IP threats provisions: time to abolish them?

As reported in IPKat today, the English Court of Appeal has issued its decision in the case of Best Buy Co. Inc (and another) v Worldwide Sales Corporation Espana S.L.   [2011] EWCA Civ 618.  Best Buy appealed against a decision of Floyd J, to the effect that a threat of trade mark litigation was not actionable under section 21 of the Trade Marks Act 1994, where it was made in the course of without prejudice correspondence.  In the Court of Appeal, Lord Neuberger MR, delivering the unanimous decision of the court, was of the view that (a) the letter in question probably wasn’t a genuine, without prejudice communication, and (b) even if it was, this didn’t prevent it being used as evidence of a threat.

The IP threats provisions (there are similar provisions in patent and designs law, but not in copyright) are intended to stop an IP owner (eg a large company) from intimidating potential defendants (eg a small company) into submission, prior to starting litigation. Put like this, they may seem a good thing.  Our understanding is that the English IP judges favour their retention.  But there are a number of problems:

  • do the provisions really help to achieve their public policy objective?  In the words of the authors of Modern Law of Trade Marks (3rd edn, LexisNexis, page 349): “the threats provisions offer little practical protection to the weak and poor.  It is likely to be as expensive and inconvenient to bring threats proceedings as it would be to defend trade mark infringement proceedings.”
  • the provisions operate equally to allow a large company that is infringing IP to sue an under-resourced SME that owns the IP; the public policy objective of the threats provisions in this situation is more difficult to see.
  • the provisions can be a trap for the unwary.  Ill-advised parties fall into the trap, by being too honest and open about their intentions to sue if a deal cannot be reached.  Well-advised parties tip-toe around saying anything that could be interpreted as a threat, and become unclear and obscure in their communications as a result (except to other well-advised parties, who know what they really meant to say).  An elaborate game is played by people ‘in the know’, which risks bringing the law into disrepute.  Business people and consumers are no longer willing to tolerate the law being an arcane mystery, that only the experts can navigate.
  • in practice, as in the Best Buy case, the threats provisions are used as part of the legal armoury of substantial companies in commercial disputes.  They are just another weapon that is used in a commercial war, no better or worse on public policy grounds than any other legal weapon.
  • the threats provisions apply to some types of IP but not others.  In the latter category falls copyright.  If we need threats provisions at all, why are they not consistent between IP types?
  • the threats provisions are in direct conflict with modern dispute resolution practice, which encourages parties to be open and forthcoming about their intentions, as in the following two examples.

1. The Civil Procedure Rules

The Practice Direction for Pre-Action Conduct, part of the Civil Procedure Rules for England and Wales, encourages parties to exchange information about the issues of their dispute before they commence litigation.  The Practice Direction “describes the conduct the court will normally expect of the prospective parties prior to the start of proceedings” (paragraph 2.1).  Where there is no applicable Pre-Action Protocol (and there is no such protocol for IP litigation), paragraph 6.1 states:

The principles that should govern the conduct of the parties are that, unless the circumstances make it inappropriate, before starting proceedings the parties should –

(1) exchange sufficient information about the matter to allow them to understand each other’s position and make informed decisions about settlement and how to proceed;

(2) make appropriate attempts to resolve the matter without starting proceedings, and in particular consider the use of an appropriate form of ADR in order to do so.

It seems inconsistent with the requirement under sub-paragraph (1) (ie to be open and exchange information) that a party risks an action for unjustified threats if he informs the other party that he has IP rights, and that he may elect to bring proceedings for infringement of those rights if a settlement cannot be reached.

2. Problem-solving approaches to dispute resolution

Sub-paragraph (2) of paragraph 6.1, quoted above, requires the parties to consider alternative dispute resolution (ADR) before starting proceedings.  The most common form of ADR is mediation.  The mediation techniques taught by WIPO (see our earlier blog posting) include identifying the advantages of reaching a settlement.  One of those advantages is to avoid litigation.  It is difficult to see how parties can engage in an ADR process without disclosing the fact that they have a legal case, that they may choose to bring proceedings, and that this is a relevant factor in weighing up any proposals for settlement of the dispute.

This blogger has heard some prominent IP solicitors say that the best thing to do, in light of the threats provisions, is to start proceedings before commencing settlement negotiations (because once this is done, the threats provisions no longer bite).  This may well be the best route to avoid threats claims, but it is not consistent with the general approach of the Civil Procedure Rules nor is it consistent with best practice in dispute resolution.

As the law presently stands, we think Lord Neuberger MR was right to reject Floyd J’s creative attempt to neutralise the threats provisions by saying that they didn’t apply in without prejudice correspondence.  However, we think the threats provisions should be repealed at the earliest opportunity.

1 Comment

Filed under Intellectual Property, Legal policy

One response to “IP threats provisions: time to abolish them?

  1. I disagree. In at least one growing dispute area – domain name disputes – domain name registrants routinely receive letters threatening trade mark infringement action. Often these are from large companies, seeking to “persuade” individuals or small businesses to part with something. There is little ambiguity in the wording of most of the letters of this type that I have seen!

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