Parties alleging infringement of their patent rights need to be careful to avoid the operation of section 74 of the New Zealand Patents Act 1953.
Under section 74, when an aggrieved person is threatened by another person with proceedings for infringement of a patent, and those threats are unjustified, the aggrieved person may be entitled to a number of different forms of relief, including:
a) a declaration that the threats are unjustifiable;
b) an injunction against the continuance of the threats;
or
c) (most importantly) damages suffered as a result of the
threats.
If the threatening party can prove that the acts in respect of
which proceedings were threatened constitute an infringement of
the patent, then no relief will be available under this
section. Accordingly, the converse also applies – a
threat will be unjustified if the acts the subject of the
threat do not amount to an infringement. It is immaterial that
the threats were made in a bona fide manner if the allegations
are not upheld: Tapley (HL) & Co Ltd v White Star
Products Ltd [1957] NZLR 612.
So when is a warning a threat for the purposes of the section?
The starting point is the section itself which states that the mere notification of the existence of a patent does will not constitute a threat of proceedings. Further guidance can be found in the case law which has established:
- A threat arises where the language, by direct words or implication, conveys to a reasonable person that the author of the letter intends to bring infringement proceedings against the person said to be threatened.
- The meaning of an alleged threat is to be decided in accordance with the understanding of an ordinary recipient in the position of the applicant reading the letter in the normal course of business. The recipient's understanding of the alleged threat can therefore be relevant to its interpretation.
- A threat can be made by means of a letter from a legal representative, but may also arise without a direct reference to infringement proceedings.
- However, a communication merely notifying a person of the existence of a patent or a patent application, together with a statement that any suggestion that the recipient is entitled to replicate the invention is not maintainable, or a communication seeking confirmation that no improper or wrongful use or infringement of the patent has come to the recipient's attention, is not a threat: JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (2005) 67 IPR 68; and
- A threat, made prior to grant, of infringement proceedings after grant may be a threat for the purposes of the section: U&I Global Trading (Australia) Pty Ltd v Tasman-Warajay Pty Ltd (1995) 60 FCR 26
Of course to be liable for more than nominal damages, the recipient must also have altered his or her position in reliance on the threat – the most common scenario being curtailing sales of an alleged infringing product following receipt of the threat.
The unjustified threats provision of the Patents Act opens the door for recipients to claim substantial damages as a result of unsupported allegations of infringement. In a recent Australian designs case World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd [2007] FCA 114, the Federal Court awarded AUD$213,059.96 in damages to an alleged infringer which removed a product from sale after receiving a letter threatening design infringement. At the time the letter was received the owner was not entitled to sue for infringement because the design registration was still under examination.
Given the broad ranging remedies available to a recipient of a groundless threat of infringement, a counterclaim should always be considered by any defendant to patent infringement proceedings, and patentees should be wary of initiating correspondence without first obtaining a sound opinion as to the case for infringement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
