CATCHWORDS

PRACTICE AND PROCEDURE - discovery - whether discovery should be ordered against a defendant who has submitted - discussion of the Rules concerning discovery - power under Order 15 rule 8 to order particular discovery by reference to "any matter in question in the proceeding" and not merely by reference to issues arising between the discovering party and an opposite party - effect of Order 10 rule 1 giving a general discretion to give directions - principles to be applied on an application to strike out a part of a statement of claim - discussion of circumstances in which the Court should not state a special question for separate decision - circumstances in which security for costs was refused, in the light of the good financial position of the company against which it was sought, there being an undertaking to supply further financial statements - discussion of the question whether it was relevant to take account of the possible diminution of the assets of the company likely to occur if it lost the case and its business was held to involve infringement of the other side's patent rights, it being suggested that this would be to treat the entitlement to security as relating, not to the position of the corporation as a plaintiff, but to its position as a cross-respondent - service outside the jurisdiction - principles applicable to an application to set aside service.

PATENTS - effect of transitional provision under s. 234 of the Patents Act 1990 in a case where an application for a patent was made under the Patents Act 1952 and granted under the Patents Act 1990 - whether there was any substantial difference between the requirements of s. 34 of the 1952 Act and s. 15 of the 1990 Act - whether there was a vitiating misrepresentation or false suggestion where the application under the 1952 Act named persons as the actual inventors if another person was an actual inventor, but, after the application was lodged, an assignment was obtained from that person - effect of s. 29 of the 1990 Act in the light of the Regulations - discussion of circumstances under which a vendor of goods used by the purchaser to infringe a patent may have made himself a party to the act of infringement - notion of joint tortfeasors in such circumstances developed by recent decisions of the Court of Appeal.

Patents Act 1952, s. 34

Patents Act 1990, ss. 13, 15, 29, 45, 117, 138 and 234

Patents Regulations regs. 3.1 and 3.18

Corporations Law, s. 1335

Federal Court Rules, Order 29 rule 2, Order 10 rule 1, Order 15 rules 1, 2, 3, 5, 8 and 15

Gould v. National Provincial Bank Ltd [1960] Ch. 337

Cory v. Cory [1923] 1 Ch. 90

Cameron v. Rural Press Limited (unreported, Burchett, Gummow and Hill JJ., 20 July 1990)

Trade Practices Commission v. Rank Commercial Ltd (1994) 123 ALR 551

Richardson Pacific Limited v. Fielding (unreported, Burchett J., 24 July 1990)

NV Philips Gloeilampenfabrieken v. Mirabella International Pty Limited (1993) 44 FCR 239

Lonrho Plc v. Fayed [1992] 1 AC 448

Allen v. Gulf Oil Refining Ltd [1981] AC 1,001

Trade Practices Commission v. The Gillette Company (No 1) (1993) 45 FCR 366

Morton-Norwich Products Inc. v. Intercen Ltd. [1978] RPC 501

Unilever Plc v. Gillette (U.K.) Limited [1989] RPC 583

Mölnlycke A.B. v. Procter & Gamble Ltd. [1992] 1 WLR 1,112

Best Australia Ltd v. Aquagas Marketing Pty Ltd (1988) 83 ALR 217

Lotus Development Corporation v. Vacolan Pty Ltd (1989) 16 IPR 143

Walker v. Alemite Corporation (1933) 49 CLR 643

Rescare Ltd v. Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205

Anaesthetic Supplies Pty Ltd v. Rescare Ltd (1994) 50 FCR 1

MUREX DIAGNOSTICS AUSTRALIA PTY LIMITED v. CHIRON CORPORATION & ANOR

NG 106 of 1994

Burchett J.

Sydney

20 January 1995

IN THE FEDERAL COURT OF AUSTRALIA)

                                  )

NEW SOUTH WALES DISTRICT REGISTRY)    NG 106 of 1994

                                  )

GENERAL DIVISION                  )

           BETWEEN:     MUREX DIAGNOSTICS AUSTRALIA PTY LIMITED

                             Applicant

               AND:     CHIRON CORPORATION

                             First Respondent

               AND:     ORTHO DIAGNOSTIC SYSTEMS, INC

                             Second Respondent

       AND BETWEEN:     CHIRON CORPORATION

                             Cross-Claimant

               AND:     MUREX DIAGNOSTICS AUSTRALIA PTY LIMITED

                             First Cross-Respondent

               AND:     MUREX DIAGNOSTICS LIMITED

                             Second Cross-Respondent

CORAM: Burchett J.

