For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Friday, 6 July 2012

IP groundless threats provisions: why reform is required

Kats can look after themselves,
but IP litigants need special
consideration ...
An issue which has been frequently discussed in the United Kingdom but never satisfactorily resolved is the balance between the competing interests of IP owners who need an effective mechanism for protecting their rights and legitimate traders who may be deterred from trading lawfully by the risk of incurring unwanted infringement litigation. The provision of a remedy against the making of groundless threats was intended to achieve this balance but, by all accounts, has generally failed to do so.

The following guest post from Jodie Albutt (a patent attorney with Dehns, London) picks up on the Law Commission's current programme, which includes an examination of the IP threats rules, and reminds readers that the current law may make British courts a less attractive place in which to commence proceedings [and therefore a more attractive place in which to be sued, thinks Merpel]:
"IP groundless threats provisions: why reform is required

The Law Commission has recently begun work on a perhaps long overdue project to consider whether to repeal, reform or extend the provisions in trade mark, design and patent law that allow parties who have been threatened with infringement proceedings to seek damages from the makers of the threat.

Whilst the intention behind the groundless threats provisions was to prevent commercial damage from being done to traders and downstream parties and to stop threats of infringement action being made casually by proprietors of intellectual property rights (IPRs), there is concern that, particularly in the case of trade mark law, the provisions are too draconian and may encourage litigation rather than negotiation in the first instance, with the result of increased costs for parties. This is inconsistent with the Civil Procedure Rules which aim to reduce the cost of litigation and to encourage a negotiate first, sue later approach.

It goes without saying that a proprietor of an IPR should be able to defend its rights against an infringer and that it would be advantageous in most circumstances to be able to negotiate with an alleged infringer and to have the opportunity to resolve the matter without bringing expensive infringement proceedings. However, many IPR proprietors are choosing not to proceed in this way in view of the possibility of being sued for making threats, where one of the remedies available is the payment of damages.

Section 21 of the Trade Marks Act 1994 provides the legal basis for an action for groundless threats and is particularly broad, allowing any person aggrieved by a threat of infringement proceedings (except for threats concerning the application of the mark to goods/packaging, the importation of goods/packaging to which the mark has been applied and to the supply of services under the mark) to bring proceedings. Trade mark infringement does not always fall directly within the excluded categories and for example may often involve the use of a similar mark rather than the specific registered mark. Thus, although the idea behind the exemption in section 21 was to prevent threats to primary infringers from being actionable, the application of the law currently means there is a risk that any letter to even a primary infringer before infringement proceedings are brought could be considered to be a threat and could result in the eventual payment of damages if any infringement action is unsuccessful. This presents a great risk to any Trade mark proprietor in approaching a potential infringer before issuing proceedings.

With respect to patents, the reform of section 70 in the 2004 Act went some way to dealing with many practitioners' concerns. Thus, in the amended Act, relief for the issue of a threat is not available if infringement of the patent is shown, even in situations where the patent is found to be invalid as long as it can be shown that the proprietor did not suspect the relevant part was invalid at the time of the threat.

Further, the threats exempted from action under s.70 were broadened to include not only threats in respect of making or importing a product or using a process, but also to include threats concerning other activities (e.g. marketing/retail) made to a person who has made or imported a product or used a process. A further defence allowing a threat to a secondary infringer if best attempts to find the primary infringer failed was also included, addressing the concerns of many that the Act did not provide for a situation where a primary infringer could not be identified and where secondary infringers could not be contacted without the risk of threats proceedings being issued.

However, even with the patent reforms, the complexity of the law in this area means that any pre-proceedings contact with an alleged infringer comes with a risk of an action under the threats provisions. The only entirely risk free way of proceeding in the UK is to issue infringement proceedings as a first step and it is therefore clear that some kind of reform is needed to the threats provisions. The harsh consequences on IPR proprietors for falling foul of the provisions makes the UK an unattractive jurisdiction in which to resolve IP disputes and this needs to be addressed".
A speaker at a MARQUES conference many years ago in Dublin commented that, in one form or another, each EU Member State had its own way of deterring the making of groundless threats.  If this is indeed so, it would be good to hear from readers from outside the UK -- whether European or not -- and to discover how their domestic law deals with wrongful threats to sue.

