UK: DON’T YOU THREATEN ME!: Incurring Liability For Making Groundless IP Infringement Threats In The Light Of The Current Law Reform Consultation

Last Updated: 20 June 2013
Article by Jonathan Cornthwaite

For well over a century IP law has featured a special set of rules whereby liability can be incurred as a result of the issue of groundless threats of infringement. Their object is to dissuade rights-holders from scaring off traders by the use of sabre-rattling; and their effect can often be to turn the tables on IP bullies who, to their surprise, find that they are receiving a writ rather than issuing one. But are the rules working properly? The Law Commission, which is currently consulting on the subject, thinks not, and has therefore proposed a series of reforms. In this handout we briefly review the current rules, and then discuss elements of the consultation.

1.    The current law...

Rationale

Intellectual property law is relatively complex, and litigation can be costly, so it is all too easy for people to capitulate when threatened with IP litigation – especially alleged "secondary infringers", namely downstream traders such as distributors, stockists, retailers, resellers and business customers who often find it difficult if not impossible to distinguish between a bluff and a genuine threat.  It is principally this category of people whom the laws on liability for groundless threats are designed to protect.

The cause of action for groundless threats

Under a series of comparable (though not identical) statutory provisions1a person aggrieved by a threat of proceedings for infringement of certain categories of IPRs (whether or not he is the actual recipient of them) may sue for relief in the form of an injunction, a declaration that the threat lacks justification, and damages2.  The categories of IPRs covered by this cause of action extend to UK and European patents; UK, European Community and International Trade Mark Registrations; registered and unregistered European Community Designs, and UK registered and unregistered designs – a long list, but not a comprehensive one, for various other categories of IP infringement3 fall outside the scope of the provisions.

Parties who are potentially liable

Since anyone issuing such a threat may potentially be liable, those at risk include not only IP rights holders themselves, but also their licensees and indeed their professional advisors, such as patent and trade mark attorneys, and solicitors.  It is also worth remembering that employers may incur liability under the threats provisions by virtue of vicarious liability for their employees, even if the latter have been expressly prohibited from uttering threats. 

Defences and exemptions

As well as those categories of IPRs falling outside the provisions4, various types of threat enjoy exemption from liability.  For example, a threat of patent infringement proceedings made against a manufacturer will not be actionable5; nor will a threat to sue someone for having applied a registered trade mark to goods or their packaging6.  And, obviously, a defendant who can show that his threats were justified will have not only a valid defence to the action, but also (presumably) a strong case to recover relief for infringement.  Care however needs to be taken to avoid a threat incurring liability under other torts like (for example) malicious falsehood, defamation, inducing breach of contract, or intentionally causing loss by unlawful means.

Loopholes

The intricate way in which the provisions are drafted prima facie gives scope for bypassing them.  A threat to sue in another jurisdiction (for example, for infringement of a Community trade mark) may well evade the provisions altogether.  And providing (for example) "factual information about the patent"7or "mere notification that a design is protected by design right"8appear to provide safeguards against liability.  But great care needs to be taken in exploiting such loopholes, for the courts are inclined to construe them very narrowly, as demonstrated by the following examples:-

  • a Community design registrant who notified particulars of his design to eBay pursuant to its VeRo system was held to have issued an actionable threat9;
  • a letter by a patentee's agents enquiring "why you are of the opinion that you need not take into consideration the patent of our client when marketing the product" was held to be a veiled threat and therefore actionable10; and
  • a letter by a firm of lawyers requesting an alleged trade mark infringer either to negotiate or to cease use of the mark in question within a set time-frame was held to be an actionable threat despite the fact that it contained an invitation to negotiate11.

2.    ...and the reform proposals

The Law Commission has been requested by the Department for Business, Innovation and Skills and the Intellectual Property Office to review the laws of groundless threats of IP infringement proceedings.  In accordance with that request it issued a Consultation Paper12on whether (and, if so, how) the laws should be reformed.

