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the Unjustified Threats Act - why it is important to all startups

17 August 2017

What are unjustified threats?

An unjustified threats regime applies to almost every intellectual property right in the UK – patents, trade marks and designs (it does not apply to unregistered trade marks, which are protected in the UK by the common law action of 'passing off', or copyright).

Broadly, what the unjustified threats provisions do is limit the ability of rights holders to threaten third parties with an infringement claim. If a rights holder makes an unjustified threat of intellectual property (IP) infringement, the aggrieved party can sue them for unjustified threats.

Rights holders must therefore:

  1. be sure that they are able to back-up any allegations of infringement before they make them
  2. frame all communications in such a way as to fall within the ‘safe harbour’ exceptions to the threats provisions, or
  3. run the risk of being dragged into unwanted litigation.

Conversely, with an awareness of the law, parties threatened with IP an infringement claim can gain a tactical advantage in negotiations.

Why should Grow clients care now?

All of the startups we work with on our Grow programme are reliant upon IP. Whether they are truly innovative and need to protect their first-mover advantage, or are building upon and improving concepts which already exist and need to protect themselves from retaliation, startups (particularly disruptive startups) should not ignore the value of IP law, including the unjustified threats provisions, as both a sword and shield.

Crucially, the law in relation to unjustified threats is changing later this year (expected to come into force on 1 October 2017).

As a shield

IP litigation can be expensive and disruptive, it involves specialist courts, lawyers and experts, and it draws valuable management resources (time, not just money). Even if you believe that you have not infringed any IP, a third party can still cause mischief by bringing a claim.

The threats legislation allows alleged infringers to do two things:

  1. Firstly, to turn the screw on parties threatening infringement.

    Many rights holders do not properly understand the boundaries of their IP rights, whether because they do not seek specialist advice, or because the boundaries of their rights are inherently fuzzy. As a result, they threaten when they perhaps shouldn’t. Even if they are aware that their rights are not so wide as to cover an alleged infringement, they may decide to threaten an infringement claim anyway on the basis that the prospective defendant will want to avoid the cost of instructing lawyers and simply concede.

    When correctly deployed, threats legislation can be used to stop any litigation before it starts and vastly improve your negotiating power.

    In either of the above scenarios, the threatening party will probably want to avoid court if it can and would much rather force a settlement. If its rights are either not wide enough to cover an alleged infringing act, or are vulnerable to revocation for some reason, the rights holder would not win at trial. In such circumstances, its threats (provided they are threats) are unjustified. A threatened party can exploit this by itself threatening a claim – a claim to restrain the rights holder from making threats and to recover any damages suffered.

    Assuming that the threatening party actually wants to avoid the cost and risk of litigation, demonstrating your understanding of the advantages that a potential threats action gives you could scare the rights holder off.

    The threats regime is of particular value in circumstances when it is your customers which are being targeted and told: “don’t buy any goods/services from startup X because they infringe our IP and we could sue you.” At the startup stage, things like this could be fatal to your business.

  2. Secondly, if you are a customer that receives such a letter warning you off a supplier’s goods/services, you can assert your rights under unjustified threats legislation or, preferably, notify the supplier and get it to defend you as an aggrieved party itself.

As a sword

If you are a rights holder, you need to enforce against infringers. Otherwise, why bother with the cost of maintaining the rights?

When you are a startup and your value rests largely in IP as an intangible asset – an innovative new idea or an inspiring brand – this is all the more important. What is just as important is the need to keep your enforcement activities cost-effective. If you are going to spend more in defending your rights than you ever gain from associated sales, protection may not be commercially astute.

To keep your enforcement activities cost-effective and to be able to budget for legal costs, you need to have a good idea of the prospects and timelines of any enforcement steps which you are taking, whether the end of the road is a court judgment or pre-litigation settlement. One factor that is intimately intertwined with this is whether you run the risk of a retaliatory threats action.

The law

The Intellectual Property (unjustified threats) Act received royal assent on 27 April 2017, and is expected to come into force on 1 October 2017.

The Act will make a number of substantive changes to the law on unjustified threats. Broadly, it will harmonise unjustified threats across the applicable IP rights and make them friendlier to the rights holders. The key elements of a threats claim are:

1. There is a threat. Relevant to this are:

  • What is a ‘threat’?

    As the law stands, a threat is a communication (made in any way, whether in writing or orally) which would be understood by the ‘reasonable person’ as a threat to an infringement action which would in some real way affect that person’s commercial interests. This is strictly applied and even rather innocuous communications can fall foul as actionable threats.

    The Act will not make any substantive changes to this element.
  • Territorial scope

    The present law states that an actionable threat can be one made from anywhere in the world, provided it is as to a claim being brought in the UK.

    The position under the Act will be not where any claim is to be brought, but where the allegedly infringing acts took place. This is particularly relevant in the context of EU-based rights such as EU trade marks, designs and (potentially, if its implementation is not scuppered by Brexit) the unitary patent.

    The Act strengthens the position of the would-be aggrieved person by eliminating the possibility of the threatening party framing a communication in a way as to disclaim bringing an action in UK courts (and thus bringing it outside the current scope of actionable threats).

2. The threat is not excluded

Certain threats are allowed if they come within the ‘safe harbour’ exceptions in the Act. For all relevant IP rights, it is currently acceptable to threaten on the basis of acts of ‘primary infringement’ (generally, manufacturing and importing). The aggrieved person will not be able to bring a claim for unjustified threats. However, this is narrowly interpreted and any threat, express or implied, to also sue for an act of secondary infringement (such as the supply of an infringing product), will remove the entire threat from the statutory exclusion.

The Act will also allow rights holders to allege acts of secondary infringement, provided that these threats are made to a party who is also an actual or intended primary infringer (so you could a threaten a manufacturer with the act of supply infringing products) against an actual or intended primary infringer, with the intention of correcting the relevant acts, NOT to actually infringe.

3. The threat cannot be justified

This remains the same under the Act. If what is alleged to be an infringement is actually an infringement and the right relied upon is valid (in IP litigation, almost every infringement claim is met with an invalidity counter-claim), the threat was not unjustified.

Click here to watch our webinar recording on the Intellectual Property (Unjustified Threats) Act 2017 from earlier this year.

Browne Jacobson Grow clients

If you believe that a competitor is stealing your ideas or brand and may be infringing your IP, or if you are on the receiving end of a letter claiming that you are infringing someone else’s IP, get in touch with your Grow Advisor for quick, responsive commercial advice.

If you are not a Browne Jacobson Grow client but would like to find out more, have a look at how we can help here.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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