Changes to the law on threats: balancing interests (PDF) · Changes to the law on threats:...

Changes to the law on threats: balancing interests

March 2016

This feature article considers the

current law and proposed changes

to the law on groundless threats for

infringement of intellectual

property rights.

Introduction

In some circumstances, a threat to enforce

intellectual property rights (IPRs) through

infringement proceedings may itself be

actionable.

Current legislation is complex and inconsistent

across different IPRs and there is uncertainty

about what constitutes a threat. However, new

legislation has been proposed to address a

number of concerns in this area. This article

reviews the current law on unjustified threats and

the reasons that change is needed, key features

of the proposed reforms and the impact that

these may have on rights holders.

The changes, which are expected to be

introduced later in 2016, will introduce a regime

that is more consistent across different IPRs and

provides a better balance between rights holders

and competitors. Nevertheless, there still remains

a degree of uncertainty about what constitutes an

unjustified threat.

Current law

In summary, the current law on unjustified

threats means that any aggrieved person, such as

a manufacturer, importer, distributor, or customer

or user, can bring an unjustified threats action

against the person making the threat.

A threat may be oral, implied or indirect and the

test is whether an ordinary person in the position

of the claimant would understand the words to

contain a threat to sue.

The available remedies are a declaration that the

threats are unjustifiable, an injunction against

further threats and damages for any loss caused

by the threats.

Threats that refer to primary acts of

infringement, such as making or importing, will

not generally be actionable as an unjustified

threat. For patents, threats in respect of a

secondary act made to a primary infringer will not

be actionable. By way of example, if a company

imports into the UK a product from abroad that is

alleged to infringe a patent, the importing is a

primary act and the company is a primary

infringer as it is doing the primary act. Even if

that company then distributes the product to

local retailers, which would be a secondary act, a

threat could be made in respect of the

distribution as it was done by the primary

infringer. However, threats made against the local

retailer for selling the product to customers

would be actionable as they would be in respect

of the secondary act of selling a product and

made against a retailer that is not the primary

infringer.



Legislation

Patents Trade marks

Registered designs

Community

designs

Design

rights

Threats provision Patents Act

1977

Trade Marks Act 1994

Registered Designs Act 1949

Community Design Regulations 2005 (SI 2005/2339)

Copyright, Designs and Patents Act 1988

What is a threat? Section 70 Section 21 Section 26 Regulation 2 Section 253

Is the threat

actionable?

Section 70A Section 21A Section 26A Regulation 2A Section 253A

Permitted

communications

Section 70B Section 21B Section 26B Regulation 2B Section 253B

Remedies and

defences

Section 70C Section 21C Section 26C Regulation 2C Section 253C

Professional

advisors

Section 70D Section 21D Section 26D Regulation 2D Section 253D

Supplementary

provisions on

pending

registration and

delivery up

Sections 70E

and 70F

Sections 21E

and 21F

Sections 26E

and 26F

Regulations 2E

and 2F Section 253E

Justification

The law on unjustified threats was introduced, as

explained by the High Court in L’Oréal (UK) Ltd v

Johnson & Johnson, in order to stop intellectual

property rights holders "who were (in Pope's

words about Addison) 'willing to wound but afraid

to strike' from holding the sword of Damocles

above another's head" ([2000] EWHC Ch 129).

Retailers or customers who may be less well

placed or inclined to attack the validity of an IPR

than the manufacturer can often simply switch to

buying or selling a different product. This can

result in fewer challenges to IPRs of questionable

validity. It can, however, be difficult to track

down the manufacturer in question and it is

therefore sometimes easiest to persuade a

retailer to stop selling instead.

Manufacturers, on the other hand, will often have

made far more investment in the product or

service in question and may be more likely to

fight the action if it is without merit. Therefore,

since 1883, the UK has had provisions in one form

or another that aim to encourage rights holders to

focus allegations of infringement on the

manufacturer or service provider that produced

the competing product or service. However, the

area is a difficult one and uncertainties can lead

parties to be reluctant to enter communications


before instituting proceedings, therefore reducing

the opportunities for settlement.

