FEDERAL COURT OF AUSTRALIA

Pilkin v Sony Australia Limited [2018] FCA 1018

ORDERS

THE COURT NOTES THAT:

1.    The second applicant has passed away and the first applicant is unable to appear in person or by video link today, but consents to the hearing proceeding and relies on his written submissions and evidence.

THE COURT ORDERS THAT:

2.    Unless the Court otherwise orders, pursuant to r 9.10 of the Federal Court Rules 2011, if no order is made on or before 26 October 2018, in relation to the second applicant (deceased) pursuant to r 9.09, the second applicant’s claim be dismissed.

3.    The first applicant pay into Court the sum of $45,000 on or before 27 September 2018, failing which the proceeding be stayed until further order.

4.    The first and fifth respondents’ costs of the interlocutory application dated 29 March 2018 be their costs in the cause.

5.    The first applicant’s interlocutory application to strike out pleadings dated 21 June 2018 be dismissed with costs.

6.    The first and fifth respondents have leave to apply, pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth), on 2 November 2018, by filing an interlocutory

7.    The proceeding be stood over for case management on 2 November 2018.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    On 20 February 2018, Vitaly Pilkin and Vladimir Miroshnichenko (the applicants) commenced these proceedings against Sony Australia Limited, the first respondent, the fifth respondent, Sony Interactive Entertainment Australia Pty Ltd (collectively Sony Australia), and three of their related companies, claiming that all respondents had infringed Australian innovation patent number 2010101517 (the patent) in which Mr Pilkin and Mr Miroshnichenko were named as patentees. The patent claimed an invention of a sensor panel, display and joy stick arrangement in an electronic device. The applicants claimed that each of the respondents had infringed the patent in their sale and marketing of such a device in association with their PlayStation Vita PCH 1000 series product (the Vita device).

2    Subsequently on 23 April 2018, Mr Miroshnichenko passed away and Mr Pilkin has continued to represent himself thereafter. Sony Australia have applied for security for costs.

Background

3    The matter came before me for the first case management hearing on 23 March 2018 at which Mr Pilkin appeared in person in his own right and on behalf of Mr Miroshnichenko. In the course of the first case management hearing, I raised with Mr Pilkin some of the difficulties that attended his appearing for himself in the litigation. He appeared to be quite fluent in English and, indeed, the pleadings and other documents that he has filed in the course of the proceeding demonstrate that he has a substantial degree of fluency in the English language and an understanding of patent terminology, patent law, the complexities of the Patents Act 1990 (Cth), the Federal Court Rules 2011 and the Court’s practice notes, to which he has made numerous detailed and apparently relevant references.

4    However, Mr Pilkin, both during the first case management hearing and in his subsequent filing of an interlocutory application seeking to strike out or remove from the Court file Sony Australia’s interlocutory application for security for costs and the affidavit in support of it by their solicitor, Derek Baigent, affirmed 29 March 2018, has approached the proceeding on the basis that, first, the patent is valid before there has been any judicial determination of that question and, secondly, all the respondents have no defence. I explained to him on 23 March 2018 that the role of the Court was to determine both validity of the patent and any question of its infringement and that was something that had to happen after the parties had had a hearing.

5    Additionally, Sony Australia are the only two respondents that have been served. That is because the other three respondents are companies incorporated in the United Kingdom and the United States of America for which the applicants had sought an order for service outside the jurisdiction under r 10.43, but which application has not yet been determined. At the first case management hearing on 23 March 2018, Sony Australia said that they wished to seek an order for security for costs. It is that application and Mr Pilkin’s application to strike out with which I am dealing today.

6    Sony Australia filed their application for security on 29 March 2018 with Mr Baigent’s affidavit in support of it. Mr Pilkin filed a document in response to it on 21 June 2018 entitled “affidavit” that is unverified.

