FEDERAL COURT OF AUSTRALIA

Albany Molecular Research Inc v Arrow Pharmaceuticals Pty Ltd (No 2)

[2011] FCA 426

THE COURT ORDERS THAT:

1.    Subject to Order 3 below, the applicant pay the respondents’ costs of the application.

2.    Subject to Order 3 below, save for costs incurred only in connection with the allegations that the invention did not involve an inventive step, that the claims did not define the invention, that the claims were not clear and succinct, that the priority date was later than 24 June 1993, that the invention was not a manner of manufacture, that the complete specification did not describe the invention fully and that the claims were not fairly based on the matter described in the specification, the cross-respondents pay the cross-claimants’ costs of the cross-claim.

3.    There be no order as to the costs incurred by the parties after 18 February 2011 in connection with their submissions as to the orders proper to be made to give effect to the court’s reasons of that date or as to costs, or in connection with the appearances associated with those submissions, those orders or costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    On 18 February 2011, I gave judgment in this proceeding – Albany Molecular Research Inc v Alphapharm Pty Ltd [2011] FCA 120 – and, on 23 March 2011, I made final orders: Albany Molecular Research Inc v Arrow Pharmaceuticals Pty Ltd [2011] FCA 252. It remains to deal with the question of costs.

2    The respondents were successful in resisting the infringement proceeding brought against them, in which circumstances they would have the conventional expectation of securing their costs. It is submitted on behalf of the applicant, however, that its failure to secure judgment in the infringement proceeding depended wholly upon the respondents’ success on their cross-claim, and that, accordingly, the court should award the applicant its costs of the proceeding as such, or at least should make no award for costs in that regard. This was, in my view, a particularly ambitious submission. As a party whose proceeding for infringement is defeated because of the invalidity of the relevant claims in the patent in suit, the applicant is in no position to resist the respondents’ application for costs.

3    Turning to the costs of the cross-claim, here again the respondents were successful, and would normally be entitled to their costs. It was pointed out on behalf of the applicant, however, that the respondents succeeded only on the novelty point and on one dimension of the false suggestion point, the balance of the grounds in the crossclaim being rejected. The respondents submitted that they had succeeded in the result (ie the relevant claims in the patent in suit were revoked) and that costs should follow the event.

4    Of the respondents’ grounds which failed, that which involved the largest measure of factual investigation was the point that the invention did not involve an inventive step. This was a discrete ground which ran in parallel with, rather than in support of, the respondents’ case on novelty. To the extent to which there was a factual cross-over between these two aspects of the respondents’ case, for reasons which I have today given in Albany Molecular Research Inc v Alphapharm Pty Ltd (No 2) [2011] FCA 425 the respondents still cannot claim any relevant measure of success. I consider that it would be neither just nor appropriate to require the applicant to pay the respondents’ costs incurred only in prosecuting so much of the crossclaim as alleged want of an inventive step.

5    On the other hand, I am not disposed to award the applicant its own costs of resisting the respondents’ inventive step case. To make such an award would necessarily diminish the value of the costs orders which are properly made in favour of the respondents. The applicant sued on claims which were held to be invalid, in which circumstance it was obliged to anticipate that every arguably available point of defence or crossclaim would be raised against it: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. As the party which lost generally in the proceeding, the applicant ought not, in my view, receive this part of its costs from the generally successful respondents.

6    I propose to take the same approach with respect to the remaining invalidity points advanced by the respondents, save, of course, that relating to false suggestion. I do not propose that the applicant should recover any part of its costs of resisting these points.

7    The submissions made by the parties subsequent to final judgment on 18 February 2011 have been of some substance, notwithstanding that they related only to the form of the orders to be made and to costs. Having regard to the matters determined on 23 March 2011, to the matters determined in these reasons, and to the measure of success which each side achieved on each such occasion, I have decided that there should be no order as to the costs of those submissions or, save for the occasion upon which final judgment was delivered on 18 February 2011, as to costs of the appearances associated therewith.

8    The remaining question for determination relates to the basis upon which the respondents’ costs should be taxed. On 12 November 2010, the respondents made an offer of compromise in accordance with O 23 of the Federal Court Rules. The offer proposed that the proceeding should be settled on the basis that the application be dismissed, that claims 1 and 6-11 of the patent in suit be declared invalid and revoked and that the applicant pay 65% of the respondents’ taxed costs down to the date of acceptance of the offer. The offer was not accepted. The respondents now rely on O 23 r 11(6)(b) as giving rise to a presumptive entitlement to have their costs taxed on an indemnity basis to the extent that those costs were incurred after the making of the offer.

9    The applicant resisted that course on a number of grounds, but it is necessary to deal only with one of them. Because claim 11 was neither declared to be invalid nor revoked, the applicant submitted that the respondents had not obtained judgment on a basis as favourable to them as, or more favourable to them than, that proposed in the offer. I accept that submission. The result of my orders made on 23 March 2011 is that claim 11 remains on the register. The offer proposed that that claim should be revoked. I am not persuaded, therefore, that the respondents have obtained a judgment which satisfies the requirements of O 23 r 11(6)(b).

10    In the alternative, the respondents submitted that their offer of 12 November 2010 should be regarded as one made within the principle generally regarded as flowing from Calderbank v Calderbank [1976] Fam 93, and that, in the exercise of the court’s discretion, they should have their costs taxed on an indemnity basis because the applicant’s failure to accept the offer was, it was alleged, unreasonable: see CGU Insurance Ltd v Correction Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]. While the principle upon which the respondents rely is undoubted, they do not, in my view, bring themselves within it on the facts of the present case. I could not hold it to have been unreasonable for the applicant to have refused to accept the revocation of Claim 11, when that claim was not revoked by orders made at the conclusion of the proceeding. Indeed, ultimately the respondents did not submit at trial that they had made good their case for the revocation of this claim.

11    For the above reasons, the respondents’ costs will be taxed on the conventional basis.

Associate:

Dated:    4 May 2011