FEDERAL COURT OF AUSTRALIA

Toolgen Incorporated v Fisher [2019] FCA 2158

ORDERS

THE COURT ORDERS THAT:

1.    By 24 January 2020 the respondents/cross-appellants provide security for the appellant/cross-respondent’s costs of this proceeding in the amount of $375,000 in a form agreed between the parties or, in the absence of such agreement, as determined by a Registrar.

2.    Costs of the interlocutory application be reserved for determination at the case management hearing on 13 March 2020.

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

REASONS FOR JUDGMENT

NICHOLAS J:

1    Before me is an application for security for costs brought by the appellant (“TGI”) against the first respondent (“Mr Fisher”) and the second respondent (“ACN”). TGI is the applicant for Australian Patent Application No 2013335451 (“the 451 application”) entitled “Composition for cleaving a target DNA comprising a guide RNA specific for the target DNA and cas protein-encoding nucleic acid or cas protein, and use thereof”. The invention relates to targeted genome editing in eukaryotic cells or organisms using RNA guided endonuclease based on the CRISPR/Cas system.

2    The 451 application was filed on 23 October 2013 and claims priority from several US provisional applications.

3    Mr Fisher, who was previously a partner of the law firm Ashurst, but who is now partner of the law firm Corrs Chambers Westgarth, opposed the 451 application pursuant to s 59 of the Patents Act 1990 (Cth) (“the Act”). His opposition was heard by a delegate of the Commissioner of Patents on 21 May 2018.

4    It is common ground that the provisions of the Act relevant to the opposition proceeding (and now the appeal proceeding) are in the form they took following amendments to the Act introduced by the Intellectual Property Laws Amendment (Raising the Bar) Act 2013 (Cth) including to s 40(2) and (3) of the Act which relevantly provide:

(2)    A complete specification must:

(a)    disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art; and

…

(b)    where it relates to an application for a standard patent—end with a claim or claims defining the invention; …

(3)    The claim or claims must be clear and succinct and supported by matter disclosed in the specification.

5    Mr Fisher’s opposition to the 451 application was partly successful. The delegate decided that claims 1 to 8 and claims 10 to 18 lacked novelty and inventive step, that claim 19 lacked clarity, and that claim 21 also lacked inventive step. However, he rejected Mr Fisher’s opposition based on alleged non-compliance with s 40 with respect to lack of sufficiency (s 40(2)(a)) and support (s 40(3)). The delegate found that claims 9 and 20 were valid. The delegate allowed TGI two months within which to propose amendments to overcome the grounds of opposition that met with success: see s 60(3B) of the Act.

6    The rejection of claim 19 by the delegate for lack of clarity turned on a narrow issue as to the meaning of the words “… the nucleic acid encoding the guide RNA is in vitro transcribed RNA.” Claims 1 to 8 were found to lack novelty and an inventive step based on prior art made relevant by a finding that those claims were not entitled to the asserted priority dates. Claims 18 and 20 were found to lack an inventive step in light of the same prior art.

7    On 4 October 2018, Mr Fisher purported to assign to ACN (then known as Blake & Riggall Pty Ltd) all of his right, title and interest in his opposition to the 451 application following his retirement from the Ashurst partnership. TGI’s solicitors (Jones Day) were notified of the purported assignment on the same day. It is common ground that the notice of opposition continues to name Mr Fisher as the sole opponent.

8    TGI filed its appeal against the delegate’s decision on 15 October 2018. The notice of appeal names Mr Fisher as the first respondent and ACN as the second respondent.

9    The notice of appeal was filed pursuant to r 34.24(1) of the Federal Court Rules 2011 (Cth) (“the FCR”) which provides:

A party who wants to appeal from a decision of the Commissioner must, within 21 days of the date of the decision, file a notice of appeal, in accordance with Form 92.

10    The cross-appeal was filed pursuant to r 34.28(1) of the FCR which provides:

A respondent who wants to appeal from a decision, or part of a decision, of the Commissioner, from which the applicant has appealed must file a notice of cross-appeal, in accordance with Form 93.

