UK: eBay Enforcement May Be A Groundless Threat

On an interim injunction application to restrain an alleged threat of infringement proceedings, the High Court held in Quads 4 Kids v Campbell that that the submission of an enforcement request through eBay’s Verified Rights Owner (VeRO) Program could constitute a groundless threat of infringement proceedings of Community Designs. The Court was concerned at the ability of a rights owner to use the VeRO program to "snuff out an avenue of the claimant’s business" without the need to follow up with formal proceedings, or any proper investigation of the veracity of the claim. The decision highlights the wide-ranging application of the groundless threats provisions, and raises the possibility that enforcement through eBay’s VeRO program may leave IP owners vulnerable to threats proceedings.

On an interim injunction application to restrain an alleged threat of infringement proceedings, the High Court held in Quads 4 Kids v Campbell that that the submission of an enforcement request through eBay’s Verified Rights Owner (VeRO) Program could constitute a groundless threat of infringement proceedings of Community Designs. The Court was concerned at the ability of a rights owner to use the VeRO program to "snuff out an avenue of the claimant’s business" without the need to follow up with formal proceedings, or any proper investigation of the veracity of the claim. The decision highlights the wide-ranging application of the groundless threats provisions, and raises the possibility that enforcement through eBay’s VeRO program may leave IP owners vulnerable to threats proceedings.

Under eBay’s Verified Rights Owner (VeRO) policy, IP rights owners can report the alleged infringement of their rights by individuals or companies selling items on the eBay sales forum. On receipt of an online form containing details of the allegations of infringement and the IP rights claimed, eBay will remove the allegedly infringing items from the seller’s listings. No steps are taken by eBay to consider whether the items are in fact infringing, and sellers are automatically informed of the removal, together with contact details of the rights owner who has alleged infringement.

The claimant company, Quads 4 Kids, sold children’s dirt bikes on the eBay auction site, as well as through more traditional sales channels. The defendant, Campbell, had applied to register a design for children’s dirt bikes as a Community Design, but had requested that the publication of the application be deferred so that the details of the designs remained confidential. Upon discovering the sale auction of Quads 4 Kids, Campbell contacting eBay and claimed infringement of the (unpublished) Community Design through the VeRO procedure. eBay promptly de-listed the auction and provided Quads 4 Kids with the allegations of infringement together with contact details for Campbell.

Having presumably achieved their commercial objectives by preventing eBay sales, Campbell took no steps to enforce the Community Designs against Quads 4 Kids. Campbell also failed to respond to communications from the Quads 4 Kids, who claimed that the registrations were invalid due to prior publication, and would not be enforceable.

Unable to sell their goods through eBay, Quads 4 Kids issued proceedings under Regulation 2 of Community Design Regulations 2005 and sought an interim injunction, claiming that Campbell’s participation in the VeRO program constituted a groundless threat of infringement proceedings, and that having been prevented from sales through the site, Quads 4 Kids were a person aggrieved by such threats.

As a preliminary issue, Pumfrey J had to consider whether the defendant’s submission of the VeRO form could be regarded as a threat for the purposes of the Community Design Regulations. The test to be applied was whether a reasonable person as the party allegedly threatened would have understood that he might have been subject to infringement proceedings at some point in the future. Since the operation of eBay’s VeRO policy was designed to avoid such proceedings by promptly removing allegedly infringing items from the site, it could not be said that eBay would have regarded future infringement proceedings as a possibility. However, this would lead to the unsatisfactory situation whereby a rights owner could prevent access to that particular marketplace by simply filling out an online form and alleging infringement. Accordingly, the proper test to be applied was whether eBay would have understood that it could be subject to future infringement proceedings if it had not adopted the policy of removing any allegedly infringing items through the VeRO policy. In this respect there was a serious issue to be tried. On the balance of convenience, since Quads 4 Kids could potentially suffer damage as a result of being excluded from eBay, and Campbell had not demonstrated an ability to compensate such losses, the injunction was granted.

The decision in Quads 4 Kids v Campbell aptly demonstrates both the policy considerations, and the potential for concern over the wider application of the rules. Although often criticised and used for tactical purposes, the threats provision applicable for some intellectual property rights (patents, trade marks and certain rights in designs) were originally designed to prevent threats been made against the customers and retailers of an alleged infringer, and materially disrupt their business without having to pursue the infringer through formal proceedings. On these facts, the Court was clearly concerned at the effects of the VeRO program, which would enable a party to "snuff out an avenue of the claimant’s business without having had to do any more than complete an online form."

Although the facts of the case concerned the enforcement of Community Designs, the decision may well have ramifications for the other IP rights for which groundless threats may be actionable, in particular trade marks and patents.

Since eBay is a marketplace with significant economic influence, rights owners will inevitably need to continue to enforce their rights through the VeRO program, as the most practical and cost-effective means of enforcement. However, although a rights owner should not be deterred from taking action against clear cases of infringement, such enforcement will not be without its risks, and new strategies to minimise the potential liability for a threats action may need to be considered.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 19/10/2006.