Mud thrown over failure to link assessed damages with threats of litigation

Patents – unjustified threats – damages – ultimate findings unsupported, and contradicted by, evidence at trial

Australian Mud Company Pty Ltd v Coretell Pty Ltd [2017] FCAFC 44

In AMC’s earlier (and unsuccessful) infringement proceedings before the proceeding referred to above, Coretell cross-claimed under s 128 of the Patents Act 1990 (Cth) for unjustified threats. That proceeding arose following correspondence in 2006 and 2007 between the parties’ solicitors along the (not uncommon) lines of: AMC alleging infringement of one of its innovation patents and requiring undertakings; and Coretell rejecting those allegations, refusing to provide undertakings, and challenging the validity of AMC’s patents. AMC sued for infringement, but was unsuccessful at first instance. As part of his decision, the learned trial judge found that the threats of legal proceedings made by AMC had been unjustifiable, and ordered that there be an account taken of Coretell’s damages. Ultimately, AMC was ordered to pay Coretell over $1.5m damages for unjustified threats. AMC appealed that decision.

The Full Court (Greenwood, Jagot and Burley JJ) upheld AMC’s appeal. Of AMC’s grounds of appeal, the Court found it necessary to deal only with two: that the trial judge’s assessment of Coretell’s damage extended beyond damage sustained “as a result of the threats” (being the limiting language used in s 128); and that the trial judge did not make findings necessary to conclude that Coretell had sustained any damage in the sense referred to in s 128.

At first instance, Coretell had argued that it had ceased to market and supply its allegedly infringing product (the “Camteq tool”) as a result of AMC’s threats of litigation. Coretell alleged that the Camteq tool had been commercially available when the first letter was received. Coretell calculated its lost revenue by reference to an alternative, non-infringing tool developed to replace the Camteq tool (the “Procept tool”). In contrast, AMC argued that the Camteq tool has ceased to be marketed, and the Procept tool developed, only because the Camteq tool had technical problems such that it could not be developed past prototype stage. Accordingly, Coretell had not suffered any loss “as a result of” AMC’s threats. Ultimately, the trial judge found that the Camteq tool was not commercially ready at November 2006, but would have been ready within six months thereafter (but for AMC’s threats).

The Full Court agreed with AMC’s submissions that the ultimate finding of the trial judge was not supported by the trial judge’s other findings of fact. Indeed, those findings spoke against the ultimate finding. Among other things, the trial judge: rejected Coretell’s evidence that the Camteq tool was ready for commercial supply as at November 2006; found that Coretell’s commercial launch of the product had not been impeded by the threat letters; and found that the product would have been finalised by June 2007 but for the threats. The Full Court noted that the basis for the latter finding was unclear, but may have found expression in Coretell’s expert report, which contained an instruction to that effect. The Full Court noted, however, an expert’s instructions are not proof of the “instructed fact, matter or circumstance”. Other evidence at first instance suggested that development may have taken as long as 11 months, being the time taken to develop the Procept tool.

Further, the trial judge fell into error by failing to make a distinction between sales lost as a result of the threats and sales lost as a result of the proceedings. That distinction is more than “semantical”; it is only the former that may be recovered in an action under s 128. As the Full Court observed, “in every case where a threat of infringement proceedings is followed by the commencement of infringement proceedings […] there will need to be a close focus on the question whether the causal relationship between the threats and the damage is made good”. In this case, the infringement proceedings had commenced by the earliest date on which Coretell (on the trial judge’s findings) might have been able to troubleshoot and commercially launch the Camteq tool. That being the case, there were little to no hypothetical sales that had been foregone as a result of the threats.

In short, when addressing the question of damage the trial judge had failed to focus on what would have occurred but for the threats. In doing so, the Full Court held that the conclusions and damages award at first instance were founded on a counter-factual that was “glaringly improbable” and “contrary to compelling inferences”, and therefore were unsustainable.

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