Threats Muddy Waters: unjustified threats of infringement in the Full Federal Court of Australia

A decision in March of the Full Federal Court in Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44 concerning unjustified threats of infringement will have some lawyers as happy as pigs in mud.

Dishing the Dirt

Australian Mud Company Pty Ltd (AMC) is the owner of an innovation patent related to core sampling. In November 2006, it sent a letter to Mincrest Holdings Pty Ltd (Mincrest) alleging that Mincrest had infringed AMC’s patent by manufacturing and selling core sample orientation tools without AMC’s authority or licence. AMC demanded undertakings from Mincrest that it cease all such activity.

Lawyers for Coretell Pty Ltd (Coretell) and Mincrest responded to AMC, telling AMC that Mincrest had no interest in the tools, the interest being Coretell’s alone. The letter went on to explain that Coretell denied infringement, questioned the validity of AMC’s patent, refused to give the undertakings sought, and reserved its rights under s 128 of the Patents Act, which prohibits a patent owner from making unjustified threats of patent infringement.

Exchanges between the two sides quickly descended into a mud-slinging match, with AMC commencing proceedings against the respondents in July 2007. In October 2010, the primary judge held that Coretell and Mincrest had not infringed AMC’s patent (see Australian Mud Co Pty Ltd v Coretell Pty Ltd [2010] FCA 1169 here[1]). In December 2010, the primary judge then made orders including a declaration that AMC had made unjustifiable threats against Coretell and Mincrest and ordered an enquiry into damages suffered as a result of those threats (see Australian Mud Co Pty Ltd v Coretell Pty Ltd (No 2) [2010] FCA 1451 here[2]).

After a lengthy enquiry, in August 2016, the primary judge found that Coretell had sustained damage of $1,506,859 as a result of the unjustified threats (see Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2016] FCA 991 here[3]). It was from this decision that AMC appealed.

Grounding the Appeal

There were 19 grounds of appeal, but their Honours sifted these down to two related issues: The primary judge’s assessment of damage was unconnected to the statutory limitation that recoverable damage is damage sustained “as a result of the threats”, and at least partly by reason of this, the primary judge did not make the findings necessary to conclude that Coretell had sustained any damage as a result of the threats, with the consequence that Coretell’s application for damages ought to have been dismissed.

Digging Deeper

The Court unearthed a number of errors in the primary judge’s reasoning, the cumulative effect of which was to erode the basis on which any award of damages could have been made. The central issue was the correct construction of the causal element necessary to enliven the operation of section 128(1) of the Patents Act, which provides that damages may only be recovered when “sustained by the applicant as a result of the threats

The Full Court held that there were two significant problems with the primary judge’s analysis. First, the primary judge failed to distinguish adequately between damage arising as a result of the threats and damage arising from extraneous causes, most significantly, the infringement proceedings themselves. Secondly, the Court disagreed with the primary judge’s contention that the difference between sales lost as a result of the threats and sales lost as a result of the proceedings was ‘semantical’: only damage arising from the threats (and not the resultant proceedings) was recoverable.

The Full Court’s assessment of Coretell’s and Mincrest’s evidence was that they were not ready to go to market with their product and that AMC’s threats had not, therefore, caused them any loss. That they may have suffered loss as a result of the proceedings brought by AMC was also immaterial, because this loss did not stem from the threats, but from the proceedings themselves.

With the primary judge’s analysis thus irretrievably soiled, the Full Court ordered that the appeal be allowed, with costs.

Those who commence proceedings seeking pecuniary relief for unjustified threats – whether patent or otherwise – should be mindful that those threats must cause some damage that is directly attributable to the threats and not to some other circumstance, such as any resulting infringement proceedings.

[1] http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2010/2010fca1169

[2] http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2010/2010fca1451

[3] http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/2017/2017fcafc0044. Note that in the interim there were other proceedings on foot between the parties, see, for example, Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2015] FCA 1372 which can be found here: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2015/2015fca1372 and, most recently, Coretell Pty Ltd v Australian Mud Company Pty Ltd [2017] FCAFC 54 which can be found here: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/2017/2017fcafc0054