11    Rule 34.29 of the FCR may require a respondent to file a notice of contention if no notice of cross-appeal is filed. It provides:

If a respondent does not want to cross appeal from the Commissioner’s decision, but contends that the Commissioner’s decision should be affirmed on grounds other than those relied on by the Commissioner, the respondent must, within 21 days after the notice of appeal is served, file a notice of contention, in accordance with Form 77.

12    On 6 November 2018 the respondents filed a notice of cross-appeal including additional grounds of opposition with respect to the 451 application. The grounds relied upon by the respondents challenge various findings made by the delegate and seek to uphold aspects of the delegate’s reasoning on grounds different from those that were accepted by the delegate. There is a total of 18 separate grounds referred to in the notice of cross-appeal.

13    Section 219 of the Act provides as follows:

If a person who neither resides nor carries on business in Australia:

(a)    gives notice of opposition under this Act; or

(b)    appeals to the Federal Court;

the Commissioner or the Federal Court, as the case may be, may require the person to give security for the costs of the proceeding or appeal and, where such security is not given to the satisfaction of the Commissioner or the Federal Court, as the case may be, may dismiss the proceeding or appeal.

14    There was no order made for security for costs under this provision in the opposition proceeding. During the course of submissions, I was informed that the Commissioner is seldom asked to make orders under s 219 because the costs awarded in respect of opposition proceedings heard in the Patent Office are usually very modest. Nevertheless, s 219 confers on the Commissioner and this Court power to order that an opponent provide security for costs in an appropriate case. Significantly, the power to order security under s 219 may only be exercised where the person who gives notice of opposition or who appeals to the Federal Court, does not reside or carry on business in Australia. However, while the section appears to mark out the limits of the Commissioner’s power to order security for costs in opposition proceedings, there is nothing in the language of the section itself or the Act as a whole to suggest that the Court’s more general power to order security for costs in any proceeding is diminished.

15    There is no evidence before me to indicate at whose direction Mr Fisher acted in the opposition proceeding or at whose direction he and ACN act in this appeal proceeding. There is a clear inference available that they have at all relevant times been acting on instructions from a third party and that the cross-appeal, and the defence of the appeal, are being conducted for the third party’s benefit.

16    In support of its application for security, TGI placed principal reliance upon s 56 of the Federal Court of Australia Act 1976 (Cth) (“the FCA Act”), r 19.01 of the FCR and what was said to be the Court’s inherent jurisdiction to order security for costs. Section 56 of the FCA Act provides:

56    Security

(1)    The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)    The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

(3)    The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

(4)    If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed.

(5)    This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security.

17    Rule 19.01 of the FCR relevantly provides:

19.01    Application for an order for security for costs

(1)    A respondent may apply to the Court for an order:

(a)    that an applicant give security for costs and for the manner, time and terms for the giving of the security; and

(b)    that the applicant’s proceeding be stayed until security is given; and

(c)    that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.

(2)    An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought.

(3)    The respondent’s affidavit should state the following:

(a)    whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered;

(b)    whether the applicant is ordinarily resident outside Australia;

(c)    whether the applicant is suing for someone else’s benefit;

(d)    whether the applicant is impecunious;

(e)    any other relevant matter.

Note:    Section 56 of the Act deals with security for costs.

(4)    In this rule:

applicant includes a cross-claimant.

respondent includes a cross-respondent.

18    TGI’s principal submission was that the respondents were, in substance, applicants in the appeal proceeding and that, as such, it was open to the Court to order that they provide security for TGI’s costs of the proceeding as a whole. As it was developed, the submission did not rely on the existence of any notice of cross-appeal but on the nature of the statutory scheme governing the grant of a patent, the onus of proof in an opposition proceeding, and in any appeal from a decision of the Commissioner brought under s 60(4) of the Act. TGI placed particular reliance on the fact that the proceeding before the Court is not an appeal in the strict sense, but a hearing de novo in respect of which the respondents (as the opponents) bear the onus of establishing one or more of the grounds of opposition specified in s 59 of the Act: see Kaiser Aluminum & Chemical Corp v Reynolds Metal Co (1969) 120 CLR 136 at 142, New England Biolabs Inc v F Hoffmann-La Roche AG (2004) 141 FCR 1 at [44].

