PATENT INFRINGEMENT: WHEN IS A WARNING A THREAT?

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.

This relief may be in the form of

a) A declaration that the threats are unjustifiable;
b) An injunction against the continuance of the threats; or
c) 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.

In Tapley (HL) & Co Ltd v White Star Products Ltd [1957], North J held that groundless threats can be made orally, and it is immaterial that the threats were made in a bona fide manner if the allegations are not upheld.

Mere notification of the existence of a patent will not constitute a threat of proceedings however, in U&I Global Trading (Australia) Pty Ltd v Tasman-Warajay Pty Ltd (1995), Cooper J held that a threat, made prior to grant, of infringement proceedings after grant may be a threat for the purposes of the equivalent section in the Australian Act.

In JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (2005), Creman J identified the following propositions emerging from the equivalent Australian section;

• "The aggrieved party must first establish the making of a threat. The threat must be made in Australia (in that it must be received in Australia) and relate to an Australian patent.
• 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. A threat may 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.
• A threat can be made by means of a letter from a legal representative."

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.

The unjustified threats provision of the Patents Act opens the door for alleged infringers to claim substantial damages as a result of unfair or 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 relevant design registration was still under examination and the owner was not entitled to sue for infringement.

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.

By Ian Finch, Partner