Unjustified Threats-Best Buy and Others v Worldwide Sales Corporation Espana SC

Where a complaint is made in respect of the infringement of a patent, trade mark or design rights, the pursuer may become the pursued. 

Under English law, any party who wrongly alleges infringement of its trade mark, patent or design can be liable for making an “unjustified threat”.  This is enshrined in the legislation relating to the protection of each intellectual property right.  Although curiously, this does not apply to copyright claims.  It allows an alleged infringer where proceedings are threatened against it to claim or counterclaim for:

  • a declaration that the allegation is groundless, 
  • an injunction preventing the repetition of the threat, and 
  • an order for payment of the damages caused by the threat. 

Unjustified threats can be a potentially powerful weapon and must be weighed up carefully by a party intending to complain about the infringement of its rights. 

The question of unjustified threats was before the High Court recently, where it considered whether Worldwide Sales Corporation España SC (“España”) was liable for making unjustified threats of trade mark infringement against Best Buy, a US corporation. 

Best Buy had written to España, who owned two European Community trade marks for “Best Buy”.  Best Buy was about to enter the European market and had applied for a trade mark and it had been opposed by España.  Following this, Best Buy had written to España seeking to explore the potential for co-existence.  España had replied robustly stating that “the conflict with the IP rights…would entitle it to take the appropriate legal action to defend its interests” and sought undertakings “in order to ensure that España is able to protect its rights in a proper fashion”.  However, España’s lawyers also communicated España’s willingness to explore a negotiated settlement.

No agreement was reached and so Best Buy commenced proceedings for unjustified threats. 

Threats liability arises from the threat of proceedings but unusually the Court had to consider whether the legislation covers proceedings in any jurisdiction or just proceedings in the UK?  Alive to the fact that legal practitioners across the world could, without knowing, potentially expose their clients to large liabilities, the Court concluded that threats are a UK provision limited to UK proceedings. 

However, although España was a Spanish based company, given the fact that Best Buy initially intended to launch in the UK, the Court considered a reasonable businessman would interpret España’s solicitors’ letter as being a potential precursor to action in the UK. 

But the story did not end there –

España was saved by the application of the without prejudice rule.  Where a party makes a genuine attempt to further settlement, then that communication will be privileged and non-admissible in proceedings.  It is not simply a question of heading a letter “without prejudice”, the substance of the communication must be analysed. 

The Court decided that in all the circumstances, the letter from España’s lawyers was part of the negotiation process and protected by the without prejudice rule.  As such, the action by Best Buy failed. 

While threats liability can be a powerful weapon in defending an allegation of infringement, the circumstances of a communication will always be crucial. 

Equally, if a rightholder is committed to protecting its business interests, then it will be necessary to assess exposure on a case-by-case basis on individual facts.