FEDERAL COURT OF AUSTRALIA

Aristocrat Technologies Australia Pty Limited v Konami Australia Pty Limited (No 3) [2022] FCA 1373

ORDERS

THE COURT ORDERS THAT:

1.    The parties’ external legal representatives and accounting experts confer for the purpose of calculating:

(a)    the amounts (exclusive of interest) that the respondent is required to pay in profits and damages in accordance with the reasons for judgment published today (Reasons); and

(b)    interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) that takes into account, in the case of profits, the financial year in which they were made and, in the case of damages, the financial year in which the NCCs were supplied.

2.    The parties are to notify the Associate to Nicholas J as soon as practicable if:

(a)    there is any disagreement in relation to the calculations referred to in order 1;

(b)    there is any disagreement in relation to the appropriate form of costs order; or

(c)    the parties or the accounting experts seek clarification of any ruling in the Reasons.

3.    Up to and including 12 December 2022 or until further order, and subject to order 4, the disclosure (by publication or otherwise) of the text of the Reasons be prohibited, other than to and as between:

(a)    the external legal representatives of the parties;

(b)    any independent expert retained by the parties; and

(c)    Court staff.

4.    Notwithstanding order 3, the external legal representatives of the parties may disclose to their respective clients (the parties):

(a)    the substance of the Reasons; and

(b)    so much of the text of the Reasons;

that does not disclose any facts or information in the Reasons which are the subject of orders 2, 3 and 4 of the Orders made on 13 March 2020 (Suppression Orders).

5.    On or before 2 December 2022, so as to permit publication of the Reasons, the parties are to confer regarding the following:

(a)    what, if any, redactions ought be made in respect of any confidential information in the Reasons having regard to the Suppression Orders; and

(b)    whether the Suppression Orders ought be varied and, if so, what variations should be made.

6.    On or before 7 December 2022, the parties are to file and serve:

(a)    a joint statement setting out the matters in order 5 above which are agreed between them;

(b)    failing agreement on any matters in order 5 above, competing orders, redactions (if necessary) and short submissions (limited to 2 pages) in support of their respective positions;

(c)    any affidavit evidence to be relied on in support of any application for orders restricting publication of any part of the Reasons.

7.    The proceeding be fixed for further hearing at 9.30am on 12 December 2022 for the purpose of making final orders and any further interlocutory orders restricting publication of any part of the Reasons.

8.    Each party is given liberty to apply on 3 days’ notice.

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

REASONS FOR JUDGMENT

NICHOLAS J:

INTRODUCTION

1    These reasons concern the quantification of the profits for which the respondent (“Konami”) is liable to account to the applicant (“Aristocrat”) in respect of certain infringements of Australian Patent No 754689 (“the 689 Patent”) and Aristocrat’s entitlement to damages in respect of other infringements of the 689 Patent. The relevant infringements occurred in the period from August 2005 to August 2017.

2    The largest component of Aristocrat’s claim concerns profits made by Konami from the sale of 6,931 electronic gaming machines (“EGMs”) on which infringing games were installed and 4,647 conversions for the installation of an infringing game on an existing EGM. The damages claim is concerned with conversions made by Konami without charge. Each of these were referred to in evidence as a “no charge conversion” or a “NCC”. There were 7,380 no charge conversions in respect of which Aristocrat claims both compensatory and additional damages.

3    Findings of validity and infringement were made at an earlier stage of this proceeding: Aristocrat Technologies of Australia Pty Ltd v Konami Australia Pty Ltd (2015) 114 IPR 28; [2015] FCA 735 (“Konami 1”). On 5 August 2015 declarations and an injunction were granted and the Court also ordered an inquiry as to damages or profits in respect of Konami’s infringement of the 689 Patent. Konami’s appeal against those orders was dismissed by a Full Court on 12 August 2016: Konami Australia Pty Ltd v Aristocrat Technologies Australia Pty Ltd (2016) 119 IPR 402; [2016] FCAFC 103 (“Konami 2”).

4    With regard to the account of profits claim, there is a significant dispute between the parties as to whether or not the revenue received by Konami should be apportioned to reflect what Konami says is the fair and reasonable measure of the role played by the invention (which Konami says in substance is “the trigger” mechanism) in generating the profits made by Konami from the 689 Games. It is fair to say that Konami contends that the contribution made by the trigger mechanism to those profits was slight.

5    Aristocrat contends that apportionment is not available in this case and that after allowing for what Aristocrat concedes to be properly deductible expenditure, an amount of approximately $80 million (exclusive of interest) should be awarded in respect of the account of profits. Konami says that only a small fraction of that amount should be awarded.

6    In respect of those infringements where Konami did not receive any revenue (the NCCs) Aristocrat claims damages under s 122 of the Patents Act 1990 (Cth) (“the Act”) of approximately $14 million on a reasonable royalty basis ($1,900 multiplied by 7,380 NCCs) and an unspecified sum by way of additional damages. Aristocrat also claims compensatory damages for breach by Konami of a licence agreement entered into between Aristocrat and Konami on 24 June 2011 (“the Konami Licence”). Konami says that no damages (whether compensatory or additional) should be awarded in respect of the NCCs.

The declaratory, injunctive and other relief

7    On 5 August 2015, the infringement declaration made was in these terms:

1.    The Respondent has infringed:

(a)    claims 1 – 4, 16, 17, 25, 27, 28, 37, 38, 43, 55 and 56 of Australian Patent 754689 (“689 Patent”) by exploiting the gaming machine product and/or a gaming machine system comprising a bank of linked or networked gaming machines under or by reference to the name Free Spin Dragons; and

(b)    claims 1 – 4, 16, 25, 27, 28, 37, 43 and 55 of the 689 Patent by exploiting the gaming machine products and/or a gaming machine system comprising a bank of linked or networked gaming machines under or by reference to the names High Velocity Grand Prix, King’s Reward and any jackpot game operating under the “Cash Carriage” brand,

collectively referred to in these orders as the “Infringing 689 Products”.

8    The injunction granted was in these terms:

The Respondent, whether by itself, its directors, its servants, agents or otherwise, is restrained in Australia from infringing claims 1 – 4, 16, 17, 25, 27, 28, 37, 38, 43, 55 and 56 of the 689 Patent during its term and, without limiting the foregoing, the Respondent, whether by itself, its directors, its servants, agents or otherwise, is restrained in Australia during the term of the 689 Patent from, without the licence or authority of the Applicant:

(a)    making, hiring, selling or otherwise disposing of, or offering to make, hire, sell or otherwise dispose of the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described;

(b)    using or importing the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described;

(c)    keeping the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described for the purposes of doing any of the acts referred to in (a) and (b);

(d)    using the method of the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described; and

(e)    authorising others to use the method of the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described.

9    There was also an order for an inquiry as to damages or profits in these terms:

9.    There be an inquiry as to damages or profits in respect of the Respondent’s infringement of the 689 Patent by the Infringing 689 Products or any identical gaming machine products or gaming machine systems however described and as to damages in respect of the Respondent’s breach of contract, such inquiry to be listed for directions before Justice Nicholas on a date and time to be fixed after the determination of any appeal from these orders.

The election

10    On 1 September 2017 Aristocrat gave notice of its election as follows:

    Where Konami generated revenue from the supply of the 689 Games, Aristocrat elects to claim Konami’s profits referable to those supplies; and

    Where Konami asserts it supplied 689 Games on a “no charge” basis and did not generate revenue, Aristocrat elects to claim damages referable to those supplies.

Konami did not challenge the validity of the mixed nature of the election which it appears to have regarded as open in light of the decision in LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24 (Lindgren J). However, the mixed nature of the election has given rise to various complexities including whether any damages awarded in respect of the manufacture and supply of NCCs should be treated as allowable expenditure in calculating the profit made by Konami from the revenue generating supplies of the 689 Games.

The claims

11    The claims infringed by Konami were in the following terms:

1.    A random prize awarding feature to selectively provide a feature outcome on a gaming console, the console being arranged to offer a feature outcome when a game has achieved a trigger condition, the console including trigger means arranged to test for the trigger condition and to initiate the feature outcome when the trigger condition occurs, the trigger condition being determined by an event having a probability related to desired average turnover between successive occurrences of the trigger conditions on the console.

2.    The prize awarding feature of claim 1, wherein the trigger condition is determined by an event having a probability related both to expected turnover between successive occurrences of the trigger conditions on the console and the credits bet on the respective game.

3.    The prize awarding feature of claim 1 or 2, wherein the console is arranged to play a main game, during which testing for the trigger condition will occur, and the feature outcome initiated by the trigger condition is the awarding of one or more feature games.

4.    The prize awarding feature of claim 3, wherein the main game is a standard game normally offered on the console and each feature game is a jackpot game associated with a special jackpot prize.

…

16.    The prize awarding feature as claimed in any one of the preceding claims wherein the feature outcome is a simplified game having a higher probability of winning a major prize than in the main game.

17.    The prize awarding feature as claimed in claim 16, wherein the feature game provides a plurality of pseudo-reels with a restricted number of different symbols on each reel and a jackpot is activated if after spinning the reels the same symbol appears on a win line of each reel.

…

25.    A gaming console including a prize awarding feature to produce a feature outcome, the console being arranged to offer the feature outcome when a game has achieved a trigger condition and including trigger means arranged to test for the trigger condition and to initiate the feature outcome when the trigger condition occurs, the trigger condition being determined by an event having a probability related to desired average turnover between successive occurrences of the trigger conditions on the console.

…

27.    The gaming console of claim 25 or 26, wherein the console is arranged to play a main game, during which testing for the trigger condition will occur, and the feature outcome initiated by the trigger condition is the awarding of a feature game.

28.    The gaming console of claim 27, wherein the main game is a standard game normally offered on the console and the feature game is a jackpot game associated with a special jackpot prize.

…

37.    The gaming console as claimed in any one of claims 25 to 36, wherein the feature outcome is a simplified game having a higher probability of success than the main game.

38.    The gaming console as claimed in claim 37, wherein the feature game provides a plurality of pseudo-reels with a restricted number of different symbols on each reel and a jackpot is activated if after spinning the reels the same symbol appears on a win line of each reel.

…

43.    A method of awarding a prize on a gaming console, the console being arranged to offer a feature outcome when the game has achieved a trigger condition, the method including testing for the trigger condition and when the trigger condition occurs offering the feature outcome, the trigger condition being determined by an event having a probability related to desired average turnover between successive occurrences of the trigger condition on the respective console.

…

55.    The method as claimed in any one of claims 43 to 54, wherein the feature outcome is a simplified game having a higher probability of success than the main game.

56.    The method as claimed in claim 55, wherein the feature game provides a plurality of pseudo-reels with a restricted number of different symbols on each reel and a jackpot is activated if after spinning the reels the same symbol appears on a win line of each reel.

12    Claims 1–4, 16 and 17 are what I will refer to as “the Feature Game Claims”. These are the claims that specify the trigger condition which determines when the feature outcome selectively provided by a random prize awarding feature on the gaming console is triggered. The trigger condition as described in claim 1, is determined by an event having a probability related to expected turnover between successive occurrences of the trigger conditions on the console and, in claim 2, the credits bet on the respective game. Claims 25, 27–28, 37 and 38 are what I will refer to as “the Gaming Console Claims” which are to gaming consoles including a prize awarding feature that produces a feature outcome when the trigger condition is achieved. In essence, the trigger condition described in the Gaming Console Claims is the same as that described in one or more of the Feature Game Claims. Claims 43, 55 and 56 are method claims (the “Method Claims”) which claim a method of awarding a prize on a gaming console by offering a feature outcome that is triggered by the trigger condition referred to in claim 1.

13    The working relationship defined in claims 1 and 2 is between the feature outcome, the trigger and a gaming console. A gaming console must be arranged to offer a feature outcome and to include a means of testing for the presence of the trigger condition. Subject to it being capable of performing those functions, any gaming console will suffice.

14    Claim 3 also requires that the console be arranged to play a main game during which testing for the trigger condition will occur and that the feature outcome is the awarding of one or more “feature games”. In this context a “feature game” is the award of an additional game (which game is the “feature outcome”) in which a player may then win a prize (e.g. a jackpot): see Konami 1 at [96]. Claim 4 also requires that the feature game is a jackpot game associated with a special jackpot prize. Claim 4 therefore limits the claim to a particular type of feature game.

15    Claim 16 also requires that the feature outcome be a simplified game in which there is a higher probability of winning a major prize than in the main (or base) game.

16    Claim 17 also requires that the feature game (i.e. the prize awarding feature referred to in the earlier claims) includes a number of spinnable “pseudo-reels” and specifies a combination that will activate a jackpot. I note that only one of the Infringing 689 Products referred to in the declaration (Free Spin Dragons) was held to infringe that claim.

17    Claim 25 is the first of the Gaming Console Claims. Rather than describing a prize awarding feature to provide a feature outcome on a gaming console as in claim 1, it describes a gaming console that includes such a prize awarding feature. The remaining Gaming Console Claims 27, 28, 37 and 38 broadly correspond with Feature Game Claims 3, 4, 16 and 17. Claim 43 describes a method of awarding a prize on a gaming console that corresponds with claim 1. Claims 55 and 56 refer to the method claimed in claim 43 but introduce the further limitations found in claims 16 and 17.

18    It was suggested in Aristocrat’s submissions that the Feature Game Claims were, on their proper construction, not only to feature games with the relevant trigger condition, but also to the gaming consoles themselves. I do not think that is correct. The Feature Game Claims, it is true, describe aspects of the gaming console on which the random prize awarding feature is installed. But I regard the description of the gaming console in the claim as a description of the conditions in which the random prize awarding feature is to operate. On this view, the Feature Game Claims are directed to random prize awarding features for use on a gaming console rather than (unlike the Gaming Console Claims) gaming consoles on which the prize awarding feature is installed. This construction reflects the language of the Feature Game Claims particularly when read in the context of the Gaming Console Claims which claim a gaming console including the relevant feature game. In this respect, claims 1 and 25 are, at least in their form, directed to different things.

WITNESSES

Aristocrat

19    Bradley Spencer Robertson is the Director of Sales Australia for Aristocrat. Mr Robertson worked at Aristocrat from 2005 to 2008, and then again from 2012. From 2008 to early 2011 Mr Robertson worked for the New Zealand arm of Aristocrat, before moving to Sydney and working for eBet in early 2011 and Azure Gaming in late 2011. Mr Robertson’s professional background includes working in the hotel and club industries as well as being a sales representative for Konami between 2000 and 2005.

20    Mr Robertson made one affidavit and was cross examined. His affidavit addressed the Hyperlink games and the sale of those games, factors relating to the sale of EGMs to venues, factors influencing the purchase of EGMs, the player experience and the 689 Games. His affidavit also provided evidence on the success of the Hyperlink games in the gaming industry, through a series of graphs. Mr Robertson responded to the affidavit evidence of Mr Cutmore, Mr Martin, Mr Pocock, Mr Primmer and Mr Wohlsen.

21    Natalie Jane Bryant is the Studio Quality and Process Director for Aristocrat and has been employed by Aristocrat since 1997. Ms Bryant has worked in various positions at Aristocrat including Principal Game Designer, Intellectual Property Officer, Manager – Game Development Process and Process Design and Compliance Director. Prior to working at Aristocrat Ms Bryant worked for GTest, a subsidiary of Gaming Laboratories International, which is an accredited testing facility for gaming products including the hardware and software used in EGMs.

22    Ms Bryant made one affidavit and was cross examined. In her affidavit Ms Bryant gave evidence concerning the development and commercialisation of the Hyperlink games and their impact and success. In her affidavit Ms Bryant also provided her opinion concerning the relationship between the integers of the Hyperlink games and the integers of the claims of the 689 Patent. She also explained the physical parts of an EGM cabinet, game development and approval, the use of alternative feature games, alternative triggers and what she believes drives the sale of an EGM. Ms Bryant also responded to the evidence of Mr Crosby and Mr G Duffy in relation to (inter alia) different types of trigger mechanisms.

23    Neil Phillip Spencer is the Managing Director of Gaming Consultants International. Mr Spencer has a Bachelor’s Degree in Applied Science (Physics and Computer Science) and 30 years’ experience in the gaming industry. He has acted as an advisor for some of the largest gaming venues in Australia, including Crown Resorts. When acting as both a consultant and full time employee of Crown Resorts, Mr Spencer was involved in the assessments and evaluation of EGM products sold by a range of vendors. He was also involved in the development of the regulatory regime for EGMs in Australia.

24    Mr Spencer made two affidavits and was cross examined. In his first affidavit Mr Spencer gave evidence on the state of the EGM market prior to the development of Hyperlink games, including the limitations of linked progressive and mystery jackpot machines. He also provided his recollection and views on the introduction and performance of the Hyperlink games and gave evidence of their popularity at Crown Resorts’ casinos in the years following their introduction. He stated in his first affidavit that the Hyperlink technology was “revolutionary” and “changed the industry significantly.” He also responded to the affidavit evidence of Mr Wohlsen and Mr J Duffy. In his affidavit Mr Spencer indicated that he did not agree with Mr J Duffy’s analysis of the role of the 689 trigger in generating sales, including Mr J Duffy’s use of what he referred to as the “80:20 rule”.

25    Dawna Kathleen Wright is an accounting expert. Ms Wright is a chartered accountant and Senior Managing Director and leader for Australia of the Forensic Accounting and Advisory Services practice at FTI Consulting Pty Ltd. Ms Wright has more than 25 years of training and experience in firms of chartered accountants, of which more than 15 years have included providing forensic services. Ms Wright made two affidavits and also produced a joint expert report with Mr Ross. She gave oral evidence in a concurrent session with Mr Ross.

26    Annexed to the first of Ms Wright’s affidavits is her expert report. She was instructed to calculate the “Infringing Games Profit” under two specific scenarios, one including the cost of NCCs and the other excluding the cost of NCCs. Ms Wright indicated in her report that the main area of disagreement between she and Mr Ross related to the allocation of costs to the infringing products including, in particular, whether, and if so how, fixed costs should be allocated to the infringing products. In her second affidavit Ms Wright responds to various matters raised by Mr Ross.

27    Mitchell Alexander Bowen has held a variety of roles at Aristocrat including, since January 2017 as the Managing Director ANZ and International. He made two affidavits and was cross-examined. His affidavit evidence was directed to the importance attached by Aristocrat to research and development and the commercial success of the Hyperlink games which he describes as “an exceptionally well performing technology for Aristocrat”. According to Mr Bowen, Aristocrat is not generally prepared to licence its most commercially significant technology. However, he produced various agreements in which Aristocrat had granted such licences including the Konami Licence and various other licence agreements referred to later in these reasons.

