12 January 2014

Fighting Unjustified Threats of Infringement Proceedings

N & E Bowder Pty Ltd v Australian Keg Company Pty Ltd [2013] FCA 1436 (24 December 2013)
Mizzi Family Holdings Pty Ltd v Morellini [2013] FCA 1435 (24 December 2013)

David v GoliathUnder Australian law, a person or company which feels they have been unjustifiably threatened with patent infringement proceedings can take legal action seeking an injunction to prevent the threats from continuing, and the recovery of any damages sustained as a result of the threats. 

The relevant provision is section 128 of the Patents Act 1990.  It particularly contemplates circumstances in which a patent holder seeks to inhibit competition by making vague or dubious claims (take note, prospective Australian patent trolls), such as ‘by means of circulars, advertisements or otherwise’ as well as by more conventional means, such as cease-and-desist letters. 

Section 128 enables a party which feels threatened to take pre-emptive action against a patent owner, although it has also been used as a counter-claim in response to the commencement of court proceedings for patent infringement. 

In my opinion, the primary purpose of s 128 is to provide a mechanism for accused infringers to address manifestly baseless allegations of patent infringement, thereby restricting the incentive for patent holders to make speculative or anticompetitive threats.  In practice, the Australian Federal Court has interpreted the provision broadly, treating any allegation of infringement which ultimately fails as constituting an unjustifiable threat.

It is therefore interesting that two recent decisions of the Federal Court – both issued on 24 December 2013 – have addressed the issue of unjustified threats.  In one case, the accused party initiated proceedings via the ‘unjustified threats’ provisions, and lost (i.e. the patent owner was able to prove infringement).  In the other case, the patent holder initiated infringement proceedings and, having been unsuccessful in establishing infringement, was found to have made unjustified threats.  Interestingly, the threats in this case were ‘generic’ in nature, having been made through the juxtaposition of an advertisement and an article in a trade publication.

Justifiable Threats

Allegations of patent infringement are obviously justified if they are successfully pressed in court proceedings.

The Australian Keg Company Pty Ltd (‘Australian Keg’) is the holder of Australian Innovation Patent No 2011101654, which relates to a ‘a field bin for storage of grain, such as wheat’.  Australian Keg accused N & E Bowder Pty Ltd (‘Bowder’) of infringing the patent.  Bowder responded by commencing proceedings in the Federal Court of Australia, alleging unjustifiable threats of infringement under s 128 of the Patents Act.

Under section 130, Australian Keg is entitled to counter-claim for infringement, and it duly did so.  Subsection 130(2) provides for the original claimant to apply for revocation of the patent, however in this case Bowder did not do so.

Unfortunately for Bowder, the court found that the patent was infringed.  As a result, the application for a finding of ‘unjustified threats’ failed, and Bowder now faces a separate hearing in relation to damages, unless the matter is settled out of court (or an appeal is lodged).

Unjustifiable Threats

Mizzi Family Holding Pty Ltd (‘Mizzi’) is the owner of Innovation Patent No 2010100955, which relates to a ‘cane billet planter’, i.e. a planting apparatus and a method for planting sugarcane.  Mizzi sued Daryl Morellini (‘Morellini’) for infringement of the patent.  Morellini counter-claimed that the patent is invalid on a number of grounds, and for ‘unjustified threats’.

None of the grounds of invalidity were made out.  However, Mizzi also failed to prove infringement, which meant that any threats of infringement proceedings directed at Morellini would have been unjustified.

The basis for the ‘unjustified threats’ action was not a specific allegation directed at Morellini. It was a generic and somewhat veiled threat which appeared in the Canegrowers Magazine of 5 April 2010.  In that particular edition of the trade publication, Mizzi plaved an advertisement including a notice of the patent application.  This notice was published alongside an article written by Mr Terry Hurlock of Invention Pathways Pty Ltd which was entitled ‘Infringement Danger’, and which spoke about…

…innovation and the danger of copying patented inventions. There is then a reference to a “new cane planting unit designed in Ingham which was subject to an application for patent”. It is said that, “We know of farmers who are manufacturing their own version of the new invention whilst the patenting process is operating”. It is then said that once the patent is granted the patent owner may pursue his rights, extending back to the original application date. It is suggested that infringement can be a costly exercise, and that small changes will not avoid infringement. It is also said that infringement, if proven, can mean fines “or even loss of the infringing machine plus claims for loss of income”. (Mizzi decision, at [116].)

