In the Northern Hemisphere’s autumn of 2014, IP law hit the UK headlines, in light of the most significant series of reforms in years.
Background to the reforms
In 2010, the government commissioned a review of the UK’s IP framework, in order to ensure that the law was fit for the Internet age. The resulting Hargreaves Report didn’t pull any punches, accusing the UK system of “falling behind what is needed” and “obstructing innovation and economic growth”. The Report set out key recommendations for change, claiming that these changes would increase the UK economy by £5 billion – £8 billion by 2020.
Statistics such as this are clearly difficult to ignore. The UK government instigated a series of industry consultations and draft bills, culminating in the last 18 months with several layers of legislation including:
1. The Intellectual Property Act 2014, which addresses the deficiencies of UK patents and designs law.
2. The Enterprise and Regulatory Reform Act 2013, which introduces changes aimed at modernising the copyright framework.
3. A series of specific Regulations, which have added new defences to copyright infringement.
In this article, we review the most important aspects of the new laws, from the perspective of the fashion and retail industry.
OWNERSHIP OF DESIGN RIGHTS
The starting point for fashion houses being able to enforce their IP rights is ensuring that they actually own them. When IP is created by employees in the course of their employment, this is not usually an issue − the employer is deemed to own the IP rights. However, the position is more complicated in the context of independent contractors.
Until recently, when a business commissioned an individual to create a work, any UK design rights in the work were automatically owned by the commissioner. However, any European Community design rights and any copyright in the work were owned by the designers themselves, unless the rights had been formally assigned to the commissioner.
The IP Act 2014 has harmonised the rules, so that the first owner of UK design right is also the designer. This clearly makes matters simpler, but also increases the possibility of companies not always owning the IP on which they rely. To mitigate this risk, we recommend that businesses refresh their standard contractor agreements, to ensure they contain robust assignment provisions.
Another important change is the introduction of criminal sanctions in the context of infringement of registered design rights. There are two main angles from which the new offences may affect retailers.
First, the threat of criminal liability may deter prospective copiers. The potential sanctions are not insignificant − an unlimited fine and/or prison for up to ten years. Having said that:
-The offences only apply to registered designs, so will not assist those fashion businesses which rely heavily on unregistered design rights.
-Criminal sanctions already exist for copyright and trade mark infringement, but they certainly have not eliminated all counterfeit goods.
-Companies cannot bring a criminal action against an infringer directly, but rather must engage with enforcement agencies such as Trading Standards.
Secondly, if a retailer is involved in an act which constitutes criminal liability, then the company can be fined and anyone in a senior position in the business (e.g. a manager or director) can be liable to a fine or a custodial sentence if that person knew or failed to prevent the infringing activity. The sorts of acts this could be relevant to include selling a garment which an employee has intentionally copied from a registered design or employees selling infringing products to colleagues via the office intranet.
While the new sanctions are serious, it is important to keep them in perspective. It is a defence to know or have reason to believe that the design is invalid or not infringed. Moreover, the copied item must reproduce the original in the same form or in a way which only differs in immaterial features.
Perhaps the change which has attracted the most press coverage is the introduction of a range of new defences to copyright and design right infringement. Here we focus on one particular defence to copyright infringement: the parody exception.
The new defence applies where a work:
-evokes an existing copyright work;
-but is noticeably different from it;
-constitutes an expression of humour or mockery; and
-is “fair dealing” of the existing work.
For example, if a retailer uses a print on a t-shirt which is a satire of a famous painting, the retailer may now have a defence; previously, the retailer would have been liable for infringement.
The parody defence has been lauded as an important development, particularly by comedians and pressure groups who frequently adapt other’s copyright works for effect. It also reflects recent European case law and mirrors longstanding legislation in countries such as the United States. Nevertheless, the practical implications for retailers are likely to be limited.
-The question of whether a parody is humorous will be left up to the judges – the test is therefore highly subjective.
-“Fair dealing” means a business can only use a “fair” amount of an existing work. The court will look in particular at whether the parody acts as a substitute for the underlying work.
-While the parody exception may protect works from infringing copyright, it will not stop them being defamatory or amounting to other forms of IP infringement. It therefore does not give businesses carte blanche to use third-party trademarks or unfairly attack competitors.
-The new law may also mean that retailers are themselves subject to parodies, which are harder to prevent.
SCOPE OF PROTECTION
UK unregistered design law historically protected “any aspect of the shape or configuration of the whole or part of an article”. In other words, businesses could (in theory) “crop” their designs by focusing on “part of a part” and then claim infringement based on copying of that element alone. This approach was particularly prevalent in the fashion sector, where claimants would slice and dice their designs to their best advantage – focusing for example on a particular ruching design or trim, notwithstanding that the garments were otherwise worlds apart. For high-street retailers which are heavily trend-led, dealing with such complaints could be very frustrating.
In the IP Act 2014, the legislature has taken a commercial approach and has removed the reference to “part” from the definition of an unregistered design. This means that retailers will now have to prove infringement of the whole or a “genuine part” of an article, and not just an artificially contrived element of it. This is likely to reduce the number of disingenuous allegations, designed more to deter a retailer from selling a particular product than with a genuine intention to bring a legal action.
Conversely, the change may also make it more difficult for brand owners to bring an action against a copycat which has just focused on particular features of their design.
While some of these recent legislative changes appear technical, their practical implications for the way retailers use their IP and resolve disputes are potentially wide-reaching. In-house legal teams need to educate their businesses, creating a culture in which their IP is both protected and creativity is allowed to flourish.