FEDERAL COURT OF AUSTRALIA

Damorgold Pty Ltd v Blindware Pty Ltd (No 2) [2018] FCA 364

REASONS FOR JUDGMENT

MIDDLETON J:

INTRODUCTION

1    On 20 February 2018, the Court made the following Orders:

(1)    The Originating Application be dismissed.

(2)    The Notice of Cross-claim be dismissed.

(3)    The Court certifies pursuant to s 19 of the Patents Act 1990 (Cth) that the validity of claims 1-25 of the Patent was unsuccessfully questioned in this proceeding.

(4)    The Applicants pay the Respondent’s costs of and incidental to the Originating Application on a party-party basis, to be taxed if not agreed.

(5)    The Respondent pay the Applicants’ costs of and incidental to the Cross-claim on a party-party basis, to be taxed if not agreed.

(6)    The quantum of costs shall be determined through a lump-sum costs procedure referred to and to be conducted by a Registrar of the Court.

(7)    The time for filing any appeal be extended to 21 days from the date the reasons on costs and these final orders are delivered by the Court.

2    Orders 1 and 2 follow directly from the reasons on liability: see Damorgold Pty Ltd v Blindware Pty Ltd [2017] FCA 1552 (‘Damorgold’). Orders 3, 6 and 7 were not in contention between the parties.

3    These reasons concern Orders 4 and 5 made by the Court which were in contention between the parties. These reasons are to be read in conjunction with the primary reasons concerning liability. I use the same defined terms as set out in Damorgold.

4    In Damorgold the Court:

(1)    found that the Blindware Products did not infringe the Patent and Blindware had not engaged in misleading or deceptive conduct;

(2)    rejected Blindware’s cross-claim alleging that the Patent was invalid on grounds of lacking novelty or inventive step;

(3)    found that Damorgold had not engaged in misleading or deceptive conduct or made unjustified threats of patent infringement.

COSTS GENERALLY

The principles applicable

5    I will first deal with the question of costs generally. I observe that the exercise of the discretion in this case is also potentially affected by the operation of s 19 of the Patents Act 1990 (Cth) (‘the Patents Act’) and the Federal Court Rules 2011 (Cth) (‘the Rules’). I will return to these matters later.

6    The Court’s discretionary power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (‘the Act’).

7    The discretion conferred by s 43(2) of the Act is unfettered, save that it must be exercised judicially and not arbitrarily or capriciously.

8    The discretion of the Court in relation to costs is well established. As the Full Court recently observed in Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 (‘Idenix’) at [3]:

…Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]).

9    The approach of awarding costs on an issues basis or otherwise apportioning costs is often applied in complex trials or those involving many issues in recognition of the demands of the community for greater economy and efficiency in the use of the Court’s resources. In Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 (‘Ruddock’) Black CJ and French J said at [11]:

•    Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order.

•    Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed.

•    A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties’ costs of them. In this sense “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.

10    In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128 after referring to Ruddock and The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, the Full Court observed at [11]:

These decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs. However they 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. 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    In considering the appropriate approach to costs in this process, the Court should have regard to both s 12(1) of the Civil Dispute Resolution Act 2011 (Cth) (‘CDRA’) and s 37N(4) of the Act.

12    The object of the CDRA is “to ensure that, as far as possible, people take genuine steps to resolve disputes before certain civil proceedings are instituted” (s 3). Section 12(1) of the CDRA allows the Court, in “exercising a discretion to award costs”, to take account of whether a person who was required a file a genuine steps statement took genuine steps to resolve the dispute.

13    Section 37N(1) of the Act provides that the parties to a civil proceeding:

must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.

14    The overarching purpose is described in s 37M(1) as being to:

facilitate the just resolution of disputes: (a) according to law; and (b) as quickly, inexpensively and efficiently as possible.

15    Section 37M(2) provides that the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

16    Section 37N(4) requires the Court to “take account of any failure to comply with the duty imposed by subsection (1) and (2)” in exercising the discretion to award costs. These provisions dictate that the way in which litigation is initiated and conducted must be taken into account by the Court in exercising its discretion on costs.

17    Generally speaking then, costs will follow the event subject to the various considerations mentioned above. Of course, it is necessary to identify “the event”, which may not always be straight forward if there are various claims and cross-claims. However, a party’s entitlement to receive costs or responsibility to pay them is first to be assessed by reference to a party’s success or failure in the litigation and a party’s conduct in or in connection with the litigation.