Invention Pathways had worked in conjunction with the patent attorneys who had prepared Mr Mizzi’s application.  This juxtaposition of the advertisement identifying the patent application with the article warning about the potential consequences of infringement was found by the court to constitute ‘unjustifiable threats’.

It is notable that the ‘threats’ were not explicitly directed at Mr Morellini, nor is it apparent that there were no parties which might have infringed the patent.  Nonetheless, the generic threat implied by the juxtaposition, which the court no doubt concluded was made with the intention of ‘scaring-off’ the competition, was found to breach the provision in s 128 of the Patents Act.

Conclusion – Be Careful Who You Threaten!

There are some jurisdictions in which the patent owner holds most of the cards, and an accused infringer faces numerous challenges should they wish to fight the claims against them (I am thinking, of course, particularly of the United States, which has proven to be a patent troll’s paradise.)

Australia is not such a jurisdiction.  As the Mizzi case demonstrates, flashing your patent rights around in a provocative manner is dangerous, unless you are confident that you can prove infringement.

So what do you think?  Does the Australian law dilute the rights of patent owners too much, or does it provide a reasonable compromise between the monopoly rights granted to a patentee and the interests of competitors and the broader public?  If you have any thoughts, let me know in the comments below.

Image Copyright (c) 123RF Stock Photos

4 comments:

Doug Calhoun said...

The UK Law Commission is currently studying this question. Getting the balance right is not a simple matter as can be seen by all the background papers available on their website:

http://lawcommission.justice.gov.uk/consultations/groundless-threats.htm

In New Zealand there was no discussion on the issue in the 30 years it took to pass the Patents Act 2013 - the section was simply left out. This was particularly ironic because the major concern of the lobbyists who sought to ban software patents was the potential for trolls to make unjustified demands for royalties or else be sued for patent infringement.

The explanation given by the (then) Ministry of Economic Development (on page 13 of their 2009 comments to the select committee on public submissions) was, "... while it is possible for a patentee to make groundless threats of infringement to intimidate competitors, potential infringers could also use the threat of initiating proceedings for groundless threats of infringement to intimidate patent owners into withdrawing or not threatening infringement proceedings. Relief from groundless threats of legal proceedings are not generally available in other areas of law – there seems no reason to retain them in patent law."

A fine example of evidence based law drafting in this country!

My own experience was to tread carefully when serving notice on potential infringers - only draw their attention to the existence of the patent (which was permitted under S 74 of the 1953 Act). "If you are going to bark - you better be prepared to bite" was the catch phrase when advising an irate patentee .

Margaret said...

Where there every thing has become transparent and can be accessible by people all around the world it is important to impose constraint on the subjects matters which we are not willing to share with other people present on the web.We have lot other things to do but this too is very important to hire a
patent attorney to take care of our assets.

Mark Summerfield said...

As always, thanks for your valuable insights, Doug!

On the question of "evidence based" legislation, it seems to me that the MED had a pretty good point. In the absence of evidence one way or the other, one does wonder why an additional cause of action should exist.

To my knowledge, allegations of groundless threats have more often been raised in counterclaims in Australia, and the Federal Court has upheld them when the patentee has ultimately been unsuccessful, regardless of how close-run the decision was. This has always struck me as "double-dipping" in a jurisdiction in which costs are already awarded against a losing party.

As the Bowder case here shows, invoking the groundless threats provision pre-emptively is definitely a double-edged sword. In this case, the outcome would presumably have been the same had the patentee initiated proceedings - what we do not know whether would have done so or not.

Either way, so long as groundlessness is ultimately determined only after a full trial on the merits of the infringement allegation, there is a good argument to be made that the provision serves little or no practical purpose. A full trial is a full trial, no matter who initiates it, and either way the loser pays.

I like "if you are going to bark, you'd better be prepared to bite"! I might use that one...

Mark

nikontheroadagain said...

Hmmm! external views are sometimes clouded by the reality within

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