Court refuses amendment resisting account of profits claim for patent infringement

Court refuses amendment resisting account of profits claim for patent infringement

Court refuses amendment resisting account of profits claim for patent infringement

Case note on Aristocrat Technologies Australia Pty Limited v Konami Australia Pty Limited (No 2) [2019] FCA 1701

Typically in patent litigation, the issues of infringement and validity (“liability”) are decided first, and separately from, the issue of pecuniary relief for any infringement (“quantum”).  If liability is established, the parties often then reach a settlement in relation to quantum, rather than proceeding to a further court hearing in which damages or an account of profits are assessed.  Indeed, there are a limited number of reported decisions concerning the quantum phase of patent infringement cases, and in particular, there is limited judicial commentary about the award of an account of profits for patent infringement.

Helpfully, the recent judgment in Aristocrat Technologies Australia Pty Limited v Konami Australia Pty Limited (No 2) [2019] FCA 1701 discusses the award of an account of profits in a patent infringement case.

Limiting an account of profits claim

In these proceedings, the patentee Aristocrat Technologies Australia Pty Limited (Aristocrat) established that Konami Australia Pty Limited (Konami) infringed its patent.  Aristocrat then sought an account of profits in respect of some infringements and damages in relation to other infringements.

Relief for infringement (of standard patents) is available from the date on which a patent becomes open for public inspection (pursuant to section 57 of the Patents Act 1990 (Cth) (the Patents Act)).  However, that time period may be limited by section 123 of the Patents Act, which specifies that in instances of ‘innocent infringement’:

  • A court may refuse to award damages, or to make an order for an account of profits, in respect of an infringement of a patent if the defendant satisfies the court that, at the date of the infringement, the defendant was not aware, and had no reason to believe, that a patent for the invention existed.
  • If patented products, marked so as to indicate that they are patented in Australia, were sold or used in the patent area to a substantial extent before the date of the infringement, the defendant is to be taken to have been aware of the existence of the patent unless the contrary is established.
  • Nothing in this section affects a court’s power to grant relief by way of an injunction.

In this case, Konami could not rely on the innocent infringement provisions available under section 123, because Konami knew about the existence of Aristocrat’s patent at all material times during its infringing conduct.  Instead, on the second day of the quantum trial, Konami sought to amend its Defence to plead a new basis for limiting Aristocrat’s account of profits claim, relying on general law principles that:

  1. equity requires only the profits knowingly made by reason of the infringement to be disgorged because it would be unconscionable for the infringer to keep them; and
  2. it lies upon a plaintiff who seeks an account of profits to establish that profits were made by the defendant knowing that he was transgressing the plaintiff’s rights.

Konami argued that Aristocrat bore the onus of establishing the time at which Konami knowingly infringed the patent, and that (based on the material before the court) Aristocrat could only establish that this time ran from when Aristocrat wrote to Konami asserting infringement.  In other words, notice of the allegation of infringement was the relevant criterion of liability. 

Konami’s new argument is in contrast to the position in section 123(1) of the Patents Act, where the infringer bears the onus of establishing that, during at least some of the infringing conduct, it was an ‘innocent infringer’ and thus should not pay damages or an account of profits for infringements occurring during that ‘innocent’ time

Late amendment refused

Konami explained that its new argument, based on general law principles, had occurred to the legal team relatively late in preparation for the quantum trial; it was raised for the first time in the written submissions filed shortly before trial (and then orally at trial), but not earlier. 

Unsurprisingly, Aristocrat resisted Konami’s (late) argument, at least because:

  • Konami’s infringing conduct began a number of years before Aristocrat put Konami on notice of its infringement claim, and Aristocrat was seeking an account of profits from the time the infringements began;

  • to fully respond to Konami’s argument, Aristocrat would need to be allowed to investigate (for example, through discovery) Konami’s state of knowledge from the time the infringing conduct began, up until the time when Aristocrat gave Konami notice of its infringement claim. This would result in the trial being adjourned for as long as perhaps 8–12 months; 

  • there was ample time during the quantum proceeding for Konami to have already raised the argument; and

  • the argument was weak at law.

Justice Nicholas agreed with Aristocrat and refused to consider Konami’s (late) amendment to argue that account of profits could only run from the time when Aristocrat gave notice of its allegation of infringement.  His Honour recognised that there were considerable difficulties with Konami’s argument, commenting (at [16]) that:

There is a strong argument that the general law principle applied by Windeyer J in Colbeam does not apply in respect of a claim for an account of profits under the Patents Act given the presence of s 123. Section 123 may well be understood to displace the operation of any more general principle particularly with regard to the knowledge requirement and the onus of proof. However, for the purposes of determining the present application it is unnecessary for me to decide these matters.

(As his Honour observed (at [14]), Colbeam was a case where the plaintiff was sued under the Trade Marks Act 1955 (Cth) which, like the Trade Marks Act 1995 (Cth), did not include any provision analogous to section 123 of the Patents Act.)

Given Justice Nicholas’ comments, it remains open for parties in future cases to assert, perhaps with some caution, that under general law principles, the patentee bears the onus of establishing when the infringer became aware of the infringement, with the consequence that any account of profits might run only from the time at which the patentee gives the infringer notice of its infringement allegation.  

We have previously written here about late amendments to pleadings which have been refused by the Federal Court.  The decision is another useful example of the circumstances in which a party will not be allowed to amend its case, following the High Court seminal case Aon Risk Services Australia Limited v Australian National University [2009] HCA 27, which concluded that there is a limit to a litigant’s ability to make late changes to its case.

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