FEDERAL COURT OF AUSTRALIA

Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 2) [2010] FCA 1451

THE COURT DECLARES THAT:

1.    The threats made by the first applicant by letters from its solicitors dated 14 November 2006, 5 December 2006 and 13 February 2007 to the second respondent and the respondents’ solicitors and threatening the bringing of infringement proceedings against the respondents for infringement of Australian Innovation Patent No. 2006100113 are unjustifiable.

2.    Australian Innovation Patent No. 2006100113 is not, and has not been, infringed by the respondents or either of them.

THE COURT CERTIFIES THAT:

3.    Pursuant to s 19 of the Patents Act 1990 (Cth), the validity of claims 1 to 5 of the Patent was questioned in this proceeding.

THE COURT ORDERS THAT:

4.    The applicants’ amended application dated 28 July 2008 by which they seek relief in relation to alleged infringement of Australian Innovation Patent No. 2006100113 by the respondents is dismissed.

5.    Save as to paragraphs 6, 7, 8 and 9 the respondents’ further amended crossclaim dated 14 April 2010 is otherwise dismissed.

6.    The applicants pay the respondents’ costs of and incidental to the amended application, including reserved costs (which includes the respondents’ costs of and incidental to the applicants’ notice of motion dated 15 April 2010), including the costs of the hearing on 26 October 2010; however, each party shall pay its own costs as to the costs hearing on 13 December 2010.

7.    The applicants pay the respondents’ costs of and incidental to the crossclaim for unjustified threats, including reserved costs.

8.    The respondents pay the applicants’ costs of and incidental to the crossclaim, apart from those attributable to the issue of their liability for unjustified threats, including reserved costs (which includes the applicants’ costs thrown away by and incidental to the respondents’ notice of motion dated 6 April 2010).

9.    There be an enquiry into the amount payable by the applicants to the respondents by way of damages in respect of the crossclaim for unjustified threats.

10.    Pursuant to para 7 of the orders of French J made on 19 June 2008, paras 6, 7, 8 and 9 of the respondents’ further amended crossclaim dated 14 April 2010 are adjourned generally for the making of further directions in relation to those claims for further relief thereon.

11.    Liberty to apply on 3 days notice.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

final orders consequential on reasons for decision

1    On 29 October 2010, the Court gave reasons for decision in this proceeding: Australian Mud Company Pty Ltd v Coretell Pty Ltd [2010] FCA 1169.

2    In summary, the Court found that:

(1)    there was no infringement by the respondents of Australian Innovation Patent No 2006100113;

(2)    the first applicant had made unjustified threats of patent infringement to the respondents, as pleaded; and

(3)    the respondents’ challenge to the validity of the patent on the pleaded s 40 grounds was unsuccessful.

Final orders proposed by first applicant

3    In light of the Court’s findings, the first applicant proposes that the Court make the following declarations, certification and orders, namely:

The Court Declares That:

1.    The threats made by the first applicant by letters from its solicitors dated 14 November 2006, 5 December 2006 and 13 February 2007 to the second respondent and the respondents’ solicitors and threatening the bringing of infringement proceedings against the respondents for infringement of Australian Innovation Patent No. 2006100113 are unjustifiable.

2.    Australian Innovation Patent No. 2006100113 is not, and has not been, infringed by the respondents or either of them.

The Court Certifies That:

3.    Pursuant to s 19 of the Patents Act 1990 (Cth), the validity of claims 1 to 5 of the Patent was questioned in this proceeding.

The Court Orders That:

4.    The applicants’ amended application dated 28 July 2008 by which they seek relief in relation to alleged infringement of Australian Innovation Patent No. 2006100113 by the respondents is dismissed.

5.    Save as to paragraphs 6, 7, 8 and 9 the respondents’ further amended crossclaim dated 14 April 2010 is otherwise dismissed.

6.    The applicants pay the respondents’ costs of and incidental to the amended application, including reserved costs (which includes the respondents’ costs of and incidental to the applicants’ notice of motion dated 15 April 2010).

7.    The applicants pay the respondents’ costs of and incidental to the crossclaim for unjustified threats, including reserved costs.

8.    The respondents pay the applicants’ costs of and incidental to the crossclaim, apart from those attributable to the issue of their liability for unjustified threats, including reserved costs (which includes the applicants’ costs thrown away by and incidental to the respondents’ notice of motion dated 6 April 2010).

9.    There be an enquiry into the amount payable by the applicants to the respondents by way of damages in respect of the crossclaim for unjustified threats.

10.    Pursuant to para 7 of the orders of French J made on 19 June 2008, paras 6, 7, 8 and 9 of the respondents’ further amended crossclaim dated 14 April 2010 are adjourned generally for the making of further directions in relation to those claims for further relief thereon.

