FEDERAL COURT OF AUSTRALIA

Hytera Communications Corporation Limited v Motorola Solutions, Inc. [2019] FCAFC 210

ORDERS

THE COURT ORDERS THAT:

1.    Leave to appeal be granted.

2.    The draft notice of appeal accompanying the applicants’ application for leave to appeal stand as the notice of appeal and the respondent’s draft notice of contention stand as the notice of contention.

3.    The appeal be allowed.

4.    Leave be granted to the applicants to file in the principal proceeding a third further amended defence substantially to the same effect as the pleading relied on at the hearing of the application for leave to appeal and the appeal.

5.    The respondent pay the applicants’ costs.

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

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    The applicants, Hytera Communications Corporation Limited (HCC) and Hytera Communications (Australia) Pty Ltd (HCCA), seek leave to appeal from orders made on 30 August 2019, dismissing their application for leave to file a third further amended defence under r 16.53 of the Federal Court Rules 2011 (Cth).

2    For the following reasons, we are satisfied that leave to appeal should be granted and the appeal allowed.

3    In the following discussion, it is convenient to refer to HCC and HCCA as a single entity (Hytera) save where it is necessary to refer specifically to HCC.

Background

4    The respondent, Motorola Solutions, Inc (Motorola), sues Hytera for patent infringement and copyright infringement. The proceeding was commenced on 31 July 2017. At that time, Motorola’s claims were limited to the infringement of three patents, referred to in the statement of claim as the 355 Patent, the 960 Patent and the 764 Patent. In essence, Motorola claimed that certain digital mobile radio devices supplied by Hytera (referred to as the Hytera Devices) infringed the patents because those devices could be used in a method, or in a system for performing a method, which was claimed in the patents. An amended statement of claim filed on 11 December 2017 particularised these infringements as, amongst other things, involving knowing and intentional copying and misuse of information and documents relating to Motorola’s own digital mobile radio devices, based on allegations that: then current personnel of HCC, including three individuals (referred to as the Hytera Personnel), had worked for Motorola during the development of the inventions the subject of the patents; documentation regarding the inventions had been downloaded by the Hytera Personnel prior to them ceasing employment for Motorola and commencing employment with HCC; and the documentation had been downloaded by the Hytera Personnel for purposes which included implementing the inventions the subject of the patents, for the commercial benefit of Hytera.

5    Hytera denied these allegations.

6    Motorola further alleged that Hytera had infringed the patents flagrantly and as part of a course of conduct by them involving knowing and intentional copying and misuse of information and documentation relating to Motorola’s own digital mobile radio devices. This is, essentially, the same conduct involving the Hytera Personnel to which we have referred. However, the point in pleading flagrancy in this part of the statement of claim was to invoke a claim for additional damages under s 122(1A) of the Patents Act 1990 (Cth) (the Patents Act), which provides:

A court may include an additional amount in an assessment of damages for an infringement of a patent, if the court considers it appropriate to do so having regard to:

(a)     the flagrancy of the infringement; and

(b)     the need to deter similar infringements of patents; and

(c)     the conduct of the party that infringed the patent that occurred:

   (i)     after the act constituting the infringement; or

(ii)     after that party was informed that it had allegedly infringed the patent; and

(d)     any benefit shown to have accrued to that party because of the infringement; and

  (e)     all other relevant matters.

7    Hytera denied these allegations.

8    On 19 December 2018, Motorola filed a further amended statement of claim, with leave of the Court. The further amended statement of claim raised, for the first time, claims against Hytera of copyright infringement. In essence, Motorola claimed that certain of the Hytera Devices contained software that infringed the copyright said to subsist in literary works (“software suites” and literary works comprised therein) owned by Motorola, referred to as the Motorola Works.

9    The amendments included the further allegation that Hytera had engaged in these infringements flagrantly. Once again, the point in pleading flagrancy was to invoke a claim for additional damages, this time under s 115(4) of the Copyright Act 1968 (Cth) (the Copyright Act), which provides:

Where, in an action under this section:

(a)     an infringement of copyright is established; and

(b)     the court is satisfied that it is proper to do so, having regard to:

     (i)     the flagrancy of the infringement; and

     (ia)     the need to deter similar infringements of copyright; and

   (ib)     the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and

    (ii)     whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

    (iii)     any benefit shown to have accrued to the defendant by reason of the infringement; and

       (iv)     all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

10    In a defence filed in February 2019, Hytera denied infringement of the copyrights alleged in the Motorola Works, and the allegations of flagrancy.