7    During the course of the first case management hearing Mr Pilkin, on a number of occasions, said that he and Mr Miroshnichenko had been unable to find a lawyer in Australia because of lack of funds. He said that he had had to come to Australia to appear personally rather than have a lawyer appear for him, and he wished in the future to be able to appear from Russia by a video link, at least, for case management hearings. He said that he would not be able to find funds to provide by way of security in four weeks and sought three months in which to do so. In the circumstances I considered that that was an appropriate period during which to adjourn the proceeding to give Mr Pilkin and the late Mr Miroshnichenko an opportunity to find money to provide by way of security for the preliminary part of the proceeding. I would then be able to manage any further orders for security as any need might arise later in the course of the proceedings.

8    Both Mr Baigent and Mr Pilkin identified that the applicants had sought to rely on the international patent filing system to obtain patent protection in a variety of jurisdictions, including the United States and the European Union. Mr Baigent identified records of the US Patent and Trademark Office that indicated that the applicants had abandoned, or had been deemed to have abandoned, their patent application there because they had not paid the appeal forwarding fee. Similarly, he provided records to demonstrate the European Patent Register disclosed that their application for a European patent was withdrawn for non-payment of the renewal fee.

9    On 6 February 2018, the United States District Court for the District of Columbia granted Mr Pilkin and Mr Miroshnichenko’s application to proceed to challenge the deemed abandonment of their patent in forma pauperis. Mr Baigent said that that appeared to be a process under which a petitioner to the District Court who lacked funds to pay court-related fees could apply to avoid being charged those fees.

10    There is no real dispute that Mr Pilkin resides in Moscow or somewhere else in the Russian Federation to which he has recently moved. He asked for permission not to appear today in a document that he sent to the Court and Sony Australia’s lawyers yesterday. He said that in mid-June 2018, he had moved to a new place of residence at which he had not been able to establish any video link arrangements so that he could appear, remotely, in Court today. He said that he had nothing to add to his arguments and proofs disclosed in his application to strike out the pleadings, his “affidavit” dated 21 June 2018 and his “submissions filed 27 June 2018”. Mr Pilkin asked that I treat “with understanding” his personal circumstances and conduct the hearing today in his absence, without treating that as being any suggestion of contempt.

11    I understand that Mr Pilkin has been unable to arrange his circumstances to appear in person or by video link today. Of course, I do not consider that he has shown any discourtesy or inappropriate behaviour towards the Court because he has not been able to arrange to appear today. He has set out very fully, respectfully, and clearly how he wishes to put his case in opposition to the application for security for costs and to seek to have Sony Australia’s application for such an order removed from the Court’s record.

12     Mr Pilkin included in his evidence in opposition to the interlocutory application an opinion by a patent attorney, Michael Buck, dated 15 March 2018 in which Mr Buck opined that the accused product, being the Vita device, had each of the features in the seven integers of the one and only claim in the patent. Therefore, in Mr Buck’s view, the Vita device infringed. Mr Buck added, at the end of his opinion, that it was usual for a defendant in a patent action to assert that the patent was invalid and that he, Mr Buck, had not investigated that question.

13    Mr Baigent noted that the applicants had set out, at the foot of their originating application and statement of claim, an address at a unit in the central business district of Sydney that did not appear to be where either in fact resided. Indeed, in other documents that the applicants have filed in the proceeding, they have always asserted, until Mr Miroshnichenko’s decease, that both lived in the Russian Federation. I am satisfied that that is still the case today in respect of Mr Pilkin, as he told me in open Court when he appeared in person on 23 March 2018. On that occasion, among other orders, I ordered interlocutory steps to be taken if, as occurred, Sony Australia filed an application for security for costs. In order 7 made that day, I ordered that the time for filing of Sony Australia’s defence be extended to a date to be determined after the hearing of the interlocutory application for security. Mr Pilkin appears to have overlooked that order in his arguments that I should proceed on the basis that all of the allegations in the statement of claim are taken to be admitted under the Rules because no defence has been filed. There is no requirement at the moment for a defence to be filed and no deemed admissions have occurred. Mr Baigent explained that he anticipated receiving instructions from his clients to file a defensive cross-claim alleging that the patent was invalid on at least the grounds of lack of novelty, innovative step, and support.