The IPKat adds: most countries don't seem to have threats provisions within their IP legislations so he assumes that, if the making of groundless threats to sue another person is part of their law, it will be a principle of general application and not specific to IP law.  There would appear to be some sense to this. After all, why should the making of a groundless threat to sue another for an IP infringement be actionable while the making of a similarly unfounded threat to sue a licensee for breach of the terms of a licence should not be?  Additionally, it is anomalous that, in the UK, not all groundless IP threats are actionable: it all depend on which rights are allegedly infringed.

3 comments:

Mark said...

Hear, hear! Let's get rid of these terrible provisions, which contradict the requirements for openness in the CPR. If we need a protocol on egregious behaviour in asserting legal rights, do that separately and don't limit it to IP.

Gentoo said...

This is about "who? whom?" No doubt everyone here has listened to Niall Ferguson's Reith lecture on how the rule of law has been replaced by the rule of lawyers. And read the study that suggests the table stake fot IP lawsuits is between $500,000 to $4m. If I were, say, a smallish manufacturer of GPS based navigation devices and, say, a large software company brandished what most techies believed to be rubbish IP, I would be pleased to get out with a fairly cheap settlement even if I were "owned" as a consequence. (Of course if said large software company then picks on a company with too much skin in the game, then the rubbish IP might get idetified for what it is, though I suspect small GPS manufacturer remains owned).

How to stop the legitimate actions within legal system of large software company seems to have more to do with examining the parameters of IP than reform of the legal system.

BUT as the furore over a large bank currently demonstrates (add back the DEA SOPA ACTA DMCA, your list here) and

public choice - a primer

http://www.iea.org.uk/publications/research/public-choice-a-primer

expands upon, the "little people" don't get access to politicians in the same way.

To me the real issue appears to be the politicians lack of interest in addressing market concentration.

So while I'm always interested in the erudition of the Law Commission I'm going to be deeply curious to find out how they move beyond rhetoric.

Anonymous said...

Certainly not wholesale repeal.

The present provisions are sound, and provide a counterbalance to the power of a self-declared posessor of monopoly rights to disrupt the legitimate activities of a competitor, or to extort settlements for alleged infringements, through the fear that the cost of legal proceedings for infringement of monopoly rights can instill in a party who is less-experienced in such matters, whether they are the alleged infringer, his customers or his suppliers.

Of course the same can be said for many other classes of legal proceedings, but experience suggests that IP litigation is one area of law that is perceived as particularly technically opaque, that is costly to obtain advice on, and that favours the presumed rightsholder over the alleged infringer. Perhaps threats provisions should exist in respect of others; I do not have the right experience to comment. Personal injury or employment law claims, perhaps?

The legislation exists to counter the chilling effects of fear of litigation, not to prevent rightsholders from taking action in good faith to defend their sanctioned monopoly. Rightsholders should be free to pursue those who infringe their rights early, not least because stopping infringement early is less commercially damaging to both parties and can result in a swift resolution.

But the legislation also exists to cause rightholders to think, and to obtain advice, about their prospects for success, and to make an assessment, prior to making threats, whether they are justified in their action. Often, the rightsholder has the better information, at the time of the threat, as to whether there is some reason that his right may not be valid or infringed.

Let us take for example patents action. An invalidity search and opinion is costly for the alleged infringer, who has to treat a granted patent as presumed valid. The scope of claims should be clear to one skilled in the art, yet engineers and scientists who are beyond the capabilities of that notional creature must normally seek expensive legal advice as to whether their product infringes a given claim, except in the most egregious cases of direct copying. A small infringer may find it easier to settle, even where he has substantial doubt about the merits of the action. Customers may desert the threatened party, through fear of subsequent litigation or through the possibility of losing access to supplies, parts and technical service.

Now let us take copyright as an example. How is an alleged infringer to be sure that a threatener holds the copyright in question? How is an artist, a photographer, an author or a musician, which are disciplines built on "influences" and "inspiration", or a teacher, whose work is to inform, inspire and demonstrate, to assess the legal concepts around "fair use", or to interpret "substantial taking"? If courts, academics and practitioners can disagree on such issues, what can the alleged infringer do? He must necessarily take costly legal advice. Again, it is simpler to cave into the threats.

What is thus needed?

o Statutory exceptions for agents acting on the instructions of a principal;
o uniformity across monopoly IP rights (particularly extension to copyright and related rights);
o an exception for the situation where, on the basis of the available facts, it was reasonable for the threatener to believe that the acts complained of were an infringement and that there was no reasonable defence; and
o an exception or mechanism for deferral to address a situation where the matter in respect of which the threat is made is subsequently made the subject of formal litigation.

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