Additional Damages for flagrant unjustified threats – the art of finesse

We get it – you’ve spent lots of time building your brand, your ideas, your designs. You’ve also spent money registering trade marks, patenting your inventions and protecting your intellectual property. Your IP is fundamental to the continued success of your business. So, if you think someone is trying to use your brand or your ideas without permission, you want to do everything possible to stop them.

There are different ways you can try to put an end to potential infringement of your intellectual property. The first course of action is usually to send the infringers a ‘cease and desist letter’, setting out that you own certain IP rights which the other party has infringed, and if they don’t stop or don’t pay, you’ll take them to court.

However, under the Patents Act, Designs Act and Trade Marks Act, a business may take legal action against another if they feel they’ve been unjustifiably threatened with IP infringement proceedings. We've written an article on this before which explores what constitutes an unjustified threat in more detail (link here).

In this article, we look at new laws which will allow courts to penalise businesses in cases where a business threatens to take another to court for infringing their IP rights, but does so without justification, without doing their research, obviously for their own benefit and without regard to the detriment to the other person or business they threatened.

We admit that, sometimes, as lawyers, we might get excited by certain legal developments that others in the real world might not find all that interesting. But we promise, this article deals with an important legal development for any IP rights owners. It is especially important for businesses which have had some experience with IP infringement in the past. It is now more important than ever to do your research and make sure you’re in the right before going after a potential infringer, otherwise you could be in for a hefty penalty.

How are damages for unjustified threats changing?

A new piece of legislation came into force on 24 August this year called The Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Act 2018. We agree with you, the title is dreadfully boring. Despite the unremarkable title, the Act packs a punch by giving courts a considerable discretion to award additional damages against businesses for flagrant unjustified threats of patent, design or trade mark infringement proceedings. 

What in the name of The Intellectual Property Laws blah blah blah Act is a ‘flagrant unjustified threat of patent, design or trade mark infringement proceedings’? Don’t worry, we’ll explain further down – before we do that, it's helpful to understand why these laws are being introduced.

Why are additional damages being introduced?

For some time now, courts have been able to award additional damages for the flagrant infringement of a patent, registered trade mark or registered design. ‘Flagrant’ infringement usually involves some glaringly obvious bad faith behaviour, such as continued infringement even after being made aware of the owners’ rights in the IP. These additional damages laws for flagrant infringement are aimed at furthering public interest by deterring potential infringers from wilfully and knowingly infringing the IP rights of another person or business.

Lawmakers have now introduced a similar discretion to award additional damages against those who flagrantly and unjustifiably threaten another person or business with court action for IP infringement. The previous level of damages for unjustified threats of infringement proceedings may have been insufficient to deal with some threateners that might take advantage of their size and position to scare off competition from smaller fish by unjustifiably threatening to take them to court. The considerable benefit that a well-resourced business may gain from making an unjustified threat could potentially far outweigh the usual cost of compensatory damages that could be awarded to the threatened party.

These IP law amendments are consistent with recent legislative public policy initiatives. Over the last few years there have been a number of changes across consumer law and unfair business practices which have been specifically aimed at addressing the exploitation by larger, well-resourced businesses of the imbalance in negotiating power with smaller, less established businesses. The extension of the Unfair Contracts Regime under the Australian Consumer Law to small businesses is a good example of this public policy shift.

When is a threat flagrant?

The word ‘flagrant’ comes from the Latin flāgrāre which means ‘to burn’ or ‘blazing’. While the young people we know assure us that in modern vernacular, if something is ‘fire’, it's a good thing (this song is fire, those shoes are fire, etc), in the context of IP infringement if your conduct is so bad that it is ‘blazing’, that is definitely not a good thing.

Lawmakers have expressed that the new provisions for flagrant unjustified threats will operate in the same way as the provisions for additional damages for flagrant infringement. In relation to flagrant infringement, this was dealt with in the Full Court matter of Raben Footwear Pty Limited v Polygram Records Inc (1997) 75 FCR 88. In that matter, the Judge, Tamberlain J said that “in ordinary usage flagrancy connotes, amongst other things, glaring or blatant conduct” and that flagrant infringement showed “a calculated disregard of the copyright owner’s rights or cynical pursuit of benefits”.

While there has been no definitive list of conduct which constitutes a flagrant infringement (or a flagrant unjustified threat), what can be seen is that an award of damages is entirely discretionary. The court will look at the individual facts of each case in order to determine whether the conduct was flagrant or not. With that in mind, you should always think twice (and perhaps obtain advice) before ‘shooting from the hip’ with a rapid fire cease and desist letter.

Assessment of damages

In assessing whether or not additional damages should be awarded, the court will consider all relevant matters including the flagrancy of the threats, the need to deter similar threats and the conduct of the threatener after the threats occurred.

Additional damages can prove to be quite an effective deterrent. In a recent case that considered flagrant infringement of a trade mark, the court awarded the aggrieved party a meagre $10 in compensatory damages but added a considerable $91,015 in additional damages. As set out above, the assessment of additional damages for flagrant unjustified threats will likely have similar application.

The art of finesse

In our opinion, to avoid flagrant unjustified threats, businesses should cultivate and utilise the art of finesse. By approaching IP enforcement with finesse, a business should avoid any potential liability in relation to unjustified threats. Below are some examples:

The lawmakers appear to be on board with the finesse approach, as they are also amending the Trade Marks Act to clarify that merely notifying someone of the existence of a registered trade mark does not constitute a threat of court action for IP infringement.

The art of finesse can also be helpful when applied to other everyday situations. Here are some examples:

These new laws are set to come into force soon (no later than 24 February 2019). Businesses must be wary that their conduct during and after threats of infringement proceedings will be taken into account when considering whether or not to award additional damages. Both threateners and threatened parties should seek legal advice as soon as possible after an alleged infringement.

Authors: Adam Cutri and Puria Davoodi

Further contacts: Michael Cossetto and Gavin Stuart