IP rights holders should use eBay's VeRO system cautiously

In Cassie Creations Limited v Blackmore (Case [2014] EWHC 2941 (Ch)), the High Court has declined to strike out an action for threats that arose from a notice issued under eBay’s Verified Rights Owner (VeRO) Programme. Although the case will now go to a full trial, the ruling does confirm that it is arguable that the filing of such notices may be actionable threats.

EBay’s VeRO Programme enables an IP rights holder to notify eBay if it believes that a third party is listing for sale on eBay products that infringe its IP rights. Once the notice of infringement has been received, eBay is likely to remove the 'infringing' products until the dispute between the rights holder and the third party has been determined.

The case of Quads 4 Kids v Campbell ([2006] EWHC 2482 (CH)) held that it was arguable that a notice under eBay’s VeRO system was an actionable threat, and an interim injunction was granted by the High Court. At Paragraph 23, Pumfrey J defined an actionable threat as “a statement from which a reasonable man in the position of a person to whom the statement is made understands is a statement that might well be the subject of infringement proceedings”.

A groundless threat is actionable under Section 26 of the Registered Designs Act 1949 (for registered designs) and Section 253 of the Copyright, Designs and Patents Act 1988 (for unregistered designs).

Therefore, if the rights holder cannot prove that the third-party product does infringe its IP rights, it has made a threat, which is actionable, and the third party can sue for the loss it suffered as a result of its product being delisted from eBay.

In the present case, both parties market cake stands and do so almost exclusively on eBay. The claimant was a new enterprise. The defendants sent a VeRO Notice to eBay complaining that the cake stands infringed their registered design rights. eBay then sent notices of design right violation to the claimant, asking it to desist from marketing the cake stands on eBay. The listings were removed from the website. The defendants also sent a letter to the claimant via their lawyers, alleging infringement.

It was some months before the claimant's items were re-listed.

The claimant issued a claim for groundless threats in relation to the eBay notice and the letter. The defendants applied to strike out the claim and the claimant applied for summary judgment, an application which the defendants also applied to strike out.

The three most significant questions to be determined were:

1. Whether the defendants had made actionable threats against the claimant by filing a notice using eBay’s VeRO system

2. If there were threats, whether they were groundless

3. Whether the proceedings ought to be stayed or struck out as being disproportionate or an abuse of process.

With regard to the first issue, Mr Spearman QC stated that the answer was not clear, and as each side had a real prospect of success, the matter should go to trial in the usual way. On a provisional basis, the court found the claimant’s submissions to be the more persuasive. However, there were two points that went against the court granting summary judgment in favour of the claimant. The first was that the High Court in Quads 4 Kids had regarded the issue as a “remarkably difficult question” and did not decide anything more than that the point was arguable. Here, the court was not precluded from taking a different view but noted that Pumfrey J had approached the matter with some hesitation. The second point was that the court did not have enough material to make an assessment of the defendant’s arguments that, on the particular facts of how the VeRO system operated, there was no threat.

With regard to second first issue, again, the court felt that the claimant’s arguments were stronger but that this question needed to be determined by trial.

With regard to third first issue, the Court was not persuaded that the claim was disproportionate or an abuse of process, and refused to strike it out or issue summary judgment in favour of the defendants. On this issue, the court noted that, if an intermediary like eBay is put on notice that its operation is being used for infringing activity, its general response is going to be to protect itself against becoming liable for infringements, as it would risk doing if it did not desist from the complained activity once it had been notified (ie, eBay will de-list the material).  This follows the decision of L’Oréal SA v eBay International AG ([2009] EWHC 1094 (Ch)). So, in the majority of cases, eBay will protect itself and de-list the products to avoid the risk of liability and the court felt that to be expected. The court found the claimant’s claim to be understandable and reasonably pursued.

Although it remains to be determined at full trial, this decision confirms that is it arguable that filing a notice of infringement with eBay may be considered an actionable threat, and if the IP rights holder cannot justify the infringement claim, it could be exposed to damages for the loss suffered by the recipient of the notice resulting from eBay de-listing its products.

The main lesson for IP rights holders to take from this decision is not to file notifications unless certain they can prove the validity of their IP rights and that the third party is infringing them. Misusing the VeRO Programme could end in court proceedings and payment for any loss suffered as a result.

Sharon Daboul, EIP, London