FEDERAL COURT OF AUSTRALIA

Hood v Bush Pharmacy Pty Ltd (No 2) [2021] FCA 138

ORDERS

THE COURT DECLARES THAT:

1.    The respondent/cross-claimant has, by reason of sections 117(1) and 117(2)(c) of the Patents Act 1990 (Cth), infringed claim 5 of expired Standard Patent No 721156 (“the Patent”).

2.    By publishing the text “Listed under Therapeutic Goods Australia” on the website hosted at http://bushpharmacy.com, the respondent/cross-claimant has represented that the Kunzea ambigua oil products sold by it were listed on the Australian Register of Therapeutic Goods, which representation was:

(a)    misleading or deceptive, or likely to mislead or deceive, in contravention of section 18 of the Australian Consumer Law; and

(b)    false, in contravention of section 29(1)(a) of the Australian Consumer Law.

THE COURT ORDERS THAT:

3.    Claims 1, 2, 3, 4 and 8 of the Patent be revoked.

4.    Pursuant to s 105 of the Patents Act 1990 (Cth), and upon the applicant/cross-respondent agreeing to submit to order 5 below revoking claims 14, 15, 16, 17 and 18 of the Patent, the Court directs that the claims 5, 6, 7, 9, 10, 11, 12 and 13 of the Patent be amended as set out in Annexure A to these orders.

5.    Claims 14, 15, 16, 17 and 18 of the Patent be revoked.

6.    The respondent/cross-claimant be permanently restrained from falsely representing that the Kunzea ambigua oil products sold by it are listed on the Australian Register of Therapeutic Goods.

7.    The amended notice of cross-claim dated 29 March 2018 be otherwise dismissed.

8.    The respondent/cross-claimant pay 75% of the applicant/cross-respondent’s costs of the application dated 7 March 2018 on a party/party basis but excluding such costs as are referable to the claims addressed in Order 9.

9.    The applicant/cross-respondent pay the respondent/cross-claimant’s costs:

(a)    referable to the applicant/cross-respondent’s claim of trade mark infringement on an indemnity basis;

(b)    referable to the applicant/cross-respondent’s application for orders under s 105 of the Patents Act 1990 (Cth) on a party/party basis.

10.    The respondent/cross-claimant pay 14% of the applicant/cross-respondent’s total costs of the cross-claims filed in this proceeding and in proceedings NSD1267/2017, NSD1271/2017, NSD2175/2017 and NSD2176/2017 on a party/party basis.

11.    The proceeding be listed for a Case Management Hearing on 14 April 2021 at 9.30am for the making of any orders or directions in respect of the applicant’s claim for pecuniary relief under s 122(1) of the Patents Act 1990 (Cth).

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

ORDERS

THE COURT DECLARES THAT:

1.    By publishing the text “Kunzea oil is registered with the Australian Therapeutic Goods Administration (AUST L 72143)” on the website hosted at http://www.downunderenterprises.com, the respondent/cross-claimant has represented that its Kunzea ambigua oil products are:

(a)    “registered with the Australian Therapeutic Goods Administration”; and

(b)    listed on the Australian Register of Therapeutic Goods with ARTG listing number “AUSTL 72143”;

which representations were:

(c)    misleading or deceptive, or likely to mislead or deceive, in contravention of section 18 of the Australian Consumer Law; and

(d)    false, in contravention of section 29(1)(a) of the Australian Consumer Law.

THE COURT ORDERS THAT:

2.    Claims 1, 2, 3, 4 and 8 of expired Standard Patent No 721156 (“the Patent”) be revoked.

3.    Pursuant to s 105 of the Patents Act 1990 (Cth), and upon the applicant/cross-respondent agreeing to submit to order 4 below revoking claims 14, 15, 16, 17 and 18 of the Patent, the Court directs that the claims 5, 6, 7, 9, 10, 11, 12 and 13 of the Patent be amended as set out in Annexure A to these orders.

4.    Claims 14, 15, 16, 17 and 18 of the Patent be revoked.

5.    The respondent/cross-claimant be permanently restrained from:

(a)    falsely representing that its Kunzea ambigua oil products are “registered with the Australian Therapeutic Goods Administration”; and

(b)    falsely representing that the Kunzea ambigua oil products sold by it are listed on the Australian Register of Therapeutic Goods with ARTG listing number “AUSTL 72143”.

6.    The second amended originating application dated 7 March 2018 (“the application”) otherwise be dismissed.

7.    The amended notice of cross-claim dated 29 March 2018 otherwise be dismissed.

8.    The applicant/cross-respondent pay:

(a)    70% of the respondent/cross-claimant’s costs of the application on a party/party basis excluding the costs referred to in (b) and (c) below; and

(b)    the respondent/cross-claimant’s costs referable to the applicant/cross-respondent’s application for orders under s 105 of the Patents Act 1990 (Cth) on a party/party basis; and

(c)    the respondent/cross-claimant’s costs referable to the applicant/cross-respondent’s claim of trade mark infringement to be assessed on an indemnity basis.