11    Motorola first brought its allegations concerning the Hytera Personnel to Hytera’s attention in March 2017, when it commenced a proceeding against HCC and two related entities in the United States District Court for the Northern District for Illinois (Eastern Division) (the US Court) for patent infringement and trade secret misappropriation (the US proceeding). HCC and the related entities sought summary judgment on the trade secret misappropriation claims on the basis that Motorola’s delay in bringing those claims resulted in them being statute-barred. On 12 March 2019, the application for summary judgment was dismissed. However, the US Court’s written reasons disclosed certain facts which came to the attention of Hytera’s Australian lawyers in April 2019 which, in their view, were relevant to Motorola’s knowledge in the period 2008 to 2011 concerning the alleged conduct of the Hytera Personnel and (what Hytera says is) Motorola’s delay in raising this conduct with it. These facts had previously been subject to a protective order which prevented Hytera’s US lawyers from disclosing them to Hytera’s Australian lawyers and, Hytera says, even to Hytera itself.

The proposed amendments

12    As we have noted, prior to seeking leave to file a third further amended defence, Hytera had already pleaded to, and denied, the allegations of flagrancy in relation to patent infringement and copyright infringement that Motorola had made. Thus, Motorola bears the onus of making good those allegations. It is the recent knowledge (on the part of the Australian lawyers) of certain facts in the reasons of the US Court in dismissing the summary judgment application in the US proceeding that has allowed Hytera to plead, in addition to its existing denials (including in respect of flagrancy), allegations of delay by Motorola which, Hytera says, are relevant not only to the question of flagrancy and Motorola’s entitlement to additional damages, but also to Motorola’s claimed entitlement to other relief (assuming it to be successful in its claims of infringement).

13    With regard to the allegations of flagrancy, Hytera seeks to plead that, prior to the commencement of the US proceeding in March 2017, it did not know of the alleged conduct of the Hytera Personnel. The Hytera Personnel had left their employment with Motorola and started their employment with HCC in 2008, a fact of which Motorola was aware. In 2010, Motorola also became aware that HCC was producing digital mobile radio devices that were similar to Motorola’s digital mobile radio devices, in terms of appearance and product features. In late 2010 or early 2011, Motorola had identified what it considered to be a portion of its source code in HCC’s devices, and its engineers were speculating or guessing that a former employee had copied part of Motorola’s source code.

14    Thus, Hytera says, in the period from late 2010/early 2011 until March 2017 (when the US proceeding was commenced), Motorola delayed in making its allegation that the functionality of the alleged inventions had been used in the Hytera Devices flagrantly, as part of a course of conduct by Hytera involving knowing and intentional copying and misuse of information and documentation relating to Motorola’s digital mobile radio devices. Hytera says that, had Motorola notified it of these allegations earlier, it could have modified the Hytera Devices by reprogramming them. Whilst maintaining its denial of patent infringement, Hytera says that, depending on the timing of implementing such reprogramming, liability for infringement (assuming it to be found) “would not have arisen” (because the infringing conduct in Australia is said to have commenced in or after September 2013) or the infringing conduct (if found) would have been limited.

15    Hytera wishes to plead similar allegations in relation to Motorola’s claims of copyright infringement. Hytera says that, had Motorola notified it of its allegations of knowing and intentional copying and misuse of information and documentation, it could have rewritten the source code in the Hytera Devices. Whilst maintaining its denial of copyright infringement, Hytera says that, depending on the timing of the rewriting, liability for infringement (assuming it to be found) “would not have arisen” or the infringing conduct would have been limited.

16    Hytera also wishes to plead other prejudice arising from Motorola’s alleged delay: it says that, but for the delay, reprogramming/software rewriting would have been quicker and more cost-effective; and there have been changes to the way in which Hytera’s business is conducted which means that it has less information available to it to defend Motorola’s allegations.

17    With regard to other relief, Hytera wishes to plead that, because of the delay to which it has referred in the context of Motorola’s copyright claims with respect to the Motorola Works, the Court, in the exercise of its discretion, should refuse or limit the terms of any injunction it might grant. Further, the Court should refuse or limit an account of profits (should Motorola elect for that remedy) or should not award any or all damages (should Motorola elect for that remedy) because Motorola has failed to mitigate its loss or damage. In relation to all alleged infringements, Hytera wishes to plead that the Court should not award additional damages.

