Federal Court of Australia
C.M.E. Blasting & Mining Equipment Ltd v Rock Tool Refurbishment Solutions Pty Ltd (No 2) [2022] FCA 632
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The applicant’s Interlocutory application dated 3 June 2021 be dismissed.
2. The first and second respondents’ Interlocutory application filed on 15 June 2021 be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
BESANKO J:
Introduction
1 The applicant and cross-respondent in this proceeding is C.M.E. Blasting & Mining Equipment Ltd (CME). It supplied within Australia grinding apparatus (the CME Grinding Machine) and grinding cups. It held a number of patents and three relate to either a grinding apparatus or tool or a grinding cup.
2 The respondents are Rock Tool Refurbishment Solutions Pty Ltd (RTRS) and Mr Bradley Beurs. Mr Beurs is said by CME to be a shareholder of RTRS and to be held out by that company as the managing partner of the company. The claims made by CME against RTRS are outlined in greater detail later in these reasons. It is sufficient at this point to note that they include claims for patent infringement, inducing a breach of contract and claims in tort for conversion and detinue.
3 In its Further Amended Statement of cross-claim dated 15 February 2021, RTRS seeks a non-infringement declaration under ss 125 and 126 of the Patents Act 1990 (Cth) (the Act) in relation to a grinding machine it intends to use, offer for sale and sell in Australia (the RTRS Grinding Machine).
4 There are two applications before the Court. The first application is brought by CME for orders requiring RTRS to produce documents and things pursuant to r 30.28 of the Federal Court Rules 2011 (Cth) (the Rules), discovery pursuant to r 20.13 of the Rules and inspection pursuant to r 14.01 of the Rules.
5 The second application is brought by RTRS and Mr Beurs for an order under s 31A of the Federal Court of Australia Act 1976 (Cth) (see also r 26.01 of the Rules) that the respondents have judgment with respect to some claims and allegations made by CME in its Further Amended Statement of claim dated 18 December 2020 (the FASOC).
6 CME has filed its evidence-in-chief in support of its claims and RTRS has filed its evidence in support of its claim for a non-infringement declaration.
CME’s Application
Background
7 The orders sought by CME against RTRS are as follows, relevantly:
Notice to Produce
1. Pursuant to Rule 30.28 of the Federal Court Rules 2011 (Cth) (Rules), the First Respondent/Cross-Claimant is to produce to the Court the following documents and things:
1.1. Copies of:
1.1.1. all information provided by the First Respondent/Cross-Claimant; and
1.1.2. all documents
which were considered in the preparation of the “Full Written Particulars for the RTRS Grinding Machine” annexed at Annexure WSH-3 of the Affidavit of William Samuel Hunter sworn 26 April 2021 (Hunter Affidavit).
1.2. A sample of the RTRS Grinding Machine referred to at paragraph [15] of the Further Amended Statement of Cross-Claim dated 15 February 2021 (RTRS Grinding Machine).
Discovery
2. Pursuant to Rule 20.13 of the Rules, the First Respondent/Cross-Claimant is to give discovery of the following classes of documents relevant to its application for a Non-Infringement Declaration as set out from paragraph [14] of its Further Amended Statement of Cross-claim:
Affidavit of William Samuel Hunter
2.1. Copies of any communications between Mr William Hunter and DLA Piper for the purposes of formulating the opinions of Mr Hunter found at Annexures WSH-4, WSH-5, WSH-6, WSH-7, WSH-8, WSH-9 and WSH-10 of the Hunter Affidavit.
RTRS Grinding Machine
2.2. In respect of the RTRS Grinding Machine, copies of:
2.2.1. all available drawings (including drawings for each individual part of the machine), design specifications, any patent specifications or drafts thereof;
2.2.2. any promotional or advertising material which relates to the sale or offering for sale of the RTRS Grinding Machine;
2.2.3. all relevant operator or owner manuals;
2.2.4. photographs of the RTRS Grinding Machine;
2.2.5. to the extent that the RTRS Grinding Machine utilises any software:
2.2.5.1. any documents which records the pseudo code and source code of that software;
2.2.5.2. state diagrams; and
2.2.5.3. operator manuals
3. Discovery of the documents referred to at paragraphs [2.1] and [2.2] is to be made electronically by either email or Dropbox link, pursuant to Rules 20.13(4) and 20.15(2) of the Rules.
Inspection of the RTRS Grinding Machine
4. Pursuant to Rule 14.01 of the Rules:
4.1. the Applicant (including its agents or authorised representatives) and Mr Paul Van De Loo be permitted to inspect a sample of the RTRS Grinding Machine;
4.2. for the purposes of Orders 1.2 and 4.1 above:
4.2.1. the sample RTRS Grinding Machine be delivered to and placed into the care and custody of Mr Paul Van de Loo of Applidyne Australia Pty Ltd, 104 Coglin Street, Brompton SA 5007 within fourteen days from the date of these orders;
4.2.2. The RTRS Grinding Machine remain in the care and custody of Mr Van de Loo for a period of not less than four weeks to enable Mr Van de Loo to inspect and form an opinion on the subject of the Non-Infringement Declaration; and
4.2.3. during any such inspection, Mr Van de Loo is permitted to:
4.2.3.1. if required, remove and replace parts on; and
4.2.3.2. operate;
the RTRS Grinding Machine.
A copy of proposed minutes of order advanced by CME was annexed to the affidavit of CME’s solicitor, Mr Timothy John O’Callaghan, sworn on 3 June 2021 in support of CME’s application. To the extent the proposed minutes of order differ from the orders sought in CME’s application, the differences are not material in light of the conclusions I reach below.
8 RTRS’s claim for a non-infringement declaration in relation to the RTRS Grinding Machine is pleaded in the Further Amended Statement of cross-claim as follows:
Non-Infringement Declarations
14 The Cross-Respondent is, in addition to Patents 1, 2 and 3 (as set out in paragraph 3), recorded on the Australian Register of Patents as the registered proprietor of Australian Patent Numbers:
(a) 2014306380 – Grinding apparatus with load control;
(b) 2009267763 – Manual clamping means for bit holder with quick positioning;
(c) 2002342471 – Grinding member for buttons on rock drill bit; and
(d) 2001272260 – Grinding apparatus with articulated arm.
(together with Patents 1, 2 and 3, the CME Patents).
15 The Cross-Claimant intends to use, offer for sale and sell a grinding machine in Australia (RTRS Grinding Machine).
Particulars
(a) The RTRS Grinding Machine has the features outlined in the letter from DLA Piper to Piper Alderman dated 18 January 2021, including:
(i) a tilting table arranged to hold drill bits being ground;
(ii) a supporting structure for the grinding head;
(iii) a grinding head; and
(iv) a control cabinet.
(b) Further particulars are matters for evidence.
16 The RTRS Grinding Machine does not infringe any claim of any of the CME Patents.
Particulars
The letter from DLA Piper to Piper Alderman dated 18 January 2021 sets out the features of each of the claims of the CME Patents that are not taken by the RTRS Grinding Machine.
17 In accordance with section 126 of the Patents Act 1990 (Cth), the Cross-Claimant:
(a) asked the Cross-Respondent in writing for written admissions that the exploitation of the RTRS Grinding Machine would not infringe each of the claims of the CME Patents;
(b) provided the Cross-Respondent with written particulars of the RTRS Grinding Machine which identify the features of each of the claims of the CME Patents that are not taken by the RTRS Grinding Machine; and
(c) undertook to pay a reasonable sum for the Cross-Respondent’s expenses in obtaining advice about whether, based on the written particulars of the RTRS Grinding Machine, the exploitation of the RTRS Grinding Machine infringed or would infringe any claim of the CME Patents.
Particulars
(i) Letter from DLA Piper to Piper Alderman dated 18 January 2021.
18 The Cross-Respondent has failed to make the admission requested by the Cross-Claimants.
Particulars
(a) Letter from Piper Alderman to DLA Piper dated 1 February 2021.
19 The conditions for the making of the non-infringement declarations sought in paragraph 4A of the Further Amended Notice of Cross-Claim, pursuant to section 126 of the Act are satisfied by the matters set out in paragraphs 17 - 18 above.
9 RTRS’s application for a non-infringement declaration is made under s 125 of the Act. That section is in the following terms:
125 Application for non-infringement declaration
(1) A person who has done, is doing, or is intending to do an act may apply to a prescribed court for a declaration that the doing of the act does not, or would not, infringe a patent.
(2) An application may be made:
(a) for a declaration in relation to an invention claimed in a standard patent—at any time after the patent has been granted; and
(b) for a declaration in relation to an innovation patent—at any time after the patent has been certified; and
(c) whether or not the patentee has made any assertion to the effect that the doing of the act has or would infringe the claim.