9.    The respondent/cross-claimant pay 14% of the applicant/cross-respondent’s costs of defending the cross-claims filed in this proceeding and in proceedings NSD1267/2017, NSD2175/2017, NSD2176/2017 and NSD1272/2017 on a party/party basis.

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

ORDERS

THE COURT ORDERS THAT:

1.    Claims 1, 2, 3, 4 and 8 of expired Standard Patent No 721156 (“the Patent”) be revoked.

2.    Pursuant to s 105 of the Patents Act 1990 (Cth), and upon the applicant/cross-respondent agreeing to submit to order 3 below revoking claims 14, 15, 16, 17 and 18 of the Patent, the Court directs that the claims 5, 6, 7, 9, 10, 11, 12 and 13 of the Patent be amended as set out in Annexure A to these orders.

3.    Claims 14, 15, 16, 17 and 18 of the Patent be revoked.

4.    The second amended originating application dated 7 March 2018 (“the application”) be otherwise dismissed.

5.    The amended notice of cross-claim dated 29 March 2018 be otherwise dismissed.

6.    The applicant/cross-respondent pay the respondent/cross-claimant’s costs of the application including the costs of the application for orders under s 105 of the Patents Act 1990 (Cth) and that:

(a)    such costs as are referable to the applicant/cross-respondent’s claim of trade mark infringement on an indemnity basis; and

(b)    all other such costs on a party/party basis.

7.    The respondent/cross-claimant pay 14% of the applicant/cross-respondent’s total costs of the cross-claims filed in this proceeding and in proceedings NSD1267/2017, NSD1271/2017, NSD2175/2017 and NSD2176/2017 on a party/party basis.

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

ORDERS

THE COURT ORDERS THAT:

1.    Claims 1, 2, 3, 4 and 8 of expired Standard Patent No 721156 (“the Patent”) be revoked.

2.    Pursuant to s 105 of the Patents Act 1990 (Cth), and upon the applicant/cross-respondent agreeing to submit to order 3 below revoking claims 14, 15, 16, 17 and 18 of the Patent, the Court directs that the claims 5, 6, 7, 9, 10, 11, 12 and 13 of the Patent be amended as set out in Annexure A to these orders.

3.    Claims 14, 15, 16, 17 and 18 of the Patent be revoked.

4.    The second amended originating application dated 18 April 2018 (“the application”) be otherwise dismissed.

5.    The amended notice of cross-claim dated 29 June 2018 be otherwise dismissed.

6.    The applicant/cross-respondent pay the respondent/cross-claimant’s costs of the application including the costs of the application for orders under s 105 of the Patents Act 1990 (Cth) on a party/party basis.

7.    The respondent/cross-claimant pay 14% of the applicant/cross-respondent’s total costs of the cross-claims filed in this proceeding and in proceedings NSD1267/2017, NSD1271/2017, NSD2176/2017 and NSD1272/2017 on a party/party basis.

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

ORDERS

THE COURT DECLARES THAT:

1.    The respondents/cross-claimant have, by reason of sections 117(1) and 117(2)(c) of the Patents Act 1990 (Cth), infringed claim 5 of expired Standard Patent No 721156 (“the Patent”).

THE COURT ORDERS THAT:

2.    Claims 1, 2, 3, 4 and 8 of the Patent be revoked.

3.    Pursuant to s 105 of the Patents Act 1990 (Cth), and upon the applicant/cross-respondent agreeing to submit to order 4 below revoking claims 14, 15, 16, 17 and 18 of the Patent, the Court directs that the claims 5, 6, 7, 9, 10, 11, 12 and 13 of the Patent be amended as set out in Annexure A to these orders.

4.    Claims 14, 15, 16, 17 and 18 of the Patent be revoked.

5.    The notice of cross-claim dated 2 May 2018 be otherwise dismissed.

6.    The respondents/cross-claimant pay 60% of the applicant/cross-respondent’s costs of the application dated 7 March 2018 on a party/party basis but excluding such costs as are referable to the claims addressed in Order 7.

7.    The applicant/cross-respondent pay the respondents/cross-claimant’s costs:

(a)    referable to the applicant/cross-respondent’s claim of trade mark infringement on an indemnity basis;

(b)    referable to the applicant/cross-respondent’s application for orders under s 105 of the Patents Act 1990 (Cth) on a party/party basis.

8.    The first respondent/cross-claimant pay 14% of the applicant/cross-respondent’s costs of defending the cross-claims filed in this proceeding and in proceedings NSD1267/2017, NSD1271/2017, NSD2175/2017 and NSD1272/2017 on a party/party basis.

