Man on call on bridge.

Groundless Threats: Time for Reform?

14 November 2013. Published by Jeremy Drew, Partner and Georgia Davis, Legal Director

The move for reform
Current IP legislation provides for protection against groundless threats in respect of IP infringement being brought by a rights holder against a competitor.

The current legislation covers, patents, design rights (both registered and unregistered) and trade marks, but excludes copyright.

Groundless threats provisions were originally introduced in response to owners of patent rights threatening infringement proceedings against competitors without any bona fide intention of following them up with proceedings. The cost and complexity of patent infringement proceedings were thought to be so high that the issue of threats could result in competitors being driven from the market. The provisions were therefore intended to prevent casual threats of IP infringement being made by owners of IP rights without any basis for doing so, whilst also allowing IP owners to retain the opportunity to enforce their rights against those parties manufacturing or importing the infringing articles (ie not retailers and parties down the product supply stream).

However, the groundless threats provisions have caused problems in practice and commonly discourage discussions from being held in an open and ultimately productive manner. Many consider reform to be overdue.

Earlier this year, the Law Commission launched a consultation into groundless threats provisions in English law. The consultation paper entitled "Patents, Trade Marks and Design Rights: Groundless Threats" sought to consider and address recognised concerns about the groundless threats provisions for patents, trade marks, registered design rights ("RDR")  and unregistered design rights ("UDR") and consider whether an unfair competition law may have a role to play going forward.

The consultation closed on 17 July 2013 and the Law Commission has now provided its preliminary comments on the responses to the consultation paper.

The key proposals

The 2004 reforms to the Patents Act 1977 introduced four exemptions which permit the threat of proceedings in respect of any alleged act of infringement, and not just in respect of the primary acts of manufacturing or importing, where the person being threatened has made or imported the product for disposal (or used that process). In summary, those exemptions are:

  1. making enquiries and assertions to track down a primary infringer;
  2. making threats where the primary infringer cannot be found despite using best endeavours to find them;
  3. providing factual information about the patent; and
  4. where a patent is invalid, the defendant to a threats action has a "good faith" defence, if at the time of making the threats it did not know and had no reason to suspect, the patent was invalid.

The consultation recognised that these exemptions do not permit a rights owner to take pre-emptive action to prevent infringing items from being manufactured and/or being placed on the market, and proposed extending the exemptions to cover situations where someone has threatened to make or import a product for disposal or to use a process.

It was also recognised that the exemptions introduced in 2004 had been well received and the Law Commission's consultation has also proposed to implement these defences for trade marks and RDR. Such reform would remove the difference between registerable intellectual property rights and alleviate the problems with the current law applicable to trade marks and RDR. The inclusion of UDR within the reforms was also touched upon by the Law Commission, but no clear proposal for reform was given.

The consultation also questioned the need for immunity for legal advisors against groundless threats claims. Unlike many other jurisdictions, UK legal advisors do not have immunity against such claims.  Tactically, by adjoining a firm of solicitors to a groundless threat claim, a receiver of a threat letter can use the claim as a tool to cause friction between a law firm and its client. The reforms would provide immunity to legal advisors against groundless threats proceedings.

The consultation also noted that most civil law jurisdictions did not deal with groundless threats via specific statutory provisions. Instead, the potential abuse was dealt with under general tort law or the specific tort of unfair competition. The consultation therefore also welcomed practitioners' views on a proposal to introduce a specific tort of unfair competition, as an alternative to the legislative changes suggested above.

The Law Commission's comments on the response

The Law Commission received 21 responses to its Consultation Paper from various European and national bodies representing legal advisors and rights holders, judges, individuals and private and public companies. The Law Commission was delighted with the quality of the responses it received describing many as "thought provoking".

The Law Commission will consider the responses further and is not expected to discuss any proposals with the Commissioners until after Christmas 2013. However, the Law Commission's initial comments provided some insight into the respondents' prevailing viewpoints.

The Law Commission noted that there was strong support to reform trade mark and RDR law to mirror the approach taken in the Patents Act 2004, in order to provide greater clarity and consistency.  The majority of responses also agreed with the need to provide immunity to legal advisors against groundless threats litigation.

On other proposals, particularly in respect of UDRs, the responses were more diffuse. This is understandable given the fact that UDRs are unregistrable rights and their inclusion within the threats provisions creates a distinction between UDRs and copyright. The Law Commission has confirmed that it will consider the various views in greater detail.

Commentary

The preliminary comments from the Law Commission are positive and confirms support for reforms to the current legislation in order to remove uncertainties for legal advisors, rights holders and alleged infringers.

In the first instance, such reform is likely to amount to changes to the current legislation – at least as an interim measure. The consultation paper recognised that the introduction of a new tort of unfair competition was an "evolutionary step" - akin to a revolutionary change – which would bring the UK closer to civil law jurisdictions. As such, it was likely to require a further, more detailed, consultation.

So what next? The Law Commission has confirmed that its formal response will be published in Spring 2014 but, at this stage, the Commission is not planning on writing a draft Bill. What is clear is that the current position amounts to a trap for the unwary, with inconsistent positions adopted across the spectrum of intellectual property rights. The proposals to materially remove inconsistencies between threats provisions for patents and other intellectual property rights are to be commended. However, the oft-raised alleged panacea of introducing a law of unfair competition should be considered in more detail in due course, even if the Commission (understandably) considers that this requires additional work and a separate consultation. Another step in the journey…