UK To Revamp Law On “Groundless Threats” Of Infringement Suits

Recommendations for key reforms to laws against “groundless threats” of infringement lawsuits in patent, trademark and design rights cases won general UK government backing today. IP lawyers said the government’s stance will go far toward resolving longstanding concerns.

The government statement [pdf] responded to an April 2014 Law Commission report [pdf] that urged changes “sooner rather than later” in order to resolve a “persistent problem.”

The concern is that intellectual property litigation continues to be viewed as expensive, complicated and ripe for being misused for damaging trade rivals, said the commission. Current rules have been criticised for being too complex, allowing experts to exploit technical loopholes “while tripping up the unwary,” it said.

The report recommended – and the government accepted – that protection against groundless threats be retained and continue to apply to unregistered design rights, but that the law relating to groundless threats of patent, trademark and design rights infringement be revamped.

All threats provisions allow some litigation threats relating to the most serious infringements, the report said. They distinguish between “primary” and “secondary” acts of infringement in order to allow rights owners to threaten the trade source of the infringement (such as the manufacturer or importer) with impunity but not softer targets such as customers or retailers.

“This seems simple in principle” but in practice the distinctions are often very technical and have caused problems, it said. Rights owners may have good reason for writing to a seller or customer about possible IP breaches in order to, for example, find out where the goods came from or notify an innocent infringer about the right.

The commission recommended a new exclusion from liability for making threats for legitimate communications. The government agreed that new legislation should generally define the kinds of communications to be excluded from the groundless threats prohibition, but that it shouldn’t be too inflexible.

However, it said it wanted to “reflect further” on whether defining excluded communications as ones that are made for a “legitimate commercial purpose” is the right way to go or risks being interpreted too broadly, potentially removing effective protection for secondary actors.

The commission also recommended modifications that, the government said in accepting them, would introduce patent defence rights into trademark and design law for the first time, making the rights more consistent. Another recommendation to which the government agreed was that lawyers and registered patent and trademark attorneys not be held liable for making threats where they have acted in their official capacity and upon their clients’ instruction.

Good for Small Businesses

The unjustified threats provisions “are a minefield for the unwary, particularly rightsholders outside the UK who often send cease and desist letters unaware of the potential consequences,” said DLA Piper UK IP attorney John Wilks. Even if the threat can be justified, a groundless threats claim can “put a rightsholder on the back foot in litigation and cause unnecessary costs,” he said. The changes significantly narrow the scope of the provisions and make them more consistent, he said. That will make it easier for companies, especially small businesses with less access to specialist IP advice, to write to those who breach their IP without having to run the risk of threats proceedings against them, he told Intellectual Property Watch.

Ideally, the UK may ultimately replace or remove the groundless threats regime altogether, a possibility left open by the government response, said Wilks. In the meantime, he added, the evolutionary approach set out should bring a “relatively quick fix to the most significant issues.”

The government has “highlighted an area which could threaten to undermine” the commission proposals, said Baker & McKenzie IP litigator Hiroshi Sheraton. Current provisions relating to patents allow for letters to be sent to secondary infringers such as merchants that either provide factual information about the patent or make enquiries for the sole purpose of identifying the maker or importer.

The recommendations apply a similar, but broader, exception, provided that the communication is for a “legitimate commercial purpose,” he said. They therefore offer a broader exception than is now in place for patents, albeit across a wider class of IP rights, but also introduce uncertainty about when the exemption test will be satisfied, he said.

The government proposed that “guidelines” be issued on the topic, “but this in itself will only serve to add complexity and uncertainty about when the exception applies, said Sheraton. The government correctly said that such a wide interpretation could potentially do away with any effective protection for secondary actors – which is a key objective of the groundless threats provisions in the first place, he said.