28    Timothy Heberden is a business valuer and an intellectual property valuer. Mr Heberden made two affidavits and produced a joint expert report with Mr Halligan. Mr Heberden gave his oral evidence in a concurrent session with Mr Halligan. He has 20 years’ experience in the valuation of intangible assets, the determination of royalty rates, and the provision of advice regarding the monetisation of intellectual property rights. He holds degrees in commerce, accounting and a post-graduate degree in business administration. He is a partner in the Valuations Team at Deloitte Financial Advisory Pty Ltd and was previously a Director of Glasshouse Advisory Pty Ltd (“Glasshouse Advisory”). He is a registered business valuer and chartered accountant. He is the author of a number of publications concerned with valuation including a chapter called “Royalty Determination and the Valuation of IP” in a book entitled “International Licensing and Technology Transfer: Practice and the Law”. In his oral evidence he was taken to that chapter where there appears some discussion concerning a valuation “rule of thumb”, but not one that he purported to apply in this case.

29    Mr Heberden was provided with a copy of the Konami Licence and various other licence agreements. For the purpose of preparing his report he also undertook research which led him to identify a number of other licence agreements at least some of which he considered relevant to the determination of a reasonable royalty rate. Mr Heberden ultimately concluded that the Konami Licence was the most useful comparator for the purpose of assessing a reasonable royalty rate in the case of the NCCs in respect of which Aristocrat sought damages.

30    George Mokdsi is an experienced patent searcher and researcher. He described himself in his affidavit as Global IP Analytics Manager of Glasshouse Advisory but now works in his own firm as a patent analyst and researcher. He holds a PhD in Organic Chemistry awarded in 2000. Between 2000 and 2005 he worked as a patent searcher. Between 2005 and 2017 he worked with Griffith Hack. Glasshouse Advisory is an affiliate of Griffith Hack, the firm that acted for Aristocrat in relation to the 689 Patent at the liability hearing before me. He made one affidavit and was cross examined. Dr Mokdsi sought to determine what he called the “commercial significance” of the 689 Patent using patent analytics. I refer in greater detail to Dr Mokdsi’s instructions, methodology, and conclusions later in these reasons.

31    Peter John Madden is the National Lead Partner of the International Tax Advisory Group at KPMG Australia. He is a tax lawyer and chartered accountant who has practiced in the taxation field since 1983. He made one affidavit and was not cross-examined. He gave evidence concerning whether Konami would be entitled to a tax deduction in respect of any payment that Konami may be required to make to Aristocrat pursuant to an order made in this proceeding.

Konami

32    Isaac Bishara is the Accounting Manager and Inventory Accountant for Konami. Prior to working at Konami Mr Bishara worked at Aristocrat for approximately 10 years during which he held a number of positions including Global Management Accountant for Research and Development. In this role he was responsible for the budget for research and development and game design for Aristocrat. Mr Bishara has worked at Konami since 2008 where he has also held a number of positions including Sales Administration Manager and Purchasing Manager. In his current role, Mr Bishara is responsible for Konami’s accounting systems. He manages the general ledger and the preparation of financial statements and reports to management on financial results.

33    Mr Bishara made two affidavits and was cross examined. In his first affidavit, he explained Konami’s business and accounting methods, how Konami accounts for revenue, the different types of machine sales and conversion sales, and the different circumstances in which a no charge conversion may occur. He also explained the various costs and expenses associated with manufacturing, how various figures relating to the cost of manufacture are calculated, and outlined the various fixed and variable operational expenses. Mr Bishara’s second affidavit makes some clarifications to his first affidavit.

34    Gerard Thomas Crosby is the Group Manager of Product Development at Konami and has held this position since 2007. He has worked at Konami since 1999. As the Group Manager of Product Development Mr Crosby is responsible for making decisions about which games Konami will develop. This includes reviewing and approving game concepts, supervising the development of games, and deciding whether a game should be commercialised once it is developed and has obtained regulatory approval. Mr Crosby is named as an inventor in various patents which have been granted to Konami in the gaming field.

35    Mr Crosby made one affidavit and was cross examined. In his affidavit he explained the different components of an EGM as well as the different types of games. He also explained the process of developing games generally and when and how the 689 Games were developed. In his affidavit Mr Crosby also gave evidence as to what he believed Konami would have done had it not utilised the 689 trigger and how this may have affected the resources allocated to the research and development of new products and impacted the number of gaming products manufactured by Konami during the relevant period.

36    Robert James Cutmore was a Queensland based Sales Executive at Konami from 1999 to 2013. In that role Mr Cutmore sold EGMs to clubs and venues, reported to clubs and venues on the performance of Konami’s EGMs and made suggestions where necessary to improve the performance of Konami’s EGMs. From about 2014 to September 2015 Mr Cutmore was the Chief Operating Officer of the Broncos League Club where he was responsible for managing the gaming floor including purchasing gaming machines and making decisions in relation to the conversion of games.

37    Mr Cutmore made two affidavits and was cross examined. In his first affidavit Mr Cutmore explained the way in which he sold Konami EGMs and conversions to venues, and the factors that he emphasised when doing so. From the perspective of someone who had been responsible for purchasing EGMs, managing gaming floors and having conversations with purchasers of EGMs, Mr Cutmore provided evidence in his first affidavit on characteristics that are important to the purchase of gaming machines and what factors draw players to particular machines. In his first affidavit Mr Cutmore also provided evidence concerning the relative importance of the trigger type to sales of the infringing products.

38    Gregory Michael Duffy (who I refer to in these reasons as Mr G Duffy) was the former Technical Compliance Manager at Konami. Mr G Duffy worked at Konami from 2001 to 2019, during which time he worked in a variety of roles including Technical Compliance Coordinator, Game Design Manager and Content Manager. In Mr G Duffy’s role as Technical Compliance Manager he was responsible for testing, product approval and compliance submissions. In this capacity, he worked with accredited testing facilities and regulatory bodies across Australia, New Zealand, Asia and South Africa. When in the Game Design Manager and Content Manager roles, Mr G Duffy was involved in the development of approximately 300-500 games. In the Technical Compliance roles he was involved in evaluating and preparing compliance documentation for a similar number of additional games.

39    Mr G Duffy made one affidavit and was cross examined. In his affidavit he explained the process of game development and gave evidence as to the cost of game development, breaking down costs and time estimates including for development, compliance, and testing. He provided this estimate for the development of a range of different types of products including new products and modifications of existing products. In his affidavit Mr G Duffy provided evidence on the proportion of time that different features take to develop as well as evidence on the different types of features. He also provided evidence in his affidavit on possible alternatives to the 689 trigger.

40    Michael Anthony Martin is the Queensland State Manager of Konami and has been in this role since 2014. Prior to that he worked as a sales representative at Konami and for a number of different clubs. In his current role, Mr Martin manages five sales representatives and assists them in creating sales strategies, setting and achieving budgets and sales targets, and promoting new products. Mr Martin also acts as a sales representative to casinos and large hotel groups.

41    Mr Martin made two affidavits and was cross examined. In his first affidavit Mr Martin gave evidence concerning the factors that were, in his experience, significant to the selling of EGMs. His first affidavit also included evidence concerning the role of the 689 trigger in the sale of EGMs. His second affidavit related to the additional damages claim and explained how he gave notice to various venues that Konami could no longer licence the 689 Games, he also explained the immediate responses of representatives of various venues to this notice.

42    Damien James Pocock is a Sales Executive at Konami, selling EGMs and games to hotels and clubs between the Gold Coast, Queensland and Kempsey, NSW. Mr Pocock has been in this role since 2013. He has worked in the entertainment and gaming industry for over 20 years working at various clubs as well as for other companies including Jupiter’s Network Gaming licensed monitoring business (now known as Maxgaming), Ainsworth Gaming Technology, Star Games and Voyager Games.

43    Mr Pocock made two affidavits and was cross examined. In his first affidavit Mr Pocock gave evidence of his practice when dealing with venues in relation to the sale of EGMs. In his first affidavit he also gave evidence concerning the characteristics that are important to the sale of EGMs and the importance of the 689 trigger in sales of EGMs and conversions. Mr Pocock’s second affidavit, relevant to the additional damages, explained how he became aware of the dispute between Aristocrat and Konami over the 689 Patent and details conversations with members of various venues regarding ceasing to use the 689 Games.

44    Paul Christopher Primmer is the owner and operator of South Coast Gaming Machines Pty Ltd which is an independent sales agent for Konami. Mr Primmer has been working in the gaming industry for approximately 25 years as a sales agent, and has been an independent sales representative for Konami since March 1998. Mr Primmer made two affidavits and was cross examined. Mr Primmer gave evidence on his experience of the sales process and the factors involved in the sale of EGMs. His second affidavit related to the additional damages claim and explained how he went about notifying specific clients of their options once he was informed that clients had to cease using the 689 Games.

45    Jason Quayle is the IT Manager for Konami and has been in this role since 2003. Mr Quayle has worked at Konami since 2000 and was a Product Development Assistant in the research and development department between 2000 and 2005, acting as a liaison between Konami’s Japanese headquarters and Australia. In his current role, Mr Quayle is responsible for patent and trade mark clearances in relation to proposed games and a significant component of his role is concerned with management, data collection and reporting in the sales and research and development areas.

46    Mr Quayle made five affidavits that were read in evidence. Mr Quayle’s exhibits include a detailed spreadsheet which he created summarising information in relation to Konami’s sales. Mr Quayle’s evidence also detailed the number of sales made, the numbers of NCCs supplied, including a breakdown of the different types of NCCs supplied. The evidence also includes six other affidavits made by Mr Quayle that were served by Konami pursuant to orders made prior to Aristocrat making its election. Mr Quayle was cross-examined.

47    John Stewart Duffy (who I refer to in these reasons as Mr J Duffy) is the president and CEO of Fortunam Studios Inc, which together with Gold Coin Studios is creating casino games for the online real money market. Prior to assuming this role, Mr J Duffy had 25 years of experience in game design and development, engineering, compliance, quality assurance and production with IGT, where he worked from 1993 to 2017. At IGT Mr J Duffy maintained a number of positions including Vice President and Executive Director of IGT (US) and Executive General Manager of IGT (Australia).

48    Mr J Duffy made three affidavits and was cross examined. An exhibit to Mr J Duffy’s first affidavit is his April 2018 report, in which he provides his opinion concerning the role of the 689 trigger in the sale of the infringing products and its relative importance in comparison with other factors that may contribute to sales. In his report, Mr J Duffy outlined the key factors that operators consider when purchasing games. His report also includes an analysis aimed at quantifying the relative importance of the 689 trigger. I refer to Mr J Duffy’s analysis and his written and oral evidence in more detail later in these reasons.

49    Andrew Murray Ross is a Chartered Accountant and Partner of KordaMentha with over 30 years of experience in the provision of financial advice, valuation and forensic accounting. Mr Ross has worked at a number of accounting firms including Arthur Anderson, Ernst & Young and Ferrier Hodgson and has significant experience in providing expert evidence in legal proceedings. Mr Ross made three affidavits and produced a joint expert report with Ms Wright. He gave oral evidence in a concurrent session with Ms Wright.

50    Mr Ross’ first affidavit included as an exhibit his April 2018 expert report. In this report Mr Ross calculated the profits made by Konami attributable to the infringing sales. Mr Ross’ second affidavit included as an exhibit his April 2019 expert report. This report responded to the evidence of Ms Wright. Mr Ross’ third affidavit exhibited electronic copies of documents referred to by him in his first report. I refer to Mr Ross’ analysis and his written and oral evidence in more detail later in these reasons.

51    Geoffrey Wohlsen is the director of Dickson Wohlsen Strategies and is a business analyst and economist specialising in the leisure and entertainment sector. Mr Wohlsen has previously worked in the Strategic Planning and Economic Development division of KPMG where he specialised in the provision of services in the leisure and entertainment sectors and was a key part of a team dedicated to delivering services to not-for-profit community gaming clubs, hotels, casinos, gaming corporations, liquor and gaming and industry representative bodies. After KPMG, Mr Wohlsen worked at CMP Consulting, a small consulting practice that serviced the not-for-profit community gaming club, hotel and casino sectors and then worked as a sole-trader providing consulting services to those sectors. While practicing as a sole-trader, Mr Wohlsen was a shareholder in the development and commercialisation of the industry business intelligence tool Club Data Online. Mr Wohlsen has completed many strategic and business plans for clubs and casinos in Australia.

52    Mr Wohlsen made two affidavits and was cross examined. Exhibited to Mr Wohlsen’s first affidavit is his April 2018 report. In this report Mr Wohlsen considered whether the trigger that infringed the 689 Patent had a role in the sale of the affected games and identified the relative importance of the infringing trigger mechanism. In doing this, Mr Wohlsen’s report considered the history of the Australian market and described the various factors relevant to EGM play and purchases. Mr Wohlsen provided data on Konami’s market share, the manufacture and sale of affected EGMs and conversions in NSW and Queensland and the performance of affected and not affected games in the market place in NSW and Queensland.

53    Thomas Anthony Jingoli is Director, Executive Vice-President and Chief Commercial Officer of Konami Gaming Inc. Mr Jingoli also acts as Compliance Officer for Konami. He made one affidavit and was cross-examined. He gave evidence concerning his dealings with Mr Kieran Power of Aristocrat in 2011 in relation to Konami’s Mystical Temple game, related correspondence between Konami and Aristocrat, the proceeding commenced by Aristocrat against Konami in March of 2011, and his involvement in the negotiation of the Konami Licence.

54    Brendan Patrick Halligan is a Chartered Accountant and a principal of Halligan & Co, a specialised forensic accounting and valuation practice. Mr Halligan made two affidavits and prepared a joint expert report with Mr Heberden. He gave oral evidence in a joint session with Mr Heberden. Mr Halligan’s evidence was directed to the question of what is a reasonable royalty rate for the NCCs the subject of Aristocrat’s damages claim. He considered the matter of comparable licence agreements and explained why he did not regard the Konami Licence as an appropriate comparator. He considered that the most appropriate comparators were the Shuffle Master Licence (discussed below) pursuant to which Aristocrat licensed the 341 Patent to Shuffle Master Australasia Pty Ltd and the Neurizon Licence (also discussed below) pursuant to which Neurizon licensed to a subsidiary of Konami the prize awarding system the subject of the 299 Patent.

55    Paul King is Senior Tax Counsel at Minter Ellison. He is a tax lawyer and chartered accountant with many years of experience in the taxation field. He made one affidavit and was not cross-examined. He responded to Mr Madden’s affidavit concerning the tax implications for Konami arising out of any payment by Konami to Aristocrat pursuant to an order made in this proceeding. He also considered whether calculating the amount of that payment on a pre-tax basis could unfairly disadvantage Konami.

Other witnesses

56    Affidavits made by various other witnesses (who were not cross-examined) were also read and relied on. These include affidavits by Mr Warren Paul Jowett, Mr John Dominic Lee read by Aristocrat, and Ms Claire Slunecko read by Konami.

ELECTRONIC GAMING MACHINES

57    The key parts of an EGM are the cabinet, the platform and the games. The cabinet is the physical box and associated hardware in which a platform is installed. The platform is a combination of computer hardware and software which enables the operation of a game on the EGM. Konami supplied various platforms and compatible cabinets in the period 1998 to 2016. The platforms included the Tasman (1998), Endeavour (2001), K2V (2006), and KP3 (2012) platforms. The cabinets manufactured by Konami during the same period included the Tasman (1998), Endeavour (2001), K2V (2006), and The Podium (2009) cabinets. The earlier cabinets and platforms (Tasman and Endeavour) were developed and named alongside each other. Later cabinets and platforms were developed and named separately. This made it possible for a prospective customer of Konami to upgrade the platform of their EGM to the newest generation while retaining their existing cabinet.

58    A single cabinet design will typically have multiple variations. Although the basic design remains the same, the dimensions of the variations differ. The variations include “high boy”, “low boy”, “casino top” and “slant top” cabinets. Customers can choose a variation that best meets their requirements (e.g. with regard to space).

59    A “standard game” (sometimes called “a standalone game”) is a game that is not paired with a feature game. A standard game usually has its own “feature” or “features” such as free games. The experts drew a distinction between a standard game and a base game. As Ms Bryant explained in her oral evidence:

…[M]ost games these days have a feature element. So within the standard game there will be a base game which is generally spinning reels where you would spin up combinations of symbols and they will pay prizes. There are usually another feature element which, in a lot of cases, for example, would be free games where a certain combination trigger might – that comes up in the base game will take you into a – a feature game event. Free games, or – or something to that effect…So when I refer to a standard game I’m talking about the base game and any standard game feature within the standard game.

60    A base game is one that is paired with a feature game. The combination of a base game (including any features) and a feature game is sometimes referred to as a complete game. The base game is the game which the player starts when placing a bet. The reels then spin and the player is awarded a prize based on the combination of symbols that appear on the reels when they have stopped. Like a standard game, a base game usually has its own features. Most of the player's time is spent playing the base game (including any won free games).

61    A feature game is a game that is additional to a base game. The feature game is not a standalone game and cannot be played without first playing the base game it is paired with and achieving a predetermined condition within the base game. A common example of a feature game is one that pays a progressive jackpot to the player (a “progressive feature game” or “progressive”).

62    A jackpot is the “top” prize, or set of prizes that a player can win and both the base game and feature game can award a jackpot prize. A jackpot or feature that is awarded based on a combination of symbols is referred to as a symbol driven jackpot or feature. There are other ways in which jackpots or features may be triggered. Mystery jackpots are triggered by a means other than a combination of symbols known to the player. Most jackpots are progressive jackpots in which the amount of the jackpot increases as further bets are made until the jackpot is awarded.

63    The term “linked progressive” refers to a progressive jackpot or features associated with a number of machines that are linked together to contribute to a progressive jackpot. The linked progressive jackpot is a combined jackpot (or series of jackpots) which increases as amounts are bet on the linked machines until the jackpot is won by a player of one of them. Usually there are a large number of machines involved although, in some smaller venues, the numbers may be considerably smaller. Linked progressives can include “wide area progressives” in which machines are linked across multiple venues. As the name implies, Hyperlink games are typically linked progressive jackpots (or simply “linked progressives”) that are played on a series of linked machines. There is also a complete game known as a standalone progressive which is played on a machine that has a progressive jackpot but that is not linked to any other machine.

