The following article is a guest column by John Lambert of NIPC (Northern Intellectual Property Chambers) in the United Kingdom. Mr. Lambert is a barrister of Lincoln's Inn and the Northern Circuit specializing in intellectual property and technology law. NIPC and Antoinette M. Tease, P.L.L.C. are not affiliated. This article is published with permission from the author.
Consider the Implications of Foreign Laws Before Sending a Cease and Desist Letter
One consequence of globalization is that laws that one country regards as indispensable may have unforeseen and unwelcome consequences far beyond its borders. Over the years, most complaints in that regard have come from Europe over the reach of American antitrust, export control and corporate governance laws. Laws that could justify complaint the other way might include those that provide for “threats actions.” At least two American companies have fallen foul of those laws; in one case, while attempting to enforce rights that it enjoyed in the USA.
1. What is a “Threats Action”?
Since 1883, every British patents statute has contained a section providing a right of action for persons aggrieved by threats of proceedings for infringement of a patent whether by circulars, advertisements or otherwise. The remedies that a court may grant include declaratory and injunctive relief and damages. The current provision is s.70 of the Patents Act 1977 as amended recently by s.12 of the Patents Act 2004. An unofficial consolidation of those statutes may be inspected on the British Patent Office’s website at http://www.patent.gov.uk/patent/
legal/consolidation.pdf. An actionable threat can be made in what English lawyers call “a letter of claim” or “letter before action” and Americans “a cease and desist letter.” An actionable threat can lie not only against the party on whose behalf the letter was written but also against the lawyer or patent attorney who wrote the letter (see Brain v Ingledew Brown Bennison & Garrett  FSR 341). The threat need not be explicit. Anything that would lead a reasonable person to conclude that proceedings will follow non-compliance will do. Similar provisions have been inserted into statutes that provide for design registration (rights not dissimilar to design patents in the USA), unregistered design rights (restrictions akin to copyright on making articles directly or indirectly to original designs) and, most recently, British and European Community trademark registration. It is the recent extension of such rights of action to trademark litigation that has given difficulty to American companies. Other countries that provide for threats actions include Australia, New Zealand, Ireland and Hong Kong. Australia even has a threats action for copyrights, though s.202 (3) of the Australian Copyright Act mercifully excludes lawyers from liability for anything done in their professional capacity on behalf of their clients.
2. What is the Reason for Such Legislation?
Threats actions are among several measures to prevent abuse of intellectual property rights in the UK and countries with similar legal systems. An important difference between those systems and that of the USA is that substantial contributions to successful parties’ legal fees are almost always awarded in those countries, and such fees tend to be particularly heavy in intellectual property litigation. In one recent case, both parties’ legal fees for a 4-day trial over a claim involving elementary chemistry exceeded US$1.5 million (see Merck & Co Inc v Generics (UK) Ltd  EWHC 2842 (Pat) (27 November 2003 at http://www.bailii.org/ew/cases/
EWHC/Patents/2003/2842.html). As one famous Victorian appeal court judge put it, “a man had better have his patent infringed, or have anything happen to him in this world, short of losing all his family by influenza, than have a dispute about a patent” (Lord Esher MR in Ungar v Sugg (1892) 9 RPC 113). It is hardly surprising that the threat of intellectual property litigation should terrify anyone who might be caught up in such litigation, particularly wholesalers, retailers and end-users. Such fear was exploited unscrupulously in late 19th century Britain. In the words of another great judge:
The law as it stood enabled persons who were patentees, or who alleged they were patentees, to fulminate their threats against anybody they liked, cautioning them, at the peril of their lives almost, not to invade the rights which the patentees thought they had.
(Vice-Chancellor Bacon in Driffield co. v Waterloo & Co (1886) 3 RPC 46).
He added that it was to put a stop to that abuse that the law was changed.
