Intellectual Property

Federal Court rules accounts of profits for patent infringement to be apportioned

December 22, 2022

Overseas Courts may consider the substance of an invention (distinct from the invention as claimed) when assessing the account of profits for infringement of a patent. By virtue of this, overseas Courts have found that the liability for an account of profits may be apportioned, resulting in a lesser burden on the infringing party. However, in Australia, the availability of apportionment has not been upheld until just recently.

The decision, Aristocrat Technologies Australia Pty Limited v Konami Australia Pty Limited (No 4) [2022] FCA 1501, published on 9 December 2022, makes it clear that the Federal Court may apportion an account of profits for patent infringement. In this case, the Federal Court ordered an apportionment of 35% after finding that the substance of the invention was “a random prize awarding feature with the proportional trigger“.

Background of the dispute

Aristocrat Technologies Australia Pty Limited (Aristocrat) and Konami Australia Pty Limited (Konami) each develop and sell electronic gaming machines (EGM) such as poker machines, slot machines, gaming consoles, etc. In 2011, Aristocrat commenced Federal Court proceedings against Konami for infringement of five (5) patents including Australian Patent number 754689 (689 Patent). Konami had 4 of the Aristocrat patents declared invalid. However, the Court found that Konami had infringed the 689 Patent only and was liable to Aristocrat for damages (in respect of the non-profitable infringements) and an account of profits (for the profit inducing infringements).

A principal issue in the quantum portion of the proceeding was whether the profits payable to Aristocrat should be reduced by way of apportionment. Konami submitted that the infringing conduct related to the “proportional trigger” within the EGMs sold. Therefore, Konami should only be liable for the portion of profits which resulted from that proportional trigger, not the profits of EGMs as a whole.

Aristocrat contested that the trigger was not a severable feature of the EGM and that the invention as claimed was a working combination of the console, the base game, the trigger and the feature game. Accordingly, the account of profits could not be apportioned. In making this submission, Aristocrat emphasised claims 25, 27, 28 and 37 of the 689 Patent which described a gaming console including the prize-winning trigger.

Aristocrat also sought to rely on the fact that, in Australia, no Court had ordered an apportionment for an account of profits in a patent infringement matter.

Overseas consideration

The principles of apportionment, as they have been upheld overseas, were adroitly described by Mr. Justice Laddie of the High Court of England and Wales in Celanese International Corp & Anor v BP Chemicals & Anor [1999] RPC 203:

The point can be illustrated by the tin whistle example much beloved of patent practitioners. Someone invents a new form of tin whistle. With the aid of his patent agent he obtains a patent. Regrettably, but as is now common, the patent ends with claims of ever greater particularity and narrowness. (Subsidiary claims limited to the patented article made out of plastics material of a particular colour are not unknown.) Claim 1 is for the tin whistle. Claim 10 is for a funnel to which the new tin whistle is connected. Claim 15 is for a battleship with a funnel to which the tin whistle is connected. No doubt none of the subsidiary claims are independently valid over Claim 1 but they are probably not per se invalid. Nor is there any doubt that an injunction or an order for delivery up would be directed to the tin whistle alone rather than the whole battleship. Similarly on an account substance not form counts. What the defendant has to account for is the profit made by exploitation of the invention, i.e. the whistle, not profits made by exploitation of material or activities which are not attributable to the plaintiffs ingenuity i.e. the rest of the battleship.

Infringement of the proportional trigger feature

The 689 Patent claimed the invention of an EGM including a proportional trigger which, when certain conditions were met in the ‘base game’, would allow the user to play a ‘feature game’ separate from the base game. The proportional trigger scaled the probability of triggering the feature game according to the amount bet by the player. It was not in dispute that the general features of an EGM, such as a base game and a feature game, were already known in the industry.

Konami (represented by Tony Conaghan and Ray Marshall of Thomson Geer) argued that the substance of the invention was the ‘proportional trigger’, and that the Federal Court should distinguish the profit made from the substance of the invention (i.e. the proportional trigger), from the profit made by Konami’s independent ingenuity (i.e. the rest of the EGM). In support, Konami advanced evidence that the presence of the proportional trigger only contributed between 2.66% and 10.56% towards its total profits, and so the amount to which it should be required to account to Aristocrat for the sale of the infringing EGMs ought to be only that percentage of its overall profits on those sales.

Conversely, Aristocrat (represented by Gilbert + Tobin) argued against the consideration of the apportionment of profits on the basis that it was not usual practice in intellectual property law and had not previously been upheld in Australia. Aristocrat argued that Konami should be liable to pay 100% of the profit from those sales. In the alternative, if apportionment was available, Aristocrat argued that the substance of the invention was in effect the whole of the EGM described in the claims of the patent, and so a very high apportionment of profits, in the order of 90% or more, was appropriate.

Apportionment arguments upheld

The Federal Court agreed with Konami and found that it was necessary to have regard to the substance of the invention that Konami had appropriated to determine the extent of its liability to account for its profits.

The Court ultimately found that the substance of the invention was neither the whole of the EGM (as argued by Aristocrat), nor the proportional trigger alone (as argued by Konami), but the combination of the feature game together with the proportional trigger. Consequently, the Court found that the substance of the invention accounted for 35% of the total profits of the sale of the infringing EGMs, and accordingly ordered that Konami disgorge only 35% of its profits from those sales.

Significance of the decision

This Federal Court decision marks the first time an Australian Court has made findings about the apportionment of an account of profits for a patent infringement matter. The Federal Court’s findings that the substance of the invention must correlate to the profits Konami is liable for is therefore a novel decision.

Konami ‘s Counsel were Christian Dimitriadis SC, Hamish Bevan SC and Anna Spies.

Further Information

If you need advice on patents or have questions about how the Federal Court’s decision could affect you and your business, please contact a member of Thomson Geer’s National Intellectual Property Team.

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