64    There are various types of trigger mechanisms that can be used for the purpose of the triggering of an event such as the award of a prize or the initiation of a feature game. Examples of triggers that can be used for this purpose include symbol driven triggers (in which an event is triggered based on the player achieving a predefined combination of symbols); range mystery triggers (in which an event is triggered based on an accrued value reaching a predefined threshold calculated by the machine but hidden from the player); random triggers (in which an event is triggered based on an outcome of a random number generator for each play of the game); and conditional triggers (in which an event is triggered based on satisfying another predefined condition). An example of a conditional trigger is one in which a feature game is triggered if the player does not receive a prize in the course of playing the base game.

65    The trigger mechanism, or trigger, forms part of the game software that drives the EGM. The trigger is essentially a set of rules (which may be represented as a formula or other mathematical statement) that determine the conditions which will result in the award of a feature (the feature game) or the outcome of the feature (the feature outcome) which might be a free game, a jackpot or some other prize.

THE 689 GAMES

66    A number of affidavits were made in this proceeding by Mr J Quayle as the authorised representative of Konami setting out details of what are referred to in the affidavits as the infringing “689 Games”. These affidavits were filed by Konami pursuant to orders made by the Court for the purposes of informing Aristocrat’s election. The names of the 689 Games, which Konami accepts infringed are:

(a)    Cash Carriage

(b)    King’s Reward

(c)    Free Spin Dragons

(d)    High Velocity Grand Prix

(e)    Rapid Fire

(f)    Rapid Fire Grand Prix

(g)    Full Steam Express

(h)    Caribbean Jackpot

(i)    Free Spin Festival

(j)    Free Game Festival

(k)    Free Spin Safari

(l)    Round One

(m)    Rock Around the Clock

(n)    Pirate’s Jackpot

(o)    Catch Me

67    Of those 689 Games, four (Free Spin Dragons, High Velocity Grand Prix, Rapid Fire Grand Prix and Catch Me) are games played on a number of linked gaming machines. All of the 689 Games are “feature games” (as opposed to standard or base games) or, in the language of the relevant claims, “[a] random prize awarding feature to selectively provide a feature outcome on a gaming console …”. Other terms used in the evidence to describe a gaming console are poker machine, gaming machine or EGM. Although there exist gaming machines that are not electronic gaming machines, all of the gaming machines relevant to this stage of the proceeding are electronic gaming machines.

68    Other 689 Games were identified by Konami which it agreed should be included in the inquiry. These are the Queensland versions of the following games:

(a)    Cash Carriage Mystery

(b)    Dollar Power

(c)    Fortune Garden

(d)    Lucky Garden

(e)    Money Dragon

(f)    Wildfire (on the K2V Platform only)

(g)    Sport of Kings 2

69    An example of a linked 689 Game is Rapid Fire Grand Prix. A promotional brochure produced by Konami which includes material on this game describes it as a symbol driven linked progressive. According to the brochure:

Any 3 or more rapid fire symbols will trigger the feature to win either the MAXI or MINI Jackpot.

When the feature is won the RAPID FIRE engine on the LCD revs up to display the winning jackpot.

There are a wide selection of RAPID FIRE jackpot parameters available to suit your venue and configurable with your chosen denomination and game.

70    The brochure also refers to different base games. It shows a gaming machine with Rapid Fire Grand Prix and Wild Tiki as the base game.

71    Rapid Fire is an example of a feature game with a standalone progressive jackpot. According to the brochure for Rapid Fire, it is a “standalone symbol driven progressive”. The description in the brochure for Rapid Fire is otherwise the same as for Rapid Fire Grand Prix.

72    The 689 Games were not sold separately by Konami. The 689 Games were supplied as either part of a “box” or a “conversion kit”. The box included the software for both the base game and the 689 Game. It also included all relevant hardware, including display panels on which images associated with both the base and feature games are projected, and audio facilities which emit sounds associated with the base and feature games. Conversion kits were used to install new software for a base game and a 689 Game on an existing EGM. They included, depending on the type of conversion, the storage device, the software and artwork.

73    Games and gaming machines must be approved by the relevant State regulatory authority before they can be supplied for use in a gaming venue. The evidence includes examples of approval documentation including gaming machine profiles. An example of a gaming machine profile for EGMs (Konami’s Endeavour cabinets) on which one of the 689 Games (Rapid Fire 2) was installed is in evidence. It identifies the main components and peripheral devices in the gaming machine by part number and manufacturer and shows that Konami’s Endeavour cabinets included LCD monitors, control units, memory units, interface units, communications boards, connector boards, AC power units, DC power units, communications power units, coin validators, banknote stackers and acceptors, coin hoppers and validators, and ticket printers.

ACCOUNT OF PROFITS

Issues

74    The principal issues to be decided in relation to Aristocrat’s claim for profits are as follows:

(1)    Whether and, if so, to what extent, the profits otherwise payable to Aristocrat should be reduced by way of apportionment.

(2)    Whether it is appropriate to include the costs of the NCCs in calculating profits derived by Konami in exploiting the 689 Games in circumstances where these were supplied at no charge.

(3)    Whether and, if so, to what extent, Konami’s claims for deductions in respect of various categories of overheads which are disputed by Aristocrat should be allowed. The disputed deductions include amounts falling within the following categories:

(a)    product development;

(b)    general administration;

(c)    employment (excluding compliance);

(d)    employment (including compliance);

(e)    licencing; and

(f)    other expenses.

(4)    Whether losses made by Konami on the sale of EGMs and conversion kits incorporating the 689 Games in the financial years 2009 and 2016 can be offset against profits made in other years.

(5)    Whether in calculating the profits to be awarded to Aristocrat allowance should be made for income tax paid by Konami on the relevant profits.

There is also a question as to whether Konami is entitled to claim a deduction in respect of any damages payable in respect of NCCs.

75    It is convenient to deal with two threshold arguments regarding apportionment raised by Aristocrat based on findings made, and the declaration and injunction granted, in Konami 1.

The manner of manufacture finding

76    Aristocrat referred to the Court’s characterisation of the invention in Konami 1 at [223]. Aristocrat’s submission was, in effect, that the Court’s characterisation of the invention in Konami 1 at [223] constitutes a finding that the Gaming Console Claims are to inventions that are, in substance, new and useful gaming machines and that, in light of that finding, it is not open to the Court to accept Konami’s submission that the substance of the invention is to the trigger. I will refer to the relevant finding as “the manner of manufacture finding”.

77    The manner of manufacture finding was made in the context of a submission that the substance of the invention was to no more than an idea which, if that were the true nature of the invention, would be inherently unpatentable. The submission that what was claimed was a “mere idea” was rejected. I said in Konami 1 at [223]:

A mere idea that does not translate into a claim for a new and useful result is not within the concept of a manner of manufacture because it involves no more than “mere discovery” or “discovery without invention” compare NRDC at CLR 264; IPR 66. However, the inventions claimed in the 689 patent are not “mere ideas” but new and useful gaming machines and new and useful methods of operation producing new and improved results.

The reference to National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 at 264 is to the page in the judgment of Dixon CJ, Kitto and Windeyer JJ at which their Honours referred to “… discovery without invention either because the discovery is of some piece of abstract information without any suggestion of a practical application of it to a useful end, or because its application lies outside the realm of ‘manufacture’”.

78    The finding in Konami 1 was that the claims were to more than a mere idea and were instead to (inter alia) new and useful gaming machines and new and useful methods of operation producing new and improved results. For the purpose of disposing of Konami’s “mere idea” argument it was unnecessary to make any more specific findings as to what it was about the gaming consoles referred to in the claims that rendered them both new and useful gaming machines. However, for the purpose of determining the correctness of Aristocrat’s argument based on the manner of manufacture finding, it is necessary to elaborate on that finding further by reference to other findings made in Konami 1.

79    The common general knowledge was considered in Konami 1. As is apparent from [30]-[31], the common general knowledge included EGMs capable of operating on a standalone basis or as a part of a network with the following: consoles that include means to make selections and play games; games with primary or base games; games with secondary or bonus features; games with triggers; games with jackpots; games with symbol driven jackpots; games with progressive jackpots; and games with mystery jackpots. These matters were common general knowledge whether considered on an individual or a collective basis. Hence, there was, for example, nothing new or inventive at the priority date in an EGM which could be operated on a standalone basis or as part of a network that included a primary or base game, a secondary or bonus feature game, and symbol driven progressive jackpots.

80    The nature of progressive jackpots and mystery jackpots was considered in Konami 1 at [35]:

Progressive jackpots operate by accumulating contributions from turnover on machines that contribute to the building of the jackpot (that is the prize or award). Mystery jackpots are a type of progressive jackpot. With a mystery jackpot, a lucky number is electronically selected from a designated range and held in secret. A counter is then activated starting at the lowest value of the designated range. As play ensues, a percentage of each wager is added to the count, and the new count is compared against the secretly held lucky number. If a match occurs, the player whose wager caused the match is awarded the jackpot.

81    There were other findings made in Konami 1 in the context of Konami’s contention that the invention as claimed did not involve an inventive step that are also relevant to the proper characterisations of the invention. In particular, it was held at [210] - [212] that the invention described and claimed in the 689 Patent solved two problems associated with progressive jackpots.

82    The first of these problems was the fact that the probability of a player winning a feature jackpot was independent of the amount wagered by the player. This was a problem affecting both standalone EGMs and those forming part of a network. The second problem was known as “swamping” and was related to patterns of play in which players would cease play on their EGMs once a progressive jackpot had been triggered by a player on another EGM on the same network and not resume play until a later time at which the chance of winning the next progressive jackpot had materially increased. As explained in Konami 1 at [36]:

Progressive jackpots suffer from a disadvantage due to the manner in which turnover is accumulated. This results in some people not playing the gaming machines once the jackpot is awarded until a significant amount of additional play takes place, and the turnover count has increased to a point at which they consider it more likely that they will win a large prize and therefore worthwhile to play. Once a substantial period of time had passed without a jackpot being awarded, professional gamblers will then move in and commence play and “swamp” the machines.

83    These problems were described more colourfully in Konami 2. Perram J (with whom Besanko and Jagot JJ agreed) said at [7]-[8]:

[7]    There are thought to be some problems with progressive jackpots. To begin with, as a measure to ensure that the jackpot is sufficiently large to be enticing very often the machine is set so that the jackpot cannot go off for a pre-determined number of games after it has last gone off. This is achieved by ensuring that the random number is generated within a range which starts at a higher number, eg, 49-999. On such a machine, the jackpot cannot go off until it has been played at least 50 times. This initial period is sometimes referred to as the ‘dead zone’. The enticement of a decent sized jackpot, however, contains within it the seeds of discontentment too. Players who are playing for the jackpot are all too prone to reason that once the machine has gone off it will not go off again for some time (while the machine traverses the dead zone) and hence that there is no point playing. Correlatively, once a machine has not gone off for a while a similar class of player tends to ‘swamp’ the machine. This problem is known as the ‘swamping’ problem.

[8]    Another problem is that the players who are playing for the jackpot have no rational incentive to bet more than the minimum amount on each game because the counter is increased by only one no matter what the size of the bet. Mention of the ‘take out’ has been made above. As the trial judge explained (at [45]), each machine is set to return on average over time a specified percentage of credits bet back to the players and, indeed, this is required by law. So, for example, a machine may be set to return, on average, 80% of the money which is wagered upon it. The converse of that is, of course, that the machine keeps the other 20%. It follows, in a straightforward fashion, that the profits of the operator are a linear function of the amount which is wagered on the machine. The progressive jackpot, therefore, provides an incentive for players to act in a way which diminishes the potential profits of the operator.

84    The problem of swamping might affect a standalone EGM in that a player might abandon the machine after winning a progressive jackpot on a feature game before returning to it after other players had, by their play on the same EGM, increased the probability of the feature jackpot being triggered for a second time. But it is clear that the problem of swamping was far more significant in the case of network systems involving multiple EGMs, multiple players, larger turnover and larger progressive jackpots.

85    It is apparent from the findings made in Konami 1 that the invention as claimed in the Gaming Console Claims was a new gaming machine that included the prize awarding feature referred to in the claims which used a trigger that addressed the two problems which were found to be present in the prior art. The gaming machines were new and useful because they included a feature game with a trigger that overcame those problems. I do not consider that the manner of manufacture finding requires the Court to hold, when determining the extent of the benefit obtained by Konami from its exploitation of the invention, that the invention was a new EGM without considering what it was that made the EGM new and useful.

The scope of the final relief

86    Aristocrat also relied upon the form of the declaratory and injunctive relief that was granted. It submitted that the scope of the declaration and the injunction determines the scope of the infringer’s liability to account for profits. It submitted that the scope of an account of profits should correspond with the scope of the injunction and extend to an account of the profits made by Konami by reason of the acts, the repetition of which is restrained by the injunction. Aristocrat referred to Nokia Corporation v Liu (2009) 179 FCR 422 (“Nokia”), a trade mark case in which the Full Court (Finn, Sundberg and Edmonds JJ) said at [36]:

The link between the manner of infringement found — and often enjoined — and the subsequent award of relief by way of damages (or an account) is reflected in the notion that:

the scope of the inquiry as to damages corresponds to that of the injunction

See National Broach & Machine Company v Churchill Gear Machines Ltd [1965] 1 WLR 1199 at 1204-1205; or as put in Kerly (at 19-131):

The proper form of an order for an inquiry as to damages occasioned by the infringement of a mark is, therefore, what damage (if any) has the claimant sustained by reason of the acts, repetition of which is restrained by the judgment.

See also the form of the orders in AG Spalding 30 RPC at 400.

87    Aristocrat also referred to another trade mark case, Elecon Australia v PIV Drives (2010) 93 IPR 174 (“Elecon”) where the Full Court (Emmett, Perram and Yates JJ) said at [47]:

The scope of an inquiry as to damages, and, it would follow, an account of profits, normally corresponds to the width of the injunction that is granted (see National Broach and Machine Co v Churchill Gear Machines Ltd [1965] 1 WLR 1199 at 1204–05; 2 All ER 961 at 965; [1965] RPC 516 at 529, Nokia at [34]–[36]). Here, the injunction is in broad terms, unconfined by reference to particular infringements or, indeed, any form of infringement. The declaration is similarly unconfined.

88    Aristocrat submitted that, applying the principle in Nokia and Elecon, the scope of the account of profits in this case extends to that which is attributable to the exploitation of “Infringing 689 Products or any identical gaming machine products or gaming machine systems however described”, as restrained by the injunction. It submitted that those profits are the whole of Konami’s net profits attributable to the 689 Games including profits made on the sale of every component of the 689 Games. It also submitted if Konami wished to limit the invention and the pecuniary relief to a profit made on the sale of the trigger, it was open to Konami to challenge the validity of the infringed claims, including on s 40 grounds, or to argue for a more limited form of the injunctive relief. Aristocrat argued that Konami is in effect attempting to re-litigate the form of the declaratory and injunctive relief, which it cannot now do.

89    The declaration recorded that Konami had infringed the specified claims of the 689 Patent by exploiting “the gaming machine product and/or gaming machine system comprising a bank of linked or networked gaming machines” identified by various names. One of the games, Freespin Dragons, infringed all of the relevant claims and the other games referred to in the declaration infringed most of them. The form of the injunction picks up the definition of the “Infringing 689 Products” and restrained Konami from (inter alia) making or selling Infringing 689 Products or any identical gaming machine products or gaming machine systems.

90    The declaration and injunction were in a form agreed to by the parties following the publication of Konami 1. Those reasons for judgment do not deal with any issue of apportionment. Nor is there any evidence to suggest that the parties understood that a declaration and injunction in that form would preclude any argument in relation to apportionment.

91    Although the declaration refers to the particular gaming products or systems that were found to have infringed, neither party suggested that the account of profits was limited to profits resulting from the particular games referred to in the declaration and it appears to have been agreed between them that the profits for which Konami must account should include those resulting from its exploitation of other infringing games. That agreement reflects the approach that was recognised and approved in Nokia (a trade mark case) in which it was held that the scope of the inquiry as to damages was, in that case, not limited to loss arising from specific and particularised instances of infringement.

92    In Nokia, the Full Court referred to “the notion that … the scope of the inquiry as to damages corresponds to that of the injunction”. In the course of its consideration of that matter, the Full Court referred to the judgment of the English Court of Appeal in National Broach and Machine Co v Churchill Gear Machines Ltd [1965] 1 WLR 1199 at 1204–1205 (a confidential information case) and the form of the orders in AG Spalding & Bros v AW Gamage Ltd (1913) 30 RPC 388 at 400 (a passing off case). Each of those cases recognised that the scope of the inquiry as to damages corresponded to the scope of the injunctive relief and that it was appropriate to order an inquiry as to damages sustained by reason of the acts, the repetition of which was restrained by the injunction. Neither was concerned with patent infringement or any question of apportionment. In my opinion, none of the authorities relied on by Aristocrat support the contention that the form of orders made in this case precludes apportionment.

93    The logic of Aristocrat’s argument based on the form of orders is that because the injunction restrained the sale of certain gaming machines, it is entitled to recover profits on the sale of all such gaming machines made prior to the imposition of the restraint. But if it is accepted that apportionment is available in respect of an infringement of the Feature Game Claims, it would follow that an injunction restraining the sale of a gaming machine which infringed those claims should not preclude the Court from apportioning profits if it considered that it was otherwise appropriate to do so. So far as the Gaming Console Claims are concerned, there is no reason why the form of the orders made should preclude the Court from allowing apportionment of profits were it to consider that it was otherwise appropriate to do so. The effect of the injunction granted was to (inter alia) preclude the supply of gaming machines with the proportional trigger. As Konami submitted, supply of the gaming machines with a different trigger would not have infringed any of the claims and the injunction would not bite. I do not think the form of the injunction granted has any bearing on whether or not apportionment is available in this case.

Availability of apportionment

Analysis of the parties’ submissions and relevant authorities

94    It is useful before turning to consider the facts of this case in greater detail to refer to the parties’ key submissions in relation to the nature of an account of profits and the law with respect to apportionment in the context of that remedy.

