Don’t fret over threats - HSF Noteshsfnotes.com/ip/wp-content/uploads/sites/16/2016/12/104-112-Global-Feb16.pdf · claim for infringement. As there is rarely any dispute that a

104 M A N A G I N G I P. C O M F E B RUA R Y 2 0 1 6

Don’t fret over threats

Correspondents in Australia, Canada, Germany, the UK and the US review the law and recent developments on threats of proceedings for IPinfringement that are groundless or may interfere with business activity

AustraliaEach of the Copyright Act 1968, the Patents Act1990, the Trade Marks Act 1995, the Designs Act2003 and the Circuit Layouts Act 1986 creates a

cause action arising from the making of unjustifiable threats tobring infringement proceedings.

A person aggrieved by the making of a threat can seek a decla-ration that the threats were unjustified, an injunction restrainingfurther threats and damages for losses incurred as a result of thethreats. The Acts put the onus on the person making the threatsto establish that the conduct complained about constitutes in-fringement.

IP Australia is now running a public consultation on threats ac-tions and has asked for comment on whether additional (ag-gravated or exemplary) damages should be available in cases ofunjustified threats. The consultation also proposes the intro-duction of an unjustified threats action under the Plant BreedersAct 1994.

Where a threat is made to take action for breach ofconfidence in equity, passing off at common law, mis-leading and deceptive conduct under the Australian

Consumer Law, breach of moral or performers’ rights underthe Copyright Act 1968 or infringement under the PlantBreeder’s Rights Act 1994, there are no legislative provisionsproviding for the bringing of an action for unjustified threats.

In some circumstances, a threat to bring an unjustified action

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GLOBAL PRACTICE THREATS

Threats made by owners of patentsand other IP rights have come underscrutiny recently. In the UK, new leg-islation has been drafted in an at-tempt to clarify what is and is not athreat, and what the penalties arefor groundless threats. More gener-ally, courts worldwide have grappledwith cases where aggressive litiga-tors have made broad infringementthreats against primary and second-ary infringers, and have had to con-sider whether remedies areavailable and necessary for such be-haviour. Questions arising fromthese kinds of issues have evenbeen aired at the US Supreme Court.This Global Practice review looks atwhat the law says, how cases havebeen dealt with, and what practicalissues arise in five key markets: Aus-tralia, Canada, Germany, the UnitedKingdom and United States.

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for these causes might itself constitute misleading and deceptiveconduct on the part of the party making the threat, but thiswould require close analysis of the form of the threat. An asser-tion that one party is of the opinion that the conduct of a sec-ond party constitutes passing off, for example, is unlikely toconstitute misleading and deceptive conduct where the opinionis genuinely held and there is some reasonable basis for holdingthe opinion. In some circumstances an unjustified threat couldconstitute defamation; however Australian law only allows in-dividuals and corporations with fewer than 10 employees tobring an action for defamation so this is unlikely to be availablein most cases.

There are separate provisions dealing with unjusti-fied threats under each of the Acts identified above.The provisions are broadly similar in effect although

the terminology used varies. For example, the Trade Marks Actrefers to making threats where the defendant “has no grounds”for making them where the other Acts use the language of “un-justifiable” threats.

In the case of trade marks, an action for unjustified threats can-not be brought or maintained if an action for infringement hasbeen brought. Accordingly, if an action for groundless threatsis brought in relation to a trade mark and the mark’s ownerbrings an action for infringement, the action for groundlessthreats will be stayed indefinitely. The provisions of the otherActs allow the claim for unjustified threats to continue in par-allel with the claim for infringement.

The scope of the exception for legal professionals also differsbetween the Acts, as discussed further below.

Any person aggrieved, whether directly threatenedor not, can bring an action for unjustified threats. Ac-cordingly, a threat to any actor may result in a retalia-

tory threats action, including from a different actor.

A threat made to a secondary actor can result in anaction being brought against the rights holder eitherby the primary or secondary actor.

Where it is unclear who the primary actor is and a secondaryactor refuses to assist in identification, a rights holder may beable to seek a preliminary discovery order requiring the second-ary actor to help identify the primary actor.

In some circumstances, depending upon the words used, ap-proaching a secondary actor with requests for informationabout the primary actor may itself constitute an actionablethreat.

An action for unjustified threats may not be broughtagainst certain legal professionals. The copyright andcircuits layouts exceptions apply only to lawyers, the

patents exception applies to lawyers and patent attorneys andthe designs and trade marks exceptions apply to lawyers, patentattorneys and trade mark attorneys. All the exceptions applyonly to Australian-registered legal professionals.

Where the proprietor makes threats to bring an action for an

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innovation patent that has not yet been granted and certified,the threat is deemed by the Patents Act to be unjustifiable. Ac-cordingly, an applicant for an innovation patent should notthreaten proceedings until the innovation patent is certified.

