Patents

Actionable Threats in Intellectual Property Litigation

Jane Lambert

14 Nov 1999

Last updated 26 Jan 2006

Although it is and always has been possible to restrain a patentee from threatening infringement proceedings in bad faith at common law (see Olin Mathieson Chemical Co. v Biorex Laboratories Ltd. [1970] RPC 157), the evidential burden on a claimant is considerable. Not only must he or she show nothing that has been or will be infringed, the claimant must also satisfy the court that the defendant knew the complaint to be untrue (Halsey v Brotherhood 15 ChD 514, 19 ChD 386). Until a statutory right of action for groundless threats was introduced, the result was, as Bowen LJ noted in Skinner & Co v Shew & Co [1893] 1 Ch 413, 426

"to paralyse a man in his trade by having an action on a patent suspended before his eyes, without the opportunity of determining the suspense at once and bringing the question raised by his antagonist to a speedy and immediate issue."

To prevent such paralysis s.32 of the Patents, Designs and Trade Marks Act 1883 provided a cause of action without requiring proof of bad faith. Such an action has been preserved in all subsequent patent statutes and it is now to be found in s.70 of the Patents Act 1977. Similar rights of action have also been inserted into United Kingdom registered and unregistered designs and trade marks legislation and the
intellectual property statutes of many other common law countries.

Patents

S.70 (1) of the Patents Act 1977 provides:

"Where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for any infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4) below, bring proceedings in the court against the person making the threats, claiming any relief mentioned in subsection (3) below."

A threat has to consist of something more than "merely providing factual information about a patent, making enquiries of the other person for the sole purpose of discovering whether, or by whom, the patent has been infringed, or making an assertion about a patent for the purpose of any enquiries so made. " (s.70 (5)).

The claimant must be a person who has suffered damage as a result of the threat and that can include a shareholder of a private company against whom the threats were made (see Brain v Ingledew Brown Bennison & Garrett [1996] FSR 341). As for the defendant, the words in parenthesis in the first line of s.70 (1) extend liability to solicitors and patent agents acting for patentees or other persons threatening litigation (see Brain ibid). The words "or otherwise" after circulars and advertisements include letters before action (see Brain ibid).

A claimant has to prove that threats were made and that he or she is a person aggrieved by them (s.70 (2)). However, If the defendant proves that the acts in respect of which proceedings were threatened constitute or, if done, would constitute an infringement of a patent, the claimant must now show that the patent alleged to be infringed is invalid in a relevant respect (s.70 (2A) (a)). Even if the claimant can show that the patent is invalid in a relevant respect, he or she is entitled to relief only if the defendant is unable to prove that at the time of making the threats he or she did not know, and had no reason to suspect, that the patent was invalid in that respect (s.70 (2A) (b)).

The relief available under subsection (3) is a declaration that the threats are unjustifiable, an injunction against the continuance of the threats and damages for any loss that the claimant has sustained.

Before the 1977 Act was amended by s.12 of the Patents Act 2004, a threat had to be in respect of a direct infringement. No action lay for threats to bring proceedings for making or importing a product for disposal or for using the process but an action could lie for threatening to bring proceedings for consequential acts such as sale by a manufacturer or importer of the product that he had made or imported (see Cavity Trays Ltd v RMC Panel Products Ltd [1996] RPC 361). S.70 (4) has been changed as follows:

"Proceedings may not be brought under this section for -
(a) a threat to bring proceedings for an infringement alleged to consist of making or importing a product for disposal or of using a process, or
(b) a threat, made to a person who has made or imported a product for disposal or used a process, to bring proceedings for an infringement alleged to consist of doing anything else in relation to that product or process."

A new defence provided by a new s.70 (6) is that In proceedings for threats made
by A to B in respect of an alleged infringement of a patent. In the case of a product, it is now a a defence for A to prove that he used his best endeavours, without success, to discover the identity of the person who made or imported the product and that he notified B accordingly, before or at the time of making the threats, identifying the endeavours used. Similarly, where the invention is a process and the alleged infringement consists of offering it for use, it is a defence for A to prove that he used his best endeavours, without success, to discover the identity of the person who used the process. If the alleged infringement is disposing of, offering to dispose of, using or importing a product obtained directly from a process or keeping the product whether for disposal or otherwise, it is a defence for A to prove that he used his best endeavours, without success, to discover the identity the identity of the person who used the process to produce the product in question and that he notified B accordingly, before or at the time of making the threats, identifying the endeavours used.

