FEDERAL COURT OF AUSTRALIA

Novozymes A/S v Danisco A/S (No 2) [2013] FCAFC 55

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

THE COURT DECLARES THAT:

1.    So far as claimed by claims 1, 2, 3, 4, 5, 6, 7, 8, 9, 14 and 15, the invention the subject of Australian Patent No. 752215 published on 12 September 2002 as Application No. 1999047942 B2 is not a patentable invention for the purposes of s 18(1) of the Patents Act 1990 (Cth).

THE COURT ORDERS THAT:

2.    So far as it relates to claims 2, 3, 4, 5, 6, 8, 9, 14 and 15, Australian Patent No. 752215 be revoked.

3.    Paragraphs 7, 8 and 11 of the orders made by the primary Judge on 20 April 2011 be set aside.

4.    The appellants be released from the undertaking given to the Court noted in paragraph 13 of the orders made by the primary Judge on 20 April 2011.

5.    Subject to –

(a)    paragraph 4 of the orders made by the primary Judge on 4 November 2009;

(b)    paragraph 9 of the orders made by the primary Judge on 20 April 2011; and

(c)    any interlocutory costs order made in favour of a particular party or parties;

the respondents pay the following proportions of the appellants’ costs of the proceeding before the primary Judge:

(i)    85% of those costs incurred on or before 16 October 2009; and

(ii)    100% of those costs incurred after 16 October 2009.

6.    The respondents pay the appellants’ costs of the appeal.

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

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1    On 4 February 2013, we upheld the appeal and made certain orders in this proceeding: Novozymes A/S v Danisco A/S [2013] FCAFC 6. We then required the parties to file written submissions as to:

(a)    what, if any, further orders should be made with respect to the orders made by the primary Judge other than those referred to in Order 1 above;

(b)    whether any, and if so which, of the other claims in the said patent should be revoked in the light of the revocation of Claims 1 and 7 and of the reasons given by the Full Court this day; and

(c)    what, if any, orders should be made as to costs, in relation both to the proceeding before the primary Judge and to the appeal.

The parties have now filed those submissions, and these reasons deal with the disposition of the matters to which they relate.

2    It is convenient to commence with item (b) referred to in the previous paragraph. The parties are in agreement that claims 2-6, 8, 9, 14 and 15 of the patent in suit should also be revoked, and we shall make an order to that effect.

3    Turning to item (a), the parties are also in agreement that the appellants should be released from the usual undertaking as to damages given by them as the price for the granting of a stay of the operation of the injunctive order made by the primary Judge on 20 April 2011. We shall order accordingly.

4    In the minutes of order attached to their written submissions, the appellants sought a declaration that the claims upon which they succeeded in the appeal “are invalid”. We do not consider that to be the appropriate form of declaration in a case such as the present. However, a declaration should be made as it would make clear the basis upon which those claims are being revoked. We propose to declare that, so far as claimed by claims 1, 2, 3, 4, 5, 6, 7, 8, 9, 14 and 15, the invention the subject of Australian Patent No. 752215 published on 12 September 2002 as Application No. 1999047942 B2 is not a patentable invention for the purposes of s 18(1) of the Patents Act 1990 (Cth).

5    The respondents seek an order in the following terms:

Within 28 days of the date of these orders, the First Respondent apply for leave to amend the specification of Australian Patent No. 752215 pursuant to s 104 of the Patents Act 1990 (Cth) so as to delete claims 1 to 9, 14 and 15 and to effect the consequential re-writing of claims 10 to 13 in light of the deletion of claims 1 to 9.

The point of an order in these terms, it was said, was to remove any doubt as to the ability of the Commissioner to act on an application to amend, which the respondents propose to make under s 104 of the Patents Act, to express the remaining, unrevoked, claims in the patent in suit in terms which are not grammatically linked to the claims which have been revoked. However, no basis upon which there might be some doubt about that subject was proffered by the respondents. In our view, the proposed order would not only be unnecessary, it would travel beyond the proper function of the court in a proceeding of the present kind.

6    Turning to the question of costs, we deal first with the consequences of the disposition of the appeal for the parties’ costs in the proceeding before the primary Judge. At that level, the appellants contended that the patent in suit was invalid for lack of novelty, for obviousness, for want of clarity and as not amounting to a manner of manufacture. Her Honour’s conclusion that the patent was not bad for obviousness was not challenged on appeal. We have upheld the appeal with respect to the novelty point, and rejected it with respect to the manner of manufacture point. We also rejected the appellants’ case on clarity, but to reach that point we were required to consider the parties’ submissions on the construction of the patent, in which respects our conclusions were more in line with the submissions made on behalf of the appellants than with those made on behalf of the respondents. In the result, the position which was upheld on appeal was that the patent should be construed as proposed by the appellants, that the patent, as so construed, was not unclear, that the invention had been anticipated by two of the four citations relied upon by the appellants and that the invention was a manner of manufacture. Had these been the findings of the primary Judge, the question would then have arisen whether the appellants’ presumptive entitlement to their costs in the proceeding as a whole should to some extent be qualified by reference to the “issues” upon which the respondent succeeded: see Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, 234-235 [11].

7    Subject to what follows in these reasons, we take the view that such a qualification would have been appropriate at first instance, and is now appropriate with respect to the costs of the trial as the result of the disposition of the appeal. With respect to the discrete grounds of invalidity upon which the appellants failed – obviousness and manner of manufacture – we take the view that they should not be entitled to their costs and that the respondents should be entitled to their costs, incurred only in connection with those grounds. That is to say, costs which would in any event have been incurred with respect to other dimensions of the case should not be the subject of this exception. On the other hand, we do not consider that the appellants’ presumptive entitlement to so much of their costs as related to their novelty case should be qualified by reference to citations with respect to which they did not prevail. This involves, we accept, an element of judgment, but we take the view that each of the citations upon which the appellants relied, including those with respect to which they ultimately failed, was reasonably and responsibly made part of the litigation, at least to the extent of justifying a conclusion that the costs of the appellants’ novelty case should not be carved up as though that case involved discrete “issues”.

