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The future of groundless threats

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29/05/2014

What are they and why do we have them?

The phrase ‘groundless threats’ refers to provisions in UK legislation, which were originally introduced to provide a level of protection against threats of patent infringement. They have their origin in the nineteenth century, when persons (typically large companies) who claimed to be patentees, would threaten, often without justification, to initiate infringement proceedings against actual or potential customers of rivals in order to deter them from dealing with those rivals. In the absence of a statutory provision to the contrary, it was difficult for the rival or the customer to bring any claim based on such a threat, even if it caused them serious loss. Section 32 of the Patents, Designs and Trade Marks Act 1883 (now section 70 of the Patents Act 1977) was enacted so as to provide an aggrieved person with a remedy for groundless threats of patent infringement proceedings. This remedy was later extended to trade marks, registered designs and unregistered designs. Notably, no similar provisions have ever been enacted for copyright works.

Establishing a groundless threat

The threats legislation varies between the different IP rights. For patents, for example, section 70(1) of the Patents Act 1977 states “where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for any infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4) below, bring proceedings in the court against the person making the threats, claiming any relief mentioned in subsection (3) below”.

Section 21(1) of the Trade Marks Act 1994 states that an actionable threat arises “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”.

By definition, a claim cannot be brought if the threat is not “groundless”. Therefore if the maker of the threat can prove that there has been or will be an infringement of valid IP rights, the party threatened will have no cause of action. A threat may be made orally or in writing and it will be viewed in the context of the correspondence or series of communications as a whole.

Notification of rights

Mere notification that an IP right exists or is registered does not amount to a threat of proceedings. However, the provisions which support this have been very narrowly interpreted in the courts, so great care is required when drafting notification correspondence.

Who is liable and who can bring the action?

Any “person” making the threats can be sued. This could include not just the IP owner, but a licensee, user or anyone else, whether or not they have an interest in the IP right in question. Solicitors and other professional advisers who make threats on behalf of their clients can be sued. One way around this has been for solicitors to take an indemnity from their client, but this will only be practicable where the client is wealthy enough to meet the indemnity if called upon to do so.

An action may be brought by “any person aggrieved” by the threat. Such person must establish that his commercial interests are, or are likely to be, adversely affected in a real, as opposed to a fanciful or minimal way.

Possible remedies include a declaration that the threats were unjustified, damages and an injunction.

Exceptions

Certain activities of an alleged infringer do not fall within the groundless threats legislation:

In terms of patents, the exceptions are:

  • making or importing a product for disposal
  • using a process.

This is an important exception, covering “primary infringers”.

In terms of trade marks, the allegedly infringing activities are:

  • applying the mark to goods or their packaging
  • importing goods bearing the mark
  • supplying services under that mark.

In terms of designs, there is an exception where the alleged infringement is the making or importing of goods to the design.

The effect of the threats legislation

An effect of the legislation is that rights holders may be inclined to issue proceedings without first sending a warning letter. This sits uneasily with the Civil Procedure Rules which encourage the parties to resolve their differences without resorting to litigation and where costs consequences may follow from a failure to do so. This was a point made in 2006 by the Law Society, which proposed the abolition of the threats legislation, on the basis that it was acting as a deterrent to attempts at settlement.

The Law Commission, in its April 2014 report, “Patents, Trade Marks and Design Rights: Groundless Threats” [1], did not go so far, saying instead that the groundless threats legislation should be retained. It did, however, propose some important reforms which, if implemented, will substantially reduce the scope of the legislation:

  • a threats action should not be available for all threats made to a primary actor. This is already the case for patents, but the recommendation is that this be extended to the other rights. Primary actors are those who have carried out primary acts, such as the importation of goods or the application of a mark to packaging;
  • it should be possible to communicate with secondary actors, i.e. those who have not carried out the primary acts. This will be where there is a legitimate commercial purpose behind the communication, such as to track down the source of the infringement or to remove an innocence defence, and where there are reasonable grounds for believing that the information provided is true. The legislation would provide guidance as to what would be acceptable;
  • for patents, it should no longer be possible to avoid liability for making threats by showing that, at the time of the threat, the person making the threat did not know, or had no reason to suspect, the patent was invalid; and
  • solicitors and registered patent or trade mark attorneys should no longer be jointly liable for making threats where they have acted in their professional capacity upon their client’s instructions.

Walker Morris comment

The Law Commission’s proposals are welcome and will hopefully become law sooner rather than later. Not only will professional advisers hopefully be less wary following the amendment, but it will be good news for clients too, as they will be far less likely to be asked for an indemnity and should benefit from a more robust approach from their advisers, who will not have to resort to tortuous phraseology to avoid falling foul of the legislation.

The extension of the exception for patents to other forms of IP makes obvious sense and the relaxation of the rules regarding secondary infringers should make it easier to comply with both the groundless threats legislation and the Civil Procedure Rules at the same time.

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[1] Law Com No 346