There is a lot to entertain the curious follower of patent law in the High Court’s judgment in Shenzhen Carku v The Noco Company.
A successful revocation based on lack of inventive step, a finding of non-infringement based on the elusive third Actavis question (I have already written about that one), and more. This post is about the successful claim in unjustified threats – the Court found that statements made to Amazon were actionable threats, and since the patent turned out to be invalid, those threats were unjustified.
Amazon, eBay, and other similar online platforms will generally have procedures for tackling sales of infringing goods on their websites. The owner of an intellectual property right, in this case a patent, can tell Amazon that a certain listing infringes. Our experience certainly is that Amazon will generally remove the listing summarily and won’t be willing to engage in any assessment as to the merits or otherwise of the allegation (though, it seems, that might depend on who you are to Amazon…).
This can certainly cause big problems for sellers faced with spurious claims of IP infringement, and it is perhaps surprising that this point hasn’t been properly dealt with in a final judgment before. Some decisions on interim applications, notably Quads 4 Kids back in 2004 have held that notifications to eBay under their similar programme are arguably actionable threats, but this appears to be the first time the point has got to trial. Does the Court’s reasoning take us any further? Let’s see.
The core question here is “would a reasonable person in the position of the recipient [i.e. in the position of Amazon] understand from the communication [the takedown notice] that a person [the patent owner] intends to bring proceedings…for infringement of the patent.” The arguments on either side can be quite shortly stated:
On the one hand, it is said that the reason Amazon, eBay and everybody else run these schemes at all is basically to protect themselves from legal liability. If infringing products are sold with impunity on Amazon, then eventually Amazon are going to get sued. Amazon control this risk by taking down listings when they receive notifications. In Quads 4 Kids this was summarised as an “institutionalised avoidance of litigation” and a “response in fact to a threat”. Shenzhen Carku pointed out that the whole point of Noco’s patent [presumably any patent] was to control competition, and there was a “prima facie intention to exercise its patent rights”. Basically, why would anyone bother telling Amazon about an infringement if they didn’t expect action, and why would anyone expect action? Because Amazon will want to avoid being sued themselves.
On the other hand, was the notification (or rather Amazon’s action on it) purely “consensual”? There was no real threat, no duress, and so what Amazon did was simply what Amazon wanted to do. Note that NOCO had a “1st party” relationship with Amazon. That is, NOCO sold their own products to Amazon for Amazon to sell to customers on Amazon’s own account. It is possible to see, in general terms, a manufacturer having a conversation with a distributor about the manufacturer’s IP rights, and the distributor agreeing not to sell a competing product as a result without perceiving any real threat. Suing a good customer is usually a bad idea and Amazon were presumably a good customer to NOCO. Amazon may have reasonably assumed the risk to them to be pretty low.
NOCO also sought to make a big point of what Amazon publicly said was their “customer-centric approach to intellectual property rights infringement”. In their “Brand Protection Report” Amazon apparently said that the purpose of its IPR procedure is to “protect consumers from infringing products”. It is said that making bad points can undermine your good ones, and this may be an example. There is an instinctive air of unreality in the idea that Amazon take down listings because they love kittens and hate intellectual property infringement. The idea of “protecting consumers” may make sense in the context of counterfeits or forgeries which defraud Amazon’s customers, but patents are about commercial monopolies and not consumer protection. Amazon is a highly profitable company and not a charity. They presumably act primarily in their own commercial interests.
Weighing it all up, the judge said he had “little or no hesitation in concluding that the communications to Amazon were threats of patent infringement proceedings against Amazon in the event that it did not delist Carku’s products.” He did add that “…this is a finding based on the facts before me. It is not a general finding about online markets…”. However, it is striking that this is a case where the entity sending the notifications had a closer relationship with Amazon than many others – they may have been better able to run the “consensual decision” point than most. In the ordinary run of things, an online platform are simply going to have no idea what the consequences will be if they fail to act on a notification. If asked “in relation to this individual notification, do you really fear being sued if you don’t take action” perhaps the online platform would have to say “no, we’ve never heard of this person and most allegations go nowhere”. But that doesn’t undermine the point that if they didn’t act on notifications at all, they would end up in Court sooner or later. It makes sense to me that these online takedown requests are generally going to be actionable threats to sue.