PLACE: Sydney

DATE : 20 January 1995

                     ORDER OF THE COURT

     THE COURT ORDERS THAT the applicant bring in, on a date to be fixed, short minutes of orders to reflect the reasons of the Court.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

                                  )

NEW SOUTH WALES DISTRICT REGISTRY)    NG 106 of 1994

                                  )

GENERAL DIVISION                  )

           BETWEEN:     MUREX DIAGNOSTICS AUSTRALIA PTY LIMITED

                             Applicant

               AND:     CHIRON CORPORATION

                             First Respondent

               AND:     ORTHO DIAGNOSTIC SYSTEMS, INC

                             Second Respondent

       AND BETWEEN:     CHIRON CORPORATION

                             Cross-Claimant

               AND:     MUREX DIAGNOSTICS AUSTRALIA PTY LIMITED

                             First Cross-Respondent

               AND:     MUREX DIAGNOSTICS LIMITED

                             Second Cross-Respondent

CORAM: Burchett J.

PLACE: Sydney

DATE : 20 January 1995

                    REASONS FOR JUDGMENT

BURCHETT J.:

     In this matter, the applicant seeks revocation of a patent issued to the first respondent, which sues by cross-claim for infringement.  The alleged invention has been the subject of prior proceedings in the United Kingdom (Chiron Corporation v. Organon Teknika Limited (No. 3) and Chiron Corporation v. Murex Diagnostics Limited (No. 3), (1994) FSR 202).  The patent is concerned (inter alia) with a very important product used in the detection of the hepatitis C virus by means of an immunoassay kit working upon the principle of what is known to pathologists as the ELISA test.  As Aldous J. said in the judgment cited above at 213, "every pint of blood used in transfusions in developed countries is tested using such a kit.  Thus a monopoly covering such kits is of considerable commercial value ... and of importance to the public."  The claimed invention is not only valuable; it arose out of scientific investigation aimed at the identification of the hepatitis C virus which, if not inventive in the relevant sense, - a matter to be determined - was at any rate prolonged, expensive, and sophisticated.  The present litigation is still far from being ready for a hearing.  The parties have been pursuing, in a very complex matter, the necessary steps involved in the pleading and particularization of their cases, and in the utilization of the procedures designed to uncover the facts on which those cases depend.  A number of interlocutory issues have arisen, with which these reasons are concerned.  They will be dealt with under separate headings, as follows.

Discovery sought by the Applicant against the Second Respondent

     The second respondent has taken out a motion in which it seeks an order that it not be required to give discovery to the applicant, or alternatively that it be dismissed from the
proceedings.  The latter order is not sought unless the former is refused. 

     The basis on which the second respondent says it should not be required to give discovery to the applicant is that it has filed a submitting appearance, so that there are no matters in issue in the proceeding between it and the applicant.  The second respondent is not the patentee, nor does it claim the status of an inventor, but is alleged to be an exclusive licensee, an allegation which is sought to be refuted in the alternative argument that it should be dismissed from the proceeding.  However, assuming that it is an exclusive licensee, it contends that plainly the documents central to the case will have to be discovered by the other respondent, the patentee, and that to impose upon it the onerous obligations of discovery in a case of this character would be unnecessary and burdensome.  The applicant, on the other hand, contends that the second respondent is a proper party by virtue of s. 139 of the Patents Act 1990, and that, as a party, it should give discovery notwithstanding that it has filed a submitting appearance.

     The argument presented on behalf of the second respondent placed some reliance on two particular decisions: Fuller v. Wood [1913] VLR 92 and Gould v. National Provincial Bank Ltd [1960] Ch. 337.  In the former case, Hodges J., applying the rules of the Supreme Court of Victoria as they then stood, which conferred on a judge a perfectly general power to order the administration of interrogatories, assumed (at 95) that he had jurisdiction to order one of several defendants, who had raised no defence to the action, to be interrogated.  But, as to the exercise of his discretion, he said:

    "In my opinion, it would be extremely undesirable to allow a plaintiff to interrogate every person who is upon the record, even if he has put in no defence, on matters which may be relevant to actions against other defendants."

In the other case, Russell J. said (at 345):

    "(T)here cannot be said to be any issue between the parties on which discovery against the second defendant should be granted and, therefore, there should not be any discovery.  ...  It is not actually necessary for my decision in this case, but I think that it would be right, if a defendant is in default of appearance, to say that there is no issue at that stage between the plaintiff and that defendant, and that, therefore, there is nothing in relation to which discovery is or should be ordered."

These statements were made as obiter dicta, but they carry the weight of the authority of Russell J. (as he then was).

     There is, however, an earlier decision of the Court of Appeal unanimously affirming the view of Sargant J. that the then English rule, permitting an order for discovery against "any other party [to a proceeding] ... of the documents which are or have been in his possession or power, relating to any  matter in question therein", conferred on the court a "very wide discretion", exercisable so as to enable an order for
discovery to be made, in an appropriate case, against a defendant although "there was no right in question as between [the plaintiff and that defendant] in the action": see Cory v. Cory [1923] 1 Ch. 90 at 95, 98.  That case, it seems to me, emphasizes the importance of having regard to the applicable rules of court.  It also emphasizes that, if those rules confer a broad discretion, there is nothing inherently wrong about requiring discovery to be given by a party who has not put on a defence in a case, where the requirements of justice are seen to be engaged.