Other European developments

Other jurisdictions generally do not have specific

provisions relating to threats but tend to rely on

general torts of unfair competition; for example,

case law based on the German Civil Code provides

that damages are payable for illegal and culpable

interference with the right to operate an

established business. This is a broader, although

not necessarily clearer, regime which prohibits

commercial actions that impair the interests of

competitors, consumers and other market

participants. These commercial actions can

include unjustified threats.

The introduction of European unified rights,

which currently include Community trade marks

and designs but soon will also include unitary

patents, caused both the UK courts and legislators

to consider how the unjustified threats provisions

apply to unified rights.

Reasons for change

The unjustified threats regime has been

controversial, given the difficulty of getting the

correct balance between the interests of rights

holders and alleged infringers. However, two key

problems have underpinned the case for

immediate reform:

Uncertainty as to what a threat is.

Inconsistency between different IPRs.

The various pre-action protocols in the Civil

Procedure Rules generally encourage parties to

litigation to resolve their differences before

proceedings are started, or at the very least to

narrow down the issues under dispute. However,

as the unjustified threats regime can give rise to

liability where claims are discussed in advance of

proceedings, this can discourage communication

and dispute resolution.

This has led to raised legal costs and complexity

in pre-action conduct for IPR infringement

actions, potentially stifling the ability of small

and medium sized businesses to properly assert

their IPRs against infringers.

Uncertainty as to what a threat is

While various exceptions to an actionable threat

exist, there is limited guidance on what those

exceptions mean in practice. Under the current

patents regime, a rights holder is only allowed to

provide factual information about the patent, or

make an assertion about the patent for the

purpose of any enquiries made to discover

whether or by whom the patent has been

infringed by primary acts; anything beyond this

could amount to a threat of action.

However, given the risk of implied threats, it is

difficult to be certain of the point at which a

communication contains more than mere factual

information and becomes an implied threat.

Inconsistency between IPRs

Although there are many elements of the threats

regime that are common across the different

IPRs, they have developed separately and, as a

result, there are some key differences. It is

therefore important to consider the risk of a

threats action when alleging infringement of

separate rights, such as trade marks and patents,

in the same communication.

For example, since the Patents Act 2004 came

into force, patent owners have been able to make


threats against persons doing primary acts of

infringement, such as manufacturing or importing

a product, in respect of both those primary acts

and any other acts, such as selling (see

"Actionable threats" below).

However, despite indications from the

government that this exception to an actionable

threat would also be swiftly extended to trade

marks and designs, this never took place. So a

threat in relation to a potential product that

encompasses those other IPRs may be actionable,

particularly if the threat relates to secondary acts

such as selling or distribution.

Reform

The Law Commission carried out a wide-ranging

review of the law and published its report in April

2014 (2014 report). The government accepted the

majority of the recommendations set out in the

2014 report and the Law Commission published

draft legislation in October 2015, along with a

further report (2015 report), in the form of the

Intellectual Property (Unjustified Threats) Bill

(the Bill). The government confirmed in January

2016 that it would be taking the Bill forward. It is

expected to be introduced in Parliament in the

next Parliamentary session.

Jurisdictional issues

National intellectual property rights (IPR): current regime

UK courts will hear threats

actions where the threat relates

to a UK IPR and UK proceedings,

but is made outside the UK.

Community IPRs: current regime

Threats provisions apply to

Community rights. Courts have

considered how a domestic right

to bring an action for groundless

threats applies to Community

trade marks and Community

designs.

The current test is that the

threat must be understood to

relate to proceedings brought in

a UK court (Best BuyCo Inc. and

another v Worldwide Sales

Corporation España SL [2011]

EWCA Civ 618).

All IPRs (including unitary patents and Community IPRs): new regime

The proposed test under the

Intellectual Property

(Unjustified Threats) Bill is that

the threat must be understood

to relate to acts done in the UK

or an act, which if done, would

be done in the UK. It specifically

brings the unitary patent within

the threats provisions despite

the Unified Patent Court not

being a UK court. It is irrelevant

where the threat to sue was

made. Threats to sue made

abroad are still actionable

provided that the relevant tests

are satisfied.