11.    Liberty to apply on 3 days notice.

4    The respondents’ agree with what is proposed by the first applicant in paras 1 – 5 and 10 and 11, and largely with para 8.

5    The difference between the parties concerns the order, or orders, that the Court should make in relation to costs.

6    In this regard, the applicants propose that there be costs orders that directly reflect the success of the parties respectively on the main application, the crossclaim, the amendments to the crossclaim and the notice of motion to add parties. The respondents primarily propose that the applicants should pay the respondents’ costs, including all reserved costs of and incidental to the proceeding, “less 20%”, to reflect the overall success of the respondents in the proceedings and to achieve efficiencies in the process of costs assessment.

Consideration

7    Ordinarily, costs follow the event, so that the successful party in a particular proceeding or crossclaim should be entitled to an order for costs. Nonetheless, it is recognised that the Court has a discretion to be exercised judicially that may result in a costs order being framed to deal with the justice of a particular case.

8    In some cases, for example, where there has been more than one major issue and the party which may be considered to have won the litigation overall loses along the way on a particular issue, that party may either be required to pay costs in relation to the lost issue or may receive a costs order that recognises it is not entitled to recover costs fully having regard to the lost issue. This approach has been recognised in a number of situations, including patent infringement litigation.

9    Accordingly, in H Lundbeck A/S v Alphapharm Pty Ltd (No 2) [2009] FCAFC 118 (Lundbeck), Bennett and Middleton JJ, in a joint judgment in a patent case, at [7]–[12], observed:

    The Court has a broad discretion in relation to costs under s 43 of the Federal Court of Australia Act 1976 (Cth).

    It is not uncommon for the Court to apportion costs between parties, depending on their success on different issues.

    However, fairness does not indicate an “issues” approach on all occasions.

    In that particular case, the Court should not treat the appeals and crossappeals separately for the purposes of identifying the successful party. The fairer approach was to consider the ultimate position of the parties as a result of the decision of the Full Court in both the appeals and crossappeals and thereafter to consider any necessary reduction in costs otherwise awarded to the successful parties on an “issues” basis.

    Allowing for the time taken at the appeal on the issues and the extent of success of the appellant, as a fair estimate, a discount of 50% should be made to reflect the appellant’s success.

10    Where a discount is awarded, it will reflect the circumstances of the particular case. The Court will not simply apply an arbitrary discount. As a matter of outcome, leaving aside the 50% discount awarded in Lundbeck, other cost decisions disclose that very often the discount is not that large. See Stena Rederi Aktiebolag v Austal Ships Sales Pty Ltd [2007] FCA 1141 at [11]; Ranbaxy Australia Pty Ltd v Warner-Lambert Company LLC (No 3) [2006] FCA 1797 at [2]-[10]; Doric Products Pty Ltd v Lockwood Security Products Pty Ltd (2002) 54 IPR 495 at 499, Patent Gesellschaft AG v Saudi Livestock Transport & Trading Co (1996) 33 IPR 461 at 463-465, E I Du Pont de Nemours & Co v Imperial Chemical Industries PLC [2002] FCA 459; NutraSweet Australia Pty Ltd v Ajinomoto Co., Inc. (No 2) [2005] FCA 1907; c/f Ajinomoto Co Inc v NutraSweet Australia Pty Ltd (No 2) [2008] FCAFC 55. See also generally the Full Court (Emmett, Stone & Bennett JJ) decision in JMVB Enterprises (Formerly A’Van Campers Pty Ltd) v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 at [8].

11    In some circumstances, however, the Court has held that the successful party (for example, the alleged patent infringer) should pay the unsuccessful party’s costs on a particular issue (for example, the patentee’s costs of a crossclaim relating to allegations of lack of novelty, lack of inventive step and false suggestion) because that party has not succeeded on the crossclaim in respect of those issues. See, for example Uniline Australia Ltd v SBriggs Pty Ltd (No 2) [2009] FCA 920.

12    The respondents say that on an issues basis in this proceeding, the applicants were entirely unsuccessful in their claim of patent infringement against the respondents and, in consequence, also became liable to the respondents pursuant to the crossclaim for the unjustified threats made by the letters, as pleaded. They say it should be remembered that it was the applicants who commenced the proceedings and forced the respondents into court to seek relief for asserted patent infringement upon which they failed. All activities of the respondents thus were in defence of circumstances in which the respondents were unwilling participants.

13    The respondents say that the overwhelming portion of the proceeding was concerned with the infringement issue and on that issue the applicants were unsuccessful.

14    The respondents accept that they were unsuccessful in that part of the cross-claim based on the confined s 40 grounds, as ultimately pleaded, following the jettisoning of other grounds. However, they seek some credit for late amendment in that regard. The respondents say because there was no significant written evidence in relation to that issue, and little of the trial and the decision was devoted to it, any discount allowed to the applicants should be minimal.

