Unjustified Threats: New rules relating to groundless / unjust threats in IP cases

New legislation came into force on 1 October 2017, to codify the law on unjustified threats made by the owners of intellectual property (IP), to sue a third party for infringement.

The Intellectual Property (Unjustified Threats) Act 2017 (the Act) brings long-overdue consistency to the rules applicable to registered intellectual property rights, but there remain some areas of ambiguity.

IP owners will therefore still need to exercise caution when making any threats to bring legal proceedings for infringement.

Background to the previous position

The law has provided protection to anybody unjustly threatened with IP infringement for many years. Essentially, any threat to enforce registered IP (i.e. trade marks, registered designs and patents) by suing for infringement, may itself be actionable.

This means that anybody threatened with infringement proceedings, such as a manufacturer, importer, distributor, customer, or user, can bring an action against the person making the threat, if it turns out to be unjustified.

However, the provisions for unjustified threats regarding patents, trade marks and designs had developed separately over time, and the rules had become inconsistent and complex.

The law on unjustified threats was reviewed in 2012 by the Law Commission. They published a paper on their findings and were subsequently asked by the Government to draft a bill to make changes to the law.

In May 2016 the Intellectual Property (Unjustified Threats) Bill was introduced into Parliament. It received Royal Assent in April 2017 and the Act then came into force on 1 October 2017.

Aims of the Act

One of the aims of the Act is to strike a better balance between the rights of the owners of registered IP, who not unreasonably wish to protect their assets, and the rights of individuals and businesses who are threatened with infringement proceedings.

The old law was criticised for being problematic as alleged infringers notified of claims were able to argue that they had received an unjust threat in a wide range of circumstances, that differed depending on the IP in issue. It was therefore complicated for IP owners to safely allege infringement across a broad range of registered IP.

This made communications between the parties to a dispute particularly difficult, and could act as an obstacle to seeking an early negotiated resolution, because many IP owners would simply commence proceedings to avoid the risk of having a separate dispute over whether pre-action threats were unjust.

The Act therefore aims to facilitate communication, so that those involved in a dispute have a better chance of trying to resolve matters without recourse to proceedings.

What amounts to a “threat”?

Companies or individuals who are confronted with an unjustified threat of proceedings for trade mark, design or patent infringement can bring a claim against the person(s) making the threat and obtain damages as well as an injunction (to prevent future threats).

The test to be applied when deciding whether the communication in question is a threat is whether a reasonable person in the position of the recipient would understand from the communication that:

1. A registered IP right exists
2. The owner of that IP intends to bring proceedings for infringement in the UK.

Once clear that the communication can be classified as a threat, the question then turns to whether someone is entitled to bring a threats action.

Who can bring a threats to action and what are the exceptions?

Any person aggrieved by a threat may bring an action unless an exception applies. Those exceptions are:

1. The primary act exception. Threats are allowed if they are made directly to the primary infringer, which would include the manufacturer or importer of infringing material, or those applying the registered IP such as trade marks to packaging. Primary infringers may also be threatened with legal action for secondary acts of infringement, such as distributing or selling infringing IP, without fear of an unjustified threats action being brought.
2. The permitted communication exception. Threats are also allowed where owners of IP rights are attempting to identify the ‘source’ of the infringement. This often involves communication between right holders and secondary infringers (who, perhaps, are selling infringed goods).

What are the defences to an unjust threats claim?

It is a defence to prove that the act complained of in a threat is in fact an infringement of IP.

It is also now a defence (which is new with regards to trade marks and designs) if an IP owner can prove that they have taken reasonable steps to locate the primary infringer, but have been unsuccessful and therefore must approach those further down the supply chain.

Professional advisers

Under the old law, any person could be sued for making a threat, including professional advisers such as solicitors acting on their clients’ instructions.

Under the Act, a threats action cannot be brought against a professional adviser if they are acting on their clients’ instructions and they have identified their client to the person they are making any threats to. The instructing client would still remain liable for any valid unjustified threat claims, however.

What does this mean for those threatening, or refuting an infringement of IP?

The Act aims to strike a better balance between the owner of IP wishing to enforce their rights, and alleged infringers. It should provide greater clarity to those threatening to sue for infringement, about the nature of the threats that can be made, and to whom, without fear of making an actionable unjustified threat. This should provide a catalyst for wider engagement between the parties to IP disputes, and help to avoid the commencement of costly and time consuming legal proceedings.

However, the application of the Act has not been tested by the Courts and the scope of the permitted communication exception, and the reasonable steps that an IP owner must take to find the primary infringer, are open to debate.

Businesses or individuals wishing to communicate with IP infringers should therefore remain cautious and carefully consider the provisions of the Act, to assess whether their communication could give rise to an unjustified threats claim by the recipient.

Those threatened with proceedings should also consider the application of the Act, and whether the nature of the threat could still be classified as unjustified, and provide a pre-emptive claim against the maker of the threat.