(3) The patentee must be joined as a respondent in the proceedings.
10 The conditions which must be satisfied before a non-infringement declaration can be made under s 125 are set out in s 126 of the Act which is in the following terms:
126 Proceedings for non-infringement declarations
(1) A prescribed court must not make a non-infringement declaration unless:
(a) the applicant for the declaration:
(i) has asked the patentee in writing for a written admission that the doing of the act has not infringed, or would not infringe, the patent; and
(ii) has given the patentee full written particulars of the act done, or proposed to be done; and
(iii) has undertaken to pay a reasonable sum for the patentee’s expenses in obtaining advice about whether the act has infringed or would infringe the claim; and
(b) the patentee has refused or failed to make the admission.
(2) The court may make orders as to costs as the court thinks fit.
11 The dispute in this case centres on whether the patentee has been provided with full written particulars within s 126(1)(a)(ii) with respect to a grinding machine which RTRS contends does not infringe any of CME’s seven patents.
12 The course of events with respect to the particulars which RTRS has provided to CME is as follows. On 18 January 2021, RTRS’s solicitors wrote to CME’s solicitors annexing a document titled as follows:
ANNEXURE A
The RTRS Grinding Machine
13 That document identified four features of the RTRS Grinding Machine as follows:
(a) a tilting table arranged to hold drill bits being ground;
(b) a supporting structure for the grinding head; and
(c) a grinding head; and
(d) a control cabinet.
Thereafter, the document set out the details of each of these four features.
14 The letter itself contained a number of statements about the features of the RTRS Grinding Machine and concerning the absence of features identified by reference to claims in CME’s various patents. These statements were subsequently incorporated into the earlier document which was then titled as follows:
Full Written Particulars
The RTRS Grinding Machine
Expert Evidence
15 Mr William Samuel Hunter is a consulting engineer with over 30 years’ experience in developing and designing commercial and industrial products and he has been engaged by RTRS. He has affirmed two affidavits, one on 26 April 2021 and a second on 21 June 2021. Those affidavits are relied on by RTRS in support of its application for a non-infringement declaration.
16 In his first affidavit, Mr Hunter expresses the opinion that the Full Written Particulars for the RTRS Grinding Machine contains sufficient information for him to give his opinion as to whether each feature of the independent claims of each of the patents is present in the RTRS Grinding Machine. He sets out in tabular form his opinion as to whether the RTRS Grinding Machine possesses each feature of the independent claims of the seven CME patents which are the subject of RTRS’s claim for a non-infringement declaration. He answers that question in the negative: not every feature of the independent claims of the seven CME patents is present in the RTRS Grinding Machine.
17 In his second affidavit, Mr Hunter reassesses his opinions by reference to what he calls Additional Particulars provided by RTRS’s solicitors, being photographs of a prototype of the RTRS Grinding Machine, schematics of the RTRS Grinding Machine and videos of a prototype of the RTRS Grinding Machine. Those Additional Particulars have been provided by the Managing Director and Secretary of RTRS, Mr Jayke Beurs Della Franca, in an affidavit affirmed on 21 June 2021. Mr Hunter updated his table and expresses the opinion that nothing in the Additional Particulars has changed his opinions as expressed in his first affidavit.
18 Mr Paul Van de Loo is a mechanical engineer and he is the Managing Director of Applidyne Australia Pty Ltd. Applidyne Australia was started by Mr Van de Loo in 1993 and it is a product design engineering company. Mr Van de Loo has been engaged by CME to provide expert opinions. The crux of Mr Van de Loo’s opinions are, for present purposes, set out in para 7 of an affidavit he affirmed on 9 July 2021:
In order to independently verify whether or not the RTRS Grinding Machine possesses these integers, I believe that I need to do more than simply accept what Mr Della Franca deposes about the RTRS Grinding Machine. I need to make my own independent assessment and form my own opinion on these matters. In order to do that, I need to fully understand the RTRS Grinding Machine, what components it has, how those components are comprised and work together, and how the machine operates. The limited information provided to date does not allow me to do that. In order to do what I have been asked to do, I need to review all available documents which provide this information, and inspect and operate the RTRS Grinding Machine itself.
19 Mr Van de Loo identifies the following documents as documents he expects that RTRS is able to provide because such documents are quite commonly created when designing and building a prototype machine:
(1) a list of all parts in the RTRS Grinding Machine, including commercial off-the-shelfitems, commonly called a “Bill of Materials”;
(2) assembly drawings for sub-assemblies and the overall assembly or, alternatively, detailed CAD models in an accessible format (e.g. STEP, IGES, eDrawing, etc.);
(3) a wiring diagram;
(4) electrical schematics;
(5) schematic diagrams for pneumatic and hydraulic systems;
(6) controller source code and pseudo code or state diagrams;
(7) the “control gear” specifications referred to at para [9] of the Della Franca Affidavit;
(8) any documents containing information on which the Written Particulars were based;
(9) all available drawings (including drawings for each individual part of the machine);
(10) design specifications, any patent specifications or drafts thereof; and
(11) all relevant operator or owner manuals.
20 Mr Van de Loo expresses the view that, in his experience in the development of new machines, all of the documents listed in (1) to (6) above would have been generated by the time the prototype machine had been built. He expresses the opinion that whilst these documents may be in the form of informal documents or sketches, rather than formalised documents and in accordance with standards (e.g., Australian Standard AS1100 for drawings), each of these items is necessary to construct the RTRS Grinding Machine. He also expresses the opinion that at least draft versions of the manuals referred to in (11) above would be available at this stage in development.
21 Mr Van de Loo also expresses the opinion that the “schematics” annexed to Mr Della Franca’s affidavit are not what he would call schematics, but rather are computer-aided design model isometric views. In Mr Van de Loo’s opinion, schematics are simplified or symbolic representations that facilitate ease of understanding of the operation and interactions of components. Mr Van de Loo states that the schematics he requires are schematic diagrams of the pneumatic and electrical systems in the machine and that the “schematics” provided in the affidavit affirmed by Mr Della Franca provide insufficient information about the electrical, hydraulic and pneumatic systems in the RTRS Grinding Machine.
The Submissions
22 CME submits that neither it nor the Court can be expected to assume, as Mr Hunter was required to do, that the Full Written Particulars accurately describe the RTRS Grinding Machine and that this difficulty is not overcome by the Additional Particulars provided in the affidavit affirmed by Mr Della Franca. Mr Hunter in his second affidavit states that the Additional Particulars, being the photographs, pneumatics and videos, “are consistent with the machine described in the Full Written Particulars”.
23 CME submits that it should have the benefit of examining the actual machine with respect to which the declaration of non-infringement is sought and not merely RTRS’s description of it or the further material which RTRS has chosen to put forward. The difficulties associated with relying on RTRS’s Full Written Particulars alone or in combination with the Additional Particulars contained in Mr Della Franca’s affidavit were identified by CME as follows: (1) the Full Written Particulars were prepared by RTRS and its lawyers and not by any independent person; (2) the Full Written Particulars are not a full description of the relevant machine but just a description of those parts that RTRS and its lawyers consider relevant; (3) there is no way for CME or the Court to verify that the Full Written Particulars do not contain any errors; and (4) there is no way for CME or the Court to be satisfied that the characterisation of the machine in the Full Written Particulars is the same as the characterisation CME or the Court would reach having had the opportunity to inspect the RTRS Grinding Machine properly.
24 CME acknowledges that there are some logistical difficulties and costs associated with transporting the RTRS Grinding Machine to Adelaide for inspection by Mr Van de Loo. It submits that these difficulties are relatively minor in the context of the wider dispute. CME submits that there is no suggestion that RTRS’s business will be interrupted by having the machine sent to Adelaide, that the RTRS Grinding Machine has been in development for “nearly two years” and that allowing for an independent inspection by Mr Van de Loo of the RTRS Grinding Machine opens up the possibility that he will determine that the machine does not infringe any of the CME patents. If he did reach that conclusion, that would (most likely) bring this part of the proceeding to an early end and allow RTRS to commence selling the machine. CME submits that the cost of transportation of the RTRS Grinding Machine is relatively modest and that Mr Della Franca does not point to any particular prejudice that RTRS would suffer as a result of complying with orders for discovery.
25 CME relied on the decision of Dowsett J in Occupational and Medical Innovations Ltd v Retractable Technologies Inc [2008] FCA 1102; (2008) 77 IPR 570 (Occupational and Medical Innovations). That case was decided under ss 125 and 126 before they were amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) (the Raising the Bar Act). CME submitted that the case provided an example of issues that can arise in relation to evidence in claims for non-infringement declarations. In that case, the applicant for a non-infringement declaration provided the respondent with samples of the relevant invention and a table prepared by an expert engineer, which sought to compare the alleged infringing product with the relevant claims of the patent.
