FEDERAL COURT OF AUSTRALIA

Encompass Corporation Pty Ltd v Infotrack Pty Ltd (No 3) [2018] FCA 942

ORDERS

THE COURT ORDERS THAT:

1.    The Applicants pay the Respondent’s costs of the main proceeding and the proceeding on the cross-claim as taxed or agreed.

2.    The amount in order 1 be reduced by 45%.

3.    No order as to costs in relation to the costs argument.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

1    On 29 March 2018 I delivered reasons for judgment in which I concluded that the Applicants’ Amended Originating Application alleging patent infringement should be dismissed and that the Respondent’s cross-claim seeking revocation of the two patents in question should be upheld: Encompass Corporation Pty Ltd v Infotrack Pty Ltd [2018] FCA 421 at [237]. Orders giving effect to these conclusions were made on 12 April 2018. There remains the question of costs.

2    The Applicants were successful on ten of the eleven issues ventilated at trial. It is accepted by both sides, therefore, that the Applicants should not have to bear all of the Respondent’s costs of the trial. The general principle that the successful party is entitled to its costs is agreed not to be the point of departure in this case. The parties differ only as to the amount of the appropriate reduction which is to be applied. The Applicants submit that the costs of its proceeding and those of the Respondent’s cross-claim should be dealt with globally by means of a single costs order and that that costs order should then be reduced by 70%. The Respondent submits that the reduction should only be 25%. At the hearing of the costs debate it also submitted that it might be appropriate to deal with the costs of the cross-claim separately to those of the main proceeding. Although I see some force in that submission I think it would be more practical to treat the matter globally as it will simplify any subsequent taxation. The issues relating to the cross-claim can, in any event, be brought to account in the selection of the appropriate reduction rate.

3    As it is not in issue that there should be some reduction the only issue is by how much. The proposed apportionment is on the basis of success or failure on distinct issues which is a recognised category of case where apportionment may be appropriate: see Ruddock v Vadarlis (No 2) [2001] FCA 1865; 115 FCR 229 at 236 [15] per Black CJ and French J.

4    The issues in the proceedings were:

1.    Infringement;

2.    Construction;

3.    Novelty;

4.    Self-anticipation;

5.    Innovative step;

6.    Whether the disclosure of the invention in the Patents was adequate;

7.    Support;

8.    The priority date;

9.    Manner of manufacture;

10.    Secret use; and

11.    Whether the First Applicant was the exclusive licensee of the Patents.

5    Well in advance of the trial, the Respondent conceded that if the Patents were valid it had infringed them. At the trial, the Respondent succeeded only because it prevailed on the issue of manner of manufacture. On every other dispositive issue it lost. Both parties had some success on the construction issues (which were not in themselves dispositive).

6    The relevant considerations to the question of costs seem to be tenfold.

7    First, the issue of manner of manufacture overlapped to an extent with novelty and innovative step. I do not accept the Respondent’s submission that it also overlapped with the self-publication issue.

8    Secondly, I do not accept that the Respondent should be given some allowance because it prevailed on a sub-issue within the overall innovative step analysis. Here the point was that claim 1, claim 3 (insofar as it depended on claim 1) and claim 4 of the 164 Patent did not involve a purchasing step. Since it was only the purchasing step which had involved an innovative step it followed, so the Respondent submitted, that it could have worked around both Patents by providing a subscription service in light of my conclusion that such a service did not constitute a purchasing step. Whilst I admire the ingenuity of this submission, I do not think that I should accept it. It involves a degree of speculation which, as Mr Lang for the Applicants pointed out, did not rest on any evidence.

9    Thirdly, I do not accept the Respondent’s submission that ‘most’ of the submissions made and the evidence adduced at the trial were ‘directly relevant to the grounds on which [the Respondent] was successful’. Leaving to one side the debating point that there was only one ground on which it succeeded, I consider that this submission involves a degree of forensic overreach. I do not think that the manner of manufacture issue had any connexion with the issues of: disclosure, support, self-anticipation, secret use, priority date or the exclusive licence issues. Whilst it is true that the manner of manufacture issue was certainly at the forefront of the trial at least in the sense that both sides’ representatives plainly regarded it as the most interesting issue in the case, I do not think that it occupied quite the central role that the Respondent now seeks to attribute to it.