9.    The proceeding be listed for a Case Management Hearing on 14 April 2021 at 9.30am for the making of any orders or directions in respect of the applicant’s claim for pecuniary relief under s 122(1) of the Patents Act 1990 (Cth).

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

REASONS FOR JUDGMENT

NICHOLAS J:

Introduction

1    On 23 November 2020 I delivered judgment in five proceedings heard together: see Hood v Bush Pharmacy Pty Ltd [2020] FCA 1686 (“the principal judgment”). The proceedings were stood over to enable the applicant to file and serve a proposed minute of order and for argument to take place at a later date in relation to the appropriate form of orders including in relation to costs.

2    It was my intention that any argument in relation to the proposed orders take place orally rather than in writing and, for that reason, no directions were made in relation to the filing of written submissions by any party. A written submission was forwarded to my associate by the respondents in the Bush Pharmacy, Down Under and New Directions proceedings which I declined to receive. Annexed to the submissions were a number of offers of compromise which I have had regard to and will refer to later in these reasons.

3    There was a large measure of agreement as to the appropriate form of declarations and other orders to be made. In the principal judgment I indicated that I would make the amendment order sought by the applicant under s 105(1) of the Patents Act 1990 (Cth) (“the Act”) on terms that he submit to a revocation order in respect of claims 14-18. The applicant has agreed to submit to such an order and the amendments will be ordered on that basis.

4    I will also make orders revoking the claims of the patent that were found to be invalid and an order amending other claims. I will make the revocation and amendment orders in each of the five proceedings because these orders were sought in each of the five proceedings. I think it is best to adopt this approach so that the outcomes of the issues determined in each proceeding is reflected in the orders made.

Costs

5    This brings me to the issue of costs.

6    While the Court’s power to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth) (the “FCA Act”) is broad and unfettered, it is to be exercised judicially and in accordance with well-established principles. As stated by French CJ, Hayne, Bell, Gageler and Keane JJ in Gray v Richards (No 2) (2014) 315 ALR 1 at 2 [2]:

The disposition of costs is within the general discretion of the court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court [Stewart v Atco Controls Pty Ltd (In liq) (No 2)(2014) 252 CLR 331 at 334 [4]]. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires.

7    The relevant principles were summarised by the Full Court in EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 (“EMI”) as follows at [9]:

Costs are in the discretion of the Court (Federal Court of Australia Act 1976 (Cth) s 43). The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. The furtherance of the goal of compensation means that, in general, a successful party will obtain an order for costs in its favour (Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65]-[68]). However, “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 party’s costs of them…” (Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136). If apportionment of costs is appropriate, the object is not mathematical precision (Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272) but a result that best reflects the interests of justice in the overall circumstances of the case.

8    It is well recognised that “[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”: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234 [11] per Black CJ and French J.

9    Thus, while the ordinary rule is that costs follow the event, the Court exercises a broad discretion with respect to costs that permits it to adopt other approaches, which may be more appropriate in litigation involving a multiplicity of parties, issues or outcomes.

10    Section 43(3)(c) of the FCA Act makes clear that the Court may, in its discretion, order the parties to bear costs in specified proportions. Orders in that form are often made with a view to avoiding an overly complicated taxation of costs which may give rise to further costs that may be unnecessary or disproportionate to the amount in issue in the proceeding. As the Full Court made clear in EMI, the object of such an order is not to apportion costs with mathematical precision but to arrive at an outcome that best reflects the interests of justice. In determining what proportion of one party’s costs another party should bear, it will usually be necessary for the Court to make a broad assessment of the time and effort spent by the parties litigating different issues.

11    The question of costs in this matter is complicated by the fact that there were five sets of proceedings heard together brought by the applicant in which the applicant was represented by the same counsel and solicitors and the respondents were represented by two different groups of counsel and solicitors. In that regard, I have derived some assistance from the judgment of Goldberg J in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602. That was a case in which the applicant brought four separate proceedings which were heard together. The applicant was wholly unsuccessful against the respondents in three of those proceedings but enjoyed some limited success against certain respondents in the fourth. His Honour observed at [3]:

The four proceedings were heard together so that evidence of the applicants was not duplicated and the respondents in each proceeding in a number of respects relied on the evidence of the respondents in the other proceedings. The result was that a substantial body of evidence led by the applicants was only led once although it was subject to cross-examination by each set of respondents. There were costs consequences in two respects. First there was a saving of time and costs for the applicants who only had to lead their evidence once with a consequent saving of time and expense not only with evidence-in-chief but also in relation to cross-examination as, substantially, cross-examination was not duplicated. Secondly, each group of respondents effectively had to participate in the whole of the trial which meant that they were present whilst other respondents were conducting their cases with a consequent increase in expense. Overall there was a substantial saving of Court time.

