Threats in the spotlight
Threats provisions remain an area of great interest and debate for many intellectual property specialists and the recent case of Cassie Creations Limited v Simon Blackmore and Mirrorkool Limited  EWHC 2941 has again placed threats and their commercial application into the spotlight.
In Cassie Creations, the Claimant was a start-up company which marketed cake stands on eBay. The Defendants also marketed cake stands on eBay and held Community Registered Designs for designs similar to those marketed by the Claimant. The Defendants used the "VeRO" (Verified Rights Owner") system to advise eBay that the Claimant's cake stands infringed their registered and unregistered designs. eBay then contacted the Claimant, requesting that they remove their listings from the website.
As a result of the VeRO complaint, the Claimant suffered an inevitable loss of trade. The Claimant was also concerned that it could prejudice their ability to sell goods on eBay long-term. The Claimant therefore brought a claim against the Defendants, alleging that the VeRO complaint amounted to an unjustified threat under section 26 of the Registered Designs Act 1949 ("RDA") and section 253 of the Copyright, Designs and Patents Act 1988 ("CDPA").
The parties made several applications to the Court. The Defendants brought a strike out application on the basis that the Claimant had no reasonable grounds for bringing the claim. In the alternative, the Defendants sought summary judgment, arguing that the Claimant had no real prospect of succeeding on the claim and there was no other compelling reason for a trial. The Claimant also made an application for summary judgment in respect of several aspects of its claim. The applications were heard by deputy judge Mr Richard Spearman QC in July 2014.
This is not the first time that VeRO has come under legal scrutiny. In the 2006 case of Quads 4 Kids v Campbell  EWHC 2482, Pumfrey J granted an interim injunction restraining Quads 4 Kids from threatening Campbell with proceedings after they submitted a notice via the VeRO system against Campbell, claiming that Campbell's bikes infringed their Community Registered Design rights. In the course of making his decision about the injunction, Pumfrey J noted that there was a "serious triable issue" as to whether or not the VeRO system constituted a threat.
The deputy judge considered five central issues when assessing the merits of the applications:
- Whether the Defendants had made threats against the Claimant in accordance with the relevant threats legislation;
- Whether, if there were threats, those threats were groundless;
- Whether the first Defendant, Mr Blackmore – a director of the company – was jointly liable with the second Defendant company, Mirrorkool Limited;
- Whether section 26(2A) of the RDA (as amended) and section 253(3) of CDPA provided the Defendants with protection against the threats claim; and
- Whether the proceedings should be stayed or struck out on the grounds that they were disproportionate and an abuse of process.
1. Did the Defendants make threats against the Claimants?
The Claimant submitted that the notice sent to eBay under the VeRO scheme "plainly" constituted a legal threat as the notice asserted the Defendants' ownership of their registered design rights and the belief that those rights had been infringed. By comparison, the Defendants argued that the notice under the VeRO scheme only gave notice of an assertion of intellectual property rights which eBay then investigated to reach an appropriate result.
The deputy judge considered the previous case concerning the VeRO system and threats - Quad 4 Kids v Campbell. In that case, Pumfrey J noted that eBay's VeRO scheme was designed to avoid eBay becoming involved in disputes, which led them to "take the line of least resistance". In reality, this meant that notified listings were always removed, which made any notice seem more like a threat.
Whilst the deputy judge indicated that he found that argument, and the Claimant's arguments, persuasive, he also noted that Pumfrey J had only said that it was arguable that the notice was a threat when granting an interim injunction. The deputy judge considered that he was not precluded from reaching a different conclusion.
The Defendants argued that a commercial assessment of eBay's VeRO scheme in 2006 could not necessarily be carbon copied to 2014 and this case was not wholly comparable to Quad 4 Kids in any event. In the earlier case, the issues considered – and the significance of the decision – were narrower as they dealt only with the grant of an interim injunction, not a strike out application. Moreover, the Defendants said there were real reasons to believe that the VeRO process had changed at eBay, as they now investigated notifications and did not thoughtlessly proceed with removing listings.
The deputy judge considered that more material was required to assess those submissions, particularly with respect to the VeRO system. The deputy judge was interested in how notices were handled – and by whom – at eBay as the evidence did not demonstrate that a designated member of a Legal Department responded to or dealt with the notices, a fact which did not sit well with the principle that "there is a legal test as to what is a threat".
The deputy judge considered that neither party had delivered a "knock-out blow" and therefore neither party was successful in their application. The question of whether the VeRO notice constituted a threat needed to be decided at trial.
2. If the Defendants did make threats, were these threats groundless?
This question was wholly dependent on the answer to the first question and so was not considered in any detail. However, the deputy judge indicated that the Claimant was in a stronger position because a visual comparison of the relevant products suggested that it was "very, very unlikely" that infringement had taken place. As such, if the Defendants were found to have made a threat, it was likely that the threats would be considered groundless.
3. If a valid threat had been made, was Mr Blackmore jointly liable with Mirrorkool for it?
The third issue was considered in greater detail as it did not require consideration of the technical issues concerning groundless threats but was a simple assessment of liability.
The deputy judge considered two communications: the VeRO notice itself and a letter sent on 7 May 2013 from the Defendants' solicitors to the Claimant's patent attorney.
With regard to the VeRO notice, the deputy judge considered it clear that Mr Blackmore, a director of the second Defendant, was jointly liable for the VeRO notice. Mr Blackmore owned and asserted the Defendants' rights; he signed the VeRO notice on behalf of the second Defendant and provided his contact details.
Liability in respect of the letter was more complicated and depended upon whether Mr Blackmore was involved personally, given that the letter was sent by solicitors. However, it was considered that he would have been personally involved as the letter reflected the context of the VeRO notice. Further, the small family nature of the company and Mr Blackmore's position as shareholder suggested that it was not unreasonable to infer that Mr Blackmore authorized and approved the sending of the letter.
4. Does the relevant legislation provide the Defendants with protection against the threats claim?
Section 26(2A) of the RDA and section 253(3) of the CDPA prevent claims being brought for threats made in relation to the making or importing of goods only. The Defendants sought to argue that, as the ongoing Law Commission consultation had considered extending these exemptions to also cover threats made in respect of selling, it was open to the deputy judge to read an extension into the current legislation.
The deputy judge considered the argument "hopeless". The legislation means what it says and it has not changed. The Defendants' potential threats covered selling as well as making and importing and could not therefore claim protection under the current legislation.
5. Are the proceedings disproportionate or an abuse of process?
The final issue was whether the proceedings were worth pursuing. The parties had radically different ideas about the damage sustained but the deputy judge did not conduct any substantial assessment because the central question as to whether the VeRO notice amounted to a "threat" contributed to that assessment in any case. For the same reason, there was no reason to consider that there had been an abuse of process by either party here. As Pumfrey J had decided in 2006, there was a "serious triable issue". It could not be regarded as an abuse of process when the issues are clearly as complex – and legally significant – as they are here.
In essence this judgment changes little, as it deals with preliminary strike out and summary judgment applications - all of which were rejected by the deputy judge on the basis that there was an arguable claim to be heard. What is of note is that it endorses Pumfrey J's view in the Quads 4 Kids case that there is a serious point of law to be decided as to whether a notice made under eBay's VeRO system can amount to an actionable threat.
It may be doubtful as to whether the parties involved will want to proceed to trial in order to obtain judgment on this point, although it would undoubtedly be of benefit to others to clarify the position. In the meantime, intellectual property rights holders should exercise judgment when deciding whether to submit a notice under the VeRO system, as there is a risk that it may ultimately be considered to be an actionable threat.
First published in the E-commerce Law Reports