Unjustified threats on IP rights to be overhauled

UK law on unjustified threats (unlike most other European Union countries) makes sending letters before action to potential infringers potentially actionable and the basis of an injunction and damages against the sender. However, the current law is unclear and varies depending on the IP rights alleged to be infringed.

The changes to the law may be classified as 'evolutionary' as opposed to 'revolutionary'. It is hoped that the reform will go some way in answering the overdue need to update the area of unjustified threats, and further developments can be expected in the future. As a minimum, it appears that the new bill provides a clearer framework within which parties can make legitimate, good faith attempts to resolve disputes with the aim of avoiding full litigation proceedings.

A project to review the legislation on unjustified threats was launched in 2012, with the aim of updating the existing threats provisions across the relevant intellectual property rights, being patents, trade marks and designs. The official consultation was opened in 2013, which asked for industry comments on two proposed methods of reform:

• to extend the 2004 reforms in relation to patents more generally to threats legislation; or
• to reclassify groundless threats as 'unlawful competition' and to introduce new provisions under the Paris Convention.

A year later, in April 2014, the commission released its final report and made various recommendations to parliament. On the basis of this report, the Intellectual Property (Unjustified Threats) Bill has now been published, together with a supporting commentary.

There are two main areas of reform which will have impact for both rights owners and alleged infringers.

Primary actors

First, there will be no liability in relation to threats aimed at primary actors in relation to trade marks and designs. This change is in order to bring consistency with the current exceptions allowed in relation to threats made for patents. Therefore, not only will threats made in relation to 'primary acts' (being manufacture and importation, etc) escape liability, now any threat made to a primary actor will not be actionable, even if it refers to a secondary act as well.

Another change for trade marks will be that a threat in relation to a person who applies the mark to goods or their packaging (or to the person who commissioned this) will also fall within the exceptions to liability.

Secondary infringers

Secondly, the bill provides for a safe harbour for communications with secondary infringers, ie, retailers. This safe harbour will be relevant where:

1. the communication is made solely for a permitted purpose (such as to discover if the right is being infringed and by whom);
2. all of the information provided is necessary for that purpose; and
3. the person making the communication reasonably believes it to be true, even where the recipient might interpret the communication as an implied threat.

If these three conditions are fulfilled, then the safe harbour will provide a further exception to liability in relation to threats.

The safe harbour may appear to provide a new wide defence to a threatening party. However, in practice it appears that the threatening party will have to demonstrate that they used 'reasonable endeavours' to find the primary infringer before threatening a secondary infringer. This is aiming at reflecting current practice in patent law across all the intellectual property rights, albeit that in the patent arena, a threatening party must show best, not just reasonable, endeavours.

Other changes

Of course, the bill also implements a number of other changes such as extending the threats provisions so that they apply to unitary patents (when they come into being) and to European patents (UK) that fall under the exclusive jurisdiction of the Unified Patent Court. Further, professional advisers will now generally be protected from being sued for making threats on behalf of their clients.

The bill has not addressed a number of other problem areas such as copyright, passing off, trade secrets, geographical indications and database rights, which still do not fall within the scope of threats legislation. Further, there does not appear to have been analysis at a European level with a view to EU harmonisation in this area. The Law Commission has itself concluded that serious consideration should be given to introducing a new tort of false allegations.

Whilst we wait for the bill to come into force and the practical impact of the new provisions, the English Courts are handing down judgments on the current law of threats which aim to provide some clarity to this area. Such judgments will remain relevant after the introduction of the new legislation.

Take-home points

The recent case of T&A Textiles and Hosiery Ltd v Hala Textile UK Ltd (T&A v Hala) has confirmed the established position that a rights owner using the eBay VeRO system (verified rights owner system - which provides a means of notification of a possible infringement and a take-down of the offending page) may be at risk of such notification constituting a threat if drafted incorrectly. This confirmed the previous position set out by the High Court in Quads4Kids v Colin Campbell.

This case provides a useful reminder that threats can consist of more than a formal letter before action, and that all communications with potential infringers should be reviewed with the risk of a threats action in mind.

Another interesting point in T&A v Hala was that the threats action succeeded with regard to the letters to two of the defendants' customers. The claimant had actually accepted that the letters constituted threats under section 26(1) of the Registered Designs Act 1949, but relied on justification under section 26(2), which states that there is no threat if a claimant can demonstrate that an alleged threat is in relation to a valid registered design which would be infringed by a defendant's actions. However, in this case the relevant design right which the claimant argued was infringed was found invalid – therefore not allowing the claimant to rely on section 26(2) even if the defendants' activities might have constituted an infringement of the claimant's design.

OHIM torpedo

In addition to the problems of a threats action, when drafting a letter before action it is also worth remembering that the other side will necessarily be alerted of any potential infringement and may launch a pre-emptive strike against the registered mark or design.

Known as the 'OHIM torpedo', this is a cancellation action against the registration at OHIM in relation to Community registered rights, having the effect of suspending any subsequent, substantive court proceedings until the OHIM action is completed (which can take several years). Nowadays it is not uncommon for a claimant to issue proceedings before contacting the infringing party. There is no need to serve proceedings initially (and so start the litigation process), but the cost of issuing proceedings has to be factored into any decision and may only be suitable for more important cases.

Other ways of alleviating the effects of an OHIM torpedo are to rely only on any national registrations or on other unregistered rights (such as passing off).

In short

The Intellectual Property (Unjustified Threats) Bill may be viewed by some as a missed opportunity for greater reform, in an area of law which was in dire need of updating. Great care will still need to be taken in drafting letters before action to potential infringers. It will be interesting to monitor the implementation of the new legislation and see how the courts interpret the various new provisions. Whilst it appears that there may still be elements which require further reform, it is hoped that, at least for now, the bill clarifies and modernises the law on unjustified threats.

Case details at a glance

Jurisdiction: England and Wales
Decision level: Intellectual Property Enterprise Court (IPEC)
Parties: T & A Textiles and Hosiery Ltd v Hala Textile UK Ltd and Hala Textile UK Limited, Adbul Hadi Shehezad and Irfan Ahmad
Citation: [2015] EWHC 2888 (IPEC)
Date: 23 October 2015
Full decision: http://dycip.com/tavhala

Jurisdiction: England and Wales
Decision level: High Court of Justice Chancery Division
Parties: Quads4Kids v Colin Campbell
Citation: [2006] EWHC 2482 (Ch)
Date: 13 October 2006

Useful link

Consultation (22 October 2015 - 13 November 2015) 'Unjustified threats on intellectual property rights': http://dycip.com/consultationthreats