12    As I explained in the principal judgment, the applicant was represented by Mr Green SC with Ms Oliak, Dr O’Shea and Mr Cameron, all of whom were instructed by the firm of LJ Sharpe & Co. The respondents in the Bush Pharmacy, Down Under and New Directions proceedings were represented by Mr Fox and Mr Hallahan, both of whom who were instructed by Gadens Lawyers. The respondents in the Native Oils proceeding and the Heritage Oils/Levinson proceeding were represented by Mr Reuben and Ms Whitaker who were instructed by Malcolm McDonald & Co Solicitors.

13    What Goldberg J said in Dr Martens at [3] holds true in the present case. The fact that the five proceedings were heard together gave rise to some savings in time and costs because the patent validity issues and at least some of the patent infringement issues (primarily the s 117(2)(b) issues) were able to be dealt with without the duplication of time and effort that would have likely occurred if the proceedings had not been heard together. Some savings were no doubt also achieved because all of the respondents were represented by either Mr Fox and Mr Hallahan or Mr Reuben and Ms Whitaker. On the other hand, each respondent had to participate in the whole of the trial and sit through some lengthy cross-examination, argument and submissions relevant to the applicant’s case against other respondents, including other respondents against whom the applicant has obtained no relief.

14    I was informed by Mr Fox that the respondents in the Bush Pharmacy, Down Under and New Directions proceedings had entered into costs arrangements under which the costs of their representation by counsel and solicitors were to be equally shared between Bush Pharmacy, Down Under and New Directions.

15    In the Native Oils and the Heritage Oils/Levinson proceedings I was informed by Mr Reuben that Native Oils and Heritage Oils have also agreed to share the respondents’ costs of those two proceedings. In particular, I was informed that the respondents in the Native Oils proceeding are responsible for 50% of the costs incurred in relation to their legal representation and that Heritage Oils and Ms Levinson are jointly responsible for the remaining 50% of those costs.

16    I mention these costs sharing arrangements because they are relevant to the manner in which I propose to exercise my discretion in relation to costs. The costs orders I propose to make will be made on the basis that what I have been told by the respondents’ respective legal representatives in relation to the costs sharing arrangements made between their clients is correct.

17    It is useful to refer to the different outcomes that were reached in the five proceedings:

(a)    In the New Directions proceeding and the Native Oils proceeding, the applicant was wholly unsuccessful in establishing any of the pleaded causes of action upon which it relied. In the result, the proceeding brought by the applicant against New Directions and the proceeding brought by him against Native Oils will be dismissed. Each of those parties is entitled to its costs of the application filed by the applicant.

(b)    In the Bush Pharmacy proceeding, the applicant established that Bush Pharmacy had infringed claim 5 of the patent by supplying, or offering to supply, Kunzea ambigua oil in circumstances referred to in s 117(1) when read with s 117(2)(c) of the Act. Bush Pharmacy was also found to have contravened s 18 and s 29(1)(a) of the Australian Consumer Law (“ACL”).

(c)    In the Down Under proceeding, the applicant established that Down Under had contravened s 18 and s 29(1)(a) of the ACL, but failed to establish that Down Under had infringed the patent .

(d)    In the Heritage Oils/Ms Levinson proceeding, the applicant established that Heritage Oils and Ms Levinson had infringed claim 5 of the patent, but failed to establish the alleged contraventions of s 18 and s 29 of the ACL.

18    Each of the respondents applied for orders revoking the claims of the patent upon which they were sued. Ultimately, the applicant accepted that claims 1-4 (each of which is a product claim) were invalid for lack of novelty. That concession was not made until day five of the trial. The other claims challenged by the respondents were all method of treatment claims. Some of these were found to lack clarity based on the existence of the obvious errors that will be corrected by the orders to be made pursuant to s 105(1) of the Act. However, each of the respondents found to have infringed the patent, was found to have infringed claim 5, the validity of which did not depend upon the making of any order under s 105(1).

19    The respondents asserted that the claims upon which they were sued were invalid on a number of different grounds including that the invention claimed was not for a manner of manufacture and did not involve an inventive step. The challenge to the validity of those claims failed in so far as it was based on lack of inventive step. Because the applicant ultimately accepted that claims 1-4 were invalid for lack of novelty, it was not necessary for me to decide the issue of manner of manufacture in relation to those claims.

20    The respondents also challenged the validity of claims 8 and 9 on the basis that each claim lacked fair basis. That challenge was successful in relation to claim 8. The challenge made in relation to claim 9 failed. The fair basis issues did not, in my view, add significantly to the evidence or the time spent on submissions.