The primary judge’s reasons

18    The primary judge approached the question of amendment at the level of principle. He did not think that the proposed amendments should be allowed for two reasons.

19    First, his Honour found that the proposed amendments lacked coherence. He explained this as follows:

[6]    …[T]he allegation Motorola makes is that Hytera in fact infringed the copyright flagrantly as part of a course of conduct involving knowing and intentional copying. Whether Motorola eventually makes good that contention is a different matter, but if it does it will be well beside the point at that time to be submitting that Hytera’s acts in flagrantly and knowingly copying the code should somehow be put in a lesser light because Hytera did not know that the former Motorola employees had brought the information with them. The two propositions pass like ships in the night and, as Motorola put it, lack coherence.

20    Secondly, his Honour found that Hytera could have raised its allegations of delay earlier in the proceeding—specifically, in the context of the patent infringement claim where, his Honour said, this response to Motorola’s claim for additional damages could have been raised “long ago”. His Honour noted that, had Hytera’s contention been raised earlier, then it was likely that Motorola would have been entitled to discovery in relation to Hytera’s asserted ignorance concerning the conduct of the Hytera Personnel. His Honour went on to find that Hytera’s explanation for its own delay was not satisfactory. His Honour said:

[7]    …[Hytera] says that it only became aware of the possibility of alleging that Motorola had delayed after the same defence was raised by it in a parallel United States proceeding. Its explanation for not raising the point in the Australian proceeding contemporaneously with it in the US proceeding is that Hytera’s US lawyers were bound by confidentiality orders not to discuss the matter with its Australian lawyers. This is an unconvincing argument. If those orders did have that effect then Hytera should have applied in the US proceeding to permit the issue to be raised with the Australian lawyers. Consequently, even if the claim were viable, which it is not, I would refuse leave on this discretionary basis.

Consideration

21    We are conscious of the fact that the primary judge’s refusal to permit Hytera to plead the proposed amendments involves a discretionary judgment on a matter of practice and procedure. We acknowledge that an appeal court should exercise cautious restraint before interfering with such a judgment. Having said that, we also accept that substantial injustice would result to Hytera if his Honour’s decision were to remain, assuming it to be attended by sufficient doubt. Hytera can only ventilate its proposed claims in the context of the primary proceeding.

22    It is trite that, generally speaking, an appellate court will only interfere with a discretionary judgment if the exercise of the discretion miscarried in some material way—such as, for example, the primary judge acting on a wrong principle, allowing irrelevant matters to affect the decision, mistaking the facts or failing to take account of some material consideration. In the present case, we are persuaded that his Honour’s discretion miscarried in material ways.

23    First, we are persuaded that his Honour erred in finding that the proposed amendments lacked coherence.

24    In this connection, we accept Hytera’s submission that, in reaching this finding, his Honour appears to have proceeded on the basis that Hytera’s allegations of delay were only engaged after an anterior finding of flagrant conduct. However, the proposed amendments include allegations that are directed to disputing the very proposition that Hytera did, in fact, act flagrantly, assuming infringement to be established.

25    Further, even if the Court were to find, on final analysis, that Hytera acted flagrantly, Hytera wishes to add facts (in respect of which it will bear the onus of proof) which qualify the nature of its conduct. In this connection, Motorola’s allegations of flagrancy are made in the context of a claim for additional damages. As the relevant provisions in the Patents Act and the Copyright Act make clear, in considering whether additional damages should be awarded, the Court is required to consider factors extending beyond the fact of flagrancy. In short, flagrancy, as such, is not the only relevant consideration in an award of additional damages. These other factors include the conduct of the infringer after the acts of infringement (including after the infringer has been informed that it has infringed the rights in question), and the benefits accruing to the infringer by reason of the infringements that are found. Indeed, the factors that are required to be taken into account extend to “all other relevant matters”—meaning, all other matters that can be seen, rationally, to bear on an assessment of the conduct that is found to be infringing and the context in which that conduct takes place. The delay which Hytera alleges, and the alleged consequences on which it seeks to rely, can be seen to fit within the purview of the relevant provisions, even if the Court should find, by reference to other facts, that Hytera has acted flagrantly (once again, assuming infringement to be established). Thus, the primary judge’s approach does not reflect the full scope and operation of the provisions in question.

