20/09/2013
Intellectual property rights exist to encourage and reward innovation. However, they can be misused to stifle new ideas and inventions. Infringement litigation can be disruptive and expensive, and the mere threat of such litigation may cause significant commercial damage to legitimate traders.
To deter rights-owners from simply making threats casually or recklessly, the law provides a remedy in the shape of the threats provisions. Where a threat is made without a genuine intention to litigate, where there has been no actual infringement or where the right is invalid, the threat is said to be unjustified or “groundless”. Any person aggrieved by a groundless threat may apply to court for an injunction, declaration or damages.
According to the Law Commission groundless threat provisions were introduced in the UK in the nineteenth century to resolve disputes about steam engines. Two manufacturers of steam engines were in competition, and one adopted the habit of “systematically threatening” to sue the other’s customers, who then stopped buying his competitors engines. Existing law offered no help to the aggrieved manufacturer, so in 1883 Parliament intervened and provided a statutory remedy for those aggrieved by groundless threats of patent litigation.
Since then, statutory remedies have been extended to cover groundless threats about trade marks and registered and unregistered design rights. The UK groundless threats provisions also apply to European patents, Community Trade Marks and Community design rights to the extent that they apply in the UK. There are no groundless threats provisions in relation to copyright in the UK.
The provision of a remedy against the making of groundless threats was intended to achieve a 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 litigation. However, it is generally held that this balance has not yet been achieved.
There is concern that the present groundless threats provisions are too wide-reaching and severe, particularly in the case of trade mark law. The provisions may actually encourage litigation rather than negotiation in the first instance, resulting in increased costs for parties. For example, under section 21 of the Trade Marks Act 1994, virtually any letter (beyond a simple notification) sent by or on behalf of the owner of a registered trade mark to an alleged infringer before infringement proceedings are commenced could be considered a threat. This could result in the owner of the registered trade mark having to pay damages if the proceedings are unsuccessful. As a result, the owner of the registered trade mark may find it safer to issue proceedings without even having tried to negotiate with the alleged infringer.
This is inconsistent with the Civil Procedure Rules, which encourage pre-litigation settlement of disputes and aim to reduce the cost of litigation.
There are several other problems with the current law. The provisions do not distinguish well between threats made against the trade source of the infringement and against others with a lesser connection, such as customers. Groundless threats actions can also be used tactically to drive a wedge between legal advisers and their clients, since it is not only the owner of an Intellectual Property right who is liable to a penalty under the groundless threats provisions – the owner’s legal advisers (both in-house and external counsel) may also be sued.
The Law Commission has therefore begun work on a major project to consider whether to repeal, reform or extend the groundless threats provisions in trade mark, design and patent law.
Between 17 April and 17 July 2013, the Commission consulted on two possible approaches to reform (click here to read the consultation paper). The first would be to do away with the current threats provisions altogether. Instead, groundless threats would be treated as a form of unfair competition and a new and broader cause of action, loosely based on Art 10bis of the Paris Convention, would be introduced. The second approach would be to build on the reforms made to patent law in 2004 and to extend these to the other rights. Consideration is also being given as to whether legal advisers acting on instructions should be protected from liability for groundless threats.
Following the end of the consultation period, preliminary indications are that the Law Commission does not believe that there is presently sufficient support for the first approach to take this forward, although they may consider this approach further at a later time.
The consultation process has apparently revealed very wide support for the second approach, namely reforming the law for trade marks and design rights along the lines of what was done for patents in 2004. There also seems to be strong support for changes to protect legal advisers from liability for groundless threats, possibly with some limitations to prevent abuse.
The Law Commission will be considering the results of the consultation further and its final report will be published in spring 2014.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.
