Take notice of takedown notices: Unjustified threats of IP litigation and online marketplaces

Businesses using online marketplaces must take practical steps to avoid falling foul of the UK’s perilous unjustified threats regime, explains Eleanor Wilson of Mishcon de Reya.

Online marketplaces are virtually ubiquitous. While they provide a platform for businesses to expand their e-commerce offering, they also present opportunities for IP infringers. Fortunately, marketplaces invariably offer some kind of notification and takedown procedure to restrain rampant infringements, enabling IP owners to enforce their rights and the platform to avoid liability for facilitating infringements.

The flipside of this is that the use of those notification procedures, and related communications, may constitute unjustified threats of IP litigation under UK law, for which the entity making the threats may be sued. This means IP rights holders must navigate a careful path to strike the balance between asserting their rights and potentially incurring liability by making threats.

Unjustified threats of IP infringement proceedings

The mere threat of IP litigation can have serious consequences. A distributor dealing in products which are alleged to infringe IP and facing the threat of court proceedings if they do not stop selling those products may not know or care whether the allegation is accurate—they may simply want to avoid any trouble and end the relationship with their supplier quickly.

The supplier loses a commercial relationship and the party alleging IP infringement effectively obtains the remedy of impeding the trade of potentially non-infringing products, all because of the power of its threat and without any finding by a court that the allegation of infringement was even justified.

Given these potential far-reaching consequences, the UK unjustified threats regime, now enacted in the Intellectual Property (Unjustified Threats) Act 2017 (amending the relevant provisions of respective IP statutes), provides a remedy where a person is aggrieved by a threat (whether or not they are the same person who received the threat).

However, not all threats are made equal. Threats of litigation made to “primary infringers” (eg, manufacturers of patent-protected products) are not actionable. The policy is to direct IP owners to pursue the infringement source rather than picking off downstream distributors.

Threats to sue for copyright infringement or passing off are out of scope, as the regime only applies to registered trademarks, patents and designs (registered or unregistered).

Communications containing implied threats are permissible if made for a permitted purpose, such as giving notice of an IP right or investigating infringement. Actively requesting a change in behaviour—for example to destroy infringing products—are not permitted purposes.

Since they offer a quick and convenient system to send communications regarding IP infringement and requesting enforcement, notification and takedown procedures (NTDs) systems have been the subject of some dispute as to whether they constitute threats of proceedings.

Are notice and takedown procedures threats?

Prior to the current unjustified threats regime, the question of whether the use of online marketplace NTDs could constitute threats of litigation was unsettled. Regarding notifications using eBay's Verified Rights Owner (VeRO) procedure, HHJ Pumfrey on an application for an interim injunction considered it a "remarkably difficult question" but found that there was a "clear arguable threat" in Quads 4 Kids v Campbell [2006] EWHC 2482 (Ch).

Similarly, in Cassie Creations v Blackmore [2014] EWHC 2941 (Ch), also concerning VeRO, the Court noted that the then authorities indicated that the test of whether something was a threat was an entirely objective test and found "persuasive" submissions that making such a notification was a threat to sue.

However, ultimately, this was merely an interim decision, not a fully reasoned judgment, and the Court left the question unresolved to be dealt with at a later trial (which appears not to have taken place).

In an earlier decision, Aldous J (as he then was) had wondered: "the purpose of the letter was to give [the recipient] information and a warning. That requires the answer: a warning as to what?" (Bowden Controls v Acco Cable Controls [1990] RPC 427). The answer that was emerging, albeit tentatively, was that using online marketplace notifications may be understood as threats to sue the seller using the platform, or indeed the marketplace itself.

The updated threats regime: The Intellectual Property (Unjustified Threats) Act 2017

Following consultation and research by the Law Commission of England and Wales, the law of unjustified (previously "groundless") threats was updated in 2017. The law, initially introduced in response to threats made in respect of patent rights to 1800s steam engines, needed to be updated and made fit for a very different marketplace.

In the intervening period, the E-Commerce Directive introduced a safe harbour from liability for platforms hosting unlawful/infringing material, provided that they acted expeditiously to remove or disable access to that information.

Notification systems had been put in place to enable rights holders to put marketplaces on notice of infringing content – with that came an incentive to take expeditious action to remove potential infringements and avoid liability.

Against this background, Parliament was invited to consider a range of options regarding the interplay between unjustified threats and NTDs, including bringing online notifications within the 'permitted communications' remit.

Some organisations described attempting to enforce IP rights in the online space as akin to a perennial game of whack-a-mole and called for a general exemption for high-volume exercises of NTDs.

However, this was not incorporated into the Bill or pursued as a potential amendment to the new law when it was highlighted by members of the judiciary in their evidence to Parliament that they were aware of NTDs being used in a similar oppressive way as the threats regime had been intended to tackle.

By not adopting NTD-specific provisions, Parliament may have avoided the potential pitfalls of ossifying the legislation by tying it to contemporary technology. As enacted, the 2017 Act is drafted broadly enough to apply to a range of communications.