14    There is a cogent reason for such a defensive cross-claim, because, as the statement of claim disclosed, on 8 September 2012, the Chamber for Patent Disputes of the Rospatent, being the Russian Patent Office, upheld an opposition of a company related to Sony Australia to the grant of a patent and found the Russian version (indeed, source) of the patent failed to comply with the criterion of having an inventive step.

15    Thus the patent filed in the Russian Federation on which the current patent and those filed in the international system derive has been found invalid, at least administratively. Mr Pilkin emphasised his grievance that Rospatent had found that the patent was invalid in the Russian Federation in his affidavit of 21 June 2018. He made several serious allegations against various Sony companies and their Russian lawyers as to how that result had occurred. I consider that Mr Pilkin’s evidence is indicative of the fact that it will be highly likely that each of the respondents and certainly Sony Australia will rely on a defence that the patent is not valid and, accordingly, has not been infringed and will bring a cross-claim to have it removed from the Register of Patents.

16    Mr Baigent gave evidence, that I accept, that a significant amount of work will be required on Sony Australia’s part before they will be in a position to file their cross-claim. That work includes conducting prior art searches, a review of the relevant prior art documents, and relevant priority documents. It may also be necessary for them to obtain expert evidence. He opined that the conduct, and trial, of the proceedings are likely to be complex as, indeed, most patent litigation is, because it involves claims of infringement and invalidity. Mr Baigent identified the likelihood of an additional level of complexity that will be brought about because Mr Pilkin at this stage is not represented by lawyers familiar with the procedures of the Court and Australian patent and evidence law.

17    There is no doubt that Mr Pilkin has made a genuine and significant attempt to familiarise himself with the Patents Act, the Rules and practice notes of the Court and has sought, in his way, to conduct his side of the litigation as efficiently as he can.

18    Nonetheless, without in any way seeking to criticise him, some of what he has done reveals a lack of experience, as opposed to a lack of effort, in trying to comply with the Court’s processes. I think it is likely that the costs of the proceeding for the active respondents will be increased because of the difficulties that both Mr Pilkin and they will experience through the bona fide, but inexperienced, attempts Mr Pilkin will make in seeking to produce pleadings and evidence in appropriate and admissible form to enable the proceeding to be conducted efficiently.

19    Mr Baigent suggested that, ordinarily, a matter of similar complexity would take approximately two to five days to hear and that Sony Australia’s costs, including experts’ and counsel’s fees, would be in the region of between $500,000 and $750,000 exclusive of GST. However, he was more pessimistic as to the amount of costs that might be incurred because of the factors which I have mentioned relating to Mr Pilkin not being qualified as a lawyer to conduct patent litigation. Mr Baigent estimated that a result of this may be that the costs of bringing the matter to a completed trial could exceed $1million. He opined that the costs of preparing and filing Sony Australia’s cross-claim will be likely to amount to at least $100,000 on a solicitor/client basis. He opined that were Sony Australia to succeed, they would be able to recover in an ordinary taxation of costs between 60% and 70% of their outlay. However, he discounted that figure and suggested that an amount of $50,000 would be appropriate to award as security for costs for the period up to and including the close of the pleadings.

Mr Pilkin’s submissions

20    Mr Pilkin’s submissions in opposition to the claim for security accurately summarised much of the case against him. However, he argued that Sony Australia, in their submissions, had not contested his claim that he had proved infringement and that their argument that they would need to investigate bringing a cross-claim challenging the patent’s validity was an abuse of the process of the Court because, as he understood it, there was no real defence.

21    This indicates a degree of confusion on Mr Pilkin’s part of what is going on in the litigation at this point. He does not appear to have taken into account that order 7 made on 23 March 2018 excused Sony Australia from propounding any defence until after the question of whether the applicants should provide security for costs had been determined, as is usual and appropriate. This also indicates that there is some substance in Mr Baigent’s concern that Mr Pilkin’s unfamiliarity with legal process, understandable because he is not a lawyer, will occasion an extra level of complexity and cost in the further conduct of this litigation in the future.

