Law Commission publishes bill to harmonise actions for groundless threats of infringement

The Law Commission has published a bill to harmonise UK actions for groundless threats of infringement, making assertion of IP rights and discovery of primary infringers more straightforward.

The overarching aim of the Law Commission's draft bill is to harmonise the laws allowing aggrieved persons to bring an action for unjustified threats (of proceedings for infringement of IP rights) across those rights to which they currently apply:

• patents (and now making provision for European patents under the Unified Patent Court's jurisdiction and the new unitary patents);

• UK and Community trademarks; and

• UK and Community, registered and unregistered design rights.

The proposal is to conform the provisions for trademarks and design rights with those already in place for patents - by extending provisions on who may be threatened, without risk of a threats action, to those who are already primary infringers, in relation to any act, not just acts of primary infringement (to which they are currently limited for these former two types of IP right).

What comprises an actionable unjustified threat would thus be narrowed in scope by this bill. For the holders of IP rights, this change and the provision of a "safe harbour" form of communication for "permitted purposes" should make it easier to communicate and assert rights pre-action, and to request information on the source of infringing goods from those in a supply chain or retailers, without risking the potential defendant getting the upper hand and becoming a claimant in a threats action against the rights holder. The bill will also help bring IP rights disputes in line with the general pre-action protocol requirements for correspondence between parties prior to the issuing of proceedings, currently difficult to follow in the IP arena without risking a threats action.

To some extent the Law Commission has missed an opportunity to abolish what is a complex area of law which appears at odds with the approach taken in other parts of the European Union; instead it has extended and codified it, albeit primarily in respect of registered rights, without extending it to unregistered IP rights (other than unregistered designs which were already caught by the current legislation).

Following a "short consultation", the bill looks likely to be fast-tracked through the legislative process via the special parliamentary procedure approved by the House of Lords in 2010 for uncontroversial Law Commission bills attracting broad parliamentary consensus.

Although there has long been a call to abolish the regime of unjustified threats, the Law Commission has adopted the approach of retaining but reforming it - what it calls an "evolutionary approach". The draft bill (see Appendix C, at page 74 of the Law Commission's report) was published on the October 12 2015 and the UK Intellectual Property Office launched a short consultation on October 22 2015 on its implementation.

The key reforms that the Law Commission proposes to the UK unjustified threats regime are as follows:

• Allowing threats to be made to a "primary actor" in relation to any infringing activity (not just primary infringement) in relation to design rights and trademarks (as is already the case for patents) - shifting the focus away from the act of infringement itself, to the person to whom the threat is made. The reforms narrow the reach of the current groundless threats actions in respect of trademarks and design rights to align it with patent law by prohibiting proceedings being brought in respect of threats made to a manufacturer/importer (ie, a primary infringer) in respect of primary and secondary acts (eg, subsequent sale of the goods).

• Providing a framework within which disputing parties can exchange information to resolve the issues between them with a view to avoiding litigation - the consultation revealed a demand from stakeholders for more guidance about what could and could not be said in pre-litigation correspondence between the parties. To assist with this the bill sets out "permitted communications": where certain conditions are met, a threat made to a secondary actor (infringer) will not be actionable, although this exclusion does not apply to express threats to sue for infringement. For each IP right, the section gives guidance on what may be said and for what purpose, thereby resolving the uncertainty of the current law. This section provides a “safe harbour” to allow a rights holder to communicate with someone who might otherwise be entitled to bring a threats action if threatened. This will also include requesting information on the identity of the primary infringer from a secondary infringer (customers, retailers etc) ("discovering whether, or by whom, a registered trademark has been infringed by an act [of primary infringement]").

• Additional defence for trademark and design threats - the defence currently available in relation to patents, whereby a threatener is not liable for threats where efforts to find the primary actor were unsuccessful, is extended to trademarks and designs by the bill. However, currently the threatener must have used “best endeavours” to find the primary actor; this is changed to “all reasonable steps” for all three types of IP right (trademarks, designs and patents).

• Protecting professional advisers from personal liability for making threats when they act for their clients - professional advisers will no longer be liable where they act on their client's instruction and name their client in the communication.

• Inclusion of unitary patents and European patents that come within the jurisdiction of the Unified Patent Court in the unjustified threats regime (see below).

• The link that must be established with the United Kingdom for the threats provisions to apply - the test set out in the proposed legislation is that the threats provisions will apply where the communication is such as to be interpreted by a reasonable person receiving it as meaning that the threatener intends to bring proceedings (in a UK court or any other court) against another person for infringement of one or more of those rights by (i) an act done in the United Kingdom, or (ii) an act which, if done, would be done in the United Kingdom. This appears very wide but it seems that the amendment was driven by ensuring that the forthcoming unitary patents will be caught by the UK threat provisions.

