Baseless Basics: How to assess threats of IP infringement?

With great power comes great responsibility. At least, that's certainly true in the intellectual property world. An IP right is a specific form of monopoly (a degree of power considered vulgar in some other fields), but one permitted by law. One part of the checks and balances behind the use of IP rights relates to making "unjustified" threats (also called "groundless" or "baseless" threats) of IP infringement.

From 1 October 2017, the Intellectual Property (Unjustified Threats) Act 2017 comes into force. This sets out a new, more detailed and more comprehensive structure to govern the use of threats to sue in respect of IP infringements. The Act adds a new, highly structured test for most IP rights, setting out what is and what is not actionable by a prospective defendant.

Since a threat is the usual first step in enforcement action, it is undeniably important to get it right. However, the new test is respectably intricate, and not very user-friendly. When rights are to be used in anger, or under time pressure, it can be easy to slip up. So to pick up the practice points quickly, and help to spot any issues when they arise, here is our briefing on the key issues arising out of the new IP threats regime.

Hanging by a threat

As a starting point, to assess the risk behind a threat it's useful to know the consequences. Unjustified threats are actionable per se - meaning that the recipient can sue on the basis of the threat alone without needing to establish damage. Such a claim would usually be for a simple declaration that the threat is unjustified, but the claimant could also request a declaration of non-infringement.

In this way, the intended defendant becomes the claimant, allowing them to seize the initiative, firing the first shot, and perhaps calling the bluff on the opening letter.

At the very least this can put the rights-holder under time pressure and could mean they have to engage with the court process before they are ready to do so. At worst, it could result in a finding of non-infringement, which in some cases could render the right in question considerably less valuable, and opens up competition to the wider world.

Equal Rights

The new law simplifies matters by treating most IP rights the same way. Threats will be assessed the same way regardless of whether they concern patents, trade marks, registered designs, community designs or unregistered designs.

The main exception to this is copyright, which is notably absent from the list above. Unregistered trade mark rights are also outside the scope, because these are properly pleaded in terms of passing off, which is a separate tort not governed by statutory IP laws.

What is a threat?

The law's approach is first to define a 'threat' very generally; and then to provide various defences and exceptions - so the first thing to understand is what can be a threat.

By the new definition, a threat exists if a recipient reasonably understands that a right exists, and that legal action is intended for infringement of that right. And importantly, threatening communications aren't limited to letters; any sort of communication is covered. For example, verbal and digital communications, and even messages that aren't directed to any particular person, can be actionable. Even press releases or general statements that mention IP rights could be caught up. Such general communications could be a significant liability due to their public nature, and the large number of people who could be affected by them.

And the definition isn’t just limited to UK litigation. So long as the communication relates to an act done in the UK, it doesn’t matter what sort of proceedings might come out of it. So, the definition extends to threats of litigation overseas, e-commerce takedown notices, and any other resulting action.

Such a broad definition could have the effect of actually discouraging pre-action correspondence, but not all threats are actionable, so it’s also necessary to understand the exceptions.

Aim high

Directing action to the top of the supply chain is often the most cost-effective strategy, and the new law provides another encouragement for aiming high.

No action can be brought for a threat that alleges the recipient is itself making or importing an infringing product; a 'primary' infringer. This is as opposed to allegations against someone who is only doing 'secondary' acts of infringement, such as offering for sale or storing it for later sale.

Helpfully, where a recipient is doing both primary and secondary acts, a threat that mentions them will also fall into this exception, so it is not necessary to artificially limit the scope of a threatening letter.

Finally, if the primary infringer cannot be found then a threat can be addressed to a secondary infringer; and those circumstances will act as a defence to an unjustified threats action. However, it's important to have taken proper steps to try to identify the source, and that's where the 'permitted purposes' are important.

Safe Harbour

If the rights-holder can't find the primary actor, or is trying to discourage infringement without litigation, there is another place to shelter from the breadth of the definition of 'threat'. However, this only applies to certain permitted purposes.

The first purpose is simply giving notification that a right exists and providing details of it. The second, more involved and potentially more useful, covers letters to secondary infringers seeking information about primary infringers. So even if the threat is not directed to the top of the chain (see above), it will not be actionable if its purpose is limited. If the threat strays outside these purposes, though, the safe harbour will be lost.

The act leaves it open to the court’s discretion to identify new 'permitted purposes' from time to time.

Justification

The last word when faced with a threats action is obvious: the defence that the threat is justified (i.e., not unjustified).

Though this is the natural answer, running the defence can be an unattractive prospect in reality. That's because proving justification means proving that the threat was true, which in turn effectively requires a finding of infringement, with all the attendant cost implications of a full infringement action. If the threat was designed to promote settlement and avoid proceedings, the need to defend in this manner will bring the opposite effect to that first intended.

Who’s the owner?

Legal representatives used to be liable for unjustified threats actions, but this has been removed from the new regime. Lawyers will no longer bear the risk for threats issued on the instructions of a client, so long as that client is properly identified at the time of the threat.

This is especially pertinent for legal teams operating at the head of a group of companies. Even if writing on behalf of a subsidiary, there may be a risk that the head company is named as a defendant, which can be undesirable. To minimise this risk, it will be important to set out your role as legal service provider to the group, and to identify with clarity which subsidiary is the relevant rights-holder on whose instructions you are acting.

Final words

This briefing is intended to set out the key issues to allow planning and early issue-spotting before making statements about IP rights. Before issuing any threat we strongly recommend following through the legal test. We’ve set out the detailed law in our accompanying article, on the Intellectual Property (Unjustified Threats) Act 2017 itself.