Federal Court awards additional damages for patent infringement for the first time
The Federal Court has awarded additional damages under section 122(1A) of the Patents Act 1990 (Cth) as well as substantial compensatory damages for patent infringement against a supplier of window components and its sole director.
The case concerned an innovation patent for window winders. The respondents, Bernen Pty Ltd, admitted importing and selling window winders which fell within the scope of the claims of the patent. The infringing winders had been manufactured for the respondents by the same factory in China previously used by the Applicant to manufacture its patented products. The respondents had then supplied the infringing winders to the Applicant’s customer. Justice Pagone awarded compensatory damages totalling $355,487.16 and held that the flagrancy of the conduct also warranted an award of $40,000 in additional damages.
This is the first time that the Federal Court has awarded additional damages for patent infringement since section 122(1A) was introduced into the Patents Act in 2007.
Bernen admitted liability for patent infringement
The Applicant, Pacific Enterprises (Aust) Pty Ltd (Pacific) is the owner of an innovation patent for window winders (the casement winder patent). Pacific engaged a Chinese factory (Ningbo) to manufacture its patented winders which it supplied to A&L Windows Pty Ltd (A&L). The winders had been developed by Pacific to suit A&L’s specific casement windows.
The first respondent, Bernen Pty Ltd (Bernen), subsequently engaged Ningbo to manufacture winders which it began supplying to A&L. The second respondent, Robert Li, was the sole director of Bernen. Mr Li had previously been employed by Pacific as a marketing manager in contact with customers, including A&L.
Pacific sued Bernen and Mr Li for patent infringement. Bernen admitted infringing the casement winder patent by importing and supplying A&L with winders which included each of the claimed features. The admissions made by Mr Li established his liability for authorising Bernen’s infringing conduct.
Substantial compensatory patent infringement damages awarded to Pacific Enterprises
Justice Pagone considered Pacific’s claim for damages. His Honour noted that this generally requires an assessment by reference to a common sense causal link between the infringing conduct and the loss suffered.
Justice Pagone awarded compensatory damages totalling $355,487.16 under several heads as follows:
(i) $87,661 for lost sales during the period Bernen supplied components to A&L. This amount represented the profits which Pacific would have made on the sales which Bernen made to A&L, including the profits lost on sales of other components typically sold with the patented items.
(ii) $35,064.40 for lost sales from the date that Bernen ceased supplying A&L until the expiry of the patent. His Honour found that because Pacific had been the exclusive supplier of the components to A&L, it should be compensated for the sales which it could reasonably have expected to make during this period.
(iii) $19,351.65 for the cost of surplus stock held by Pacific which it was unable to sell because of the infringing conduct. His Honour held that because of Mr Li’s previous employment with Pacific, it was foreseeable by Mr Li that a consequence of the infringing conduct would be that Pacific was unable to sell its surplus stock to A&L.
(iv) $139,711.19 for the cost of retooling. As a result of the loss in confidence in the Chinese manufacturer, Pacific engaged a new manufacturer and had to reinvest in extensive new tooling. Again, the judge found that the retooling costs were a reasonably foreseeable result of Bernen and Mr Li’s conduct.
(v) $73,698.92 for additional costs incurred by Pacific in air freighting products. The need to engage a new manufacturer resulted in a delay to Pacific in obtaining stock and to deal with this delay, Pacific imported products by air freight rather than its usual method of sea freight. His Honour awarded damages to compensate Pacific for the difference between the cost of air and sea freight.
Additional damages to Pacific Enterprises for flagrant infringement
Pacific also claimed additional damages under s 122(1A) on the basis that the conduct was “an extreme example of flagrant infringement” and involved no attempt to design around Pacific’s patent rights. Justice Pagone agreed that the infringement was flagrant and warranted an award of additional damages. His Honour considered section 122(1A) and commented that:
The amount to be awarded under s122(1A) should be felt as a sanction by the person on whom it is imposed and should also act as a deterrent to others. Those objectives require consideration of the specific circumstances of each case and of each infringer. An amount which may be an effective sanction upon an infringer with limited means may be ineffective as a sanction or as a deterrent to a wealthy infringer or potential infringer.
His Honour noted the respondents would be ordered to pay $355,487.19 in compensatory damages as well as interest and costs, and that their economic gain from the infringing conduct was around $80,000 to $90,000. His Honour also commented that there was little evidence about the financial position of the respondents.
In considering the respondents’ conduct, Pagone J noted that the respondents had not persisted with the infringing conduct once put on notice, and had not sought to ‘cover up’ the infringing conduct. The respondents had made reasonable admissions in their pleadings and had given frank and reliable evidence concerning their sales.
His Honour held that the additional damages should be calculated by reference to the amount gained by the infringement, taking into account the quantum of compensatory damages. His Honour awarded additional damages of $40,000, representing about half the respondents’ assumed gain from the infringement.
Lessons for patentees regarding patent infringement
Justice Pagone’s decision is the first time the Federal Court has awarded additional damages under section 122(1A) for patent infringement. The decision shows that even in circumstances where substantial compensatory damages have been awarded, the Court may be willing to impose additional damages for flagrancy and to deter similar infringements. The judgment is useful in setting out the balancing exercise and the range of factors taken into account to determine the appropriate quantum of additional damages.
The favourable consideration of section 122(1A) by the Courts will be welcomed by patentees.