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Unjustified threats of IP infringement proceedings and online marketplaces

Posted on 26 August 2022

For the first time since the Unjustified Threats Act 2017 (the 2017 Act) updated the legal framework around unjustified threats to sue for intellectual property  infringement, the High Court has considered how the regime applies to online takedowns. In Shenzen Carku v NOCO, Meade J decided that using the notification and takedown procedure on the Amazon online marketplace could constitute a threat to sue for infringement. In this case, the threat was found to be an unjustified one because the IP right asserted was not valid.

The unjustified threats regime provides a remedy for any person aggrieved by an "actionable" threat to sue for intellectual property infringement. Rightsholders should now be mindful that takedown notices issued to online platforms are capable of being treated as threats to sue for IP infringement. The question will then be whether those threats are justified. Although not all forms of IP infringement are in the scope of the threats regime, certain uses of notification and take-down systems on platforms such as YouTube for example in relation to copyright, could give rise to other claims such as unlawful interference with trade (see Costa v DissociaDID).

Background

Shenzen Carku applied to have one of NOCO's UK patents for a battery-powered car jump-starter (the Patent) revoked for invalidity on the grounds that it was obvious over the prior art. Carku also claimed that certain statements that NOCO had made to the Amazon marketplace, which led to various Carku products being de-listed from the platform, were unjustified threats to sue for patent infringement.

NOCO denied that the patent was invalid, and counterclaimed for infringement. It also argued that the statements to Amazon were not threats of infringement proceedings – but, if they were, they were justified.

Decision

Patent validity and infringement

Meade J found that at least some of the Carku products would infringe the claims of the Patent (if it were valid) - however, the judge went on to conclude that the Patent was invalid for obviousness over two out of the three pieces of prior art cited by Carku.

In light of the finding that the Patent was invalid, it became necessary to consider whether there had been an unjustified threat of patent infringement proceedings when NOCO issued its notice and takedowns to Amazon.

Unjustified threats

Not all threats to sue are actionable under the unjustified threats regime: in particular, threats to (alleged) primary infringers – such as importers and manufacturers – will not be actionable. Neither are implied threats contained in certain permitted communications, such as those which otherwise merely notify the recipient of the existence of an IP right. Similarly, the 2017 Act regime does not apply to all kinds of IP infringements – copyright and passing off are notable exceptions (though other remedies may potentially be sought where threats are made to sue on the basis of such rights). Finally, it is a defence to a claim of unjustified threats to show that the relevant right was valid and infringed – i.e., that the threat to sue was a justified one.

Alleged threats in Carku v NOCO

In this case, NOCO had made certain notifications to Amazon alleging that Carku products infringed the Patent and requesting that the relevant listings be taken down. There was also a question of those communications being passed to sellers of Carku products.

The test for whether a 'threat' has been made is whether a reasonable person in the position of the recipient would understand that an IP right exists, and a person intends to bring proceedings against another person in respect of infringement of that right. This is a question to be determined objectively. Whilst the application of the threats regime to online takedown notices has been considered in a few interim decisions in the last two decades (Quads4Kids, Cassie Creations and Hala, all of which related to eBay's notice and takedown regime), these were all decided prior to the 2017 Act. This case then is the first fully reasoned trial judgment on the point. Whilst Meade J considered these earlier decisions, he was clear that it was not possible to divine a broader legal principle from them beyond that the question is a highly fact-sensitive one.

Amazon has a well-established IP policy which allows rightsholders to submit complaints of infringing products being offered for sale on its platform. Whereas the subjective views of Amazon are not relevant to whether a communication received is a threat, their commercial arrangements and procedures for handling these notifications are relevant if they "condition how the communication would be understood".

Carku also relied on examples of times when it had itself notified Amazon about certain NOCO products which allegedly infringed its rights. Those products were de-listed and then reinstated on the basis of NOCO giving an indemnity to Amazon. Carku argued this would only have made sense if Amazon perceived the notifications as threats to sue, against the risk of which Amazon should be indemnified. Carku also submitted that, if online takedown notices were not caught by the threats regime, then there would be no deterrent from making excessive threats.

NOCO argued that Amazon saw itself as an arbiter and enforcer of IP rights, rather than the target of infringement complaints and potential litigation. Amazon had not acted on all notifications it received – indeed, around 30% of NOCO's were rejected, and NOCO had not sued Amazon when its complaints were rejected. NOCO relied on correspondence from Amazon to Carku in relation to the takedowns which indicated that Amazon had assessed the allegations received against Carku products and taken a view as to their merits. NOCO later referred to this correspondence in further notifications against Carku.

Meade J concluded (with "little or no hesitation") that the takedown notices were threats of patent infringement proceedings, against Amazon itself, and also clearly against the third party distributors, as its communications made reference to proceedings against third parties in respect of its patent rights. Meade J accepted that Amazon evaluates the notifications it received, and will have taken a decision whether to de-list on the basis of (amongst other factors) the potential risk of litigation and the general impetus to maximise sales. At least part of that analysis will have involved reviewing patent claim charts provided by NOCO to Amazon, which indicated to the judge that lawyers were involved and, presumably, advising as to legal risks. There was enough therefore for the Judge to "divine that Amazon makes a judgment in its own self-interest" and did not adopt a blanket policy of de-listing in response to a notification.

Whilst NOCO's evidence was that it would never sue Amazon, this was not something necessarily in Amazon's knowledge. Indeed, there were no reassurances from NOCO that it would not sue Amazon.

Comment

The case will now proceed to an inquiry as to damages. 

Meade J stressed that his judgment was not intended as a general finding about online markets and unjustified threats. However, given the previous minimal authority on the point, his judgment clearly makes a significant impact and provides some practical guidance as to the points which informed the judge's decision.

The mere threat of IP litigation (where those threats are unjustified) can cause harm to distributors and customers, and the threats regime provides a remedy for that harm, encouraging rightsholders to focus their enforcement activities on primary infringers (against whom unjustified threats are not actionable) rather than those down the distribution chain.

Moreover, Amazon is, of course, itself involved in high-profile and long-running litigation against it relating to primary liability for selling infringing products and would be unlikely to assume that there is no risk of litigation against them in relation to products which are the subject of takedown requests.

Ultimately, the question remains whether, objectively, there is a threat of legal proceedings, and this must be assessed by reference to the factual context.

We will continue to report on any appeals and future cases of interest that illuminate how the unjustified threats regime interplays with the online marketplace and, looking ahead, the wider "metaverse". For now, the key message is to consider the threats regime carefully when using any form of notice and takedown procedure. 

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