26 In determining whether the samples fell within the terms of claim 1 of the relevant patent, Dowsett J noted that the expert’s table set out the “features” of claim 1 of the patent; however, erroneous material was included in it. Justice Dowsett took the expert evidence into account, but ultimately decided the issue by reference to the samples (see the conclusions at [30]–[32]). CME submits that without the samples, the errors in the expert evidence may never have been detected. CME submits that the risk of error is much greater in this case because neither the Full Written Particulars nor the Additional Particulars contained in Mr Della Franca’s affidavit were created by an independent expert and, more importantly, there is no way for such errors to be detected because the actual sample has not been provided.
27 RTRS submits that the order for discovery sought by CME relates only to RTRS’s application for a non-infringement declaration and it notes that CME also seeks an order for delivery up of the RTRS Grinding Machine.
28 RTRS submits that CME’s application should be dismissed for three reasons.
29 The first reason is that the application is based on a misunderstanding of ss 125 and 126 of the Act and of RTRS’s application for a non-infringement declaration. RTRS submits that it seeks a non-infringement declaration for the RTRS Grinding Machine described in the Full Written Particulars, not an actual machine.
30 In developing this point, RTRS submits that the element of s 126 of the Act which is in dispute is that set out in s 126(1)(a)(ii) and that is whether RTRS has given CME “full written particulars” of the act done or proposed to be done. In other words, there is no dispute about compliance with the other elements, being that RTRS has asked CME in writing for a written admission that the doing of the act has not infringed, or would not infringe, the patent, and that RTRS has undertaken to pay a reasonable sum for CME’s expenses in obtaining advice about whether the act has infringed or would infringe the claim. I do not think I need to accept or reject this submission at this stage. Certainly, the issue identified by RTRS is the main issue for the purposes of determining this application.
31 RTRS submits that the decision in Occupational and Medical Innovations concerned the previous form of s 126 before it was amended substantially by the Raising the Bar Act. RTRS submits that the decision in Occupational and Medical Innovations does not assist in any event because the Court did not consider the meaning of the words “full written particulars”. Further, RTRS submits that the applicant in that case had already provided the patentee with product samples pursuant to a Court order for a different part of the proceeding. RTRS submits that many of the amendments introduced by the Raising the Bar Act were designed to overcome (and correct) the result in Occupational and Medical Innovations. In the Explanatory Memorandum to the Raising the Bar Act, it was stated that the outcome in that case was “contrary to policy intent”.
32 RTRS submits that the obligation on a party under s 126 is to provide “full written particulars” of the act done, or proposed to be done, and that the section does not contemplate, or require, that such a party provide physical samples or discovery. Section 126 contemplates that a non-infringement declaration may be made with respect to an act proposed to be done and in circumstances where there is no product in existence and only a description of the device or product.
33 The Explanatory Memorandum to the Raising the Bar Act indicates that the amendments made by the Raising the Bar Act were intended to introduce wording similar to the relevant provisions of the Patents Act 1977 (UK) (the UK Act). RTRS submits that the criteria for making a non-infringement declaration under s 71 of the UK Act (and its predecessor, s 66 of the Patents Act 1949 (UK)) have been held to focus on whether any product or process that falls within the written description could reasonably be taken to infringe the claims of the patent in issue. In this respect, RTRS refers to Mallory Metallurgical Products Ltd v Black Sivalls & Bryson Inc [1977] RPC 321 (at 339 per Goff LJ) and MMD Design & Consultancy Ltd’s Patent [1989] RPC 131 (at 135) (UK Patents Office).
34 RTRS also submits, correctly in my view, that the case law in the United Kingdom establishes the following propositions:
(1) a non-infringement declaration has the effect of determining that the product, method or process, as described in the full written particulars, does not infringe the patent in suit (Niche Generics Ltd v Lundbeck A/S [2003] EWHC 2590 (Pat); [2004] FSR 20 (Niche Generics) at [24] per Pumfrey J);
(2) the question of non-infringement is circumscribed by the full written particulars (Baxter Healthcare Corp v Abbott Laboratories [2006] EWHC 3185 (Pat) (Baxter Healthcare Corp) at [13] per Pumfrey J); and
(3) a non-infringement declaration does not preclude the patentee from bringing an infringement action if it later turns out that the actual product, method or process is different to what is disclosed in the full written particulars (Niche Generics at [25] per Pumfrey J and Nampak Plastics Europe Ltd v Alpla UK Ltd [2014] EWHC 2196 (Pat) (Nampak Plastics Europe) at [17] per Birss J).
35 RTRS submits that in light of these principles, there can be no basis for any form of discovery which seeks to go behind the Full Written Particulars, or for an order for inspection of the RTRS Grinding Machine itself.
36 The second reason advanced by RTRS is that Mr Van de Loo does not explain why the Full Written Particulars or other materials provided by RTRS to date are insufficient by reference to the integers of the independent claims of the seven patents, notwithstanding that three of the patents are not directed to grinding machines. RTRS submits that CME’s approach is simply to seek a broad range of documents, and physical inspection, in order for Mr Van de Loo to undertake his 10-day “independent assessment”. It submits that that expansive exercise is not appropriate (given its ignorance of the materials provided to date by RTRS), nor is it consistent with the task set by s 126. RTRS submits that discovery and physical inspection should be refused in circumstances where it is apparent that what Mr Van de Loo proposes to do is not limited to an inspection but extends to conduct akin to performing experiments on the RTRS Grinding Machine. RTRS submits that if the Court were minded to entertain CME’s discovery application, all documents within para 2.1 of the application are subject to a claim for privilege, and it says that there are no documents that fall within paras 2.2.2 and 2.2.3. RTRS submits that the order sought by CME under the heading “Notice to Produce” (para 1 of the application) is inappropriate and that such an order should not be made. RTRS submits that it is not without significance that, ultimately, CME appears to adopt an unusual position in respect of RTRS’s application for a non-infringement declaration. It submits that CME’s submission recorded in [24] above is such that it appears that it has been able to form a sufficient view that the RTRS Grinding Machine does not infringe any of its patents based on the Full Written Particulars, including the Additional Particulars. On that basis, CME ought to provide the undertakings sought (i.e., the written admission under s 126 of the Act).
37 The third reason advanced by RTRS is that there is only one RTRS Grinding Machine in its possession and it requires continued access to the device so that it can continue performance testing. It submits that it would be an undue interruption to its commercial activities to be without the device for the period sought.
Analysis
38 I start with the decision in Occupational and Medical Innovations. That decision involved the application of ss 125 and 126 of the Act before the amendments effected by the Raising the Bar Act. Those sections and, in particular, s 125 were in different terms to the sections relevant in this case. Section 125(1) was as follows:
(1) A person who wishes to exploit an invention may apply to a prescribed court for a declaration that the exploitation of the invention would not infringe a claim of a particular complete specification.
39 As the Explanatory Memorandum to the Raising the Bar Act makes clear, the expression “exploit an invention” was construed in Occupational and Medical Innovations as requiring the applicant for a non-infringement declaration to themselves be a patentee or patent applicant. This was said to be “contrary to the policy intent of the provisions” and was replaced by the expression “[a] person who has done, is doing, or is intending to do an act”. The other deficiency identified in the Explanatory Memorandum is that, arguably, the provisions only apply to future acts by the use in s 125(1) of the expressions “wishes to exploit” and “would not infringe”. According to the Explanatory Memorandum, it is desirable to ensure that the provisions apply to past, present and proposed conduct in a similar way to s 71 of the UK Act. This is made clear by the introduction of the phrases “has done, is doing, or is intending to do an act” and “that the doing of the act does not, or would not, infringe a patent”.
40 There was also an amendment to make it clear that the power was only engaged where a standard patent had been granted or, in the case of an innovation patent, it had been certified.
41 These differences between ss 125 and 126 as applicable in this case and ss 125 and 126 as applicable in Occupational and Medical Innovations suggest that that decision is of no assistance in resolving the issue in this case. This conclusion is reinforced by the fact that in Occupational and Medical Innovations, the obtaining of the samples was not in issue as they had been obtained and were before the Court and the particular issue before this Court was not in issue in that case.
42 The following points should be noted about the text of ss 125 and 126. First, the sections apply not only to past and present acts, but also to proposed acts. A non-infringement declaration may be made in relation to a proposed act where there is no prototype, sample or existing machine or product. In such a case, the declaration must relate to a proposed act as described in the full written particulars provided to the patentee. Secondly, s 126 specifies the mandatory pre-conditions to a non-infringement declaration and they include the provision of full written particulars and do not include the provision of a prototype, sample or existing machine or product, if one exists.