26    Further, the amendments which Hytera proposes are also directed to other aspects of the relief that Motorola seeks, independently of the question of additional damages and any finding that Hytera acted flagrantly. Specifically, these amendments are directed to aspects of Motorola’s conduct (not Hytera’s conduct) on which, if established, Hytera would seek to rely to contend that Motorola is disentitled to all or part of that other relief: see [17] above. It is not apparent that the primary judge took these considerations into account when considering whether Hytera should be granted leave to amend.

27    In referring to these matters, we should not be taken as expressing any view on the strength of the case that Hytera wishes to advance in respect of Motorola’s alleged delay. The only question is whether Hytera should be afforded the opportunity to raise the question of that delay. For present purposes, we accept that the delay, if established, may be relevant to determining whether Hytera’s conduct was flagrant and, if flagrant, relevant to viewing that conduct in a context which reveals, more finely, its true character. More broadly, it may be relevant to the question whether, in light of all relevant matters, an award of additional damages is appropriate. We also accept that relevant delay, if established, could affect Motorola’s entitlement to the other relief it seeks.

28    Secondly, with respect to Hytera’s delay in raising the proposed amendments, we note that the primary judge considered delay from the standpoint of the patent infringement claims which had been on foot for some time. His Honour did not refer to, and does not appear to have considered, the relatively recent introduction by Motorola of its copyright claims and its allegation that, in that context, Hytera acted flagrantly. Pleadings on that claim did not close until April 2019.

29    The allegations of flagrancy in the copyright infringement case are based on the same underlying facts as the allegations of flagrancy in the patent infringement case—primarily, the conduct of the Hytera Personnel. If it be the case, as the primary judge found, that Hytera could have raised, long ago, Motorola’s alleged delay in raising the issue of flagrancy in the context of the additional damages claim in the patent infringement case (a matter to which we will return), then that was not the position with respect to the corresponding claim in the recently introduced copyright infringement case. Indeed, his Honour made no finding that Hytera had delayed in raising the proposed amendments in that context.

30    Thus, delay could not stand as a reason for refusing the proposed amendments to the extent that they bear on the copyright infringement case. But if that be so, there appears to be no cogent basis for not permitting Hytera to also raise Motorola’s alleged delay in answer to the claim for additional damages for patent infringement. This is because, fundamentally, the same facts are at issue, namely whether, by reason of the matters it knew in late 2010/early 2011 and thereafter, Motorola delayed in informing Hytera of the allegation that Hytera had infringed Motorola’s intellectual property rights as part of a course of conduct involving knowing and intentional copying and misuse of information and documentation relating to Motorola’s digital mobile radio devices.

31    With respect, we think that the assessment of any delay by Hytera in raising the proposed amendments could not ignore this consideration. In short, we are persuaded that the primary judge erred in considering Hytera’s delay only from the standpoint of the patent infringement case. By considering Hytera’s delay in raising the proposed amendments only from the standpoint of the patent infringement case, the primary judge precluded Hytera from raising Motorola’s alleged delay as reason for refusing all or part of the other relief that Motorola seeks for copyright infringement.

32    As we have noted, the primary judge found that Hytera’s explanation for its delay in raising the proposed amendments was unsatisfactory, essentially because his Honour reasoned that Hytera should have applied in the US proceeding to permit the issues raised in that proceeding, which, as explained above, had been covered by a protective order, to be communicated to Hytera’s Australian lawyers. However, Motorola did not raise that circumstance in the course of the amendment application as relevant to his Honour’s consideration of Hytera’s delay. Further, the protective order prevented Hytera’s US lawyers from disclosing matters, including the factual basis for the delay allegations, to Hytera or its Australian lawyers. As Hytera puts it, Hytera (either directly or via a request from Hytera’s Australian lawyers) could not be expected to have instructed, in the abstract, the US lawyers to apply for a release of the protective orders in respect of information to which Hytera was not privy.

33    We return to the question of whether there has been delay on Hytera’s part in proposing the amendments. Mr Vincent is a principal of the lawyers who have been retained by Hytera to conduct its defence of the copyright infringement claims and in relation to the allegations concerning Motorola’s entitlement to additional damages, including in respect of the allegations of copying and misuse of information and documents. Mr Vincent made a number of affidavits which were relied on in support of Hytera’s amendment application. Mr Vincent deposed to his view, which does not seem to have been challenged, that, although certain inferences in respect of delay by Motorola were open to be made, he did not consider that Hytera had sufficient facts to support a pleading in respect of that delay before reading the decision of the US Court. Hytera’s Australian lawyers were aware that there was a decision in mid-March 2019, but were not able to review and assess it until obtaining a copy on 2 April 2019. Mr Vincent read the decision on 4 April 2019. Before that time, it had been Hytera’s intention to obtain further information in order to plead delay. Motorola had refused to provide discovery on that topic. That refusal was overtaken by the availability of the US decision, which now provides Hytera with information which it considers to be sufficient to properly allege delay on Motorola’s part. As we have stated, this evidence does not seem to have been challenged and provides a substantial reason for not raising the proposed amendments earlier.