Non-actionable threats

Trade marks Designs Patents

Application of mark to

goods and packaging

Importing goods and

packaging

Supply of services

Causing another to apply

the sign (for example,

commissioning)

Intention to carry out

above acts

Secondary acts by same

person

Making or importing


above act


person

Making or importing a

product for disposal

Using a process


above acts


person

* Text in italics denotes proposed changes under the Intellectual Property (Unjustified Threats) Bill

One of the key aspects of the Bill is that the

provisions are to be harmonised across the

different IPRs, resolving one of the major

problems with the current regime. The Bill inserts

parallel provisions into each of the relevant

pieces of legislation currently dealing with the

rights in question, for example, the Patents Act

1977 for patents (see box "Legislation").

The Bill also identifies new categories of

permitted communications that will not

constitute threats and introduces a degree of

clarity. Where a primary infringer is identified,

the threats provisions will be relaxed but the

defence of justification will be restricted in scope

where a threat relates to a patent that is found

to be invalid.

What is a threat?

Under the Bill, a threat is made when a

reasonable person in the position of a recipient

would understand from a communication that:

An IPR exists.

A person intends to bring proceedings

(whether in a court in the UK or

elsewhere) against another person for

infringement of the IPR by an act that is

done in the UK or which if done would be

done in the UK (see box "Threats under

the proposed legislation").

This is a change in wording from the current law

where a threat depends on the understanding of

the ordinary person in the position of the

recipient. In practice though, this has been

interpreted by the courts as requiring analysis

from the perspective of the reasonable man.

In Best Buy Co Inc and another v Worldwide Sales

Corporation España SL, the Court of Appeal held

that whether or not a letter was a threat was to

be answered by reference to what a reasonable

person, in the position of the recipient of the

letter, with its knowledge of all the relevant

circumstances as at the date the letter was

http://uk.practicallaw.com/9-622-8686#a765663


written, would have understood the writer of the

passage to have intended, when read in the

context of the letter as a whole ([2011] EWCA Civ

618). This analysis was recently confirmed by the

High Court in Tech 21 UK Limited v Logitech

Europe SA, which involved Community design

rights ([2015] EWHC 2614 (Ch)).

Under the current law and the Bill, threats can be

implied as well as express and communications

need to be understood in the context within

which they are sent. In

GrimmeLadmaschinenfabrik GmbH & Co KG v

Scott (t/a Scotts Potato Machinery), even though

the letter in question stated that the claimant did

not intend to take proceedings, when it was read

in context with a reservation of the claimant's

rights and a reference to contacting the customer

again if it was successful in its action against the

defendant, the letter still amounted to a threat

([2009] EWHC 2691).

The Bill also deals with the territorial scope of

the provisions and, in particular, seeks to address

the issues raised by the unitary patent. The

current test set out in Best Buy requires the

threat to be understood to give rise to

proceedings being brought in a UK court and

would therefore not apply to proceedings in the

unitary patent court (UPC).

Under the new test set out in the Bill, the threat

must relate to an act that is done in the UK, or

which if done would be done in the UK. This

would then allow unitary patents to come under

the threats provisions if the alleged infringing act

to which the unitary patent threat related took

place in the UK. As is currently the case, lawyers

from other jurisdictions could still fall foul of the

threats provisions if they make a threat in

relation to an alleged infringing act done in the

UK or a generalised threat in relation to Europe

that might be taken to apply to the UK (see box

"Jurisdictional issues").

Actionable threats

For a threat to be actionable under the Bill:

The action needs to be brought by a

person aggrieved, who does not need to

be the recipient of the threat.

The threat must not fall within any of

three primary exceptions to an actionable

threat:

o threats made in respect of

primary acts;

o threats made in respect of

primary actors; or

o being a permitted

communication.

A person aggrieved is anyone whose commercial

interests have been, or might be, affected by the

threat in a real, as opposed to a fanciful, way. So,

for example, a manufacturer could bring an

action for threats made against retailers that

then cancelled orders from the manufacturer

Samuel Smith Old Brewery (Tadcaster) v Philip

Lee (trading as "Cropton Brewery") shows how

this provision works in practice ([2011] EWHC

1879 (Ch)). The claimant made an unjustifiable

threat to Marks and Spencer, a customer of

Cropton Brewery, for use of a stylised white rose

on bottles of beer supplied by Cropton Brewery

which was alleged to infringe Samuel Smith's

similar trade mark. However, Cropton Brewery

was not a person aggrieved as the threats had not

damaged the commercial relationship between

Marks and Spencer and Cropton Brewery (the beer

continued to be supplied) and consequently its

business had not been damaged.


