Federal Court of Australia

Cytec Industries Inc. v Nalco Company (No 3) [2021] FCA 1332

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent/Cross-Appellant pay 70% of the Appellant’s/Cross-Respondent’s costs of the proceedings, including costs reserved by order 3 of the orders made on 27 August 2020.

2.    Any disputed assessment of the quantum of the costs in order 1 be determined by a Registrar of the Court, such determination to be deferred until the conclusion of the proceedings.

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

REASONS FOR JUDGMENT

BURLEY J:

1.    INTRODUCTION

1    In Cytec Industries Inc. v Nalco Company [2021] FCA 970 (judgment) I found that Cytec Industries Inc. succeeded in its opposition to the grant of patent application number 2012220990 entitled “Reducing aluminosilicate scale in the Bayer process”. I expressed the preliminary view at [226] that having regard to the relative success of the parties the respondent (and patent applicant) Nalco Company should pay 70% of Cytec’s costs, but invited the parties to make submissions should they disagree.

2    It turns out that that they do disagree.

3    Nalco submits that it should be required to pay 30% of Cytec’s costs. Cytec submits that the correct figure is 70%. For the reasons set out below, in my view, Nalco should pay 70% of Cytec’s costs of the proceedings. These reasons assume familiarity with the judgment.

2.    THE SUBMISSIONS

4    Cytec submits that it was successful in the appeal from the delegate’s decision on two grounds, lack of support and lack of clear and complete disclosure, and that whilst some discount to a costs order in its favour is appropriate having regard to its failure to establish grounds of opposition based on lack of novelty within s 7(1) of the Patents Act 1990 (Cth) and failure to disclose best method within s 40(2)(aa) of the Patents Act, the assessment of 70% is appropriate.

5    Nalco advances a number of reasons in favour of its proposed costs order. It submits that Cytec’s success turned on a single construction issue, being the “single small molecule argument”, which turned principally upon the language of the claims. In contrast, the majority of the time spent at the hearing was directed to Cytec’s unsuccessful grounds. It provides a count of transcript pages the subject of contentious issues to support the submission that the bulk of the time of the hearing was directed to Cytec’s unsuccessful grounds. It submits that the circumstances of this case are analogous to those in Meat & Livestock Australia Ltd v Cargill (No 2) [2019] FCA 33; 139 IPR 47 (Beach J).

6    Nalco notes that Cytec abandoned a number of grounds of opposition prior to the hearing and that the costs consequent upon the abandonment of arguments going to: (a) deferred priority date; (b) lack of inventive step in light of WO 873 and WO 2008/045677; and (c) lack of novelty in relation to a deferred priority date were reserved on 27 August 2020. It submits that these reserved costs should be resolved in its favour having regard to Cytec’s late abandonment of arguments in light of Nalco raising the grace period argument. I address the grace period argument in the judgment in section 9.2.

3.    CONSIDERATION

7    The principles relevant to the determination of costs are not in dispute and were aptly summarised by the Full Court in Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 (Nicholas, Beach and Burley JJ) at [3]:

The power of the Court in relation to costs is well established. 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]).

8    My preliminary view that the correct apportionment should be that Nalco pay 70% of Cytec’s costs was based on a consideration of the relative success of the parties, taking into account the fact that Cytec had failed in two of its substantive arguments but succeeded in its overall challenge to the patent application. Such calculations rarely warrant close arithmetic calculations based on transcript pages and the like. Whilst somewhat more time may have been spent on the unsuccessful best method argument than the successful arguments, when considering costs in the context of patent cases, it is difficult and undesirable to endeavour to disentangle considerations such as the relevance of the description of the background science and the common general knowledge from each argument advanced. Nor is it helpful to consider the result applied in other cases such as Meat & Livestock where, in that case, different evidence and arguments were advanced, including a failed forensically challenging ground of lack of inventive step. Absent more, I would have been disposed to conclude that my preliminary view of an apportionment of 70% should remain intact.

9    However, Nalco makes submissions in relation to various amendments made by Cytec to its pleadings, and in particular amendments made after the grace period argument was raised late in the proceedings. These submissions warrant further consideration.