Complementing s.70 is the right under s.71 (1) to apply to the proprietor of the patent for a written acknowledgement that a specified act would not constitute a patent provided full particulars of the act in question are supplied. If the proprietor fails or refuses such an acknowledgement the applicant can seek a declaration to the effect of the acknowledgement from the court or Comptroller-General of Patents, Designs and Trade Marks.

Registered Designs

Similar provision is made for registered designs by s. 26 (1) of the Registered Designs Act 1949, as amended:

"Where any person (whether entitled to or interested in a registered design or an
application for registration of a design or not) by circulars, advertisements or otherwise threatens any other person with proceedings for infringement of the right in a registered design, any person aggrieved thereby may bring an action against him for any such relief as is mentioned in the next following subsection."

The relief under s.26 (2) is substantially the same as in s.70 (3) of the Patents Act 1977, namely a declaration, injunction or damages. "Mere notification that a design is registered does not constitute a threat" (s.29 (3)). A new 29 (2A) inserted by the Copyright Designs and Patents1988 Act excludes from subsection (1) threats to bring proceedings for an infringement alleged to consist of the making or importing of anything. It is a defence:

	that the acts in respect of which proceedings were threatened constitute, or if done, would constitute an infringement of the right in a registered design (s.70 (2) (a)); or
	if the claimant fails to show that the registration was invalid.

There is no statutory procedure for registered designs equivalent to that provided by s. 71 of the Patents Act 1977.

Unregistered Designs

A threats action was created for the new unregistered design right by s.253 (1) of the
Copyright, Designs and Patents Act 1988:

"Where a person threatens another with proceedings for infringement of design right, a person aggrieved by the threats may bring an action against him claiming-
(a) a declaration to the effect that the threats are unjustifiable;
(b) an injunction against the continuance of the threats;
(c) damages in respect of any loss which he has sustained by the threats."

Mere notification that a design is protected by design right does not constitute a threat (s.253 (4)). Because design rights are unregistered, the practical effect of this exception may not be quite the same as the provisions excepting notification of the existence of a patent or of the registration of a design from the definition of a "threat" under the equivalent sections of the Patents and Registered Designs Acts. It may be that the only person who can rely confidently on this exception is a proprietor who has obtained the comptroller's determination that design right does subsist in a design in a reference under s.246 (1) of the 1988 Act to which the claimant is also party. A further problem is that mere notification of design right protection may not be enough to put an importer, distributor or other intermediary on notice that an article is an infringing article within the meaning of s. 227 (1) of the Act. No action lies in respect of a threat to bring proceedings for an infringement alleged to consist of making or importing something (s.253 (5)) and it is a defence to show that the acts in respect of which proceedings were threatened constituted or would have constituted an infringement of the design
right concerned (s.253 (2)). The Copyright, Designs and Patents Act 1988 makes no similar provision in respect of threats of infringement of copyright or rights in performances.

Trade Marks
An innovation of the Trade Marks Act 1994 is the action provided by s. 21 (1):

"Where a person threatens another with proceedings for infringement of a registered trade mark other than -
(a) the application of the mark to goods or packaging,
(b) the importation of goods to which, or the packaging to which, the mark has been applied, or
(c) the supply of services under the mark,
any person aggrieved may bring proceedings for relief under this section."

As with registered designs, mere notification of a registration, or application for a registration, does not constitute a threat (s.21 (4)). The remedies are the same as for groundless threats under the other statutes, namely a declaration, injunction and damages. A claimant is entitled to such relief unless the defendant can show that the acts in respect of which proceedings were threatened constitute or would constitute an infringement of the mark. Even if the defendant can show that the acts would infringe the mark, the claimant can still succeed if he or she shows that the registration was invalid or liable to be revoked in a relevant respect.

Community Trade Marks and Designs

The Community Trade Mark Regulations 1996 extends s.21 of the Trade Marks Act 1994 to threats of Community trade mark proceedings. Similarly, eg. 2 of The Community Design Regulations 2005 makes equivalent provision for Community designs.

Threats and the CPR

In his foreword to the Civil Procedure Rules ("the CPR") Lord Irvine LC urged practitioners to see "litigation as the last and not the first resort in the attempt to settle a dispute." This exhortation is embodied in para 4.1 of the Practice Direction - Protocols which requires parties

"to act reasonably in exchanging information and documents relevant to the claim and generally in trying to avoid the necessity for the start of proceedings."