There are three primary exceptions to an

actionable threat.

Primary acts. Broadly speaking, threats are not

actionable if they are made in respect of primary

acts of infringement (see box "Non-actionable

threats"). A threat is not actionable if it is made

in respect of a primary act or intended primary

acts.

There is no change under the Bill

from the current exceptions that

threats in respect of primary acts are

not actionable. However, the

exception is also expressly extended

to include intended primary acts,

such as an intent to import an

alleged infringing product. There is

also a specific change for trade

marks. Under the Bill, a threat made

against a third party for causing

another person to apply marks to

goods or in connection with a service

is also an exception to an actionable

threat. This anti-avoidance provision

prevents claimants avoiding the

threats exceptions by paying a third

party to add marks to the goods or

packaging in question.

Actions to which the threat refers.

Under the Bill, a threat is also not

actionable if it is made against

someone that is a primary infringer

regardless of whether or not the

alleged act or intended act is a

primary or secondary act. The

primary infringer is the person

making the infringing product or, in

the case of trade marks, applying the

mark, or importing the product.

Whereas a secondary infringer is someone dealing

with the product in a way that amounts to

infringement, such as through selling or

distributing an alleged infringing product.

This extends the current position for patents to

the remaining IPRs and removes one of the

significant inconsistencies between them. As a

result, it will be possible for a letter to be sent to

a manufacturer that makes threats in respect of

distribution as well as the manufacture of an


infringing design (see box "Non-actionable

threats").

Permitted communications. The permitted

communication exception will introduce a safe

harbour for rights holders looking to send initial

letters to potential secondary infringers (see box

"Legislation"). This should assist rights owners

trying to establish who the primary infringer is

without risking being sued for making a threat.

A permitted communication is a communication

that:

Does not contain an express threat to sue.

So far as it relates to the threat, is made

solely to:

o give notice that an IPR exists;

o discover the identity of a primary

infringer; or

o give notice that a person has an

IPR where another person's

awareness of that right is relevant

to any proceedings that may be

brought in respect of that IPR

(these are known as permitted

purposes).

All of the information relating to that

threat is information that is necessary for

the permitted purpose and is reasonably

believed by the sender to be true.

The courts have the ability to add to the list of

permitted purposes, the idea being that the list

will develop over time. The provisions also give

specific examples of where a statement is

deemed necessary for a permitted purpose and

when a statement amounts to a permitted

purpose, which will give greater clarity to letter

writers.

The following are all considered necessary for a

permitted purpose:

Statements that an IPR exists and is in

force or that an application for an IPR has

been made.

Providing details of the IPR in question

that are accurate in all material respects

and not misleading in any material

respect.

Providing information that enables the

identification of the products, services or

processes in respect of which it is alleged

that acts infringing the relevant IPR have

been carried out.

Conversely, the following are expressly not for

permitted purposes:

A request to cease doing the infringing act

in relation to a product, for example,

using a sign in relation to goods or

services, or doing something in relation to

a product or process.

A request for delivery up or destruction of

products.

A request for undertakings to be given in

respect of products, processes or

services.

Defences

The reformed threats provisions in the Bill set out

two statutory defences available to the rights

holder.

Justification defence. It will be a defence if the

defendant can show that the act in respect of

which proceedings were threatened was in fact

infringing (or would have been infringing if the

act had been done).


This essentially replicates the defence found

under the current law for all of the IPRs.

However, as currently proposed in the Bill, the

defence is not available if the right that is being

asserted turns out to be invalid. The 2014 report

argues that an invalid right is incapable of being

infringed and therefore there is no need for the

express carve out. While this is true, in removing

the invalidity wording, the draftsmen have also

removed another important part of the defence

for patentees introduced in the 2004

amendments.

For patents, the defendant patentee has a

defence, even if the claimant shows that the

patent is invalid in a relevant respect, if the

defendant proves that at the time of making the

threats it did not know, and had no reason to

suspect, that the patent was invalid in that

respect. This is an important provision as a

patentee may have a genuine belief in the

validity of a patent that is ultimately overturned

as a result of a thorough attack in the course of

proceedings which may, for example, identify

previously unknown prior art.