The parties’ positions

18    In the present case, Damorgold submitted that the Court should make separate orders in respect of the costs of the Originating Application alleging infringement (and related claims) on the one hand and the Notice of Cross-claim alleging invalidity (and subsidiary claims) on the other hand, based upon the success of the parties.

19    However, contending that it was the party that was successful in the proceeding overall, Blindware contended that it is entitled to an order for its costs in the proceeding in accordance with the usual rule that costs follow the event, with a 15% deduction of its costs taking into account its lack of success on the cross-claim and the conduct of the parties. Blindware’s essential proposition was that it was the overall winner of the litigation. In addition, Blindware contended that in light of formal offers of compromise it made that were rejected by Damorgold, it was entitled to its costs on an indemnity basis from after the date of the first (alternatively second) relevant offer in accordance with r 25.14 of the Rules.

20    Blindware primarily submitted that the following orders as to costs should be made:

The Applicants pay:

(1)    85% of the Respondent’s costs of and incidental to the proceeding up to and including 11am on 26 October 2015 on a party and party basis; and

(2)    the Respondent’s costs of and incidental to the proceeding after 11am on 26 October 2015 on an indemnity basis.

21    In summary, Blindware contended that such a costs order was appropriate given the following matters:

(a)    On a proper application of the legal principles that emerge from the case law, section 19 of the Patents Act 1990 (Cth) (the Patents Act) does not warrant a departure from the appropriate costs position: i.e., that Blindware is entitled to a costs award in its favour as the successful litigant.

(b)    In accordance with authority and the Federal Court practice note on costs, the appropriate course is to apply a deduction to the costs that Blindware is entitled to recover to reflect its overall lack of success in the outcome of its cross-claim, taking into account other matters such as the conduct of the parties, as follows. This is not a case in which it is appropriate to make a separate order for costs on the cross-claim.

(c)    Blindware has maintained the same position on non-infringement since as early as 2010. Damorgold did not engage with the substance of Blindware’s non-infringement argument before commencing proceedings, and instead pursued proceedings in which the Court ultimately vindicated Blindware’s position.

(d)    Blindware was drawn into the proceedings (which it tried to avoid by clearly setting out its position on non-infringement prior to commencement of the action) and only mounted its validity attack as a defensive position and substantially in light of the broad claim construction Damorgold adopted in an attempt to maintain its claim for infringement. Blindware’s cross-claim for groundless threats and misleading and deceptive conduct were ancillary to its non-infringement argument.

(e)    Blindware served two offers of compromise early in the proceeding (well before any substantial costs could have been incurred by Damorgold on the cross-claim), neither of which were accepted by Damorgold. Both the First Offer … and the Second Offer … were more favourable to Damorgold than the final result.

(f)    Blindware made various attempts to narrow the issues in dispute and reduce legal costs throughout the proceeding, including by way of a Notice to Admit dated 27 May 20161 … which were rejected by Damorgold.

(g)    Blindware was in fact successful in establishing a number of key factual issues to which much of the cross-claim evidence was directed (and in respect of which it attempted to narrow the issues in dispute with Damorgold).

Background facts

22    Blindware has filed an affidavit of Ms Rebekah Frances Gay dated 1 February 2018 which it relied upon in support of its submissions. Ms Gay was a partner of Herbert Smith Freehills with carriage and conduct of litigation on behalf of Blindware. That affidavit provided an overview of the litigation as a whole, including the correspondence between the parties leading up to the commencement of the proceeding by Damorgold, and steps taken by Blindware to resolve and narrow the dispute at different stages throughout the litigation, including by way of a notice to admit and the two offers of compromise.

23    I do not need to detail all the correspondence but I will refer to one particular letter. A 2 February 2015 letter in response from Blindware’s then patent attorneys explained to Damorgold (underlining in original, bold emphasis added):

Independent claims 1 and 3, from which all other claims of the Patent depend, recite essential features of the invention in the following clause:

“... biasing means connected to said cylinder and being responsive to rotation of said cylinder in a blind extending direction to store energy, and being responsive to rotation of said cylinder in a blind retracting direction to release said stored energy and thereby apply a turning force to said cylinder tending to rotate the cylinder in said blind retracting direction, ... (emphasis added)

In our view, the spring assist mechanism of our client’s product clearly described by Mr Marsh’s words, as follows;

“The RollEase mechanism does not fix the non-clutch-side of the spring (ie biasing means) to the inside of the tube (ie cylinder) and does not rely on the rotation of the tube and adapter to wind the spring. Instead, the RollEase mechanism floats freely inside the tube and relies on the rotation of the clutch pulley to wind the spring.”

obviates the requirement of biasing means connected to the cylinder and being responsive to rotation of the cylinder to store or release energy, ie wind/unwind the spring. Our client’s spring assisted roller blind may include a cylinder for carrying a blind but the cylinder has no interworking functional relationship with the spring biasing means of the mechanism such that the spring is responsive to rotation of the cylinder. In fact, the cylinder of our client’s product is not capable of engaging the spring biasing means of the roller blind to impart, store or release energy by means of the cylinder rotating.