The business impact of the bill is as follows:

• Threats actions have always been a source of concern for rights holders - how best to warn potential infringers off infringing rights or communicate with a potential or actual infringer prior to issuing proceedings without giving them the opportunity to bring an action for groundless threats and gain the upper hand in the role of claimant in that action, even if the rights asserted are valid and do turn out to be infringed. Add to that the fact that the professional advisers of the rights holder could also be sued in the same action, and you had a recipe for the general recommendation from those advisers, more often than not, for rights holders to issue proceedings first before any substantive communication was made with infringers.

• The introduction of the concept of a 'permitted purpose' contained within a 'permitted communication' creates a form of safe harbour for a rights holder to communicate with a purported infringer. This should bring the regime into line with the Civil Procedure Rules approach to pre-action communications, partly rectifying the current inconsistency where a rights holder can fall foul of the regime even when following pre-action protocols.

• The bill also curtails the ability for actionable threat proceedings to be brought against a purported infringer's professional advisers. As the Intellectual Property Office's (October 22 2015) short consultation discussion paper stated, this should "provide a clear framework within which businesses and their professional advisors can operate to resolve disputes, including attempting to negotiate a settlement before turning to litigation."

• Although the bill retains the principle of the old threats regime - providing redress to recipients of threats where these are groundless because there has been no infringement, or where the IP right relied upon is invalid (although in patent terms, genuine belief of validity on the part of the threatener is a sufficient defence), its amendments should, in practice, allow trademark and designs rights holders to avail themselves of the same exceptions and defences currently only allowed in respect of threats of patent actions in order to minimise the potential of liability.

• Significantly, under the proposed "permitted purpose" the rights holder would be able to request details of the primary infringer from those in its supply chain such as customers or retailers. The rights holder, or other person making the threat, is also provided with a defence (that it took all reasonable steps, without success, to discover the identity of a person who had done the primary act of infringement before requesting such information from a secondary actor). Such a defence is currently only available in relation to patents but requires "best endeavours", a stronger test than "reasonable steps".

• The Law Commission's reforms bring consistency and rationale to this heavily criticised area of IP law by harmonising its applicability to the various rights. The current formulation of the 'threat test' or "UK link" (the threat being understood by a reasonable person to be a threat to bring proceedings in the UK courts) has been adjusted to one that would be understood to be a threat to bring proceedings in the United Kingdom or elsewhere in relation to an act in the United Kingdom (or intended act) that would infringe the right. This follows the interpretation of the "UK link" requirement in Best Buy Co Inc v Worldwide Sales Corporation España SL (2010) that the threat, in that case of Community trademark infringement, “would convey to a reasonable man that some person has trademark rights and intends to enforce them against another” and "whether the threat would be understood by a reasonable person in the position of a recipient “to be a threat to bring proceedings in the courts of the United Kingdom”. The proposed bill not only confirms this approach but allows for threats in relation to the new unitary patent when it becomes available and also UK designated European patents that are not opted out of the jurisdiction of the UPC once that comes into effect (expected in early 2017) which would otherwise have been outside the reach of the legislation. This appears to be inconsistent with the approach of other UPC member states.

• However, the draft bill does not propose an extension of the unjustified threats regime from the current IP rights for which actions for groundless threats exist to any additional rights; there will still not be any statutory threats provisions for allegations of infringement of copyright, database right or of passing off. Such threats may however be actionable as common torts, such as interference with business.

Professor Sir Robin Jacob was against the bill and preferred a solution to the threats issue involving a new statutory tort of abusive communication or false allegation. He asked for the Law Commission to publish his response to the consultation, including the following:

"I consider [the bill] extraordinarily elaborate and complicated. It is not the right solution and in its present form should be dropped. I remain of the opinion that something much simpler - along the nature of “abusive communication” - would be enough. Tinkering with this will serve no useful purpose. There is no hurry - threats of IP infringement proceedings are far from top of the problems in the IP world. I am saying this now so no one ever thinks I thought it was a good idea."

The Law Commission conceded in its report of October 12 2015 which accompanies the draft bill that the "evolutionary approach" does not solve all problems associated with the threatening of proceedings and that serious consideration should be given to the introduction of a new tort of false allegations: "We are heartened that a new tort has not been completely ruled out by government. In its written response the government considered that a new tort “deserves more consideration in the longer term”. However, the Law Commission could not agree with the Professor that there was no hurry to resolve these issues not only because of the widespread complaints they had received that the current law adds unnecessary expense, drives cases to court and disadvantages small rights holders, but also because of the immediate advent of the unitary patent and the need to decide whether the threats regime applied to this new patent right (as well as European patents under the jurisdiction of the UPC).

The short consultation published on October 22 states that the government remains keen that this work should be implemented, and intends to bring forward primary legislation to enact the necessary reforms in due course. The government will consider whether it might be possible to introduce these proposals (in a bill to be known as The Intellectual Property (Unjustified Threats) Bill) via the special parliamentary procedure which is available for bills that implement the Law Commission's recommendations and are uncontroversial (to be used exclusively for those that attract a broad consensus of support in Parliament).

Joel Smith, Rachel Montagnon and Jessica Welborn, Herbert Smith Freehills LLP, London