How do you react when you want to sue someone? Do you issue a claim immediately, or write a letter of claim first? The answer seems obvious. For many years, judges and policymakers have drummed into parties the importance of communicating with opponents before starting court proceedings, and have penalised overly aggressive parties with adverse costs orders. However, there has always been one area in which the sensible answer was sometimes the wrong answer: intellectual property claims.
This is because of the so-called ‘threats action’. Sending a letter of claim containing unjustified allegations of breach of certain intellectual property rights can give the subject of the allegations the right to sue. Further, liability in a threats action can extend beyond the party authorising the letter of claim to the lawyers representing that party, even in a personal capacity. Sending letters of claim in intellectual property cases is sometimes a dangerous business.
The rationale for the threats action is plain enough; unjustified threats are easy to make, but can cause significant loss. Also, solicitors in all areas of law have to act properly in framing allegations. Only recently a solicitor was suspended for practice after his firm sent out thousands of letters threatening action over unlawful downloading of media and demanding £500 damages each time, even though accusations of copyright infringement cannot give rise to a threats action.
However, the threats action goes much further than this. Disputed allegations of infringement of intellectual property rights normally arise from genuine disagreements about what has happened or what is or is not permitted by the law. It will therefore not be clear until judgment has been delivered whether the threats made are ‘unjustified’ or not. In the meantime, the party faced with the threats can cease to be the prey and become the predator, even though the party making the threats had every reason to believe they were justified.
Also, the fact that legal advisers are at risk of threats actions gave rise to additional problems. Granted, clients were normally more worried about their own liability than that of their lawyer. However, few lawyers were willing to take the risk of exposing themselves to threats action, when they did not stand to benefit if the threats were heeded, and they were reliant on information given to them by their clients.
As a result, lawyers have devised various work-rounds to avoid the risk of threats actions. One is to issue proceedings first and talk afterwards, which ironically gives the subject of the threats no right to sue. One is to carefully construct their letters to avoid making threats of infringement in the specific areas in which a threats action could be brought – something complicated by differences in the rules applying to trademarks, patents and other rights. One is to send offers to settle at the same time as notifying the other party of the allegations, on the ground that threats actions cannot be brought in relation to genuine attempts to settle through ‘without prejudice’ correspondence. However, all of these have their own problems, and the anomalies over what allegations can lead to threats claims, and the liability of legal advisers means there have been longstanding calls for reform.
It now seems that, after a long period of consultation and consideration, these calls will be heeded. Announced in the Queen’s Speech, the Intellectual Property (Unjustified Threats) Bill will not abolish threats actions, but will rationalise the law on unjustified threats in a number of ways:
- Perhaps most importantly, it will provide that a professional adviser acting in their professional capacity and on instructions from their client will not face personal liability for making threats.
- The Bill contains a new provision allowing ‘permitted communications’ – letters complying with certain criteria that will allow a party to raise issues about their IP rights without facing a threats action.
- It also rationalises the law in some respects – ensuring for example that there is consistency between patents and trademark law in relation to what allegations can be made without facing a threats action.
Because the Bill will not abolish threats actions, pitfalls remain. Parties will still need to think carefully before accusing others of infringing their intellectual property rights, preferably with the benefit of legal advice.