In brief

• In Oxworks Trading Pty Ltd v Gram Engineering Pty Ltd [2019] FCAFC 240, Oxworks successfully overturned the trial judge’s decision to award Gram additional damages for patent infringement under section 122(1A) of the Patents Act 1990 (Cth).
• The Full Court’s judgment provides useful guidance on what constitutes “flagrant” infringement, which suggests that additional damages will only be awarded in rare circumstances.
• Knowledge of a patent and continuing to market a product after a cease and desist letter will not generally be regarded as justifying additional damages if there are objectively reasonable non-infringement or invalidity arguments.

Background

Section 122(1A) of the Patents Act 1990 (Cth) provides that a court may award additional damages for infringement of a patent if the court considers it appropriate to do so, having regard to:

• the flagrancy of the infringement
• the need to deter similar infringements
• the conduct of the infringer after the infringement occurred, or after the allegation of infringement was made
• any benefit shown to have accrued to the infringer because of the infringement
• all other relevant matters.

The purpose of this section is to provide a deterrent to ‘wilful infringement’, such as where a party obtains legal advice that its conduct would amount to infringement of a patent but nonetheless undertakes the infringing conduct.

Since the provision was introduced in 2007, additional damages have been awarded in only one case, Pacific Enterprises (AUST) Pty Ltd v Bernen Pty Ltd [2014] FCA 1372.

The first instance decision

At first instance,^[1] Robertson J found that Oxworks Pty Ltd (Oxworks) had infringed the patent of Gram Engineering Pty Ltd (Gram).

In awarding additional damages for flagrant patent infringement, Robertson J took into account the following circumstances:

• it was probable that Oxworks was aware of the patent because it was twice provided with advertising material which expressly referred to the patent
• it was probable that the CEO of Oxworks had knowledge of the patent as, in correspondence to a potential manufacturer, he sent links to Gram’s website which at the relevant time referred to the patent and had a brochure of the product stating that the product was patented
• the CEO of Oxworks was present and available to give evidence to displace the inference that he had knowledge of the patent, but failed to do so
• Oxworks had purchased considerable quantities of Gram’s product over a period of 10 years
• Oxworks deliberately copied Gram’s patented product and each stage of the development of Oxworks’ product was approved by the CEO (or another employee or officer of Oxworks)
• Oxworks received a cease and desist letter referring to the patent but continued to sell the allegedly infringing product.

The Full Court decision

Oxworks appealed to the Full Court on the basis that the primary judge erred:

1. by failing to consider or take into account the objective reasonableness of Oxworks’ views about the strength of its defence to infringement
2. by focussing on the ‘flagrancy’ of the infringement without due regard to the other factors set out in s 122(1A).

Oxworks was successful on the first ground. The Full Court found that Oxworks’ defence to infringement based on its construction of the claims of the patent, as evidenced in Oxworks’ response to Gram’s letter of demand, was reasonable and arguable. This was a "material consideration to the exercise of the discretion" and one to which the primary judge had failed to turn his mind.

The Full Court explained that while Oxworks copied Gram’s product, more than copying is required to enliven section 122(1A):
A competitor may take the patent, examine the scope of the claims, and endeavour to produce something that does not fall within them. Often infringement cases are determined by having regard to contestable constructions of the claims. The fact that an alleged infringer fails to defend its reasonably arguable view as to the correct constructions of the claim, and continues to produce infringing products in the face of that view, may result in an award for damages, but would not of itself trigger an entitlement to additional damages within s 122(1A) of the Patents Act.
The Full Court held that a reasonably arguable non-infringement contention weighed heavily against the award of additional damages, and overturned the finding of entitlement to additional damages. In doing so, the Full Court stressed:

1. the important public policy rationale for the requirements that a patent specification describe the invention fully, including the best method known, to give the world access to the technical contribution to the field provided by the patentee
2. the purpose of the claims of the patent, to define clearly and with precision the monopoly claimed, so that others may know the exact boundaries of the monopoly.

As to the second ground, the Full Court confirmed that s 122(1A) required only consideration of, not explicit findings in respect of, each of the factors appearing in the provision. While additional damages may be awarded based solely on a finding of flagrancy, the other factors must be considered in arriving at such a conclusion.

Key lessons

The Full Court’s decision makes clear that additional damages ought not be awarded where a party has knowledge of a patent but believes, on an objectively reasonable basis, that its conduct does not infringe the patent.

As in the ordinary usage, the word ‘flagrant’ connotes conduct that could be described as "glaring, notorious, scandalous". Mere copying of a patented product or attempting to work around the claims of a patent is insufficient. In this regard, the Full Court cited with approval earlier first instance decisions of the Federal Court refusing to award additional damages where objectively reasonable invalidity arguments were raised.

The decision gives effect to the stated legislative intent, that the provision allowing additional damages should be introduced as a deterrent, to give the courts the power to award exemplary damages in cases of ‘wilful infringement’.

The decision should be welcomed by those working in any number of research areas involving complex patent landscapes, including medical device developers, generics and biosimilars developers looking to bring products to market in Australia.

This article was published in Edition 1 of The Prescription.

^[1]Gram Engineering Pty Ltd v Oxworks Pty Ltd [2019] FCA 689.