Although putting a stop to such abuse may have been the purpose of the legislation, that is not the only use to which it is put. It can, of course, be the subject of a counterclaim and thereby serve as a bargaining chip, though it is more common for an alleged infringer to commence proceedings with a threats action, the patentee to counterclaim for
infringement and the alleged infringer to counterclaim to the counterclaim for revocation of the patent. Since a claim against an intellectual property owner’s lawyer induces a conflict of interest between the lawyer and client, the remedy has been used to force an opponent to change its legal team at short notice. Yet another use is to take advantage of an article of the European Patent Convention that allows litigants in national courts to join opposition proceedings after the expiry of the 9-month time limit.
4 How this Legislation Can Affect American Intellectual Property Owners
Fair-minded Americans doubtless accept and take account of such laws when enforcing their foreign intellectual property rights overseas. What they may find harder to stomach is the impact of those laws when enforcing their American rights in the USA. It has to be stressed that threats legislation is not intended to have extra-territorial effect, but one case where it did have such effect was Prince Plc v Prince Sports Group Inc.  FSR 21. Before the Uniform Domain Name Dispute Resolution Policy came into being, the proprietor of a registered trademark could challenge a generic top-level domain name registration that was similar or identical to the trademark by notifying the person who had registered the domain name that the domain name violated his or her legal rights and producing a copy of such notice to NSI (Network Solutions Inc.) in Virginia. NSI would invite the domain name owner to produce evidence that he or she was entitled to register the domain name. If he or she was unable to do so within 30 days, NSI would offer to assist the owner to register and migrate to a new domain name. Should the owner reject such offer, NSI would put the registration on hold. NSI did not attempt to arbitrate domain name disputes. If the parties could not come to terms, the impasse could be broken only by litigation. US lawyers for the well-known sports goods manufacturers followed that procedure when they found that “prince.com” had been registered by a much smaller English computer consultancy called “Prince Plc.” In their notice to the English company, the lawyers complained that its domain name registration infringed their clients’ trademark registrations throughout the world including the UK and asked the British company to transfer to a new domain name, failing which their client would sue. The British company responded by issuing proceedings under s.21 of the Trade Marks Act 1994 (http://www.patent.gov.uk/tm/legal/
tmact94.pdf) and managed to obtain summary judgment against the American company.
It has to be emphasized that the facts of the Prince Plc case were unusual and are unlikely to recur, if only because there are now alternative means of resolving such disputes without threatening litigation. It should also be understood that not every warning is actionable. Lawyers and patent and trade mark attorneys in the UK (and no doubt other countries with similar legislation) have developed wording over the years that effectively warns off potential infringers without exposing themselves or their clients to liability. Furthermore, s.70 of the British Patents Act 1977 has recently been amended to clarify the line between spooking the market and giving fair warning. It has always been a defense to a threats action for an intellectual property owner to prove that the threats were justified. One recent amendment enables a patentee to escape liability even if the relevant claim of his or her patent was invalid, so long as she or she can show 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. Because the purpose of the litigation is to protect intermediaries, it has never been actionable to threaten proceedings for making or importing a patented product or using a patented process. Similarly, merely bringing the existence of a patent, design or trademark registration or unregistered design right to another’s attention has always been lawful. Other recent amendments to the Patents Act permit providing factual information about a patent, making enquiries about whether a patent has been infringed and if so by whom, and making an assertion about the patent for the purpose of those enquiries. The courts have also held in the last few years that threats made in good faith in negotiations to settle a dispute are not usually admissible in evidence, thereby reversing a rule to the contrary that had subsisted for over 100 years.
Perhaps the best advice that can be given is always to consult intellectual property specialists before confronting an alleged infringer even if he or she is American and the right that appears to have been violated arises in the USA. That is all the more prudent when approaching foreigners who are alleged to have infringed foreign intellectual property rights outside the USA. If such infringement is suspected, consult a specialist lawyer or patent or trade mark attorney practicing in the country concerned. As there are no additional damages for willful infringement of a patent in the UK and kindred jurisdictions, there is no particular advantage in sending a “cease and desist” letter. Though the common law systems of the UK and the USA many have much in common, there are also many dissimilarities of which threats actions and absence of triple damages are but two examples.