10    Nalco contends that Cytec has, in the course of the proceedings, advanced a number of separate legal arguments in support of its grounds of opposition to the grant of the patent application and that there should be costs consequences for the abandonment of various of those arguments. Two of those arguments were pleaded but no evidence was advanced and they were abandoned. In my view, no cost consequence should flow from that course. It is desirable that parties consider and abandon early in the proceedings grounds that, upon further scrutiny, are not worth the candle.

11    In order to determine the correct approach to the reserved costs that arose from the grace period argument it is necessary to consider some further background material. The following facts emerge from affidavits sworn by Andrew Wiseman (solicitor for Cytec) and Duncan Longstaff (solicitor for Nalco):

(1)    Since August 2015 Cytec has relied on WO 873 as a relevant prior art document. It advanced that document, which is a prior patent filed by Nalco, early in the course of the patent opposition from which the current proceedings are an appeal and relied upon it for the purposes of its lack of inventive step and lack of novelty arguments;

(2)    The lack of novelty argument succeeded on the basis of a “whole of contents” ground (see the definition of “prior art base” subparagraph (b)(ii) in Schedule 1 of the Patents Act) and the delegate determined that certain claims of the patent application should not proceed to grant on that basis. The lack of inventive step argument failed. At no point was a grace period argument advanced before the delegate;

(3)    In this Court, Cytec filed its notice of appeal from the decision of the delegate in January 2019. In it Cytec contended that the priority date of the claims ought to be deferred and relied upon WO 873 as a prior art document for the purposes of its lack of inventive step argument;

(4)    Nalco cross-appealed, challenging, amongst other things, the delegate’s novelty findings but not raising any issue in relation to the grace period argument;

(5)    In November 2019 I made orders granting leave to Nalco to amend the patent application;

(6)    In December 2019 Cytec filed a statement of grounds and particulars setting out its opposition to the grant of the patent application as amended. It pleaded, amongst other things, that the patent application should not proceed to grant because of lack of novelty and lack of inventive step in light of WO 873 as a prior art document;

(7)    In April 2020 Cytec served expert affidavits from Dr Power and Professor Easton in support of those grounds;

(8)    At no point in the proceedings to this point was the grace period issue raised by Nalco;

(9)    Mr Longstaff gives evidence that on 22 June 2020, in the course of preparing Nalco’s evidence in answer, he realised that WO 873 constituted a publication of the invention by Nalco within 12 months before the filing date of the patent application and therefore considered that it must be disregarded by the Court for the purposes of deciding whether the claims of the patent application were novel or involved an inventive step pursuant to the grace period provided for by s 24(1)(a) of the Patents Act;

(10)    Nalco’s solicitors raised the issue in a letter to Cytec’s solicitors on 30 June 2020 which outlined the factual and legal reasons why Nalco considered that the grace period applied to WO 873;

(11)    An exchange of letters followed, which culminated in the solicitors for Cytec advising Nalco on 4 August 2020 that it proposed to file an interlocutory application seeking orders restraining Nalco from relying on the grace period argument unless it obtained leave to amend its notice of cross-appeal and, if such leave were granted, Cytec be granted leave to amend its case;

(12)    It was common ground that if the grace period argument were accepted by the Court, then the lack of novelty and lack of inventive step arguments then advanced by Cytec could not succeed;

(13)    Mr Wiseman deposes in his affidavit of 11 August 2020 that if Nalco were permitted to raise the grace period argument, then Cytec would no longer press its ground of opposition contending that the claims lacked an inventive step in light of WO 873; and

(14)    Mr Wiseman deposes in his affidavit of 25 August 2020 that he had in January 2020 become the solicitor on the record for Cytec. However, he deposes, on information and belief, that a partner of Allens Patent & Trade Mark Attorneys who had been assisting in the carriage of the matter under his predecessor had been aware since 2015 that the grace period argument might be available with respect to WO 873. This partner, who was still assisting in the matter at the date of Mr Wiseman’s affidavit, considered that there were arguments available to the effect that the grace period provisions did not apply, and considered that it was incumbent upon Nalco to raise the point if it wished to advance it and that Cytec was under no obligation to raise the grace period provisions considering that there could be a number of reasons why the point had not been raised by Nalco, including that Nalco considered that the point was not likely to succeed. Accordingly, Cytec proceeded to prepare its case on the basis that the grace period point was not relevant.