95    Both parties referred in detail to the well-known decision of Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 (“Colbeam Palmer”). This was a case in which an account of profits was ordered in respect of the defendant’s infringement of a registered trade mark for the word “CRAFTMASTER” by his use of the words “Craft Master” on painting sets. The case did not involve any allegation of passing off. Windeyer J said at 32:

“The distinction between an account of profits and damages is that by the former the infringer is required to give up his ill-gotten gains to the party whose rights he has infringed: by the latter he is required to compensate the party wronged for the loss he has suffered. The two computations can obviously yield different results, for a plaintiff’s loss is not to be measured by the defendant’s gain, nor a defendant’s gain by the plaintiff’s loss. Either may be greater, or less, than the other. If a plaintiff elects to take an inquiry as to damages the loss to him of profits which he might have made may be a substantial element of his claim: see Mayne on Damages, 11th ed (1946), p 71 note. But what a plaintiff might have made had the defendant not invaded his rights is by no means the same thing as what the defendant did make by doing so.”

96    Windeyer J distinguished the facts of the case before him from those in which a patent had been infringed. His Honour said at 37:

It was suggested that the defendant's profit should be measured by the difference between the amount it received for painting sets bearing the trade mark and the amount it had paid to obtain them. The account taken when a patent has been infringed was suggested as an analogy. But to my mind there is an important distinction. If the infringer of a patent sells an article made wholly in accordance with the invention and thereby obtains more than it cost him to make or acquire it, he is accountable for the difference as profit. That is because he has infringed the patentee's monopoly right to make, use, exercise and vend the invention. But in the case of a registered trade mark, infringement consists in the unauthorized use of the mark in the course of trade in relation to goods in respect of which it is registered. The profit for which the infringer of a trade mark must account is thus not the profit he made from selling the article itself but, as the ordinary form of order shews, the profit made in selling it under the trade mark. This creates a difficulty in taking the account–a difficulty which also arises sometimes in cases of patents for improvements: see e.g. Goodlet v. Fowler [(1876) 14 S.C.R. (N.S.W.) 496.].

97    His Honour continued as follows at 42-43:

“What the defendant must account for is what it made by its wrongful use of the plaintiffs’ property. The plaintiffs’ property is in the mark, not in the painting sets. The true rule, I consider, is that a person who wrongly uses another man's industrial property - patent, copyright, trade mark - is accountable for any profits which he makes which are attributable to his use of the property which was not his. An early form of the order in a patent case is for “an account of all profits actually made by the defendant by means of the infringement”: Elwood v. Christy [(1865) 18 C.B. (N.S.) 494].

Lord Kinnear in the Court of Session in Scotland sufficiently summarized the course of earlier decisions when he said “and there certainly is a great deal of authority for saying that where only a part of a complex machine is protected by a patent, the infringer cannot be made liable for the aggregate profit derived from the entire machine, as if that were the profit he had made by the use of the patent”: United Horsenail Co. v. Stewart & Co. [(1886) 3 R.P.C. 139, at p. 143]. And in the same case on appeal Lord Watson said that in a patent action, if the patentee elects to have profits instead of damages, “it becomes material to ascertain how much of his invention was actually appropriated, in order to determine what proportion of the net profits realized by the infringer was attributable to its use. It would be unreasonable to give the patentee profits which were not earned by the use of his invention”: United Horse-Shoe and Nail Co. Ltd. v. Stewart & Co. [(1888) 13 App. Cas. 401, at pp. 412, 413; 5 R.P.C. 260, at pp. 266, 267]. In trade mark cases it has been generally accepted ever since Cartier v. Carlile [(1862) 31 Beav. 292 [54 E.R. 1151]] (a common law trade mark) that what a plaintiff who establishes infringement is entitled to is the profit attributable to the use of the mark, and no more.

It has been recognized that it may be very difficult sometimes to establish how much of the total net profit which an infringer has made by sales of his goods is to be attributed to his selling them under another man's mark. That problem, the apportionment of a total profit, has been discussed many times, most recently so far as I am aware in Canada: Dubiner v. Cheerio Toys & Games Ltd [(1966) 55 D.L.R. (2d) 420, at pp. 434, 435]. It is similar to the difficulty, to which I have alluded above, of a patent infringed by the incorporation or use of a patented invention or process as a part of a larger machine or process. The same questions and the same difficulty in accounting for profits or assessing damages can also arise if a copyright is infringed by the publication of copyright material as part only of a larger work: e.g. Baily v. Taylor [(1829) 1 Russ. & My. 73 [39 E.R. 28]]; Blackie & Sons Ltd. v. Lothian Book Publishing Co. Pty. Ltd [(1921) 29 C.L.R. 396.].

If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man's property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple. In such a case the infringer must account for all the profits which he thus made.”

98    Aristocrat placed emphasis on the last paragraph of this extract from Windeyer J’s judgment. It submitted that his Honour made clear that, if the whole thing had been supplied in breach of a patent, then the infringer would be liable to account to the patentee for the profit made as a result of such supply. In the case of the infringing EGMs sold by Konami, Aristocrat says that it must account for the whole of the profit made from those sales. In this context, it placed considerable reliance on claims 25, 27, 28 and 37, each of which is for a gaming console including the relevant prize awarding feature.

99    Aristocrat also placed reliance on the decision of the High Court in Dart Industries Inc v The Decor Corporation Pty Ltd (1993) 179 CLR 101 (“Dart”). This was a case arising from rulings made by the primary judge in relation to the taking of an account for infringements of a patent for press button seals for the sealing of plastic kitchen containers. The argument before the primary judge (Dart Industries Inc v Decor Corporation Pty Ltd (1990) 20 IPR 144, King J) and, before the Full Court of the Federal Court (Decor Corp Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, Sheppard, Burchett and Heerey JJ), concerned two questions. The first, which was the subject of the appeal to the High Court, concerned the infringer’s overheads, and whether it was proper to make any allowance for them in calculating the relevant profit.

100    The second matter, which was the subject of an application for leave to cross-appeal to the High Court, concerned the question of whether the infringers were liable to account for their profit in relation to the whole container which they had made or supplied or whether they were merely obliged to account for profits made in respect of making or supplying the infringing component only (i.e. the press button seal). If that question had been answered in the respondents’ favour, then some apportionment would have had to be made. It should be noted, however, as Aristocrat emphasised, that the infringed claims were not for the whole container, but merely the press button seal.

101    The majority of the High Court dismissed the application for leave to cross-appeal. The majority (Mason CJ, Deane, Dawson and Toohey JJ) said at 120-121:

The application by Decor and Rian for special leave to cross-appeal may be dealt with more shortly. In considering whether the profits for which an account was ordered should include those arising from the manufacture and sale of the canisters as well as the press button seals which were fitted to them, the trial judge correctly identified the problem when he said [(1990) 20 I.P.R., at p. 152.]:

“The basic legal principle is that the relevant profits are those accruing to the defendants from their use and exercise of the plaintiff's patented invention. Where the defendants’ products are, as here, composites of the invention and other features the determination of such a question is one of fact.”

In answering the question which he posed, King J. found that "sales of press button canisters are for present purposes attributable to use of the patented invention" and for that reason directed that the profits for which Decor and Rian had to account included the profits from the containers to which the press button seals were fitted [ibid., at p. 154.].

The Full Court identified the same question in somewhat different terms [(1991) 33 F.C.R., at p. 407.]:

“The respondent cannot gainsay that it is only entitled to the profits obtained by the infringement. If, for example, a patented brake is wrongfully used in the construction of a motor car, the patentee is not entitled to the entire profits earned by sales of the motor car. He must accept an appropriate apportionment. But the question is how that principle shall be applied to a situation where the patent relates to the essential feature of a single item … it seems to us that it was open to the judge to find, and he correctly found, that what characterised the infringing product was the press button lid, without which this particular container would never have been produced at all.”

The questions posed by the trial judge and the Full Court concerning the apportionment of a total profit both accurately reflect the correct principle which was expressed in this Court by Windeyer J. in Colbeam Palmer Ltd. v. Stock Affiliates Pty. Ltd. as follows [(1968) 122 C.L.R., at pp. 42-43]:

“The true rule, I consider, is that a person who wrongly uses another man's industrial property – patent, copyright, trade mark – is accountable for any profits which he makes which are attributable to his use of the property which was not his …

If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man’s property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple. In such a case the infringer must account for all the profits which he thus made.”

It is true that there is some divergence between King J. and the Full Court in relation to whether, in the circumstances of this case, primary emphasis should be placed on reason for sale or reason for production. Nonetheless, the overall approach of both accurately reflects the application of the correct general principle in the resolution of what is ultimately a question of fact.

It follows from what has been said above that, if special leave were granted, the cross-appeal would necessarily turn upon a question of fact upon which there are concurrent findings by the trial judge and the Full Court against Decor and Rian. It would for that reason be inappropriate to grant special leave to cross-appeal …

102    There are several observations to make concerning the High Court’s decision as it relates to the matter of apportionment.

103    The High Court referred with apparent approval to the discussion by the Full Court in relation to apportionment. The example postulated by the Full Court concerned a patented brake wrongly used in the construction of a motor vehicle. The Full Court observed that an apportionment will be appropriate in such a case, but that “the question is how that principle shall be applied to a situation where the patent relates to the essential feature of a single item” before agreeing with the primary judge’s finding “that what characterised the infringing product was the press button lid, without which this particular container would never have been produced at all”. That finding was broadly consistent with the finding made by King J that “sales of press button canisters are for present purposes attributable to the use of the patented invention”. It is apparent that King J focused on the importance of the press button lid to customers who purchased the containers, which led his Honour to conclude that the sale of the containers was attributable to the use of the patented invention.

104    It is apparent that the majority in Dart recognised that there was some divergence between the trial judge and the Full Court in relation to whether “primary emphasis should be placed on reason for sale or reason for production”. The majority noted, however, that “… the overall approach of both accurately reflects the application of the correct general principle in the resolution of what is ultimately a question of fact”.

105    Konami emphasised that the question whether the “whole thing” had been made or supplied in infringement of a patentee’s rights was to be determined as a matter of substance rather than form. Konami submitted that the profit for which the infringer was liable to account necessarily involved a consideration of the substance of the invention, which may not necessarily correspond to what is claimed. It relied on the decision of the High Court in D’Arcy v Myriad Genetics Inc (2015) 258 CLR 334 which made plain, in the context of manner of manufacture, that the way in which a claim is drafted cannot transcend the reality of what is in suit. It submitted that the matter must be looked at as one of substance, and effect must be given to the true nature of the claim: Gageler and Nettle JJ at [144]; see also French CJ, Kiefel, Bell and Keane JJ at [6], [87]-[88] and [94] and Gordon J at [255]. At [145], Gageler and Nettle JJ cited with approval the Full Court in Research Affiliates LLC v Commissioner of Patents (2014) 227 FCR 378 at [107] where the Full Court, also in the context of manner of manufacture, said that an “invention is to be understood as a matter of substance and not merely as a matter of form”.

106    Konami also relied on two English decisions also concerned with the question of apportionment in the context of an account of profits for patent infringement. The first was the decision of Mr Justice Laddie in Celanese International v BP Chemicals [1999] RPC 203 (“Celanese”) and the second a decision of the English Court of Appeal in OOO Abbott v Design & Display Ltd [2016] FSR 27 (“Abbott”) in which the leading judgment was delivered by Lewison LJ (Tomlinson LJ and Sir Terence Etherton agreeing).

107    In Celanese, the plaintiff’s patent related to a method for removing iodide compounds from acetic acid in order to make low-iodide acetic acid. The patented method involved use of what is known as a guard bed containing a particular type of resin loaded with silver or mercury through which iodide-bearing acid passed so as to remove most of the iodides. This guard bed was one of a number of alternative methods that could be used to remove iodides. The defendant’s plant produced acetic acid for a number of starting materials and included a number of different purification processes. The defendant’s principal argument was that his profits should be assessed on the basis of the value of the benefits arising from its use of the guard bed rather than a non-infringing alternative. This approach, which Laddie J referred to as the incremental approach, was rejected by his Lordship as contrary to principle. However, he also rejected the plaintiff’s principal argument, that the appropriate basis by which to assess the profits made from the process is by reference to the profits generated from sales of the end product.

108    Laddie J referred to various authorities in which it has been held that the infringer cannot avoid accounting for profits by relying on the existence of possible non-infringing alternatives that might have been used. His Lordship observed at [41]:

Not only does this view of the law accord with the authorities referred to above but it makes sense. Imagine a case where the plaintiff invents and patents an entirely new process for making an entirely new product. The defendant infringes the patent by using the process to make the products which he sells at a profit. There is little doubt that he would have to account to the patentee for the profits so made. Now imagine that, quite independently and at the same time, some other inventor invents another new process for making the same product but does not patent it so that the infringer could have made the same product in a non-infringing way. The fact is that he did not do so. The profits he made were made by use of the patented invention and he should account for them. The existence of alternatives may push down the market price for the products and thereby depress the profits actually made, but that is another matter.

109    However, his Lordship also recognised that the plaintiff could not recover profits which were not properly attributable to the use of the plaintiff’s invention. He said that the question to be answered is what profits were made by the defendant from the wrongful activity. He went on to observe that to refuse an apportionment when it is clear the significant part of the profits made by the plaintiff owe nothing to the infringement would be unjust to the defendant.

110    His Lordship referred at [46] to the Canadian case of Imperial Oil v Lubrizol [1996] 71 CPR (3d) (“Lubrizol”) where the Canadian Federal Court of Appeal said at 30:

… The issue of apportionment is at bottom a question of fact bearing on the relationship between the profits earned and the appropriation of the plaintiff's invention ... Form must not be allowed to triumph over substance. While motor oil containing the dispersant additive was properly claimed in the patent (it would seem likely that the dispersant is useless except as an additive to motor oil) and while that claim was properly found to have been infringed, the reality is that Lubrizol did not invent motor oil and that Imperial's motor oils contain other additives than the one here in issue. The terms of the judgment quoted by the prothonotary in the above extract from his reasons make it plain that it is the presence of the additive (“carboxylic derivative compositions”) claimed in the Meinhardt patent which caused Imperial's motor oils to infringe. Thus, it is possible that such oils have acheived [sic] their market share and attendant profits for reasons other than the presence of Lubrizol's patented additive. A finding that Imperial's motor oils infringed the Lubrizol patent does not necessarily amount to a finding that all the profits from the sales of such motor oils are profits arising from the infringement. That is an issue of fact to be decided on the reference.

111    His Lordship continued at [47]-[48]:

47.    Sometimes the court may come to the conclusion that all the profits are attributable to the act of infringement. That is what Pennycuick J. did in Peter Pan. There the whole of the defendant's brassieres were made by misuse of the plaintiff's confidential information. Without it brassieres to that design would not have existed. No apportionment was appropriate. Similarly, the court may come to the conclusion, as a matter of fact, that the invention was the essential ingredient in the creation of the defendant's whole product or process. If so, it may be appropriate not to apportion. See Dart Industries v. Decor Corp.

48.    However, once it is conceded or proved that an apportionment is appropriate, the course must do its best to split the profits between infringing and non-infringing parts …

112    His Lordship recorded his agreement with the views expressed in Lubrizol and then referred to his “tin whistle” example at [51]:

51.    In deciding whether the defendant has to account for all or only a part of the profits made on a particular venture, I respectfully agree with the view expressed by the Canadian Federal Court of Appeal in Imperial Oil v. Lubrizol that this is a matter of fact and that form must not be allowed to triumph over substance. As I have mentioned above, HC [the plaintiff] commenced the inquiry arguing that low-iodide acetic acid was a product made directly from the patented process and therefore was an infringement in its own right pursuant to s.60(1)( c) of the Act. Based on this it said that because the whole product was an infringement, therefore all the profits made from it were accountable. Arguments as to whether the product is acetic acid or purified acetic acid hide the real purpose of the account which is to identify what profit has been made by BP [the defendant] by using the patented purification method. The point can be illustrated by the tin whistle example much beloved of patent practitioners. Someone invents a new form of tin whistle. With the aid of his patent agent he obtains a patent. Regrettably, but as is now common, the patent ends with claims of ever greater particularity and narrowness. (Subsidiary claims limited to the patented article made out of plastics material of a particular colour are not unknown.) Claim 1 is for the tin whistle. Claim 10 is for a funnel to which the new tin whistle is connected. Claim 15 is for a battleship with a funnel to which the tin whistle is connected. No doubt none of the subsidiary claims are independently valid over Claim 1 but they are probably not per se invalid. Nor is there any doubt that an injunction or an order for delivery up would be directed to the tin whistle alone rather than the whole battleship. Similarly on an account substance not form counts. What the defendant has to account for is the profit made by exploitation of the invention, i.e. the whistle, not profits made by exploitation of m[a]terial or activities which are not attributable to the plaintiff's ingenuity, i.e. the rest of the battleship.

113    In Abbott, the English Court of Appeal was concerned with an account of profits in respect of the sale by the defendant of display panels used in shops. The relevant claim of the patent is reproduced by Lewison LJ at [4] of his reasons. The claim was to a display panel which included a particular type of metal insert. It is unnecessary to refer to the claim in any detail but merely to note that the invention addressed a problem associated with prior art inserts and the means by which they engaged with the panel. Lewison LJ noted at [13] that the judge who determined the infringement and validity issues correctly considered that the “inventive concept” related to the shape of the insert, the material from which it was made, and the way in which it interacted with what was referred to as the “slat board”.

114    Lewison LJ said at [7]:

7.    Section 61(1)(d) of the Patents Act 1977 entitles a patentee to claim against an infringer an account of the profits “derived by him from the infringement”. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent his unjust enrichment. The underlying theory is that the infringer is treated as having carried on his business (to the extent that it infringes) on behalf of the patentee. The broad principle is that the patentee is entitled to profits that have been earned by the use of his invention. If the patentee does not recover those profits, the infringer will have been unjustly enriched. So the purpose of the account is to quantify the extent to which the infringer would be unjustly enriched if he were to retain the profits derived by him from the infringement. That requires the fact finder first to identify the patentee’s invention and second to decide what (if any) profits the infringer derived from the use of that invention. The second of these questions may give rise to difficulty where the infringer sells products associated with the subject matter of the patent (often called “convoyed goods”) or products into which the subject matter of the patent is incorporated. The court must determine what profit has been earned, in a legal sense, by the infringer’s wrongful acts. It is clear, then, that an account of profits looks at the facts through the lens of what the infringer has done; and what the patentee might have suffered by way of loss in the real world is irrelevant.

115    His Lordship went on to note that it was common ground in that case that, for the purpose of assessing damages or an account of profits “the scope of the invention is not necessarily co-terminous with the scope of the claims”. His Lordship then referred to Laddie J’s “tin whistle” example, quoting with approval the relevant passage from Celanese at [51].

