The right to take legal action against an infringer is the muscle that gives a granted patent (or certified innovation patent) its strength. But care should be taken in how and when that muscle is flexed. A number of recent Federal Court decisions serve as a reminder of the perils of threatening a perceived infringer with legal action.

Under Australian law, an “aggrieved person” may seek relief from threats of infringement proceedings that are unjustified (Section 128 of the Patents Act 1990). The reasoning behind this provision is to stop a patentee (or any other person) using the fear of legal proceedings to intimidate legitimate competitors. This could be viewed as the commercial equivalent of an anti-bullying law.

Relief from unjustified threats may, among other measures, be in the form of recovery of damages sustained as a result of those threats. Threats that are found to be unjustified can therefore be costly, particularly where loss of sales are involved. For example, in World of Technologies v Tempo [2007] FCA 114, damages of around AU$213,000 were awarded to Tempo for lost sales of a bagless vacuum cleaner. The vacuum cleaner had been withdrawn from sale following what was determined by the court to be an unjustified threat by World of Technologies to sue Tempo for infringement of a registered design.1

We take a look at three Federal Court cases from 2013 that explore the fine line between protecting your rights and overstepping the mark.

What is a threat?

Clearly, firing a strongly worded missive at your competitor stating that, should they fail to cease and desist from their infringing ways you’ll be seeing them in court, would be regarded as making a threat. But a threat need not be so explicitly stated.

It is well established in Australia that merely implying that you intend to initiate infringement proceedings may be considered a threat.2 A reference to protecting patent rights, for example, has been found sufficient to constitute a threat to sue.3

In Mizzi Family Holdings Pty Ltd v Morellini [2013] FCA 1435 (24 December 2013), the Federal Court went a step further and determined that an intention to imply a threat may go beyond the language used to convey the threat.

The Mizzi case relates to Australian Innovation Patent No. 2010100955, which claimed a device and method for planting sugarcane. During the patent application process, the inventor on the application, Paul Lawrence Mizzi, placed an advertisement in the industry magazine Canegrowers (5 April 2010). The advertisement identified the patent application number and briefly described the invention.

Next to the advertisement was a short article entitled “Infringement Danger” by Mr Terry Hurlock, who had been involved in the preparation of Mr Mizzi’s patent application. The court found that Mr Mizzi was not only responsible for the advertisement, but also played a part in the appearance of the article in the magazine.

The article made reference to a “new cane planting unit designed in Ingham which was subject to an application for patent”, further stating that the author of the article knew of “farmers who are manufacturing their own version of the new invention whilst the patenting process is operating” (Mizzi at [116]). The article continued by warning that “once the patent is granted the patent owner may pursue his rights, extending back to the original application date”, also suggesting that “infringement can be a costly exercise” (Id.).

No explicit reference to Mr Mizzi’s patent application was made in the article, nor was there any specific mention of the identities of the allegedly troublesome farmers. Nevertheless, the court found that the side-by-side placing in the magazine of the details of the patent application and the article on patent infringement was designed to convey a threat of infringement proceedings. A tacit warning of infringement through carefully arranged cues may therefore, it seems, also fall foul of the unjustified threats provision of the Patents Act.

When is a threat unjustified? 

There are two situations under the Patents Act where a threat to sue for infringement is considered unjustified:

(i) The claims are not infringed

In the Mizzi case above, Mizzi Family Holdings initiated proceedings against Daryl Morellini for allegedly using a device that infringed their patent.  Mr Morellini counter-claimed for revocation, alleging that the patent was invalid on a number of grounds. Mr Morellini also claimed that the side-by-side publication of the advertisement and article in Canegrowers magazine constituted an unjustified threat.

Although the counter-claim for invalidity by Mr Morellini did not succeed (the court found the claims to be valid), neither did the claim of infringement by Mizzi Family Holdings. As discussed above, the court considered Mr Mizzi’s foray into publishing to be a threat to bring infringement proceedings. Despite that threat not being explicitly directed at Mr Morellini, the court found that it did constitute an unjustified threat as no infringement was demonstrated.

(ii) The claims are not valid

In DSI Australia (Holdings) Pty Ltd v Garford Pty Ltd [2013] FCA 132, a threat by Garford to sue DSI to infringement of Australian Patent No. 770594 was considered unjustified because the claims in question were found to be invalid.

Australian Patent No. 770594 is directed to multi-strand rock bolts (used as a support structure in mines) and a method for their manufacture. Having received the threat of legal action, DSI took the initiative and commenced proceedings against Garford, seeking relief from unjustified threats. Garford replied by counter-claiming for infringement, with DSI then applying for revocation of the patent, alleging that the claims were invalid on a number of grounds.

The court found that the claims to the rock bolts themselves lacked inventiveness and were therefore invalid. The claims to the method of manufacture were also deemed invalid, in part because they lacked novelty and also because Garford had secretly used the method for commercial purposes prior to the priority date of the claims.

The court acknowledged that DSI would have infringed the Garford patent had the claims been valid. However, as they were not, there could be no infringement and the threat was therefore considered unjustified.

When is a threat justified?

What would the outcomes have been in the above cases if the claims had been found to be valid and infringed? Not surprisingly, threats of infringement proceedings are considered justified where the claims in question are valid in the eyes of a court and are actually infringed (Section 129 of the Patents Act).

N & E Bowder Pty Ltd v Australian Keg Company Pty Ltd [2013] FCA 1436 is an example of this situation. Australian Keg Company Pty Ltd is the owner of Australian Innovation Patent No 2011101654, which relates to a modular storage bin for storage of grain, such as wheat. In a letter from their attorneys, Australian Keg Company accused N & E Bowder Pty Ltd of infringing their patent with a product called “Stor-Cube”. The letter threatened legal proceedings against Bowder if they did not provide certain undertakings. Bowder took exception and initiated proceedings for unjustifiable threats of infringement, with Australian Keg Company counter-claiming for infringement.

On review of the claims, the court found that “Stor-Cube” did infringe the claims of Australian Keg Company’s patent. As the validity of those claims was not brought into question (Bowder did not apply for revocation of the patent), the threat of infringement proceedings against Bowder was found to be justified.

What should you do?

While some immediate satisfaction may be found in alerting potential infringers to your rights, the end result may be entirely dissatisfying if those rights are overstated.

Of course, if a threat to sue for infringement proves ultimately justifiable, there may be no negative legal consequences. However, a mere notification of the existence of a patent may be preferable. Aside from being less adversarial, notifying someone of a patent’s existence is not considered a threat under the Patents Act (Section 131).

In some cases it may be appropriate to state your intention to actively protect your patent rights. However, before doing so it is important to be confident that your claims are valid and that your claims are actually being infringed.

We strongly recommended that a patentee seek advice from their attorney before confronting a potential infringer. An attorney can provide an assessment on the validity of the patentee’s claims and on whether or not the claims have been infringed, as well as contacting any potentially infringing party on their behalf.