Each of the Acts provides that mere notification of the existenceof an IP right does not constitute a threat to bring infringementproceedings.

Threats actions are not common in Australia. Theyare seen where a primary actor is seeking to deal withthreats made to secondary actors (such as their cus-

tomers),

They are also brought for other strategic reasons, such as bring-ing a dispute to a head, or where the threatened party sees a par-ticular advantage in commencing the action itself. For example,where the parties are located in different states, a party maylaunch a threats action in the registry of the Federal Court lo-cated in their own the state rather than waiting for the rights

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Eight questions

Is there any specific legislative provisionto deal with threats of proceedings forinfringement of IP rights that aregroundless or have the potential tointerfere with legitimate businessactivities?

If legislative provisions are not availableare there any other sources of law thatcan be employed against threats?

Are there separate provisions/approachesfor different IP rights? If so, which arecovered and how?

Are there actors that may be threatenedwithout the risk of a retaliatory threatsaction?

Can secondary actors be threatened orasked for further information aboutprimary actors?

Are there any [other] specific exceptionsor defences?

If threats provisions exist, how much arethey used?

Are there any recent cases of note thatillustrate the approach in yourjurisdiction?

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holder to bring action in an interstate registry. Having the matterheard in a local registry typically lowers costs for the movingparty.

The bringing of a threats actions usually results in a counterclaim for infringement. As there is rarely any dispute that a threathas been made, from a practical perspective, the litigation pro-ceeds with the court assessing infringement and validity, whichin turn determines the issue of whether the relevant threats wereunjustified.

Threats actions (except in the case of trade marks) can bebrought as a cross-claim after an action for infringement hascommenced, though this is uncommon.

The recent case of BLH Engineering v Pro 3 Products[2015] FCA 833 serves as an illustration. A Victorianapplicant brought an action against a South Aus-

tralian patentee which was threatening to bring an action forpatent infringement against the applicant and one of its cus-tomers. The patentee counter-sued (though this was discon-tinued) and relied upon a defence that the threats were justified.The Court found that infringement was not made out and, ac-cordingly, the threats were not justifiable. The Court made dec-larations as well as imposing an injunction restraining themaking of further threats.

Rebekah Gay, partner Peter FitzPatrick, solicitorHerbert Smith Freehills, Sydney

CanadaThe Trade-marks Act Section 7(a) provides that “noperson shall make a false or misleading statementtending to discredit the business, goods or services

of a competitor”. The elements of a cause of action pursuant toSection 7(a) are:1) a false or misleading statement;2) tending to discredit the business, goods or services of a com-

petitor; and3) resulting damage.

The Supreme Court of Canada has characterised Section 7(a)

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as a statutory codification of the common law tort of slander oftitle or injurious falsehood albeit without the element of malice.

In the context of threats of infringement of IP rights, section7(a) may be asserted where, for example, an IP rights ownercommunicates allegations of infringement to an accused in-fringer’s customers, and it is ultimately found that the IP rightsare actually invalid and/or not infringed.

The Competition Act section 52(1) provides that “no personshall, … for the purpose of promoting, directly or indirectly,any business interest, by any means whatever, knowingly orrecklessly make a representation to the public that is false ormisleading in a material respect”. Section 36(1) of the Compe-tition Act allows an accused to bring a private civil action forrecovery of damages as a result of a breach of section 52(1).The accused must prove:a) that the accuser knowingly or recklessly;b) made a representation to the public that is false or mislead-

ing, both in the general impression it conveys and in its literalmeaning; and

c) that the representation is false or misleading in a material respect.

The Competition Act also provides at Section 74.01 (1) that“a person … who, … for the purpose of promoting, directly orindirectly, any business interest, by any means whatever, (a)makes a representation to the public that is false or misleadingin a material respect” has engaged in conduct reviewable by acourt on application by the Commissioner of Competition. In-junctive and monetary penalties are available in such cases.

In the context of threats of infringement of IP rights, the provi-sions of the Competition Act may be relevant where, for exam-ple, an IP rights owner indiscriminately sends cease and desistletters, or is indifferent as to whether allegations of infringementare misleading. In such cases, the IP rights owner may face lia-bility for false or misleading representations, and/or deceptivemarketing practices.

As noted above, legislative provisions are available.In addition, economic torts are available to combatsuch threats. By way of example, injurious false-

hood/trade libel or intentional interference with economic re-lations can be asserted against an accuser or aggressor. Forinjurious falsehood, the accused must prove: a) that the accuser made statements about the accused, directly

or by implication, that reflected adversely on the accused’sbusiness or property;

b) that such statements were false;c) that such statements were made with intent to cause injury

to the accused without lawful justification (that is, with mal-ice); and

d) that the accused suffered actual economic loss.

