FEDERAL COURT OF AUSTRALIA

Caterpillar Inc v John Deere Ltd [1999] FCA 517

INTELLECTUAL PROPERTY – patents  – patent for belted tractors – infringement action – application for leave to serve out of the jurisdiction parent company of Australian respondent – whether prima facie case of liability as joint tortfeasor or for authorisation – discretion to grant leave – postponement of issues against joined respondent

Patents Act 1990 (Cth) s 13(1)

Federal Court Rules O 8 r 2(2)(c)

Federal Court Practice Note 14

Sydbank Soenderjylland A/S  v Bannerton Holdings  Pty Ltd (1996) 68 FCR 539 applied

Intel Corporation v General Instrument Corporation (No.2) [1991] RPC 235 applied

Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 672 cited

Walker v Alemite Corporation (1933) 49 CLR 643 applied

Belegging-en Exploitatiemaatschappij Lavender BV v Witten Industrial Diamonds Ltd [1979] FSR 59 cited

Best v Acquagas Marketing Pty Ltd (1988) 83 ALR 217 followed

Sartas No. 1 Pty Ltd v Koukurou & Partners (1994) 30 IPR 479 cited

Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205 cited

Advanced Building Systems Pty Ltd v Ramset Fasteners Aust Pty Ltd (1995) ARPC 91-129 cited

Bristol-Myers Squibb Co v F H Faulding & Co Pty Ltd (1998) 41 IPR 467 cited

The Electric Furnace Co v Selas Corporation [1987] RPC 23 at 33 disapproved

CATERPILLAR INC. v JOHN DEERE LIMITED & ORS

NO. VG 739 of 1997

HEEREY J

28 APRIL 1999

MELBOURNE

THE COURT ORDERS THAT:

1.           The applicant’s motion by notice dated 20 November 1998 is dismissed with costs, including reserved costs.

2.           The applicant have leave to file and serve within seven days submissions as to why costs should not be taxed and paid forthwith pursuant to O 62 r 3(2).

3.           The respondents file and serve submissions in reply within seven days thereafter.

4.           The directions hearing is adjourned to 9.30 am on 7 May 1999.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicant Caterpillar Inc (“Caterpillar”) is the holder of Australian patent No. 578024 relating to tracked or belted tractors.  On 23 December 1997 Caterpillar commenced this proceeding against John Deere Limited (“Deere Australia”) and two other Australian companies alleging the importation into Australia and sale of vehicles which infringed its patent.

2                     By their defence and cross-claim the respondents deny infringement, allege invalidity of the Caterpillar patent, and seek its revocation.

3                     Caterpillar has brought on a Notice of Motion seeking leave to join Deere & Company (“Deere US”) the ultimate parent of Deere Australia, to amend the pleadings accordingly, and to serve Deere US out of the jurisdiction and in the United States under O 8 r 2(2)(c) of the Federal Court Rules.  That rule relevantly provides:

“Where the Court is satisfied of the following matters:

            (a)        …

            (b)        …

(c)        that the applicant has a prima facie case for the relief which he seeks,

the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order.”

4                     Counsel for the respondents contend that Caterpillar has not made out a prima facie case.  Alternatively they say that as a matter of discretion leave should not be granted, or that, even if it is, the trial of issues against Deere US and associated interlocutory procedures should be postponed until after determination of the substantive issues as between Caterpillar and the present respondents.

Caterpillar’s case against Deere US

5                     Caterpillar alleges that

(a)        Deere US is liable as a joint tortfeasor with Deere Australia because

(i)         it aided, instigated, procured, assisted or participated in the acts of Deere Australia alleged to constitute infringements, viz the dealings in Australia by Deere Australia with Deere belted tractors; or

(ii)        the acts of infringement were committed by Deere Australia in concert with, or in pursuance of a common design with, Deere US.

(b)        Deere US “authorised” the infringing acts of Deere Australia within the meaning of s 13(1) of the Patents Act 1990 (Cth).

A prima facie case

6                     The Full Court said in Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549:

“‘… an applicant must show a ‘prima facie case for the relief which he seeks’.  In Merpro Montassa Ltd v. Conoco Speciality Products Inc (1991) 28 FCR 387 at 390, in a passage which has been cited with approval on many occasions, Heerey J said:

‘the requirement of O 8, r 2(2)(c) has to be met at the outset of the proceedings.  It does not suggest the kindof scrutiny that would occur in a submission of no case to answer following the closure of an applicant’s case at trial …  It may be therefore that a court at this stage might draw inferences more readily in favour of an applicant, bearing in mind, amongst other things, that the applicant will not have had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case at trial.’

In Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 at 110, after setting out this passage, French J said that ‘a prima facie case is made out if, on the material before the court, inferences are open which if translated into findings of fact, would support the relief claimed’.  In WSGAL Pty Ltd v Trade Practices Commission (1992) 39 FCR 472 at 476 Beaumont J said:

‘Such a preliminary question [sic, whether a prima facie case exists] should not call for a substantial inquiry.  The kind of evidence adduced on a preliminary inquiry of this kind should be in proportion to the nature of such an interlocutory issue … [The] purpose is to determine by way of a mini rather than a mega trial whether the applicant has a prima facie case.’.”

7                     It only needs to be added that in the present case Caterpillar obtained on subpoena from Deere Australia a large number of document concerning dealings between Deere Australia and Deere US.  Thus the readiness of a court to draw inferences might be pro tanto less, given that Caterpillar has already taken substantial advantage of one procedural aid.  In any event, I think the documents tend against the finding of a prima facie case.

Deere Australia’s operations

8                     An affidavit was sworn by Mr Marcus Wilson, the Managing Director of Deere Australia.  He was not cross-examined.  On the basis of his affidavit I find that Deere Australia operates as follows.

9                     Deere Australia is a wholly owned subsidiary of Chamberlain Holdings Ltd which in turn is a wholly owned subsidiary of Deere US.  Deere Australia’s business is the selling of farm machinery, commercial equipment and commercial and consumer equipment and spare parts for that equipment in Australasia.  It acts as a wholesaler and sells those items to its dealers.  Most of its range of products are sold under the mark “John Deere”.  Most of its products originate with Deere US, but it also sells products of other companies under the  Deere mark, and also some products of other manufacturers under different marks.

10                  Deere Australia decides itself what products it will buy and sell, and in what quantities.  It formulates its own policies in relation to its dealers in areas such as credit and warranty provisions.  It formulates and conducts its own marketing campaigns.  It determines the prices for its products.  It is not directed or instructed by Chamberlain or Deere US as to what products it is to buy or sell, or what promotional strategies it is to adopt.  It enters into contracts to purchase products for resale from third parties on its own account without seeking approval from Chamberlain or Deere US.  It conducts its business on a day to day basis without outside direction from Chamberlain, Deere US or anyone else.

11                  The board of Deere Australia consists of Mr Wilson, two Australian executives, Messrs Jim Bullock and Ross Johnstone, and two US residents.  Typically board meetings are only attended  by the Australian resident directors.

12                  Deere Australia’s ordering of products from Deere US is left to Deere Australia.  Deere Australia will only order from Deere US (or from any other company) products it believes it can sell in Australia.  It only receives stock that it orders.  Nor is Deere Australia asked or told by Chamberlain or Deere US to sell particular products.  Deere Australia attempts to forecast what it believes it can sell in Australia and then places orders on Deere US.  On occasions Deere US is unable to supply all goods ordered by Deere Australia.  Deere US may then allocate the available supply between Deere Australia and other overseas subsidiaries. 

13                  Goods are shipped c.i.f. by Deere US to Deere Australia.  Property passes from Deere US to Deere Australia at the ship’s rail on loading in the United States.

14                  If Deere Australia decides it wants promotional material, it chooses the types and quantity it requires and places an order on the Deere US distribution centre in Moline, Illinois.  Material is shipped c.i.f. to Deere Australia, which pays for such material.  Sometimes material is simply sent by Deere US to Deere Australia without specific request.  Deere Australia then decides for itself whether and how to use that material.

15                  From time to time Deere Australia personnel visit Deere US facilities in the United States for training and to obtain technical and marketing knowledge in relation to Deere products.  Also Deere US personnel visit Australia.  Deere US provides technical and training marketing brochures, manuals and other documents, videos, slides, CD Roms and other assistance and advice both generally and in relation to specific queries and complaints and defects.

The 8000T series tractors

16                  The allegedly infringing tractors bear the designation 8000T.  In August 1996 Mr Wilson attended a product release for Deere US in Albuquerque, New Mexico.  He there saw the new 8000T series tractors.  Mr Jim Martinez, the Operations Manager of what Deere US calls Region 1 (Mexico, Central and South America, the Carribbean, Asia and Australasia) told Mr Wilson that Mr Hardiac, President of the Agricultural Division of Deere US, had decided that none of the 8000T series would initially be sold outside the United States and Canada.  The reason for this, according to Mr Martinez, was that Mr Hardiac had said that Deere US wanted to be sure that any problems with this series were identified and fixed before the tractors were sold outside North America.  The tractors were manufactured in the United States where all of the expertise relating to repairs and warranty work was located.  There could be cost and inconvenience in rectifying problems with tractors in places outside North America. 

