26 Aug 2015

Injunctive relief and concurrent patent applications: do they overlap?

by Lachlan Gepp, Scott Crabb

The legal principles concerning the grant or refusal of a patent are not co-extensive with those of breach of confidence or fiduciary duty.

An applicant seeks injunctive relief to prevent the unlawful use or disclosure of confidential information. The respondent says that the information is part of a contested patent application, so it should be left to the Patent Office and not the court. Who's right?

The applicant is, according to a recent decision in the Federal Court (Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd [2015] FCA 888).

It's also a good reminder that persons or companies seeking injunctive relief to restrain or prevent a former employee from using or disclosing confidential information obtained during employment must draft their application with precision and certainty. Broad applications which do not properly identify the confidential information in issue or the unlawful use or disclosure of that information by the respondent invariably fail.

The application to restrain an ex-employee from using confidential information

CMS sought an interlocutory injunction to restrain its former director and employee (Mr Reiniger, the second respondent) from using or disclosing confidential information, or reproducing copyright works, or purchasing, ordering, selling or offering for sale a mining pump. The pump was subject to a concurrent patent application filed by CMS and contested by Mr Reiniger and his company Cellcrete.

CMS alleged that the specifications of the pump, which remain confidential, were developed in joint venture with Mr Reiniger in circumstances in which he owed fiduciary duties and duties of confidence to CMS as a former director and employee. It further alleged that Mr Reiniger breached these duties by (amongst other things) using and/or disclosing:

  • the specifications, schematics and safety features of the pump in the sale or supply of pumps to third parties;
  • the names, contact details and email addresses of CMS' clients;
  • the prices charged by CMS for the sale and supply of pumps and profit margins; and
  • the matters contained in the patent application.

Mr Reiniger denied each of these allegations.

The relevant test for an injunction

The Court asked itself the two questions required to be asked in applications for interlocutory relief:

  1. has the applicant established a prima facie case (in the sense that if the evidence remains as it is there is a probability that at the trial of the action the applicant will be held entitled to relief); and
  2. does the balance of convenience and justice favour the grant of an injunction or the refusal of that relief?

The Court held that the central allegations in CMS' case satisfied the requirement of a prima facie case, relying upon an email in which Mr Reiniger suggested that he was altering the pump to meet his needs and selling the pump to third parties.

Inevitably, determining the balance of convenience requires considering different factors, but at the core of the this was the respondents' argument that the applicant had jumped the gun. They said that that CMS' patent application, if approved, would allow it to claim relief in relation to the conduct the application sought to restrain, so this dispute was best left to the Patent Office, rather than the Court. In addition, the respondents argued that CMS was attempting to enforce a right it does not yet have.

The Court opined that this argument faced significant obstacles, not least of which was that the legal principles concerning the grant or refusal of a patent are not co-extensive with the legal principles concerning breach of confidence and breach of fiduciary duty.

In the end, the Court found that the balance of convenience was such that no interlocutory injunction would be granted provided the respondents gave two cross-undertakings offered during trial.

Lessons for litigants

The Court was unimpressed by the breadth and uncertainty of CMS' application. In particular, the confidential information in issue was identified in vague terms and it was unclear how exactly the respondents were said to have unlawfully used or disclosed the confidential information in breach of the duties of confidence or fiduciary duties it owed to CMS.

That the confidential information in issue was the subject of a concurrent and contested patent application had no influence on the Court's decision to refuse relief.

While the breadth and uncertainty of the terms of the application contributed to the Court's decision, it nevertheless appears that the determinative factor was the fact that damages were an adequate remedy to many of CMS' claims. 

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Clayton Utz communications are intended to provide commentary and general information. They 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 communication. Persons listed may not be admitted in all States and Territories.