24    Damorgold did not relevantly respond to this letter to address the issue raised in bold, but issued the proceedings. However, discussions between the parties had taken place. The basis on which Blindware denied infringement in this letter was essentially the same basis on which it ultimately succeeded in defending the infringement. That is, the Court concluded that the spring (biasing means) of the Blindware Products was not “responsive to” rotation of the cylinder in a blind extending direction to store energy as required by the claims of the Patent because the claims required “some form of interaction” between the rotation of the cylinder and the tensioning (or release of energy) by the spring.

25    This proceeding was commenced on 31 July 2015. On 11 September 2015, Blindware filed its notice and statement of cross-claim, and on 1 October 2015, Damorgold filed their defence to the cross-claim.

26    On 22 October 2015, Blindware served on Damorgold a notice of offer of compromise pursuant to r 25.01 of the Rules to settle the entire proceeding on the following terms:

(1)    the originating application and notice of cross-claim each be discontinued;

(2)    the grant of a non-exclusive royalty free licence to Blindware to exploit the Patent for the remaining term of the Patent (which expires on 25 August 2020); and

(3)    the parties bear their own costs.

(the ‘First Offer’).

27    After pleadings were closed but before any orders were made for the filing of evidence, the parties attended mediation before a Registrar of the Federal Court on 23 November 2015 which was not successful.

28    On 18 February 2016, Blindware served on Damorgold a further notice of offer of compromise on the same terms as the First Offer, except that in addition Blindware offered to pay Damorgold a lump sum of $80,000 in full settlement of the proceeding (the ‘Second Offer’).

29    On 27 May 2016, Blindware served a notice to admit, which sought admissions in relation to a number of facts and documents, primarily relating to the Uniline Product. On the same date, Blindware served a first affidavit of Mr Tommy Ruonala, the former Managing Director of Uniline, which provided evidence and supporting documentation relating to the Uniline Product.

30    In their notice of dispute dated 10 June 2016, Damorgold disputed all of the facts and documents relating to the Uniline Product, which resulted in the need for an amount of some additional evidence in the proceeding. Eventually, all of the facts and documents the subject of the notice to admit were either admitted by Damorgold after the first part of the hearing in September 2016, or accepted by the Court in the reasons in Damorgold.

31    In addition, Blindware’s challenge to the validity of the Patent included an inventive step attack, which relied on establishing a number of matters as common general knowledge at the priority date of the Patent. Blindware’s Statement of Cross-claim, Amended Statement of Cross-claim and Further Amended Statement of Cross-claim identified the matters it relied on as common general knowledge. Throughout the proceeding, Damorgold disputed all but four of these matters, including in its Further Amended Defence to Cross-claim filed on 12 October 2016, after the first part of the hearing in September 2016. In its Closing Submissions on validity on the last day of the hearing in February 2017, Damorgold accepted most of the common general knowledge relied on by Blindware. To the extent Damorgold did not accept the common general knowledge relied on by Blindware, the Court accepted that Blindware had proved the common general knowledge on which it relied.

32    As is apparent, Blindware relied upon a global approach to costs, and referred to a number of patent disputes in which both parties were not wholly successful in their respective infringement claim and revocation cross-claim, including Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (No 3) [2014] FCAFC 126, Tramanco Pty Ltd v BPW Transpec Pty Ltd (No 2) [2014] FCAFC 58, DSI Australia (Holdings) Pty Ltd v Garford Pty Ltd [2013] FCA 268, H Lundbeck A/S v Alphapharm Pty Ltd (No 2) [2009] FCAFC 118 and JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (No 2) [2007] FCAFC 6. I do not need to consider each of the cases: they all turn on their own facts and circumstances, and do not ‘confine’ or educate the manner of the exercise of discretion in this proceeding. There is no doubt that a global approach could be taken – the question is whether that approach is appropriate in the circumstances of this proceeding.

