SDL Hair v Next Row - groundless threat
The UK has specific legislation relating to threats to bring IP infringement proceedings in certain circumstances. Where someone receives a 'groundless threat' of proceedings in the UK, they may be entitled to bring court proceedings against the threat-maker, seeking remedies including an injunction to restrain further threats, a declaration that the threats were unjustified, and damages for losses sustained. Such 'threats actions' may also be brought by any person 'aggrieved' by the threat, such as a supplier whose retailers may have been scared off by receiving letters threatening proceedings if they continue selling a particular product alleged to infringe someone's registered IP rights.
'Cease and desist' letters relating to trade mark, design or patent infringement must be carefully drafted to ensure that the letter does not constitute a 'groundless threat'. It is often very difficult to write an effective letter without its actually being 'threatening' in a technical sense. It is important to take legal advice before writing such letters, as the precise wording used can make all the difference in terms of whether the letter may expose the sender to the risk of a threats action.
It is open to question whether the UK 'threats' laws are compatible with the 'cards on the table' approach to pre-action conduct and the general public interest in discouraging litigation until all alternatives have been explored. Although reforms are being debated, it seems that threats actions are here to stay for the foreseeable future. The case of SDL Hair Ltd v Next Row Ltd is a recent example. The court had to determine the level of damages to be awarded in relation to a series of letters held to constitute groundless threats. Since parties to litigation usually manage to resolve damages issues via settlement (following a court's initial finding of liability), the case gives a rare insight into the court's approach to the assessment of damages in relation to threats actions.
Next Row had a UK patent for an induction heating unit for hair rollers, which they said was infringed by a product of SDL called the 'Ego Boost'. SDL promoted the Ego Boost at a UK trade exhibition in April 2012, and attracted interest from various parties, including the well-known TV shopping channel, QVC, and a distributor named Alan Howard. Various correspondence was sent on behalf of Next Row to QVC and Howard, alleging that the Ego Boost infringed the patent. The court held that three such letters and an email constituted groundless threats. SDL alleged that the threats led to various consequences, including:
- The cancellation of a special promotion by QVC and resultant loss of sales.
- Delay in a second special promotion by QVC.
- The need to re-negotiate lower prices for sales to both QVC and Howard and overall reduced sales to Howard.
The court had to determine how much of SDL's loss was recoverable. Broadly speaking, SDL had to show a causal link between the threats and the loss, on the balance of probabilities. SDL claimed damages in excess of £500,000.
The judge considered (in the case of the cancelled promotional event) that, on the evidence, SDL would not have been in a position to deliver the products in time anyway, and therefore the threat did not cause the relevant loss. However, some damages were allowed for the loss of the chance of enjoying the benefit of more than one special QVC promotion, albeit with a suitable percentage reduction because it was only the loss of a chance (as opposed to a certainty). Based on the evidence, he did not allow any damages for the price renegotiation with either QVC or Howard, asw he considered that SDL could have been beaten down on price in any event. As to the reduced sales to Howard, he held that this was more to do with loss of confidence following certain supply issues, rather than the threatening correspondence received. No damages were recoverable for this either.
Overall, the amount awarded to SDL in respect of the groundless threats was £40,500, less than 10% of the amount claimed. Whilst it is interesting to see the court's approach to the quantification of damages, and the case is a reminder of the perils of writing threatening letters, it equally shows why the majority of damages cases are settled between parties rather than going all the way to court.
If you have any queries about threats actions or the risks associated with sending cease and desist correspondence, please do get in touch with your usual D Young & Co contact or any member of our Dispute Resolution & Legal group.
SDL Hair Ltd v Next Row Ltd full decision: http://dycip.com/sdlvnextrow