On 1 August 2011 Justice Bennett handed down her decision in Zetco Pty Ltd v Austworld Commodities Pty Ltd (No 2)  FCA 848, a case in which “additional” (or punitive) damages were considered for the first time in the context of patents in Australia.
Until 2006, when additional damages were introduced into the Australian Patents Act 1990, damages available to a successful patentee were limited either to an assessment of actual damage caused to the patentee, or to an assessment of the “extra” profit derived by the infringer from their infringing activity. As a sub-class of the first type (i.e. as one method of assessing the “actual damage” suffered), an award based on a “reasonable royalty” calculation could be made. A reasonable royalty is based on a theoretical consideration of what royalty rate might have been negotiated between reasonable parties had the infringer approached the patentee instead of carrying out their infringing acts, and had the patentee been a willing licensor. In practice, reasonable royalties are rarely determined in court as the calculations can become more complex than the patent trial itself. Usually, if infringement is found the outcome is an injunction (i.e. an interdict) and a negotiated settlement between the parties.
In determining actual damages, the Court seeks to put the plaintiff proprietor in the position that it would have been in had the infringement not occurred. If the plaintiff has suffered no loss or damage, then it will not be awarded any damages, notwithstanding the defendant’s infringing conduct. This is the compensation principle, and is to be contrasted with an account of profits (the “extra” profit mentioned above), where the defendant’s gain is ordered to be paid to the plaintiff regardless of the extent of loss or damage suffered by the plaintiff.
The compensation principle also stands in contrast to the principle of additional damages, otherwise known as exemplary, punitive or flagrancy damages. “Exemplary or punitive damages are a powerful remedy. They are designed to punish the wrongdoer, act as a deterrent and discourage the victim from seeking revenge by taking the law into their own hands. They bear no necessary proportionality to the usual compensatory damages and, if awarded, the amount should ‘sting’.” (Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at  per Dyson JA).
In September 2006 Australia amended its Patents Act 1990 to include a provision for “additional damages” to be awarded at the court’s discretion, having regard to the conduct of the parties and the surrounding circustances.
Section 122(1A) is the relevant section of the Patents Act 1990, and it provides as follows:
“122(1A) A court may include an additional amount in an assessment of damages for an infringement of a patent, if the court considers it appropriate to do so having regard to:
(a) the flagrancy of the infringement; and
(b) the need to deter similar infringements of patents; and
(c) the conduct of the party that infringed the patent that occurred:
(i) after the act constituting the infringement; or
(ii) after that party was informed that it had allegedly infringed the patent; and
(d) any benefit shown to have accrued to that party because of theinfringement; and
(e) all other relevant matters.”
The Zetco case, supra, gave guidance on interpretation of Section 122(1A). Additional damages were not awarded in the case. Justice Bennett stated that “unsuccessful defence of invalidity is not of itself sufficient to warrant the award of additional damages.” However, the decision suggests that, where a defence of invalidity is hopelessly or improperly pursued and infringing conduct continues despite knowledge of asserted patent infringement, a case may be made for an award of additional damages. A further principle established by the Zetco case is that evidence of copying, of itself, is insufficient to justify an award for additional damages although deliberate copying may be relevant.
In general, what limited case law there is on additional damages suggests that the courts will reluctant to award this class of damages unless there is a real justification for them.
With thanks to Mr Adam Hyland of FrankeHyland, Australia, and to Mr Graeme S Clarke SC (for his June 2011 article entitled “Damages for Patent, Design and Trade Mark Infringement.”).
For further information please contact Mr Rory Moore of Moore Intellectual Property.
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