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Tuesday, September 5, 2017

Unjustified threats and damage – no longer clear as mud

By Elliott Burton, Lawyer

Two recent decisions by the Federal Court have reinforced that, in patent litigation, simply showing that you have been a victim of unjustified threats under section 128 of the Patent Act is not, by itself, enough to claim compensation.

Readers would be forgiven for thinking otherwise. Justice Baker in the primary judgement of the Australian Mud Company v Coretell (the Mud Case) awarded Coretell $1.5 million in damages as a result of AMC issuing threatening, and unjustifiable, letters. His honour stated that the distinction between sales lost as a result of the threats and sales lost as a result of the proceedings was 'semantical'. This broad reading of the application of section 128 seemed to suggest that all a plaintiff had to show was that there had been an unjustified threat and that it would be axiomatic that a court would award damages as a result.

However this broad application of section 128 has been narrowed considerably by two recent Federal Court decisions.

The first was by the Full Court of the Federal Court on appeal in the Mud Case, which overturned the decision of the primary judge. The Full Court focused on the words in section 128: 'as a result of the threats' in emphasizing that the damage must flow from the threats and nothing else. In this regard, the Full Court stated that the primary judge was wrong, the distinction between sales lost as a result of the threats and sales lost as a result of the proceedings was not semantical. In fact, the distinction was fundamental because the statute required a nexus to be demonstrated between the threats and the damage. The Full Court found that Coretell had not tendered sufficient evidence demonstrating that nexus.

This interpretation of section 128 has been recently applied by Dowsett J in Mizzi Family Holdings Pty Ltd v Morellini (the Mizzi Case). In a similar vein to the Mud Case, his honour found that while Mizzi had made unjustified threats of patent infringement, Mr Morelli had failed to produce evidence that demonstrated he had lost any sales, or any opportunities, directly as a result of the threats. Again, the requisite nexus between threats and damage had not been made out.

Both cases turned on the respective plaintiffs' evidence, or more accurately their lack of evidence, in demonstrating the requisite nexus between the threats and any damage. With the Mizzi case picking up on the decision by the Full Federal Court in the Mud Case, this narrower reading of the application of section 128 is now good law and readers, should they find themselves victims of unjustified threats, should be conscious that the onus will be on them to demonstrate that they have suffered damage as a result of those threats.

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