The IPO takes down a scammer; and opens the door to restitution claims by rightsowners

Based on company calling itself the Intellectual Property Agency Ltd (IPAL) wrote to wrote to holders of patents and trademarks, reminding them that the right required renewal at the UK’s Intellectual Property Office (the IPO), and requesting a fee for the renewal which was considerably greater than the IPO’s.

It’s a pretty common scam. There are warnings against it not only on the website of the IPO, but also on the websites of Irish Patents Office, WIPO, the EU’s OHIM, and the US PTO. Of course, interposing between the IPO and rightsowners, and charging the rightsowners exorbitant fees to renew their patents and trademarks with the IPO, is certainly sharp practice, but it is not necessarily unlawful.

However, the line can be crossed. For example, in the US a criminal case has recently been commenced against the alleged principal in a mass mailing scam targeting holders of US trademarks. Again, in the UK, IPAL went a lot further than many of these scams, misrepresenting that it was the IPO (or, at the very least, officially connected with it). In the Comptroller-General of Patents, Designs and Trade Marks v Intellectual Property Agency Ltd [2015] EWHC 3256 (IPEC) (10 November 2015) (noted here on IPKat), HHJ Hacon held that IPAL had passed itself off as the IPO (the first plaintiff), and that IPAL had infringed trademarks in the IPO held by the Secretary of State for Business, Innovation and Skills (the second plaintiff). He also held that the second defendant, Mr Jonasson, the sole director and sole shareholder of IPAL and the registered owner of its website, was a joint-tortfeasor with IPAL, jointly liable for IPAL’s acts of passing off and trade mark infringement. Finally, he awarded an account of profits against the defendants:

The Account of Profits
39. … the table annexed to the Points of Claim … shows that IPAL received a total of £1,334,234 from rightholders who responded to its Reminder form and paid out £227,724 to the IPO to renew their rights. That translates into a gross profit of £1,106,510.

40. Neither of the Defendants filed a response to the Points of Claim and so they stand admitted. Had there been a response there may have been arguments about deductable costs and the extent to which I should assume that there was passing off and trade mark infringement in every case. Even then, I think the Defendants would have struggled to reduce their liability below the cap of £500,000 allowed in this court.

41. As it is, on the admitted Points of Claim in the account of profits I award the maximum permitted under the IPEC cap, namely £500,000.

An earlier passing off claim by the IPO against similar scammers had been settled, but this is the first to proceed to judgment. The Intellectual Property Enterprise Court (IPEC) is a specialist list within the Chancery Division of the High Court, provided for by Part 63 of the Civil Procedure Rules. All the remedies available in the High Court are available in the IPEC, but Rule 63.17A(1) provides that, where a claim is made for damages or an account of profits, “the amount or value of that claim shall not exceed £500,000”. Since the IPO’s claims were for the wrongs which were committed against it, it is entitled to the account of profits on its own account, and not on behalf of the rightsowners who were victims of the scam. But this is not to say that the rightsowners are without a remedy. In fact, quite the contrary. Given the judge’s finding of passing off, it follows that some of the IPO’s customers, the rightsowners, were – by definition – confused. For example, one emailed IPAL:

I had in all innocence thought, after checking your website, that you were the official Patent Office agency and was obliged to pay you the exorbitant sum of £1280.

Another emailed the IPO:

We have paid this company an amount of £1280.00 for 4 renewals which should only costs us £350.00. … we only did so as we mistakenly thought we were dealing with yourselves.

In Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, [1998] UKHL 38 (29 October 1998) the House of Lords held that there is a general right to recover money paid under a mistake, whether of fact or law (see also Deutsche Morgan Grenfell Group plc v Inland Revenue [2007] 1 AC 558, Sempra Metals v IRC [2008] 1 AC 561, [2007] UKHL 34 (18 July 2007); [2006] UKHL 49 (25 October 2006); Test Claimants in the Franked Investment Income Group Litigation v Inland Revenue [2012] 2 AC 337, [2012] UKSC 19 (23 May 2012)). Moreover, the carelessness of a mistaken payor does not by itself undermine the mistake as ground of restitution (Kelly v Solari (1841) 9 M&W 54, 152 ER 24, [1841] EngR 1087 (18 November 1841) (pdf); Banque Financière De La Cité v Parc (Battersea) Ltd [1999] AC 221, [1998] UKHL 7 (26 February 1998); Futter v Revenue and Customs [2013] 2 AC 108, [2013] UKSC 26 (9 May 2013)). Hence, on the basis of these clear and settled principles, rightsowners who paid a scammer such as IPAL in the mistaken belief that it was the IPO (or, at the very least, officially connected with it) are entitled to restitution of the payment.

To the extent that some portion of these mistaken payments were paid on to the IPO, the scammers might seek to rely on the defence of change of position. In Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, [1988] UKHL 12 (06 June 1991) Lord Goff explained

If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position.

It cannot be said that the scammers are acting in good faith when they pay part of the money over to the IPO, and so they will not be able to establish an essential element of the defence. Moreover, where the scams amount to passing off or trade mark infringement, then scammers like IPAL are excluded from the defence for another reason: in Lipkin Gorman, Lord Goff emphasised that it is not open to a wrongdoer.

To the extent that there was a contract between IPAL and the rightsholders that IPAL would liaise between them and the IPO, then that contract would be a bar to the rightsholders’ claims for restitution (Pan Ocean Shipping v Creditcorp (The Trident Beauty) [1994] 1 WLR 161 (HL) 164 (Goff J); Costello v MacDonald [2012] QB 244, [2011] EWCA Civ 930 (29 July 2011); Newland Shipping and Forwarding Ltd v Toba Trading FZC [2014] EWHC 661 (Comm) (12 March 2014)). Hence, if the contract is not terminated, the parties to it must seek their remedy under the contract and not in restitution. However, it must surely be a straightforward matter to establish either that, objectively speaking, IPAL’s knowledge of the rightsholder’s mistake was such that offer and acceptance do not correspond (Hartog v Colin & Shields [1939] 3 All ER 566; Ulster Bank Ltd v Lambe [2012] NIQB 31 (14 March 2012)), or – if this is not the same point cast in different language – that any contract between IPAL and a rightsholder was void for the rightsholder’s unilateral mistake (Shogun Finance Ltd v Hudson [2004] 1 AC 919, [2003] UKHL 62 (19 November 2003)).

If Irish rightsowners pay a scammer in the mistaken belief that it is the Irish Patents Office (or, at the very least, officially connected with it), they too would be similarly entitled to restitution (see Nolan v Enniscorthy UDC (1955) 89 ILTR 12; National Bank v O’Connor & Bowmaker (1969) 103 ILTR 73 (Budd J); Donal Rigney Ltd v Empresa De Construcoes Amandio Carvalho SA [2009] IEHC 572 (27 November 2009); Vanguard Auto Finance Ltd v Browne [2014] IEHC 465 (14 October 2014)). The scammers’ lack of good faith would prevent them relying on the defence of change of position (see Murphy v AG [1982] IR 241 (rtf) 319-320 (Henchy J)). And any contract bar (Galvin Estates v Hedigan [1985] ILRM 295 (HC) 302 (Costello J)) would be void for unilateral mistake (People (DPP) v Dillon [2002] 4 IR 501 (CCA)).

Hence, not only does the decision in Comptroller-General of Patents, Designs and Trade Marks v Intellectual Property Agency Ltd demonstrate that the IPO (and, presumbably, similarly-circumstanced offices like Ireland’s Patents Office) have an effective remedy against scammers, it also opens the door to restitution claims against rightsowners who have been scammed. This may be cold comfort in the present case, where the first defendant, IPAL, was a company incorporated in the Seychelles, and the second defendant, Mr Jonasson, resided in Stockholm. But the principles are clear, and may be deployed in an appropriate case.