Tread carefully when threatening infringement
Key points
Threats of infringement are unjustified unless infringement is found.
IP rights holders should not issue threats of infringement unless they are prepared to commence infringement proceedings.
The possible penalties for making unjustified threats has expanded to include an award of additional damages.
Additional damages for unjustified threats
IP rights holders must consider their positions carefully before threatening infringement in Australia. Otherwise, they risk being caught by Australia’s recently amended “unjustified threats” provisions. This article looks at these provisions and makes recommendations for navigating this aspect of IP infringement.
Under Australia’s unjustified threats provisions, a person threatened with infringement proceedings can seek from the Federal Court:
- a declaration that the threat is unjustified;
- an injunction preventing further threats; and
- a claim for damages.
Recent amendments to these provisions now allow the Court to award additional damages against the party (the defendant) making the unjustified threat, having regard to:
- the flagrancy of the threat;
- the need to deter similar threats;
- the conduct of the defendant after making the threat; and
- any benefit which accrued to the defendant because of the threats.
To obtain damages, the alleged infringer must show they suffered a loss (e.g. of profits) as a direct result of the unjustified threat. Damages are not be awarded if there are other explanations for the loss, such as changes in market trends.
Although it may be difficult to show a direct connection between the loss and the unjustified threat, the bringing of an unjustified threats action itself can further complicate proceedings for IP rights holders.
what constitutes a threat?
Under Australian law, the following actions by patentees and a patent applicant have been considered threats:
Placing a magazine advertisement which includes a notice of a patent application, in combination with an article warning about the potential consequences of infringement.
Emailing its customers about taking an alleged infringer to court and indicating it would consider taking action against customers of the alleged infringer if patent infringement is found.
Walking into a retailer, showing the retailer a copy of a provisional patent application and asking the retailer to remove products from their shelves on the basis that those products would infringe their patent rights.
A recent case, Liberation Developments Pty Ltd v Lomax Group Pty Ltd [2019] FCA 1180, provides further clarity on what constitutes a threat.
In this case, an exclusive patent licensee, Titan Hoarding Systems Australia Pty Ltd (Titan), believed that a competitor, Lomax Group Pty Ltd (Lomax), was exploiting a hoarding system that infringed the patent being licensed. Titan sent a letter to one of Lomax’s customers, alerting them of the dispute.
Lomax argued that Titan’s letter constituted a threat akin to the unjustified threat in CQMS Pty Ltd v Bradken Resources Pty Limited (2016) 120 IPR 44 (CQMS).
In CQMS, the patentee emailed their own customers, and customers of the alleged infringer, indicating that by selling the impugned products, the alleged infringer was authorising the customer’s own infringement. Justice Dowsett considered that these customers:
“...would inevitably wonder about the reason for receiving such a notice. At the very least, [they] would conclude that any future acquisition of [such] products would be risky.”
Lomax argued that Titan’s letter had a similar effect as the emails in CQMS in that Lomax’s customer would also wonder why it received Titan’s letter and conclude that future purchases from Lomax may be risky.
Justice Greenwood disagreed and did not find Titan’s letter amounted to a threat of patent infringement. Instead, the single letter, although sent to a customer, was a follow up to a telephone call and emphasis was placed on the context of the letter and a statement therein which read:
“Currently the dispute is confined to Titan and Lomax. Titan sincerely does not want to involve any other persons in this dispute.”
This finding gives hope to patentees wishing to inform (and not threaten) parties regarding pending patent infringement proceedings. Previously it seemed that making any assertion, apart from merely identifying the existence of an IP right, could constitute a threat.
That said, it would be unwise to conclude that a letter does not constitute a threat if it simply includes a statement indicating that the patentee does not wish to involve the recipient in infringement proceedings. Instead, Liberation Developments seems to affirm:
“...the test is whether the language would convey to any reasonable person that the author of the letter intended to bring proceedings for infringement against the person said to be threatened and that it is not necessary that there be direct words that action would be taken”.