19    In support of its submissions TGI also placed considerable reliance on the decision of Lindgren J in Nine Films & Television Pty Ltd v Ninox Television Ltd (2005) 146 FCR 144. In that case the applicant commenced a proceeding against the respondent for relief under s 202 of the Copyright Act 1968 (Cth) for unjustified threats of copyright infringement. The respondent later filed a cross-claim seeking relief for alleged copyright infringement by the applicants. The applicants then sought an order under s 56(1) of the FCA Act requiring the respondent to give security for costs which his Honour made, essentially because it was the respondent who was in substance the applicant for the purposes of s 56(1). His Honour said:

[58]    The approach of looking to the substance of the roles (offensive or defensive) played by the parties rather than their formal designations has been followed not only in the cases cited by Wilcox J in Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324, by his Honour in that case, and by von Doussa J in Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443, but also in later cases in this Court: cf Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 at 310; Unilever Australia Ltd v RFC Nominees Pty Ltd [2000] FCA 1021 at [9].

[59]    Is it right to regard Ninox as “an applicant” for the purposes of s 56(1)? In my opinion it is. In the first place, the terms of s 202(1) themselves place on the party making the threats the onus of satisfying the Court that the acts in respect of which the action or proceeding was threatened constitute, or, if done would constitute, an infringement of copyright. The provision affords a facility by which a threatened party may require the threatener either to undertake the onus of establishing that copyright exists and that the acts in question constitute or would constitute an infringement of it, or, in the alternative, to cease to making the threats.

20    Earlier in his reasons Lindgren J suggested (at [56]) that in the absence of the cross-claim, the respondent would not be an applicant for the purposes of s 56(1). In its submissions TGI contended that this suggestion was incorrect. However, it is not necessary for me to express any view on this point in circumstances where the respondents have in this case filed a notice of cross-appeal.

21    But it still remains to consider whether each of the respondents is, in substance, an applicant against whom it is open to the Court to make an order for security for costs. The Court would not ordinarily make such an order if it was satisfied that the notice of cross-claim was wholly defensive. Understanding whether the cross-appeal filed in this case is defensive requires consideration of the nature of the appeal proceeding and, at a general level, the issues that arise for determination.

22    As I mentioned, TGI relied on the fact that the respondents bear the onus of establishing one or more grounds of opposition in this proceeding. TGI also drew attention to the fact that if the respondents were to withdraw from the appeal proceeding, the opposition would be rejected, with the Court directing that the opposed patent application proceed to grant: Cadbury Schweppes Plc v Effem Foods Pty Ltd (2006) 69 IPR 584, Delnorth Pty Ltd v Dura-Post (Australia) Pty Ltd (admin apptd) (2010) 85 IPR 642. Although TGI’s submissions treated the matter of onus and consequences of such withdrawal as raising two separate points, it seems to me that they are merely two sides of the same coin. This is because the practical consequence of the respondents ceasing to participate in the proceeding is merely a reflection of the existence of the onus they bear and the absence of the necessary evidentiary foundation to justify upholding any of the grounds of opposition.

23    The fact that the onus of proof lies on the respondents cannot be determinative of the question whether they are in substance the applicants in the appeal proceeding. So if a party sued for breach of contract pleads that the conduct is unenforceable for illegality, it would not follow that it was in substance the plaintiff merely because it bore the onus on the only matter in issue: The Hire Purchase Furnishing Company Limited v Richens (1887) 20 QBD 387 at 389. The proper characterisation of the role of the respondents in the appeal proceeding calls for a consideration of the broader context in which the proceeding came to be commenced.

24    Sections 59 and 60 of the Act provides:

59    Opposition to grant of standard patent

    The Minister or any other person may, in accordance with the regulations, oppose the grant of a standard patent on one or more of the following grounds, but on no other ground:

 (a)    that the nominated person is either:

   (i)    not entitled to a grant of a patent for the invention; or

(ii)    entitled to a grant of a patent for the invention but only in conjunction with some other person;

  (b)    that the invention is not a patentable invention;

(c)    that the specification filed in respect of the complete application does not comply with subsection 40(2) or (3).

