Groundless threats - Nvidia v Hardware Labs

Don't fret, there's no threat here

Groundless threats is one of IP's thorny issues which the IPKat most recently considered in the context of the UK Government's plans for reform.  As Jeremy succinctly noted in his post "the chilling effect of a threat to sue, particularly where the defendant is a retailer, distributor or other business that does not make the (non)-infringing goods, can destroy the trade of perfectly innocent traders who are not even party to the threats and who may have no idea that they have been made." 

He went on to note: "the current law is a dreadful mess and anything that can be done to make it more consistent, and indeed intelligible, is to be welcomed. It is however sad that businesses, IP owners and their professional advisers must work in an environment in which so much European substantive IP law has been harmonised -- especially with regard to registered rights -- but the extent to which threats to sue may or may not be made within Europe remains inconsistent and the opportunity to consider the impact of unwarranted threats to sue upon the operation of the single European market was not seized."

The lack of harmonisation was brought into sharp focus in the recent English High Court case of NVIDIA Corp v Hardware Labs Performance Systems Inc [2016] EWHC 3135 (Ch). 

This judgment concerned the Defendant's application for strike out/summary judgment of the Claimant's claim to groundless threats, the Claimant's application to stay their groundless threats claim pending an EU IPO decision, and the Defendant's application for transfer to IPEC or the Shorter Trials Scheme.

The groundless threats question turned on the location of a threat to sue.   More specifically, can a letter sent in English from a Germany company to a US parent company regarding infringement of an EU trade mark constitute a threat to bring trade mark infringement proceedings in England and Wales?

What is a groundless threat?

Section 21 of the Trade Marks Act 1994 explains that a groundless threat is:

(1) Where a person threatens another with proceedings for infringement of a registered trade mark other than—  

(a) the application of the mark to goods or their packaging,
(b) the importation of goods to which, or to the packaging of which, the mark has been applied, or
(c) the supply of services under the mark, any person aggrieved may bring proceedings for relief under this section. 

This section then sets out the available remedies:

(2) The relief which may be applied for is any of the following— 

(a) a declaration that the threats are unjustifiable,
(b) an injunction against the continuance of the threats,
(c) damages in respect of any loss he has sustained by the threats; and
the plaintiff is entitled to such relief unless the defendant shows that the acts in respect of which proceedings were threatened constitute (or if done would constitute) an infringement of the registered trade mark concerned. 

And goes on to note that:

• a claimant can get relief for groundless threats if it can show that the trade mark is invalid or the relevant part of the mark is liable to be revoked (s. 21(3)); and
• notification that a trade mark is registered or an application for registration has been made is not a threat of trade mark proceedings (s. 21(4)).

An EU trade mark can be used as the basis for a claim for groundless threats but "only if the threat concerned is of proceedings in the United Kingdom" [18].  This comes from  Best Buy Co Inc v Worldwide Sales Corporation Espana [2010] Bus LR 1761 at para 15; on appeal at [2011] FSR 742 at para 24.

Was the German letter a groundless threat?

Large excerpts from the letter are set out at paragraphs [7] to [9] of the judgment.

For those less inclined to read the full text, in summary, the judge (Mann J) noted:

1. the letter was clearly a threat to sue (this was not disputed);
2. all references to legislation were either to the Community Trade Mark Regulation (i.e. EU law) or German legislation; and
3. all references to infringing activity concerned German (.de domain) websites.

The key question was whether the letter constituted a threat of infringement proceedings in the UK.  According to Lord Neuberger in Best Buy at para 18, this is an objective test.  In Lord Neuberger's words, it depends on "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 written, would have understood the writer of the passage to have intended when read in the context of the letter of the whole."     

But would this reasonable person have contacted a lawyer?  

A key part of the Defendant's case was that a reasonable defendant would have contacted a lawyer following receipt of their letter.  This (reasonable?!) lawyer would have appreciated that pan-European relief could only be obtained against the German company in Germany and consequently there was no prospect of infringement proceedings in the UK. 

This issue was considered recently in Tech 21 UK v Logitech Europe [2015] EWHC 2614 (Ch). In that case, the judge, considered that it would be appropriate to consider: "whether the Letter would have been understood by a reasonable recipient, who had received correct legal advice on the provisions governing where proceedings for infringements of Community design rights may be brought, as indicating that there was a realistic possibility of UK proceedings being brought… in respect of the [alleged] infringement." (emphasis added by Mann J in his judgment).

The judge agreed that "in an appropriate case" threats letters should be treated as though viewed with the benefit of legal advice.

Was this a threat to bring proceedings in the UK?

The Claimant sought to rely on various factors (set out in para 24 of the judgment).  Their main points were that the letter:
(i) was written in English;
(i) referred to various German websites "by way of example";
(iii) required pan-European relief; and
(iv) was sent in the context of various international trade mark disputes including an allegation of invalidity at the EU IPO based on an earlier unregistered right in the UK.

The Claimant tried to draw an analogy with Best Buy where a significant factor in finding groundless threats in the UK was the knowledge that the claimant's group was planning launch the EU business in the UK.

The judge was not impressed with these arguments and noted that the letter contained neither explicit nor implicit references to proceedings in the UK. A threat to cease and desist "from using [the marks] in the course of trade in the EU" was not sufficient to displace the primary threat which was of proceedings in Germany.

What about the letter in the surrounding circumstances?

Even if the letter itself was not a clear threat to bring proceedings in the UK, the Claimant suggested that it would be read in that way when the surrounding circumstances were considered - in particular the importance of the UK jurisdiction to the parties and the UK's status as one of the major IP litigation centres in Europe. The judge noted that Germany was also a major IP litigation centre and of commercial importance to the parties.  As he put it "A reader of the letter would understand that he or she was being threatened with proceedings in one major IP litigation centre.  He would not assume he was therefore being threatened with proceedings in another which is not mentioned."

Will this still be an issue if the Intellectual Property (Unjustified Threats) Bill is passed - current draft here?

I'm sure readers will have an opinion...  At the very least, this case is a useful reminder of the potential pitfall of groundless threats and how all jurisdictions should be alive to the potential risks.

Stays and shorter trials

Finally, there were some interesting comments at the end of the judgment regarding a stay application and the shorter trials scheme.  The trial was considered too complicated for either IPEC or the Shorter Trials Scheme both in terms of evidence and disclosure.