In two recent related judgments, Foster J of the Sydney Federal Court assessed the damages payable to Bitech for infringement of a patent it held for a flame effect heater.

Damages awards are comparatively rare in patent matters, and IP matters generally, so the guidance provided in the judgements is welcome.

The importer Garth Living and the retailer Bunnings were found jointly and severally liable to pay a total of $668,417 (comprising $433,969 by way of damages and $234,448 in interest).

The judgments contain a useful summary of principles in the area and demonstrate the preparedness of the Court to take a broad brush approach to damages issues.

Methodology of calculation of damages based on lost sales

Bitech’s expert (Martin Langridge of Deloitte’s Perth Office) assessed damages on two alternative bases. Both assumed that had Bunnings not been in the market, then Bitech would have made all of its sales at its normal price. There was evidence that Bitech did not licence the patented technology and had the capacity to fulfil any additional orders.

Discrepancies between records of heaters imported (which were higher) and heaters actually sold resulted in the need for the alternative calculations. Foster J found that the sales figures were likely to be more reliable in circumstances where Bunnings was a public company.

Impact of Group costs

Bitech’s normal margin was applied to the notional sales, and although Bitech was one of a group of companies, no administrative or other charges from other companies in the group were brought to account. It was accepted that all revenue and charges had been passed through to Bitech.

Market Research evidence

There was also evidence from a market research company (GfK), based on information supplied by major suppliers, that sales of electric heaters in Australia (excluding the infringing products) increased dramatically from 2006 to 2007 and thereafter declined in each of the years 2008, 2009 and 2010, with a substantial decline from 2008 to 2009.

Foster J found that it was unrealistic to conclude that Bitech would have picked up all Bunning’s sales had the infringing products not been in the market. The GfK report disclosed that trade, branded and non-infringing heaters held 8.75% of market share in 2006, rising to 19% in 2007, 32% in 2008 and 2009 and 46% in 2010.

There was also evidence that Bitech operated at a higher end of the market than Bunnings. The global financial crisis also was found to have impacted on sales volume and price.

Discounting of sales

In the end Mr Langridge’s notional sales figures were discounted by 8.75% in respect of 2006 sales, 19% for 2007 sales and 32% for 2008 and 2009 sales. There was then a further 10% discount on all sales. There were only a handful of sales in 2010. The further 10% discount was to take into account consumer perceptions about price and value.

Joint and several liability of Importer and Retailer

A finding of joint and several liability was justified on the basis that Garth Living and Bunnings had been directly involved in the importation, sale and distribution of the heaters. Foster J would also have found, if necessary, that the two companies had been engaged in a common design directed to the sale of the infringing heaters.

Royalties claim in respect of sales not allowed

Bitech argued that it should receive damages in the form of a royalty levied in respect of those sales which the court considered would not have been taken up by it had the infringers not been in the market. There was, however, evidence that Bitech had never granted a licence to any third party under the patent in suit or under corresponding patents in other countries, and further evidence that it would not have been willing to grant such a licence to Garth Living or Bunnings.

Foster J found that there was insufficient evidence to enable the court to determine an appropriate rate of royalty.

Additional costs awarded based on open offer

Bitech received indemnity costs after evidence revealed that it sent a Calderbank letter offering to accept $400,000 and party party costs.