Indirect patent infringement: The IP risk small business may not see coming:

This blog was authored by Jaimie Wolbers(Opens in a new tab/window), Senior Associate and Simone Mitchell(Opens in a new tab/window), Partner at MinterEllison(Opens in a new tab/window). The views expressed do not necessarily reflect the views or position of IP Australia, and should not be taken as constituting advice(Opens in a new tab/window). If you require guidance specific to your situation, you should consider seeking professional advice.

In Australia, patent rights are valuable intellectual property rights that provide the owner of a patent with the exclusive right to "exploit" the invention subject of the patent. But what does it mean to ‘exploit’ an invention?

Where the invention is a product, the concept of "exploit" includes:

• making the product

• hiring or leasing the product

• selling the product, or otherwise disposing of the product – including giving it away for free 

• offering to make, hire, sell or dispose of the product

• using or importing the product

• keeping the product to do any of the above activities.

Where the invention is a method or process, the concept of "exploit" includes:

• using the method or process, or

• where a product is created from the method or process, doing any of the acts that would exploit that product.

A person will directly infringe a patent, if they exploit the patented invention, without the licence or permission of the patent owner (who is often referred to as the "patentee"). This is what you might typically think about in the context of patent infringement – an original product is protected by one or more patents, and a third party produces and starts to promote or sell a counterfeit, generic or "dupe" version of that product.

It is also possible to "indirectly" infringe a patent (often referred to as contributory infringement). 

Section 117 of the Patents Act 1990 (Cth) provides:

Infringement by supply of products
   (1) If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent.
  (2) A reference in subsection (1) to the use of a product by a person is a reference to:
       (a) if the product is capable of only one reasonable use, having regard to its nature or design—that use; or
       (b) if the product is not a staple commercial product—any use of the product, if the supplier had reason to believe that the person would put it to that use; or
       (c) in any case—the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.

Section 117 creates liability for the manufacturer or supplier of a product in circumstances where the recipient of the product (e.g. the customer) is the person who is directly infringing the patent. Some of the scenarios where indirect infringement may play out are explored below. 

Real world examples of indirect infringement 

Claims of indirect infringement are often relied on by companies in the pharmaceutical sector who hold patents that claim a specific use of a pharmaceutical product (e.g. use of medicine X to treat condition Y). 

Section 117 of the Patents Act makes it possible for the patentee to commence proceedings against;

• manufacturers,

• wholesalers who sell the products to pharmacies, 

• sponsors, who take on the regulatory responsibilities for supplying pharmaceutical product in Australia and/or

• pharmacists who sell the products to customer

Each of these parties could potentially be liable for indirect infringement of a patent where either the instructions for use specifically direct that the product be used in an infringing manner, or there is reason to believe the product will be put to the infringing use (e.g. because of the way it has been promoted).

In the case of Beadcrete Pty Ltd v Fei Yu trading as Jewels 4 Pools (No 3)¹, a supplier of a glass aggregate product used in pool linings was found to have infringed a patent that claimed a structure with a particular reflective surface finish, achieved through the use of particular materials (including glass beads of a certain size). The Court found that the supplier had reason to believe their product would be put to an infringing use and that the instructions for use also directed customers to an infringing use of the product. These findings were not disturbed on appeal.

Other instances where indirect infringement has been relied on include matters relating to the sale of spare or component parts that are to be used in patented products, or in connection with a patented method. 

In Darmorgold Pty Ltd v JAI Products Pty Ltd², a supplier (JAI) of roller blind components, admitted that:

• specific spring assist components only had one reasonable use (to be used with other components to form a mechanism for controlling the extension and retraction of a blind); and

• there was reason to believe that customers who purchased the spring assist components would put them to a particular use.

The Court also found that the promotion of other component parts in conjunction with the spring assist components, also directed customers to the particular use (i.e. using them together to create a spring assisted roller blind system).

The expert witnesses inspected each of the component parts supplied by JAI for a particular roller blind system, and found that when assembled, the system embodied all the integers of certain claims of the relevant patent. Accordingly, once those claims were found to be valid, the Court found that the supply of the component parts constituted indirect infringement of the patent pursuant to section 117 of the Patents Act.

What small businesses should take away from this

Suppliers of products manufactured by third parties need to be aware of the risk of both direct and indirect patent infringement when making decisions about the products they supply. Importantly, even where they may not be engaging in an infringing act themselves, where there is a risk that the customer's use of the product will infringe a patent, they can find themselves liable.  

Suppliers should consider whether they need to obtain their own legal advice in relation to the risk of patent infringement (including consideration of the validity of the relevant patent(s)) before agreeing to supply new or innovative products, including to consider what marketing or promotional claims they may make about a product and to understand the risk associated with instructions for use (particularly if they have not been tailored or reviewed for the Australian market). 

Significant consequences can flow from a finding of patent infringement, including injunctive orders requiring a person to cease the infringing conduct, awards of damages or an account of profits, and in instances of flagrant conduct, additional damages.