17                  Deere Australia still wanted to be able to sell the 8000T series so it put a proposal to purchase a limited number.  Eventually Deere US agreed to sell to Deere Australia three 8000T series tractors for demonstration, publicity and evaluation purposes.  A contemporaneous document consistent with Mr Wilson’s account is a memorandum dated 30 October 1996 from Mr Martinez to Mr Wilson and other Australian executives in these terms:

“I spoke with Bernie Hardiac this evening regarding your proposal for the 8000 track vehicles for Australia.  Our discussion came down to the  following points.  Bernie is willing to allow us to supply JDL [Deere Australia] with up to three tractors if JDL is willing to give one or two individuals up to Waterloo [in United States] and get them trained on these tractors before any are shipped to Australia.  I indicated I assumed that you would be willing to do this.  If tractors break down once in Australia, Waterloo personnel will not be readily available to get down to Australia to provide the product support.  Australia would be fully responsible.  JDL would have to be responsible for getting repair parts into Australia on a timely basis.  Tractors would not be retailed until North American experience is well documented.”

18                  The three tractors sold for demonstration purposes arrived in Australian in July 1997.  Deere Australia used them for exhibition at open days, in training, and at farm trials by various dealers.  The tractors were not sold.  Later in July 1997 Deere US indicated that it would accept orders from Deere Australia for 8000T series tractors for resale by Deere Australia in Australia.  Orders were placed and the tractors were to be built in early 1998.  In the first quarter of 1998 8000T series tractors were first supplied to dealers by Deere Australia.

Is there a prima facie case against Deere US?

19                  As already mentioned, Caterpillar obtained by subpoena for the purposes of the present motion a large body of documents.  Many of these were confidential exhibits to the affidavit of Mr Campbell Thompson sworn on behalf of Caterpillar.  Counsel for Caterpillar argued that these documents and other material supported a number of propositions.  Counsel for the respondents disputed some of  these propositions.  Others were accepted, but counsel said they did not advance Caterpillar’s case.  I turn now to these propositions and the conclusions I have reached as to them.

(i)         “The alleged infringing tractors (‘the tractors’) were designed and are manufactured by Deere US in the United States.”

This is not disputed. 

(ii)        “Deere US sells or has sold the tractors throughout the world through its subsidiaries (which it calls ‘branches’ or ‘export branches’) including in Australia through Deere Australia.  The tractors are and have been exported to Deere Australia by Deere US.  It is common ground that sales of the tractors to Deere Australia were on c.i.f. terms.”

This is not disputed.

(iii)       “Deere Australia is a 100 per cent owned subsidiary of Chamberlain Holdings Ltd which is a 100 per cent owned subsidiary of Deere US.  Deere US thus controls Deere Australia and has the power to cause it to sell or to prevent it from selling the tractors in Australia.”

Relevant here is the observation of Aldous J in Intel Corporation v General Instrument Corporation (No.2) [1991] RPC 235 at 241.  Speaking of an argument by counsel on behalf of defendants opposing leave to serve out of the jurisdiction, his Lordship said:

“He is right that, if all that the plaintiff has established is a parent/subsidiary relationship and that the parent does no more than allow the subsidiary to get on with its business, a good arguable case [the criterion under the English rule] cannot have been established ….   Thus the fact that one of the legal entities is a subsidiary of the other is relevant to whether there has been a common design because the parent has the capacity to control the actions of the subsidiary.  However, that capacity to control will not establish a common design.  It is the extent of the control actually exercised or the involvement which is relevant and, in particular, whether it amounts to a common design to do the acts complained of.”

(Cf the discussion of the relationship of parent and subsidiary in the context of discovery obligations in Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 at 634-636.)

On the evidence of Mr Wilson I am satisfied that Deere US does not control the day-to-day business of Deere Australia, and did not at times relevant to this case.  Decisions whether to purchase Deere US products, including the allegedly infringing tractors, were made by Deere Australia free of any direction by Deere US.

(iv)       “Deere Australia required the permission of Deere US before it could market the tractors in Australia.  Deere US decided when and on what terms the tractors could be marketed in Australia and at all times controlled the quantities and types of the tractors to be exported to and marketed in Australia.” 

