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

Thursday, April 6, 2017

Justifying damages for unjustified threats

By Lauren John, Associate

The Full Federal Court recently overturned an award of damages for unjustified threats totalling $1.5 million, and, in doing so, has emphasised that the key question the court must ask itself in every unjustified threats claim is: what damage was sustained as a result of the threats?

Section 128(1) of the Patents Act provides that, where a person, by means of circulars, advertisements or otherwise, threatens a person with infringement proceedings, or other similar proceedings, a person aggrieved may apply to a court for a declaration that the threats are unjustifiable, an injunction against the continuance of the threats, and the recovery of any damages sustained as a result of the threats.

We previously reported on two decisions which shed light on the sorts of communications that are likely to constitute threats. The recent Full Federal Court decision in Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44 will provide some comfort to patentees, as it makes clear that only damage sustained as a result of the threat of infringement proceedings is compensable, not damage sustained as a result of infringement proceedings themselves.


Australian Mud Company (AMC) is the owner of an innovation patent relating to core sampling. AMC's lawyers sent three letters to Coretell's lawyers in late 2006 and early 2007 alleging infringement of AMC's patent by reason of the manufacture and sale of core sample orientation tools without AMC's authority or licence. AMC subsequently commenced patent infringement proceedings against Coretell.

Some three years later the court held that Coretell had not infringed AMC's patent. The court ordered that there be an enquiry into the amount payable by AMC to Coretell by way of damages in respect of the unjustified threats, and following that enquiry, the court ordered that AMC pay Coretell approximately $1.5 million in damages. AMC appealed that decision.

Asking the right question…

In overturning the primary judge's decision, the Full Court observed that the primary judge failed to ask the right question in assessing Coretell's damage. The Full Court emphasised the causal requirement embedded in section 128(1), namely that the damage must be that sustained 'as a result of' the threats, not infringement proceedings themselves. Where a threat of infringement proceedings is followed by the commencement of infringement proceedings, the court must look closely at whether the causal relationship between the threats and the damage has been proved by the threatened party.

… and answering that question

At first instance, Coretell adduced evidence that at the time the threats were made, it had a commercially viable orientation tool, the 'Camteq tool', and that in response to the threats, it ceased marketing and supplying that tool. Coretell ultimately abandoned the Camteq tool, and moved to develop and supply another core orientation tool, the 'Procept tool'.

The primary judge did not accept that the Camteq tool was ready for market towards the end of 2006 but the primary judge proceeded to assess Coretell's damages on the basis of a counter-factual where the Camteq tool would have been commercially ready within six months but for the threats.

The Full Court said there was no evidence to support that conclusion; indeed, the finding that it would have taken six months to finish development of the Camteq tool was irreconcilable with the evidence from Coretell that it had ceased marketing and suppling the already-developed Camteq tool in response to the threats. The Full Court said the evidence did not permit the conclusion that the development of the Camteq tool had ever ceased or been impeded as a result of the threats, and noted that the primary judge had made no such finding. What occurred would have occurred anyway – Coretell had encountered difficulties in transforming the Camteq tool from a prototype, and it was those problems which led it to abandon that tool. So, Coretell had not proved that it sustained any damage as a result of the threats.

The causal requirement is key

A party who makes a claim for damages for unjustified threats must ensure that the evidence it seeks to rely upon is directed to answering the correct question. Any damage sustained as a result of infringement proceedings themselves is not compensable under section 128(1).

Where infringement proceedings are commenced shortly after threats of such proceedings are made, a question as to whether the chain of causation has been broken may also arise, which will further muddy the waters.

No comments:

Post a Comment