43 Section 71 of the UK Act is the following terms, relevantly:
(1) Without prejudice to the court’s jurisdiction to make a declaration or declarator apart from this section, a declaration or declarator that an act does not, or a proposed act would not, constitute an infringement of a patent may be made by the court or the comptroller in proceedings between the person doing or proposing to do the act and the proprietor of the patent, notwithstanding that no assertion to the contrary has been made by the proprietor, if it is shown—
(a) that that person has applied in writing to the proprietor for a written acknowledgment to the effect of the declaration or declarator claimed, and has furnished him with full particulars in writing of the act in question ; and
(b) that the proprietor has refused or failed to give any such acknowledgement. …
(See also s 66 of the Patents Act 1949 (UK)).
44 Section 125 is in very similar terms and, in those circumstances, the English cases are of assistance in the construction of ss 125 and 126. Those cases are referred to above (at [33]–[34]). In Baxter Healthcare Corp, the issue was whether laboratory notebooks which recorded tests should be disclosed. The application for disclosure was refused for two reasons, being a lack of relevance and inconvenience and disproportionality. In the course of his reasons, Pumfrey J said (at [12]–[14]):
12. I do not at present, however, accept the argument that these documents are relevant to any identified issue in these proceedings. Now, of course I use “relevance” as shorthand for the criteria for disclosure in the Civil Procedure Rules but it has to be remembered that this is an action for a declaration of non-infringement. A declaration of non-infringement is sought in relation to a formal description of a product or process which the applicant contends does not infringe a relevant claim of the patent.
13. At first sight, therefore, the issues are circumscribed by the written description of the product and process. The evidence will therefore consist of an expert’s analysis of what the product and process description discloses, together with the expert’s reasons for saying there are or are not sufficient Lewis acid inhibitors present to satisfy the claim. Either side may, working off the written product and process description, wish to perform experiments, particularly so far as the defendants are concerned, with a view to showing that a product or process encompassed within the scope of the written product and process description does in fact satisfy the requirements of the claim.
14. What I am extremely uneasy about is the suggestion that the real world can be used to supplement either inadequacies in the product and process description on the one hand, or to supplement a proof of infringement, or a proof of non-infringement, by materials otherwise falling within the claim. I accept, of course, entirely that the experiments performed upon the withdrawn sevoflurane would not be experiments done for the purpose of litigation and would therefore in principle be disclosable if they were relevant. But I cannot see as at present advised why this material is relevant to any issue in the action. No assertion of infringement of any material falling within the product description has been made otherwise than by way of expert evidence. There is no counterclaim for infringement in relation to the real materials and I understand that the one opportunity that the defendants have had to consider the product of the claimants has been disregarded.
45 CME made the point that the reason for RTRS’s application is that it wants to offer for sale and sell a grinding machine of which it has an example. It points to statements in Mr Della Franca’s affidavit. For example, Mr Della Franca gives evidence that RTRS has sought the non-infringement declaration because of the significant investment it has made in developing the RTRS Grinding Machine. CME also pointed to the terms of the declaration sought by RTRS, namely, that the exploitation of the RTRS Grinding Machine as defined in the Further Amended Statement of cross-claim does not, and would not, infringe any claims of the relevant patents. I do not consider that reference to these matters takes the argument very far. Often the applicant for a non-infringement declaration will have a particular product, in effect, “ready to go”, but that does not alter the significance of the full written particulars. Further, the declaration sought by RTRS relates to a grinding machine with the features identified in the Full Written Particulars.
46 CME also made the point that it is entitled to enforce the rights it has under the various patents and if the grinding machine actually offered for sale or sold by RTRS infringes its patents, then a non-infringement declaration will not protect RTRS. That submission is correct and it may be that CME has, or soon will have, a right to seek preliminary discovery under r 7.23 of the Rules. I am not expressing any view about that other than to note the difference between such an application and RTRS’s application for a non-infringement declaration.
47 On the face of it, CME’s submission that the terms of the Full Written Particulars are such that there is a basis for the order CME seeks has considerable force. The Full Written Particulars contain a number of negative statements in the sense of a statement identifying a feature which is a feature in one of the claims in the relevant patent as not being present in the RTRS Grinding Machine. In practical terms (and depending on the extent of this approach), this approach may result in the patentee being provided with little information about how a proposed product will work. This approach may or may not create difficulties at the stage when the application for a non-infringement declaration is heard, but I cannot see how at this stage and, I might add, without the benefit of full argument, it provides a basis for the orders sought by CME. Whether the approach adopted by RTRS could form the basis of an argument by CME that a non-infringement declaration is hypothetical or futile is a matter for the hearing of the application.
48 It is not suggested that the orders sought by CME are relevant to any issues raised outside RTRS’s application for a non-infringement declaration. The orders are not relevant to the issues raised on the application for a non-infringement declaration and should be refused.
49 In the circumstances, it is not necessary to consider the second and third reasons advanced by RTRS.
The Application of RTRS and Mr Beurs
50 RTRS and Mr Beurs seek an order for judgment against CME under s 31A of the Federal Court of Australia Act with respect to four parts of the proceeding. First, they seek judgment against CME on CME’s claim for relief in relation to an alleged infringement of claims in a patent described as Patent 1. Secondly, they seek judgment against CME with respect to the allegations made against a company called Ausharp Pty Ltd (Ausharp) which is not a party to the proceeding. Thirdly, they seek judgment against CME on CME’s claims for conversion and detinue in relation to microprocessors containing “CME Software”. Finally, they seek judgment against CME in respect of CME’s claim against them for inducing other parties to breach their contracts with CME. In each case, RTRS and Mr Beurs allege that CME has no reasonable prospect of successfully prosecuting the relevant part of the proceeding.
51 There are a number of claims by CME which are not the subject of the summary judgment application. They are claims which relate to the infringement of patents described as Patents 2 and 3 and claims for contraventions of ss 18, 29(1)(a) and (g) and 33 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth).
52 The relevant principles concerning the application of s 31A of the Federal Court of Australia Act are clear. In general terms, it may be said that it is not necessary for a defendant to show that the plaintiff’s case is “hopeless” or “bound to fail” in order for the defendant to be entitled to summary judgment. It is sufficient that the case does not have a real prospect of succeeding. The power to dismiss an action summarily is not lightly to be exercised (Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [60]; Trkulja v Google LLC [2018] HCA 25; (2018) 263 CLR 149 at [22]–[23]). In Upaid Systems Ltd v Telstra Corporation Limited [2016] FCAFC 158; (2016) 112 IPR 190 (Upaid Systems) (at [50]), the Full Court made it clear that the fact that one is dealing with a patent infringement claim does not make it immune from a summary dismissal order. However, where the technology is complex or the Court is not able to construe confidently the relevant claim, then summary determination may not be appropriate (see Virgin Atlantic Airways Ltd v Delta Airways Inc [2011] EWCA Civ 162; [2011] RPC 18 at [13]–[14] per Jacob LJ; Nampak Plastics Europe at [10]–[12] per Birss J).
The Alleged Infringement of Patent 1
53 Patent 1 is Australian Patent No 2004213070 entitled “Grinding apparatus for buttons on rock drill bit”. It was filed on 19 February 2004 and claims priority from Canadian Patent No CA2,419,214, filed on 19 February 2003. It became open for public inspection in Australia on 2 September 2004 and was accepted by the Commissioner of Patents on 23 March 2009 and has an effective term of monopoly from 19 February 2004 to 19 February 2024 (subject to payment of renewal fees).
54 CME alleges that the respondents have infringed the Patents, including Patent 1, by offering for sale, selling or keeping for the purpose of selling, grinding apparatus and/or grinding cups within Australia which embody the claims in the Patents. The “RTRS Infringing Conduct” is defined in para 6.6 of the FASOC as equivalent to the “Ausharp Infringing Conduct”. The Ausharp Infringing Conduct is particularised in paras 6.1, 6.3 and 6.4 of the FASOC as follows:
6.1 At all material times the Applicant supplied, within Australia, grinding apparatus (Applicant’s Grinding Apparatus) and grinding cups (Applicant’s Grinding Cups) which embody the claims of the Patents.
6.2 In September 2019, the First Respondent and/or Mr Beurs, acquired the assets, stock and employees, and continued the business of, Ausharp Pty Ltd (Ausharp).