22    Mr Pilkin argued that he had a valuable asset in Australia, being his patent. However, it is only as valuable as its validity. If it be found invalid (as it may be found to be should the litigation proceed), it will be worthless and Mr Pilkin will be liable to pay the costs of the proceeding. Of course, if Mr Pilkin’s patent is found to be valid, he will be entitled to whatever costs, as a litigant in person, he may be able to claim and he will not be liable for any costs payable to any respondent who appears. The basis of the application for security for costs is that, as is now the case since Mr Miroshnichenko’s decease, that the remaining applicant, Mr Pilkin, is resident out of the jurisdiction.

Consideration

23    Under s 56 of the Federal Court of Australia Act 1976 (Cth), the Court has power to order security for costs and to vary any such order from time to time. The Court may also have inherent power to do so, as discussed by Kenny and Edelman JJ in Commissioner of Taxation v Vasiliades (2016) 344 ALR 558 at 578 [70]-[71]. As their Honours said:

The discretion conferred by s 56 is a broad one, subject only to the limitation that it must be exercised judicially.

24    The discretion is not fettered by any a priori rules and does not fall to be applied in a mechanical way by encrusted procedures (see 344 ALR at 584 [90]). Importantly, their Honours pointed out, a significant consideration relevant to the exercise of the Court’s discretion in such a case is that the person against whom security for costs is sought is not ordinarily resident in the jurisdiction and has no assets here. Kenny and Edelman JJ said (344 ALR at 579-580 [74]-[75]):

it was common ground that [Mr Vasiliades] was an Australian non-resident without apparent assets in Australia. The significance of this consideration was emphasised in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321; 5 ACSR 633 …(in which the respondents applied for an order that the appellant provide security for the costs of its appeal). In reasons for judgment awarding security, McHugh J stated (at ALR 323; ACSR 635):

To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.

The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction is clearly a significant circumstance militating in favour of an applicant for security for costs. As the above passage highlights, however, there is no rule that security for costs will be awarded as of course where an applicant is resident out of the jurisdiction and has no assets within the jurisdiction. A case may disclose countervailing circumstances that properly justify refusing an application. (emphasis added)

25    Mr Baigent gave evidence that he arranged searches to ascertain whether Mr Pilkin and Mr Miroshnichenko had assets in Australia. The searches did not identify any assets here apart from the patent itself. Mr Pilkin does not appear to dispute that position.

26    There is no evidence that the Russian Federation would recognise or enforce, through its judicial system, any order for costs that this Court may make. The Russian Federation is not listed in the schedule to the Foreign Judgments Regulations 1992 as a foreign country to which Australia accords statutory enforcement of its judgments under s 5(1) of the Foreign Judgments Act 1991 (Cth) on the basis of “substantial reciprocity” of that country’s treatment of judgments of Australian superior courts.

27    There is no evidence from Mr Pilkin about how enforcement of an order for costs in this proceeding would occur in the Russian Federation or of any difficulty or facility with which such enforcement could occur there, were he ordered by this Court to pay costs and had not provided security within this jurisdiction to meet any such liability for costs. In that circumstance, I am not satisfied it would be appropriate to limit any order for security so as only to require an amount sufficient to enforce any costs orders in the Russian Federation. That is because there is no material before me to establish that any order of this Court would be enforceable, or readily enforceable, in that country.

28    While I am satisfied that Mr Pilkin has an arguable case that the patent has been infringed, I am also mindful that the source patent has been found invalid in Russia and that in other jurisdictions the applicants, including Mr Pilkin, have not been able to pay for the cost of administrative or legal proceedings in which they sought either to have the patent registered, recognised in a register of patents or enforced.

29    At the moment it is not possible to form any evaluation of the strength of Sony Australia’s potential defence in its foreshadowed cross-claim for invalidity because that has not yet been prepared or filed. However, there is significant evidence, in my view, that there is a real prospect that such a defence or cross-claim will be made out by reason of what has occurred in the Rospatent proceedings to which Mr Pilkin referred, although he claims that that result has been brought about by substantial irregularities in the process. There is no evidence, other than his assertion, of such irregularities. There is substantial reason to consider that, by reason of Rospatent’s finding that the patent lacks an inventive step, a similar consequence may obtain here. However, at this stage there is no evidence of invalidity of the patent in this jurisdiction and the only evidence that it may be is Mr Pilkin’s own evidence of the result in his home country.