     Accordingly, I turn to the Rules of this Court.  Order 15 rule 1 permits a party, by notice of discovery, to "require any other party to give discovery of documents".  Rule 2 then specifies the obligations of a party required to give discovery, subject to any order of the Court under rule 3, as including the filing and service of a list of documents "relating to any matter in question between him and the party giving the notice of discovery".  Those last words appear, at least prima facie, to adopt the view stated by Russell J. in Gould.  Furthermore, rule 3, to which the obligation to discover is made subject, empowers the Court to limit discovery (it does not refer to any enhancement of the obligations of discovery), and requires the Court to "make such orders ... as are necessary to prevent unnecessary discovery".  A positive power to "order any party to give discovery in accordance with rule 2" (emphasis added) is then conferred by rule 5, but it will be observed that an order made under rule 5 will necessarily involve the qualifying words I have already quoted from rule 2. 

     There is, however, a further rule, rule 8, which is qualified differently, and I think the difference is significant.  Under that rule, the court may order particular discovery in respect of documents "relating to any matter in question in the proceeding" (emphasis added).  I think this rule plainly confers a discretion which would extend to the making of an order, in respect of any document or class of documents, comparable with that made in Cory v. Cory.

     Order 15 also contains a general rule, rule 15, in the following terms:

    "The Court shall not make an order under this Order for the filing or service of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made."

This reinforces the more particular rule 3(2) cited above. 

     These provisions should not be isolated from the remainder of the Rules of Court.  In Order 10 rule 1(1) it is provided:

    "On a directions hearing the Court shall give such directions with respect to the conduct of the proceeding as it thinks proper."

This rule was referred to by a Full Court, in relation to questions of discovery, in Cameron v. Rural Press Limited (unreported, Burchett, Gummow and Hill JJ., 20 July 1990), where it was said:

    "Miss Cameron, during argument before us, repeatedly asserted that the rules gave her a right to discovery.  This is only true in a qualified sense.  Order 10 rule 1 of the Rules makes it plain that the court has a duty, within the scope of which sub-rule 2 expressly brings the topic of discovery, to give `such directions with respect to the conduct of the proceedings as it thinks proper'."

The joint judgment of the Full Court went on to refer to "the flexibility of the court's powers in respect of discovery".  Of course, the Rules generally adopt the stance of flexibility.  Order 1 rule 8 may be regarded as underlining this when it provides:

    "The Court may dispense with compliance with any of the requirements of the Rules, either before or after the occasion for compliance arises."

     The width of the Court's discretion in relation to discovery was again emphasized by a Full Court in Trade Practices Commission v. Rank Commercial Ltd (1994) 123 ALR 551, where (at 568) it was held that Order 10 rule 1 enabled a judge "to dispense with the ... process of discovery" in the particular circumstances of the case.

     In my opinion the Rules confer upon me a very wide discretion to make appropriate orders in respect of discovery.
In Richardson Pacific Limited v. Fielding (unreported, 24 July 1990) I held that Order 15 rule 8

    "was, beyond question, designed to ameliorate [the old situation limiting the discretion to make orders for particular discovery in order to rectify failures in the discovery process] and permit the discretion to be exercised where much less [than was formerly required to be shown] was able to be shown by the applicant for further discovery."

At the same time, I did not think the Court should be persuaded "lightly" to make such an order.

     In the present case, nothing was suggested to show that the second respondent would be likely to have, or to have had, in its possession or power, independently of the first respondent, documents which ought as a matter of justice to be made available to the applicant.  What was suggested was rather that the second respondent, by reason of its relationship to the first respondent, might have received from it copies of relevant documents.  In these circumstances, I think the principle stated by Russell J. in Gould is persuasive, there being no clear reason why it should be set aside to answer the requirements of justice.  The obligation of discovery would be burdensome for the second respondent, and I am not satisfied that any commensurate benefit would be derived by the applicant.  As Russell J. pointed out in Gould (at 345-346), if the situation changes, the Court will retain the ability to make an order.  At the present time, I do not
think the second respondent should be required to give discovery, and I shall order accordingly.

Application to Strike Out Paragraph 6(c) and (d) of the Statement of Claim

     The first respondent seeks to have struck out certain allegations in the statement of claim, or alternatively to have those allegations made the subject of a separate decision pursuant to Order 29 rule 2 of the Rules. 

     The portion of the paragraph of the statement of claim in question reads as follows:

    "6.   The patent is wholly invalid and so far as it relates to a claim, that claim is invalid on the ground that:-

                            . . .

     (c)  the patentee is not entitled to the patent, and

     (d)  the patent was obtained by fraud, false suggestion or misrepresentation."

