Any party who has wrongly alleged infringement of its trade mark, patent or design can be liable for making an ‘unjustified threat’. This is enshrined in the legislation relating to the protection of each of these respective IPR’s. Although curiously, it does not apply to copyright, passing off or breach of confidence claims. It allows an alleged infringer, where proceedings are threatened against it, to claim or counterclaim for:
- A declaration that the allegation is groundless;
- An injunction preventing the repetition of the threat; and
- An order for payment of the damages caused by the threat.
The introduction of the remedy against the making of groundless threats was first introduced by the Patents Act 1977. It was intended to balance the interests of the IPR owner and legitimate traders, who may be put off from trading lawfully due to the risk of incurring unwanted infringement litigation. Previously, it was thought that such threats had caused commercial damage to alleged infringers who had stock returned from customers and lost out on business through fear of selling their own product. This balance has yet to be achieved and this is evident in the fact that the Law Commission is now considering whether to repeal, reform or extend the threats provisions in trade mark, design and patent law.
Problems with the current laws
Rather than encouraging negotiation between the parties, which is in keeping with the aim of the Civil Procedure Rules, the current provisions actually encourage litigation. For example, under section 21 of the Trade Marks Act 1994, any letter to an alleged infringer from an IPR owner, before infringement proceedings are commenced, save for a mere notice, could be considered a threat and result in the IPR owner having to make a payment of damages if the proceedings are unsuccessful and damages are proven.
As a result the IPR owner, who wishes to protect its rights, has to issue proceedings as it is ‘safer’ than the option of writing directly to the alleged infringer. It is sometimes possible to make the threat provided it is part of a genuine attempt to settle the dispute (see Unilever v Proctor & Gamble ) but this is not always possible.
Further, it is not only the IPR owner who is liable to a penalty under the threat provisions. The solicitor writing the letter on the IPR owner’s behalf can also be sued by the alleged infringer. For example, in the patent case of Brain v Ingledew (No. 3), a firm of solicitors was found liable, for making groundless threats in a patent action.
Given the far greater emphasis now placed by the Courts on prelitigation settlement of disputes it is clear to see that these provisions need to change.
The UK vs other countries
Another indicator for the need for reform can be seen when the UK’s position is compared to that of other countries. Most countries across the world do not have threats provisions within their intellectual property legislation. For example, in Australia, although such provisions exist, they do not apply to an IPR owner’s legal advisors (see section 129 Trade Marks Act 1995).
The UK’s threat provisions come under even more scrutiny however, due to the fact that it is not even applied uniformly to all types of UK IPR. Currently, any threat made for an infringement of copyright is not generally subject to penalty if it is unfounded. This is hard to justify given that just as much commercial damage can be caused to an alleged infringer of copyright than an alleged infringer of a trade mark or a design.
Perhaps a way forward in tackling this “imbalance” between the interests of IPR owners and lawful traders, would be to narrow the ambit of the threat provisions.
For example, amending the provisions so that penalties for unjustified threats apply only to threats made to customers of the alleged infringer. The result would be:
- IPR owners will be able to contact alleged infringers directly and enter into negotiations to resolve disputes , without the need for issuing proceedings beforehand; and
- Alleged infringers will still be protected from disproportionate commercial damage as IPR owners will be reluctant to contact their customers and third parties who may return or refuse to sell the alleged infringer’s goods for fear of proceedings.
A more radical change would be to extend the amended threat provisions to copyright. This would rectify the current anomalous position but is likely to be strongly resisted by the media content industry in particular.
The Law Commission could also consider protecting innocent businesses from unjustified threats by amending the Civil Procedure Rules to allow declarations that threats are unjustified to be brought cheaply and quickly. However, this may increase the amount of litigation, rather than negotiation, and thus increase the money spent on resolving such disputes.
The Law Commission will publish a consultation paper in February 2013 and expects that a report will be made to the Government in 2014. We wait and see whether making changes to the existing provisions is deemed justifiable.