10    Fourthly, on the other hand, I do accept that complex litigation has a tendency to generate multiple issues which will frequently overlap and that that feature can mean that an issues-based apportionment can work an unfairness. One starts of course with the proposition that the successful party is generally entitled to its costs. Costs determined by issue is a departure from the norm: Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; 247 FCR 61 at 132 [306]. On the other hand, the risks associated with an issue-based approach will be less where the Court can achieve clarity about the non-interrelated nature of one or more of the issues.

11    Fifthly, there is force in the Respondent’s submission that it was confronted with a very large claim for damages and, in that circumstance, was entitled to defend itself by means of all reasonable grounds of defence which were available to it. Whilst I regarded a few of the Respondent’s more imaginative claims as perhaps approaching the pale, I do not think they quite reached it.

12    Sixthly, I do not accept the Respondent’s submission that the Applicants are to be admonished because they declined, at an early time, the Respondent’s invitation to try the question of whether the Patents disclosed a manner of manufacture as a separate question. With the wisdom of hindsight that now appears to have been a course which could have resulted in substantial savings. But I regard it as very unlikely that I would ever have acceded to such an application. This is particularly so given both parties now accept that there was a degree overlap between manner of manufacture and some of the other issues which suggests that the Respondent’s enthusiasm for the separate question procedure (which depends for its utility on the ability to carve out the manner of manufacture issue cleanly from all other issues) does not fit comfortably with its submissions on overlap; especially the submission noted above that most of the submissions and evidence adduced at trial were ‘directly relevant’ to the manner of manufacture issue.

13    Seventhly, I do not think that the failure of the Applicants to accept an offer contained in a Calderbank letter and an offer of compromise under r 25.01 of the Federal Court Rules 2011 (Cth) impacts on the present issues. The Respondent accepted that neither gave rise to any entitlement on its part to indemnity costs and it was plainly not unreasonable for the Applicants to have refused them. I do not think that the fact that the Respondent had attempted to compromise the proceeding has any impact in this case on the level of any reduction.

14    Eighthly, I do not accept that the need of the Applicants to file expert evidence on the issue of infringement should affect the reduction rate. There is an initial question as to whether this argument was actually advanced. It certainly appeared at para 13(a) of the Applicants’ written submissions. A subsequent email from counsel dated 19 April 2018 said that that paragraph was not relied upon. Yet both parties appeared to address it in oral submissions. I propose to proceed on the basis that the issue is live and I must decide whether the Applicants were unnecessarily put to the expense of Professor Estivill-Castro’s evidence. The Applicants submit, in that regard, that they had to prepare substantive evidence on the issue of infringement in the form of Professor Estivill-Castro’s affidavit which they now say was wasted effort once the Respondent admitted infringement. That argument sounds plausible but the Respondent submits that the Applicants’ pleading of infringement was obscure and lacking in clarity, that Professor Estivill-Castro’s report brought into clarity for the first time the nature of the Applicants’ infringement claims, that the Applicants’ pleading was subsequently amended to pick up the Professor’s views, and that when this happened the Respondent promptly admitted infringement.

15    To resolve this debate it is necessary first to determine whether the Applicants’ pleading was obscure in the way alleged by the Respondent and whether, if so, it was this obscurity which prevented it from admitting those allegations. Paragraphs 8 and 9 of original statement of claim were as follows:

‘8.    From a date not known to the Applicants, but since at least March 2015, the Respondent has operated hardware and/or software constituting a data visualisation information management platform known as Reveal (the Respondent’s Platform).

(i)    The Respondent operated the Respondent’s Platform in the following manner:

a.    A customer orders a search report from the Respondent via its website www.infotrack.com.au.

b.    When a customer opens a search report, the Respondent’s website provides a prompt which permits the customer to access the Respondent’s Platform and, if so, access to the Respondent’s Platform is then provided.

c.    The Respondent’s Platform generates a representation of a network of entities from a search report which is displayed to the customer. The entities displayed in the network representation are identified by entity type, including person, company or place.

d.    Various searches are available to be performed in relation to individual entities displayed in the network representation. The searches available for a particular entity depend upon the type of that entity.

e.    The customer is able to select any entity in the network representation and order a search report in relation to the selected entity from the available search reports for that type. The report may be a purchased report from the Respondent.

f.    Information from the further report described above may be provided in a separate report and/or displayed in the network representation.

9.    The operation of the Respondent’s Platform involves the use by the Respondent of a method of displaying information having all of the integers of claims:

(a)    1, 2 and 3 of the 164 Patent; and

(b)    1, 2, 3 and 4 of the 413 Patent.’

