What you need to know
- There is a high bar to establish a claim for additional damages for patent infringement in Australia.
- Deliberate copying may be relevant to additional damages however, copying alone is not sufficient. If the potential infringer has an invalidity and/or non-infringement case which is not hopeless or improperly pursued, this will likely be adequate to avoid the award of additional damages.
- If there is a reasonable non-infringement and/or invalidity argument, a potential infringer may choose to continue to commercialise the impugned product with a low risk of an award of additional damages (although the infringer will still be liable for damages). However, whether the argument is reasonable must be objectively determined.
What you need to do
- In circumstances where you are copying another's product or process, you should consider conducting a search to identify any rights that your competitor might have to protect that product/process so as to design around those rights or develop non-infringement or invalidity arguments. Equally, where you receive a letter of demand, you should immediately consider the arguments which can be used to counter the allegations.
- If non-infringement and/or invalidity arguments are to be relied upon, the strength of those arguments should be objectively ascertained, including by legal advice, to mitigate the risk of an additional damages award.
Background
Gram Engineering Pty Ltd (Gram) sought relief against Oxworks Trading Pty Ltd (Oxworks) for infringement of its patent in respect of Oxworks' ColourSmart Plinth (a plinth being an element of a fence used at the base of a fence construction).
From 2006 to early 2017, Oxworks purchased and held considerable quantities of Gram's plinth. After this time, Oxworks tried to purchase further plinths from Gram but was rebuffed.
In December 2015, Oxworks' director emailed its supplier a link to a plinth on Gram's website and stated that he wanted the supplier to manufacture and supply such a product. The supplier made the product using a different process than that used to make Gram's plinth and produced a product with heavier wall thickness (the ColourSmart Plinth). The ColourSmart Plinth was supplied to Oxworks. After receiving a letter of demand from Gram's lawyer, the supplier ceased selling the ColourSmart Plinth to Oxworks.
In May 2017, Oxworks also received a letter of demand alleging that the ColourSmart Plinth infringed Gram's patent. Nonetheless Oxworks continued to sell the ColourSmart Plinth until July 2018.
There was no evidence that Oxworks obtained legal advice regarding whether it was infringing Gram's patent. However, on 28 May 2017, Oxworks' director sent an email in response to the letter of demand contending that its ColourSmart Plinth did not infringe Gram's patent, based on Oxworks' construction of the claims.
Trial decision
The primary judge found that Oxworks' ColourSmart Plinth infringed Gram's patent.
Significantly, the primary judge also found that Oxworks was liable to pay additional damages under s 122(1A) of the Patents Act 1990 (Cth) (the Act) in respect of the infringement.
Additional damages under section 122(1A)
Section 122(1A) of the Act provides that a Court may include an additional amount in an assessment of damages for patent infringement, if the Court considers it appropriate to do so, having regard to a number of factors, including:
- the flagrancy of the infringement;
- the need to deter similar infringements of patents;
- the conduct of the infringing party; and
- any benefit shown to have accrued to the infringing party because of the infringement.
The primary judge concluded that there was a compelling case that Oxworks' infringement had been flagrant, as Oxworks:
- likely knew of the patent at all materials times through their access to Gram's website and advertising materials which referenced Gram's patent;
- had previously purchased Gram's plinths;
- had instructed the supplier to copy Gram's plinth albeit by a different process and resulting in a product of a heavier thickness; and
- in any event, was aware of the patent following the cease and desist letter but nevertheless continued to sell the infringing plinth.
Decision on Appeal
On appeal, Oxworks challenged the primary judge's finding of infringement and the award of additional damages in favour of Gram.
The Full Federal Court dismissed the appeal against the primary judge's findings on infringement but overturned the primary judge's award of additional damages. The Court found that the primary judge erred by failing to address the reasonableness of Oxworks' defence to the allegation of infringement, based on its construction of the patent claims.
The Court concluded that Oxwork's non-infringement argument was reasonably defensible and a strong factor weighing against the award of additional damages. The decision of Oxworks to continue to pursue its own commercial interests despite allegations of infringement in circumstances where it had a reasonable defence, was not sufficient to warrant an award of additional damages.
Guidance on additional damages
The Court also outlined further guidance on the application of s 122(1A), including that:
- mere copying is not sufficient to warrant an award of additional damages although it is a relevant factor;
- it is not illegitimate, or flagrant, for a competitor to attempt to work around a monopoly claimed in a patent (even if that work around is not ultimately successful in avoiding infringement);
- provided than an alleged infringer has a reasonably arguable defence of non-infringement and/or invalidity, it may continue to produce products or adopt the process until such time as there has been a finding of infringement of a valid patent, without triggering an award of additional damages (although the plaintiff would certainly be entitled to damages).
The Court also provided the example of an infringer who is given a legal opinion that its activities would be infringing, but proceeds with those activities in any event, as one in which an award of additional damages may be apt. However, given that any such legal opinion would be privileged, it is difficult to see how these facts would ever be considered by a Court (absent an accidental waiver of privilege) and an award of additional damages made on that basis. Therefore, it is more likely that a Court will award additional damages if it reaches the conclusion that the infringer's defence was hopeless or improperly pursued.
The same position is reflected in the trade mark authorities on additional damages where such damages have been awarded in cases where, for example, the Court concluded that an infringer defended the proceeding on a false and "ridiculous" basis (Halal Certification Authority Pty Ltd v Scadilone Pty Ltd (2014) 107 IPR 23 at [105]).
Conclusion
This decision confirms that it is difficult to establish a claim for additional damages in Australia.
Provided that a defendant has a reasonable (that is, not hopeless or improperly pursued) non-infringement or invalidity argument, it may continue to commercialise its product/process pending a judgment against it although it will still face the risk of paying damages/an account of profits if it is ultimately found to infringe.
It is important to seek legal advice to objectively ascertain whether the arguments to be relied upon are reasonable. Such legal advice may be integral in opposing an award of additional damages.
Authors: Caroline Christian, Lawyer; and Nina Fitzgerald, Partner.
