More than just semantics - Full Court clarifies when damages can be recovered for unjustified threats

In Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44, the Full Court of the Federal Court of Australia has upheld an appeal from the Federal Court's decision, and, in doing so, has clarified the causation requirement for damages recoverable under section 128 of the Patents Act 1990.

The Full Court concluded that recovery of damages was limited to damages suffered "as a result of" threatening the aggrieved person with infringement (or similar) proceedings, not damages suffered as a result of subsequent infringement proceedings relating to those threats.

Australian Mud Company's innovation patent

Australian Mud Company Pty Ltd (AMC) was the owner of an innovation patent relating to core sampling. The proceedings concerned letters sent by AMC's lawyers alleging infringement of AMC's patent through the manufacture and sale of core sample orientation tools without AMC's permission. Coretell Pty Ltd denied infringement, questioned the patent's validity and refused to give the undertakings sought by AMC.

At first instance

Through a number of separate judgments, the primary judge:

• held that the respondents (which included Mincrest Holdings Pty Ltd) had not infringed AMC's patent; 
• made declarations that the threats made by AMC's solicitors in their letters were unjustifiable; and 
• ordered that damages in the sum of $1,506,859 should be awarded under section 128 for these unjustified threats.

Relevantly, the primary judge considered that the distinction between a loss of sales from the threats and a loss of sales from the infringement proceedings was "semantical".   He found that any losses sustained by Coretell were due to the initial threats and that the intervening infringement proceedings, while they may have added some additional reason for a lack of business, did not break the causation chain.

AMC's arguments on appeal

AMC claimed that:

• the primary judge's assessment of damage was unconnected to the statutory limitation in section 128 that recoverable damage was damage sustained "as a result of the threats"; and
• the primary judge did not make the necessary findings to conclude that Coretell had sustained any damage as a result of the threats.

The distinction is not "semantical"

The Full Court disagreed with the primary judge's approach.

The Court found that:

• the primary judge erred in making no distinction between the effect of the threats and the effect of the subsequent proceedings;
• the distinction between damages as a result of the threats and damages as a result of the proceedings was not "semantical" but a real distinction required to be drawn by statute;
• the requirement of causation, expressed through the words "as a result of", was fundamental to the operation of section 128;
• it is not enough to say that damage is self-evident because a party is impeded in its product development as a result of unjustified threats. Damage as a result of the threats must be proved on a balance of probabilities.

The Full Court clarified that there can be different types of damage arising from unjustified threats and a particular type of damage could have more than one cause. However, in every case where a threat is followed by the commencement of infringement proceedings, there will need to be close focus on the question of whether a causal relationship exists between the threats and the damage suffered.

Having reviewed the evidence in this case, the Full Court found that the primary judge had made a number of irreconcilable findings, that led to his conclusion that Coretell had not sustained damages compensable under section 128 of the Act by reason of the unjustified threats.

The Court noted that this was not a question of whether the intervening infringement proceedings broke the chain of causation. Rather:

"The primary judge found the Camteq tool was not ready and made other findings which did not permit the conclusion that the development of the Camteq tool (as opposed to its commercial supply) had ever ceased or been impeded as a result of the threats. As such, but for the threats, the only conclusion open is that what occurred would have occurred in any event."

The Full Court therefore concluded that Coretell's case failed on the fundamental requirement of causation.

Conclusion: there are limits to damages for unjustified threats

The case presents an important reminder as to the limit on the amount of damages that can be recovered for unjustified threats under section 128 of the Act. The terms of the section limit recoverable damage to damages sustained "as a result of the threats". A distinction must be drawn between damages sustained by reason of those threats, which is compensable, and damages sustained as a result of subsequent infringement proceedings, which are not recoverable under the section.