Digging through the mud to see the damage sustained

Originally published by Helen Macpherson.

The Full Federal Court has made it clear that, in an action for unjustified threats, a party is entitled only to damage sustained as a result of the unjustified threats under section 128 of the Patents Act 1990 (the Act), and not damage sustained as a result of infringement proceedings subsequently commenced (Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44). This decision overturned an award for substantial damages of just over $1.5 million. It is a timely reminder of the precision required in undertaking a damages analysis, both in terms of the application of the correct legal test and the evidence required to meet that test.

Background

Australian Mud Company (AMC) was the owner of an innovation patent relating to core sampling. AMC’s lawyers sent three letters between November 2006 and February 2007 to Mincrest Holdings Pty Ltd (Mincrest) and Coretell Pty Ltd (Coretell) alleging infringement of AMC’s patent by reason of the manufacture and sale of core sample orientation tools without AMC’s authority or licence. Coretell denied infringement. On 2 July 2007 AMC commenced proceedings against Coretell and Mincrest claiming relief for infringement of the AMC patent. On 29 October 2010 the primary judge held that Coretell and Mincrest had not infringed the AMC patent and Coretell was awarded substantial damages of just over $1.5 million in respect of the cross-claim for unjustified threats. AMC appealed.

Full Court decision

The Full Court unanimously overturned the primary judge’s decision on damages. The Court held that the primary judge’s process of reasoning had miscarried. This miscarriage arose for two reasons:

1. The primary judge did not ask the correct legal question in relation to causation of damage; and
2. The primary judge did not correctly analyse the factual evidence when considering the issue of causation.

On the first issue, the Full Court found that the primary judge mixed the issue of damage resulting from the threats with the issue of damage resulting from the commencement of the infringement proceedings. The former, but not the latter, was relevant to the damages inquiry under section 128 of the Act. Section 128 permits “recovery of any damages sustained by the applicant as a result of the threats”. The Court therefore needed to identify what, if any, damage had been caused by the threats.  The primary judge further did not focus on the critical question  of causation, that is, what would have occurred but for the threats. Instead, the primary judge considered the question of when the core orientation tool alleged to infringe AMC’s patent (the Camteq tool) would have been available to the market assuming the threats had not been made. The latter question incorrectly assumed that the Camteq tool would have been made available to the market but for the threats. However, this was not the evidence before the Court.

This leads on to the second issue as to the primary judge’s analysis of the factual evidence. Coretell argued that as a result of the threats in the letters between November 2006 and February 2007, it ceased to market and supply the Camteq tool. The facts of the case were complicated, requiring the Full Court to undertake a detailed analysis to get at the facts relevant to the damages question. Ultimately, the Full Court held that the Camteq tool was not a properly functioning product between November 2006 and 2 July 2007, the date on the which the infringement proceedings were commenced. The Camteq tool therefore was not available for commercial marketing and supply during this period. The problems in transforming the Camteq tool from prototypes for the purpose of on-site testing ultimately led Coretell to develop and market a different core orientation tool, and to abandon further development of the Camteq tool. These circumstances existed irrespective of the threats. The threats had no effect at all on the development of the Camteq tool. So, it could not be concluded that Coretell had sustained any damage as a result of the threats.

Unjustified threat proceedings

This decision has made it clear that, before commencing proceedings for unjustified threats, it is very important to be aware that damages will only be recoverable where the damage caused is attributable to the threats.

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