

The test that a court will apply to this question is based upon what a reasonable person would conclude. That test is whether or not the language used in the communication would indicate that the IP owner has asserted their rights in the relevant IP and intended to take court action against another person in respect of the infringement of that IP.

An example of this test in operation is a case where a provisional patent owner was found to have made a threat of legal proceedings in the following circumstances:

  • walking into a retailer;
  • showing the retailer a copy of their provisional patent;
  • asking the retailer to remove products from their shelves; and
  • reasoning that the sale of those products would be an infringement of their rights in the patent.

In another more recent case, a patent owner had already taken an alleged infringer to court for the infringement of their patents. While the court action was underway, the patent owner sent emails to its own customers, stating that:

  • it had taken the alleged infringer to court; and
  • it may consider further action against any customers of the alleged infringer if the court agreed that the alleged infringer had infringed the patents.

The Court did not agree with the patent owner and found that, as the customers of the patent owner could have also been customers of the alleged infringer, the emails included a clear threat of future action against any of them that were customers of the alleged infringer.

The examples above highlight the care that needs to be taken in making any communication with potential infringers, or other related parties. Even if you have not specifically mentioned legal proceedings in your communication, this will not necessarily mean you have not made a threat.

Whether or not a threat has been made will depend on the circumstances surrounding the communication. For example, we make sure to remind our clients of the need for caution when they ask us to send a communication to a potential infringer, as the communication will carry more force when coming from a solicitor and is even more likely to be found to be a threat.

When is a threat unjustified?

A threat will be unjustified if the IP owner cannot make out a case of actual infringement of their rights in the IP.

Generally, if an IP owner satisfies the court that the acts of the alleged infringer did in fact infringe the rights of the IP owner, then the threats will be justified. This can be quite a difficult obstacle to overcome, as bringing an action for IP infringement can be complex and costly, especially in relation to patents.

Trade mark law goes one step further in favour of an IP owner that takes action for trade mark infringement.

In that circumstance, an alleged infringer will not be able to take action against the IP owner for an unjustified or groundless threat if the action against the alleged infringer is pursued with due diligence and without any unreasonable delay. This is referred to as the 'due diligence defence' and it will apply regardless of whether or not the trade mark owner is successful in proving that the alleged infringer has infringed the rights in the trade mark.

What are the consequences of an unjustifiable threat?

If an alleged infringer is found to have been unjustifiably threatened, they can apply to the court for:

  1. a declaration that the threats are unjustifiable or groundless;
  2. an injunction against the IP owner to prevent any further threats; and
  3. an award of damages for any loss they have suffered as a result of the threat.

The award of damages is most daunting for IP owners, however it is not particularly easy for an alleged infringer to prove a connection between the threat and the loss they have suffered.

The Federal Court of Australia has recently confirmed that you must be able to clearly show that the only reasonable explanation for the loss (of profits for example) suffered was the unjustified threat itself. If there is any other explanation for the loss, such as market trends and other general commercial matters, then there will not be an entitlement to damages. This decision is a move towards making it more difficult for alleged infringers to successfully prosecute unjustified threats claims, and a welcome one for IP rights holders.

Tread carefully

When communicating with IP infringers and others in relation to any potential infringement, it is important to do your homework before making any threats. A long forgotten arrangement, however informal, may become relevant once a threat is made.

A way to tread carefully in this respect is to notify a potential infringer of the existence of your rights in the relevant IP and seek confirmation from them that they are not aware of any wrongful use or infringement of your IP rights. This will not be a threat, and should still open up a dialogue around the issue.

If you think that you have a strong case against the alleged infringer and want to threaten them with legal action if they do not comply with your reasonable demands, you should also be prepared to commence infringement proceedings against the infringers. Otherwise the infringers may call your bluff and commence proceedings against you for an unjustified threat.

In any case, it is important to seek legal advice before making any communication to alleged infringers or commencing proceedings for unjustified threats. The law in this area is complicated and its application will depend on the circumstances surrounding your particular case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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