Consideration

33    Before proceeding further I make these observations.

34    Parties are encouraged to make offers to settle all disputes to the extent appropriate and practicable. However, sometimes a dispute requires a judicial determination and the constitutional function of the Court is to make such a determination. A successful party should not be punished or deprived of costs if that party proceeds appropriately in seeking a judicial determination. Further, in the present case there was a public interest in establishing the validity or otherwise of the Patent, although by the nature of litigation in the Federal Court, any determination on validity would be binding only inter partes. Of course, if a patent is revoked, then the revocation would be effective beyond the parties to any specific proceeding.

35    Having said this, there is no doubt that all the matters raised by Blindware are relevant to the making of a cost order, either individually or in aggregate.

36    Failure to comply with pre-litigation “genuine step” obligations and the “overarching purpose” duty, and putting unmeritorious arguments to the Court, are all important matters to take into account in the overall assessment of costs orders. However, each matter must be considered in the context of the dispute between the parties, the nature of the litigation, and the overriding duty of the Court to arrive at a judicial determination where a matter is before the Court.

37    The Court expects, and the parties are under a responsibility to follow, what are now universally regarded as case management imperatives; for instance, to take to trial only the critical point or points in issue and make appropriate admissions. However, the parties are entitled to consider their own legal, personal and commercial interests, provided they do adhere to the principles now enshrined in the CDRA and the Act.

38    In this proceeding, the parties were represented by experienced, competent and senior legal practitioners. There is a public interest in ensuring that invalid patents are removed from the Register, which is a consideration relevant to the exercise of the discretion to award costs where the invalidity of a patent is put in issue. Important issues were at stake for the parties, including not only the validity of the Patent and but also the position of the parties in the market place.

39    Even accepting (as I do) the contents of affidavit of Ms Gay in her affidavit, the circumstances do not reveal an abuse of process or inappropriate conduct on the part of Damorgold. This is not the only enquiry, but is relevant to an assessment of the incidence of costs.

40    Blindware would have hoped, along with the Court, that the dispute would have settled prior to the issue of proceedings, at the mediation, or even during the course of the trial. This did not occur. However, I do not consider that there was a failure to comply with pre-litigation obligations or the Act, or more significantly, that any conduct of Damorgold relevant to assessing costs orders resulted in the litigation going all the way to judgment.

41    I accept the evidence of Mr Ross Lava (in an affidavit sworn on 8 February 2018), that for one reason or another, the only way the issues in the proceeding could be resolved was by a decision of the Court. This was my own impression of the position of the parties. Opportunities for settlement were available. The parties attended a mediation, having there an opportunity to resolve the litigation, which did not occur. There has been no suggestion that the mediation was not conducted by the parties in good faith.

42    I rehearse in some more detail Blindware’s main position.

43    Blindware effectively submitted that the entire litigation might have been avoided had Damorgold properly engaged with Blindware’s non-infringement position first articulated in January 2010 and reiterated in February 2015 before proceedings were commenced. It was contended that Damorgold did not properly address Blindware’s argument before commencing proceedings nor attempt to articulate how it alleged the Blindware Products satisfied the “responsive to” requirement of the claims. It also did not attempt to engage in any discussions with Blindware or RollEase with a view to resolving the dispute.

44    In relation to this, as I have alluded to, the history of the litigation, and the failure of the mediation, indicate that a final determination by the Court was required, and litigation going to judgment was inevitable.

45    Then it was submitted that Damorgold’s conduct of the litigation as a whole, in particular its refusal to provide appropriate and timely admissions that would have narrowed the scope of the dispute, led to the incurring of substantial costs that could have been avoided. While Damorgold eventually provided admissions on many of these matters (after the first part of the hearing in September 2016), this was only after substantial costs and Court time had already been consumed.

46    In relation to the issue of admissions, I observe that in addition to the position in relation to the common general knowledge, a substantial portion of both parties’ evidence in relation to the cross-claim, both in the affidavit evidence and at the hearing in September 2016, related to whether the Uniline Product was prior art information within the meaning of s 7(3) of the Patents Act. Blindware sought to narrow the scope of the debate relating to the Uniline Product by providing Damorgold with extensive evidence (including supporting documents) about the supply of the product (in the form of the first affidavit of Mr Ruonala) and then seeking a number of admissions in the notice to admit. Damorgold refused to provide any admissions which resulted in the need for some further evidence, including affidavits from Ms Kristine Brown, Mr Matthew Bowe and Mr Ross Emms. At the hearing, none of these witnesses were required for cross-examination, and after the first part of the hearing in September 2016, Damorgold admitted that the supply of the Uniline Product by Uniline had made publicly available in Australia all materially relevant features of the Uniline Product and how those features interoperated. In the Reasons (at [348]), the Court found that the Uniline Product was s 7(3) information.

