Federal Court of Australia

Fuchs Lubricants (Australasia) Pty Ltd v Quaker Chemical (Australasia) Pty Ltd (No 2) [2021] FCAFC 114

ORDERS

THE COURT DECLARES THAT:

1.    Each of claims 1 to 22 of Australian Standard Patent No. 2012304245 and each of claims 1 to 3 of Australian Innovation Patent No. 2013100458 is, and has at all times been, invalid.

THE COURT ORDERS THAT:

2.    Pursuant to s 138 of the Patents Act 1990 (Cth) (the Act), claims 1 to 22 of Australian Standard Patent No. 2012304245 and claims 1 to 3 of Australian Innovation Patent No. 2013100458 be revoked.

3.    Within 14 days of this order, the respondent/cross-appellant (Quaker) serve on the Commissioner of Patents a copy of these orders pursuant to s 140 of the Act with a request that particulars of declaration 1 and orders 2 and 7 be registered in accordance with s 187 of the Act.

4.    Quaker’s amended originating application filed on 24 August 2016 in Proceeding No. NSD 1210 of 2016 be dismissed.

5.    Save for the costs orders made on 25 October 2017 and 13 February 2019, Quaker pay 75% of the appellant/cross-respondent’s (Fuchs) costs of and incidental to the claim and cross-claim in Proceeding No. NSD 1210 of 2016.

6.    Quaker pay Fuchs’s costs of and incidental to the appeal and cross-appeal.

7.    Orders 1, 2 and 4 to 6 be stayed until the determination of Quaker’s application for special leave to appeal dated 2 June 2021 and any further appeal, or until further order.

THE COURT NOTES THAT:

8.    Quaker provides the following undertakings to the Court during the period of the stay referred to in order 7:

(a)    to prosecute any application for special leave to appeal and any further appeal expeditiously;

(b)    not to threaten any person with proceedings for infringement of the claims of the patents which are the subject of order 2; and

(c)    not to seek to amend any claims of the patents otherwise than in the course of or in connection with this proceeding or Proceeding No. NSD 1210 of 2016.

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

REASONS FOR JUDGMENT

THE COURT:

1    On 5 May 2021, the Full Court published reasons for judgment and made certain orders in this appeal: Fuchs Lubricants (Australasia) Pty Ltd v Quaker Chemical (Australasia) Pty Ltd [2021] FCAFC 65. At that time, the Court made orders that the appeal be allowed, the declaration, orders and certification in orders 1, 3 to 7 and 9 of the orders made by the primary judge on 20 April 2020 be set aside, and the cross-appeal be dismissed. The Court also made orders for the parties to file and serve proposed minutes of orders and submissions on the question of any consequential orders including the costs of the appeal and the cross-appeal, and on the costs of the proceeding below. The parties have now filed submissions (including reply submissions by Fuchs, pursuant to an invitation by the Court) in relation to these matters. We now address the issues of consequential orders and costs.

2    These reasons should be read together with the Court’s reasons for judgment dated 5 May 2021. We will adopt the same abbreviations as used in those reasons.

Consequential orders

3    There is no substantive dispute between the parties as to the form of consequential orders to give effect to the Court’s reasons for judgment of 5 May 2021; the only area of dispute concerns the width of any stay of those orders. The question of a stay arises because Quaker has filed an application for special leave to appeal to the High Court of Australia from the Court’s judgment.

4    In its proposed minutes of orders, Fuchs proposes the following orders:

THE COURT DECLARES THAT:

1.    Each of claims 1 to 22 of Australian Standard Patent No. 2012304245 and each of claims 1 to 3 of Australian Innovation Patent No. 2013100458 is, and has at all times been, invalid.

THE COURT ORDERS THAT:

2.    Pursuant to s 138 of the Patents Act 1990 (Cth) (Act), claims 1 to 22 of Australian Standard Patent No. 2012304245 and claims 1 to 3 of Australian Innovation Patent No. 2013100458 be revoked.

3.    Within 14 days of this Order, [Quaker] serve on the Commissioner of Patents a copy of these orders pursuant to s 140 of the Act with a request that particulars of declaration 1 and order 2 be registered in accordance with s 187 of the Act.

4.     [Quaker’s] amended originating application filed on 24 August 2016 in Proceeding No. NSD 1210 of 2016 be dismissed.