116    Lewison LJ referred to various authorities many of which were considered by Laddie J in Celanese including the judgment of the High Court in Dart. His Lordship noted at [28] that Laddie J had concluded that an apportionment would be inappropriate where, without the infringement, the infringing articles would not have existed, or where the invention was an essential ingredient in the creation of the infringer’s whole product.

117    His Lordship then turned to the reasons given by the primary judge who considered the account of profits issue and whose rulings gave rise to the appeal in Abbott. For the purposes of understanding his Lordship’s ultimate conclusion, it is necessary to refer to findings made by the primary judge which are set out at [29]-[32] of his Lordship’s reasons. It is apparent from those paragraphs that the primary judge accepted that in some cases the sale of the inserts drove the sale of the panels, but that it could be assumed that in some cases customers were indifferent to the type of insert used. However, the primary judge held that this did not make any difference because the defendant was either going to make a sale of both inserts and panels or no sale at all and that the sales of inserts and panels went hand in hand. The primary judge also found that the sale of the inserts caused the sale of the panels and that the sale of the panels was a foreseeable consequence of the sale of the inserts. It followed, according to the primary judge, that the scope of the profits derived from the defendant’s infringement extended to the profit made from all sales of panels in which the inserts were incorporated.

118    Having referred to the relevant passages in the primary judge’s reasons, Lewison LJ then returned to the question whether there should be some apportionment made in relation to the defendant’s profit on the sale of the panels incorporating the relevant inserts. He said at [36]-[37]:

36.    Let me revert to the example given by the Full Court in Dart Industries v Decor Corp [1994] F.S.R. 567. A manufacturer sells a car which includes a patented brake. If the car did not have brakes, the manufacturer could not have sold it, but it did not have to have that particular brake. In those circumstances the Full Court clearly thought that it would be unjust to charge the manufacturer with the whole profit made on the car; and I agree with them. In my judgment the legal error that the judge made was to ask whether the sale of the panel plus insert would have happened separately rather than to ask himself how much of the profit on the sale was derived from the infringement. In a case in which the infringement does not “drive” the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement. In particular it does not follow from the fact that the customer wanted a slat wall that incorporated an insert that the customer wanted a slat wall that incorporated the infringing insert. Mr Cuddigan argued that the infringing inserts and the slot were the “very essence” of the incorporated and unincorporated panels. But the judge made no such finding, and his observations at [32] suggest the contrary. In addition I do not consider that the judge was correct at [31] in saying that “because the sales went together, the sale of inserts caused … the sale of the panels…” The mere fact that the two went together is not, in my judgment, sufficient to establish that the whole of the profit earned on the composite item was derived from the invention. One might just as well say that the sale of the panel caused the sale of the insert. As the judge himself recognised the customer specifies panels, and on the hypothesis that he was considering at [31] the customer is indifferent about the inserts (provided that some form of insert is included). On the judge’s approach, because the sale of the patented brake went with the sale of the car, the whole of the profit on the car would be included in the account. If the judge had found on the facts that the infringing insert was “the essential ingredient in the creation of the defendant’s whole product” (i.e. the incorporated panel), then he would have been justified, on the facts, in declining to apportion the profit. But I cannot see that he made that finding.

37.    In my judgment therefore in cases simply falling within the factual hypothesis discussed at [31] the judge should have apportioned the overall profit. The question of apportionment will therefore have to be returned to IPEC, although the judge would not be precluded from finding as a fact that the infringing insert was the “essential ingredient” of the incorporated panel.

[original emphasis]

119    In 2004 the Canadian Supreme Court in Monsanto Canada Inc. v. Schmeiser [2004] 1 SCR 902 held that a patentee is only entitled to that portion of an infringer’s profit which is attributable to the appropriation of the patented invention. The Court held that a comparison must be made between the infringer’s profit attributable to its use of the invention and its profit had it used the best non-infringing option available. This approach, which measures profits by reference to non-infringing alternatives, does not reflect the law in either Australia or the United Kingdom. However, it has been suggested that this approach may be justified not on the basis that the defendant’s profits correspond to the difference between those made supplying the infringing product and a product that was non-infringing, but on the basis that a consideration of non-infringing options will provide a useful measure with which to apportion profit between that which is attributable to the use of the invention and that which is not. On that analysis, any consideration of non-infringing alternatives, is only relevant when the court is required to assess what part of the infringer’s profits are attributable to the infringer’s appropriation of the invention. In those circumstances, the use of the term “non-infringing alternative” is referring to a non-infringing course of action that can assist in identifying the value of the relevant appropriation.

120    In any event, the law of Canada recognises that the determination of the profit made by an infringer as a result of the appropriation of the invention is to be determined as a matter of substance. So much is clear from the decision in Lubrizol where the Canadian Federal Court of Appeal found that for the purpose of determining profits made by the defendant through the appropriation of the plaintiff’s invention, the scope of the invention was to be determined as a matter of substance rather than form. In that case it was held that the substance of the invention was not motor oil including a dispersant additive as claimed, but the dispersant additive when included in motor oil. The Court observed that, even though the defendant’s motor oil infringed the relevant patent, it did not follow that all profits from the sale of the relevant motor oil are profits arising from the infringement. It was in that context the Court also observed that “[f]orm must not be allowed to triumph over substance”. The Court went on to note that, as found by the trial judge, the inventive step in the patent related only to the additive, but did not rule otherwise on the scope of the apportionment.

121    In Australia, the majority accepted in Dart that it may be appropriate in some cases to apportion profits made by an infringer. The majority’s approval of the Full Court’s discussion concerning the patent for a brake for use in a motor vehicle makes this clear. If the patent covers only the braking system then the fact that the infringer supplied a motor vehicle incorporating such a system would not entitle the patentee to all of the infringer’s profits arising from the sale of the motor vehicle. That seems to be a well-accepted proposition and one which I did not understand Aristocrat to dispute. Rather, as previously mentioned, it submitted that the position is different if the infringed claim is for the whole product sold by the infringer. On that view of the law, it would follow that, if the facts of the example given in Dart were changed such that the infringed claim was to a motor vehicle incorporating the relevant braking system, then the infringer who sold a motor vehicle including such a braking system would be liable to account for all of his profits arising from such a sale.

122    As previously mentioned, Aristocrat relied on the observation of Windeyer J in Colbeam Palmer at 37 where his Honour said if the infringer of a patent sells an article made wholly in accordance with the invention and obtains more than it cost him to make or acquire it, he is accountable for the difference in profit. His Honour said that this was because the infringer had infringed the patentee’s monopoly right to make, use, exercise and vend the invention. Aristocrat says that Windeyer J was clearly referring to the invention as claimed which follows from his Honour’s reference to the patentee’s monopoly, which is defined by the scope of the claims. Aristocrat submitted that statement of Windeyer J had been referred to with approval by the High Court in Dart and that it constitutes a correct and binding statement of the law.

123    However, it is not apparent that Windeyer J was directing his observations to a situation in which the substance of the patented invention was different from what was claimed. I do not think his Honour’s observations provide a sufficient basis for holding that a patentee is entitled to recover profits made by an infringer in a case where the substance of the invention is something less than what is claimed or, returning to the earlier example, that a patentee may recover profits from the sale of a motor vehicle incorporating an inventive breaking system merely because the patent includes a claim to a motor vehicle incorporating such a system. That example raises complexities that his Honour was not addressing when distinguishing the scope of the remedy of an account of profits for infringement of a registered trade mark from the scope of the remedy available to the patentee when the infringer sells an article made wholly in accordance with the invention.

124    I was not referred to any other Australian case in which the position for which Aristocrat contends has been considered. However, it has been rejected in the United Kingdom first by Laddie J in Celanese (although I accept his Lordship’s observations concerning the “tin whistle” were not necessary to his decision) and by the English Court of Appeal in Abbott. Both cases emphasised the need to consider matters of substance when determining the extent to which the infringer could be said to have derived profits from the infringement.

125    Although in Abbott Lewison LJ referred to the “inventive concept”, he used this term to refer to the substance of the invention which he observed may not necessarily be the same as the invention as claimed. As I will explain, were that not the case, the scope of the patentee’s entitlement to recover profits would be entirely dependent on the form of the claims and lead to a result where the infringement of different claims of the same patent might yield different pecuniary outcomes depending on what claim was invoked even though the substance of the invention around which the claims are drawn is the same.

126    Konami submitted that the profits for which a defendant is ordered to account could not exceed the totality of the profits it actually made, and could in some cases be much less. It is only that proportion of the total profits actually made which is attributable to the defendant’s use of the invention – considered as a matter of substance – for which it should be ordered to account. Profits attributable to other matters are excluded.

127    Konami submitted that the substance of the invention of each of the infringed claims was the particular trigger (the “proportional trigger”) whereby a trigger condition is determined by an event having a probability related to desired average turnover between successive occurrences of the trigger condition on the console and the credits bet on the respective game. It submitted that nothing in the specification or the claims of the 689 Patent suggests that the substance of the invention is anything other than the proportional trigger. This is why, according to Konami, the form of the claim and the corresponding form of the injunction previously granted are not determinative of the question of apportionment. It submitted that to hold otherwise would elevate form over substance.

128    Even in the case of those claims that are not to a gaming console, Aristocrat submitted that apportionment was not available in this case because the gaming consoles made and sold by Konami came into existence by reason of the trigger. In essence, its submission was that there is a close working interrelationship between the components of the gaming console, including the base game, the feature game, and the trigger. This interrelationship gave rise to a number of benefits including that the base game and the feature game could be played simultaneously and independently of each other such that a player could succeed on the feature game despite not winning on the base game, that the feature game could be added to an existing base game without having to significantly modify the base game, and that the ability to add on the feature game enabled the feature outcome RTP to satisfy the overall minimum RTP requirement thereby enabling the RTP of the base game to be reduced.

129    Aristocrat submitted that the infringing gaming consoles supplied by Konami were to true combinations in which each of the integers had a particular working relationship and that it followed that, as a matter of substance, the invention was, at least as defined in claim 25, to a new and useful combination comprising a gaming machine that produced new and improved results.

Consideration

130    The starting point in determining whether apportionment is available in this case is the High Court’s decision in Dart. As I have explained, it is apparent from the Court’s approval of the example referred to in the Full Court’s judgment of the braking system in the motor vehicle that apportionment may be available in some cases. It was not available in Dart given the concurrent findings of fact made by the trial judge and the Full Court, which explains why the High Court accepted that the infringer in Dart should be required to account for all profits attributable to the sale of the containers after allowance for any proper deductions.

131    Aristocrat’s submission that apportionment is not available in respect of Konami’s infringement of the Feature Game Claims is predicated on two alternative but not mutually exclusive propositions. The first is that the trigger is an essential component of the gaming machines supplied by Konami or, as was expressed by the Full Court in Dart in the passage approved by the High Court, “the patent relates to the essential feature of a single item”. The second proposition is that the gaming machines made and sold by Konami would never have been made or sold without the trigger. Relying on the dictum of Windeyer J in Colbeam Palmer, Aristocrat submitted that the whole article (i.e. the gaming machine) came into existence by reason of the infringer’s wrongful use of the patentee’s invention.

132    With regard to the Gaming Console Claims, Aristocrat also submitted, as I have explained, that apportionment is simply not available in respect of profits made by Konami by reason of its infringement of those claims because they are each for an EGM. Alternatively, if contrary to that submission, apportionment is otherwise available in respect of those claims, Aristocrat relies on the first and second propositions to which I have just referred and says that it is not available because the feature game and the associated trigger was an essential component of the EGMs supplied by Konami and that they would never have been made or supplied without the feature game and trigger.

133    After some equivocation, Aristocrat contended in its closing submissions that claims 1 and 2, and the other Feature Game Claims, were claims to an EGM. I have previously explained why I do not accept that construction of those claims. Properly construed, they define a “random prize awarding feature” which is not an EGM.

134    The first question is whether the authorities relied upon by Konami, including the decision in Abbott, are inconsistent with general principle and, in particular, what was said by Windeyer J in Colbeam Palmer. As I have mentioned, Windeyer J was not directing his observations to a situation in which there was a claim for apportionment made in respect of the whole article on the basis that the substance of the invention was for something different from what was claimed. The critical statement in his Honour’s judgment relied on by Aristocrat was made in the course of distinguishing the scope of the remedy of an account of profits in a case concerning infringement of a registered trade mark from cases concerned with the infringement of a patent for an article where the infringed claim is to the infringing article. That said, I accept that what Windeyer J said reflects the proper approach in many cases where what has been made and supplied is the very thing that has been claimed, the logic being that each and every sale of the relevant article by the infringer encroaches on the patentee’s monopoly with respect to that article.

135    In its submissions Aristocrat confronted the tin whistle example, and the English Court of Appeal’s decision in Abbott, by arguing that they did not reflect the law in Australia. Specifically with regard to the tin whistle example, Aristocrat suggested that the unreasonableness of any outcome that awarded all profits derived from the sale of the battleship to the patentee, did not constitute a real difficulty because a claim to the battleship with the tin whistle would be invalid. I note that in Celanese Laddie J referred to the issue of validity and observed that the dependent claims to the battleship with the tin whistle example would not be “per se invalid”.

136    Is the Court bound to make an award of all profits resulting from the infringement of a claim to a product if the patentee’s invention, as a matter of substance, is for something less than what is claimed? Put another way, is the scope of the obligation to account for profits necessarily determined by the scope of the patentee’s monopoly as defined by the claims or is it permissible to look beyond the language of the claims for the purpose of ascertaining the profits made by the infringer by its wrongful appropriation of the patentee’s invention? Implicit in Aristocrat’s approach to this question is that extreme cases (including Laddie J’s tin whistle example) should not arise because the invention will be different from what is claimed in some material respect that necessarily deprives the claim of validity. Aristocrat’s submission on this particular topic was not developed in any detail but the implication of the submission was that Laddie J’s example of a battleship with a tin whistle was not a true combination and was therefore not patentable subject matter.

137    In Minnesota Mining and Manufacturing Company v Beiersdorf (Australia) Ltd (1980) 144 CLR 253, Aickin J, after referring to the specification and claims of the patent in suit in that case, said at 266:

The patent thus claimed is a combination patent in the proper sense of that term, i.e. it combines a number of elements which interact with each other to produce a new result or product. Such a combination may be one constituted by integers each of which is old, or by integers some of which are new, the interaction being the essential requirement.

138    However, not every assembly of interacting integers is a combination in the proper sense. Whether or not a claim to an invention is for a true combination is essentially a question of fact that depends upon an assessment of the nature and extent of the interrelationship of the parts that make up the alleged combination. The nature of the assessment to be made was explained by Dixon J (as his Honour then was) in Palmer v Dunlop Perdriau Rubber Co Ltd (1937) 59 CLR 30 at 73-74:

“A proper combination for a patent is the union of two or more integers, every one of which elements may be perfectly old, for the production of one object which is either new, or at any rate is for effecting an old object in a more convenient, cheaper or more useful way. But the point in a combination patent must always be that the elements of which the combination is composed are combined together so as to produce one result” (In the matter of Klaber’s Patent [(1906) 23 R.P.C. 461, at p. 469], per Lord Davey).

In applying the test thus stated, it is always important to determine what is the result which the combination achieves. In the present case, it may be said the result is a vulcanized box produced in a different and more efficient manner. But the characteristic which a combination of known integers must possess in order to afford subject matter is mutual relation in the operation of such integers. Separate elements may be brought together and yet each may continue to operate as it did before. In other words, all that the patentee may have done is to assemble together things or ideas which apart from sequence, order, position and proximity of association continue to perform their known functions as before. He may in such a case have produced a more convenient and a better appliance or process but he has contributed nothing in doing so which amounts to invention. In an often-cited passage from the judgment of Buckley L.J. in British United Shoe Machinery Co. Ltd. v. A. Fussell & Sons Ltd. [(1908) 25 R.P.C. 631, at pp. 657, 658.] the distinction is drawn between the production of a simple and of a complex result. “For this purpose,” his Lordship says, “a combination, I think, means not every collocation of parts, but a collocation of inter-communicating parts so as to arrive at a desired result, and to this, I think, must be added that the result must be what, for the moment, I will call a simple and not a complex result. I will explain presently what I mean. It is not every combination of parts which is for this purpose a combination. To take the old illustration of the watch, the watch case, the bow, the glass, the hands, the face, the internal machinery and its bearings, the escapement, and so on, may all be said, in a sense, to form a combination, but it is not a combination for the present purpose. It is not a collection of inter-communicating parts with a view to arrive at a simple result. If, for instance, a man invented an improved composition of metals for making the case, or an improved method of attaching the bow or the like, that would be no improvement of the machinery which measures the time, and the machinery which measures the time is not necessarily one combination. The driving machinery in the main spring, the control in the escapement, the collocation of the wheels so adjusted inter se as to achieve the desired result, may each be a separate combination. The gridiron pendulum and the other mechanism may not constitute a new combination in the sense of a new combination of all the machinery which serves to measure the time. Further, the result to be achieved by the main spring is the production of force; the result to be achieved by the cog-wheels is to distribute and utilize that force; the result to be achieved by the escapement is to control the rotation of the wheels under the exercise of that force; the result to be achieved by the whole mechanism is to measure the flight of time. The latter I call a complex result. Each of the former I call a simple result. Whether the particular improvement is so added to the parts, or substituted for some of the parts, of an existing machine (which may be a combination, or an aggregate of combinations) or of an existing combination, meaning a combination in its proper sense, so as to form a new combination is in each case a question of fact.”

139    What that passage highlights is that, particularly in the case of an apparatus producing a complex result, there may be many different inter-communicating parts, each of which is made up of one or more true combinations but all of which may not amount to a true combination. A good example is a personal computer which is made up of many inter-communicating parts including a monitor, processor, memory device, keyboard and (let it be supposed) a new and inventive form of operating software used to drive those components.

140    It is also important to recognise that a valid claim may be obtained for a combination that forms part of a larger collocation. As Fletcher Moulton LJ observed in British United Shoe Machinery Co Ld v A Fussell & Sons Ld (1908) 25 RPC 631 at 649, “[i]f a patentee could rightly claim a general grant, but he limits the grant in any way – limits it, not extends it – no such limitation can destroy the validity of his grant.” The question in such cases is whether the claim is to be understood as including a limitation which narrows rather than expands the patentee’s monopoly. In Laddie J’s tin whistle example, the claim may be valid not on the basis that what is described is a true combination consisting of both the battleship and the tin whistle, but because the requirement that the tin whistle be fitted to a battleship is a limitation on the claim.