47    I accept that some of the evidence filed by Blindware in relation to its cross-claim was directed to proving the facts and the authenticity of documents disputed in Damorgold’s notice of dispute. Pursuant to r 22.03 of the Rules, Blindware submitted it would be entitled to recover the costs associated with preparing such evidence to the extent they were relevant to proving the disputed facts. In addition, Blindware’s claims at least some portion of the costs associated with arranging for Mr Ruonala and Ms Brown to travel from Brisbane to Melbourne to attend the hearing for cross-examination (noting that Ms Brown was ultimately not required to be cross-examined), and also to prepare those witnesses for cross-examination.

48    These are matters that can be revisited in the taxation by the Registrar, a matter to which I will return. I do not consider that this matter, in the context of the overall proceeding, is of sufficient weight to influence the primary position I have reached. The Registrar in considering the taxation can take into account the notice to admit and the operation of the Rules in relation to that notice.

49    Then it was submitted that shortly after Damorgold commenced the proceeding, Blindware put forward two formal offers which were capable of acceptance and, if accepted, would have made it unnecessary for further costs to be incurred in the proceeding. It was submitted that the result Damorgold achieved by rejecting those offers and instead pushing forward in the litigation was less favourable than both offers. Damorgold’s rejection of those offers was said to be a further matter to be taken into account in determining the appropriate costs orders to be made as either part of the Court’s general discretion or pursuant to s 37N(4) of the Act. In this regard, the Full Court’s observations in Novozymes A/S v Danisco A/S (No 2) [2013] FCAFC 55 (‘Novozymes v Danisco’) at [15] were said by Blindware to be apposite:

… 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.

50    As set out above, Blindware made:

(1)    the First Offer on 22 October 2015, shortly after the close of pleadings; and

(2)    the Second Offer on 18 February 2016, before either party had filed any evidence in the proceeding.

51    Rule 25.14(1) of the Rules provides that if an offer is made by a respondent and not accepted by an applicant and the applicant “obtains a judgment that is less favourable than the terms of the offer”, the respondent is entitled to indemnity costs after that the date of the offer. Rule 25.14(3) provides for an equivalent outcome in respect of an offer made by an applicant. Rule 25.14(2) provides that if an offer is made by a respondent and an applicant unreasonably fails to accept that offer and the applicant’s proceeding is dismissed, the respondent is entitled to indemnity costs after the date of the offer.

52    Blindware’s relied upon the decision of Murphy J in Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd (No 2) [2013] FCA 705 (‘Kismet v Guano’), where his Honour considered the circumstance of an offer made by the respondents in that proceeding to compromise both the applicants’ claim and the respondents’ cross-claim. Viewed globally, the respondents’ offer was more favourable for the applicants than the result achieved at trial. The applicants argued that it was not possible to apply r 25.14 to a global offer to settle both a claim and cross-claim because each was not capable of acceptance separately. Justice Murphy held at [42]-[45]:

[42]    I do not accept the applicants/cross-respondent’s contentions in this regard. To treat r 25.14 as operating in this way is artificial and unrealistic in cases involving a claim and cross-claim within the one proceeding. While it is correct that the applicants could not independently accept the Respondents’ Offer of Compromise in relation to the cross-claim, without also accepting the offer in the applicants’ claim, in my view this does not lead to the conclusion that the respondents’ are not entitled to the benefit of their offer of compromise. The offer was straightforward in its terms, and available for acceptance on a global basis.

[43]    In short, the effect of the applicants’ contention is that I should treat the Respondents’ Offer of Compromise as of no value to the respondents because it was made globally for both claim and cross-claim. I do not agree. The respondents had offered to pay $20,000 globally to settle the claim and crossclaim. The applicants rejected this and instead ended up being ordered to pay $12,351.99. I note also that the applicants’ offers of compromise were made on the same joint basis.

[44]    Further, in my view it is unnecessary for the respondents to rely on r25.14(3). Rule 25.14(1) may be read as applying to the offers made in both the claim and the cross-claim, as there are not two separate proceedings.

[45]    Finally, I do not accept that the applicants’ failure to accept the Respondents’ Offer of Compromise was because of any inability to independently accept the cross-claim offer. I infer from the quantum of the applicants’ offers of compromise that they did not accept the respondents’ offer because they considered the value of their claim to be higher than the respondents’ offer.

