In Australia, a patentee will typically send a cease and desist letter to an alleged infringer – identifying the patent or patents in issue and making demands that the alleged infringing conduct cease. Indeed, the Civil Dispute Resolution Act 2011 (Cth) requires an applicant to make a genuine attempt to resolve the dispute before proceedings can be commenced.

If a patentee fails in an action for patent infringement, there is a risk that any threats made by the patentee will render the patentee liable for ‘unjustified threats’ under s 128 of Australia’s Patents Act 1990 (Cth). The Court can order the patentee to pay damages, and order an injunction to stop the threats continuing. The risk of a damages award has made patentees cautious of making threats.

Two recent Federal Court decisions in Australian Mud Company Pty Ltd v Coretell Pty Ltd1 and Mizzi Family Holdings Pty Ltd v Morellini (No 3)2 provide clear guidance on the application and limitations of s 128, highlighting the paramount importance of establishing a relationship between the threat and the damage, and how difficult it is to obtain damages from a patentee in a claim for unjustified threats under s 128.

Australian Mud Company Pty Ltd v Coretell Pty Ltd 

Background

Australian Mud Company Pty Ltd (AMC) was the patentee of a patent for a tool for determining the down-hole orientation of core samples taken during drilling operations, typically in the mining industry.

Prior to instituting proceedings, AMC sent a letter to Mincrest Holdings Pty Ltd (Mincrest) alleging that Mincrest had infringed the patent by manufacturing and selling core sample orientation tools without AMC’s authority or licence, and requesting various undertakings that Mincrest cease and desist those activities.

Coretell Pty Ltd (Coretell) responded to AMC’s letter, stating that it alone held an interest in the alleged infringing core orientation tools, denying infringement, questioning the validity of the patent, and refusing to give the undertakings sought by AMC. After the parties exchanged further rounds of correspondence of a similar nature, AMC commenced proceedings against Coretell and Mincrest for infringement of the patent.

The Initial Decision

The Court found that Coretell and Mincrest had not infringed AMC’s patent, and declared that AMC had made unjustified threats. The Court then ordered an enquiry into the amount of damages payable by AMC.

AMC contested Coretell’s claim to damages on the basis that Cortell’s tool was still being developed and tested when AMC instituted proceedings, and that problems with prototypes had resulted in Coretell abandoning its development activities, rather than the threats. AMC also pointed to Cortell’s own evidence that it ceased developing and manufacturing the tool because of the proceedings themselves, rather than threats. As a consequence, AMC argued, Coretell had suffered no damage as a result of the threats.

Coretell contended that the tool was available for commercial marketing and supply when it received the first letter from AMC, and that it ceased to market and supply the tool as a result of AMC’s threats.

The Court accepted Coretell’s argument’s that AMC’s threats had prevented Coretell from marketing and supplying the tool, and rejected the distinction that AMC sought to make between the consequences of the threats and the proceedings themselves as ‘semantical’. Damages were awarded in the sum of $1.5m, with interest.

The Full Court’s Decision

On appeal the Full Court allowed AMC’s appeal and dismissed Coretell’s claim for damages for unjustified threats, with costs.

The Full Court held that the primary judge’s conclusion that Coretell’s tool would have been ready for commercial supply at the relevant time was ‘glaringly improbable’ and ‘contrary to compelling inferences’.

The Full Court also noted that the distinction between sales lost as a result of the threats, and sales lost as a result of the proceedings, is not ‘semantical’. The Court warned that in every case where a threat is followed by the commencement of proceedings there needs to be a close focus on whether a relationship between the threats and the damage has been established.

As s 128 requires the damage to be sustained ‘as a result of’ the threats, the relationship between the threat and damage is fundamental to its operation. The Court therefore held that the primary judge’s conclusions were unsustainable, and that Coretell had not proved that it sustained any damage ‘as a result of’ AMC’s threats. 

Mizzi Family Holdings Pty Ltd v Morellini (No 3)

Mizzi Family Holdings Pty Ltd (Mizzi) alleged that Daryl Mark Morellini (Morellini) had infringed its patent directed to a sugarcane planting apparatus and a method for planting sugarcane.

Morellini cross-claimed for revocation of the patent and for relief against unjustified threats pursuant to s 128. Specifically, Morellini alleged that Mizzi had engaged in unjustified threats by: 

  • causing a notice of the application for the patent headed ‘Mizzi Billet Planter’ and an accompanying article entitled ‘Infringement Danger’ to be published in the magazine ‘Canegrowers’; and
  • stating to a person using Morellini’s cane planting device that the device infringed the patent, and demanding a royalty.

The Court held that Mizzi had failed to prove its allegations of infringement and that Morellini’s claim of unjustifiable threats must succeed. Following an unsuccessful appeal by Mizzi, the Court then considered what, if any, damages should be awarded to Morellini.

The Court noted that there was some evidence demonstrating industry interest in Morellini’s proposed product, and that certain potential manufacturers of the product were cautious or uncomfortable because of the dispute between Mizzi and Morellini.

However, there was no direct evidence that anybody had declined to deal with Morellini as a result of Mizzi’s threats, and Morellini had not demonstrated any adverse effect resulting from either of the threats.

The Court also noted that Morellini’s failure to exploit his proposed product in more recent times made it difficult to draw inferences as to his conduct and its outcomes, had there been no threats.

The Court therefore dismissed Morellini’s claim for damages.

Conclusion

The decisions in Australian Mud Company Pty Ltd v Coretell Pty Ltd and Mizzi Family Holdings Pty Ltd v Morellini (No 3) are likely to be welcomed by Australian patent holders, as they provide clear guidance on the limits of a patentee’s potential liability for threats of patent infringement.

The decisions demonstrate the potential pitfalls that a claimant can face in proving that any damage is directly attributable to unjustified threats, and highlight the need for robust evidence to establish the relationship between unjustified threats and any resulting damages.