16    The Respondent’s complaints in its original defence about paragraph 8 were that: (a) neither it nor its particulars identified the ‘hardware and/or software’ which was said to constitute the ‘data visualisation information management platform known as Reveal’; and (b) it did not identify what acts of ‘operation’ the Respondent carried out with respect to that hardware and/or software. As for paragraph 9 the complaint was that: (a) it did not identify which parts of the ‘Reveal Process’ were used by the Respondent; (b) which parts or types of uses were said to embody claims 1-3 of the 164 Patent and claims 1-4 of the 413 Patent; and, (c) it did not identify the matters relied on to make good the allegation that the operation of the Reveal Platform involved the use of an method which had all of the integers of claims 1-3 of the 164 Patent and claims 1-4 of the 413 Patent.

17    Some of these criticisms are well-founded. Paragraph 8 does not say whether the hardware or software was running on the Respondent’s own system or whether instead it was being executed on the consumer’s device. Similarly, it is unclear what a search report is for the purposes of paragraph 8. Given that the question of infringement was always going to drive the scope of any injunctive relief it seems to me that was quite reasonable for the Respondent to desire to know precisely how the infringement case was put before it began to make admissions.

18    Professor Estivill-Castro’s affidavit was provided shortly after 19 July 2016 and the Applicants’ pleading was amended to reflect the Professor’s report which was subsequently filed on 2 August 2016. In my view, it was reasonable for the Respondent to take the position that it did. But does this mean that the Applicants lose their entitlement to the costs associated with the preparation of Professor Estivill-Castro’s affidavit? I do not think that it does. If his evidence had been prepared to assist in the drafting of the original version of the statement of claim then the costs of its preparation would have been recoverable. It can be no different, in principle, when the same work is done later. The tardiness of the Applicants in putting their house in order on the question of infringement is not the cause of the expense of preparing the Professor’s affidavit but merely goes to the timing of that expense. In fact, the lateness of the Applicants in clarifying their infringement case in all likelihood caused the prolongation of the issue of infringement until 2 August 2016 and this quite possibly occasioned expenditure which can now truly be seen as having been wasted (for example, the tireless production of correspondence on the infringement issue). However, the present claim by the Applicants was not put on that basis. Even if it had been, I would have been inclined to regard that matter as sufficiently minor to allow it to be discounted altogether from consideration. For completeness, I note that order 2 of 27 July 2016 ordered the Applicants to pay the Respondent’s costs thrown away by reason of the amendment. Neither party sought to make anything of this.

19    Accordingly, I do not think this should be reflected in the reduction rate.

20    Ninthly, I am not persuaded by the Applicants’ complaints about the manner in which the Respondents had raised the issues of secret use and novelty by self-publication. The Applicants submitted that this had occurred on the eve of the trial and had involved them in considerable work and, therefore, wasted expenditure. A particular aspect of this complaint which the Applicants emphasised was the additional evidence this required them to put on and the further discovery they were then obliged to give.

21    The Respondent submitted that it was the Applicants which were responsible for the delay. The evidence before the Court shows a long correspondence between the parties on multiple discovery topics beginning on 21 June 2016 and ending on 3 August 2016. The application for discovery was made shortly before I determined it on 13 December 2016. Recourse to that correspondence shows that the rights and wrongs of what occurred are very blurry. I do not accept that the Applicants have demonstrated what they allege.

22    Tenthly, it is relevant to note that the manner of manufacture point occupied approximately 37% of the time used up in final submissions. It also occupied a large part of the opening submissions, although the precise extent of that is not altogether clear.

23    What is the appropriate reduction? As I have said, I do think that a global costs order should be made in relation to the main proceeding and the cross-claim to ease the process of any taxation. My initial impression after concluding the reasons for judgment for the trial was that every conceivable point had been put up by the Respondent, including some of little merit. I had in mind, in particular, the secret use and exclusive license points which seemed a long way down the batting list with the bowlers. However, it would be a mistake to characterise all the Respondent’s defences as being of that character.

24    Further, a number of the other issues were interrelated with the manner of manufacture issue. There is also force in the contention that the Applicants’ proceeding presented the Respondent with a real risk of an adverse and significant damages award. In proceedings of that kind it may be expected that no stone is likely to go unturned even if it ultimately transpires that some of the stones were perhaps best left undisturbed.

25    These observations lead me to conclude that a more modest reduction than the 70% urged by the Applicants should be adopted. Having regard to all of the above matters, I propose to order a 45% reduction so that the Applicants will pay 55% of the Respondent’s costs as taxed or agreed.

Associate: 

Dated:    22 June 2018