For intentional interference with economic relations the ac-cused must prove: a) that the accuser intended to injure the accused;b) that the accuser interfered with the accused’s business by il-

legal or unlawful means; andc) that the accused suffered economic loss as a result of the in-

terference.

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Threats actions (except in the case oftrade marks) can be brought as a cross-claim after an action for infringementhas commenced, though this isuncommon

In the event that proceedings are commenced, an accusedcould also, in the context of those proceedings, seek aggravatedand/or punitive damages, or seek to have a groundless proceed-ing struck out on the basis that it is scandalous, frivolous or vex-atious or an abuse of process. Damages for the tort of abuse ofprocess may also be sought by an accused. In the province ofQuebec, the Quebec Code of Civil Procedure Articles 54.1 to54.6 grant the court the power to impose sanctions on a partyfor the improper use of the courts including for bringing frivo-lous claims. Also in Quebec, the Civil Code of Quebec Article7 provides that an accuser must not exercise its rights with theintent of injuring another or in an excessive and unreasonablemanner.

The above provisions and approaches would be ap-plicable to all IP rights; however, guidance to datefrom the Competition Bureau is limited to singling

out for its enforcement efforts non-practising entities in thepatent context.

Any party that engaged in the above conduct wouldbe at risk of being subjected to any of the above.

If an accuser contacts, for example, customers of theaccused with a groundless claim, the accused could,as detailed above, potentially bring an action for one

or more of breach of the Trade-marks Act, breach of the Com-petition Act, trade libel or intentional interference with eco-nomic relations. Also, depending on the circumstances, anaction for inducing breach of contract may be possible. The el-ements of the tort of inducing breach of contract are: 1) a valid and enforceable contract existed between the ac-

cused and third party;2) the accuser had knowledge of the contract;3) the accuser’s conduct was intended to cause the third party

to breach the contract; 4) the accuser’s conduct caused the third party to breach the

contract;5) the accused suffered damage as a result of the breach; and6) the accuser’s conduct was not justified.

Typical defences are that the accused has not estab-lished all of the requisite elements of the particular causeof action. For example, in the context of threats of in-

fringement of IP rights, non-groundless threats, including threatsthat are ultimately proven to be true, would likely not attract liabilitywith respect to any of the above-noted causes of action.

The above provisions are not used frequently be-cause of the very specific elements that must beproven, the desire to avoid court proceedings, and

the difficult nature of obtaining evidence of threats against, forexample, customers. In this regard, threats against customersare often not made in writing, and customers typically do notwant to get involved in disputes between competing suppliers.In addition, even where a court proceeding is commenced, itcan be difficult to assert the above provisions for jurisdictionalreasons. For example, certain torts must be asserted in provin-cial courts; however, almost all patent and trade mark proceed-ings, as well as many copyright proceedings, are brought in theFederal Court, which does not have jurisdiction over tort

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claims. Thus, in those cases, a separate proceeding would haveto be brought to assert the economic tort, but often this is notdone because parties typically wish to avoid creating additionallitigation.

In Industries Lassonde Inc v Oasis D’Olivia Inc 2012QCCA 593, the Quebec Court of Appeal reverseda decision of the Superior Court of Quebec in which

the Court awarded Oasis D’Olivia C$125,000 in damages, feesand costs on the basis that Industries Lassonde’s trade mark in-fringement action against Oasis D’Olivia was unfounded andfrivolous. At issue in this regard was Industries Lassonde’s as-sertion of its Oasis trade mark related to juice products againstOasis D’Olivia for the latter’s use of the trade mark Olivia’s Oasisin respect of body and skin care products.

In rendering the decision, the Courts applied the Quebec Codeof Civil Procedure Articles 54.1 to 54.6, which grant the Courtthe power to impose sanctions on a party for the improper useof procedure. In overturning the damages and costs award, theQuebec Court of Appeal noted that trade mark owners areobliged to take steps to enforce their trade mark rights, that theaction was not clearly doomed to fail, and that there was no ev-idence that Industries Lassonde intended to use the judicial sys-tem to intimidate Oasis D’Oliva.

Martha Savoy and Michael CrichtonGowlingsOttawa

GermanyIn Germany, there are no specific legislative provi-sions to deal with groundless threats of proceedingsfor infringement of IP rights, except for warnings

based on copyright infringement.

In relation to groundless threats for copyright infringements,only some aspects are regulated in a new Section 97a(4) Ger-man Copyright Act, which was added in October 2013: to theextent that the warning is unjustified or ineffective, the personnotified may demand reimbursement of the necessary expensesincurred in respect of defending his rights, unless the persongiving the warning was not able to recognise at the point in timewhen the warning was made that the warning was unjustified.