141    That said, I accept that some claims to what is said to be a combination may not be valid on the basis that what is claimed is not a true combination or because the claim is not fairly based on, or supported by, matter disclosed in the specification. Either way, the validity of the claim would depend on the application of the legal principles relevant to each potential ground of invalidity. But it does not follow that the application of those principles should determine whether apportionment is available. That is a question that typically arises after findings of validity and infringement have been made (where those matters are in contest) and it is a question that must be answered by reference to equitable principles governing the remedy of an account of profits.

142    An account of profits is an equitable remedy. As the majority explained in Dart at 111:

… an account of profits retains its equitable characteristics in that a defendant is made to account for, and is then stripped of, profits which it has dishonestly made by the infringement and which it would be unconscionable for it to retain. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent its unjust enrichment. The ordinary requirement of the principles of unjust enrichment that regard be paid to matters of substance rather than technical form is applicable.

(Footnotes omitted)

143    The cases cited by the majority in Dart in that passage included the decision of Slade J in My Kinda Town Ltd v Soll & Anor [1983] RPC 15 (“My Kinda Town”) at 55. In that case, which concerned an account of profits for passing off, his Lordship said at 55:

The purpose of ordering an account of profits in favour of a successful plaintiff in a passing off case is not to inflict punishment on the defendant. It is to prevent an unjust enrichment of the defendant by compelling him to surrender those profits, or those parts of the profits, actually made by him which were improperly made and nothing beyond this …

144    The reference in Dart to the need to have regard to matters of substance rather than technical form is significant in the present context. In some cases it may be necessary to have regard to the substance of the patentee’s invention as opposed to the form in which it is defined by the claims in order to avoid a situation in which a patentee is awarded profits which were not made by the use of the invention. The form of the claim that has been infringed is not necessarily determinative of the scope of the obligation to account for profits made as a result of the infringement of a claim if it is apparent that the substance of the invention is different from what is claimed.

145    At this point it is useful to return to the example of the braking system for a motor vehicle. If a patent claims a braking system, and also claims a motor vehicle incorporating such a braking system, the liability of the infringer to account for profits from the infringement should not depend on the particular form in which the patentee’s invention has been defined. Otherwise the scope of the liability to account depends on which of the claims the patentee invokes against the infringer even though both claims are in substance directed to the same invention. This is not a sensible outcome particularly if, as required, by s 40(4) of the Act, the various claims relate to one invention only, namely, the braking system. Moreover, if the scope of the liability to account for profits turns on the form of the various claims, it would also lead to the odd result in which the narrower of the claims defining the invention – i.e. to a motor vehicle incorporating the braking system – attracts a potentially much greater pecuniary liability than the broader claim – i.e. to the braking system itself – even if the purchaser of the motor vehicle, and also the infringer, were wholly indifferent as to the type of braking system used.

146    In my opinion it is necessary to have regard to the substance of the invention which Konami appropriated for the purposes of determining the extent of its liability to account for profits.

The substance of the invention

147    Konami submitted that the substance of each of the infringed claims was the proportional trigger whereby “a trigger condition [is] determined by an event having a probability related to desired average turnover between successive occurrences of the trigger conditions on the console” and “the credits bet on the respective game” (in the language of claims 1 and 2). It submitted that if a different trigger had been utilised in the infringing gaming machines, then there would have been no infringement. It also points to the fact that feature games, and gaming machines on which feature games were installed, were known and form part of the common general knowledge at the priority date and that the only new and inventive feature of the gaming consoles described in both the body of the specification and the claims is the new trigger. That the trigger mechanism represents the substance of the invention is, according to Konami, confirmed by the problems that were addressed and solved by its use.

148    Aristocrat submitted that the trigger was not a severable feature or component from the rest of the EGM and that the invention was a working combination of features consisting of the console, the base game, the trigger and the feature game. It submitted that it was not possible to characterise the invention as a mere “trigger” because the claims are directed to a combination involving a working interrelationship between the gaming console, the base game, and the feature game incorporating the proportional trigger. I will refer to this as the “whole thing” argument.

149    In developing the whole thing argument, Aristocrat relied on both the Feature Game Claims and the Gaming Console Claims on the basis that all of them were to, or at least included, an EGM.

150    I have already referred to the fact that the Feature Game Claims are to the prize awarding feature referred to in those claims and not to the EGM itself. Hence, it is a mischaracterisation of those claims to say that they are to an EGM with a feature game with a particular type of trigger. In substance, those claims describe a feature game having defined characteristics relating to (inter alia) when and in what circumstances the feature outcome is triggered and, in the case of some of the dependent claims, the nature of the feature outcome (e.g. claim 16). In the case of all the Feature Game Claims the essence of what is described and claimed is a prize awarding feature which, when triggered in accordance with the requirements of the claims, produces a feature outcome.

151    In support of its submission that the substance of the invention was a working combination that consisted of the whole of the EGM together with the base game and the feature game, Aristocrat relied on the following matters:

(a)    The feature outcomes for each of the 689 Games were determined by an event having a probability related to desired/expected average turnover between successive occurrences of the trigger condition. Further, a player’s chance of triggering a feature outcome also depended on the number of credits bet on a game by the player.

(b)    Each of the 689 Games allowed for both the base game and the feature game to be played simultaneously and independently of each other such that a player could win on the feature game without winning on the base game.

(c)    The 689 Games could be added to existing base games without having to substantially redesign the base game to include a feature outcome as a winning combination of an existing base game. The ability to “add on” the feature game in that way included the ability to use the feature outcome RTP to satisfy the overall minimum RTP which enabled the RTP of the base game to be reduced. The combination of the two games required some downward adjustment to the RTP of the base game in order to allocate sufficient RTP to the feature outcome.

(d)    Each of the 689 Games were paired with a standard (base) game and were:

(i)    a jackpot (feature) game associated with a special jackpot prize; and

(ii)    a feature outcome comprising a simplified game having a higher probability of winning a major prize than in the main game.

(e)    Each of the EGM sales was for a gaming console that included the cabinet and all necessary hardware and software all of which interact with each other to enable the EGM to be played, and to display images, and emit sounds, appropriate for the game, as directed by the game software.

152    Many of these matters are self-evidently correct as reflected in the infringement findings. Hence, it may be accepted, and Konami does not dispute, that the probability of the feature outcomes (e.g. jackpots) in each of the 689 Games being triggered (a trigger event) depends on the average or expected turnover between trigger events (see (a)). The significance of this is that a person who played a 689 Game always had a chance of triggering the feature outcome and the probability of the player doing so improved proportionally with every additional credit bet on a game. These were advantages flowing directly from the use of a trigger of a kind described in claims 1 and 2.

153    As to (b) and (c), the fact that the base game and the feature game could be played simultaneously and independently of each other is not an advantage referred to in the specification. In cross-examination of Mr J Duffy it was put to him that, reading claim 3 of the 689 Patent, one of the benefits of the claimed invention was that you could have the base game operating independently of the feature outcome. Mr J Duffy agreed with that proposition but he also noted that there were other triggers that did the same. I should say I do not agree that this is an advantage of the invention as defined in claim 3. There is nothing in claim 3 that requires the prize awarding feature to operate independently of the base game. That said, it is apparent that the invention may have provided some flexibility with regard to the setting of RTP for the base game and the feature game and that in the case of prior combinations that used a central jackpot controller (i.e. linked rather than standalone progressives) separate regulatory approval was required for the jackpot controller. In that situation, regardless of the RTP for the jackpot controller, each EGM linked to it would still have to meet the minimum RTP (85%) for an individual machine. But once it is accepted that claims 1 and 2 apply to standalone progressives (both parties accept that they do) then these matters are not relevant advantages of the invention given that there will be many embodiments of the invention falling within the scope of the claims that do not rely on a central jackpot controller.

154    With regard to (d), this refers to matters of game design picked up in dependent claims (claims 4 and 16). The additional requirements introduced by these dependent claims do not confer advantages different from combinations of base games and feature games found in the prior art. The additional requirements included in the dependent claims are more in the nature of limitations of the kind previously discussed. In each case the substance of the invention is the same, even though it has been defined in progressively narrower terms as is customary in the case of dependent claims: Rehm Pty Ltd v Websters Security Systems (International) Pty Ltd (1988) 81 ALR 79 at 85 per Gummow J.

155    With regards to (e), I previously referred to the judgment of the majority in Dart and the purpose of an account of profits which requires that regard be paid to matters of substance rather than technical form. The question whether there has been an infringement of a claim is determined by the language of the claims as construed in accordance with well-settled principles of construction. But for the purpose of determining the extent to which a respondent has been unjustly enriched by its appropriation of the invention it may be necessary to look beyond the language used in the claims to the substance of the invention. In the present case, I do not regard the fact that some of the claims (i.e. the Gaming Console Claims) take the form of claims to an EGM as determinative.

156    Aristocrat relied on Ms Bryant’s evidence in support of its whole thing argument. She gave detailed evidence in relation to Aristocrat’s Hyperlink which she said embodies the features claimed in claims 1–4, 16, 25, 27–28, 37, 43 and 55 of the 689 Patent. In her evidence Ms Bryant said that a “Hyperlink Game” consists of an underlying “Standard Game” with a “Jackpot Feature Game” added. She also noted that a Standard Game may or may not include a “Standard Feature Game”, being a feature game encompassed within the Standard Game. What emerges from her evidence is that a Jackpot Feature Game of the type used in the Hyperlink system (a Hyperlink Jackpot Feature) can be characterised as an “add on” to the Standard Game.

157    In describing the internal workings of an EGM, Ms Bryant referred to the software which will run a Standard Game module and a Hyperlink game module. She agreed that it was possible to “swap the standard game out” and substitute another approved product for it. This allows a venue to keep an EGM and the Hyperlink Feature Game installed on it, and to replace the existing Standard Game with a different Standard Game that is also an approved product.

158    According to Ms Bryant, each of the Hyperlink games contained the following features:

(a)    it is a random prize awarding feature that selectively provides a feature outcome on a gaming console (claim 1).

(b)    the feature outcome is offered when the game achieves a trigger condition (claim 1).

(c)    the trigger condition is determined by an event having a probability related to:

(i)    desired average turnover between successive occurrences of the trigger conditions on the console (claim 1); and

(ii)    credits bet on the respective game (claim 2).

(d)    the gaming console plays a main game or Standard Game, during which testing for the trigger occurs (claims 3 and 4).

(e)    the feature outcome is the awarding of feature game(s), which is:

(i)    a jackpot game associated with a special jackpot prize (claim 3/4); and

(ii)    a simplified game having a higher probability of winning a major prize than in the main game (claim 16).

(f)    gaming console having the above features (claims 25, 27, 28, 37).

(g)    a method of awarding a prize as described above (claims 43, 55).

159    The random prize awarding feature referred to in (a) is, in the Hyperlink system, what Ms Bryant refers to as a “Jackpot Feature Game”. In her evidence Ms Bryant refers to the various examples of “Jackpot Feature Games” including “Born to Be Wild”, “Jackpot Carnival”, and “Thunderheart” each of which is, in the language of the claims, a “random prize awarding feature” that can be matched with a standard (or base) game. Ms Bryant explained that in the Hyperlink system, the software on the gaming console makes a background calculation whenever a bet is placed on the Standard Game to determine whether a Jackpot Feature Game has been triggered. If the Jackpot Feature Game is triggered, it commences once the Standard Game is over. The outcome of the Jackpot Feature Game will be the awarding of one of the progressive jackpot pools, and once a jackpot pool has been determined and revealed to the player, the Jackpot Feature Game sends a message to an external jackpot controller via the gaming console to inform it that a jackpot prize has been won. The external jackpot controller then informs the gaming console of the amount that it has to pay. Ms Bryant’s evidence shows that in the Hyperlink system, the software on the gaming console is performing calculations and other tasks for the purposes of both the Standard Game and the Jackpot Feature Game. The gaming console also engages in communications with an external jackpot controller when a jackpot prize is won.

160    What Ms Bryant’s analysis also shows is that the features referred to in (a)–(c) are all concerned with the prize awarding feature, the feature outcome that it provides, and the trigger conditions which determine when the feature outcome is activated. The features (d) and (e) are, as I have said, merely iterations of the prize awarding feature game and specify when testing for the trigger condition occurs. These iterations indicate that the console may be arranged to offer both a base game and a feature game with testing for the trigger conditions occurring during play of the base game and more specifically defining the nature of the prize awarded by the feature game and the probability of a major prize being won in the feature game relative to the probability of a major prize being won in the main game. These are characteristics of the feature game, and not the base game, or the gaming console. This provides further support for the view that the substance of the patented invention is “a random prize awarding feature” with the proportional trigger as claimed in claims 1 and 2.

161    Aristocrat relied on Mr Crosby’s evidence in support of the whole thing argument. His evidence was said to demonstrate that what he referred to as the 689 trigger involved a number of elements including a base game and a feature outcome, which could be triggered on any spin of the base game. It was submitted that his evidence shows that, from a product development perspective, what he called the 689 trigger was not merely a trigger, but a combination of the various integers identified in the relevant claims. I do not accept that characterisation of Mr Crosby’s evidence. Although different aspects of the 689 trigger were explored with Mr Crosby in his cross-examination, at no time did he agree that the 689 trigger is anything more than that part of the feature game which determines when and how a feature outcome is triggered.

162    Evidence given by Mr J Duffy and also Ms Bryant established that regulatory approval for the infringing games was based on the combination of the base game and the feature game. In evidence given in relation to Aristocrat’s Hyperlink, Ms Bryant explained:

In respect of Hyperlink, the Jackpot Feature Game that runs within an EGM is not a separate gaming device on its own. It needs to be coupled with the Standard Game upon which bets will be placed in order to operate. Therefore, regulatory approval is not sought separately for the Jackpot Feature Game – it is the whole of the Hyperlink Game, being the Standard Game plus the Jackpot Feature Game, along with the appropriate approved cabinet hardware upon which it must run, for which approval must be obtained before a game can be sold. If a game or any component of a game such as the Jackpot Feature Game is changed, then a separate approval must still be obtained for the product as a whole. For example, approval must be obtained for the whole of the Hyperlink Game “Dolphin Treasure – Born to be Wild”, Dolphin Treasure being the Standard Game and Born to be Wild being the Jackpot Feature Game. If, for example, the Mystic Garden Standard Game is also to run under the same Born to be Wild Jackpot Feature Game, then approval must also be obtained for “Mystic Garden – Born to be Wild” running on the same cabinet hardware.

163    Ms Bryant refers in her evidence to “cabinet hardware”. As I have mentioned in the context of Konami’s products, a distinction may also be drawn between the cabinet (the physical box and associated hardware) and the platform, which is a combination of computer hardware and software enabling operation of a game installed on the EGM. Mr J Duffy’s evidence and various approval documents to which he was taken in his oral evidence indicate that the various infringing jackpot feature games (e.g. Cash Carriage) included on EGMs with a base game (e.g. Lion Festival) were approved as a complete system (i.e. Lion Festival Cash Carriage) comprising a gaming console, base game and feature game together with all relevant software, hardware and artwork. Aristocrat submitted that the fact that regulatory approval is given in respect of the whole EGM, should preclude apportionment.

164    I accept that the evidence shows that, as a practical matter, a feature game (including the trigger mechanism) will be supplied with a base game and that the RTP for the EGM on which they are played will be a function of the RTP for the base game and the feature game combined. I also accept that it was not possible to obtain regulatory approval of the feature game independently of the base game and that the regulator requires applicants for approval to submit detailed applications that specify (inter alia) the RTP for the base game, the RTP for the feature game, and their combined RTPs. However, although regulatory approval is required in respect of the combination of a base game, a feature game, the platform, and the cabinet, these are distinct components of the EGM both at a technical and a functional level.

165    To return to the analogy of the motor vehicle with the inventive braking system, the fact that the motor vehicle could not be given a certificate of roadworthiness if not fitted with a braking system does not mean that that all of the profits made on the sale of the motor vehicle should be disgorged (i.e. without any apportionment) because the presence of the inventive braking system fulfilled a condition which may have been essential to such a sale taking place. In my view, the fact that regulatory approval is dependent on (inter alia) the RTP of both the base game and the feature game has little bearing on whether it is appropriate to allow apportionment.

166    Aristocrat also relied on Ms Bryant’s evidence to the effect that the base game and the feature game are “all operating together within the same game structure” and that from a player’s perspective “you’re playing the base game and … the jackpot game at the same time from the same bet”. That may be so, but it does not follow that the EGM (including the gaming software) is a true combination or that the substance of the invention is not something less than the whole EGM. What is more significant, in my view, is that, as Ms Bryant’s evidence makes clear, feature games and base games are inter-changeable. In fact, Aristocrat contends that one of the advantages of the invention is its versatility in that it enables a feature game to be added to an existing base game without having to substantially modify the base game. This suggests that the EGM with a base game and feature game installed is in fact a collocation of components, each of which performs its own separate function to achieve a complex result.

167    Whether the Gaming Console Claims are to true combinations is debatable. There are many parts in an EGM that are not interacting in the way that patent law requires if an arrangement of parts is to constitute a true combination. They include the cabinets themselves, video screens, audio facilities, a power unit, and the platforms that enable the operation and playing of the games. They may also include various peripheral devices such as coin hoppers, ticket printers, bill validators, and coin acceptors.

168    The Gaming Console Claims could be viewed as claims to a prize awarding feature and associated trigger arrangement with one or more limitations of the kind discussed by Fletcher Molton LJ in British United Shoe Machinery Co Ld v A Fussell & Sons Ld (1908) 25 RPC 631 at 649. Leaving aside the consistory clause at page 3 lines 22-29 (which mirrors the language of claim 25) there is nothing on the face of the specification to suggest that the invention consists of an EGM. Rather, virtually everything said in the specification indicates that the invention consists of a random prize awarding feature with an improved trigger that ensures the probability of winning a feature outcome (e.g. a jackpot) is related to turnover on the EGM (claim 1) and the credits bet on a game (claim 2).

169    Aristocrat also submitted that since the proportional trigger was essential to the operation of the infringing products, it does not matter that there were other features that were also essential to their operation. Aristocrat submitted:

Konami accepts that if the 689 trigger features were “the” essential feature of the infringing products, there should be no apportionment on any view. It suggests that it is insufficient if they are “an” essential feature. The differences is illusory. If the trigger features were essential to the particular infringements, that is the end of the matter. It matters not that other features were also essential. The sealing means was found to be essential in Dart. Plainly, the container was also essential to the product as well, otherwise there would be no container. But that fact did not, and could not, detract from the significance of the essentiality of the sealing means.