21    The applicant submitted that the fact that he was successful in establishing infringement of claim 5 in the Bush Pharmacy and the Heritage Oils/Levinson proceedings, should weigh against those parties’ entitlement to any costs in respect of their challenge to the validity of the patent. In effect, what the applicant submitted was that, at least in those proceedings, the applicant should have all its costs of defending the cross-claims because it was successful in establishing infringement of claim 5 of the patent.

22    The applicant also submitted that a great deal of attention was given in both the evidence and the parties’ submissions to validity issues upon which the respondents failed. He referred, in particular, to the extensive expert evidence that was filed directed to the issue of inventive step. This included most of the evidence of Dr Carson, Dr Clark, Dr Southwell, Professor Menary and Dr Narkowicz. However, as is apparent from the principal judgment, Dr Narkowicz’s evidence was mostly concerned with the question whether Kunzea ambigua oil was a staple commercial product. In my view his evidence had very little bearing on the issue of inventive step. Subject to that qualification, I accept that most of those witnesses’ evidence was primarily concerned with the issue of inventive step.

23    The applicant, while succeeding under claim 5 against some respondents, wholly failed in his action based on claims 1-4. These were the product claims which, had their validity been upheld, would have enabled the applicant to recover damages from each of the respondents for what would have been a direct infringement of the patent. The significance of the applicant’s belated concession that claims 1-4 were invalid for lack of novelty is not to be underestimated. In particular, I do not accept the applicant’s submission that, because the applicant succeeded against some of the respondents under claim 5, then he should be awarded all of his costs in relation to the patent case. That submission ignores the significant difference between a product claim and a method of treatment claim and the much broader scope of protection usually provided by a valid product claim.

24    Most of the expert evidence filed by both parties was filed in the New Directions proceeding but when read, became evidence in all five proceedings. I was not provided with any information by the respondents as to the arrangements in place in relation to the costs of producing the expert evidence which, I assume, was covered by the costs sharing arrangement between Bush Pharmacy, Down Under and New Directions to which I have previously referred.

25    Although Mr Fox undertook most of the cross-examination in relation to the validity issues and made almost all of the submissions on the question of validity, the other respondents represented by Mr Reuben adopted the submissions made by Mr Fox on the validity issues. All respondents relied on the same validity arguments as those developed by Mr Fox on behalf of Bush Pharmacy and the other respondents for whom he appeared. In substance, there was a single cross-claim supported by the same body of expert evidence and the same submissions. That is an important consideration in determining what approach to take in relation to the costs of the cross-claims filed in the five proceedings.

26    The respondents sought indemnity costs in relation to the claim for additional damages for patent infringement. I refer to the way in which this claim had been pleaded in the principal judgment and the absence of any evidence which could support findings of additional damages based on the matters that were pleaded.

27    All the respondents against whom the applicant made a claim of trade mark infringement also sought costs orders that would permit them to recover their costs of the trade mark infringement case on an indemnity basis.

28    I turn now to consider what costs orders should be made in each of the five proceedings. However, before continuing I should refer in more detail to the offers of compromise that were made by three of the respondents.

The Offers of Compromise

29    The respondents in the Bush Pharmacy, Down Under and New Directions proceedings each served a notice of offer to compromise dated 5 February 2018 in which they offered to compromise on the following terms:

 (1)    The proceeding is dismissed with no order as to costs.

 (2)    There are mutual releases on all pleaded issues with denial of liability.

 (3)    The terms of settlement remain confidential.

(4)    The Respondent and cross-claimant undertakes not to oppose amendments to the patent in suit.

(5)    The Respondent and cross-claimant pay to the Applicant the total sum of $10,000.00, inclusive of costs.

(6)    This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

(7)    The amount of the offer will be paid within 30 days after acceptance of this offer.

30    Rule 25.03 of the Federal Court Rules 2011 (Cth) contemplates that an offer may be made on an “inclusive of costs” basis. Rule 25.05 also contemplates that an offer must be open to be accepted for not less than 14 days after the offer is made.

31    Rule 25.14(2) applies in circumstances where an applicant unreasonably fails to accept the respondent’s offer. Rule 25.14(2) provides:

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

…

32    Paragraph (1) of the offer of compromise refers to a dismissal of “[t]he proceeding with no order as to costs”. I think it is tolerably clear that what was being proposed was that both the application and the cross-claim filed in each of the Bush Pharmacy, Down Under and New Directions proceedings be dismissed with no order as to costs. I do not interpret the offer of compromise as one by which the party making the offer was merely offering to submit to a dismissal of the application but not the cross-claim.

33    There are two other matters I should mention in relation to the offers of compromise. First, at the time the offers were made, the patent had expired. So it was to be expected that the offer of compromise would not offer any undertaking or consent to any order restraining infringement of the patent. Secondly, at the time the offers were made, the respondents were yet to serve their evidence in support of the cross-claim. The affidavit evidence of both Dr Carson and Dr Clark was not served until June 2018. So the applicant had not as at the date the offer was made been required to file any evidence addressing the respondents’ expert evidence.