Particulars were given of these allegations, which it is unnecessary to set out here in detail.  Suffice it to say that the applicant alleged the patentee claimed an invention by certain named persons, and to be the assignee of the invention by virtue of assignments made between 19 January 1988 and 31 October 1988; the applicant alleged the patentee had not referred to one Dr Dan Bradley as the inventor or as an inventor of the alleged invention, which the applicant says Dr Bradley was; the applicant alleged that the patentee was not on the grant of the patent entitled to have the patent assigned to it by Dr Bradley and did not derive title to the alleged invention from him, and that it was not at the date of the application for the patent the assignee of the alleged invention; the applicant alleged that the patent was obtained by false suggestions or misrepresentations contained in the patent application, in that it represented certain persons other than Dr Bradley to have been the sole or actual inventors and that the patentee was entitled to make the application, whereas Dr Bradley was the inventor, or one of the inventors, and the patentee was not at the relevant date the assignee of the invention. 

     The separate question sought to be stated, should I not be prepared to strike out these allegations, is "whether an applicant who makes an application (`the Application') for the grant of letters patent under the Patents Act 1952 and who was not, at the date of the Application, a person referred to in s. 34(1) of the Patents Act 1952, may be granted a patent pursuant to the Application, under the Patents Act 1990 if, at the time of the grant, it is a person referred to in s. 15 of the Patents Act 1990."

     Section 34(1) of the Patents Act 1952 enabled the persons identified in it to "make an application for a patent".  Those persons included, by para. (a) "the actual inventor", by para. (b) "the assignee of the actual inventor", and by para. (fa) "a person who would, if a patent were granted upon an application made by a person referred to in any of the preceding paragraphs, be entitled to have the patent assigned to him".  Section 15 of the Patents Act 1990 repeats these provisions in slightly different language, under the heading "Who may be granted a patent?", as follows:

    "1.   Subject to this Act, a patent for an invention may only be granted to a person who:

          (a)  is the inventor; or

          (b)  would, on the grant of a patent for the invention, be entitled to have the patent assigned to the person; or

          (c)  derives title to the invention from the inventor or a person mentioned in paragraph (b) ...".

Both Acts are relevant to the present matter, because the patent was applied for on 18 November 1988 under the Patents Act 1952, and granted on 4 June 1992 under the Patents Act 1990, which commenced on 30 April 1991.

     Between the date of the making of the application and its grant, Chiron Corporation entered, on 3 April 1990, into an agreement with other parties including Dr Daniel Bradley, which recited Dr Bradley's claim to be the inventor and Chiron Corporation's denial of it, and contained a clause in the following terms:

    "CDC on behalf of itself, the United States and any agency or instrumentality thereof [the other parties to the agreement], and DR. BRADLEY hereby forever release, discharge and assign to CHIRON their entire right, title and interest in and to, any and all claims, actions and the like based in law or equity known or unknown, now existing or which might arise hereafter, (a) against CHIRON or CHIRON's employees (past or present) CHIRON's directors (past or present) or licensees arising from actions occurring prior to the date of this Agreement and related to any collaboration among DR. BRADLEY, CDC and CHIRON; or (b) regarding the inventorship, ownership or control of CHIRON PATENTS or foreign counterparts thereof."

There was added in handwriting at the end of this clause the following:

    "CDC and DR. BRADLEY hereby assign to CHIRON any and all right title and interest in or to CHIRON PATENTS and the inventions claimed therein."

There was a definition of "CHIRON PATENTS" as referring to certain United States patent applications and any United States letters patent issuing on them.  These applications were applications that were noted in the Australian patent application.

     The first respondent contends that s. 29 of the Patents Act 1990 places no limit upon the person who "may apply for a patent for an invention by filing, in accordance with the regulations, a patent request and such other documents as are prescribed".  Although under s. 34 of the Patents Act 1952 a person who was not the actual inventor, and did not have title by assignment or otherwise under the provisions of that section, would not have been a person entitled to "make an application for a patent", the argument is that the 1990 Act (possibly by reason of a casus omissus) contained no such limitation and that, by the time the patent came to be granted
in the present case, the first respondent fell within the terms of s. 15(1)(b) or (c), so far as concerns any alleged invention by Dr Bradley.  It is said that this follows from the decision of the Full Court in NV Philips Gloeilampenfabrieken v. Mirabella International Pty Limited (1993) 44 FCR 239 at 253-254 (per Lockhart J., with whom Northrop J. agreed and I agreed, so far as concerns this point). 

     But NV Philips v. Mirabella was concerned with a patent granted under the 1952 Act, and thus with the effect of s. 233 of the 1990 Act.  The present case raises other questions - whether the verbal differences in the provisions relating to applications, which I have mentioned, involve substantial differences and, if so, whether s. 234 of the 1990 Act converts a long standing application, that was (it is contended) invalid under the 1952 Act, into a valid application for the purposes of the 1990 Act.  Section 234 relevantly provides:

    "(2)  Where, before the commencing day:

     (a)  a patent application had been lodged under the 1952 Act; and

     (b)  a complete specification ... had been lodged under that Act in respect of the application; and

     (c)  the application had not been withdrawn or finally dealt with;

     then, subject to this Chapter and the regulations, this Act applies on and after that day:

     (d)  in relation to the application as if it were a complete application made under this Act; and

                            . . .

