Friday, May 23, 2014

Analysis of U.K. Legislation Criminalizing the Infringement of Registered Designs

As I discuss in my book, although some countries permit patent infringement to be prosecuted as a crime under certain circumstances, such prosecutions appear to be rare in practice.  (For discussion, see pages 76, 176, 275 & n.205, 302 n.62, 347-48, and 367-68.  See also this 2012 post, with comments, on the IPKat Blog and this May 2010 write-up by Rob Jackson.)  My own view is that, from a law and economics perspective, there isn’t much of a need to criminalize patent infringement because patent owners typically have an adequate incentive to initiate civil litigation when they believe their rights are being violated, and potential infringers are usually not judgment-proof or otherwise nonamenable to suit.   Many countries nevertheless criminalize some acts of trademark and copyright counterfeiting, as permitted by article 61 of the TRIPS Agreement.

In any event, the U.K. just enacted a law that criminalizes the copying of registered designs.  For analysis of the new law, I turned to an expert on design law, Professor Sarah Burstein of the University of Oklahoma College of Law, who has graciously agreed to author the following guest post.  

Professor Burstein:

In the new Intellectual Property Act 2014, the UK has created a new criminal offence aimed at those who knowingly copy registered designs. Specifically, the Act adds a new Section 35ZA to the Registered Designs Act of 1949.  Section 35ZA(1) provides:

A person commits an offence if—     
      (a)  in the course of a business, the person intentionally copies a registered design so as to make a product—
            (i)   exactly to that design, or
            (ii)  with features that differ only in immaterial details from that design, and
      (b) the person does so—
            (i)   knowing, or having reason to believe, that the design is a registered design, and
            (ii)  without the consent of the registered proprietor of the design.

And Section 35ZA(3) provides:

A person commits an offence if—
      (a)  in the course of a business, the person offers, puts on the market, imports, exports or uses the product, or stocks it for one or more of those purposes,
      (b)  the person does so without the consent of the registered proprietor of the design, and
      (c)  the person does so knowing, or having reason to believe, that—
            (i) a design has been intentionally copied without the consent of the registered proprietor so as to make the product exactly to the design or with features that differ only in immaterial details from the design, and
            (ii)  the design is a registered design.

A person convicted under this section may be sentenced up to 10 years in prison, ordered to pay a fine, or both.

The new criminal sanctions apply to UK Registered Designs and to Registered Community Designs. These intellectual property rights are somewhat analogous to U.S. design patents; they confer an exclusive right to use a product design, subject to certain modest novelty requirements.

Notably, neither of these new criminal provisions requires the prosecution to prove that the design registration at issue is actually valid—or infringed. So, technically, these provisions would allow a court to send someone to jail even if they do not infringe and the registration is invalid. The former, however, seems unlikely; if a copied product is close enough to the registered design to fall under this statute, it would almost certainly be infringing under Article 10 of the Design Regulation.

But neither Registered Community Designs nor UK Registered Designs are subject to ex ante substantive examination. Therefore, it’s not only possible but likely that many UK and EU design registrations are invalid. Although the new act provides a defense for those who can show that they “reasonably believed that the registration . . . was invalid,” that still appears to be a troubling misallocation of the burden of proof. (It’s also worth noting that the UK still recognizes a right of private prosecution.)

The enactment of this new criminal offense follows a 2012 consultation conducted by the UK Intellectual Property Office (“IPO”). The IPO sought input on, among other things, whether there should be criminal sanctions for design infringement. Based on the IPO’s consultation documents and the responses thereto, there seem to have been two main arguments advanced in support of criminalization.

The first was based on enforcement costs. Proponents of adding criminal sanctions argued that civil litigation is too expensive and risky, especially for small and medium-sized enterprises. They asserted that, as a result of these high enforcement costs, larger companies were repeatedly “stealing” designs with impunity.

Second, a number of proponents argued that designs should have “parity” with copyrights and trademarks. For example, Anti Copying in Design (which uses the acronym “A©ID”) argued that:
This could also be called the oversight argument – in short, criminalisation was applied to copyright and it should have logically been extended to design right. Both are property rights  . . . , and it is a principle of the law in general that theft of property should be treated as a criminal offence. Yet the law only treats infringement of copyright in this way.

A©ID did not mention that there is at least one principled reason for treating copyright and trademark infringement differently from other IP rights—namely, TRIPS.

But neither of these arguments is particularly persuasive. While it is undoubtedly true that some colorable design-infringement claims are not litigated due to enforcement costs, that is true of many claims in commercial disputes. And even if it were established that enforcement costs were a uniquely serious problem in the design context, that does not mean that criminalization is the only—or best—solution. There are a number of ways this problem could be better  addressed. The statute could be amended to provide for treble damages upon a showing of willful infringement or to eliminate fee-shifting in design cases—as the UK Intellectual Property Enterprise Court already does for cases on the relatively new small claims track.

The “parity” argument is no more persuasive. Different IP rights are supposed to protect different things for different reasons; therefore, it is not at all unfair or illogical to provide for different remedies. The parity argument also appears to assume that criminal sanctions for copyright and trademark infringement are appropriate and well-justified—something that is by no means clearly established.

Moreover, this “parity” argument applies just as well to patents as to designs. Although some commentators have argued that designs are more like copyright subject matter than patent subject matter, that is not necessarily true—especially in the UK and European registered design regimes, which have no requirement of aesthetic content or ornamentality. The economic case for criminalizing patent infringement seems rather weak, as Professor Cotter and others have persuasively argued. The economic case doesn’t seem to be any stronger for designs—especially where, as here, the targeted infringers are neither difficult to detect nor unable to pay judgments.

So overall, the addition of these new criminal sanctions to UK law appears to be an ill-advised and unfortunate development. As many opponents (who included UK companies, IP practitioners and IP professors) noted, there is a significant risk that these sanctions will chill legitimate design innovation. One consolation is that, despite the efforts of some lobbyists, the new criminal sanctions extend only to registered design rights and not to UK Design Rights or Unregistered Community Designs. But in the aggregate, these new criminal sanctions appear more likely to hurt than to help UK designers.

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