Mud thrown, but threats not justified
Patents – damages for unjustified threats – person aggrieved – calculation of damages.
Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7)  FCA 991
Australian Mud Company originally sued Coretell for infringement of an innovation patent. At the conclusion of the hearing on liability, the patent was held valid but not infringed and the Court declared that Australian Mud Company had made unjustified threats of patent infringement proceedings by its letters of demand to the second respondent, Mincrest Holdings, and to the respondents generally, including Coretell. The Court also ordered that there be an enquiry as to the amount payable by way of damages in respect of the unjustified threats. The grant of this relief was not contested, in the sense that it was considered by the parties to be consequential upon the dismissal of Australian Mud Company’s patent infringement proceedings.
On the enquiry as to damages, Coretell contended that it, and it alone, was entitled to an award of damages in the amount of $3,290,386, together with interest thereon at such rate or basis as determined by the Court, and costs. Mincrest made no claim for damages.
In answer, Australian Mud Company contended that Coretell’s claim should be dismissed because it did not hold any interest in the Camteq tool the subject of the threats of patent infringement proceedings. Coretell’s answer was that the intellectual property in the Camteq tool, or at least an equitable interest in it, had been assigned to it by Mincrest. Australian Mud Company also asserted that of the three threatening letters, only the third was directed to Coretell and so damages could only flow from the date of the third letter. Australian Mud Company also asserted that any loss was not as a result of the letters but factors rooted in difficulties in manufacture and quality of the Camteq tool and that Coretell was dormant at the relevant time. Finally, Australian Mud Company contended that the calculation of loss by Coretell’s expert was flawed and could not be relied upon.
According to Barker J, Australian Mud Company sought to “avoid the terms of the declaration made, both by construing the declaration in a particular way, and by denying that Coretell was, or is, a “person aggrieved”.” His Honour held that, having previously given relief to Coretell for unjustified threats, the issue of whether it was an aggrieved person in respect of those threats was already decided and Australian Mud Company could not muddy the waters by re-agitating the issue. Nevertheless, whether or not Coretell was the assignee of the Camteq tool might still be relevant to determining the quantum of damage arising from the threats and so that issue was not res judicata.
Curiously, the issue of whether there had been an assignment of the intellectual property of the Camteq tool to Coretell was the subject of a finding of McKerracher J in a related proceeding in the NSW registry in Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 5)  FCA 444. McKerracher J found that there had been no assignment. However, that finding was made after the conduct of the damages enquiry before Barker J. After hearing, Australian Mud Company sought summary judgment against Coretell on the basis of McKerracher J’s finding, among other alternative relief. Barker J dismissed that interlocutory application holding that: “Each judge, in separate proceedings, is obliged to hear and determine the matter before them on the evidence adduced. The potential for inconsistent verdicts has always been obvious, and an unfortunate circumstance, but it does not mean that one judicial decisionmaker must, in effect, abdicate his decisionmaking responsibilities on the evidence presented to him, to the other decisionmaker.” Interestingly, Barker J came to the (different) view that, by the time of the first threatening letter, there had been a transfer of at least an equitable interest in the Camteq tool to Coretell.
Barker J also accepted that, by the time of the first threatening letter, the Camteq tool was nearing a state in which it would be ready for market. While no sales had been made, that was not to say that Coretell was not then in the business of marketing the prototype tool and that it did not sustain damage as a result of receiving the threatening letters. Barker J ultimately held that Coretell would have had the Camteq tool ready for market about six months after the first threatening letter.
Turning then to quantification of damages, Australian Mud Company threw mud at Coretell’s expert by challenging the following assumptions made by the expert:
- that the core orientation equipment was of merchantable quality at the date the threats commenced;
- that the Camteq tool and the product ultimately marketed were substantially the same;
- that Coretell had the financial and operational capacity to meet the demand of the but-for sales estimated by the expert;
- that the economic and market conditions were sufficiently comparable in November 2006 and after February 2009, for the purposes of the sales and costs projections made.
As noted above, the first assumption was wrong because his Honour found that the Camteq tool would not have been ready for market until six months after the first threatening letter. The second assumption was found to be correct. As to the third assumption regarding Coretell’s financial capacity, the judge observed that, but for the costs of litigation, Coretell would have had a satisfactory financial position to manufacture and sell the Camteq tool and so that assumption was satisfied. As to the last assumption, apart from the “GFC”, Barker J could not see any sufficient reason to treat the two periods as significantly different.
Respondents to unjustified threats will be interested to note that Barker J did not accept a contention made by Australian Mud Company that a possible reason why there were no sales of the Camteq tool at relevant times was that Coretell had told people it could not sell the tool because of the proceedings, rather than because of the threats. His Honour said that to make such a distinction between stopping because of the threat of proceedings and the proceedings themselves is semantical. In any event, his Honour was satisfied that any loss of sales or hirings was due to the initial threats, and “the intervening infringement proceedings, while they may have added some additional reason for a lack of business, did not break the causation chain.”
The authors note that Dowsett J in CQMS Pty Ltd v Bradken Resources Pty Limited  FCA 847 recently held that the institution of proceedings for infringement did not answer a claim for groundless threats – the only defence to a claim for groundless threats was proof of infringement of a valid claim. Dowsett J also observed that it is necessary to consider whether a letter of demand is a genuine step taken to resolve a dispute under the Dispute Resolution Act 2011 (Cth) or a groundless threat, or both.
A significant amount of evidence was given by the experts on the effect of the GFC on their calculations. In the end, the Court accepted that there would have been a significant downturn in sales during the GFC and a rebound from January 2009 (not February 2009).
Barker J accepted that on the findings he had made and on the evidence of Coretell’s expert, Coretell sustained damage of approximately $1,500,000, reduced by 15% from the figure calculated by the expert to take into account the relative uncertainty around the evidence concerning the GFC. Barker J also held that pre-judgment interest should be awarded on that sum, calculated on the damages assessed and not by some lesser sum considered to represent “after tax” profits. The parties were to make further submissions on that calculation, but it would appear that interest would be in the order of approximately $1,000,000.