Multiple Cross-Claimants

34    One of the challenges in making costs orders in these proceedings arises out of the multiplicity of proceedings and parties. There were five sets of proceedings, and five cross-claims. Ms Levinson did not file a cross-claim. The only cross-claim in the proceeding against Ms Levinson and Heritage Oils was filed by Heritage Oils.

35    There is in my view a need when dealing with costs in this case to ensure that the applicant does not recover more than what I think he is reasonably entitled to recover from the any of the cross-claimants in respect of the five proceedings. For example, it would be unjust to make a costs order which entitled the applicant to recover all of his party/party costs in respect of the issue of obviousness from any one of the five cross-claimants when the challenge to validity based on obviousness was relied on by all of them. Similarly, I think it would also be unjust to make any costs order that made any respondent in any one of the five proceedings jointly or severally liable for the costs of any respondent in any of the other proceedings.

36    I think the interests of justice are best served if each cross-claimant’s potential exposure to an order for costs in respect of its cross-claim is limited to one fifth, or 20%, of the total party/party costs incurred by the cross-respondent in the five proceedings. The proportion of that 20% that each cross-claimant may be required to pay will then need to be ascertained after taking into account the cross-respondent’s lack of success in relation to claims 1-4 and 8. I see no reason why the figure that is ultimately arrived at should not be the same for all five cross-claimants.

37    The cross-claimants were successful in obtaining orders for the revocation of claims 1-4 and claim 8. However, most of the focus of the evidence and the closing submissions directed to issues arising on the cross-claims was concerned with manner of manufacture and inventive step. I think those issues should be regarded as sufficiently discreet to justify the making of orders requiring the cross-claimants to pay the cross-respondent’s costs in respect of those issues: PAC Mining Pty Ltd v Esco Corporation (No 2) [2009] FCAFC 52 at [11]-[12]. On that basis I propose to order that the cross-claimants collectively pay 70% of the cross-respondent’s party/party costs of defending the cross-claims.

38    It follows that in each proceeding the cross-claimant must pay 14% of the cross-respondent’s party/party costs of defending the cross-claims.

39    Having regard to the time spent on the inventive step issue and the manner of manufacture issue, this outcome reflects what I consider to be a fair and just result in relation to the cross-claims that takes account of the invalidity findings I made and those that I decline to make.

The Amendment Application

40    The applicant did not disagree with the proposition that, ordinarily, the patentee will pay the costs of those parties opposing an application to amend a patent: see Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd (2012) 99 IPR 59 and the authorities cited by Yates J at [232]. I made an order to that effect in Neurim Pharmaceuticals (1991) Ltd v Generic Partners Pty Ltd (No 2) (2019) 139 IPR 424. However, the applicant submitted that the present case is out of the ordinary because the respondents’ opposition to the proposed amendments went well beyond what was reasonably necessary or appropriate.

41    I do not accept the applicant’s submission. As will be apparent from the principal judgment, there were aspects of the way in which the applicant propounded its proposed amendments that I considered to be less than satisfactory. In particular, the amendments sought by the applicant up until the last day of the trial were said by him to be intended to correct obvious errors. His proposed amendments did more than this, and would have, if allowed, expanded the scope of the claims.

42    In the circumstances I do not think it can be said that the respondents’ opposition to the proposed amendments was unreasonable or inappropriate. There should be an order in each of the five proceedings that the applicant pay each of the respondents’ costs of and incidental to the applicant’s application to amend the patent.

The Trade Mark Case

43    It is the settled practice of the Court to award costs on a party/party basis unless there are special circumstances that warrant the making of an order on an indemnity basis. However, even where an order for indemnity costs may be justified, the Court still retains a discretion as to whether or not it will make such an order: Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 (“Colgate”) at 234 per Sheppard J.

44    One of the well-established categories of case in which an award of indemnity costs may be justified is where a party makes allegations, or persists in making allegations, which ought never to have been made, or which ought not have been persisted in, particularly where this results in the undue prolongation of a case: Colgate at 233. As French J observed (when his Honour was a Judge of this Court) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301 at 303:

It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.

45    In so far as the present case included claims for infringement of the applicant’s registered trade mark it falls squarely within that category. In his written opening submissions the applicant asserted that Kunzea was substantially identical with the registered mark DUNCANE KUNZEA because, when applying a side by side comparison, DUCANE makes a relatively unimportant contribution to the overall impression conveyed in a comparison of the two marks. He also asserted that KUNZEA is deceptively similar to the registered trade mark “as it embodies the distinctive elements of the trade mark”. Neither proposition is seriously arguable when it is recognised that Kunzea is the name of the genus of the plants from which the essential oil supplied by the respondents was derived. The word DUCANE is the only distinctive component of the registered mark when it is used in relation to essential oils derived from such plants.

