Australia: The perils of communicating with customers about IP litigation - could you be making 'unjustified threats'?

Last Updated: 30 November 2016
Article by Lucy Hartland
Services: Dispute Resolution & Litigation, Intellectual Property & Technology

What you need to know

  • Business updates to customers about actual or pending litigation relating to intellectual property rights can sometimes include 'unjustified' or 'groundless' threats of infringement proceedings.
  • If a customer update is provided, it should be drafted with care to avoid any direct or indirect threat of infringement proceedings, and in particular, should avoid reference, whether direct or indirect, to the position or potential infringement position of customers.
  • "Reassuring statements" may suggest that an update can be more readily interpreted as a threat of infringement, since such reassurance would otherwise not be necessary.

When a business becomes involved in legal proceedings, there can sometimes be a temptation to communicate with customers and keep them informed about the progress of the litigation. The desire to reach out to customers can be particularly strong where the litigation is likely to attract the attention of mainstream media or become the subject of public commentary and criticism.

Care should always be exercised before issuing communications about any type of litigation, but this is especially critical when the litigation relates to intellectual property (IP) rights. This is because there are provisions in Australia's IP rights legislation which prohibit the making of 'unjustified' or 'groundless' threats of infringement. These terms have been interpreted quite broadly in the past, which means that it can be surprisingly easy to fall foul of the provisions. A simple email that a business might consider to be no more than an informative (and perhaps even helpful) update to customers may be enough to constitute an unjustified threat, exposing the business to liability it would not have expected.

Snapshot of 'unjustified threats' provisions

There are provisions in the Patents Act 1990, Copyright Act 1968, Trade Marks Act 1995 and Designs Act 2003 which expressly prohibit making 'unjustified' (sometimes called 'groundless') threats of infringement.1

The precise terms of the prohibitions vary from Act to Act, but they all relate to a threat to commence legal proceedings for the infringement of a relevant IP right (that is, a patent, a work protected by copyright, a registered trade mark or a registered design).

A person aggrieved by an unjustified threat can apply to a court for relief, including an injunction to prevent any further unjustified threats and an award of damages for loss suffered as a result of the threat. Persons may be aggrieved by a threat made to them. They may also be aggrieved by threats made to third parties, for example, where there is a communication made by an IP rights holder to a customer of an alleged infringer, because this may harm the alleged infringer's commercial interests.

Although it is not a threat to merely notify someone of the existence of an IP right, the context in which that notification is given is important, as this may suggest the communication was, in the circumstances, a threat.

When communicating with customers can amount to 'unjustified threats' - a recent example

Earlier this year, the Federal Court of Australia considered a case which demonstrates the problems that can arise when a business communicates with customers about alleged patent infringement.

In CQMS Pty Ltd v Bradken Resources Pty Limited [2016] FCA 847 the applicants (CQMS) had commenced proceedings against the respondents (Bradken) for infringement of patents relating to the mounting of wear members to earth excavating devices. CQMS was unsuccessful in its claims, with Justice Dowsett finding that the patents had not been infringed.

Bradken alleged that CQMS had made unjustified threats of patent infringement in a number of communications, two of which involved emails to customers.

The first email was sent on 6 November 2013, the day that CQMS commenced infringement proceedings against Bradken. This email included the statement that:

By selling certain components of the Penetrator Max products to its customers to be used as GET,2 [Bradken] has infringed, and authorised the infringement of, the patents. However, CQMS' dispute is with [Bradken] not with the customers who use the GET.

Although CQMS said this email was sent to its own customers, Justice Dowsett noted that, given "the limited number of suppliers, the customers of one supplier would be potential customers of the others".4 Justice Dowsett observed that by referring to infringements 'authorised' by Bradken, the email would inevitably raise in customers' minds the issue of their own potential liability. In Justice Dowsett's view, the fact that the email offered reassurance (through the statement that CQMS' dispute was with Bradken and not with customers) tended to support the view that the email could be regarded as a threat and would cause customers to wonder why the email had been sent. Dowsett J considered that "[at] the very least, that customer would conclude that any future acquisition of one of the respondents' products would be risky".4 On that basis, Justice Dowsett held that the 6 November 2013 email was a threat to customers.

The second email to customers was dated 8 September 2014 and headed 'Notice of Federal Court Proceedings'. In providing a status update on the proceedings, the email included the following passages:

CQMS Razer's patent infringement case against Bradken is progressing to Trial. Potential infringement by Bradken's customers of the CQMS RAZER Wedgelock Patents
...
[CQMS]'s claim of patent infringement against [Bradken] is in part, based on [Bradken] supplying product to their customers whereby those customers' use of that product results in [Bradken]'s customers infringing [CQMS]'s patent rights. You may have been unaware of this if you have purchased the [particular] GET assemblies from [Bradken]
...
[CQMS]' ... has not made a claim against any other party other than [Bradken]. However, if a Court agrees with [CQMS]'s position and find that the Wedgelock Patents have been infringed, then [CQMS]' will consider further action.

Justice Dowsett noted that although the communication was ostensibly addressed to CQMS' customers, it was clear that it was also addressed to Bradken's customers, which was made plain by the reference to products "you have purchased". There was a clear threat of future action against customers in the event that CQMS was successful in its patent infringement proceedings.

As result of these findings and the failure of the patent infringement proceedings, Bradken's claim for unjustified threats was successful.

Key takeaways

A finding that a business has made unjustified or groundless threats of infringement against customers is undesirable. In addition to liability for damages as a result of the threats, the business may also suffer reputational damage.

Care must be exercised when drafting communications and updates to customers about anticipated or current proceedings relating to IP rights. In particular, it is critical to:

  • carefully consider the necessity and motivation for such communications, in light of the risks involved
  • avoid any references, whether direct or indirect, to the position of customers in the context of the litigation.

Ultimately, the safest approach for any business involved in IP rights litigation is to seek advice before issuing any form of consumer communications about the litigation.

Footnotes

1 See Patents Act 1990, s 128; Copyright Act 1968, s 202 (among others); Trade Marks Act 1995, s 129; Designs Act 2003, s 177. These are the key provisions but where other IP legislation is concerned, the position should be confirmed

2 'GET' is a reference to 'Ground Excavating Tools', being parts used for excavators, and the use of the Penetrator Max was alleged to infringe the patents in suit.

3 At [169].

4 At [170].

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

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