An International Guide to
Patent Case Management for Judges

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2.7.2 Separation of quantum and liability

It is common in patent infringement proceedings for liability to be heard and determined before considering the quantum of pecuniary relief. This is because parties often agree, and the court considers it appropriate, for questions of liability (i.e., infringement and validity issues) to be heard and determined as a separate and preliminary question prior to any hearing on quantum of pecuniary relief.113

Due to this bifurcation of liability and quantum, and as a matter of commercial practicalities and convenience, issues relating to pecuniary relief are often resolved inter partes after the liability judgment has been given and any appeals have been determined, and before the hearing on pecuniary relief.

A patentee must elect pecuniary relief in the way of either damages or an account of profits: a patentee cannot choose both damages and an account of profits. Discovery can also be sought and obtained following a finding of patent infringement to assist the patentee in making the election. An infringer can also be ordered to provide an affidavit or audited accounts with respect to its infringing sales or profits. Damages

Damages is a common law remedy, and damages for patent infringement are awarded according to the ordinary principles relevant to tort law. The rationale for an award of damages in patent infringement is to restore the patentee as much as reasonably possible to the position as if the infringement had not occurred. Damages should be assessed liberally and to the best possible approximation. However, a patentee must first demonstrate the requisite threshold elements of causation and reasonable foreseeability in accordance with common law.

The Federal Court of Australia has recognized that there are a number of different ways to calculate damages for patent infringement, including on a “lost sales” basis, using a “reasonable license fee,” or a “user principle” basis, depending on the facts of the particular case. Further, provided foreseeability and causation are demonstrated, damages for patent infringement can also be claimed for the loss of goods that commonly would have been sold with the patented goods, springboarding or on other grounds.

Damages may also attract interest under Section 51A of the Federal Court of Australia Act 1976 (Cth). Lost sales

The “lost sales” methodology is often used where the patentee has exploited the patent by manufacturing, production or direct sales, and the infringer is a competitor in the relevant market. However, the onus is on the patentee to show that the relevant sales are actually “lost.” This can be problematic for certain patentees: often, the sale of an infringing item does not (without more) equate to one unit of a lost sale for the patentee. Relatedly, the patentee may also need to prove that the patentee could have satisfied the additional demand and would have made a profit on that sale. Reasonable license fee

Conversely, a “reasonable license fee” approach is generally employed by a patentee who exploits a patent through licensing to others. In implementing this methodology, the appropriate measure of damages is considered to be the determination of a license fee, either as would have been agreed to by the patentee or on a notional basis. Again, the onus is on the patentee to demonstrate the amount of a reasonable license fee. “User principle” basis

The “user principle” basis of damages is where a successful patentee can recover a reasonable sum of damages from an infringer who has wrongfully “used” the patentee’s property, even, for example, where the evidence is that the patentee would not have granted a license at all, or if it cannot be shown that the patentee has suffered an actual loss. Using the “user principle” methodology, the quantum of damages is often determined by assessing the amount the infringer would have had to pay for the “use” of the patent, for example, by way of a notional license fee. Account of profits

An account of profits requires an infringer to account for and disgorge the profits it made through the infringing conduct. As an account of profits is an equitable remedy, equitable considerations apply, including knowledge of wrongful conduct on the part of the infringer and equitable defenses such as estoppel, laches, acquiescence and delay.

An account of profits is generally calculated by taking the revenue made by the infringer and subtracting any reasonable costs expended that are attributable to the infringing sales, such as costs in respect of manufacturing, marketing and distribution.

Further, if the patent in issue is for a product that is a single component within a larger product (e.g., a SIM card inside a smartphone), a court may require an apportionment of the profits to take into account there being a large proportion of non-infringing parts within the relevant article. This analysis will also depend on whether the infringing part is considered an “essential part” of the article. Additional damages

Where a patentee has elected to seek damages for patent infringement, the court also has the discretion to include an “additional amount in the assessment of damages” if it considers it appropriate to do so.114 Importantly, there is no requirement for any proportionality or relationship between the amount of actual damages awarded and the quantum of any “additional damages.” Relatedly, there is no limit to the quantum of additional damages prescribed by the Patents Act or accompanying regulations. Discovery can also be ordered if considered by the court to be relevant to the additional damages claim.

Section 122(1A) of the Act relevantly sets out the factors that a court can “have regard to” if the court “considers it appropriate to do so.” Importantly, these factors are nonlimiting and include:

  1. (a) the flagrancy of the infringement; and
  2. (b) the need to deter similar infringements of patents; and
  3. (c) the conduct of the party that infringed the patent that occurred:

    1. (i) after the act constituting the infringement; or
    2. (ii) after that party was informed that it had allegedly infringed the patent; and
  4. (d) any benefit shown to have accrued to that party because of the infringement; and
  5. (e) all other relevant matters.

The last criterion – namely, “all other relevant matters” – has been construed to allow parties to seek to rely on a variety of conduct in seeking an award for additional damages.115

Additionally, more than mere “copying” is required to enliven the application of Section 122(1A), as the purpose of the additional damages regime is to award such damages in cases of wilful infringement of a patent. For example, it is considered not to be a “flagrant” or illegitimate act for a potential competitor to attempt to “work around” a particular patent.

Further, the Federal Court of Australia has found that the fact that an infringer possessed a reasonably arguable belief that the relevant patent was invalid or not infringed is an important factor tending against an award of additional damages. This is so, even if those non-infringement or invalidity defenses are ultimately unsuccessful at trial.116