Thus, even a justified warning can be a basis for a reimburse-ment claim if the warning was ineffective. A warning shall notbe effective, if the four conditions listed in Section 97a(2) Ger-man Copyright Act are not met. According to this provision,the warning shall clearly and comprehensibly• indicate the name or enterprise of the infringed party if it is

not the infringed party but a representative who gives warn-ing,

• specify the exact infringement,• break down claims to payment asserted into claims for dam-

ages and claims for reimbursement, and

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• if the warning contains a request to enter into an obligationto desist from infringement, to state to what extent the pro-posed obligation to desist from infringement goes beyondthe infringement notified.

Further remedies for groundless threats remain unaffected bythis special provision.

According to well-established case law of the Ger-man Federal Supreme Court (based on general pro-visions of the German Civil Code), there are several

remedies available against groundless threats of proceedings forinfringement of IP rights:

An action for a negative declaratory judgment can be filed uponreceipt of a groundless threat. It is usually not necessary to senda counter-warning prior to such an action.

A (preliminary) injunction against the continuance of thethreats can be claimed by the person aggrieved by the threats,if the warning contains a demand to cease and desist, and is il-legal. The warning can be illegal for formal reasons , for exampleif the allegedly infringed IP right – or the action considered tobe infringing – are not unambiguously designated, or that pend-ing attacks against the validity of the underlying IP right or dis-advantageous court decisions in relation to the allegedinfringement are not mentioned. A warning is illegal for sub-stantive grounds if the person giving the warning has no stand-ing to sue, the underlying IP right is not valid (anymore), or theallegedly infringing act does not fall within the scope of protec-tion of the asserted IP right.

Damages can be claimed if the warning (containing a demandto cease and desist) was illegal and the person making thegroundless threats acted culpably. Culpability includes intentand negligence. If the warning party can demonstrate that hewas convinced of the validity of the IP right after careful exam-ination and reasoned analysis, negligence could be denied. Thiscan be the case if granting authorities have verified the validityof the IP right, unless the applicant has a better knowledge ofthe state of the art (or in relation to absolute grounds for refusal).Higher levels of due care are required if the warning is based onan unexamined IP right, for example in the case of utility mod-els, design rights, unregistered trade marks or copyright. Therequirements are quite strict regarding scope of protection andinfringement, and the warning party must in general seek pro-fessional advice (such as from a qualified attorney) before send-ing the warning.

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Reimbursable damages include at least the necessary costs ofdefending against the unjustified warning. Under specific cir-cumstances which need to be proven by claimant, further dam-ages may be claimed.

The case law set out above applies to all IP rights; ad-ditional legislative provisions apply to copyright (seequestion 1).

The liability for groundless threats based on IP rights does notapply to warnings based on unfair competition, including warn-ings alleging that offered goods are replicas causing avoidabledeception of the purchaser regarding their commercial origin(Section 4 (3)(a) German Unfair Competition Act). Actionsagainst groundless threats based on unfair competition are onlyavailable under exceptional circumstances, for example if thewarning was made to deliberately obstruct competitors al-though the person giving the warning knew that the warningwas unjustified.

No.

If customers of the alleged primary infringer arethreatened, a higher level of due care is required. Itmust be ensured that the warning contains correct

information on all circumstances of the case.

In addition, not only the person receiving the warning, but alsothe alleged primary infringer may have a claim for damages (in-cluding lost profits), if an illegal warning was sent to his cus-tomer.

In Germany, the owner of an IP right may decide tosend a so-called entitlement request letter (Berechti-gungsanfrage), requesting the potential infringer to ex-

plain why he believes that he is entitled to use the IP right inquestion. Such letters are in particular common in patent mat-ters, if the right owner has doubts whether the alleged infringeris actually making use of the patented invention, whether he hasa right of prior use, or whether the right is exhausted. The send-ing of such a letter does not trigger the strict liability for unjus-tified threats under German law, because the letter does notinclude a demand to cease and desist.

There are quite often cases concerning unjustifiedthreats against customers of the alleged primary in-fringer, which are judged strictly by the courts.

In order to avoid the strict liability for unjustified threats in Ger-many, IP right owners often decide not to send a warning letter,but rather send a so-called entitlement request letter (see ques-tion 6 above).

The leading decision was rendered by the GrandCivil Panel of the German Federal Supreme Courton July 15 2005 (case GSZ 1/04, 2005 GRUR 882

“unberechtigte Schutzrechtsverwarnung” = 2006 IIC 94 “WarningLetter”). The Court decided that an unfounded warning let-ter regarding a trade mark right, just like any other unjustified

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In order to avoid the strict liability forunjustified threats in Germany, IP rightowners often decide not to send awarning letter, but rather send a so-called entitlement request letter

warning concerning an IP right, can make the warning partyliable to pay compensation for damages on grounds of an il-legal and culpable interference with the right to operate anestablished and running business, Section 823(1) GermanCivil Code.