46    The trade mark claims were always hopeless. This is not a case in which it can be said that some new information became available to the applicant only after the claim was made which should have alerted him to the fundamental difficulties that stood in the way of him obtaining findings that KUNZEA OIL or KUNZEA (even if used as trade marks) were substantially identical or deceptively similar to the registered mark DUNCANE KUNZEA when used in relation to Kunzea ambigua oil.

47    Another matter that I have taken into account in exercising my discretion to award indemnity costs concerns the extent to which the hearing was unnecessarily prolonged by the inclusion of the trade mark claims. I am mindful that the trade mark claims were ultimately abandoned by the applicant. But the abandonment came much too late in the trial and not until all evidence relevant to the allegations of trade mark infringement had been tendered, and shortly before counsel for the applicant would have been called on to justify those claims in final submissions. In my view there should be an order that the applicant pay the respondents’ costs referable to the trade mark claims on an indemnity basis.

Additional Damages under section 122(1A) of the Patents Act

48    In relation to the claim for indemnity costs based on the applicant’s claim for additional damages for patent infringement, I do not propose to make any special costs order in relation to that aspect of the applicant’s case. There did not appear to me to be any proper basis for the applicant’s claim for additional damages under s 122(1A) of the Act. However, that aspect of the applicant’s case, although involving substantial overreach, did not add significantly to either the evidence or the hearing time.

New Directions

49    New Directions had, at the time it served its offer of compromise, already served the affidavit of Mr Ardino sworn 10 November 2017 which disclosed total sales of Kunzea essential oil extending over the period 1 August 2011 to 17 May 2017, totally approximately $15,000. New Directions offered to pay the applicant $10,000.

50    The $15,000 referred to in Mr Ardino’s affidavit represents total sales (which is, of course, not necessarily the same as the profits made by New Directions or the damages suffered by the applicant). If one was to assume that the applicant would recover damages calculated on the basis of a reasonable royalty, then the offer might seem to be generous in that it equates to a royalty on gross sales in excess of 65%. However, it is also relevant to note that the offer to pay $10,000 was on an “inclusive of costs basis”.

51    I am not persuaded that the applicant’s failure to accept the offer made by the respondent was unreasonable in the circumstances. While there is no doubt New Directions is entitled to receive an award of costs in its favour in respect of the applicant’s application filed in the New Directions proceeding, I think the award should be on the usual party/party basis subject to what I have previously said in relation to the applicant’s trade mark case.

52    In the result, the costs orders I will make in the New Directions proceeding are as follows:

    The applicant/cross-respondent pay the respondent/cross-claimant’s costs of the application and the costs of and incidental to application for orders under s 105(1) of the Act, such costs to be payable on a party/party basis save for any costs referable to the claim of trade mark infringement which are to be payable on an indemnity basis.

    The respondent/cross-claimant pay 14% of the applicant/cross-respondent’s party/party costs of defending the cross-claims filed in the five proceedings.

Native Oils

53    In the Native Oils proceeding, the applicant failed to establish patent infringement and no case was brought against the respondent for trade mark infringement or contravention of the ACL.

54    Counsel for Native Oils relied on a number of offers made by it inviting the applicant to withdraw the claim for additional damages for patent infringement. For reasons previously discussed, I do not propose to make any special costs order in relation to the claim for additional damages for patent infringement.

55    The costs orders I will make in the Native Oils proceeding will include an order that the applicant/cross-respondent pay the respondent/cross-claimant’s costs of the application including the costs of the application for orders under s 105 of the Act. In relation to the cross-claim filed in the Down Under proceeding, I will make the same orders that I will make in the New Directions proceeding.

Down Under

56    In relation to the Down Under proceedings, the applicant had limited success. Having failed to establish patent infringement, he obtained a declaration and an injunction in respect of the ACL claims but did not satisfy me that he had suffered any damage as a result of the relevant contraventions. When considered against the totality of the relief claimed by the applicant from Down Under (which included damages and additional damages for both patent and trade mark infringement), what the applicant has achieved as against Down Under is an extremely modest win that is completely overshadowed by his failure to obtain any relief in respect of alleged infringements of the applicant’s intellectual property rights.

57    Were it not for the applicant’s modest success based on the ACL claims, the applicant would have been required to pay the whole of Down Under’s costs of the proceeding brought against it. The case brought by the applicant against Down Under in respect of the ACL claims, even if vigorously defended, should not have taken more than a day to hear. In my view the applicant should pay 70% of Down Under’s costs of defending the application excluding the costs of the trade mark case and the application for orders under s 105 of the Act.