60    Hearing and decision by Commissioner

(1)    Where the grant of a standard patent is opposed, the Commissioner must decide the case in accordance with the regulations.

(2)    The Commissioner must give the applicant and the opponent a reasonable opportunity to be heard before deciding a case.

(3)    The Commissioner may, in deciding a case, take into account any ground on which the grant of a standard patent may be opposed, whether relied upon by the opponent or not.

(3A)    If the Commissioner is satisfied, on the balance of probabilities, that a ground of opposition to the grant of the standard patent exists, the Commissioner may refuse the application.

(3B)    The Commissioner must not refuse an application under this section unless the Commissioner has, where appropriate, given the applicant a reasonable opportunity to amend the relevant specification for the purpose of removing any ground of opposition and the applicant has failed to do so.

(4)    The applicant, and any opponent, may appeal to the Federal Court against a decision of the Commissioner under this section.

25    The effect of subsection (3A) is that the Commissioner (or her delegate) may only refuse the application under s 60 if he or she is satisfied, on the balance of probabilities, that a ground of opposition exists.

26    An appeal pursuant to s 60(4) of the Act is unlike a proceeding at law or in equity in which one party asserts rights or purported rights against another. A proceeding by a patent applicant under s 60(4) is best characterised as a proceeding in which the patent applicant is engaged in the statutory process to determine its entitlement (in the broad sense of that word) to obtain the grant of a patent. In order to establish such an entitlement it is necessary for the patent applicant to overcome any notice of opposition filed by the opponent. If the patent applicant fails to do this before the delegate, it can then seek to do so in the appeal proceeding. But until set-aside by an order of this Court, the decision of the delegate refusing to allow the patent application stands.

27    The appeal proceeding was commenced by TGI not because Mr Fisher filed a notice of opposition, but because TGI was dissatisfied with the delegate’s decision in relation to that opposition. It may also be inferred that the respondents were dissatisfied with the delegate’s decision, which explains why they filed their notice of cross-appeal.

28    The amount of the security sought by TGI is $850,000 which it says reflects a reasonable estimate of the costs it could recover in the event that it is wholly successful in the appeal proceeding. TGI’s claim for security in that sum reflects the view that the respondents are the aggressors in this proceeding and that TGI’s appeal against the delegate’s decision is purely defensive. For reasons previously explained I do not accept that characterisation of TGI’s appeal. On the other hand, it does not follow that the cross-appeal is purely defensive.

29    The grounds specified in the respondents’ notice of cross-appeal are extensive. The grounds assert a construction of claims 1 and 10 that was rejected by the delegate and raise additional matters in support of the delegate’s decision in relation to the first of the priority documents relied upon by TGI. The grounds also assert that the delegate erred in finding that claims 9, 19 and 20 were novel.

30    The grounds also assert that the delegate ought to have found that claims 9, 19 and 20 were not entitled to the priority date asserted and that none of those claims involved an inventive step in light of the common general knowledge when considered with other relevant prior art.

31    The grounds also assert that claims 1 to 18, 20 and 21 are not clear in that they do not indicate whether they include the use of guided RNA itself, as distinct from DNA encoded to guide the RNA.

32    More significantly, the grounds challenge the correctness of the delegate’s findings in relation to sufficiency (s 40(2)(b)) and support (s 40(3)), both of which are matters that appear to have received detailed attention in the expert evidence relied upon by the parties before the delegate. Both of these are matters that I expect to receive even greater attention during the hearing of the appeal proceeding.

33    In my opinion the notice of cross-appeal filed by the respondents cannot be described as purely defensive. It raises various issues which the delegate decided in favour of TGI and which the respondents now require this Court to determine. The respondents are entitled to rely on any matter raised in their notice of opposition that is also raised in the notice of cross-appeal in support of their opposition to the 451 application. However, the question is whether they should be required to provide security for costs against the possibility that they are unsuccessful in that endeavour and are ordered to pay TGI’s costs of the proceeding in this Court.