Thomas Musmann and Eike Schaperrospatt osten pross, Düsseldorf

United KingdomUnder English law, there is statutory provision fora right of action for “any person aggrieved” by athreat of proceedings, against any person who

makes that threat of proceedings in respect of the followingIP rights:• UK registered trade marks (S21 Trade Marks Act 1994)

and Community trade marks (the Community TradeMark Regulation 1996 extends the treats provisions toCommunity Trade Marks);

• UK registered design rights (S26 Registered Designs Act1949), UK unregistered design rights (S253 CopyrightDesigns and Patents Act 1988), and registered and un-registered Community design rights (Community De-sign Regulation 2005); and

• UK patents (national or European patents with a UK des-ignation) (S70 Patents Act 1977 (as amended by the PatentsAct 2004 – in force January 2005)).

The Law Commission published a draft bill on October 122015 (see the draft Intellectual Property (Unjustified Threats)Bill at Appendix C, at page 74 of the Law Commission’s report‘Patents, Trade Marks and Designs: Unjustified Threats’). TheUK IPO launched a short consultation on its implementationon October 22 2015 which, barring further changes, will amendthe provisions listed above adding additional sections A-F foreach right, to harmonise the UK’s approach the groundlessthreats actions across these IP rights in relation to the definitionof a threat; what threats are actionable and what are permittedcommunications; remedies and defences; liability of profes-sional advisors; pending registrations; and proceedings for de-livery up and destruction.

A threat is anything that can be understood by the reasonableperson in the position of a recipient of that threat to be a com-munication that a patent (or one of the other rights above) existsand that there is an intention to bring proceedings by “a person”against “another person” – not necessarily the person receivingthe threat – for infringement of the patent by an act done in theUK or an act which, if done, would be done in the UK.

The recipient of the threat (interpreted as anyone who per-ceives it as a threat) may bring an action for a declaration thatthe threats are groundless, a claim for damages relating to thethreat, and an injunction against any further threats. However,perhaps the greater risk for the rights holder making a threat is

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that its control over the litigation is lost as it becomes a defen-dant in the threats action rather than claimant in an infringe-ment action, with the added burden of proof that its rights arevalid and infringed.

At present both the professional adviser making the threat onthe rights owner’s behalf and the rights owner may be sued forgroundless threats but the bill would do away with the formercause of action if, in making the communication, the adviseracts on the instruction of another person and identifies that per-son in the communication. Thus, if the bill goes through,lawyers will need to make it clear who their client is, if writingthreatening letters.

The bill also proposes that the new unitary patent (UP) rightshould be subject to the threats legislation, as should Europeanpatents (with UK designations) that come under the jurisdic-tion of the Unified Patent Court (UPC) once it is established(likely to be early 2017; at which point UPs will also becomeavailable). This will apply to all European patents (EPs) thathave not been opted out of the UPC’s jurisdiction.

The bill’s primary purpose, aside from providing for the UP andEPs under UPC jurisdiction, is to align the provisions undereach of the rights which have threats provisions, such that theirapplication and enforcement is harmonised.

In relation to copyright and passing off (under Eng-lish law this would include format rights or imagerights for example) and other IP rights (such as data-

base rights, confidential information, plant variety rights andgeographical indications) there are no statutory provisions butthere are certain torts that can be employed to similar effect,such as unlawful interference with trade (where threats aremade to customers or a supplier of the infringer – see Essex Elec-tric v IPC Computers (1991) or defamation (see Creative Resinsv Glassam Europe (2005)) in relation to which extreme careshould be taken as defamatory allegations fall outside the scopeof privilege.

The Consumer Protection from Unfair Trading Regulations2008 (SI 2008/1277) (CPRs) and the Business Protectionfrom Misleading Marketing Regulations 2008 (SI 2008/1276)(BPRs) created a new regime for advertising and marketingaimed at unscrupulous practices, providing for criminal penal-ties and/or fines where appropriate. The CPRs carry a generalprohibition against “unfair commercial practices” in relation toconsumers and the BPRs regulate B2B practices prohibitingmisleading marketing and advertising. The Consumer Protec-tion (Amendment) Regulations 2014 have amended the CPRsto give consumers a direct right of action that was previouslyenforceable only by the Competition and Markets Authorityor by Trading Standards. The criminal offence for misleadingomissions under the 2008 Regulations remains in force. Eitherthe (amended) CPRs or the BPRs could be invoked to dealwith threats where statutory provisions do not apply or do notexist in relation to a particular IP right.

Introduced as a means of curbing the potential forabuse that monopoly rights confer – for example in-timidating suppliers providing materials to a business

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a rights owner considers is infringing its rights and effectivelypreventing manufacture without actually bringing an actionagainst the business itself – the various threats provisions allowactions to be brought where threats are made. However, underthe current regime, their precise application varies dependingon the right involved: • For UK and Communty trade marks and design rights (reg-

istered and unregistered), all threats are actionable by a per-son aggrieved except where they are made to primaryinfringers in relation to primary infringements only.