58    The offer of compromise did not address the ACL claim upon which Down Under was found liable except in so far as it provided for a dismissal of the application and a release. In those circumstances I am not persuaded that the applicant’s failure to accept the offer of compromise was unreasonable. Aside from the costs referable to the trade mark case, the costs awarded to Down Under will be assessed on a party/party basis.

59    In the result, the costs orders I will make in the Down Under proceeding will include an order that the applicant/cross-respondent pay 70% of the respondent/cross-claimant’s costs of the application on a party/party basis save for any costs referable to the claim of trade mark infringement which are to be payable on an indemnity basis and the application for orders under s 105 of the Act which are to be payable on a party/party basis. Down Under is entitled to all of its costs for these latter two issues (ie without any percentage discount). In relation to the cross-claim filed in the Down Under proceeding, I will make the same orders that I will make in the New Directions proceeding.

Bush Pharmacy

60    Counsel for Bush Pharmacy argued that the question of who should pay costs as between his client and the applicant should be deferred for consideration until after the quantum of the applicant’s entitlement to any pecuniary relief has been determined. He submitted, in the alternative, each party in the Bush Pharmacy proceeding should pay its or his own costs.

61    I do not accept either submission.

62    It is usual to deal with the question of costs of a liability hearing after it has concluded. In many ways the present proceedings are unusual, but I do not think that a departure from the usual practice is warranted. It may well be that the applicant establishes an entitlement to very little by way of pecuniary relief but he has vindicated his rights by obtaining declaratory relief and an inquiry in relation to Bush Pharmacy’s patent infringement together with declaratory and injunctive relief in respect of the ACL claims.

63    Bush Pharmacy’s offer of compromise did not offer to consent to any declaratory or other relief in respect of the applicant’s claims. In my opinion the failure of the offer of compromise to address the ACL claim in any meaningful way (by either offering an undertaking or consenting to an order restraining any repetition of Bush Pharmacy’s misleading conduct) is particularly significant.

64    Based on the relief that the applicant obtained at the liability hearing, and having regard to the issues upon which he succeeded, and those upon which he failed, it seems to me that Bush Pharmacy should pay to the applicant 75% of the applicant’s costs of his application against Bush Pharmacy excluding those costs referable to the trade mark infringement case and the amendment application. Bush Pharmacy is, in turn, entitled to the costs of the amendment application (on a party/party basis) and of the trade mark infringement case (on an indemnity basis). The costs awarded to the applicant should broadly equate to 15% of the applicant’s total party/party costs in the five proceedings excluding the applicant’s costs of defending the cross-claims. However, I accept that a detailed assessment of the actual costs incurred may demonstrate that somewhat more than that was incurred in the Bush Pharmacy proceeding.

65    What I think should be made clear is that an award of costs in the Bush Pharmacy proceeding in favour of the applicant is not intended to permit him to recover any costs from Bush Pharmacy that should fairly be regarded as referable to the case brought against any one or more of the other respondents. The taxing officer will need to make some suitable apportionment of the applicant’s costs, particularly with respect to the costs of having the applicant’s counsel and their instructing solicitors prepare for and attend at the hearing.

66    With respect to Bush Pharmacy’s cross-claim, I will make the same orders that are to be made in the other proceedings.

Heritage Oils/Ms Levinson

67    In relation to the applicant’s claim against Heritage Oils and Ms Levinson, the ACL claim failed. In the circumstances, Heritage Oils and Ms Levinson should pay 60% of the applicant’s costs of his application against them excluding the applicant’s costs of defending the cross-claims and costs referable to the trade mark infringement claim and amendment application. This should broadly equate to 12% of the applicant’s total party/party costs in the five proceedings, excluding costs referable to the claim of trade mark infringement and for orders under s 105 of the Act. What I have said in relation to the estimate made by me in respect of Bush Pharmacy also applies here. Heritage Oils and Ms Levinson are not to be visited with costs incurred by the applicant in relation to Bush Pharmacy or any other respondent except as part of a broader apportionment of the costs incurred by the applicant that were common to all five proceedings.

68    With respect to Heritage Oils’ cross-claim, it must pay the applicant 14% of the applicant/cross-respondent’s party/party costs of defending the cross-claims in the five proceedings.

69    Counsel for Heritage Oils and Ms Levinson relied on the same offer of compromise made in the Native Oils proceeding which invited the applicant to withdraw his claim for additional damages for patent infringement. For the reasons previously discussed, I do not propose to make any indemnity costs order relating to the claim for additional damages for patent infringement.

70    The respondents also relied on an offer made by them inviting the applicant to withdraw his trade mark case against them. Like the other respondents, Heritage Oils and Ms Levinson are entitled to their costs of defending the trade mark claim on an indemnity basis and their costs of the amendment application on a party/party basis.

71    Orders accordingly.

Associate:

Dated:    26 February 2021