Of course, there is a public policy concern that

threats will not be made in relation to weak

patents and thereby protect unjustified

monopolies. As a result, the defence has been

construed relatively narrowly by the courts. In

Sudarshan Chemical Industries Limited v Clariant

Produkte (Deutschland) GmbH, the Court of

Appeal held that even though the patent attorney

who wrote the letter in question did not

personally have reason to believe that the patent

was invalid, the inventor was aware before the

priority date of facts invalidating the patent and

therefore the justification defence could not be

invoked ([2013] EWCA Civ 919).

Identifying the primary actor. It is a defence if

the defendant shows that it:

Took all reasonable steps to discover the

identity of the primary actor.

Notified the person being threatened

before or at the time of the relevant

threat of the steps taken.

In practice, it is not always possible to identify

the primary actor. Retailers may not wish to

damage commercial relationships with suppliers

by reporting them to potential claimants nor are

they incentivised under the proposed reforms to

do so. The Bill however, allows rights holders to

take some steps to identify the primary infringer

without facing a threats claim.

The defence applies only to patents under the

current regime, but is extended to the remaining

IPRs under the Bill, again removing an

inconsistency. However, a lower standard has now

been proposed. A patentee currently has to use

best endeavours to identify the primary infringer,

in contrast under the new regime reasonable

steps must be taken in relation to both patents

and other relevant IPRs. In all of these cases,

there remains significant scope for argument

about whether or not a particular step was

reasonable and it is debateable whether much

clarity has been added by this particular change.

Threats and privilege. The judicial policy of

encouraging settlement favours pre-action

correspondence in order to resolve or narrow the

issues before starting proceedings and justifies

the ability of the parties to claim without

prejudice privilege over genuine attempts to

settle a dispute. Parties generally need to be able

to have some frank exchange of views on the

merits to reach settlement and the protection of


privilege is an important safeguard even where an

unjustified threat might be made.

The Court of Appeal in Unilever v Procter &

Gamble made it clear that it was an abuse of

process for Unilever to rely on the statement

made by Procter & Gamble in a without prejudice

meeting that it would assert its rights in relation

to the patent in issue if negotiations were

unsuccessful ([1999] EWCA Civ 3027). However,

the courts have been careful to circumscribe

whether a communication containing a threat is

covered by without prejudice privilege.

So, for example, in one case despite

correspondence being marked "without

prejudice", the rule did not apply as no relevant

negotiations were actually taking place between

the parties at the time. Best Buy also looked at

the without prejudice rule and noted that

although the last three paragraphs of a letter that

was held to contain threats were an invitation to

enter settlement negotiations, the letter as a

whole could not be said to be a genuine attempt

to settle the case. The case underlines the

difficulty of avoiding threats in an initial

communication.

Therefore, while marking threats letters "without

prejudice" is an advisable step, the

communication needs to be a genuine attempt to

settle, otherwise the courts will dismiss the label

as disguising what is otherwise a clear threat to

sue.

Remedies

A person successfully suing for unjustified threats

is able to obtain:

A declaration that the threat is

unjustified.

An injunction against the continuation of

the threat.

Damages in respect of any loss sustained

by the aggrieved person by reason of the

threat.

These remedies are the same under the Bill as

under the current regime.

Immunity of legal advisers

Under the existing threats provisions, legal

advisers have previously been personally liable for

threats made on behalf of their clients. This has

raised difficulties for both legal advisers and

clients, and gives litigants an opportunity to play

them off against each other. As a result, the Bill is

proposing protection from liability for legal

advisers provided that certain criteria are met.

The legal adviser must be acting on the

instructions of his client and the client must be

identified in the communication, in order to

prevent clients hiding behind the immunity of

their legal advisers.

A legal adviser is defined as someone who is

acting in a professional capacity in providing legal

services, or the services of a trade mark attorney

or a patent attorney, and is regulated in the

provision of those services. This allows the

relevant regulator to take action against any legal

advisers who take advantage of their immunity.

The impact of the changes

It is difficult to strike the right balance between

rights holders and recipients of unjustified

threats. However, while the new regime resolves

some of the issues with the threats provisions,

there remain uncertainties in the practical

application of the provisions, particularly as a

result of technological developments.