6.3 From at least 2012 until September 2019, Ausharp engaged in conduct which infringed the Patents as follows (collectively referred to as Ausharp Infringing Conduct):
(a) from dates presently unknown but as early as June 2012, until on or about 6 September 2019, Ausharp operated a website at: www.ausharp.com.au, which inter alia:
(1) offered for sale grinding cups and parts for the Applicant’s Grinding Apparatus which had not been sourced from the Applicant, being:
(A) the shoulder drive parts set out in Schedule A;
(B) the shoulder drive grinding cups set out in Schedule B;
(collectively, Ausharp Infringing Items);
(b) sold, and/or kept for the purpose of selling, the Ausharp Infringing Items;
(c) offered services:
(1) to modify the Applicant’s Grinding Apparatus owned by customers by inter alia installing the Ausharp Infringing Items;
(2) to sharpen drill bits for customers, which services used the Ausharp Infringing Items, being the services set out in Schedule C
(collectively, Ausharp Infringing Services).
55 Further particulars are provided in paras 6.6(a), (b) (RTRS Infringing Items and RTRS Infringing Services), (e), (f) and (ga) and Mr Beurs’ involvement is identified in para 6.6(g) and includes his position as a shareholder of RTRS and a person held out by RTRS as its “Managing Partner”.
56 Further particulars of the respondents’ infringing conduct within s 13 of the Act are set out in paras 7.1, 7.2, 7.3 and 7.4 and the allegation is that the installation of certain parts results in the applicant’s Grinding Apparatus, that is, the CME Grinding Machine, ceasing to exist and a new grinding apparatus which embodies each essential integer of Claims 1–18 and 21–44 of Patent 1 being made. These are the claims in Patent 1 said to be infringed.
57 A further allegation of infringement, being indirect infringement within s 117 of the Act, is contained in para 8 of the FASOC. That paragraph is in the following terms:
8. Further or alternatively, the Respondents’ conduct of supplying to customers the
(a) shoulder drive parts set out in Schedule A referred to in 6.3(a)(1)(A);
(b) shoulder drive grinding cups set out in Schedule B referred to in 6.3(a)(1)(B);
(c) shoulder drive spindle, shoulder drive adaptors, spindle rebuild kit and shoulder drive grinding cups referred to in 6.6(f);
(d) New RTRS Grinding Cups set out in Schedule D1 referred to in paragraph 6.6(ga)(1);
(e) New RTRS Spindle Housing Units and the New RTRS Grinding Cups set out in Schedule D2 referred to in paragraph 6.6(ga)(2),
for use in a grinding apparatus, without the licence of the Applicant, amounts to infringement under section 117 of the PA in that those parts when installed in the Applicant’s Grinding Apparatus result in the Applicant’s Grinding Apparatus ceasing to exist and makes a grinding apparatus which:
8.1 embodies each essential integer of claims 1 – 18 and 21 – 44 of Patent 1; and
8.2 is not licensed by the Applicant;
in circumstances where:
8.3 those parts are not capable of any other reasonable use;
8.4 those parts are not staple products and the Respondents had reason to believe that customers would put it to that use; or
8.5 the Respondents instructed or induced customers to make such use of those parts.
(Emphasis added.)
58 CME has filed its evidence-in-chief and the evidence includes an affidavit of Mr Van de Loo affirmed on 27 May 2021. Mr Van de Loo addresses each of the Patents. He identifies the grinding cups provided to him by CME’s solicitors. He also refers to a CME ESD3 Series Robotic Arm drill bit grinding machine (CME Grinding Machine) provided to him. This was delivered to him in packaging and he assembled it. He refers to other items of equipment which were provided to him.
59 Mr Van de Loo expresses the following opinions:
17. In my opinion, the CME Grinding Machine has each of the integers set out in each of Claims 1 to 7, 9 to 18, 21 to 28 and 22, 27, 30, 32, 35, 37 to 40 and 42 of Patent 1.
18. It may also have each of the integers set out in each of Claims 23 to 26, 28, 31, 34, 36, 41 and 43 but I have not been able to make the necessary measurements or inspections to confirm this.
Now annexed hereto and marked “PVL-19” is a copy of a table for Patent 1 in which I elaborate my opinion as to the presence of each of the integers of the claims of Patent 1 which I found in the CME Grinding Machine.
60 For the purposes of the application for summary judgment, the critical integer in Claim 1 is integer 1.8 which is as follows:
means for varying and controlling feed pressure and a speed of rotation of the output drive shaft during grinding based on a size of a connected grinding tool.
With respect to this integer, Mr Van de Loo comments as follows:
Yes the operator inputs the size of the grinding cup fitted using the control panel shown in the photograph below. Size is selected using the arrows, the size is then changed by rotating the knob on the right side of the user interface panel enclosure. The machine then selects the appropriate speed and feed pressure. I have not been able to measure or otherwise gauge the feed pressure however the difference in speed for different sizes is evident audibly from the sound the electric motor and spindle makes.
61 With respect to 18 integers identified by Mr Van de Loo in Claim 21, he makes the following comments:
Yes.
All of the integers of Claim 21 are present because the CME Grinding Machines [sic] implements a method of grinding working tips of hard metal inserts of rock drill bits, comprising each of these integers:
62 One of the integers, integer 21.8, is as follows:
a support system, pressure control means on the support system for controlling and varying feed pressure during grinding …
63 Claim 26 is as follows:
The method according to claim 21 wherein the method further comprises varying the rotational speed and the feed pressure during a grinding cycle of a working tip on a rock drill bit
Mr Van de Loo comments as follows:
Unsure.
The change in speed was confirmed audibly. I can hear the pressure regulator adjusting pressure but I have not been able to verify variation in pressure.
64 RTRS and Mr Beurs point to Mr Van de Loo’s statement that he has “not been able to measure or otherwise gauge the feed pressure” in connection with integer 1.8 in Claim 1 and submits that this does not stand with his conclusion that the integer is present. His reasoning does not disclose that integer 1.8 is present. Furthermore, his conclusion concerning the presence of integer 1.8 is inconsistent with his evidence concerning integer 26.1 in Claim 26 in relation to which he says that he has not been able to verify variation in pressure and is unsure whether the relevant integer is present. RTRS and Mr Beurs also point to Mr Van de Loo’s “single blanket statement” that all integers of Claim 21 are embodied in the CME Grinding Machine and submit that that evidence is wholly insufficient to establish infringement of Claim 21 as it does not establish whether (or how) each integer of the claim is said to be taken. Furthermore, RTRS and Mr Beurs submit that Claim 21 includes integer 21.8 and, with respect to that integer, the same problem arises as arises in relation to integer 1.8 of Claim 1.
65 Although Mr Van de Loo expresses the opinion that the CME Grinding Machine may also have each of the integers set out in Claims 23 to 26, 28, 31, 34, 36, 41 and 43, he has not been able “to make the necessary measurements or inspections to confirm this” and RTRS and Mr Beurs submit that, in those circumstances, CME’s case must fail with respect to these dependent claims.
66 RTRS and Mr Beurs point to the fact that integer 1.8 in Claim 1 involves not only a means for varying and controlling feed pressure, but also a speed of rotation of the outward drive shaft during grinding based on a size of a connected grinding tool. They submit that it is clear from Mr Van de Loo’s explanation that he has not been able to discern a means for varying and controlling feed pressure. They invite the Court to construe his evidence as evidence to the effect that the difference in speed for different sizes is evident audibly from the sound the electric motor and spindle makes, but that this says nothing as to whether there is a means for varying and controlling feed pressure. RTRS and Mr Beurs submit that Mr Van de Loo’s conclusion involves speculation on his part “which does not involve the application of proper analysis and reasoning that is required to establish patent infringement by the expression of expert opinion”. The same conclusion applies with respect to Claim 21. Again, they point out that Mr Van de Loo’s conclusion in relation to integer 1.8 in Claim 1 is inconsistent with his conclusion in respect of a very similar integer, namely, integer 26.1 in Claim 26.
67 RTRS and Mr Beurs submit that deficiencies in the expert evidence cannot be cured by lay evidence because CME’s infringement case has, at all times, been advanced through the vehicle of expert testimony. In any event, in expressing his expert opinion, Mr Van de Loo has given no consideration to such lay evidence.
68 RTRS and Mr Beurs seek to raise a new point in para 10 of their submissions in reply. They submit that CME’s pleaded case is that the use of the RTRS Grinding Cups and Spare Parts on the CME Grinding Machine creates a new machine which, therefore, infringes Patent 1. They submit that the totality of Mr Van de Loo’s evidence in respect of the actual allegation of infringement is contained in paras 24 and 25 of his affidavit affirmed on 27 May 2021. Those paragraphs are as follows:
24. In my opinion, if a CME Grinding Machine is modified by the removal of original parts and the installation of any one or more of the Grinding Cups, Spindle, Spindle Housings and Adaptors, the modified machine will have each of the integers set out in each of Claims 1 to 7, 9 to 18, 21, 22, 27, 30, 33, 35, 37 to 40, 42 and 44 of Patent 1. It may also have each of the integers set out in each of Claims 23 to 26, 28, 31, 32, 34, 36, 41 and 43 but I have not been able to make the necessary measurements or inspections to confirm this.