I do not think this is a fair summary of the position.  The sale and purchase of the tractors as between Deere US and Deere Australia is no different from what might be expected where any Australian company imports manufactured goods from an unrelated overseas supplier.  Deere Australia orders goods. Ordinarily Deere US will supply if it can, given the economic imperative to sell as many tractors as it can make.  Initially in the case of the 8000T tractors there was some reluctance to sell outside North America because of perceived potential servicing problems, as has been explained by Mr Wilson.  If Deere US sometimes has more orders that it can fill it will share or allocate supplies among its overseas “branches”, including Deere Australia.

(v)        Deere US has controlled and co-ordinated the marketing, export, sale and distribution of the tractors throughout the world, including Australia.”

As above, I think all the evidence shows is that, like any manufacturer, Deere US can decide whether or not to sell any of its products to any purchaser, including Deere Australia.

(vi)       “Deere US has provided and continues to provide technical and marketing advice, assistance, know-how, instructions and services to Deere Australia to assist in the promotion, marketing, sale, use, preparation and servicing of the tractors in Australia.”

Given that the tractors are complicated and sophisticated machines, it is hardly surprising that the manufacturer would provide technical and operational assistance.  Likewise it would be expected to provide promotional material.  It is obviously in the interest of a manufacturer to provide as much assistance as it can to a wholesaler because the more sales the wholesaler makes, the more products it will order from the manufacturer.  Caterpillar’s submissions included a number of detailed propositions which are sub-sets of proposition (vi).  I shall not repeat them as in my view they are all met by the same answer.

(vii)      “The tractors themselves constitute infringements of the patent in suit and cannot be used or dealt with in a non infringing way.”

While there is some prima facie evidence of infringement, in the form of an affidavit sworn by a patent attorney, this fact of itself does not advance matters so far as the case against Deere US is concerned:  see Walker v Alemite Corporation (1933) 49 CLR 643 at 658 referred to below.

(viii)      “Before the first tractors were supplied by Deere US to Deere Australia, Deere US was aware of the patent in suit and was aware that Caterpillar would allege that the importation into and sale of the tractors in Australia constituted an infringement of the patent in suit.”

It is not disputed that litigation between Caterpillar and Deere US concerning Caterpillar’s corresponding US patent began in the United States in August 1996.  There is also litigation in Germany involving Caterpillar’s corresponding European patent.  But if there is not otherwise common design, authorisation etc, I do not see how knowledge of other litigation can alter the position of a vendor of goods like Deere US.

(ix)       “Deere US profits from the sale and other commercial dealings with the tractor in Australia by Deere Australia.”

This would seem to follow from the role of Deere US as vendor of the goods in question and as shareholder in Deere Australia.  But it does not advance matters.

(x)        “Deere US and its subsidiaries including Deere Australia are and have been conducted at least so far as the tractors are concerned as one world-wide organisation (controlled by Deere US).”

For reasons already mentioned, I think that Deere US is no more than a manufacturer supplying products to Deere Australia and, if it matters, other “branches” in other parts of the world.  I do not think this amounts to “control”, in any relevant sense, of Deere Australia’s activities.

(xi)       “It was the common object of Deere US and its subsidiaries (including Deere Australia) to introduce the tractors to the market to combat or halt loss of market share to Caterpillar in the agricultural tractor market which had occurred when Caterpillar introduced its tractor belted tractors.”

It might reasonably be inferred that Deere Australia and Deere US would be aware of competitors in the Australian market and would wish Deere products to outsell those of its competitors.

(xii)      “This case and this litigation is controlled by Deere US.  Solicitors for the respondents take their instructions from Deere US.” 

I was informed by way of submissions that the respondents’ present solicitors “received assistance in the conduct of the litigation from Deere US’s internal attorneys”.  The material does not take matters beyond this, and in any case one would encounter difficulties with legal professional privilege.  Moreover, the conduct of litigation and who runs it are matters which occurred after the relevant events.  Control by A of B’s case in its litigation with C does not of itself mean that A participated in a common design with B in the events complained of by C in the litigation.

(xiii)      “Deere US has caused the formation of an Australian incorporated and resident subsidiary John Deere Credit Limited to finance the sale or lease of Deere US products including the tractors  in Australia.”

This is not disputed, but I fail to see its relevance.

20                  In summary, Caterpillar have not to my mind made out a prima facie case that there has been conduct of Deere US which went beyond the supply of goods and activities ordinarily incidental to supply of goods of this nature, such as the provision of promotional material and technical support.  In the words of Dixon J in Walker v Alemite Corporation (1933) 49 CLR 643 at 658 (citations omitted):

“… it is settled law that the exclusive property in a combination invention is not infringed upon by the sale of the components; that selling articles to persons to be used for the purpose of infringing a patent is not an infringement of the patent; and that sale with a knowledge that the purchaser will use the articles for infringement is not itself an infringement although the vendor gives the purchaser an indemnity, the vendor must have made himself a party to the act of infringement.  Further, it is not enough that the article sold has no other use than a use in the course of what amounts to an infringement.  The basis upon which these rules rest is that whatever is not included in the monopoly granted is publici iuris and may be freely used as of common right.”