53    Blindware contended that each of the two offers should be treated in a similar way, on the basis that, viewed globally, the terms of both offers were more favourable to Damorgold than the final outcome in this proceeding.

54    In the circumstances, it was submitted that the effect of r 25.14 on the proceeding as a whole gave rise to a rebuttable presumption that indemnity costs should be awarded from 11am on the second business day after the date of the First Offer. As to this rebuttable presumption, the Full Court in Australian Skills Quality Authority v Western Institute of Technology Pty Ltd [2017] FCAFC 183 at [23] observed:

The operation of r 25.14 is not qualified by a phrase such as “unless the Court otherwise orders”. Although the Court retains power to make such costs orders as it considers appropriate, the absence of such a qualification tends to emphasise the presumptive nature of r 25.14: see Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [23] and [27] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ); Sydney Equine Coaches Pty Ltd v Gorst [2017] FCAFC 34 at [22] (Rares, Flick and Bromwich JJ).

55    Before specifically looking to the offers of compromise, I now turn to some specific comments relating to the proceeding which are relevant to the exercise of the discretion on costs generally and in the context of the offers of compromise.

56    Although brought in the one proceeding, the application for infringement and the cross-claim challenging validity were separate, independent causes of action. In that sense, the proceeding involved two “events”. Blindware was successful in defending Damorgold’s infringement claim. However, Damorgold were successful in defeating Blindware’s claims that the Patent was invalid and Damorgold had made threats of patent infringement which were unjustified and misleading or deceptive conduct.

57    Blindware chose to ‘defend’ the infringement case by bringing the cross-claim on validity. It could have simply defended the infringement case on the construction issue (upon which it had great confidence, and (as it so far has turned out) justifiably). I accept that Blindware advanced its cross-claim in case its interpretation of the Patent was wrong. However, having made the decision to argue to judgment invalidity, Blindware must bear the consequences of that approach. This is not to punish Blindware, but to compensate Damorgold for having to defend the cross-claim.

58    It is also important to recall the following.

59    As the parties accepted, the substantial infringement issue on which Blindware succeeded was the construction of the term “responsive to”.

60    The construction of “responsive to” was not central or relevant to the determinative issues on the cross-claim. The cross-claim raised different and distinct issues, as for example:

(1)    whether the Uniline Product and the US 269 patent were “self-contained” products in the way claimed;

(2)    whether US 269 disclosed the features of integers 1.17, 1.26 and 1.27 “in either said direction”;

(3)    whether US 269 disclosed the “driven member connection” of integer 1.19;

(4)    whether in JP 694 the brake tube 28, which could freely rotate around the operation shaft 21, was “integrally fixed” to that shaft as required by integers 1.21 and 1.23;

(5)    whether the general disclosure in claim 1 of JP 694 disclosed all the particular features of claim 1 or claim 3 of the Patent;

(6)    whether the Patent involved an inventive step over the Uniline Product;

(7)    the construction of Damorgold’s notices to the public and alleged unjustified threats.

61    The issues raised in the cross-claim, particularly on invalidity, involved considerably more time, effort and complexity for the Court and both parties than the infringement case. This is not a case where the most prominent issue in the infringement case was also central to the invalidity case. Moreover, each party had mixed success on issues arising under the various heads of dispute so that disentangling costs would have been a complicated, difficult and time consuming exercise. In saying this, I am mindful that Blindware was successful on some of the matters raised in its cross-claim, but Blindware was ultimately unsuccessful in its attack on the validity of the Patent. I do not see this as a situation where it is appropriate to take an issues approach in respect of consideration of the costs of the cross-claim.

62    I now turn specifically to the offers of compromise. They can be viewed in isolation or globally relating to the infringement claim and the cross-claim. The result is the same.

63    Rule 25.14(2) of the Rules creates a rebuttable presumption in favour of an order that, where the relevant application has been dismissed, the successful respondent’s costs be paid on an indemnity basis.

64    However, as the terms of sub-rule (2) make clear, that presumption arises only where relevantly here Damorgold “unreasonably fails to accept the offer”. Blindware must establish that Damorgold’s failure to accept one or other of the offers was unreasonable.

65    I consider, having regard to the nature of the issues in both the infringement claim and the cross-claim, that Damorgold did not act unreasonably.

66    In making the assessment, the Court is required to find that Damorgold’s conduct was unreasonable at the time the offers were made, looking forward from the time the offers were made and having regard to all the circumstances including the strengths and weaknesses of the case as they were known at that time. The fact that Damorgold were ultimately unsuccessful on infringement does not establish that their conduct was unreasonable.

