Introduction

Patents, trade marks and design rights, among others, are important intellectual property (“IP”) rights which pave way for economic growth.  In almost all countries and jurisdictions legislative provisions were enacted to protect IP rights, and thereby to ensure that innovation is appreciated and rewarded.

However, IP rights are sometimes being abused to stifle innovation and beat competitors.  Since IP litigations are usually expensive and time-consuming, especially in developed jurisdictions, even a mere threat of IP infringement proceedings can be devastative to a business.  While owners of and other persons interested in IP rights deserve protection of their rights in infringement proceedings, there has arisen a need to deter unmeritorious IP claims.

What are Groundless Threats Actions?

In Hong Kong, persons aggrieved by groundless threats of copyright, patent, registered design and/or trade mark infringement proceedings are entitled to a defensive cause of action to claim against the person(s) making such threats.  Under this cause of action of groundless threats, if a threat to sue for infringement is made where there has been no infringement, or if the right allegedly infringed is invalid, it is said to be groundless or unjustified.  An aggrieved person who had sustained or were likely to sustain non-minimal damage because of the threat, can apply to the Court for remedies including a declaration that the threat was unjustifiable, payment of damages for any loss resulting from the threat and an injunction to stop the threat.

Case Illustration

The cause of action of groundless threats is illustrated in International Jingjin Medical Institute Ltd v Hong Kong Institute of Chinese Jingjinke Professionalism Ltd [2013] 1 HKLRD 370.  The defendant was the registered owner of two trade marks which include the expressions “經筋治療師” and “經筋理療師” meaning “Meridian Sinew Therapist”.  The plaintiff offered training courses which conferred the title of “經筋治療師” (the “Title”) and it used such Title on its website.  By two letters, the defendant threatened to bring legal proceedings against the plaintiff for infringement in respect of the plaintiff’s use of the Title.  The defendant argued that since the expressions “經筋治療師” and “經筋理療師” were conspicuous parts of its registered trade marks and thus word marks under the Trade Marks Ordinance (Cap. 559), it had a monopoly of the Title.  The plaintiff claimed that the defendant’s threats were groundless and sought relief under groundless threats actions.

The court held that the two said expressions were not registrable as trade marks under the Trade Marks Ordinance as they were descriptive in nature and devoid of any distinctive character: they merely qualified the kind and nature of therapy offered by the therapist.  Therefore, the defendant’s registration of its two trade marks did not grant the defendant a monopoly of the Title.

An injunction was then granted against the continuance of threats, as well as an inquiry as to damages suffered in respect of the defendant’s wrongful acts of groundless threats.  The defendant was also ordered to pay the legal costs of the plaintiff.

Limitations of Groundless Threats Actions

Despite the apparent value of groundless threats actions to aggrieved persons, as illustrated in the above International Jingjin case, groundless threats actions are statutorily barred in Hong Kong in certain instances.

Such actions could not be brought against any threat of infringement in respect of the application of a trade mark to goods or their packaging, or the supply of services under a trade mark.  Further, if the threat is made by a registered trade mark owner or a licensee having power to bring proceedings for infringement of the trade mark, and such owner or licensee begins a trade mark infringement action against the threatened person within 28 days after the threat was first made to him and pursues that action with due diligence.

In addition, a threat to bring proceedings for patent infringement alleged to consist of making a product for putting on the market or of using a process, or for registered design infringement alleged to consist of the making of an article for sale or hire or the importing of anything, could not form the basis of a groundless threats action.

Recent development - Intellectual Property (Unjustified Threats) Bill

Recently, the Intellectual Property (Unjustified Threats) Bill (the “Bill”) was passed by the House of Commons in the United Kingdom and now it awaits Royal Assent.

The aim of the Bill is to strike an appropriate balance allowing rights-holders to protect their IP rights, while not misusing threats in order to distort competition or stifle innovation.  The new law, when implemented, will harmonise groundless threats provisions for patents, trademarks and design rights, bringing simplicity and consistency to this area of law.  Among other changes under the Bill, there will be a standard two-limb test for determining whether a communication constitutes a “threat”, and a defence of “permitted communication”.

The first limb in the aforesaid two-limb test is that a reasonable person in the position of a recipient would understand from the communication that an IP right exists.  The second limb is that a person intends to bring proceedings (whether in a court in the United Kingdom or elsewhere) against another person for infringement of that IP right by an act done in the United Kingdom, or an act which, if done, would be done in the United Kingdom.

A permitted communication refers to any communication containing information that relates to the threat and made for a permitted purpose, in which all of the information that relates to the threat is information necessary for that purpose, and in which the person making the communication reasonably believes that all of the information that relates to the threat is true.  Whereas the Bill has expressly included 3 purposes which qualify as permitted purposes, and 3 other purposes which do not qualify as such, it confers the court the discretion to treat any purpose other than the first-mentioned 3 purposes as a permitted purpose if the court considers that it is in the interests of justice to do so.

Under the present British legislative provisions on groundless threats, which do not differ materially from their Hong Kong equivalents, there is some uncertainty as to in what circumstances a communication goes beyond a mere notification of the existence of an IP right, which does not constitute a threat of proceedings, and amounts to a threat which can form the basis of a threats action.  Against such uncertainty it is not an easy task to evaluate the likelihood of success in a potential or actual groundless threats action.  From its appearance, the Bill seems to be able to alleviate the uncertainty in this regard.

As for Hong Kong, before any enactment similar to the Bill comes into effect, and/or any authoritative decision is pronounced by the courts, the said uncertainty seems to remain.  On the other hand, provided that the Bill partly serves to codify the relevant case law principles on groundless threats actions, British jurisprudence pursuant to the Act of Parliament enacted in accordance with the Bill would be of some referential value to Hong Kong courts.

Conclusion

If you lose business or otherwise sustain injury to your commercial interests because a person falsely claims that you are infringing their IP rights, it may be possible for you to bring a groundless threats action against that person, and to seek compensation for your loss or injury.

If you are an owner of or otherwise interested in IP rights, it may be prudent for you to think twice before sending a pre-action communication to another person which alleges infringement by that person.  Such a communication may backfire and render you liable in a groundless threats action.