15    The respondents say that acceptance of any proposal by the applicants that each of the parties should bear its own costs in the proceeding would be unfair to the respondents because it would fail to take account of the small amounts of time and cost at trial devoted to the cross-claim, and the fact that the cross-claim was, the respondents say, fundamentally a defensive measure.

16    On the issue of the respondents’ pleading amendments very late in the piece, the applicants acknowledge that it is true that the narrowing of the invalidity grounds to the confined s 40 points as pleaded, meant that the respondents substantially confined the issues for trial, but that this caused costs to be thrown away by the applicants. Nonetheless, the respondents say they acted “commendably” in confining the issues for trial and that this should be borne in mind.

17    The respondents then say that the question here is, how much discount should be imposed on the costs to which the respondents are otherwise entitled for being the successful party in the proceeding, having regard to the thrown away costs resulting from their late amendments and the relatively incidental and confined s 40 issues upon which the respondents were not successful.

18    The respondents say that a 20% discount is the maximum amount that would be appropriate. Beyond that, the respondents do not consider any discount would be appropriate and, if the Court were inclined to impose a discount beyond 20%, would prefer to submit to the costs orders proposed by the applicants.

19    The respondents reasonably emphasise that the costs approach they contend for has the advantages of resolving the assessment of costs expeditiously and avoids the parties incurring additional costs.

20    I should say that I consider the objectives of expedition and further costs saving to be extremely relevant factors to the judicial exercise of the costs discretion in litigation such as patent infringement litigation where there may often be a successful party overall, although that party may lose certain issues along the way.

21    The difficulty, however, that I have in this case, is that the contested area affected by the costs thrown away following the late amendment to the crossclaim, was ultimately an area that did not need to be considered at the trial. In a case where all the issues have been played out before the trial judge, and one party is the successful party overall, even though it may lose on some issues, the trial judge will usually be in a very good position to decide whether a discounted costs order is appropriate, and if so to assess the percentage of the discount. That is because the judge has become very familiar with all aspects of the case.

22    In the present case, the respondents say that a 20% discount is generous and will necessarily cover all of the costs thrown away by their late amendment on the crossclaim. However, senior counsel for the applicants says that the Court is not in a proper position to make any assessment about how extensive the costs thrown away might be, and the applicants are not prepared to accept a 20% discount. They would prefer to have a distinct costs order in their favour in respect of the costs thrown away and therefore resist the discounting costs approach proposed by the respondents.

23    In response to that submission, senior counsel for the respondents says there is no reason why the Court could not look at the Court file, as a taxing officer would, to determine relatively quickly for itself the extent of evidence, preparation and the like relating to those issues that were ultimately not run by the respondents in the crossclaim at the trial. The Court could then determine the reasonableness of a 20% discount.

24    While that suggestion by the respondents may, in some cases, be a reasonable one and a judge might, in order to advance the determination of costs expeditiously and to avoid the parties incurring substantial further costs, adopt it, I am not attracted to it in this case.

25    In these circumstances where the Court has not seen all of the issues initially raised in the crossclaim played out at trial, I simply do not consider that I have an appropriate basis upon which to determine that a 20% discount of costs (or some other percentage) in favour of the respondents overall would be appropriate. I do not consider that perusal of the Court file will easily, if at all, help in this regard. In other words, despite my inclination to support the respondents’ approach as a matter of practice in litigation of this type, I am not satisfied that I should, upon the judicial exercise of the costs discretion, make an order of the type for which the respondents contend.

26    In these circumstances, I decline to make the order proposed by the respondents. Rather I think it is appropriate, in the circumstances of this case, to make costs orders in the terms proposed by the applicants.

27    While the costs orders I will make on this basis will involve an additional costs assessment process, I remain confident that it will be relatively confined and not add excessively to the costs of that assessment process.

28    In this regard, I should add that I agree generally with the submissions made on behalf of the respondents and set out above, to the effect that the confined s 40 issues raised in the crossclaim did not occupy any significant part of the trial or the decision. They were relatively minor aspects of the proceeding.

29    The more taxing costs assessment process will be in relation to the applicants’ costs thrown away by the late amendment introducing the confined s 40 issues.

30    I should also add that as commendable as it is that a party refrain from running unnecessary issues at a trial, that is not a factor that, in this issue, alters the exercise of the judicial discretion. The applicants were put to the trouble of discovery raised by the respondents that remained in issue until the last minute before trial. Plainly, they are entitled to their costs thrown away by that late change in position.

conclusion and orders

31    For these reasons, I would make the orders proposed by the applicants.

Associate:

Dated:    22 December 2010