67    Damorgold’s case that the Blindware Products infringed was not “plainly hopeless or unarguable”. The course of reasoning in Damorgold itself sets out the process of construction. Whilst the Court has now reached a definite and concluded view, the matter of construction required debate. I consider it also relevant that both offers were made before any evidence was filed. The timing of the offers, and the fact that they were not repeated once the parties’ evidence was filed, is also relevant.

68    Blindware submitted that the fact that evidence had not been filed at the time the offers were made cannot reasonably be relied on by Damorgold but instead bolstered Blindware’s position – it was submitted that there was no evidence that Damorgold held any well-founded belief as to an alternative construction to “responsive to” at the time the offers were made. It is true both parties accepted that “responsive to” was not a term of art, but expert evidence was relied upon by both parties. Whilst Blindware’s position relied on a plain English interpretation of the words “responsive to”, which position did not change from 2010 and was accepted by the Court, the reality is that the Court determination was required, and reasonably required, to determine that construction.

69    In considering the issue of reasonableness, other cases have referred to the relevance of the claim being “plainly hopeless or unarguable” or “not such that it was inevitable that it would lose”. I am not restricting myself to this enquiry; each case must depend on its own facts. Undoubtedly, Blindware (and RollEase) had explained in some detail the non-infringement position in relation to the “responsive to” integer. Damorgold did not articulate any substantive response to Blindware’s position at the time of either of the offers. However, I should not assume (and there is no evidence to suggest) that Damorgold were not of the view their construction would prevail.

70    It is also to be recalled that both the First Offer and the Second Offer were made when Blindware’s cross-claim was based on the Rolashades product, which had been relied upon in the Damorgold Pty Ltd v JAI Products Pty Ltd [2014] FCA 150 (the ‘JAI proceeding’) and over which the s 19(2) certificate had been granted. Damorgold had been successful ultimately on this issue.

71    I also conclude that the result achieved by Blindware was not more favourable than either offer, if for no other reason that both offers would have led to discontinuance of the cross-claim. The cross-claim has been dismissed and a s 19 certification given by the Court. Damorgold therefore have the Patent which has been attacked twice and both attacks have failed. It is not just a matter of the Patent being presumptively valid in any event. The impact of the second certificate under s 19 on my analysis (to which I will come to) has relevance as it covers in the operation of s 19(2) the attack of Blindware in this proceeding on the different basis from the attack in the JAI proceeding. There are other reasons for not viewing the offers as more favourable, including the circumstances involving the incidence of costs and the importing into the offers the grant of the licence to Blindware which itself would involve further negotiation.

72    I should mention that Blindware submitted that, even if the Court was not of the view that Blindware should be awarded indemnity costs in light of the rejection of either of the offers by Damorgold, the Court should nevertheless take the offers into consideration in determining the appropriate order as to costs. Blindware submitted that this was the approach adopted in Novozymes v Danisco, and, when applied here, leads to the conclusion that Blindware is entitled to an award of its costs of the proceeding as a whole, with only a slight discount to allow for the result on the cross-claim.

73    The considerations I refer to above indicate that this approach is not the approach that is appropriate in the circumstances of this proceeding. The question of construction in dispute between the parties was not something amenable to compromise: its resolution required judicial determination. There was a public interest in the determination of the cross-claim. Mediation was attempted and failed. I do not accept that Damorgold’s conduct before and during the proceedings was in unreasonable or warranting sanction under the CDRA or s 37N of the Act. Further, Blindware took the decision it did to pursue the cross-claim, which was unsuccessful. The offers of compromise were not unreasonably refused by Damorgold. This is not a situation where the Court should otherwise descend into awarding costs on various issues within the cross-claim in which Blindware was unsuccessful.

NOTICE TO ADMIT

74    I now turn to the notice to admit. I have made Order 6 of 20 February 2018, so the lump sum costs procedure will be adopted by the Registrar. As I have already alluded to, in the course of this procedure the Registrar will need to consider the notice to admit in the context of the litigation – the timing of the notice and the evidence that was led consequential upon Damorgold’s failure to admit certain matters. The Registrar will need to consider the operation of r 22.03 of the Rules. However, on the taxation, the overall question is whether the costs were fairly and reasonably incurred – see r 40.01 and the Dictionary at Sch 1 of the Rules (r 1.51).

75    Orders 4 and 5 made on 20 February 2018 do not preclude reliance on the notice to admit in determining the appropriate overall costs to be paid, and it will be a matter for the Registrar when apprised of the complete taxation to apply the Rules in that context.

