Allegations of infringement of Australian patent, design or trade mark rights may be deemed unjustified, and the person making such a threat may be liable for any damages sustained by the alleged infringer. Section 128 of the Patents Act 1990 provides that where a person threatens infringement proceedings, a person aggrieved by that threat may seek recovery of any damages sustained as a result of the threats.
Where threats of patent infringement proceedings are made and a court later determines that the patent was invalid or that there was no infringement, such allegations will likely be deemed unjustifiable. However, as the Federal Court’s decision in Australian Mud Company Pty Ltd v Coretell Pty Ltd  FCAFC 44 illustrates, damages will only be available if there is a sufficient causal connection between the threats and the claimed economic loss.
In 2006, Australian Mud Company Pty Ltd (AMC) wrote to Mincrest Holdings Pty Ltd (Mincrest) alleging infringement of AMC’s innovation patent relating to core sample orientation tools. Coretell Pty Ltd (Coretell) responded by advising that Mincrest held no interest in the tools, the interest belonging to Coretell alone. Coretell denied infringement and also questioned the validity of AMC’s patent.
AMC commenced infringement proceedings against Mincrest and Coretell in July 2007. The trial judge found that the respondents had not infringed AMC’s patent and that the threats made against Mincrest were unjustifiable. AMC had conceded during trial that if the respondents were successful in their infringement defence or cross claim for invalidity, then the unjustified threats action would be made out. Having found the threats unjustifiable, the primary judge ordered an enquiry on the issue of damages. Following further disputes between the parties, the damages application was heard and Mincrest was awarded $1,506,859 as compensation for the unjustifiable threats.
AMC appealed the damages decision, principally on the lack of a causal connection between the threats made and the damage said to have been sustained. The Full Court confirmed that the damages available are those strictly proven to be sustained by a person as a result of the threats made. This must be distinguished from damage resulting from other causes including the proceedings themselves. As the court noted:
‘… in every case where a threat of infringement proceedings is followed by the commencement of infringement proceedings … there will need to be a close focus on the question whether the causal relationship between the threats and the damage is made good.’
Ultimately AMC escaped an adverse damages finding because the necessary causal connection was not proved.
Provisions concerning unjustified threats appear in each of the Australian patents, designs and trade marks Acts. Where infringement is not found or where rights are found invalid, any counter claim for unjustified threats will typically be made out.
Threats of infringement proceedings relating to an uncertified innovation patent or uncertified registered design are automatically deemed unjustifiable and should not be made until after a Certificate of Examination has been issued by IP Australia.
A person in receipt of a threat of proceedings should carefully document the actions taken in response to the threat and any resulting economic loss, so that the relevant causal connection can be established should the threat be found unjustified.