New laws should take the heat out of IP disputes

The recent dispute between BrewDog and the Lone Wolf pub highlights that businesses often become involved in disputes about intellectual property (IP) '“ such as trade marks, patents and designs.

Trade marks and patents are valuable assets for many businesses. Picture: Corbis
Trade marks and patents are valuable assets for many businesses. Picture: Corbis

Current UK law means it is not straightforward to resolve such disputes out of court, but a bill set to receive Royal Assent imminently is set to make it easier for IP owners to settle disputes.

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Over the last 20 years or so, the general trend has increasingly been for businesses to seek to resolve their commercial disputes without recourse to courts. Usually, when a commercial dispute arises, the parties involved communicate with each other with a view to negotiate a resolution, to avoid the time, cost and uncertainty involved in court proceedings.

But in the case of IP disputes, current legislation places strict limits on what can be said in pre-litigation correspondence: if the IP owner oversteps the mark, the alleged infringer can turn the tables and sue the IP owner for “unjustified threats”.

This law was originally brought in to ensure that IP owners communicated directly with primary infringers such as manufacturers and importers about any alleged infringements to protect parties caught in the middle, such as companies stocking the disputed goods (secondary infringers).

In many ways this is a fair system, especially where allegations of infringement turn out to be unfounded.

In one case, our firm acted for a business which was importing products alleged to infringe a patent. The patent owner wrote to our client alleging infringement, and also wrote to our client’s customer, a major supermarket, which promptly cancelled its order with our client, causing substantial losses.

The letter to the supermarket was an unjustified threat, as the product did not in fact infringe the patent, and the supermarket was merely selling the product. As a result, our client recovered substantial damages from the patent holder to compensate it for the needless loss of the order.

However, the unjustified threats laws are unclear and inconsistent. One effect of this is to force disputes into court, which may otherwise be resolved by negotiation, simply because IP owners fear being counter-sued. In relation to trade marks and designs, the legislation is drafted so narrowly that it even puts limits on what the IP owner can say to the primary infringer out of court.

As the UK is one of the few countries to have unjustified threats legislation, it is easy for foreign companies to inadvertently fall foul of it.

In another of our cases, the IP owner – who did not know about the legislation – wrote a pre-action letter directly to a manufacturer, alleging design right infringement.

If the letter had only mentioned the manufacture of the allegedly infringing products, that would have been fine. However, because the letter mentioned that the manufacturer was also advertising and selling the products, it was caught by the unjustified threats laws.

The manufacturer raised court action for unjustified threats against the IP owner, who in turn counterclaimed for design right infringement. Ultimately, a settlement was reached, but only after a few months of court proceedings, when the matter might otherwise have been resolved by negotiation at the outset.

The new legislation aims to improve the current state of affairs, but without removing the protection offered to potential secondary IP infringers who do not want to be drawn into the fray.

IP owners will be able to mention acts of secondary infringement of designs and trade marks, such as advertising and sales, to primary infringers. They will also get more scope to communicate with alleged secondary infringers such as stockists of infringing products, to find out more information about the allegedly infringing products, with clearer guidelines on exactly what can be said to secondary infringers.

This strikes a fairer balance and should allow IP owners greater scope to protect their valuable intellectual property while keeping safeguards in place to ensure businesses are still deterred from making groundless threats in order to suppress innovation and distort competition.

By providing a clearer framework within which disputing parties can exchange information to resolve the issues between them and avoid litigation, the Intellectual Property (Unjustified Threats) Bill should help IP owners with timely and cost-effective enforcement of their valuable IP assets. That should ultimately be to the benefit of all parties.

However, as legislation still restricts what can be said, businesses should still take care to familiarise themselves with the rules before putting pen to paper, or picking up the phone, to make allegations of infringement.

Susan Snedden is a director in the IP and technology department of commercial law firm Maclay Murray & Spens LLP