My Lords, it is pleasing that a number of technical and uncontroversial reforms have in recent times gone through the special procedure before this House which is reserved for Bills arising from the great work of the Law Commission. The most recent example was the Insurance Act 2015, which this House scrutinised towards the end of the last Parliament.
The Bill before your Lordships’ House today is similarly concerned with a complex and specialist area of law. It concerns a particular aspect of our intellectual property framework, and I am very grateful to the Law Commission and to legal, IP and judicial stakeholders who have worked together so effectively to produce these reforms. I hope my explanations today will help noble Lords to appreciate their efforts.
In my two years as the Minister for Intellectual Property, I have come to appreciate how important IP is to this country. The UK’s investment in intangible assets protected by IP rights has been estimated at more than £60 billion, equivalent to approximately 4.2% of total UK GDP. IP-intensive industries have been estimated to generate 37% of UK GDP. This Government also understand that a well-functioning IP regime is a vital foundation for economic growth. This is reflected in our manifesto commitment to make the UK the best place in Europe to innovate, to patent new ideas and to set up and expand a business.
To be successful, our intellectual property system needs to strike a balance. On the one hand, the law must reward innovators and ensure that their IP rights can be enforced. On the other, it is crucial that threats to sue for infringement are not abused, stifling new ideas and distorting competition. This concern is a
real one, and the Bill before us today is designed to counter these risks. The costs of IP litigation are such that many businesses, understandably, wish to avoid it at all costs. The consequence is that the mere threat of proceedings for IP infringement is capable of driving customers away and causing significant commercial damage, especially if the threat is issued by someone with deep pockets and the other party is less favourably placed.
A threat to sue where there has been no infringement, or where the IP right in question is actually invalid, is known as an unjustified threat. Such threats are, I regret to say, not a new phenomenon. As long ago as the 1880s, unjustified threats were misused to damage trade rivals. In an early example, threats of patent infringement were made to the customers of a steam engine manufacturer by one of its competitors. The intention was simply to drive those customers away, and it worked. Parliament intervened in 1883 and provided a remedy for the person abused. Since then, similar statutory remedies have also been introduced in respect of trademarks and registered and unregistered design rights. These “threats provisions” offer much needed protection and provide remedies to those whose commercial interests have been affected by an unjustified threat.
But time moves on and new difficulties arise. Business and IP professionals have told us that the existing provisions do not work as well as they should, partly because they are overly complex. Experts can exploit loopholes in the law, while the unwary can find themselves unintentionally caught up in litigation. In addition, the provisions have developed in a piecemeal fashion across the different IP rights. Consequently, there are plenty of inconsistencies to further muddy an already complex area of law. This is particularly problematic for small businesses, which are disproportionately affected by the cost of any legal advice they require. They are a particular concern to this Government and to me personally.
A further problem arises over who should be approached when a question of infringement arises. Not all infringers are the same. Some, such as manufacturers and importers of infringing products, do more commercial damage than others and are better placed to determine whether a threat of infringement proceedings is justified. The threats provisions must differentiate between different types of infringement. This encourages rights holders to approach the most appropriate person or business, while protecting others, such as retailers, from unfair approaches and unreasonable threats.
In 2012, against this background, we asked the Law Commission to review the existing law of unjustified threats. The Law Commission consulted extensively in 2013 and made detailed recommendations for reform in 2014 and 2015. The Bill reflects those recommendations. The provisions in the Bill are essentially the same for patents, trademarks and designs—both registered and unregistered. For each right there are five main parts which deal, first, with the test for what constitutes a threat; secondly, with which threats are actionable; thirdly, with the safe harbour of permitted communications; fourthly, with the remedies and defences; and, finally, with exemptions for professional advisers.
It may be helpful to noble Lords if I briefly set out what each of those parts aim to do. The first is the definition of a threat. There are three elements to the test, which are to be understood from the perspective of a “reasonable person” receiving a communication such as a letter or email. Would a reasonable person, knowing what the recipient knows, understand from that communication that an IP right exists, that a person intends to bring proceedings for infringement of that right, and that the alleged infringement relates to an act done—or to be done—in the UK? If the answer is yes to all three aspects, then the communication can be said to contain a threat to sue for IP infringement. The test is taken from existing case law, with one change that provides the necessary link between the threat and the UK market. It also allows the provisions to apply to the forthcoming Europe-wide unitary patent, but not to apply outside the UK.
The second part sets out which types of threats trigger the threats provisions and which do not. The provisions set out that threats may be made freely to manufacturers or importers and their equivalents and they will not trigger the provisions. This allows rights holders to approach the trade source of a potential infringement, which could cause the most commercial damage. Manufacturers and importers are likely to be able to assess whether a threat to sue is justified and, having invested in the product in question, will be more willing to challenge the threat if it is not justified. In contrast, retailers, stockists and customers are unlikely to be able to make an informed decision about whether a threat to sue is justified. They are likely to be risk averse and want to avoid being taken to court and, as a result, they will probably simply stop stocking or buying the product in question without investigating further. Clearly, this is potentially unfair and damaging to a legitimate business. For that reason, threats made to businesses and people such as these are generally not allowed. Of course a rights holder may legitimately need to speak to such businesses, so the third part of the provisions gives guidance on what can safely be said to retailers or customers, and for what purpose. It clarifies the existing law by introducing the concept of “permitted communications”.
The fourth part of the Bill sets out remedies available in the case of a successful threats claim and the defences available to a defendant—the person who made the threat. The range of remedies available will be unchanged by the Bill. Damages may be awarded for commercial damage done by the threat and the claimant may seek an injunction to stop the threats, as well as a declaration that the threats were unjustified. I should stress that the threats provisions are not intended to stop rights holders being able to protect their assets, but to prevent the unscrupulous use of unjustified threats to manipulate the marketplace and prevent fair competition. Consequently, the ability to prove that the threat was in fact justified because an infringement occurred will remain a defence. An additional defence was introduced by the 2004 patents reforms. A person making a threat to a retailer or the like would have a defence if their efforts to find the trade source of the infringing patented goods were unsuccessful. This Bill will extend that limited but useful defence to trademarks
and designs. The provisions also clarify that the person making the threat must use “all reasonable steps” to find the importer or manufacturer of the product in question before they are safe to approach the retailer.
The fifth part of the Bill prevents threats claims being brought against regulated professional advisers acting on instructions from their client. Currently, liability for making threats is not limited to the rights holder; any person who issues a threat will risk a threats action being brought against them. This means that professional legal advisers, such as solicitors and registered patent or trademark attorneys, may be held personally responsible for making threats even though acting on client instructions. This disadvantages rights holders as well as the legal advisers themselves. Threats actions can be used as a tactic to disrupt relations between adviser and client and may result in advisers asking for indemnities or telling clients that they can no longer act for them. The Bill therefore provides an exemption for professional advisers in relevant situations, but the instructing client will still remain liable for making the threat.
I hope that this explanation of the Bill’s provisions has been of assistance. I very much look forward to hearing what noble Lords have to say and to taking the Bill through the special procedure before the Committee, which I have not had the pleasure of using before and to which it is very well suited. These are worthy and important reforms, which will make a real difference to UK innovators, inventors and designers. I beg to move.
12.11 pm