25. I have determined that the modified machine will have each of these integers as none of the differences incorporated in these replacement parts have any bearing on any of the integers in these Claims.
69 RTRS and Mr Beurs submit that this evidence is supported only by a claims chart that analyses CME’s ESD3 Grinding Machine without any of RTRS’s parts installed. In other words, Mr Van de Loo’s infringement analysis in respect of Patent 1 is focused on determining whether the use of CME’s own ESD3 Grinding Machine infringes Patent 1. The analysis contained in Mr Van de Loo’s evidence does not involve considering the installation of RTRS Grinding Cups and Spare Parts on the CME Grinding Machine. They submit that, in those circumstances, Mr Van de Loo’s approach does not establish CME’s infringement case in the manner in which that case is pleaded.
70 RTRS and Mr Beurs should not be permitted to raise this point. It is raised late and it is a point which involves construction of the evidence. Furthermore, the context of this application is important. CME has filed its evidence-in-chief so that the proceeding is not far from trial and the matter will proceed to trial irrespective of the outcome of this application.
71 In answer, CME submits that the fact that Mr Van de Loo was unable to measure the feed pressure does not of itself negate his conclusion that the machine has a means for varying and controlling feed pressure. His expert opinion evidence is that he was able to discern the presence of that feature audibly. CME points to the opinion, clearly expressed by Mr Van de Loo in para 17 of his affidavit, that the CME Grinding Machine has each of the integers set out in the claims he specifies in that paragraph.
72 CME submits that the submissions of RTRS and Mr Beurs ignore the other evidence in the case to the effect that the CME Grinding Machine includes a means for varying and controlling feed pressure and a speed of rotation of the output drive shaft during grinding. In that respect, it refers to evidence from Mr Bjorn Per Sjolander in his affidavit affirmed on 26 May 2021. Mr Bjorn Sjolander is a Vice President of CME. In his affidavit, Mr Bjorn Sjolander states, among other things, the following:
19.12 It is very important to ensure that the correct parameters of speed, pressure and the amount of water flow are applied by the apparatus given a particular size of cup. Balancing the relationship between these parameters has become increasingly important in the design and operation of CME’s ESD grinding system given that there is now a greater difference between the size of grinding cups in the series, ranging from 6mm to 26 mm. The CME ESD grinding system utilizes a different set of these parameters for each grinding cup size.
…
20. CME designed the software and its ESD grinding system to optimise all parameters based on the different sizes of grinding cups and buttons being ground. The software predetermines the optimal amount of speed, pressure and the amount of water flow having regard to the design of the grinding cup and the size of the grinding cup being used in the series.
…
22. The two-point connection on the shoulder drive is inherently less stable. The CME Software determines the pressure and speed based on cup size and an assumed hex drive connection. Users cannot change the CME Software to accommodate changes to a spindle of a different length or a shoulder drive connection.
73 There is similar evidence from Mr Bo Thomas Sjolander in his affidavit affirmed on 26 May 2021 at paras 28 to 33. Mr Bo Sjolander is also a Vice President of CME.
74 CME submits that, to the extent the respondents wish to contend that Mr Van de Loo’s conclusion as to the presence of method Claim 26 is inconsistent with his conclusion on product Claim 1, this is a matter they may address in contradicting evidence and/or cross-examination.
75 I am not satisfied that CME’s claim of infringement of Patent 1 has no reasonable prospect of succeeding. I see no reason why CME cannot rely on its lay evidence in combination with its expert evidence and the lay evidence appears quite clear as to the presence of integer 1.8 in Claim 1. Even in the absence of the lay evidence, Mr Van de Loo’s evidence gives rise to an arguable case for the presence of the integer. The same may be said of Claim 21. As to Claim 26, Mr Van de Loo’s comment of “unsure” does raise some uncertainty about that claim from the point of view of his evidence, but I agree with CME that that is a matter for responding evidence or cross-examination.
76 As to the dependent claims, I will not enter judgment on these claims in light of the lay evidence. In addition or in the alternative, the utility of entering judgment on a handful of relatively minor allegations in circumstances where the case of infringement with respect to the independent claims is proceeding is very doubtful where (as here) there is no obvious saving in terms of time and cost (Upaid Systems at [56]).
The Allegations Relating to Ausharp
77 RTRS and Mr Beurs submit that paras 6.3 to 6.5, 10.1 and 12.1 of the FASOC contain allegations about Ausharp and yet Ausharp is not a party to the proceedings. Those paragraphs should be the subject of summary judgment or at least struck out as irrelevant. The allegations do not assist in making out any defined cause of action against RTRS, but rather obscure the actual allegations which CME seems to be making against Mr Beurs as a result of his previous employment at Ausharp. They submit that CME ignores the circumstance that Ausharp and RTRS are distinct entities and that the acquisition of Ausharp’s assets by RTRS does not make it (or Mr Beurs, who was merely an employee of Ausharp) liable for Ausharp’s conduct (prior to RTRS’s acquisition of Ausharp’s assets).
78 CME submits that the allegations against Ausharp are relevant in this proceeding because they establish facts which are relevant to the knowledge of Mr Beurs arising from his employment at Ausharp. That knowledge is relevant to, at least, CME’s claim for additional damages against Mr Beurs and it is also relevant to the liability of RTRS and Mr Beurs for inducing customers of CME to breach their contracts with CME. Whether Mr Beurs was “the controlling mind of Ausharp prior to the acquisition of its assets and business by the first respondent” is a factual issue in dispute.
79 I accept CME’s submissions. With respect to the allegations in para 6.3 to 6.5, they perform at least two functions. First, they are definitional in terms of the RTRS Infringing Conduct (see above at [54]). Secondly, and more importantly, they are relevant to knowledge which is, in turn, relevant in the context of the inducement and additional damages claims.
80 Paragraphs 10.1 and 12.1 contain allegations against Mr Beurs who is the second respondent. He is said to be liable as a joint tortfeasor with Ausharp and/or RTRS and his liability stretches back to 2012. The allegations are allegations against Mr Beurs and there is no reason to enter summary judgment with respect to them. The fact that they also involve reference to the other joint tortfeasor is not a reason to enter judgment with respect to them.
The Conversion and Detinue Claims
81 The allegations made by CME may be summarised as follows. CME Grinding Machines are supplied with software which is necessary for their proper function (the CME Software). The CME Software is incorporated on media in the form of a removable microprocessor which is located within the control module of each grinding apparatus manufactured and supplied by CME, and which may be removed and replaced from time to time with a new microprocessor containing updated software. Before September 2019, Ausharp purchased one or more grinding apparatus machines manufactured by CME and with each such purchase, Ausharp acquired a non-transferrable licence to use the CME Software for the operation of that machine on the terms set out in clause 8 of the Terms and Conditions annexed to the FASOC (the Terms).
82 Clause 8 of the Terms is in the following terms:
8. SOFTWARE: For the purposes of this section 8, “use” means to use the Software, Documentation or Upgrades to process data relating to the use of the CME Products by the Customer and not for any other purpose. CME hereby grants to the Customer a non-exclusive, non-transferable license to use the Software and Documentation subject to the following terms. The Software is copyrighted and CME claims all exclusive rights to such Software except as licensed to the Customer hereunder and subject to strict compliance with these Terms and Conditions. The Customer does not acquire any ownership right or proprietary right, title or interest in or to the Software or the copyright, trademarks, or other rights related thereto as the Software is licensed not sold under these Terms and Conditions.
CME shall, from time to time, inform the Customer that an Upgrade which incorporates correction of known errors or improvements is available and any such Upgrades shall be installed by an authorized representative of CME unless agreed to otherwise in writing. The Customer does not acquire any ownership right or proprietary right, title or interest in or to any Upgrades.
The Customer may not: (a) permit other individuals to use the Software; (b) modify, translate, reverse engineer, decompile, disassemble (except to the extent that this restriction is expressly prohibited by law) or create derivative works based upon the Software or Documentation; (c) copy the Software or Documentation; (d) sell, rent, lease, bargain, convey, pledge, transfer, or otherwise transfer rights to the Software or Documentation to a third party; (e) remove any proprietary notices or labels on the Software or Documentation; or (f) distribute the Software by any means, including, but not limited to, Internet or other electronic distribution, direct mail, retail mail or other means to a third party.