12    Upon Nalco notifying Cytec of its reliance on s 24, Cytec abandoned its deferred priority date, lack of inventive step, and two lack of novelty arguments. Nalco submits that s 24 of the Patents Act is a mandatory provision that stipulates that the Court must, for the purposes of deciding whether an invention is novel or involves an inventive step, disregard certain prescribed information. It submits that Cytec bore the onus of establishing the grounds of opposition upon which it relied and satisfying itself that there was a proper basis for each allegation advanced. Consequently, Nalco submits it was incumbent on Cytec at the time that it commenced its proceeding in this Court to undertake its own analysis to ascertain whether the prior art it relied upon was viable, including in accordance with s 24. This, Nalco submits, Cytec was always in a position to do. Nalco submits that it was incumbent upon Cytec only to advance prior art that could legally be regarded by the Court. It submits that, in the circumstances, Nalco should not bear the costs consequences of Cytec’s election to persist with WO 873 in light of its knowledge pertaining to the grace period issue, both in respect of the costs Nalco incurred by late abandonment of particular grounds of opposition, and also any costs thrown away by Cytec.

13    I considered the grace period argument in section 9.2 of the judgment. It will be seen that the argument was not without its complexity. Indeed, despite being represented by skilful specialist patent attorneys, solicitors and counsel for in excess of five years of litigation, it was not until shortly before the hearing of the proceedings (which took place in October 2020) that Nalco appreciated that the argument was even available. Furthermore, there was an arguable basis upon which Cytec could contend that the grace period provision would not apply. In my view, having regard to the circumstances of the proceeding that I have outlined above, Cytec was entitled to take the view that the point was deliberately not taken by Nalco, rather than missed by an oversight.

14    Nor does the point that s 24 of the Patents Act is mandatory in its terms withstand scrutiny. The mandatory character of s 24 only applies to certain information. Although ultimately unsuccessful, it was not unreasonable for Cytec to argue, as it did at the hearing, that s 24 had no application to WO 873. Moreover, I disagree that, in the circumstances of this case, Nalco had no obligation to raise this argument prior to the hearing. Prior to 30 June 2020 the parties had proceeded in the conduct of the litigation over a number of years on the basis that no grace period argument would be advanced. The change in position arising from the realisation that the ground was available ought to have been, and was, properly notified to Cytec consistent with the obligations of parties under s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth). Cytec then amended its case, including by shedding its reliance on the lack of inventive step ground. Mr Wiseman explains in his affidavit evidence that Cytec made its own forensic judgment to bring a narrower and more specific case based on what it considered to be the strongest available grounds of opposition in light of the argument then raised against it.

15    I accept that the forensic landscape altered significantly upon the introduction of the grace period argument. I consider that it was incumbent upon Nalco to indicate that it intended to rely on that argument. I make no criticism of the late raising of the argument. In a technical field such as this, points are occasionally overlooked. However, in the circumstances of the present case, where the parties and also the delegate had proceeded on the apparently assumed basis that the argument was not going to be advanced, I do not consider that cost of amendments made to Cytec’s case arising from the late raising of the grace period argument by Nalco should be paid by Cytec. In my view, Cytec was entitled to adjust its case once the landscape changed and the appropriate order be that Nalco should bear 70% of the costs arising by reason of that amendment.

16    Accordingly, having regard to all of the matters addressed above, I consider that Nalco should pay 70% of Cytec’s costs of the proceedings, including the reserved costs.

17    Cytec submitted that costs should be taxable and payable now. There is, however, a little way for the litigation to go because Nalco has applied to amend the patent application in light of the reasons set out in the judgment. That amendment is opposed. It is more efficient for any disputed assessment of the quantum of costs to be determined at the conclusion of the proceedings when all of the costs issues have been addressed. Accordingly, I will order that Nalco pay 70% of Cytec’s costs of the proceedings and that any disputed assessment of the quantum of those costs be determined by a Registrar of the Court, such determination to be deferred until the conclusion of the proceedings.

Associate:

Dated:    1 November 2021