     (5)  Objection cannot be taken to:

     (a)  an application mentioned in subsection (2); or

     (b)  a patent granted on such an application;

     and such a patent is not invalid, so far as the invention is claimed in any claim, on any ground that would not have been available against the application or patent, as the case may be, under the 1952 Act."

But by subss. (3) and (4) Chapters 5 and 9 of the 1990 Act do not apply to such an application, and Part V of the 1952 Act is preserved in relation to it.

     By s. 138(3)(a) of the 1990 Act it is provided that a person may apply to a prescribed court for an order revoking a patent on (inter alia) the ground "that the patentee is not entitled to the patent".  While it is true, as counsel for the first respondent contended, that s. 29(1) does not itself in terms express the qualification made by the earlier Act, it does provide: "A person may apply for a patent for an invention by filing, in accordance with the regulations, a patent request and such other documents as are prescribed."  Regulation 3.1(2)(a) fills in the requirements in a manner consistent with the previous law.  It provides:

    "2.   For the purposes of subsection 29(1) of the Act, if a complete application is made, the following documents are required to be filed before acceptance:

     (a)  a notice by the applicant stating the entitlement of the nominated person to the grant of the patent; and

                           ...  ."

By s. 45(1)(c) and reg. 3.18(2)(a)(i) and (ii) the conformity of an application made under the 1990 Act with the requirements of s. 15 is expressly dealt with as a requirement of "the request".  A "request", s. 29 makes clear, is an application.  It is at least arguable, therefore, that an application is not "in accordance with the regulations", within the meaning of s. 29(1), unless the application, at the time when it is filed, complies with s. 15.  Particularly is that so since there does not appear to be any indication of a legislative intention to change the law in this particular respect, nor is it obvious that the legislature would have wished to permit an application to be made by someone not then entitled to a grant on the basis that entitlement could subsequently be got in before the making of the grant.

     In any case, there must be a question whether s. 234 embraces invalid applications under the old Act, or only valid ones.

     There is also a question of the construction of the agreement relied upon as an assignment.  The applicant contends this agreement is concerned with United States patents, and that the reference to "foreign counterparts" does not effect an assignment of the right to a grant of the Australian patent.  I do not propose to analyse the agreement in detail.  It is sufficient to say that it seems to me its terms, the more important of which I have already set out, do leave room for argument.

     The principles to be applied in respect of an application to strike out a claim have repeatedly been stated in terms of the judgment of Barwick C.J. in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 CLR 125.  More recently, these principles were restated in the House of Lords in Lonrho Plc v. Fayed [1992] 1 AC 448, where Lord Bridge of Harwich (with whom the other members of the House agreed) said (at 469):

    "It is trite law that the summary procedure for striking out pleadings ... is not the same as the old procedure by demurrer and is only to be used in plain and obvious cases."

He cited earlier statements that such an application "should be confined to cases where the cause of action was `obviously and almost incontestably bad'", and that "it is well settled that a statement of claim should not be struck out and the plaintiff driven from the judgment seat unless the case is unarguable."

     I do not think it can be said that the impugned portions of the statement of claim are unarguable.  This is not a plain and obvious case.  Accordingly I shall not accede to the motion to strike out.

     The alternative application to state a special question encounters the difficulty that the issues of fact concerning Dr Bradley are also bound up with issues of fact which may be expected to be ventilated at the hearing in relation to the question of obviousness.  Thus the extent of any saving said to be achievable by the proposed course is, at best, dubious.  In the same judgment in Lonrho, Lord Bridge (at 470) commented, concerning the determination of a preliminary question, that their Lordships had frequently protested, in cases where parties had agreed on such a question, "at being required to answer difficult questions of law on hypothetical and disputed facts stated in general terms".  He referred to what Lord Wilberforce had said on the subject in Allen v. Gulf Oil Refining Ltd [1981] AC 1,001 at 1,010-11.  In my opinion, this is not a case where it is appropriate to attempt to sift out from the complex issues involved the suggested separate question.  I shall therefore refuse that application also.

Security for Costs

     The first respondent also seeks an order for security for costs in the sum of $882,695.58 or such other amount as the Court thinks fit to order. 

     The evidence in support of the claim to such vast provision for security estimates the costs incurred so far at a figure of almost $90,000, and the costs yet to be incurred at almost $800,000.  The application for security is made under s. 1335 of the Corporations Law, which provides:

    "Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. "

     The application for security is not beset by the complexities often involved in such applications.  That is because the applicant, in answer to it, relies only on the proposition that its own financial position does not justify the making of an order, that is, it denies that the situation envisaged by s. 1335 as the basis of an order exists in the present case, or, at any rate, that its financial position is such as to justify the exercise of a discretion so as to make an order.  From this point of view, I note that Mr Kerr's affidavit of 15 September 1994 in support of the application for security concedes the company's net asset position for the year ended 31 December 1993 revealed an improvement of $380,413 over the previous financial year to a net asset figure of $507,802, and that the operating profit after tax for the year ended 31 December 1993 was $380,413.  There had been an operating loss in the previous year, but the evidence indicated that the current business only commenced at the beginning of 1993.