• For patents, threats are actionable exceptwhere made to pri-mary infringers for any type of infringement. Secondary in-fringers may also be threatened where best endeavours havebeen made (and have failed) to discover the identity of theprimary infringer

Under the bill, the threats provisions are to be harmonisedacross these IP rights such that actionable threats are only thosemade to a secondary infringer/actor (see below), not a primaryone in any context.

Under the current law, threatening communicationsmay be made to primary infringers of a patent (man-ufacturers, importers or users of the patented inven-

tion) for any act, but for the other rights a primary infringer mayonly be threatened without risk of a statutory threats actionwhere the threat relates to an act of primary infringement (fortrade marks: in respect of application of the mark togoods/packaging and/or importing goods bearing the mark,and/or supplying services under the mark; for design rights ofany sort: making and/or importing an article made to or incor-porating the design).

Shifting the focus away from the act of infringement itself to theperson to whom the threat is made, the Law Commission’s billaims to harmonise the categories of person who can be threat-ened without risk of a statutory threats action to include threatsto a primary infringer in relation to any act relating to trademarks and design rights as the law currently applies to patents.The bill would also make a threat made to a person who intendsto carry out a primary infringement non-actionable.

However, even if a threat is made which is “unactionable” underthe statutory provisions, the possibility of an action beingbrought via one of the torts mentioned at 2 above should beborne in mind, as well as the requirement to prove justificationin relation to the threat made, should an action be brought inany case.

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At present, in relation to threats of patent proceed-ings, a secondary infringer may be threatened wherethe threatener has used “best endeavours” to identify

the primary infringer but to no avail. The amendments to thePatents Act 1977 introduced by the Patents Act 2004, allowedsecondary infringers (or any person) to be asked for details ofa suspected primary infringement and of the primary infringer,without risk of a threats action.

The bill would extend this provision to trade marks and designs(in relation to which any threats to secondary infringers wouldbe actionable) while easing the burden on the rights owner alittle (and harmonising the patents legislation at the same time)by requiring “all reasonable steps” to have been taken, instead of“best endeavours”.

The bill uses the term “permitted communications” for com-munications that would otherwise be an actionable threat butare allowed by the proposed new legislation. Permitted com-munications qualify for exemption from actionability if they aremade solely for a permitted purpose and all of the informationthat related to the threat is information is necessary for that pur-pose and that the person making the communication reason-ably believes it to be true. Permitted purposes include: givingnotice that a patent exists, discovering whether or by whom apatent has been infringed (in a primary fashion) or giving noticethat a person has the right under the patent where another per-son’s awareness is relevant to any proceedings (putting the po-tential secondary infringer on notice – a requirement ofknowledge is contained in most secondary infringement crite-ria). Information that may be regarded as “neccessary” for a per-mitted purpose includes: a statement that a patent exists and isin force (or an application has been made); details of the patentor a right in/under one (which are accurate and not mislead-ing); or information enabling the identification of products orprocesses in respect of which it is alleged that infringement hastaken place. The communication, with respect to patent threats,may not request a cessation of commercial activity in relationto a product or process or delivery up or destruction or a re-quest for any undertaking relating to the product or process(with equivalent provisions for design and trade mark basedactions).

Under the bill it is a defence to a threats action wherethe threatener can show that the act in relation towhich the threat was made did, or would, constitute

an infringement. A defence is also available if the threatener canshow that he used all reasonable steps, without success, to dis-cover the identity of a the primary infringer and that he notifiedthe recipient of the threat at the time of making those steps.

Under the current legislation, the defence that the act would havebeen an infringement will not be successful if the claimant canshow that the trade mark or design right was invalid or liable tobe revoked. These provisions are not replicated in the new bill.

In the recent past, the threats provisions have becomeless used, since they conflict with the whole thrust ofthe Civil Procedure Rules, which encourage the early

exchange of information in order to promote settlement, ratherthan parties rushing to issue a claim without communicating.

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Under the bill it is a defence to athreats action where the threatener canshow that the act in relation to whichthe threat was made did, or would,constitute an infringement

Some UK judges regard the proposed bill as regrettable, as itmisses an opportunity to remove these anachronistic provi-sions either completely or at least to move to a more generaltort of threatening behaviour that would cover all IP rights, notjust select ones.

Even before the new bill, the courts had addressedthe problem of dual liability of adviser and rightsholder for an actionable threat. In Reckitt Benckiser v

Home Pairfum (2004), Mr Justice Laddie saw its use as a strate-gic attempt to disrupt the client/adviser relationship and re-fused to allow the defendant’s solicitors to be joined to thethreats action.