5    Paragraphs 5 and 6 of Fuchs’s proposed orders relate to costs and are discussed later in these reasons.

6    Subject to the following, Quaker agrees with paragraphs 1 to 4 of Fuchs’s proposed orders. Quaker seeks an amendment to paragraph 3 so that it would refer to “orders 2 and 7” rather than just “order 2”. Quaker also proposes a stay, in the following terms:

7.    Orders 1, 2 and 4-6 be stayed until determination of [Quaker’s] application for special leave to appeal dated 2 June 2021 and any further appeal, or until further order.

7    In connection with the proposed stay, Quaker offers to give the following undertakings, which would be recorded in a note in the orders to the following effect:

THE COURT NOTES THAT:

8.    [Quaker] provides the following undertakings to the Court during the period of the stay referred to in paragraph 7 above:

(a)    to prosecute any application for special leave to appeal and any further appeal expeditiously;

(b)    not to threaten any person with proceedings for infringement of the claims of the Patent which are the subject of order 2; and

(c)    not to seek to amend any claims of the patents otherwise than in the course of or in connection with this proceeding or Proceeding No. NSD 1210 of 2016.

8    Quaker submits that the possible prejudice to Quaker if the Full Court’s orders are not stayed is clear; in particular, the claims of Australian Standard Patent No. 2012304245, which would otherwise remain in force until 2 February 2032, would be revoked, in circumstances where such orders could be overturned by the High Court on appeal if special leave is granted. Quaker submits that, as set out in its application for special leave, the issue of the proper scope of the reasonable trials grace period is of broad importance outside of these proceedings, and thus a matter amenable to special leave being granted for an appeal of these proceedings. Quaker submits that it is conventional to stay orders for revocation of a patent in such circumstances, in order to guard against the possibility that some doubt might be raised as to the Court’s power to reverse the effect of those orders in due course.

9    Quaker submits that there is no prejudice to Fuchs in the orders being stayed; it has not been restrained and thus the orders revoking the patent would have no practical effect on it. Quaker submits that, while a stay of the orders would result in a delay to Fuchs’s entitlement to costs, it will be some time before that order will be able to be enforced by Fuchs given the need for the quantum payable to be crystallised, for example, through taxation.

10    In its reply submissions, Fuchs states that it does not oppose a stay of paragraphs 2, 5 and 6 of the proposed orders, but submits that there is no basis to stay the declaration proposed in paragraph 1, citing Arnhem Land Aboriginal Land Trust v Northern Territory of Australia (2007) 157 FCR 255 (Arnhem Land Aboriginal Land Trust) at [5]-[9]. Further, Fuchs submits that there is no justification for staying paragraph 4, which does not give rise to any of the consequences identified by Quaker in its submissions with respect to revocation orders subject to pending appeal rights.

11    In our view, the judgment of the Full Court in Arnhem Land Aboriginal Land Trust is distinguishable. In that case, the Full Court had already made a declaration and in that context considered whether or not the declaratory order could be stayed. In the present case, in contrast, the Court has not yet made a declaration and what is proposed is a stay of a package of orders proposed to be made by the Full Court, including a declaration. In these circumstances, the proposed stay is akin to an order suspending or postponing the coming into effect of the declaration. The power to make such an order seems to have been accepted by Carr J in Bunnings Forest Products Pty Ltd v Bullen (1984) 54 FCR 342 at 347:

… if an appeal were foreshadowed and the circumstances warranted taking such a course, a Full Court might before pronouncing judgment or, perhaps, before entry of judgment stay a declaratory order by suspending or postponing its coming into effect for a period fixed by reference to some appropriate stage of the further appellate process. Alternatively, the court or a judge might, in an appropriate case, stay the exercise of rights which might be declared to exist, pending an appeal which might have the result of the declaration being set aside.

12    The above passage was cited with apparent approval by the Full Court in Arnhem Land Aboriginal Land Trust at [5].

13    In the circumstances of this case, where the Court proposes to make a declaration of invalidity of certain patents, we consider it prudent to stay not only the revocation order but also the declaration of invalidity, pending the outcome of the special leave application and any appeal. Otherwise, the declaration may convey an incomplete and thus misleading impression to the general public. Further, we consider it appropriate to stay paragraph 4, as this forms part of the package of consequential orders.

14    We will therefore make consequential orders in the form proposed by Quaker, with a notation recording Quaker’s undertakings.