The Customer shall only use the Software and Documentation in a manner that complies with all applicable laws in the jurisdictions in which the Customer uses the Software and Documentation, including, but not limited to, applicable restrictions concerning copyright and other intellectual property rights.
Any such forbidden use shall immediately terminate the Customer’s license to the Software and the Customer shall immediately return any disc or other media the Software may be incorporated on and all Documentation, the Customer shall also let CME remove the Software from any media not possible to deliver to CME. The Customer acknowledges that this license is assignable by CME.
83 CME alleges that pursuant to clause 8 of the Terms: (1) Ausharp did not acquire any ownership right or property right, title or interest in the CME Software; (2) Ausharp could not permit any third party, including RTRS and/or Mr Beurs, to use the CME Software; (3) Ausharp could not sell, rent, lease, bargain, convey, pledge, transfer or otherwise transfer rights to the CME Software to any third party, including RTRS and/or Mr Beurs; and (4) should Ausharp do or purport to do the prohibited acts described in (2) and (3) above, CME would be entitled to the immediate return of any disc or other media on which the CME Software is incorporated, namely, the microprocessor.
84 CME alleges that by reason of clause 8 of the Terms, when RTRS and/or Mr Beurs acquired the assets and business of Ausharp in September 2019: they could not and did not acquire any licence to use the CME Software; CME became entitled to the immediate return of the microprocessor on which the CME Software is incorporated; and RTRS and Mr Beurs did not acquire legal title to the microprocessor on which the CME Software is incorporated.
85 CME alleges that since September 2019, without the licence of CME, RTRS and/or Mr Beurs have maintained possession and control of the microprocessor on which the CME Software is incorporated and used the microprocessor on which the CME Software is incorporated in the operation of grinding machines. The respondents’ conduct amounts to the tort of conversion in that they have dealt with the microprocessor on which the CME Software is incorporated in a manner inconsistent with CME’s right to immediate possession of it.
86 CME alleges that by letter dated 11 October 2020, it wrote to RTRS and Mr Beurs demanding that RTRS undertake to immediately cease use of the CME Software and within seven days, return to CME the microprocessor on which the CME Software is incorporated in respect of each grinding machine in RTRS’s possession. CME alleges that as at the date of the FASOC, RTRS has not given the undertakings sought by the letter dated 11 October 2020 and the continued possession, control and use by RTRS and/or Mr Beurs of the microprocessor on which the CME Software is incorporated amounts to the tort of detinue.
87 RTRS and Mr Beurs submit that neither the claim for conversation nor the claim for detinue has a reasonable prospect of success.
88 With respect to the claim for conversion, RTRS and Mr Beurs submit that the essence of such a claim is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel. RTRS and Mr Beurs submit that the right of possession must derive from a proprietary or possessory interest in the goods and, therefore, it is necessary to establish a proprietary or possessory interest in the goods in order to maintain a claim for conversion.
89 RTRS and Mr Beurs submit that with respect to the CME Software, CME must establish that it is the owner of copyright in the CME Software since computer programs are literary works under the Copyright Act 1968 (Cth) and that with respect to the microprocessor, CME must establish a proprietary right in those goods. CME’s evidence-in-chief does not establish CME’s right of possession of the CME Software or, to the extent that it is CME’s case, in any microprocessor.
90 With respect to the CME Software, RTRS and Mr Beurs submit that CME has not established the authorship or subsistence of copyright in the various versions of the CME Software or that it is the owner of any such copyright work which might exist in the CME Software. It has led no evidence to address these matters and the conversion claim is liable to be dismissed summarily on this basis alone. There is no basis in contract for the claim for conversion because no contract was ever entered into as between CME and RTRS with respect to any CME Grinding Machine in RTRS’s possession.
91 With respect to the microprocessor, RTRS and Mr Beurs submit that it is not itself “software” and, as a result, title in the microprocessor clearly passed along with the rest of the physical machine upon sale of each CME Grinding Machine.
92 With respect to the claim in detinue, RTRS and Mr Beurs submit that detinue is established when the plaintiff lawfully demands the return of goods or chattels and the defendant wrongfully refuses to comply with that demand. They submit that in Penfold Wines Pty Ltd v Elliott [1946] HCA 46; (1946) 74 CLR 204 (at 241 per Williams J), the High Court confirmed that the action of detinue is essentially a proprietary action implying property in the goods claimed. It is of the essence of an action of detinue that the plaintiff maintains and asserts his or her property in the goods claimed up to the date of the verdict. RTRS and Mr Beurs submit that CME’s evidence does not establish that it has an immediate right to possession of either the CME Software, which has not even been proven to be property, or in respect of any microprocessor for the same reasons they advance in the case of the claim for conversion.
93 The essence of the submission is that to establish a right of possession of the CME Software, CME must establish that it has a proprietary interest in the Software which is separate from its contractual rights. In the case of software, which is an intangible property, this must be established by the existence of copyright in that software which is owned by CME. CME has filed no evidence that it owns copyright in the CME Software and it advances its claims absent any proof of the existence of and ownership in any actual property. This ignores a fundamental requirement of both conversion and detinue. With respect to the microprocessor, absent the CME Software, the microprocessor is simply part of the CME Grinding Machines which RTRS purchased from Ausharp. The purchase involved the transfer of property from Ausharp to RTRS.
94 In answer, CME submits that whether it had an immediate right to possession of a microprocessor in a CME Grinding Machine from the time of its purported transfer to RTRS in September 2019 and/or from the time of CME’s demand dated 11 October 2020, is a mixed question of fact and law which is appropriate for determination at trial, not summarily. CME submits that since at least 2009, all CME Grinding Machines have been sold pursuant to the Terms and that the Terms have been included, at least since 2006, in the product operator manuals which are provided with each CME Grinding Machine, and attached to all quotes and confirmations of acceptance of purchase orders. Between 2008 and 2012, Ausharp purchased 11 CME Grinding Machines from P & N Quiggin Pty Ltd trading as Mining & Construction Supplies (MCS) (CME’s authorised Australian distributor since 2003) of which seven were purchased after 2009. Three of these machines were sold to Ausharp pursuant to the Terms in October 2012. Mr Beurs had direct personal knowledge of those Terms because he emailed the signed Terms to MCS on 2 November 2012.
95 CME points to the fact that RTRS admits that “it acquired the assets of Ausharp in September 2019” but says that “it acquired the right to use the CME software provided with each of the CME Grinding Apparatus upon their acquisition from Ausharp” and submits that that contention is contrary to the express terms of clause 8 of the Terms.
96 CME submits that the evidence establishes a prima facie case that Ausharp acquired the CME Grinding Machines pursuant to the Terms and that it was not permitted to sell or transfer the CME Software and that, upon Ausharp’s transfer of the CME Grinding Machine to RTRS, CME was entitled to the immediate return of the media on which the Software was incorporated.
97 CME submits that the contentions of RTRS and Mr Beurs in relation to copyright ownership are beside the point. The relevant proprietary right arises from the operation of the Terms and is not dependent on CME proving its ownership of copyright in the CME Software.
98 I am not satisfied that the claims in conversion and detinue have no reasonable prospect of success. It may be that an action in conversion or detinue in respect of the CME Software, being intangible property, does not lie (see the discussion in Sappideen C and Vines P (eds), Fleming’s The Law of Torts (10th ed, Lawbook Co, 2011) at [4.70] and Balkin RP and Davis JLR, Law of Torts (5th ed, LexisNexis Butterworths, 2013) at [4.16]). CME puts its argument on the basis of a right to the microprocessor upon which the CME Software was incorporated. It asserts a right to immediate possession of the microprocessor. There are some difficulties with that argument — one being that property has previously passed to the original purchaser of the machine — but these difficulties are not so compelling as to warrant summary judgment.
The Claim for Inducement to Breach a Contract
99 CME alleges that each customer to whom RTRS and/or Mr Beurs supplied the “RTRS Infringing Items” or the “New RTRS Grinding Cups” or the “New RTRS Spindle Housing Units” had previously acquired one or more of CME’s Grinding Machines on terms which were substantially the same as the Terms. It alleges that clause 7 of the Terms provides that a purchaser of a CME Grinding Machine will not use grinding cups and/or associated spare parts not sourced from CME.
