Consultation on groundless threats in patent, trademark and design litigation published
The Law Commission has published a consultation on "Patents, Trademarks and Design Rights: Groundless Threats".
The Law Commission says that "there are problems with the current law" as regards groundless threats in patent, trademark and design right litigation. Accordingly, it is consulting on two approaches to reform. The first is to build on the reforms made to patent law in 2004 and to extend these to the other rights. The second, more radical, approach is to treat groundless threats as a form of unfair competition, and to introduce a new and broader cause of action based on the Paris Convention.
The mere act of making a threat of action for infringements of patent, trademark and design rights can result in serious commercial damage for the recipient of the threat. Where there is no basis to the allegation of infringement, or no genuine intention to litigate, the threat is unjustified. The recipient has a statutory right to seek an injunction to stop the threat and to claim damages, but the legal framework is inconsistent and complex, which makes it difficult to discuss reasonable settlement. The Law Commission began to review the law of groundless threats of infringement proceedings for patent, trademark or design infringement in April 2012 at the government's request.
As originally drafted, the legislation referred to acts of infringement, such as manufacture or advertising for sale, rather than type of infringer. This has caused problems as demonstrated by Cavity Trays Ltd v RMC Panel Products Ltd ( RPC 361), in which threats of infringement proceedings were made in respect of acts of manufacture, promotion, marketing, advertisement and sale to the manufacturer of the infringing articles. The threats relating to promotion, marketing, advertisement and sale were found by the Court of Appeal to be actionable.
The law has been reformed in relation to patent, so that threats made to a primary infringer such as manufacturers and importers for other acts of infringement are not actionable. However, the problem continues for threats in relation to trademarks and design rights. Consequently, it is easy for a rights holder to trigger the groundless threats provisions when writing to a manufacturer or importer if the letter also alleges that the recipient has promoted, advertised or sold the product. Further, according to the commission, groundless threats actions can also be used tactically to drive a wedge between legal advisers and their clients, since legal advisers may be sued in their own right for making threats, even when acting on the client's instructions.
The commission is considering two different approaches to reform. The first approach builds on and adapts the 2004 patent reforms. These are:
- to extend the exemption for threats made to primary infringers so that groundless threats proceedings may not be brought for threats made to a person who has manufactured, imported or used a process, even where the threat refers to another act of infringement;
- to protect legal advisers; and
- to clarify when a rights holder may communicate with, or even threaten a secondary infringer (eg, a retailer).
The second approach is to introduce a new tort of making false or misleading allegations, founded on the provisions of the Paris Convention. The commission asks for initial views on the advantages and disadvantages of such an approach, stating that, if there were strong support for a reform of this type, it would need to publish a further consultation paper with more specific proposals.
Concerning the first point of the first approach (extending the exemption for primary infringers), the commission is proposing, with respect to patents, to extend the exemption to cover those who intend to make or import products for disposal or to use a process, so that infringement can be tackled at an earlier stage. The commission does not think demonstrating intent would be unduly onerous. As for design rights, the commission proposes extending the definition of 'primary infringement' so that all threats made to a maker or importer would be exempt, even if the threat also referred to other forms of infringement. Again, threats to those who intend to make or import would also be excluded.
For trademarks, the commission proposes to exempt any threat made to a person who has applied a mark to goods or has imported goods to which the mark has been applied. It also proposes to clarify the law so that threats to those who have caused the mark to be applied, for example by sub-contracting the work, will also be exempt. On the question of whether services, as well as goods, supplied under a trademark should be exempt, the commission has concerns. The consultation asks whether, if there is to be a primary infringer exemption for services, it should only apply to those who have taken the commercial decision to brand the services using the mark.
With regard to the second point (protection for legal advisers), the commission says that, in Australia, advisers acting in a professional capacity are not liable for acts done on behalf of the rights holder and that "this appears to be working satisfactorily". The commission proposes that similar protection should be available for lawyers, registered patent attorneys and registered trademark attorneys acting in a professional capacity on behalf of a client.
With regard to the third point (legitimate approaches to secondary infringers), the 2004 patent reforms introduced four separate defences designed to prevent groundless threats actions from obstructing genuine attempts to settle disputes with alleged secondary infringers:
- making enquiries and assertions to track down a primary infringer;
- making threats where the primary infringer cannot be found despite best endeavours being used to find them;
- providing factual information about the patent; and
- 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 in that respect.
The commission proposes that these defences should be extended to trademarks and registered and unregistered design rights. However, it has concerns about the 'good-faith' defence, arguing that it gives too much protection to the maker of the threat and too little to the aggrieved person. Accordingly, the commission has proposed the repeal of the good-faith defence.
Concerning the second approach, the commission is proposing that the United Kingdom could enact a new tort of making false or misleading allegations with regard to patent, trademark or design right infringement. It envisages that the new tort would follow the Paris Convention by applying to allegations made in the course of trade which tend to discredit the establishment, goods or activities of a competitor.
Like libel, the commission envisages that a cause of action would require three actors. A would need to make an allegation to B, which caused or was likely to cause loss to C's business. C would then have a cause of action against A. The allegation must:
- relate to the infringement of a patent, trademark or design right;
- be made in the course of trade; and
- tend to discredit the establishment, goods or activities of a competitor.
The claimant would not need to show the allegation was untrue. However, A would have a defence if it could show that the allegation was true and not misleading. As with libel and the current threats provisions, the burden of proof would lie with A. The allegation must either have caused loss or be likely to cause loss. Such loss would need to be a foreseeable result of the defendant's actions and be realistic rather than fanciful.
In the commission's view, threats provisions are an integral part of the enforcement regime and play an important role in regulating the balance between protecting existing rights and stimulating new ideas and inventions to promote economic growth. The main importance of groundless threats legislation lies in the influence it has on the way that infringement disputes are conducted. The commission therefore specifically asks to hear from legal advisers, retailers and others about how far negotiations over patent, trademark and design rights infringement is conducted in the shadow of the legislative provisions on groundless threats.
The commission also recognises that its second approach to reform needs careful consideration. If there is strong support for a reform of this type, the commission says that it will publish a further consultation paper with more specific proposals. The current consultation is open until July 17 2013. The commission’s final report is expected in spring of 2014.
Leigh J Smith, McDermott Will & Emery UK LLP, London
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