170    I do not accept this submission. The sealing means in Dart was essential not merely because the containers had to have a sealing means, but because they would not have been made or sold without the patented sealing means. In other words, if the infringer in Dart had been required to use a conventional sealing means, it would not have made or sold any additional containers. Moreover, on Aristocrat’s argument, any component essential to the working of a composite device is an “essential feature” (as that term was used in Dart) of the device. But that argument was implicitly rejected by both the Full Court and the High Court in Dart when recognising that apportionment was available in respect of the use of an infringing braking system in a motor vehicle. Even though the braking system is essential to the safe operation of a motor vehicle, both the Full Court and the High Court considered that apportionment would be available in such a case.

171    In the result, I do not accept Aristocrat’s whole thing argument. In the case of the Feature Game Claims, they do not, on their proper construction, claim an EGM. In the case of the Gaming Console Claims, I do not accept Aristocrat’s contention that they are true combination claims for an EGM. The better view, in my opinion, is that they are for a prize awarding feature with the proportional trigger coupled with a limitation that requires that they be installed on an EGM. In any event, even if the Gaming Console Claims are for true combinations, that does not prevent the Court from making an apportionment in an appropriate case where the substance of the invention is for something less than the combination defined by the claims.

172    As I have explained, Konami submitted that the substance of the invention is nothing more than the proportional trigger. I do not accept that submission. In my opinion it is not possible to separate the random prize awarding feature from the proportional trigger. Both are inextricably interrelated with the trigger constituting an essential element of the random prize awarding feature. For the purposes of apportioning profits it would, in my opinion, be artificial to seek to disaggregate the trigger from the prize awarding feature. To argue (as Konami does) that the substance of the invention is the trigger because its presence is essential for there to be infringement, does not advance the matter. Nor does it advance the matter to say (as Konami does) that the common general knowledge included other random prize awarding features that used a different trigger. The substance of the invention described and claimed is often broader than any one integer upon which the novelty of what is described and claimed depends. A new and improved screw may be distinguishable from the prior art only by its novel type of head. That does not mean that the substance of the invention will be anything less than a new type of screw.

173    In my view the substance of the invention comprises a random prize awarding feature with the proportional trigger. That characterisation of the invention is consistent with the broadest claim (claim 1) as I have interpreted it and the language used in that claim to define the invention.

174    For the purpose of assessing the profits made by Konami as a result of it having appropriated the invention it is necessary to do so on the basis that the invention comprises a prize awarding feature with the proportional trigger described in claims 1 and 2. I consider the other requirements introduced in the dependent claims 3, 4, 16, and 17 are best understood as limitations on claims 1 and 2 rather than different inventions. This is also true of the additional requirements introduced in the dependent Gaming Console Claims (i.e. claims 27, 28, 37 and 38) and the dependent Method Claims (i.e. claims 55 and 56). But even if I am wrong about that and the dependent claims (or at least the Feature Game Claims and the Gaming Console Claims) are for true combinations, the substance of the invention defined by the dependent claims is not different from the substance of the invention defined by claims 1 and 2. This is because the dependent claims introduce additional matter that does not affect the proper characterisation of the invention.

A two staged analysis

175    This brings me to the detail of Aristocrat’s argument that none of the relevant EGMs or conversion kits would have been manufactured or supplied by Konami had they not included the infringing feature games. In effect, Aristocrat contends that none of the profits made by Konami from the sale of the relevant EGMs and conversion kits would have been made by it “but for” Konami’s appropriation of the patented invention. Aristocrat’s submissions assume that, in the event that the “but for” test is met, it necessarily follows that it is entitled to recover from Konami all profits made from such sales after allowance for costs. However, whether that is so depends on the circumstances of the case.

176    The possibility of finding that some apportionment of profits may be required arises at two different stages of the analysis. The first stage is concerned with the issue of causation on which the applicant carries the onus. The second stage is concerned with the issue of whether the respondent’s obligation to account for profits should be reduced on the basis that some proportion of those profits had no reasonable connection with the relevant wrongdoing. On that matter, the respondent has the onus of proof.

177    In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1 (“Foresters”) the High Court considered the issue of onus in the context of the appellant’s (Foresters) contention that it would be inequitable to require it to account for the whole of the benefit it acquired by reason of it having knowingly participated in a breach of fiduciary duty owed to the respondent (Lifeplan) by two of its senior employees who had engaged in a dishonest and fraudulent design to breach their fiduciary obligations. In dealing with the submission made by Foresters that its liability to account should be confined to those profits that were the direct result of each of the particular acts by which Foresters and its subsidiary (FPM) assisted the senior employees in their dishonest and fraudulent design, the plurality (Kiefel CJ, Keane and Edelman JJ) said at [9]:

[9]    Whether a benefit can be said to be obtained “as a result of” knowing participation in a breach of fiduciary duty by another contrary to the principles of equity is a question of causation or contribution that depends on “a precise examination of the particular facts” of the case, rather than upon attempts to refine the expression “as a result of”, as if that phrase has some determinate operation of its own that may be discerned and applied independently of the equitable principle of which it is part. The equitable disgorgement principle with which we are concerned is a “prophylactic rather than a restitutionary principle”. It is sufficient to show that the profit would not have been made but for dishonest wrongdoing. Further, whatever may be the position for wrongdoing that is not marked by dishonesty, a defendant cannot avoid liability to disgorge profits dishonestly made by showing that those profits might have been made honestly. This is not an approach to causation that is unique to dishonesty in equity. A defendant who is liable to compensate for deceit cannot avoid that liability by showing that the loss would have been suffered even without the deceit; and it is sufficient that the deceit was an inducement to engage in the conduct that occasioned the loss even if there were other inducements. And in taking an account of profits for dishonest infringement of intellectual property rights, courts do not reduce the profit by reference to opportunity cost, that is, the revenue that would have been received by a lawful alternative [Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111, 114, 125; Celanese International Corporation v BP Chemicals Ltd [1999] RPC 203 at 220 [41]]. As Lord Radcliffe said in the context of disgorgement of profits for a breach of fiduciary duty involving non-disclosure, “it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of profit”. For these reasons, the deterrent effect of an order for disgorgement of profits should not be diminished by acceding to Foresters’ attempt to confine the scope of the causal enquiry implicit in the expression “as a result of”.

(Emphasis added; some footnotes omitted)

178    I have previously referred to the passage in Celanese cited by the plurality at [9] of their reasons. It is in the same passage that Laddie J referred to the situation in which the plaintiff invented and patented “an entirely new process for making an entirely new product” and observed that there was little doubt that the defendant would have to account for the profits made from the sale of the product made by the use of the patented invention. His Lordship went on to say at [43] that “[a]lthough the infringer cannot avoid paying over profits by relying on possible non-infringing alternatives, the patentee … cannot recover profits which were not earned by use of his invention”.

179    Aristocrat says that all such profits were made as a result of Konami’s use of the patented invention because none of those products would have been made or sold but for the use of the patented invention. Even if that is established, a further question may arise as to whether any part of the relevant profit obtained as a result of the infringement should be excluded from the scope of the liability to account for profits on the basis that it has no reasonable connection with the infringement. That is the matter that the plurality addressed in Foresters as follows at [13]-[17]:

[13]    Once it has been determined that a benefit or advantage has been caused by the acts of knowing assistance, there remains the question of quantification of the benefit to be disgorged. While it is true that equity will not require an errant fiduciary or a participant in a breach of fiduciary duty to account for an advantage which the breach of fiduciary duty has not caused or to which it has not sufficiently contributed, where causation is sufficiently established the onus is upon the errant fiduciary or participant to show that he or she should not account for the full value of the advantage. That onus is not discharged by mere conjecture or supposition giving the benefit of the doubt to a proven wrongdoer. The requirement of proof conforms with the obligation of a party charged with a breach of fiduciary duty to show why the full value of an advantage obtained in a situation of conflict of duty should not be disgorged [Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 398].

[14]    There are two ways in which the wrongdoer might discharge that onus and reduce the extent of the liability to disgorge profits. The first way, which can involve notorious difficulties in attribution of costs, is by proving his or her entitlement to an allowance for costs incurred, and labour and skill employed [Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111]. No issue of an allowance arises, or was relied upon, in this appeal because it was accepted that the expenses included in the discounted cash flow included an amount for the work and effort of Woff and Corby.

[15]    The second way, which was the focus of this appeal, is by demonstrating that the benefit or advantage is beyond the scope of the liability for which the wrongdoer should account for profits. A wrongdoer might prove that some profit or benefit is beyond the scope of liability for which he or she should account if the profit or benefit has no reasonable connection with the wrongdoing. For example, in Frank Music Corporation v Metro-Goldwyn-Mayer Inc [(1989) 886 F (2d) 1545], the Ninth Circuit Court of Appeals accepted that a copyright infringement by MGM Grand Hotel Inc in a performance at the MGM Grand Hotel entitled the plaintiffs to the profits directly from the performance. It also entitled the plaintiffs to a proportion of indirect profits, including from the consequential increase in hotel room bookings which were held to have a “sufficient nexus” with the performance [(1989) 886 F (2d) 1545 at 1553]. But the direct profit from the performance to be disgorged was limited to 9 per cent because the copyright infringement comprised only the substantial part of Act IV in a ten-act performance. Nor did it entitle the plaintiffs to any profits made by the liable parent company, Metro-Goldwyn- Mayer Inc, as a result of “the advertising value” of the hotel.

[16]    No precise test has been prescribed for determining when it will be inequitable to account for a benefit on the basis that it has no reasonable connection with wrongdoing. Nor is there any need for such a test. All of the circumstances must be considered, including the nature of the conduct. It is pertinent here that the profits were from deliberate and dishonest conduct, and were those desired to be achieved …

[17]    It is important to bear steadily in mind that the onus was upon Foresters to show that it would be inequitable to require it to account for the whole of the advantage it acquired by its acquisition of the business connections of Lifeplan and FPM [Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561-562] …

(Emphasis added; some footnotes omitted)

180    Gageler J approached the issue of apportionment slightly differently from the plurality. His Honour referred to the need to adopt a common sense approach to the question of causation. However, his Honour also emphasised that the inquiry into causation in an account of profits is not constrained by normative limitations imported from the common law. His Honour observed that one of the reasons for not adopting such an approach is that it may limit equity’s capacity to mould equitable relief to the circumstances of the individual case. However, if a causal connection is established, the onus shifts to the defendant to establish that it is inequitable to order that it account for the value of the whole of the identified benefit or gain. His Honour said at [92]–[95]:

[92]    Putting aside those cases in which equitable relief might be withheld on established discretionary grounds by reference to disentitling conduct of the plaintiff, the defendant needs to demonstrate, in order to establish that it is inequitable to order an account of the value of the whole of the identified benefit or gain, either that the benefit or gain is attributable in part to one or more other contributing causes by reference to which it is “practically just” that the benefit or gain be apportioned or that some allowance be made in favour of the defendant, or that there is some other reason why accounting for the whole of the gain would amount to a windfall to the plaintiff of such a nature or to such a degree that the accounting would fail to vindicate the purposes underlying equity’s imposition of the fiduciary obligation that has been breached.

[93]    The judgment ultimately to be made by the court from which the order to account is sought is correspondingly not only factual; fundamentally, it is evaluative. The evaluative nature of the judgment was referenced in the “classic case” of Vyse v Foster, in the context of assessing the extent of the liability of an errant executor to account to a beneficiary of a will for profits earned from running a business using funds of the testator, in the statement that there was “no rule for apportioning the profits according to the respective amounts of the capital, but that the division would be affected by considerations of the source of the profit, the nature of the business, and the other circumstances of the case”.

[94]    Factors which might bear on the judgment to be made in an individual case cannot be catalogued exhaustively in advance. They will include the relative extent to which other causes which might include the skill and industry of the defendant can be assessed as having contributed to the benefit or gain that is causally connected to the breach of fiduciary obligation. They will also include whether, and if so to what extent, the defendant’s gain reflects uncompensated loss on the part of the plaintiff. And although the purpose of the remedy is not to punish, consideration of what is just in the context of the equitable obligation to be vindicated by the remedy cannot exclude consideration of the severity of the breach of the fiduciary obligation and the extent of the defendant’s own involvement and culpability in it. The judgment to be made must accommodate the stringency of the equitable obligation to be vindicated to the need to ensure that the remedy is not “transformed into a vehicle for the unjust enrichment of the plaintiff”.

[95]    Importantly, it is the outcome of that ultimate evaluative judgment, and not merely the outcome of the initial inquiry into causation, which yields the “true measure” of the benefit or gain to be reflected in the order.

(Footnotes omitted)

181    It is useful to consider that discussion of the principles in the context of the facts in Dart and a hypothetical example. On the findings of fact made in Dart none of the claimed profits would have been made but for the respondents’ use of the patented invention. That is because, on the primary judge’s findings, the existence of the patented feature was essential to the making of any sale. The retailers to whom the product was supplied would never have purchased them had they not included the press button seal. But there may be cases in which, even if it is established that the profit would not have been made but for the use of the patented invention, some part of the profit made is shown to have no reasonable connection with the act of infringement. It is at this stage of the analysis that the onus moves to the infringer. And while it is for the infringer to show that it would be inequitable to require it to account for all profits received as a result of its infringement, no precise test has been laid down for determining whether or not any part of those profits might be excluded from the liability to account on the basis that they lack any reasonable connection with the wrongful use of the patented invention.

182    Aristocrat relied on the development history of the 689 Games and, in particular, the first of these, a feature game known as Rapid Fire. Broadly stated, Aristocrat’s case was that Rapid Fire was developed in circumstances where Konami’s business was struggling in a market that was dominated by Aristocrat’s Hyperlink system and that Konami was deliberately seeking to replicate the key features of Aristocrat’s Hyperlink.

183    Properly understood, Aristocrat’s argument is not that the relevant EGMs and conversion kits would have been manufactured or supplied by Konami without any feature game, but they would not have been manufactured and supplied with a non-infringing feature game. The argument therefore calls for a counterfactual analysis which involves determining whether there was any market for the relevant EGMs and conversion kits had they incorporated a non-infringing feature game that did not use the 689 trigger. Put another way, and adopting the language used by the Full Court in Dart at 408, was it the feature game incorporating the 689 trigger that created the market for the relevant EGMs and conversion kits manufactured and supplied by Konami?

184    With regard to the counterfactual analysis, Aristocrat submitted that apportionment was not available because the existence or otherwise of alternative products (i.e. the counterfactual) is not relevant to apportionment. I do not accept that submission. As I have stated above, the availability of non-infringing alternative products is not relevant when determining whether apportionment is available. However, the existence of non-infringing alternative products may assist in ascertaining the extent of the profits made by the respondent as a result of its use of the patented invention when apportioning the profits.

185    The profits recoverable on an account of profits are not measured by reference to the difference between the profit actually made by the infringer as a result of its infringement and the profit it would have made had it adopted a non-infringing alternative. That proposition is well settled and is not disputed by Konami. It does not suggest that the profits to be awarded to Aristocrat should be calculated in that manner. However, if apportionment is appropriate then the availability of non-infringing alternatives, and the cost of adopting them, may be relevant in determining the value that should be attributed to the invention that was wrongfully appropriated by the infringer.

186    In the hypothetical example of the braking system in the motor vehicle considered in Dart, it may be appropriate in determining what value to put on the braking system relative to the motor vehicle as a whole to have regard to other non-infringing alternatives that might have been used in place of the infringing braking system. In that situation, if the invention was shown to offer little benefit over other systems available at similar cost, it may be open to the Court to conclude that only a small proportion of the profits made on the sale of the vehicle should be attributed to the wrongful appropriation of the invention. Conversely, if the infringing system was shown to possess significant advantages over such alternatives, or where the system otherwise added significantly to the attractiveness of the vehicle to potential purchasers, then this is a matter that would be taken into account when determining how to apportion the profits made on the sale of the motor vehicle.

187    Aristocrat’s position is that there should be no apportionment but that, if the Court considers this an appropriate case for apportionment, then Aristocrat focuses on what it says is the commercial significance of the invention which it submitted (at least implicitly) should lead to no more than a relatively small reduction in the award of profits. In this regard, I should note that Aristocrat, unlike Konami, did not in its closing submissions specify any percentage figure (however small) which it contended should be applied in the event the Court was of the view that there should be an apportionment.

The profits affidavits

188    As previously mentioned, Aristocrat tendered a number of affidavits filed pursuant to orders made requiring Konami to provide information that would inform Aristocrat’s election. Those affidavits were made by Mr Quayle and by Mitsuhiro Miyazaki (the “profit affidavits”). The profit affidavits’ only significance relates to the question of apportionment. In the affidavit made by Mr Quayle on 12 October 2016, profit calculations in respect of the boxes are reduced by 27.4%. According to a note in a spreadsheet attached to the affidavit, “allocation of 27.4% of box sales profits for the infringing games is based on the average gross profit on charged conversion sales as a percentage of the average gross profit on box sales”. Broadly stated, the methodology applied involved calculating the average profit made on conversion sales and using it to determine the average gross profit made on box sales. The affidavit made by Mr Quayle on 14 December 2016 revised the percentage down to 25.4%. It also included a paragraph that stated:

Other methods of determining appropriate allocation of profits to 689 games as a component within a box sale may be applied. Konami reserves the right to consider other methods of making an appropriate allocation in the event that the trial includes a consideration of the profits made by Konami in respect of the sales of 689 games.

189    The profit affidavits did not foreshadow that Konami would seek any reduction in its liability to account for profits made from the sale of conversions on the basis that those profits should be calculated by reference to anything other than revenue from the sale of the conversions less the costs of producing and supplying them.

190    Aristocrat submitted that the profit affidavits suggested that Konami’s position was that there should be no apportionment made in relation to conversions and that a reduction of 25.4% for boxes was appropriate. It submitted that the figure for boxes “appears to have been no more than a lawyer’s device and rubber-stamped by Konami’s then-managing director Mr Sakamoto” and that, according to Mr Quayle’s oral evidence, Mr Quayle did not agree with that figure at the time he made the profit affidavits.