Costs

15    There is no issue between the parties as to the applicable principles, which were sufficiently summarised for present purposes in the judgment of the Full Court in Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 at [9]-[11]:

9    Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68].

10    In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows:

One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party’s conduct of the case.

11    After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]:

[Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the “event” or otherwise. The question of costs is within the Court’s discretion. As we have said, relevant factors include the extent of a party’s success, the extent of its success or failure on individual issues and its conduct of the proceedings.

Costs of the appeal and cross-appeal

16    We will deal first with the costs of the appeal and cross-appeal. Fuchs seeks its costs of the appeal and cross-appeal. Quaker seeks an order that it pay 80% of Fuchs’s costs of the appeal and cross-appeal.

17    In our view, it is appropriate that costs follow the event in relation to both the appeal and the cross-appeal. While it is true that Quaker had success in relation to one aspect of the cross-appeal (regarding additional damages), we do not consider that success to provide a sufficient basis to depart from the ordinary rule that costs follow the event. The issue was not determinative of the cross-appeal and occupied relatively little time in the scheme of things.

Costs of the proceeding below

18    We turn now to the issue of the costs of the proceeding at first instance. Both sides implicitly accepted that it was appropriate for the Full Court to deal with this issue (rather than the issue being remitted).

19    Fuchs seeks an order that Quaker pay Fuchs’s costs of the proceeding at first instance, save for interlocutory costs orders made on 25 October 2017 and 13 February 2019. Fuchs submits, in summary, that there is no reason to depart from the ordinary rule that costs follow the event. Fuchs submits that its cross-claim was defensive in nature, in that it was meeting an infringement suit. Fuchs submits that it ultimately succeeded in its cross-claim by invalidating all claims of the two patents in suit, rendering the infringement claim entirely unwarranted. Fuchs submits that its overall success points strongly in favour of its entitlement to all its costs of the proceeding below. In the alternative, Fuchs submits that, if the Court considers some measure of discounting to be justified, any such discount should not exceed 5%.

20    Quaker proposes an order that it pay 50% of Fuchs’s costs of the trial (which we take to be a reference to the proceeding at first instance). First, Quaker submits that the conclusions of the Full Court have not disturbed the findings of the primary judge on Quaker’s infringement case, save of course that the invalidity of the patents means that the infringement claim cannot be made out. Secondly, Quaker submits that, on appeal, the Full Court has found that the primary judge wrongly concluded that Quaker could not make out its claim of additional damages. Quaker submits that, in this sense, its position on its infringement claim has improved on appeal as compared to the position before the primary judge. Thirdly, Quaker submits that it remains the case that Fuchs was unsuccessful on numerous other aspects of its cross-claim before the primary judge.

21    In our view, the starting point in considering the question of costs is that (as a result of the decision of the Full Court) Fuchs has succeeded in its cross-claim alleging invalidity of the two patents and, as a consequence, Fuchs has succeeded in its defence of Quaker’s infringement claim. Nevertheless, we consider that a substantial discount is appropriate having regard to Fuchs’s abandonment of certain parts of its case and its lack of success on certain issues. In our view, an appropriate discount is 25%, such that we would order that Quaker pay 75% of Fuchs’s costs of the proceeding at first instance (save for the costs that were the subject of the interlocutory costs orders made on 25 October 2017 and 13 February 2019, which orders should not be disturbed). In forming this view, we have had regard to the following matters:

(a)    Shortly before trial, Fuchs abandoned its inventive step case.

(b)    During the trial, Fuchs abandoned its misleading or deceptive conduct claim and its manner of manufacture ground of invalidity.

(c)    Fuchs was unsuccessful in respect of the following parts of its cross-claim: secret use; lack of utility; insufficiency; lack of clarity; and lack of fair basis – the primary judge dealt with these matters at length at [254]-[315], [711]-[743] and [769], and expert evidence was led by both parties in respect of these contentions.

22    While we have taken into account the matters raised by Quaker as part of its third submission, we are not inclined to discount the costs on the basis of Quaker’s first and second submissions. In relation to the first submission, we consider that costs should follow the event in relation to the infringement case – as a consequence of the lack of validity of the patents, the infringement claim fails. In relation to the second submission, we do not accept Quaker’s characterisation that its position on its infringement case has improved on appeal.

23    Having regard to the above matters, we consider the discount referred to above to be appropriate.

Associate:

Dated:    25 June 2021