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.
Changes to the law on threats: balancing interests
Changes to the law on threats: balancing interests
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
Changes to the law on threats: balancing interests
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
Changes to the law on threats: balancing interests
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.
Changes to the law on threats: balancing interests
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
Intention to carry out
above act
Secondary acts by same
person
Making or importing a
product for disposal
Using a process
Intention to carry out
above acts
Secondary acts by same
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
Changes to the law on threats: balancing interests
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.
Changes to the law on threats: balancing interests
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
Changes to the law on threats: balancing interests
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).
Changes to the law on threats: balancing interests
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
Changes to the law on threats: balancing interests
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.
Changes to the law on threats: balancing interests
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.
Changes to the law on threats: balancing interests
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
Richard McDonnell
T +44 (0)20 7090 4240
Laura Balfour
T +44 (0)20 7090 4018
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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