100 CME alleges that at the time RTRS and/or Mr Beurs supplied the RTRS Infringing Items and/or the New RTRS Grinding Cups and/or the New RTRS Spindle Housing Units, RTRS and Mr Beurs knew that the customers to whom they made those supplies were parties to contracts in substantially the same form as the Terms and the customers’ use of the RTRS Infringing Items and/or the New RTRS Grinding Cups and/or the New RTRS Spindle Housing Units would amount to a breach of those contracts. CME alleges that by offering to sell and selling to their customers the RTRS Infringing Items and/or the New RTRS Grinding Cups and/or the New RTRS Spindle Housing Units, RTRS and/or Mr Beurs intended to, and in fact did, induce each of their customers to breach the terms of the contract under which they purchased their CME Grinding Machine. CME alleges that the use of the RTRS Infringing Items and/or the New RTRS Grinding Cups and/or the New RTRS Spindle Housing Units has caused it loss and damage.
101 Clause 7 of the Terms is as follows:
7. PATENT RIGHTS: The Customer recognizes that the CME Products have been designed and built through expenditure of substantial time and money by CME and the Customer acknowledges and will respect CME’s right, title and interest in and to the proprietary rights associated with the CME Products including without limiting the generality thereof all patents, copyrights, designs or trademarks or other like rights. Further, to the maximum extent permitted by Applicable Law, the Customer will not itself directly or indirectly use grinding cups and/or associated spare parts on CME grinding equipment from non-original CME sources and shall not reverse engineer, decompile or disassemble the CME Products or permit others to do so.
102 The elements of the tort of inducing a breach of contract were identified by the Full Court of this Court in Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156; (2012) 207 FCR 220. The Court said (at [88]):
The tort of inducing a breach of contract consists of the following elements:
(1) there must be a contract between the plaintiff (or applicant) and a third party;
(2) the defendant (or respondent) must know that such a contract exists;
(3) the defendant must know that if the third party does, or fails to do, a particular act, that conduct of the third party would be a breach of the contract;
(4) the defendant must intend to induce or procure the third party to breach the contract by doing or failing to do that particular act;
(5) the breach must cause loss or damage to the plaintiff.
(see also LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; (2012) 199 FCR 204 at [40]–[54].)
103 The evidence in support of this claim is as follows: (1) since at least 2009, CME has asked MCS to ensure that all customers of ESD CME Grinding Machines agree to standard terms and conditions of sale which include a clause in terms of clause 7 of the Terms; (2) in addition, the terms and conditions of sale have, since at least 2006, been reproduced in product operator manuals which are provided with each ESD CME Grinding Machine and are attached to Quotes and Confirmation of Acceptance of Purchase Orders and invoices; and (3) Mr Bo Sjolander’s affidavit annexes a number of customers’ agreement to the terms and conditions of sale. Further, Mr Robert Andrew Quiggin, director of MCS, deposes as follows: (1) each customer purchasing an ESD CME Grinding Machine is also supplied with an operator manual for the machine; and (2) since at least 2009, MCS has sold CME Grinding Machines pursuant to terms and conditions of sale which include clause 7 of the Terms. The terms and conditions of sale appear on the back of written quotes and invoices and since at least 2006, they have been reproduced in operator manuals.
104 The documents annexed to the affidavits of Mr Bo Sjolander and Mr Quiggin include: Quote (Invoice No. 00007966) issued by MCS to Sandvik Mining & Construction Australia Pty Ltd and dated 9 November 2012 for, among other things, Item No. CME 203-0007-00A – Robot Arm ESD II, which attaches a copy of the terms and conditions of sale; Tax Invoice (Invoice No. 00008171) issued by MCS to Sandvik Mining & Construction Australia Pty Ltd and dated 1 February 2013 for Item No. CME 203-0007-00A – Robot Arm ESD II, which attaches a copy of the terms and conditions of sale; and an email dated 16 June 2016 from Ms Jennifer Ruby of MCS to Mr Clayton Denny of Boart Longyear, attaching a copy of the terms and conditions of sale.
105 Mr Darren Scott Male is an APAC Business Line Manager — Rock Tools at Sandvik Mining & Rock Technology Ltd (Sandvik). Prior to September 2019, he was an Operations Manager for Sandvik with responsibility for the States of Western Australia and South Australia. Mr Male has dealt with products supplied by CME regularly during the course of his employment at Sandvik, as CME is one of Sandvik’s largest suppliers of drill bit sharpening machines. In his affidavit sworn on 28 May 2021, he deposes to the fact that Sandvik owns, in Australia, about 50 CME Grinding Machines of various models, including ESD1, ESD2 and ESD3 machines. These grinding machines are located at various Sandvik sites in Australia.
106 Mr Male deposes to the fact that at least from December 2018 to approximately mid-2019, Sandvik was using Ausharp-supplied grinding cups and spindles for its CME Grinding Machines, specifically those based in Kalgoorlie and the nearby Carosue Dam Gold Mine. The grinding cups supplied by Ausharp had a shoulder drive connection.
107 Mr Male deposes to the fact that on a date he cannot recall, he met Mr Rob Cooney, who he understood to be the director and owner of Ausharp until about mid-2019, and Mr Beurs, who he understood to be a manager at Ausharp. He spoke to Mr Beurs on an infrequent basis on the telephone when discussing general services that Ausharp was offering.
108 Mr Male deposes to the fact that the last purchase of shoulder drive grinding cups from Ausharp was on about 24 June 2019. Mr Male believes that this was the last invoice which Sandvik received from Ausharp in relation to shoulder drive grinding cups.
109 In or about September 2019, Mr Beurs contacted Mr Male by telephone and asked Mr Male if he was happy for a new business called RTRS to continue servicing Sandvik’s parts and grinding arms. Mr Male indicated that he was happy with such an arrangement.
110 Mr Male deposes to the fact that between September 2019 and January 2020, he understood that Mr Brendan Anderson of Sandvik purchased shoulder drive grinding cups for CME Grinding Machines in Kalgoorlie which were supplied by RTRS.
111 In or about January 2020, MCS raised some concerns with Mr Male in relation to the parts used in CME grinding arms. As a result of that, Mr Male gave a direction to the relevant Sandvik employees that only CME grinding cups were to be used with CME Grinding Machines until further notice.
112 Mr Kurt Justin Stanley is a service technician employed by MCS. He swore an affidavit on 27 May 2021. He deposes to the fact that on about 5 September 2016, he received a telephone call from a representative of Boart Longyear who said that they were having a persistent problem with their ESD3 CME Grinding Machines. Mr Stanley was aware that Boart Longyear had three ESD3 CME Grinding Machines, being one machine which was purchased in September 2015 and two machines which were purchased earlier in 2016. The documents annexed to Mr Stanley’s affidavit show that at least in some cases, the invoices included the terms and conditions of sale.
113 It seems to me that the key proposition advanced by RTRS and Mr Beurs in their submissions is that CME must establish ⸺ and, on the face of its evidence-in-chief, has not established ⸺ that in relation to a particular contract between CME and a customer of CME, RTRS and Mr Beurs induced the customer to breach the contract. To the extent CME seeks to advance its case with respect to various different customers, the elements of the cause of action must each be established with respect to each contract. RTRS and Mr Beurs draw attention to the fact that the only customer which has given evidence on behalf of CME is Sandvik and there is no evidence from Mr Male regarding whether Sandvik has signed the terms and conditions of sale. To the extent Mr Stanley gives evidence about three CME Grinding Machines owned by Boart Longyear, CME has not provided any evidence that Boart Longyear signed the terms and conditions of sale.
114 In my opinion, there is, at least prima facie, evidence that in the case of Sandvik, it was provided with a copy of the terms and conditions of sale prior to purchasing a CME Grinding Machine and, in the case of Boart Longyear, it was provided with a copy of the terms and conditions around the time at which it purchased a CME Grinding Machine. Questions such as whether the terms and conditions of sale were incorporated into any contract(s) between CME and Sandvik and/or between CME and Boart Longyear are more appropriately dealt with at trial (see the discussion in Seddon NC and Bigwood RA, Cheshire & Fifoot Law of Contract (11th Aust ed, LexisNexis Butterworths, 2017) at [10.28]).
115 Ausharp signed the terms and conditions of sale on 29 October 2012. The evidence establishes, at least on a prima facie basis, that Mr Beurs has been a key figure in the business of Ausharp and RTRS and, in the case of the former, since at least 2011. I agree with the submission made by CME that, in those circumstances, it is very likely that Mr Beurs was familiar with the terms on which his customers had purchased their CME Grinding Machines and, in particular, that they were contractually precluded from purchasing non-genuine parts. I agree with CME’s submission that this is a disputed matter of fact which is not amenable to summary determination, but may be appropriately tested at trial.
116 I am not satisfied that CME has no reasonable prospect of success with respect to its claim for inducement to breach a contract.
Conclusions
117 The applicant’s Interlocutory application dated 3 June 2021 is dismissed. The first and second respondents’ Interlocutory application filed on 15 June 2021 is dismissed.
I certify that the preceding one hundred and seventeen (117) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Besanko. |
Associate:
