Take care when alleging patent infringement

A patent entitles the holder to exploit the invention disclosed in the patent to the exclusion of all others (unless authorised by the holder of the patent).  Where the patent holder is made aware of the use of their invention by another who is not authorised to do so, they may commence patent infringement proceedings to recover the loss sustained because of the infringement.  It is important for patent holders to be aware of the provisions rules regarding making unjust threats of patent infringement.  The recent decision in Mizzi Family Holdings Pty Ltd v Morellini (No 3) [2017] FCA 870 provides an example of how the Court considered an unjust threat of patent infringement and the damages that may be payable by the maker of such threats.

The facts that gave rise to the unjust threats

Mizzi Family Holdings Pty Ltd (Mizzi) held a patent over a sugar cane planting machine.  Mr Morellini (Morellini) utilised a similar machine, although with minor differences.  Mizzi sued Morellini for infringing the sugar cane planting machine patent.  In response to this alleged infringement (but prior to commencing proceedings against Morellini), Mizzi authorised advertisements to be published various trade journals warning potential customers of infringement if they purchased machinery produced by competitors that resembled Mizzi’s patent.  It is important to note that the advertisement did not specifically identify any competitors, but those within the industry were aware of which competitors the advertisement was directed to; Morellini being one.

At the trial for patent infringement, Morellini was successful in having the patent owned by Mizzi revoked on the grounds that it was invalid.  In subsequent proceedings, Morellini claimed damages against Mizzi for loss of business as a result of the advertisement, alleging his product did not infringe the patent and therefore the threats were unjustified.

While agreeing that the advertisement was an example of an unjust threat, the Court did not find that the advertisement caused Morellini any loss.  The Court emphasised in this decision that it was necessary for Morellini to establish direct causation between Mizzi’s threats and any loss suffered by Morellini.

The law applied

Section 128 of the Patents Act 1990 (Cth) protects individuals and companies from unjust threats of infringement, whether made directly to them, or to others (such as customers who purchase a product).  Section 128 provides that a person may seek to recover any damages sustained as a result of the threats of infringement made against them.

The key issue for the Court in this case was to consider whether Morellini had sustained damages as a result of the threats of infringement – that is, did the threats cause Morellini a measurable loss.  The Court found that customers’ general reluctance to purchase Morellini’s machine was not directly due to the publication of threats. Rather, consumers were merely waiting for the dispute surrounding the machinery to settle before purchasing.  Key to this line of reasoning was the evidence that a number of Morellini’s potential customers stated they would hold-off on taking further steps prior to the threats of infringement being published.  In those circumstances, the Court inferred that the potential customers were not influenced by the threats as their decisions were made prior to the threat’s publication.

As a result of this finding, Morellini was unable to establish a direct causal relationship between Mizzi’s threats and his loss of business.  Subsequently he was unsuccessful in his claim for damages.

Issues to consider when alleging unjust threats of infringement

When considering whether or not a person has made an unjust threat of patent infringement, the party contemplating brining the action must ensure that they can prove the following:

  • the person is an aggrieved person;
  • a threat was made;
  • the threat was unjust; and
  • the threat resulted in damage to the party.

Who is an aggrieved person?

An aggrieved person is any who can show that the threats have caused them to suffer actual damage.  Examples of persons who have been held by a Court to be an aggrieved person include:

  • any persons adversely affected by the threats;
  • those who have been threatened directly;
  • those threatened by clear implication;
  • those whose commercial interests stand to be damaged as a result of the threats; and
  • where the threat is addressed to customers, the business may be a person aggrieved if they can show that the threat would reasonably be understood by the customer as referring to goods manufactured by the business.

What is a threat?

Section 128 specifies that a threat may be made:

  • by circular;
  • advertisement; or
  • otherwise

The term ‘otherwise’ has been held to mean any relevant threat, however made.  Hence, a threat may be oral or in writing.

The test of whether something is a threat is an objective test: would the language used convey to a reasonable person that the author of the communication intended to bring proceedings for infringement against the person said to be threatened.

When considering whether a communication is a threat, it is permissible to take into account the context in which it was made, including other correspondence from the author to the recipient.

When is a threat unjust?

A threat will be invalid if the assertion which is the basis of the threat is incorrect; that is:

  • that the patent has not been infringed by the alleged infringing conduct; or
  • the patent itself is invalid.

In these circumstances, the threat to commence proceedings is made on an unjust basis as the there has been no infringement.

What threat resulted in damage to the party?

As Mizzi v Morellini highlights, a party will only receive damages where it can show that it is sustained a loss as a consequence of the unjust threat.  This follows the general rule for an award of damages that the loss claimed by a party must be connected (or caused by) the other party (commonly referred to as ‘causation’).  Examples of threats that may lead to a loss include:

  • loss of sales (for example, customers who did not purchase products based on the existence of the threat); and
  • ceasing to deal with products (for example, companies who ceased selling a product based on the existence of the treat).

It is important that any person considering bringing an action for unjust threats determines the loss that it has incurred that are attributable to the existence of the theat.

Takeaways

If a company or individual is planning to allege unjust threats of patent infringement (or any form of intellectual property infringement) they should ensure they are able to prove direct causation between the threats made and the damage or loss suffered. If there is a lack of compelling evidence to prove such a connection, it is unlikely the company or individual will be successful in their claim. In these circumstances, it is recommended that parties seek legal advice to assess their prospects of success in pursuing a claim.

Further references

Cases

Mizzi Family Holdings Pty Ltd v Morellini (No 3) [2017] FCA 870

Legislation

Patents Act 1990 (Cth)

Related articles by Dundas Lawyers

Groundless threats of trade mark infringement

Groundless threats of copyright infringement

Ownership of employee inventions – disputing ownership of patents

Further information

If you need assistance regarding patent infringement and intellectual property, please telephone me for an obligation free and confidential discussion.

Brisbane Lawyers
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 | Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au

 

Disclaimer
This article is not legal advice. It is general comment only.  You are instructed not to rely on the commentary unless you have consulted one of our Lawyers to ascertain how the law applies to your particular circumstances.

Dundas Lawyers
Street Address Suite 12, Level 9, 320 Adelaide Street Brisbane QLD 4001

Tel: 07 3221 0013

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