The Full Court of the Federal Court of Australia reversed a decision awarding substantial damages for an unjustified threat in long-running litigation: Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44 (17 March 2017). The primary judge had held that the respondents (Coretell) had not infringed the patent of Australian Mud Company (AMC) and therefore Coretell was awarded substantial damages ($1,506,859) in respect of the cross-claim for unjustified threats and lost revenues from consequent non-supply of its allegedly infringing Camteq tool. However, the Full Court held that the primary judge failed to determine the key question of causation in accordance to section 128(1)(c) of the Patents Act 1990 (Cth).

AMC appealed the decision on the basis that evidence suggested that at the time the threats were made, the Camteq tool was still being developed and tested (meaning it was not ready for commercial supply) and that problems with the Camteq tool ultimately led Coretell to develop and market a different tool and to abandon further development of the Camteq tool. Accordingly, AMC submitted that Coretell did not sustain any lost sales caused by the threats.

The Full Court confirmed that in hypothesising what would have happened but for the threats, the Court is not entitled to engage in estimation, speculation and guesswork. Causation must be determined as a question of fact on the balance of probabilities. Further, the Full Court disagreed with the primary judge in stating that the difference between sales lost as a result of the threats and sales lost as a result of the proceedings is ‘semantical’. The Full Court confirmed that only sales lost as a result of a threat are those that inflict damages encompassed by section 128.

The Full Court accepted that a logical problem with the primary judge’s reasoning was that there was no evidence to support a finding that development of the Camteq tool ceased after the threat letter. The evidence only suggested that marketing and hiring ceased. Moreover, at the time the threats were made, the evidence also demonstrated that Coretell was working hard to perfect the tools. First, this suggests that the tools were still in the development stage demonstrating that Coretell did not suffer any loss of revenue as they did not have a tool ready for commercial supply. Secondly, the evidence demonstrates that Coretell were not impeded by the threat letters suggesting that any damage suffered was not caused by the threat letters. Further, the conclusion at trial that the Camteq tool would have been ready for commercial supply within six months of the first threat was “glaringly improbable” and “contrary to compelling inferences”.

The Full Court therefore held that the only conclusion available is that what occurred would have occurred in any event. The appeal was allowed and Coretell ordered to pay AMC’s costs.

This decision provides useful clarification and guidance regarding what an alleged infringer of a patent (or, likely by extension, copyright or a registered trade mark) must establish to receive a damages award in a claim for unjustified or groundless threats of infringement proceedings. In particular, the bar for causation between the threat (as distinct from any subsequent proceedings commenced) and the loss or harm has been set higher by the Full Court than by the primary judge, such that it must be clear that there is no other plausible explanation for sales or profits of products or services not being made following the threat and, effectively, before proceedings were subsequently commenced. It may practically be hard to show substantial damage as a result of a threat where actual proceedings for infringement follow soon afterward.