34    At [7] of his reasons, the primary judge referred to the fact that, had the allegations of Motorola’s alleged delay been raised earlier, it is likely that Motorola would have been entitled to discovery in relation to Hytera’s contentions about its ignorance of the conduct of the Hytera Personnel. We do not presume to intrude on his Honour’s management of the proceeding in this respect. However, we do wish to record what seems to be Hytera’s acceptance that there is no reason why Motorola cannot seek appropriate discovery from Hytera on this topic at a time before May 2020, when the question of Motorola’s entitlement to additional damages is listed for hearing.

35    We also wish to record that, under current case management orders, Hytera is required to file its evidence in answer to the copyright claim and on the question of additional damages in the coming month. Hytera informed the Court that it anticipates that this evidence will address the steps that Hytera would have taken had Motorola not (allegedly) delayed in notifying Hytera of its allegations of knowing and intentional copying and misuse of information and documentation relating to Motorola’s digital mobile radio devices. Motorola’s responsive evidence is to be filed in March 2020.

36    For these reasons, we will grant leave to appeal and allow the appeal, with the intent that Hytera will have leave to file the third further amended defence, the draft of which was before us.

The DRAFT Notice of Contention

37    As we have noted, the primary judge approached the question of amendment at the level of principle. We have dealt with the application for leave to appeal, and the appeal, on the same basis. However, by a draft notice of contention, Motorola has raised certain pleading issues which, it says, stand as a reason or further reasons to refuse the proposed amendments reflected in the third further amended defence.

38    One matter raised by Motorola is an argument that the proposed amendments do not identify “operative delay” by Motorola. This centres on the proposition that Hytera does not plead that Motorola was aware that it had a case of (Australian) patent infringement or copyright infringement as at 2008, or at any other time.

39    We do not accept that this is a pleading deficiency that should lead to a refusal to allow the proposed amendments. Indeed, the delay on which Hytera relies is with respect to Motorola’s notification of the underlying allegations that Hytera knowingly and intentionally copied and misused information and documentation relating to Motorola’s digital mobile radio devices. We do not discount the fact that an answer to the delay allegations might be found in Motorola’s lack of awareness that it had a case of patent infringement (if that be the case). Further, Motorola’s copyright infringement case is based on Hytera’s importation and supply of allegedly infringing works in Australia from about (at least) September 2013. But, to the extent that these matters might be an answer or at least a counterpoise to Hytera’s allegations of delay, they can be raised by Motorola itself.

40    Another matter raised by Motorola is Hytera’s allegation (in the proposed amendments) that had Motorola given timely notice of its allegations of knowing and intentional copying and misuse of information and documentation, Hytera could have taken certain steps to avoid or lessen the effect of any infringements that might be found. Motorola complains that, in this form, the third further amended defence pleads “no more than a hypothetical proposition”. However, Hytera is, in fact, alleging a counterfactual that is necessarily hypothetical. Thus, Hytera’s use of “could” appears to be apt. More importantly, a sensible reading of the third further amended defence makes it tolerably clear that Hytera intends to allege that, if timely notice had been given, it could and would have taken certain steps which would have had certain consequences.

41    Once again, we do not see Motorola’s contention as necessarily raising a pleading deficiency. In any event, unless Hytera proves that it would have taken the steps it alleges, its reliance on Motorola’s alleged delay will be barren. As we have noted, at the hearing before us, Hytera informed the Court that it anticipates that its evidence, due next month, will address the steps that Hytera would have taken had Motorola not (allegedly) delayed in notifying Hytera of its allegations of knowing and intentional copying and misuse of information and documentation relating to Motorola’s digital mobile radio devices.

42    Motorola raised other contentions which appear to us to be of a trifling nature or which really appear to contest the factual propositions that Hytera seeks to advance in the proposed amendments.

43    None of these matters stand as a reason for refusing the proposed amendments.

Disposition

44    We will grant the application for leave to appeal and allow the appeal. Motorola should pay Hytera’s costs.

Associate:

Dated:    29 November 2019