Summary groundless threats action dismissed by High Court

United Kingdom

In Microsoft Corporation v P4 Com Limited (February 21 2007), the High Court of England and Wales has considered and dismissed an application for summary judgment of a counterclaim based on groundless threats under Section 21 of the Trademarks Act 1994.

Following disclosure of invoices for sales of counterfeit software in third-party litigation, Microsoft Corporation brought proceedings for copyright and trademark infringement and passing off in relation to the purchase and onward sale of counterfeit software against P4 Com Limited and an individual named Dr Mozaffar Nami, the sole director and shareholder of P4 Com.

The invoices detailed the purchase of software by an entity called Phase 4 at prices which Microsoft said were "too good to be true", between April 2002 and June 2003. Microsoft claimed that P4 Com had traded as Phase 4 during the relevant time, and that Nami as sole shareholder and director was jointly and severally liable for the infringing acts. Microsoft asserted that the defendants must have known that the software they were buying could not have been the genuine product.

Over the course of a year, pre-action correspondence by both solicitors for the defendants and Microsoft referred to P4 Com as the relevant party with the inference that P4 Com had been trading during the relevant period. A final seven-day letter, enclosing a draft claim form and particulars of claim was sent by Microsoft requesting undertakings by P4 Com. Following an unsatisfactory response, Microsoft issued proceedings.

After issue of the claim, the defendants made the point that at all material times P4 Com was a dormant company and the defendants' joint defence stated that during the period April 2002 to June 2003 Nami had personally traded as a computer system builder under the name Phase 4, and that it was only after this period that Nami transferred his business to P4 Com. Moreover, the defendants denied any infringement.

The defendants also counterclaimed, asserting that the letters before action sent by Microsoft's solicitors constituted groundless threats against P4 Com as a dormant company pursuant to Section 21 of the Trademarks Act. P4 Com claimed that it and Nami were "persons aggrieved" under that act, and that the threats had caused them to suffer loss, damage and expense. The defendants sought:

  • a declaration that the threats were groundless;

  • an injunction against repetition of the threat; and

  • an inquiry as to damages.

Microsoft's defence under Section 21(2) of the act was that the actions in respect of which proceedings were threatened constituted an infringement of registered trademarks.

P4 Com subsequently sought summary judgment on the counterclaim, which if it had succeeded, would have meant that Microsoft's claim against P4 Com on the grounds that it was trading during the relevant period would have failed. At the hearing, the court heard extensive factual evidence about the status of P4 Com at the time of the events complained of. Microsoft's additional submission was that the status of P4 Com could be properly investigated only after disclosure and cross-examination at trial. The court agreed, and dismissing the application, stated that "P4 may be said to have been somewhat ambitious in its bid to expect the court to decide finally, here and now, a disputed question of fact".

This case highlights the importance of identifying the correct defendant to a claim at the outset, and is a useful reminder of the possible consequences of making threats which do not fall within the exemptions under Section 21 of the act.

Jeremy Dickerson and Jennifer Prior, Burges Salmon, Bristol

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