30    In that situation I think it is appropriate to proceed only to assess a sum appropriate to award as security to enable Sony Australia to investigate and prepare their defence and cross-claim. That will leave, for another occasion, any consideration, with further evidence of what, if any, additional security should be ordered, once a defence and cross-claim have been filed and served and Mr Pilkin has had a chance to consider and respond to any such pleadings.

31    The claimed invention, being the combination comprising the seven integers in the sole claim in the patent, will need to be examined in the way Mr Baigent has indicated for the purposes of investigating the potential defences in support of any claims of invalidity. That is likely to be an expensive process. I am satisfied by Mr Baigent’s evidence that it may well cost in the order of $100,000.

32    In all of the circumstances, however, one or more Sony companies may already have done some considerable work internationally, including the work necessary to procure the result in Rospatent. It follows that I should make some allowance for that work having been done in arriving at an overall sum that is just to award in the circumstances.

33    I am also mindful that, in substance, the cross-claim that Sony Australia wishes to investigate bringing is substantially defensive to the infringement action. In Baygol Pty Ltd v Huntsman Chemical Co Australia Pty Ltd t/a RMAX [2004] FCA 1248 at [27]-[28], Tamberlin J summarised the principles as follows:

In my view, the distinction that Baygol seeks to draw lacks cogency precisely because the cross-claim for revocation in the present case is in nature, substance, and effect a defence to the infringement action. If the cross-claim succeeds and the patent is revoked then the claim for infringement does not succeed. It goes to the heart of Baygol’s claim that there is a valid patent that has been infringed. There could not be a more effective defence.

In Farmitalia [Carlo Erba Srl v Delta West Pty Ltd (1994) 28 IPR 336], Heerey J looked to the “substance” of the application for revocation and at [339], under the heading “Is Farmitalia’s Proceeding Essentially Defensive?” answered in the affirmative:

“… the Court will always look at the substance of the dispute. There may be circumstances where a party who is formally applicant on the record is in reality not the instigator of the litigation. The proceeding may be essentially defensive; it may, for example, be in substance a defence against ‘self-help’ measures taken by the respondent …” (Emphasis added)

At [341] his Honour continued:

“Secondly, Delta West’s case on invalidity is in any event a matter of defence. The counter-claim for revocation is really no more then the procedural consequence which will follow if Delta-West is successful in defending Farmitalia’s claim by showing that the patent in suit is invalid. Delta-West’s assertion of invalidity is, in substance as well as in form, a defence to the claim. … Invalidity is a defence to an essential part of Farmitalia’s claim, pleaded as such in its statement of claim.” (Emphasis added)

34    In the end, the question of whether to award security for costs against a person resident out of the jurisdiction and the amount of such security essentially involves the Court engaging in an instinctive synthesis of the various relevant factors in the exercise of its discretion. I have had regard to Mr Baigent’s quantification of the costs that are likely to be incurred at litigation were an order for security to be made. In all of the circumstances, I consider that I should make some discount to the $50,000 sought. That is because some of the material is likely to have already been considered and collated by Sony companies elsewhere in the world including, in particular, in the Rospatent proceeding.

Conclusion

35    Accordingly, I consider that it is appropriate and just to order that Mr Pilkin pay into Court the sum of $45,000 on or before 27 September 2018. I am mindful that he may have difficulties as a result of the unfortunate death of Mr Miroshnichenko and it will also be necessary at some point, reasonably soon, for this proceeding to be regularised by having Mr Miroshnichenko’s estate represented in the proceeding in his place. I propose to make an order that that be done by 26 October 2018 and to bring the proceedings before me for case management on 2 November 2018. In the event that Mr Pilkin does not pay into Court the amount I have ordered as security the proceeding must be stayed until further order.

Associate:

Dated:    5 July 2018

SCHEDULE OF PARTIES