This imperative is not easy to apply to intellectual property litigation because a threat contained in a "without prejudice" offer in settlement negotiations was held to
be actionable in Kurtz v Spence (1888) 5 RPC 161.

In Unilever Plc v Proctor and Gamble Co [2000] FSR 433 the Court of Appeal re-considered Kurtz v Spence and found it no longer to be good law. In "without prejudice" discussions in Frankfurt to settle patent litigation between the parties in France, Procter & Gamble's in-house legal advisor told Unilever's that it intended to launch similar infringement proceedings in England and subsequently did so. Unilever replied by claiming a declaration of non-infringement under s, 70 of the Patents Act 1977. Procter & Gamble applied to strike out the writ and statement of claim on the ground that the claim was an abuse of the process of the court. Granting the application ([1999] FSR 849), Laddie J distinguished Kurtz v Spence on the ground that it was essentially a decision on s. 32 of the Patents, Designs and Trade Marks Act 1883 the language of which was different from s. 70 (1) of the 1977 Act.

The Court of Appeal upheld his decision on two grounds.

First, it was clear from such cases as Cutts v Head [1984] 2 Ch 290, Rush & Tompkins v Greater London Council [1989] AC 1280 and Muller v Linsley (1994) 139 SJ 43 that the "without prejudice" rule is founded partly in public policy and partly in the agreement of the parties to enable them to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts. Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders. The Frankfurt meeting was a high-level meeting to settle a number of issues between the two organisations. It was thus an occasion for both sides to speak freely. There was nothing to suggest that Procter & Gambles representatives were oppressive, or dishonest, or dishonourable. The judge was right to conclude that it would be an abuse of process for Unilever to be allowed to plead anything that was said at the meeting either as a threat or as a claim of right. The circumstances were such that each side was entitled to expect to be able to speak freely, and their
agreement to the meeting being arranged evinces that common intention.

The second ground for distinguishing Kurtz v Spence is that s. 71 now provides a and more appropriate procedure for obtaining a declaration of non-infringement which was not available in 1883.

Simon Brown LJ's Observations
In his concurring judgment Simon Brown LJ found difficulty in understanding the policy of the modern threats action. S. 32 of the 1883 Act had been "designed to stop those patentees who were willing to wound but afraid to strike from hanging a Damocletian sword above any traders head" but the true purpose of the present legislation was more difficult to discern. There was a logic to the exceptions in s.70(4) and
(5) of the Patents Act 1977 (as it then stood) that enabled rival manufacturers to threaten each other but not the others customers to induce them to cease dealing with their rivals, but the overall position was curious and unsatisfactory. Procter & Gamble's threat did no damage whatever as was evidenced by the absence of any damages
claim.

Kooltrade

In Kooltrade Ltd. v XTS Ltd. [2001] FSR 344, which was the first case to follow Unliever Pumfrey J held that Merely heading a letter "without prejudice" will not suffice. There have to be genuine negotiations aimed at settlement of a dispute.

Conclusion
By extending the remedy to unregistered design rights and trade marks in the last decade, Parliament has indicated that the action to restrain groundless threats continues to serve a useful purpose. Anyone advising the proprietor of a patent, trade mark or registered or unregistered design must therefore exercise considerable caution. The first thing to remember is that letters before action (or "cease and desist" letters as they are known in the United States) should always be settled by someone with experience of patent litigation in the United Kingdom. The action to restrain groundless threats applies only to threats of litigation in the United Kingdom so a complainant who objects to the infringement of his or her rights abroad should
specify that the United Kingdom is excluded (see Prince Plc v Prince Sports Group [1998] RPC 21). Similarly, a complainant who wishes to take advantage of one of the exceptions should limit his or her complaint to conduct that falls full square within the exception. Anything outside is caught by the general prohibition (see Cavity Trays Ltd v RMC Panel Products Ltd [1996] RPC 361 and Prince although that Cavity Trays would be decided differently today). The third thing to remember is that legal advisors
and patent agents can be liable and that it is often convenient for claimants to join professional advisors to conflict them out of the action. Finally, there is at least some immunity from liability where threats are made in genuine settlement negotiations. On the other hand the words "without prejudice" are not a charm against liability and a blatant or even disguised threat will still be actionable as Kooltrade makes clear.