SECTION 19 OF THE PATENTS ACT

76    I now turn to address the applicability of s 19 of the Patents Act, which provides:

(1)    In any proceedings in a court in which the validity of a patent, or of a claim, is disputed, the court may certify that the validity of a specified claim was questioned.

(2)    If a court issues a certificate, then, in any subsequent proceedings for infringement of the claim concerned, or for the revocation of the patent so far as it relates to that claim, the patentee, or any other person supporting the validity of the claim is, on obtaining a final order or judgment in his or her favour, entitled to full costs, charges and expenses as between solicitor and client, so far as that claim is concerned.

(3)    Subsection (2) has effect subject to any direction by the court trying the proceedings.

77    Section 19(3) gives the Court a broad discretion regarding the operation of s 19(2). This involves an assessment of what is fair and just to do in the particular case, taking into account the presumptive public policy expressed by Parliament. The public policy is to discourage the re-litigating of an issue or issues that have already been judicially determined in relation to the questioning of the validity of a patent – see generally the comments of Rares J in Cementech Pty Ltd v Boral Masonry Ltd [2014] FCA 794 at [6] to [8].

78    Justice Jessup in AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 419 observed that s 19(3) empowers a court to direct that s 19(2) have no effect at all, thereby returning the case to the realm of the general discretion under s 43 of the Act, where, the primary costs position is that the successful litigant is entitled to an award of costs. His Honour also rejected the proposition (from English authorities) that “some very special reason” would need to be shown why s 19(2) should be departed from. Instead his Honour accepted that all that need be shown was “good reason” why the presumption in s 19(2) should not apply.

79    In Damorgold Pty Ltd v JAI Products Pty Ltd [2015] FCAFC 31 (‘Damorgold [2015] FCAFC 31’), the Full Court certified that claims 1 to 30 of the Patent had been unsuccessfully questioned. As a result, s 19(2) gives Damorgold a rebuttable presumption of an entitlement to solicitor and client costs in this proceeding. Those costs would be limited to the determination of issues relating to the validity of the claims of the Patent – s 19(2) will have no operation in respect of parts of litigation that are not related to the validity of the claims that have been certified as valid.

80    I consider that where the fresh litigant seeks to raise grounds of invalidity not previously pursued in the earlier litigation, it is appropriate to ameliorate the operation of s 19(2). In this proceeding there is “good reason” to do so. It is fair and just to do so.

81    The public policy behind s 19(2) is obviously applicable where a particular ground or issue of invalidity has already been determined by a court, and the fresh litigant simply repeats the grounds of invalidity argued in the earlier litigation. The resources of a court and the public should not be wasted in this manner. Further, the patent holder should be reimbursed as completely as possible for costs expended in the later litigation. However, s 19 should not have the effect of discouraging bona fide attacks on patents where the original revoking party relied upon where different grounds of attack. Whilst in full awareness of the ruling in Damorgold [2015] FCAFC 31, Blindware persisted in its attack on the Patent, it did rely on different prior art, and the arguments in both proceedings were not coextensive.

82    In Damorgold [2015] FCAFC 31, the primary ground of invalidity maintained by JAI at the hearing was lack of novelty in light of a prior art product referred to as the RolaShades product. JAI was successful in its novelty attack on most of the claims of the Patent at first instance. However, on appeal to the Full Court of the Federal Court (Bennett and Yates JJ, Jessup J dissenting), the Court found in favour of Damorgold and certified the claims.

83    In this proceeding, Blindware ultimately relied on different prior art for novelty and a new ground of lack of inventive step. While Blindware’s original cross-claim relied on the RolaShades product, in May 2016, Blindware notified Damorgold of its intention to amend its cross-claim to introduce new prior art, and withdraw its reliance on the RolaShades product. Blindware’s evidence on validity related only to the new prior art, and Blindware amended its cross-claim several months before Damorgold filed its evidence on validity starting from late July 2016.

84    I also mention that just because the Court eventually did not accept the evidence of Mr Crick in the proceeding, and the attack in the cross-claim failed, is not a reason for not departing from s 19(2) if it is otherwise appropriate to do so.

85    In light of the above approach, Order 5 is in terms of the costs being taxed on a party/party basis, which is to be read as a direction under s 19(3), effectively directing in the circumstances of the cross-claim that s 19(2) has no effect at all.

CONCLUSION

86    For the above reasons, I made the Orders 4 and 5 pronounced on 20 February 2018.

Associate:

Dated:    19 March 2018

SCHEDULE OF PARTIES