Scintilla – a flash, a spark, an iota. Shorthand for creativity and an indicator of inventiveness under Australian law.






Wednesday, August 5, 2015

Pipe dreams: director's liability for authorising patent infringement

By Sarah Matheson, Partner, and Vacation Clerk, Chandni Dhingra

Wastewater systems … how to connect the pipes, how to construe the patent claims… all fascinating stuff, but the focus for this post is whether a director 'authorised' his company's patent infringement or was liable as a joint tortfeasor.


Background


Having established that Sewerage Management Services (SMS) had infringed its standard patent for a pipe connector, Blueport turned its attention to a former director of SMS, Mr Chappell. Blueport alleged he had authorised SMS's infringement and was liable as a joint tortfeasor.

The reason may lie in Mr Chappell's evidence that at relevant periods SMS could not pay him a salary nor provide him full time employment. This may also explain why Mr Chappell had various other jobs during his directorship. More on that later…

Mr Chappell was a director of SMS from November 2003 to May 2011. His two brothers were the other directors. Due to his particular experience, Mr Chappell was involved in the design and testing of SMS's pipe connectors to obtain the necessary approval to enable SMS to sell its pipe connectors in Western Australia.

Mr Chappell held various other positions of employment while he was a director of SMS. One was as a project manager for a company related to Blueport, in which capacity he gave technical input in relation to the application that became the patent in this case. Mr Chappell's evidence was that at the time of giving that input, he thought the application was nothing more than a version of other pipe connectors he had seen.

In April 2005, Mr Chappell received a letter from Blueport's lawyers 'reminding' him of Blueport's patent. Mr Chappell and his co directors thought it was doubtful that their pipe connector fell within the scope of the patent, or that the patent was valid, and so continued working on their pipe product.


Authorisation


A threshold question was whether the act of authorising another to exploit an invention is an act of direct infringement. Justice Barker held that it was. This was significant because the cause of action therefore accrues when the act of authorisation takes place, not when the authorised act is carried out. Justice Barker held that any authorisation given by Mr Chappell occurred outside the six-year limitation under the Patents Act, and so was statute barred.

Blueport also argued by analogy to University of New South Wales v Moorhouse (1975) 133 CLR 1 that while Mr Chappell was a director of SMS, he had the power to stop infringement. Therefore, each time SMS exploited the patent (which it did within the six-year period), Mr Chappell was authorising each act of infringement.

Moorhouse was a case about a student photocopying parts of a book in breach of copyright on a university photocopier, an analogy that Justice Barker did not consider 'particularly apt'. Justice Barker emphasised that the participation of a director in the decision-making of a company is not sufficient to conclude that the director authorised the relevant act. It is necessary to show actions that demonstrate that the director sanctioned, approved or countenanced the act of infringement. Justice Barker found that Mr Chappell did none of these things. All the steps he had taken to obtain approval for SMS's product were simply in line with his role as director.

Further, Justice Barker held that Mr Chappell alone could not necessarily have prevented SMS's infringement. As one of three directors, his decision was important, but was not alone decisive.

The test of 'sanction, approve or countenance' is borrowed from but not explicitly defined in copyright law. While Justice Barker criticised the analogy to Moorhouse, he did not take issue with the test itself, despite criticism by the High Court in 2012 in Roadshow Films Pty Ltd v iiNet Limited. There, the High Court adopted tort principles to determine that iiNet (an ISP) did not authorise the copyright infringement of its customers.

Liability as a joint tortfeasor was the alternative case Blueport put here.


Joint tortfeasor


However, Justice Barker also found that Mr Chappell was not liable as a joint tortfeasor, adopting earlier Full Federal Court reasons to the effect that:
  • Mr Chappell did not do anything more than act as a director;
  • he did not have close personal involvement in the infringing acts; and
  • he did not effectively stand apart from SMS directing it or procuring it as a separate entity.
Rather, he was simply engaged in the business of the company.
 

Take-home points

 
This case sets such a relatively high bar for proving authorisation of infringement as a separate act of patent infringement by a company director.
 
While greater scrutiny of 'authorisation' may have been warranted in light of the criticism of the 'sanction, approve or countenance' test in the iiNet case, similar reasoning was applied to find that Mr Chappell was not a joint tortfeasor.
 
Either way, it seems a director will have to do something more than simply engage in the business of the company to be separately liable for infringement.

No comments:

Post a Comment