Although threats can be made using patent applications, in Jan-uary 2015 the Intellectual Property Enterprise Court (IPEC)in Global Flood Defence Systems v van den Noort Innovations heldthat in order to succeed on a justification defence in relation toan action for unjustied threats of proceedings for infringementof a patent application, the patent must have been granted be-fore the trial occurs. In relation to a summary judgment, to suc-ceed in avoiding this the defendant must show that theapplication had a real prospect of proceeding to grant beforethe date of any trial.

In relation to jurisdiction, there have been several cases deter-mining whether the threat was made within the jurisdiction(since without this fact there can be no threats action). In BestBuy v Worldwide Sales Corp Espana (2010) a letter written at-tempting to restrain the use of a CTM across Europe sent by aSpanish rights holder, received by Best Buy which had opera-tions in the UK but would also be opening shops all over Eu-rope, was held by the Court of Appeal to be an actionable threatin the UK. The reasonable recipient’s interpretation is the usualstandard by which the court decides, as now set out in the newbill. In Tech 21 v Logitech (2015) the question was whether thethreat would be interpreted as a threat of proceedings in the UKor in Germany. In order to determine this, the complex juris-diction criteria for unregistered Community designs (the IPrights in relation to which proceedings were threatened) wouldhave needed to be understood – a step too far for the unadvised,average commercial recipient, thought the court. The courttherfore used the arguably stricter test: “whether the Letterwould have been understood by a reasonable recipient, whohad received correct legal advice … as indicating that there wasa realistic possibility of UK proceedings being brought”.

Many of the problems with the current threats legislation havecentred on the difficulties in having satisfactory pre-action com-munications, as required by the Civil Procedure Rules, withoutfalling foul of the threats provisions. The arrival of the “permit-ted communications” criteria under the new bill should help toresolve this dilemma, although as stated in answer 7, the oppor-tunity for a more satisfactory solution for all IP rights may havebeen missed for now.

Joel Smith, partnerRachel Montagnon, professional support consultantHerbert Smith Freehills, London

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United StatesThe Declaratory Judgment Act 28 USC § 2201 allowspotential defendants to file suit, generally for non-in-fringement and/or invalidity, against a threatening IP

holder. The Declaratory Judgment Act is equally applicable topatents, trade marks, and copyright. However, the case law inter-preting and applying the Act is most developed in the patent con-text. Thus, courts frequently analogise and apply patent principlesto suits for declaratory judgment involving trade mark or copyright.

Jurisdiction of the federal courts over an action for declaratory judg-ment requires: (1) a federal question; and (2) an actual controversy.

The “federal question” prong is satisfied when the asserted claim“arises under” a federal statute. Cases requiring interpretation of thepatent laws (35 USC § 102, 103, 112 or 271), the Lanham Act (15USC § 1114(1)), or the Copyright Act (17 USC § 501 et seq) gen-erally meet this requirement. Because actions for declaratory judg-ment are brought by the threatened party, the federal questionrelates to the threatened action, not the defence(s) provided: federaldefences to a non-federal claim do not confer jurisdiction.

For many years, the “actual controversy” prong was determinedusing a two-part test laid out by the Federal Circuit in 1988 inArrowhead Indus Water, Inc v Ecolochem, Inc, 846 2d 731 (Fed Cir1988). That test required: (1) that the IP holder’s conduct musthave created a reasonable apprehension of an infringement; and(2) that the plaintiff engaged in at least meaningful preparationto engage in possibly infringing activity. That standard, however,was recently changed.

In MedImmune, Inc v Genentech, Inc, 549 US 118 (US 2007), theSupreme Court repudiated the “reasonable apprehension” stan-dard, holding instead that “the question in each case is whether thefacts alleged, under all the circumstances, show that there is a substan-tial controversy, between parties having adverse legal interests, ofsufficient immediacy and reality to warrant the issuance of a declaratoryjudgment” (emphasis added). The new Medimmune standard pres-ents a lower bar to the declaratory judgment plaintiff.

Generally, in a contest between a first-filed suit for declaratoryrelief and a later-filed suit for infringement, the suit for declaratoryrelief will be heard and the suit for infringement dismissed. How-ever, when an infringement action is dismissed in favour of a first-filed suit for declaratory relief, the IP owner can counterclaimfor infringement of its IP. As such, actions for declaratory judg-ments allow the threatened party to select a favourable forum inwhich to have its case heard. Some exceptions to this rule exist.

IP holders bear the burden of proof when asserting infringe-ment of their rights. That rule does not change in actions fordeclaratory judgment: the declaratory defendant IP holder stillbears the burden of proving infringement, while the declaratoryplaintiff bears the burden of proving any claim(s) challengingthe IP, such as invalidity.

In at least some cases, a would-be declaratory judgment plain-tiff must exhaust administrative remedies prior to filing its de-claratory judgment action. The underlying rationale is that the

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federal courts should not short-circuit the proper administra-tive agencies. For example, a plaintiff may not file an action fordeclaratory judgment seeking only cancellation of a trade markwithout first seeking cancellation of that trade mark at theUSPTO. However, such claims may be properly brought whenaccompanying an underlying claim not under the jurisdictionof such administrative agency, such as a claim of trademarknon-infringement.