     The company relied on further evidence that its, as yet unaudited, financial reports for the period 1 January 1994 to 31 August 1994 show a surplus of assets over liabilities of $777,000, with a net profit of $443,000.  On that footing, there would be no difficulty at all in its meeting the first respondent's costs to date, if ordered to pay them.  The company announced its preparedness to undertake to provide to the first respondent, by 31 March 1995, its accounts for the calendar year 1994, and, on its behalf, the argument was put that any application for security for costs before that date must, in the circumstances, be regarded as premature, since, at least until then, the first respondent's costs are amply covered. 

     The managing director of the company, Mrs Ann Gibson, gave evidence and was cross-examined.  I accept her evidence that the operations of the company "are very profitable" and that it has "been doing very well".  Seventy per cent of its sales relate to the kits which the first respondent alleges infringe its patent and thirty per cent of its sales are generated by unrelated products.

     In support of the motion, it was urged that if the applicant fails in its action, it will be restrained, pursuant to the cross-claim, from continuing the sales which constitute the major portion of its current business.  This will reduce the value of its stocks and affect its financial position.  Even taking this matter into account, I am satisfied that at this stage I ought not to make any order for security for costs.  The position of the company is just too strong, and if that position deteriorates, the undertaking to produce accounts will result in the application being able to be renewed at a stage when security may actually be required, if that stage arrives.

     I should add that I am far from persuaded of the validity of the argument which would take into account losses to be incurred in the event of the first respondent's success in the action.  While it is unnecessary to come to a final conclusion on the point, it seems to me that this would amount to providing security for the benefit of the first respondent, not as a defendant, but as a plaintiff pursuant to its cross-claim.  This is not a purpose of the provision for the ordering of security for costs made by s. 1335.

     The application for an order for security for costs will be refused.

Application of Murex Diagnostics Limited, the Second Cross-Respondent, to set aside service of the Cross-Claim upon it out of the Jurisdiction

     Where process is served outside the Commonwealth, Order 9 rule 7 provides that the party served may move to set aside the process, or its service, and discharge any order giving leave to serve it outside Australia.  In a number of cases, the principles upon which such an application should be determined have been considered by the Court.  One of the most recent authorities is my own judgment in Trade Practices Commission v. The Gillette Company (No 1) (1993) 45 FCR 366.  It is unnecessary that I should here repeat the statement of
the law there set out, which I have kept in mind in reaching my decision.

     In the present case, the second cross-respondent has been joined on the basis that it has manufactured, in the United Kingdom, a kit for the carrying out of a form of ELISA test for the detection of hepatitis C by immunoassay, referred to as "the Murex Kit", intending to sell the kits, and actually selling them, in Australia through the first cross-respondent, the applicant Murex Diagnostics Australia Pty Limited, a related company.  The second cross-respondent has also provided in Australia technical support for the Murex Kit, as well as management services for the first cross-respondent.  The International Sales Manager of the United Kingdom company is a director and shareholder of the Australian company.  A substantial management fee is paid by the Australian company to the United Kingdom company, and the Australian company submits monthly reports, as it is said, to its overseas masters.  The kit is sold in Australia with an instruction sheet emanating from the United Kingdom company, the following of which will, according to the case put forward, lead to an infringement of the patent.  It is the United Kingdom company which provides experts to furnish advice and rectify problems in relation to the automated use of Murex Kits, and it was involved in the obtaining of necessary approvals to enable selling to take place in Australia.  The company continues to provide the technical know-how to sustain that selling.  Prima facie, the cross-claimant says, it may be concluded that the United Kingdom company is an active participant in the infringement of its patent by virtue of these aspects of the programme of selling the Murex Kits in Australia. 

     Section 13 of the Patents Act 1990 involves the concept of authorizing another person to exploit an invention.  This is one of the exclusive rights conferred upon a patentee.  The cross-claimant has given notice of its intention to amend to allege that the activities to which I have referred involve an authorization of the Australian company by the United Kingdom company to exploit the invention, and accordingly an infringement.

     For the cross-claimant, it is pointed out that in Gillette at 371 I accepted the test as being whether a prima facie case was made out in the sense that, on the material before the Court, inferences were open which, if translated into findings of fact, would support the relief claimed.  It is clear too that the Court may look at further evidence adduced after the original grant of leave to serve outside the jurisdiction: WSGAL Pty Limited v. Trade Practices Commission (1992) 39 FCR 472. 

     The case made by the cross-claimant here is that if account be taken, not merely of the sales by the United Kingdom company, but of its actions in relation to the Australian company's programme of selling, its relationship to the Australian company in the international group structure, its role in support of the obtaining of the necessary approval to sell items of this kind in Australia and in relation to the technical problems arising out of the use of the Murex Kits, and in all the circumstances, an inference arises, so it is said, of a common design between the two companies to pursue a course of action involving the infringement of the patent.  The cross-claimant says this inference has been established to the extent of a prima facie case in the necessary sense to satisfy the requirements I discussed in Gillette.