It updated the law to bring consistency across the IP rights, clarified certain wrinkles which had emerged in case law, and defined a 'threat' on the basis of what a reasonable person in the position of the recipient of the communication would understand—contrasting with the "objective" test which the courts had previously endeavoured to apply. However, one thing the 2017 Act did not do is to confirm whether using NTDs could constitute a threat.

Application of the new unjustified threats regime

The first case to consider NTDs under the new regime was Shenzen Carku Technology Co v The NOCO Company [2022] EWHC 2034 (Pat), in which the court found that threats made using Amazon's NTD procedure were actionable unjustified threats to sue third party distributors and Amazon itself.

Although the judge recognised NOCO's evidence that it would never sue Amazon, he noted that Amazon could not be sure of that and a reasonable person in Amazon's position may have understood a threat of proceedings to be inherent in the NTD communications.

The judge stressed that the decision was not a general finding about online markets. However, in a vacuum of conclusive decisions on the point, it put down a marker that the use of online NTDs may incur liability for making unjustified threats in certain circumstances. Indeed, Carku successfully argued that this liability risk was necessary as a deterrent from making excessive threats.

The court also considered NOCO's argument that Amazon perceives itself as the arbiter/enforcer of IP rights, rather than a potential target of litigation. Although platforms exercise discretion when they receive NTDs, a representative of eBay had specifically disclaimed this role when giving evidence to Parliament during the passage of the 2017 Act: "we will scrutinise that the IP right exists, but we are not the court. We are not going to start weighing up whether we, eBay, consider this reasonable. We do not deem that to be our place".

In circumstances where Amazon seek indemnities to keep a product on its platform following an NTD, and where it is not unprecedented for platforms to be sued for hosting infringements, with the E-Commerce Directive only offering a safe harbour if a platform acts expeditiously once on notice, the court had no difficulty in finding that Amazon might well consider itself to be the subject of a threat of litigation.

The decision in Carku v NOCO was appealed, and the Court of Appeal recently upheld the finding that the online notifications were threats (NOCO v Carku [2023] EWCA Civ 1502). On appeal, NOCO argued that the first instance decision had lost sight of a "key distinction" in relation to the target for litigation: whether there were threats to sue Amazon; or whether there was merely a dispute which might later lead to litigation, and it could not be ruled out that the claim would be against Amazon.

The Court of Appeal rejected this on the basis that the threat had "causative potency", ie, the items requested to be taken offline were accordingly de-listed, either way.

Comment

The potency of threats on online marketplaces and NTDs can be serious. The effect of algorithms, ratings and ranking affecting sellers' exposure to customers may be profound. This kind of damage was mentioned in Cassie Creations, but is yet to be fully considered in a reasoned decision (for example on a damages enquiry in favour of a party aggrieved by unjustified threats, whether those threats were made to it, an online platform or third parties).

It is unclear how harm to a seller's good standing on a specific marketplace may be remedied, other than by further notice to the marketplace itself to remove any restrictions applied to their offerings.

The Court of Appeal stressed that it was still possible to use NTDs in a way which does not go beyond the scope of 'permitted communications', such as those which do no more than convey information about an IP right or investigate whether infringement has occurred.

This is so, even if a reasonable person in the position of a recipient might interpret them as a threat of litigation, provided that that threat is not an express threat. This should, therefore, provide comfort to those seeking to enforce their IP rights on such platforms, while avoiding liability under the unjustified threats regime.

The risk of incurring liability for making unjustified threats can be reduced by seeking out the source of infringements (primary infringers, such as manufacturers/importers) and maintaining a record of those steps. It is a defence to show that the threatener took reasonable steps to identify a primary infringer and was not able to find one before threatening a secondary infringer (eg distributor). To avail of this defence, the person who made the threat must also show that they notified the recipient of the threat of those steps taken.

In general, IP rights owners should conduct careful due diligence in relation to infringements and seek advice in respect of the validity of their IP, and the merits of possible claims. It is, of course, a further defence to show that the alleged infringing act in fact constitutes an infringement of the relevant IP right.  In many cases, therefore, whilst the possibility of a threats action must be considered carefully, the advice may be to proceed with the complaint or NTD.

Further cases considering takedown requests and threats are awaiting consideration by the courts. One point of complexity is that, unlike the online marketplaces themselves, the reach of the threats regime is not an international one. The UK regime only applies to infringing acts done in the UK. While there are specific unjustified threats regimes in countries such as Australia and India, potentially abusive threats are dealt with in mainland Europe and elsewhere under alternative frameworks such as unfair competition.

The recent decisions in relation to threats made on online platforms have introduced some certainty as to how the unjustified threats regime applies to online platforms. However, the impact of these decisions on the behaviour of businesses and online platforms themselves remains to be seen.

All users of online platforms need to be aware of the risks and liabilities of using online takedown procedures. Further litigation, and potentially more harmonisation, in relation to this area of law may well be expected.

Eleanor Wilson is an associate at Mishcon de Reya.

She previously worked as a Research Assistant at the Law Commission of England & Wales during the preparation and passage of the Intellectual Property (Unjustified Threats) Act 2017.

All views expressed are her own.