In addition to the Declaratory Judgment Act, thosethreatened with the enforcement of IP may bringclaims of unfair competition and tortious interference.

Claims of unfair competition are jurisdiction-specific, but gen-erally require some form of unlawful, unfair, malicious or fraud-ulent business practices, which have injured or damaged theclaimant. Unsubstantiated threats of IP enforcement may beconsidered unfair or malicious business practices and may serveas the foundation for a claim of unfair competition.

Tortious interference claims are also jurisdiction specific. How-ever common elements among several jurisdictions include:(1) an economic relationship between the threatened plaintiffand a third party that had a probability of future economic ben-efit to the threatened plaintiff; (2) knowledge by the IP holderdefendant of that relationship; (3) illegal, intentional, or negli-gent acts by the IP holder defendant; (4) disruption of the re-lationship; and (5) damages to the plaintiff due to the IP holderdefendant’s acts. Groundless cease and desist letters sent by anIP holder with the illegal/intentional intent of preventing ordiscouraging the accused party from selling or buying mayserve as the foundation for a claim of tortious interference.However, good faith is an absolute defence to such claims.Therefore, a tortious interference claim must fall if the cease anddesist sender convinces the finder of fact that it had a good faithbelief in its allegations.

As mentioned above, the Declaratory Judgment Actis equally applicable to all types of IP: patents, trademarks and copyright. However, the case law inter-

preting and applying the Act is most developed in the patentcontext. Thus, courts frequently analogise and apply patentprinciples to suits for declaratory judgment grounded involvingtrade mark or copyright. That being said, the underlying law re-lating to each type of IP still governs in declaratory judgmentactions. For example, in an action for declaratory judgment ofcopyright non-infringement, the Copyright Act would likelyallow a victorious plaintiff to recover attorneys’ fees. But such

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fees may not be available in the same way under the patent ortrade mark laws.

No party may be threatened with IP enforcementwithout the risk of that party bringing an action fordeclaratory judgment of non-infringement (and pos-

sibly invalidity). The Declaratory Judgement Act and the caselaw are protective of those threatened by IP holders and the newthreshold for bringing suit for declaratory judgment, handeddown by the Supreme Court in MedImmune, is low. Generally,a credible threat or allegation of IP infringement, even if obliqueor veiled (and sometimes even when made to a third party), al-lows the threatened party to bring suit in federal court. There-fore, IP holders risk suit any time they identify allegedinfringement, or even potential alleged infringement, to the al-leged infringer or a third party.

Any party may be threatened or asked for informa-tion about the activities of another. However, giventhe low bar stated in MedImmune, such threats may

well provoke an action for declaratory judgment brought by thesecondary actor and/or the primary actor.

Having credibly threatened, one way that an IPholder may avoid an action for declaratory judgmentis to destroy any controversy that may exist between

the parties. Controversy may be destroyed effectively by enter-ing into a sweeping covenant not to sue/enforce. If suchcovenant completely resolves any dispute between the partiesand completely precludes future enforcement actions, no con-troversy exists and an action for declaratory judgment shouldnot be allowed to proceed.

Actions for declaratory judgment can be a powerfultool for the declaratory plaintiff because they allowthe plaintiff (1) to clear any cloud around its actions

without waiting for a possible infringement suit and (2) to selectthe forum in which its case is heard. Consequently actions fordeclaratory judgment are quite common — common enoughthat sophisticated IP holders routinely analyse their outgoingcommunications for possible threats, allegations, and/or aggres-sion that could possibly trigger the recipient to seek a declaratoryjudgment of non-infringement and/or invalidity.

Relevant recent cases include:• MedImmune, Inc v Genentech, Inc, 549 US 118 (US 2007)• Medtronic, Inc v Mirowski Family Ventures, LLC, 134 S Ct 843

(2014)• Already, LLC v Nike, Inc, 133 S Ct 721, 726 (US 2013)• Microsoft Corp v Datatern, Inc, 755 F 3d 899 (2014)• Effie Film, LLC v Murphy, 932 F Supp 2d 538 (SDNY 2013)• Danisco US, Inc v Novozymes A/S, 744 F3d 1325, 1329 (Fed

Cir 2014)

Lynda Zadra-SymesKnobbe MartensOrange County

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A plaintiff may not file an action fordeclaratory judgment seeking onlycancellation of a trade mark withoutfirst seeking cancellation of that trademark at the USPTO

Documents

Don’t fret over threats - HSF Noteshsfnotes.com/ip/wp-content/uploads/sites/16/2016/12/104-112-Global-Feb16.pdf · claim for infringement. As there is rarely any dispute that a