8    The respondents proposed that, to reflect the measure of success which they achieved in the proceeding and on appeal, the appellants’ entitlement to costs at both levels should be discounted by 20%. Having regard to the matters referred to in the previous paragraph, and to the parties’ estimates of the extent to which costs were incurred in the various aspects of the case, we consider that this discount should be 15% only. Subject to what follows in these reasons, the appellants should have 85% of their costs at first instance.

9    The conclusion which we have just expressed with respect to the costs of the proceeding before the primary Judge is subject to two provisos. The first relates to interlocutory orders for costs which her Honour made in the course of the proceeding. Nothing put to us on appeal would make it appropriate to reverse an interlocutory costs order made in favour of a particular party.

10    The second proviso relates to offers of compromise which the appellants made before the proceeding below came on for hearing at trial. The first offer, dated 7 April 2009, was made at a time when the appellants’ allegedly infringing product upon which the respondents sued was Lipopan F. That offer was not accepted, but, for reasons which will appear, it does not need to be further considered.

11    The second offer of compromise was made on 9 October 2009. By then, the respondents’ allegations had been expanded to encompass Lipopan Xtra. The appellants’ offer contained two proposals, one of which related to Lipopan F, and the other of which related to the balance of the proceeding. The first proposal was that the respondents’ claims with respect to Lipopan F be dismissed, and that the parties bear their own costs. By correspondence from the respondents’ solicitors dated 16 October 2009, that proposal was accepted. As a result, on 4 November 2009, the primary Judge made orders by consent that the respondents’ claim for relief against the appellants relating to Lipopan F be dismissed, with no order as to costs. Consequently, however else we should deal with the question of the costs of the proceeding at first instance, there should be no order that would require any party to pay the costs of any other party with respect to so much of the proceeding as related to Lipopan F.

12    The second proposal in the appellants’ correspondence of 9 October 2009 related to Lipopan Xtra. The proposal was that the respondents’ claims in relation to that product be dismissed, that the respondents grant the appellants, and their customers, a non-exclusive, royalty-free licence in respect of the patent in suit, that the appellants withdraw their cross-claim for revocation of that patent, and that the parties bear their own costs. This proposal was rejected by the respondents.

13    It was not suggested on behalf of the appellants that the respondents’ rejection of the second proposal forwarded on 9 October 2009 had any consequences under the rules of court. Rather, reliance was placed upon the general discretionary principles which have come to be associated with the judgment of the Court of Appeal in Calderbank v Calderbank [1976] Fam 93. Although the appellants, in their solicitors’ letter of 9 October 2009, foreshadowed an application for indemnity costs in the event that they should succeed in the proceeding with respect to Lipopan Xtra, they now say that the respondents’ rejection of the second proposal should be regarded as relevant to our decision whether to give effect to the issues-based approach to costs determination referred to in Ruddock v Vadarlis (No 2). No claim is presently made for indemnity costs.

14    There can be no doubt but that the Lipopan Xtra proposal which the appellants made on 9 October 2009 would have represented a better outcome for the respondents than that which they have now achieved as a result of the judgment of the Full Court. In those circumstances, we are disposed to view the offer as akin to one made by a defendant in an action for damages which is not bettered by the plaintiff in his or her judgment as obtained. The broad discretion which we have under s 43 of the Federal Court of Australia Act 1976 (Cth) is sufficient to permit us to take into account the terms of the offer, and its relation to the judgment which, according to the Full Court, should have been given by the primary Judge. There being no question of an award of indemnity costs, it is not necessary for the appellants to persuade us that the respondents acted unreasonably in rejecting their offer. The only question is whether, as a matter of discretion, we should view the appropriateness of the appellants’ offer, and the unwisdom of the respondents’ rejection of that offer, as sufficient, in effect, to give rise to a new “event” with respect to which the parties were thereafter litigating in the proceeding before the primary Judge.

15    We take the view that we should adopt that approach. The general rule is that costs follow the event, that is to say, an award of costs should be the reward of the party whose position is upheld by the court. In that rule, the silent premise is that the party whose position is not upheld should not have maintained that position through to, and to the end of, contested litigation. Every encouragement should be provided to parties to bring forward serious and responsible proposals to settle their litigation, or some aspects of it, and for the parties in receipt of such proposals to give them their early and earnest consideration. In effect, since October 2009, it is now known that the present litigation continued substantially because of the respondents’ rejection of the appellants’ offer made in that month. This conclusion relates just as much to the dimensions of the case upon which the appellants ultimately failed as it does to those upon which they ultimately succeeded. In our view, with respect to the period after 16 October 2009, the appellants’ entitlement to their costs should not be qualified by reference to the issues upon which they failed.

16    With respect to the costs of the appeal, there is no reason for us to depart from the approach outlined above. Although the appellants failed on their want of clarity point, they achieved substantial success on their underlying case which concerned the construction of the patent in suit. They achieved success with respect to two, but not all, of the citations upon which they relied on the matter of novelty, in which respect we would take the same approach as we have on the corresponding issue in the disposition of the question of the costs at first instance. The respondents achieved a measure of success with respect to the manner of manufacture issue, but, overall, we consider that we should carry through to the appeal the considerations, referred to above, which derived from the respondents’ rejection of the appellants’ Lipopan Xtra proposal made on 9 October 2009. In the circumstances, we propose to order that the appellants have their costs of the appeal.

Associate:

Dated:    31 May 2013