United Kingdom Parliament to reform the law of
Unjustified threats of infringement of
Intellectual Property rights
The Intellectual Property (Unjustified Threats) Bill [HL] 2016-17 (the “Bill”) passed second reading on 27 June 2016. It is one of the initiatives announced in the Queen’s Speech on 18 May 2016 outlining the Government’s legislative programme for the current session of Parliament. It seeks to reform the existing law of unjustified threats, along lines recently recommended by the Law Commission. When passed into law, these changes will affect patent, trade mark and design right holders considering infringement proceedings.
The UK’s statutes relating to patents, designs and trade marks all provide for civil liability in circumstances where an IPR holder makes a ‘groundless threat’ to bring an infringement proceeding which ultimately proves to be unjustified.
These provisions are intended to prevent IPR holders abusing their monopoly rights to unjustifiably stifle genuine trade and innovation by intimidating legitimate traders with the prospect of expensive infringement proceedings. However, experience in recent years has shown that the current regime is producing undesired and unexpected consequences, often to the detriment of IPR holders and particularly SME’s trying to protect their intellectual property. In reports delivered in 2014 and 2015 the Law Commission recommended changes to the existing law, and proposed legislation substantially in the form of the Bill now before Parliament.
Criticism of the current law
Under current legislation, an action for a groundless threat can be brought by ‘secondary actors’ (such as a distributor) where the claimant is able to show that they are likely to suffer loss and damage affecting their commercial interests as a result of the threat. The threat must relate to ‘secondary acts’ such as supplying or selling the infringed article; as a threat made concerning ‘primary acts’ (such as importation or applying a trade mark to an article), are not actionable by the recipient of the threat. This may be contrasted with the law relating to patents which, following amendments in 2004, expanded this exception slightly, to exclude actions for groundless threats brought by a person who carries out both primary as well as secondary acts in relation to the same infringing article.
The current law is complex and inconsistent across the different areas of IP. A different set of rules applies in certain cases to threatened patent infringement proceedings and, perhaps surprisingly, there is no statutory remedy for groundless threats relating to copyright, trade secrets, confidential information or unregistered trade names and passing off. This increases the legal costs of businesses taking advice in this area, a burden that is disproportionately felt by SMEs, particularly in innovative sectors, for whom the protection of IPRs is vital.
In addition, advising clients in this area has become challenging for professional advisors given the significant risk of potential liability. Indeed, some cases have gone so far as to extend liability to the professional advisers personally. The Law Commission found evidence of some solicitors requiring indemnification agreements from their clients before accepting instructions to issue a pre-action letter to a potential infringer. There has also increasingly been a practice to avoid potential liability altogether by simply commencing litigation without sending any pre-action letter, even though this is required under the Civil Procedural Rules Pre-Action Protocol as a means intended to reduce litigation costs by promoting the early settlement of a dispute before initiating litigation.
The proposed reforms focus on achieving a balance between the efficient enforcement of the rights of an IPR holder and ensuring fair competition in the market by discouraging the making of groundless threats. The key amendments in the Bill are:
1. It will harmonise the unjustified threat provisions in the trade marks and design statutes with the current law in relation to patents. This will exclude liability for threats made not only against primary actors, but also in cases where the same potential infringer is engaging in both primary and secondary activities.
2. A safe harbour provision is added for communicating with ‘secondary actors’ such as retailers, where the sender reasonably believes that infringement has taken place, or where the communication is limited to seeking information necessary to establish the supply chain of the infringing article to identify the primary infringer (“permitted communication”).
3. The safe harbour will protect a communication notifying a secondary actor of a subsisting IPR and seeking information necessary to identify the primary infringer. However, a demand that the recipient cease or desist from trading in an article, or deliver up infringing articles, would be outside the scope of permitted communication and the safe harbour.
4. The Bill aims to protect regulated professional advisors (including trade mark and patent attorneys) from personal liability against unjustified threats when acting on a client’s instructions, and client’s identity is disclosed. The client may however be liable for a groundless threat.
A missed opportunity?
The Bill does not deal with threatened infringement proceedings relating to copyrights, passing off and trade secrets. Copyright is a particular area where there has been recent experience of abuse, including a notorious case where thousands of cease and desist letters were dispatched by a firm to individuals accusing them of infringement through peer-to-peer file sharing over the internet.
The Law Commission also considered whether the time had come to replace these statutory provisions with a new general tort of ‘false allegations in the course of trade’, similar to the law of ‘unfair competition’ in some continental European civil law jurisdictions. This would bring UK law closer to European law, and was the solution strongly advocated by the respected former intellectual property judge, Sir Robin Jacob. However, this proposal failed to find support among other stakeholders.
The proposed changes are to be welcomed. They seek to harmonise the unjustified threats regime across various IP statutes, and clarify the permissible types of communications and threats which can be made without attracting liability. The amendments will enable clients and their legal advisors to conduct permitted enquiries and gather information about potential infringers without fear of legal action being brought against them.
It is hoped that these reforms reduce the transaction costs for SMEs seeking to enforce their rights, and reverse the previous “chilling” effects that made professional advisors reluctant to send pre-action letters. The reality is that many IP infringement matters are resolved following pre-action correspondence, and it is important for SMEs that costly litigation be avoided where possible. These amendments strike a balance between the need to protect the public and market place from the unfair abuse of monopoly rights, while at the same time facilitating the legitimate enforcement of IPRs and encouraging innovation.
If you would like further information on this topic, or require legal advice in relation to this or any other legal issue in the area of intellectual property, please contact the following members of our team:
Zaiwalla & Co LLP
Tel: +44 (0)20 7312 1000
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