Intellectual Property Law Update – Enough with elections already

Intellectual Property
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Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd (No 3) [2022] FCA 596

Patent infringement – election between damages or an account of profits – evidence filed by applicant going to damages and by respondent going to account of profits – should applicant make election now or could it wait until evidence in answer on damages from the respondent?

Avid followers of this dispute will recall our recent report about Globaltech’s application to stay a hearing on the quantum of pecuniary relief it owed to AMC for patent infringement. Justice Besanko refused to do so. In this most recent part of the saga, Globaltech sought an order that AMC make its election between seeking damages or an account of profits for that patent infringement. AMC contended that it should only do so once it had seen Globaltech’s evidence in answer on damages. Justice Besanko agreed with AMC.

The relevant facts are as follows. AMC had succeeded in its patent infringement claim against Globaltech. That left for determination AMC’s claim for pecuniary relief. AMC has not yet made its election as to whether it will seek damages or an account of profits with respect to Globaltech’s infringing conduct. AMC had filed its evidence with respect to damages and Globaltech had filed its evidence with respect to an account of profits.

In terms of evidence, the remaining steps were for AMC to file its evidence with respect to an account of profits and Globaltech to file its evidence with respect to damages. Plainly enough, if AMC were forced to make its election before those steps, only one side would be required to file evidence, no doubt saving significant cost and time.

Justice Besanko set out four working principles espoused by Lindgren J in LED Builders Pty Ltd v Eagle Homes Pty Ltd (No 3) [1996] FCA 972; (1996) 70 FCR 436 at 447 as follows:

1. A party can apply for damages and an account of profits in the alternative, it can obtain judgment only for one or the other.

2. Once judgment has been entered for damages or for an account of profits, any right to elect for the other remedy is forever lost.

3. A party should, in general not be required to elect or be found to have elected between remedies unless and until it is able to make an informed choice. A right of election, if it is to be meaningful and not a mere gamble, must embrace the right to readily available information as to its likely entitlement in case of both the two alternative remedies. It is quite unreasonable to require the party to speculate totally in the dark as to whether or not the sum recoverable by way of damages will exceed that recoverable under an account of profits.

4. The exercise of the right of election must not be unreasonably delayed to the prejudice of the defendant.

Globaltech sought to make much of Lindgren J’s observation in LED Builders that “In the ordinary case, the owner of copyright or other intellectual property will be able to be adequately informed prior to the hearing, for the purpose of making its election, by the interlocutory procedures of discovery and, if appropriate, the administration of interrogatories, or by other means referred to in the cases discussed earlier.” Globaltech pointed out that, in the present case, there were no outstanding interlocutory procedures of that type in respect of the claim for pecuniary relief.

Globaltech also pointed out that, if it had to file evidence as to damages and AMC subsequently elected for an account of profits, that would involve unnecessary costs (and delay) contrary to parties’ obligations under sections 37M and 37N of the Federal Court of Australia Act 1976.

Nevertheless, Besanko J acceded to AMC’s contention that it was reasonable for it to be able to assess Globaltech’s evidence in answer on damages prior to making its election. AMC noted that Globaltech had foreshadowed up to six lay witnesses and an accounting expert report in its evidence on damages, and it wanted to consider that evidence so as to assess the merits of its own evidence.

Minds could credibly differ as to whether AMC in fact had sufficient information to make its election. However, it is not unheard-of for a plaintiff to only make its election just before hearing on pecuniary relief: see eg Gentry Homes Pty Limited v Diamond Homes Pty Limited (1993) AIPC 91-008, per Beazley J.

Indeed, Goldberg J in Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd [1997] FCA 505; (1997) 75 FCR 230 rejected Lindgren J’s view in LED Builders that a plaintiff must make an election well before the close of the hearing on pecuniary relief. Justice Goldberg held that “None of the cases referred to by His Honour in my respectful opinion support the proposition that the election cannot be made either at the conclusion of the evidence in an “all issues” hearing or in the second stage of a “split” hearing. … In my view, an applicant cannot be compelled to insist upon an election being made before the commencement of trial and, consistently with the cases to which I have referred, in my opinion the applicant is entitled to delay making an election at least until all the evidence is in”. Justice Mortimer in Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd [2016] FCA 610 at [33] described this as a “forensic right” of the party making the election.

Interestingly, Besanko J referred to Goldberg J’s decision in Dr Martens in an earlier dispute between the parties on the question of an election in Australian Mud Co Pty Ltd v Globaltech Corporation Pty Ltd [2020] FCA 1806, but not to Goldberg J’s reasoning above.

It may also be noted that AMC had previously said that it would be in a position to make an election upon receipt of information about the Globaltech’s revenue and deductions (which is the point at which an election is commonly given). However, His Honour was not troubled by that, noting the question of whether a party had sufficient information to make an election was an objective one – presumably Besanko J concluded that it did not matter that AMC held a subjective belief that it would have sufficient information at an earlier time and it could change its mind.

Justice Besanko’s decision accords with the view that it is not unreasonable for a party to delay making its election until, at least, all evidence is filed relevant to the election, and the view that the principles articulated in ss 37M and 37N do not provide valid reasons to deprive a party its forensic rights, merely because a delay in election will increase costs and time. However, that approach might be seen to be somewhat inconsistent with modern case management principles, and there is an argument that a party who has exhausted interlocutory steps, such as discovery, is well equipped to exercise its forensic rights to elect, even before it receives evidence, or equipped enough such that it should not put the other party to wasted costs.

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