21                  See also Belegging-en Exploitatiemaatschappij Lavender BV v Witten Industrial Diamonds Ltd [1979] FSR 59 at 65 and Best Australia v Acquagas Marketing Pty Ltd (1988) 83 ALR 217 at 220-1.

22                  As to authorisation under s 13(1) of the Patents Act, it is not yet authoritatively established whether “authorise” bears the copyright law meaning of “sanction, approve or countenance”: Sartas No. 1 Pty Ltd v Koukurou & Partners Pty Ltd (1994) 30 IPR 479 at 492,  Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205 at 243 or the more limited meaning of “give authority or legal power to”:  Advanced Building Systems Pty Ltd v Ramset Fasteners Aust Pty Ltd (1995) ARPC 91-129 at 39,200, Bristol-Myers Squibb Co v F H Faulding & Co Pty Ltd (1998) 41 IPR 467 at 488.  But on either view I think, for essentially the same reasons, Caterpillar has not made out a case of any more than sale of goods with necessarily incidental services. 

Discretion

23                  Had I reached the conclusion that Caterpillar had made out a prima facie case I would not have exercised the discretion (which undoubtedly exists) to refuse the orders sought.  The various arguments raised by counsel for and against that exercise of that discretion need not be canvassed. The determinative factor to my mind is that since this is a claim for the infringement of an Australian patent it could only be heard in Australia.  There is no other forum where Caterpillar could bring its action: Best v Acquagas Marketing Pty Ltd (1988) 83 ALR 217 at 223. 

24                  However, I would have directed the trial of issues against Deere US including pleadings, discovery and all other associated interlocutory procedures, be adjourned until the disposition of the claims as between Caterpillar and the present respondents.

25                 The issues between Caterpillar and the present respondents are concerned with the technical characteristics of the tractors in question, the prior art, the alleged inventive process and other patent law issues.  The new issues as between Caterpillar and Deere US raise quite separate issues of fact and law concerned with commercial questions of corporate organisation and contractual dealings, a different world of discourse.  Discovery would be likely to be greatly expanded, complicated and time consuming.

26                  The primary case has been in progress for 16 months but the pleadings have not yet been completed.  It is likely that an order will be made for a separate trial on the issues of validity and infringement.  If Caterpillar fails then the issues against Deere US would not arise.  If Caterpillar succeeds, then the evidence shows that Deere Australia has substantial assets and Caterpillar would be able to recover the money fruits of any judgment, whether in the form of damages or an account of profits.  Injunctive relief against Deere Australia would be sufficient, for all practical purposes, to prevent an infringing Deere product being sold in Australia.  If Caterpillar were to succeed against Deere Australia and elect for a remedy in damages, it could recover only once.  (Notwithstanding what was said in The Electric Furnace Co v Selas Corporation [1987] RPC 23 at 33, I respectfully doubt whether a plaintiff can recover damages against one defendant and an account of profits against another in respect of the same infringement.)  If Caterpillar elected for an account of profits it could probably recover the profits made by Deere Australia and any separate profits made by Deere US.  The latter recovery is the only practical benefit by way of substantive relief which Caterpillar might receive if Deere US were joined.  It is a distant and contingent benefit, the contesting of which should not further complicate and delay a proceeding which is already likely to be well outside the 18 months disposition target for cases in this Court. 

27                  Counsel for Caterpillar said that discovery against Deere US might reveal documents of relevance to the primary substantive issues, such as the question of inventive step.  However the modern approach in this Court, and other Australian Courts, is to keep a tight rein on discovery with a view to minimising its potential for crushing cost, complication and delay: see the recently issued Federal Court Practice Note 14.  The theoretical benefit mentioned by counsel would not in my view outweigh the benefits of postponing any interlocutory process against Deere US, should it be joined.

Orders

28                  Caterpillar’s motion by notice dated 20 November 1988 will be dismissed with costs, including reserved costs.  Caterpillar will have leave to file and serve within seven days submissions as to why such costs should not be taxed and paid forthwith pursuant to O 62 r 3(2).  The respondents are to file and serve submissions in reply within seven days thereafter.  There will be a directions hearing on 7 May 1999 at 9.30 am, at which the parties are to bring in proposals, agreed if possible, for an accelerated progress of this matter. 

Associate:

Dated:              28 April 1999