A recent example of the uncertainty in the

threats provisions was highlighted by T&A Textiles

and Hosiery Ltd v Hala Textile UK Ltd and others

([2015] EWHC 2888 (IPEC)). In the decision, the

Intellectual Property Enterprise Court considered

whether a notification sent to eBay under its

verified rights owner system that gave notice of

registered rights and potentially infringing goods

constituted an actionable threat. The court noted

that there had been differing judicial

interpretation about whether a notice of this kind

was mere notice that the design right was

registered and therefore the threat would not be

actionable, although it concluded provisionally

that the notice was a threat. It is likely that

similar issues of interpretation will develop under

the reformed legislation.

Another important issue is the treatment of

threats in the European context. As the laws

surrounding IPRs become increasingly harmonised

across EU member states and particularly with

the introduction of the unitary patent, which

joins Community trade marks as a single pan-

European right, the threats provisions seem out of

place. Generally, other countries take action in

relation to threats under unfair competition law.

The 2014 report placed emphasis on not exporting

the threats regime to Europe, but those from

jurisdictions other than the UK can still fall foul

of the threats provisions. While further

harmonisation might be helpful, the suggested

introduction of a pan-European unfair

competition regime would raise far broader

issues.

Although the law will be harmonised across the

IPRs that are currently governed by threats

provisions, this still only covers patents, trade

marks and designs. One peculiar inconsistency is

that passing off is not covered by the rules but

trade mark infringement is. It is not uncommon

for both passing off and trade mark infringement

to be alleged together, but passing off may be the

only allegation raised in initial correspondence in

order to avoid possible threats actions. Also, the

new regime has resulted in the loss of an

important defence for patentees that currently

have a defence where the patent is found to be

invalid (and therefore the acts complained of are

not infringing) but the patentee was not aware of

the facts that rendered the patent invalid at the

time of the threat.

A final problem for rights holders is that the onus

is still very much on them to identify the primary

infringer. Although rights holders will be allowed

to enquire about the identity of primary infringers

(as has been the case since 2004 for patents),

there is no particular obligation on the addressee

of the enquiries to answer them. A retailer has

little incentive to divulge its supply chain and

consequently the rights holder may be forced to

sue in order to discover the identity of the

company or individual. This problem has not

really been addressed in the Bill and while the

obligation on rights holders to take steps to

identify the primary infringer has been softened

from best endeavours to all reasonable

endeavours, the onus remains on the rights

holder.

Nevertheless, there are several steps that an in-

house lawyer or rights holder should take when

considering making an allegation of infringement

(see box "Practical tips"). These can help

minimise the risks when making threats in

relation to infringement of IPRs and ensure that

companies and individuals are able properly to

assert their rights.


Practical tips

Owners of intellectual property rights (IPRs) that are considering making allegations of infringement

should:

Take care in all communications with other parties.

Note that a threat may emerge from a group of letters or in answer to a query.

Take care with announcements made in a mass communication, such as on a circular or

website announcement.

Note the differences in approach for different IPRs in the current legislation.

Analyse the position in relation to multiple IPRs and be wary of combining them in the same

communication, particularly under the current legislation.

Consider whether allegations can be confined to another jurisdiction.

Ensure that staff in England and other jurisdictions are aware of the risk of making threats

that might be taken to refer to the UK; for example, by mentioning a Community trade mark.

Consider simply giving notice of the existence of the IPRs.

Identify the potentially infringing acts carefully.

Assess the requirement for a permitted communication.

Choose the recipient carefully and consider whether it is a primary or secondary infringer.

Consider without prejudice communications but ensure that they are a genuine attempt to

settle and take particular care with first communications.

March 2016

535620904

Susie Middlemiss

T+44 (0)20 7090 4038

E [email protected]

Richard McDonnell

T +44 (0)20 7090 4240

E [email protected]

Laura Balfour

T +44 (0)20 7090 4018

E [email protected]

This article was originally published in the March 2016 edition of PLC Magazine.

© Slaughter and May 2016

This material is for general information only and is not intended to provide legal advice.

For further information, please speak to your usual Slaughter and May contact.

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