     The basis in legal theory for such a case, though far from new, seems only to have been generally recognized for the purposes of patent cases involving the international activities of corporations in comparatively recent times.  In Morton-Norwich Products Inc. v. Intercen Ltd. [1978] RPC 501 Graham J. said (at 512) that he saw

    "no reason why the law should be any different in the case of the tort of infringement than of any other tort.  ...  As I understand it, persons whose respective shares in the commission of a tortious act are done in furtherance of a common design are properly regarded as joint tortfeasors ... .  It is clear from this that two persons who agree on common action in the course of and to further which one of them commits a tort in this country are joint tortfeasors.  ...  So here it is said that the Easter companies clearly sold unlicensed material in this country to third parties, and in so doing committed a tort.  That tort was contributed to by and was committed in concert with the defendants who knew quite well what was going on and intended to assist in its commission by supplying the necessary infringing material to the Easter companies for payment.  All the basic ingredients of the tort of infringement are clearly present here."

He concluded (at 513) that the question was whether the defendant Dutch corporation, which supplied the infringing material to those who infringed the patent by its sale "had the necessary common design [with those sellers] to commit that infringement.  Whether they had or not depends on the evidence and the surrounding circumstances of the case ... ."

     What Graham J. said has since been considered in two matters in the Court of Appeal.  In the one, Unilever Plc v. Gillette (U.K.) Limited [1989] RPC 583, the plaintiff patentee, which was suing a company alleged to have infringed its patent by the importation of a product, desired to join the defendant company's corporate parent, a United States corporation, on the basis that it was a joint tortfeasor.  Mustill L.J. (with whom Slade and Ralph Gibson L.JJ. agreed) said (at 602) that the question was

    "whether the court is willing to infer a common design between the two Gillette companies.  This is a matter for a trial judge to decide in the light of all the circumstances, not for a court to rule upon as if the relevant paragraph of the amended statement of claim were an agreed statement of facts, prepared for the argument of a preliminary question of law.  ...  (I)f the inference is a fair possibility, we should not go further and set ourselves up to decide at this stage whether or not it should be drawn."

His Lordship proceeded to examine a number of authorities, and then stated the position as follows (at 608-609):

    "For my part I prefer to take the relevant part of the amendment as a whole, and to ask whether, if the allegations ... are proved to be true ... and if they are set in the context of the relationship between the companies in the Gillette Group, when that has emerged at the trial, a judge directing himself correctly could reasonably come to the conclusion that - (a) there was a common design between Boston and G.U.K. [the two companies involved] to do acts which, if the patent is upheld, amounted to infringements, and (b) Boston has acted in furtherance of that design.  I use the words `common design' because they are readily to hand, but there are other expressions in the cases, such as `concerted action' or `agreed on common action' which will serve just as well.  The words are not to be construed as if they formed part of a statute.  They all convey the same idea.  This idea does not, as it seems to me, call for any finding that the secondary party has explicitly mapped out a plan with the primary offender.  Their tacit agreement will be sufficient.  Nor, as it seems to me, is there any need for a common design to infringe.  It is enough if the parties combine to secure the doing of acts which in the event prove to be infringements."

His Lordship then summarized a number of factors, which seem to me, whilst there might be arguments whether they are stronger or weaker than those evidenced in the present case, to be of the same general kind, and concluded that a case of joint infringement had been established to the requisite extent, which should be permitted to be put before a judge at a hearing. 

     The other Court of Appeal decision on this point is Mölnlycke A.B. v. Procter & Gamble Ltd. [1992] 1 WLR 1,112.  There, Dillon L.J. (with whom Woolf and Leggatt L.JJ. expressed agreement) referred (at 1,118) to the proposition, for which he cited authority, that facilitating the doing of an act is different from procuring the doing of the act, and continued:

    "A person who merely facilitated, but did not procure, the infringement was not a joint tortfeasor with the infringer and so was not liable if, for instance, he sold articles which could be used for infringing or non-infringing purposes even though he knew that they would probably be used and were intended to be used for the infringing purposes.

     More recently, however, a new concept has been developed.  Parties will be regarded as joint tortfeasors if on the facts they have a common design to market in the United Kingdom articles which in truth infringe a United Kingdom patent.  The first appearance of this doctrine seems to have been in Morton-Norwich Products Inc. v. Intercen Ltd. [supra] ... .  There, the common design was shared by a Dutch company, which wanted to market in the United Kingdom infringing goods for which it had no licence from the patentee, and the Dutch company's English distributor.  This common design, which the Dutch company had furthered by its acts, rendered the Dutch company liable as a tortfeasor in the English courts, although the Dutch company's own acts in furtherance of the common design had all taken place abroad and the plaintiff patentees had chosen not to sue the English distributor."