34    The English Court of Appeal’s decision in Neck v Taylor [1893] 1 QB 560 concerned an action for debt brought by a boarding house keeper for board and lodging supplied to the defendant. The defendant filed a counter-claim for return of jewellery which the plaintiff was said to have wrongfully obtained from the defendant. The plaintiff sought an order requiring the defendant (who was resident abroad) to provide security for costs. Lord Esher MR said at 562-563:

Where the counter-claim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. Therefore, the Court in that case will have a discretion. It is clear to me in the present case that the counterclaim is not in respect of a matter wholly distinct from and independent of that upon which the claim is based; on the contrary, it arises out of the very same transaction in respect of which the action is brought. It is, in reality, the defendant's defence to the action, though, as a matter of pleading, it is, and necessarily is, put forward by way of counter-claim. Under these circumstances, I think that the Divisional Court had a discretion in the matter, and I see no reason for thinking that they exercised such discretion otherwise than rightly.

See also Lindley and Lopes LJJ at 563.

35    In the present case the notice of cross-appeal arises out of the same decision against which TGI appeals. But the notice of cross-appeal seeks to do more than merely uphold the delegate’s decision; it challenges important aspects of the delegate’s conclusions and reasoning and invites the Court to disallow the relevant claims on grounds rejected by the delegate.

36    Approaching the appeal proceeding on the basis that the respondents were at least partly dissatisfied with the delegate’s decision (consistent with the existence of the notice of cross-appeal) and that they seek to do more than merely defend the delegate’s decision, I think the Court has a discretion to make an order for security for costs against the respondents. I am satisfied that it is appropriate to order the respondents to provide security for costs, though not for the full amount sought by TGI.

37    Although the respondents raised what was said to be significant delay on the part of TGI in seeking security for costs, this is not a matter to which I attach any significant weight. Much of the delay that has occurred is attributable to efforts apparently made to resolve the application by either the provision of some additional information or the entry into some mutually acceptable arrangement that might obviate the need for any order for security. It was not suggested by the respondents that those efforts were not bona fide, or that any consequential delay had caused them any prejudice.

38    I accept that there is a significant public interest in ensuring that a patent application should not proceed to grant if the Court is satisfied that it would be invalid. In some cases that consideration may weigh against making an order requiring an opponent to provide security for costs if such an order would have the effect of stultifying an appeal or cross-appeal from a decision of the Commissioner or her delegate. However, this is not a consideration that carries any weight in this case in circumstances where it is not suggested that the respondents (or the third party on whose instructions they act) would be unable to provide security for costs if ordered to do so.

39    On the question of quantum, I do not think it appropriate to make an order for security for costs in the full amount claimed by TGI. As I have explained, TGI has brought its proceeding to overcome a number of adverse findings made against it by the delegate. In those circumstances, I do not consider that it would be appropriate to order the respondents to provide security in respect of all of TGI’s costs. Furthermore, I think the estimates made by TGI’s solicitor, Ms Taliadoros, are excessive given that security for costs must be assessed on a party-party basis. She has applied a discount of approximately 10% to her estimate of TGI’s actual costs which I do not regard as sufficient. On the other hand, I am satisfied that a substantial proportion of the costs that have been and will be incurred by TGI in this proceeding are directed to resisting the grounds relied upon by the respondents in their notice of cross-appeal and that the degree of overlap in the issues and evidence is not likely to be nearly as great as the respondents’ submissions suggested.

40    In attempting to estimate the appropriate amount of security that the respondents should be ordered to provide, it goes without saying that the Court does not engage in a mathematically precise exercise, and that an impressionistic approach will often be appropriate particularly when the evidence does not enable the Court to engage in any more precise form of apportionment.

41    In the present case I am satisfied that the interests of justice favour the making of an order for security for costs in the amount of $375,000 representing half the amount of $750,000 which I have adopted in place of Ms Taliadoros’ $850,000 estimate.

42    I will hear from the parties on the question of costs when the proceeding is next before me.

43    Orders accordingly.

Associate:

Dated:    19 December 2019