Rationale

The Law Commission acknowledges that the rules serve a useful purpose, especially as IP law becomes more and more complex, and that there is no single alternative tort that could replace them.  It has also noted that the laws of certain other major jurisdictions all have some form of legal protection to businesses against groundless threats of IP litigation. 

However, although it therefore concludes that the rules should not be abolished, it takes the view that significant reform is necessary.  In some respects it regards the rules as too harsh on rights holders; in other respects, it considers that it is too easy for rights holders to sidestep them.  It criticises the rules as being too complex, and embodying too much variation between IP categories. And it deplores their tendency to "drive cases to court" by encouraging a "sue first, ask questions later" approach that is clearly contrary to public policy.  It has therefore tabled a range of proposals, on some of which we comment below.

A more level playing field?

Under the current rules, threats of patent infringement proceedings enjoy more defences and exemptions than threats of registered trade mark or design infringement – which seems somewhat paradoxical, given that patents are generally more complex than trade marks or designs.  The Commission proposes to create a more level playing field by (amongst other things) extending to trade marks and designs some of the exemptions enjoyed by patentees.  One of these proposals, for example, would mean (if implemented) that any threat of proceedings made to a person who has applied a trade mark to goods, or who has then imported them into the UK, would be exempt from liability.  The net result of these proposals, if they come to pass, would thus be on balance very good news for brand and design owners.

A new tort

The Commission has expressed concern about widely-publicised allegations of IP infringement that, whilst falling short of being "threats" and thus avoiding liability under the current rules, nevertheless inflict damage on business.  With a view to plugging this and other gaps, the Commission has canvassed the introduction of a new tort of making false or misleading allegations in the course of trade that relate to patents, trade marks or designs, and that tend to discredit the establishment, goods or activities of a competitor.  In contrast to the first proposal discussed above, the result of this suggestion (if implemented) would clearly be disadvantageous to IP rights owners. 

Excluding legal advisors from liability?

The fact that professional advisors may themselves incur liability under the rules13is viewed with some dismay by the Commission.  It considers that a "conflict-of-interest" wedge can thereby be driven between the client and advisor; that advisors may be prompted to seek indemnities from clients; and that advisors may indeed be reluctant to sign the actual letter of claim themselves.  It therefore recommends that (as, for example in Australia) professional advisors be given the benefit of an exemption from the rules.

Conclusion

Whether or not all or any of the reforms canvassed by the Law Commission ever see the light of day, the principle whereby groundless threats of IP infringement can incur civil liability is set to remain a permanent feature of the legal landscape.  The watchword for those planning to issue such threats should therefore continue to be "look before you leap"!

This document is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.

Footnotes

1.Patents Act 1977, sections 70 and 77; Trade Marks Act 1994, sections 21, 52 and 54; Community Trade Mark Regulations 2006, regulation 6; Trade Marks (International Registration) Order 2008, Article 4; Registered Designs Act 1949, section 26; Copyright, Designs and Patents Act 1988, section 253; and Community Design Regulations 2005, regulation 2.

2.though, rather strangely, there have been few if any reported cases where damages have been recovered.

3.for example, copyright infringement, database right infringement, breach of confidence and passing off

4.see footnote 3 above

5.Patents Act 1977, section 70(4)(b)

6.Trade Marks Act 1994, section 21(1)(a)

7.Patents Act, section 70(5)(a)

8.Copyright, Designs and Patents Act 1988, section 253(4)

9.Quads 4 Kids v Campbell [2006] EWHC 2482(CH)

10.Zeno Corporation v BSM-Bionic Solutions [2009] EWHC 1829(Pat)

11.Best Buy Co Inc et al v Worldwide Sales Corporation España Sl  [2011] EWCA Civ 618.

12.CP 212 17 April 2013; the deadline for responding to the consultation is 17 July 2013.

13.see Brain v Ingledew Bennison [1995] FSR 552, et seq

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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