Dillon L.J. went on (at 1,123) to make it clear that he agreed with an observation of Hoffmann J. (as he then was), the judge at first instance, to the effect that the establishment of an arguable case upon this basis was not fraught with any extraordinary difficulty.

     The principle of these decisions has been accepted in two decisions of judges of this Court: Best Australia Ltd v. Aquagas Marketing Pty Ltd (1988) 83 ALR 217, and Lotus Development Corporation v. Vacolan Pty Ltd (1989) 16 IPR 143. 

     However, counsel for the United Kingdom company referred me to the decision of the High Court in Walker v. Alemite Corporation (1933) 49 CLR 643, suggesting that it was to the
opposite effect.  It seems to me that Walker v. Alemite Corporation did not touch the present point.  It was a case involving a patent for a combination of various parts, which was held not to be infringed by the manufacture or sale of one of those parts.  Starke J. (with whom Evatt J. agreed) said (at 654):

    "(W)hen a patent is for a combination of various parts, the manufacture of the single parts is no infringement.  Such a manufacture is in itself lawful, and knowledge, even on the part of the manufacturer, that the single parts will be used for the purposes of infringement is not enough to render him liable as an infringer ... ."

Dixon J. (with whom McTiernan J. agreed) referred (at 655) to the invention as one the merit of which lay "in judiciously applying means already known in the construction of the several parts and in so combining them as to produce an efficient and convenient implement".  He said (at 658):

    "But, in any event, it is settled law that the exclusive property in a combination invention is not infringed upon by the sale of the components (Townsend v. Haworth (1875) 12 Ch. D. 831 (n)); that selling articles to persons to be used for the purpose of infringing a patent is not an infringement of the patent (per Fry J., Sykes v. Howarth (1879) 12 Ch. D., at p. 833); and that sale with a knowledge that the purchaser will use the articles for infringement is not itself an infringement although the vendor gives the purchaser an indemnity: the vendor must have made himself a party to the act of infringement ... .  Further, in the opinion of Vaughan Williams L.J., it is not enough that the article sold has no other use than a use in the course of what amounts to infringement.  The basis upon which these rules rest is that whatever is not included in the monopoly granted is publici juris and may be freely used as of common right."

     Walker v. Alemite Corporation was referred to by Gummow J. in Rescare Ltd v. Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205 at 243.  (This decision was overruled on appeal: Anaesthetic Supplies Pty Ltd v. Rescare Ltd (1994) 50 FCR 1, but it was not submitted that any significant passage dealing with this point is to be found in the judgments in the Full Court.)  Walker v. Alemite Corporation was also referred to by Waddell J. in Windsurfing International Inc v. Petit (1984) 2 NSWLR 196 at 204-207, where it was distinguished.

     In response to the submissions put on behalf of the United Kingdom company, counsel for the cross-claimant drew attention to the terms of s. 117 of the Patents Act 1990, which reads as follows:

    "117.(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."

It was submitted that this section plainly broadens what Dixon J. described in Walker v. Alemite Corporation (at 658) as the "[apparently] narrow" view taken of "what constitutes participation in infringement".  Counsel also relied on s. 13, by which, as I have said, the exclusive rights given by a patent include the right "to authorise another person to exploit the invention", claiming the evidence supported the inference that this exclusive right had been infringed by the United Kingdom company by authorization of the Australian company to exploit the invention.

     But it is sufficient for the purposes of this application to observe that the Court of Appeal decisions, to which reference has been made, are not in conflict with the decision in Walker v. Alemite Corporation.  They deal with a special situation, different from that discussed by the judges of the High Court.  Indeed, Dixon J. neither overlooked nor failed to accept the fundamental principle upon which the Court of Appeal authorities rest.  For he made it clear (at 658) that for infringement to be established in the case of a sale with knowledge that the purchaser will use the article sold for infringement, "the vendor must have made himself a party to the act of infringement".  This is exactly what Graham J. and the Court of Appeal are saying the vendor may have done in circumstances such as those with which they were concerned.  In my opinion, in the present case also, the evidence raises a prima facie inference, the correctness of which should be left for determination at a hearing, that the United Kingdom company has made itself a party to the alleged acts of infringement of the Australian company.  Applying the principles which I discussed at some length in Trade Practices Commission v. The Gillette Company (supra), I dismiss the motion to set aside service.

     The only order I make at this stage is that the applicant bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of these reasons.  When the short minutes are brought in, I will hear any arguments as to costs.

     I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Burchett.

     Associate:

     Date: 20 January 1995

     Counsel for the Applicant:        Mr D.K. Catterns Q.C. with Dr A.C. Bennett

     Solicitors for the Applicant:         Palombi Hazan

     Counsel for the Respondents:      Mr R.J. Ellicott Q.C. with Mr A.J.L. Bannon

     Solicitors for the Respondents:   Allen Allen & Hemsley

     Date of hearing:                  18 October 1994