191    Ultimately, it was not submitted by Aristocrat that Konami was bound by the profit affidavits or that Aristocrat had been induced to make its election on the basis of any concession made in the profit affidavits with respect to apportionment. In any event, there was no evidence to support any argument to that effect and there is no basis for drawing any inference that Aristocrat’s election was influenced by anything said in the profit affidavits on the issue of apportionment. However, Aristocrat submitted that the profit affidavits gave rise to an admission by Konami that there should be no apportionment in relation to conversions.

192    The question is not whether the documents are admissible but what evidentiary significance should be attached to them and whether the fact that no claim for apportionment was foreshadowed in relation to the conversions provides evidentiary support for Aristocrat’s contention that there should be no apportionment.

193    Whether or not there should be apportionment is a question of law. Of course, there are facts, or asserted facts, that are relevant to the resolution of that question of law including, in this case, whether the conversions would have been made or sold without the proportional trigger. However, there is nothing said (or not said) by Mr Quayle in the profit affidavits which I find of assistance in the resolution of any legal or factual question relevant to the issue of apportionment.

Ms Bryant’s evidence

194    Ms Bryant gave evidence as to matters that she considered to be important aspects of the invention. The first was the fact that the EGM controls the trigger for the feature game and does so based on turnover on the EGM and credits bet per game. I accept that these are important aspects of the invention that reflect requirements of the infringed claims.

195    Another matter which Ms Bryant considered important was the fact that “the progressive jackpot prize is … awarded through a special feature event following a standard game rather than just as a single prize outcome”. By this I understood her to mean that a player could win not only in the standard game but also in the jackpot feature game with the prize awarded after play in the standard game was completed. That is not a requirement of any of the infringed claims and forms no part of the invention.

196    According to Ms Bryant, Hyperlink games marketed by Aristocrat were popular for a number of reasons. In her affidavit Ms Bryant said:

45.    Firstly, Hyperlink Games effectively made the existing Standard Games more interesting to players by adding the chance to win a linked progressive jackpot via the Hyperlink Jackpot Feature Game which co-existed with the Standard Game. Having already popular Standard Games coupled with the Jackpot Feature Game only made those games more attractive to players who could play their favourite Standard Games while also having a chance to win a linked progressive jackpot prize via the Jackpot Feature Game. Using different existing Standard Games to support the Jackpot Feature Game also meant that there was a lot of variety across a Hyperlink bank at a venue. Hyperlink banks also had a longer lifespan than combination triggered banks because it was possible to continue to support the Hyperlink Jackpot Feature Games with new Standard Games.

46.    Secondly, Hyperlink Jackpot Feature Games provide more anticipation and variety in the awarding of the jackpot prize. One of the significant developments in relation to Hyperlink was the implementation of a feature outcome or additional game to award a jackpot. In traditional random mystery and combination triggered progressive jackpot games, the player knows immediately when the trigger occurs that it has won a jackpot and the size of the jackpot prize. In Hyperlink Games, the Jackpot Feature Game is triggered at the same time the bet is placed on the Standard Game. The player discovers that they have won a progressive prize after the Standard Game is completed, but they do not know which progressive jackpot they have won. The Jackpot Feature Game then plays, and during the course of that Jackpot Feature Game, the player will learn which progressive jackpot they have won. This creates additional anticipation and excitement each time the player triggers the Jackpot Feature Game…

47.    Thirdly, any one of the progressives could be won at any time, based on a random calculation that is triggered by every bet. This meant the Hyperlink progressive banks were receiving play all the time. This was an improvement on random mystery triggered progressives which would tend to experience a significant drop in play after a progressive was won since players knew the prize range within which the progressive would be awarded and therefore could easily determine what the average jackpot prize should be.

197    There are several observations to make in relation to this evidence.

198    First, it is important to note that this evidence is specifically directed to Aristocrat’s Hyperlink games. It may be accepted that the proportional trigger had significant advantages (as was found in Konami 1) but there were no doubt other aspects of the game design, including themes and animations, which contributed significantly to the success of Aristocrat’s products. Aristocrat’s own promotional material placed considerable emphasis on other aspects of the overall design of the games and the EGM on which they were installed. It is apparent from the evidence that there were particular themes and animations within the Hyperlink range of games that contributed to their popularity. Moreover, the mathematics of any game plays an important role in contributing to the popularity of a game because it determines the size and frequency of winning outcomes and the relative probabilities of achieving those outcomes.

199    In her oral evidence Ms Bryant accepted that there were many factors that affected whether a standard (base) game is successful and that these include the theme of a game and the images and sounds associated with it. She also accepted that there were standard games with the same mathematics but with different themes, that yielded very different performances (e.g. Queen of the Nile compared to Dolphin Treasure). This would also apply to the Hyperlink games which have different themes some of which it may be inferred are more popular than others. Similarly, although Ms Bryant’s evidence shows that all feature games in the Hyperlink range, include a trigger of the kind described in claims 1 and 2, that trigger (i.e. the trigger as claimed) does not determine how frequently the feature game is triggered or the size of the jackpot.

200    In her oral evidence Ms Bryant was taken to a number of examples of Aristocrat’s Hyperlink games (e.g. Jackpot Carnival, Money Train and Fast Lane) referred to in promotional material issued by Aristocrat. This material describes the various feature games and the EGMs on which they are played. Aspects of the EGM design and construction highlighted in the material include the use of animated plasma sequences, overhead signs, and an LED jackpot meter in the top box of the machine, which are said to provide “a new level of excitement and player interaction”. A brochure for Aristocrat’s Jackpot Carnival and Fast Lane games highlights the four available jackpot levels and “the popular second screen”. The brochure states “… that correctly positioned and themed Hyperlink installations consistently outperform other standalone bonus or jackpot games”.

201    Some of the hardware referred to in the promotional material includes a cabinet incorporating what is referred to as MKV 1 technology (what Ms Bryant referred to as the software platform), a touchscreen for interactive play, an LCD screen in the top box with dynamic artwork and 3D animations. None of these matters is reflected in any of the infringed claims and none constitutes a feature or advantage of the patented invention.

202    The discussion of Money Train II in Aristocrat’s brochure includes the following:

Based on the winning formula of the original Money Train State Wide Hyperlink®, Money Train II is now even more interactive with its new touch screen features, revamped soundtrack, LCD top-box displays and high-impact overhead signage package.

The appeal of Money Train II can be attributed to the revolutionary Hyperlink Jackpot feature, which offers a guaranteed Jackpot prize whenever the second-screen feature game is triggered. Money Train II introduces a new bonus prize which can be won in addition to the mini jackpot.

Money Train II is a four-level Progressive Hyperlink that offers three in-house jackpot levels and the State Wide Grand Jackpot. For maximum Jackpot incrementation and excitement both the original Money Train and Money Train II contribute to the State Wide Grand Jackpot, which can reach over $50,000.

Designed to add excitement to your gaming floor through high jackpot activity and entertaining games, Money Train II is offered as a complete package including the stunning overhead signage incorporating up to a 40” LCD display.

203    The Money Train II brochure also refers to what is described as “the revolutionary Hyperlink jackpot feature” which no doubt incorporates the proportional trigger. I note, however, that the description of that feature (which is consistent with Ms Bryant’s description of Hyperlink games more generally) refers to the fact that it offers a guaranteed jackpot prize whenever the feature game is triggered, which is not an integer of any of the infringed claims. There is nothing in the infringed claims (including, in particular, claim 4) which requires that the triggering of the feature game necessarily result in the award of a jackpot prize even though Ms Bryant’s evidence suggests that this was, and is, an important feature of a Hyperlink game. It is also apparent from Aristocrat’s own promotional material that there are many other elements of the Hyperlink games, and the EGMs on which they are played, which (as is emphasised by Aristocrat in marketing the Hyperlink games) contribute to the user experience but which are not reflected in the claims.

204    Aristocrat made a submission based on claim 16 to the effect that, a further advantage of the invention, was that “[t]he whole concept of awarding a jackpot prize via the implementation of a feature outcome or additional game was itself a significant breakthrough which enhanced the attractiveness of games to players”. In support of this submission Aristocrat relied on the evidence of Ms Bryant at para 46 of her affidavit (set out above) in which she refers to the anticipation and excitement created as a result of the player not knowing which jackpot prize he or she has won until after play of the standard game is completed.

205    I accept that the so-called “anticipatory period” and the fact that players of a Hyperlink Feature Game who triggered the feature outcome were guaranteed to win a jackpot prize were key aspects of those games and are likely to have contributed significantly to their popularity. On the other hand, Aristocrat’s submission on this point highlights the difficulties involved in focusing attention on the workings of Aristocrat’s commercial embodiment of the patented invention. In the first place, claim 16 does not require that the feature outcome only be made known after play of the standard game is completed. Nor do any of the other infringed claims impose any such requirement. Further, that every player of a Hyperlink Feature Game is guaranteed to win a jackpot prize on each play, is a feature of a preferred embodiment described in the specification (page 8 lines 10-12), but not in any of the claims that Konami was found to have infringed.

Mr Spencer’s evidence

206    Aristocrat also relied on Mr Spencer’s evidence that “the trigger was an enabler” of what Aristocrat submitted was the novel ‘anticipatory period’ prior to the award of the jackpot which was a key aspect of Hyperlink.

207    In his cross-examination Mr Spencer was taken to the various claims of the 689 Patent. He accepted that claim 5 reflects his understanding of the way in which the jackpot feature is triggered in the Hyperlink Jackpot Games (i.e. it is not symbol driven) and that claim 21 reflects his understanding of a linked progressive jackpot system that is used in Aristocrat’s Hyperlink products. He also accepted that claim 21 (when read with the preceding claims) aptly describes the Hyperlink product. Neither claim 5 or 21 was infringed by Konami. I think it is apparent from both Ms Bryant’s and Mr Spencer’s evidence that various features that contributed to the success of the Hyperlink product are not reflected in the claims or, at least, not in any of the infringed claims.

208    Mr Spencer’s evidence in cross examination on this topic confirms that the anticipation and excitement generated by the Hyperlink Feature Games was a function of the way in which the game designer had chosen to reveal the size of the jackpot prize. His evidence on this issue was as follows:

… [Y]ou say that:

The way the hyperlink feature was triggered and implemented, created a real level of player anticipation and engagement.

And you go on to say that, unlike other linked or mystery jackpots, the prize wasn’t simply announced to the player, rather, the player knew they had triggered the feature but didn’t know the prize until the feature had played out. What you’re referring to there is the fact that, in the design of the Aristocrat hyperlink products, when the jackpot feature was triggered, there was a period of anticipation where something was happening on the screen before the prize that was actually to be awarded to that player was revealed; is that right?---No. There’s two parts, I would say.

Could you explain, please?---Okay. So there is an anticipation, in my mind, of expecting the jackpot, with – on – along a large bank of machines, as we did at Crown, with other jackpots going off frequently, there’s an anticipation of just playing the game, that it will be your turn, by observation and just knowledge of the frequency of the hits. So there’s an anticipation prior, in my mind – prior to the jackpot being triggered. The feature which is triggered by that jackpot trigger hit brings another level of anticipation because you don’t know yet – in – in the case of Cash Express, wheels spun, you had to stop the train, the numbers added up and then the cumulative total indicated which of the levels you got. So you – you had an anticipation pre-hit, ramped up, if you like, during the feature, and then ultimately a – a prize.

Now, the anticipation pre-hit, as you described it, was something that was a feature of the fact that the Hyperlink product was a linked product with a number of machines playing for the same jackpot, was it?---Yes. The more machines, the higher the frequency, the higher the contribution to jackpots. Yes.

And the second stage of the anticipation, if I can call it that, was a function of the way in which the game designer had chosen to reveal the prize to the player who had won it; is that right?---Yes.

And it wasn’t something specifically attributable to the nature of the trigger but rather just the way in which the game was designed, and there were some things that happened on the screen and some time passed before the player became aware of what they had actually won; is that right?---Well, the trigger was an enabler. The whole – in my mind, their whole – the – the whistle, the hoot, the – you know, the – the motion and all that is part of the Hyperlink feature. That’s what players talked about. So – and, to my recollection, there was no other jackpots at the time that had this anticipatory period in it where you had to keep playing or doing something to then ultimately know what level you had won.

209    It is apparent that Mr Spencer’s evidence reflects a focus on one particularly popular Hyperlink Jackpot Game (i.e. Cash Express) and the images and sounds associated with that particular game (i.e. images and sounds of a moving train). His description of Aristocrat’s Hyperlink product as “revolutionary” and “breakthrough” technology is largely related to the anticipation and excitement created by the product in the so-called “anticipatory period”. Although he recognised in his evidence the role played by the proportional trigger in ensuring that the prospects of a player triggering the feature were proportional to how much he or she bet (something he said that players become aware of over time) this did not seem to rank as high in order of importance as the “anticipatory period” in his estimation of the factors contributing to the product’s success. Moreover, his evidence recognises that the anticipation and excitement generated by Hyperlink games had much to do with the fact that they were played on large networks of EGMs, which increased the frequency of winning outcomes. In that respect, I accept that the trigger may have contributed to the sensation that jackpots were triggered more frequently, but that is something that also depended on the mathematics of individual games including hit rates, prize levels and prize sizes.

210    Mr Spencer recognised that the feature game themes added significantly to the player experience and helped to create the atmosphere around the games on the floor. He elaborated on this evidence in his cross-examination as follows:

And you say, in the balance of paragraph 72, you recall that the machines seemed entirely utilised, there were hot pockets on the floor and you also recall that there was a lot of player engagement in terms of the sounds, music and screen activity when the Hyperlink feature was triggered and not only the players on the games but other patrons observing seemed to be highly engaged. That reflects your recollection at the time?---Yes, it does.

And the sounds, music and screen activity when the Hyperlink feature was triggered that you’re referring to were things that happened on the screen of the machine and sound that emanated from the machine when a player triggered the jackpot feature; correct?---On the gaming machine and, usually, on the peripheral signage as well.

Yes. And is that part of the theme of a game, in your understanding, those sorts of things?---It’s the Hyperlink – it’s the implementation of the Hyperlink feature in that game.

And these were – these sounds and music and screen activity, from your recollection, were part of the – were attributes of the Hyperlink product that contributed to it being a popular product with the players on the floor?---Yes.

And they were important aspects of the popularity of the product, on your recollection, were they not?---Very important. Yes.

And you say that it struck you that other games on the floor seemed to be quite bland and less attractive in comparison … What you’re referring to there is that the other games on the floor didn’t have quite the same level of sounds, music and screen activity when something happened but rather, appeared more bland and dull than the Hyperlink product?---That and the player reaction, I think, is a pretty important aspect to it too.

Yes. The player reaction to the triggering of the jackpot feature in particular?---The involvement and the engagement of that, yes.

(Emphasis added)

211    Mr Spencer’s affidavit originally stated that in excess of 50% of the gaming machine products on the floor at the Crown Casino were Hyperlink products. However, after reviewing some documents relating to that topic, he amended this to read 30%. My reading of his written evidence, in light of that correction, is that 30% represented the high point of the percentage EGMs on the floor that included Hyperlink games. In his cross-examination, Mr Spencer accepted that it was important for Crown to have a mix of different gaming machine products on the floor (i.e. not merely Hyperlink games) and that some Hyperlink products (the base game combined with the feature game) were more popular than others. It is apparent from his evidence, read as a whole, that differences between the base games (including base game features) and the progressive feature games themselves, would account for some EGMs being more popular than others. Mr Spencer recalled that Aristocrat’s sales representatives provided demonstrations and performance data in relation to all new games (which presumably included standalone games, standalone progressives, and linked progressives).

212    Mr Spencer was aware of the existence of standalone progressives combining a base game and a progressive feature game. In the absence of evidence to the contrary I would infer that Crown, given the size of its operation, would have operated some standalone progressives. It was put to Mr Spencer that it would have been possible for a manufacturer to combine a progressive feature game with an existing base game to make a combination product, in a similar way to what Aristocrat did with its Hyperlink products. Mr Spencer agreed with that proposition but added that no other manufacturer did so.

213    It is clear from the evidence that in the Hyperlink system, the level of jackpot won by a player is determined at the same time the feature game is activated and that no further game play that might appear to be occurring in the feature game (if any) affects the size of the jackpot prize. Although the delay in announcing what prize had been won may create the impression that the size of the prize has not been determined at the time the feature game is activated, that is an illusion that is not in any way enabled by the proportional trigger.

214    In my opinion, through a combination of a base game, a progressive feature game, the imaginative use of graphics and sound, and by withholding news of the level of jackpot won from the player until it was communicated via an engaging animation appearing on a second screen, much of the anticipation and excitement that Mr Spencer regarded as so important to Hyperlink’s popularity could have been achieved without the use of a proportional trigger.

215    I do not think it is correct to say that the atmosphere of excitement and anticipation created by Hyperlink was facilitated by the use of a proportional trigger. Neither Ms Bryant’s nor Mr Spencer’s evidence explains why a proportional trigger was necessary for the creation of the kinds of special effects that Mr Spencer regarded as important. There is no reason why a traditional random mystery progressive could not create similar feelings of excitement and anticipation by withholding from the player news of the size of the jackpot awarded until after an animated sequence of images played out in order to create the illusion that the size of the jackpot awarded was something determined at some later stage in the process.

216    What I think emerges from the Aristocrat promotional material and the evidence more generally is that many elements of Aristocrat’s Hyperlink Feature games, and the EGMs on which they are installed, have little to do with the proportional trigger. These elements include the themes, including relevant sounds and animations, and technological features of the EGM that are unrelated to the trigger mechanism. As Mr Wohlsen noted, new cabinets are released by manufacturers every four to five years, and incorporate new and emerging technologies (e.g. higher definition screens, improved sound systems, increased processing capabilities). As previously mentioned, Konami released new cabinets in 2006, 2009 and 2012. None of that is to say that the proportional trigger in the Hyperlink Feature Games did not make a significant contribution to their success. But it is apparent that much of their success is attributable to other elements of the games and the way in which they were designed, packaged and deployed that were unrelated to the proportional trigger.

Wildfire

217    Wildfire was a standalone progressive with a mystery trigger which was first supplied by Konami on the Endeavour platform. A number of brochures for Wildfire are in evidence. These describe Wildfire as a standalone progressive jackpot game. The pictures of the EGM in the brochures show that it has two screens and that the progressive offers, a major jackpot, and a mini jackpot. The brochures also indicate that there are multiple approved jackpot parameters available configurable for the operator’s choice of denomination and base game. The base games that can be coupled with Wildfire are referred to in one of the brochures and include Incan Pyramid, Dragon Fly, Masked Money and Hot Tomalies “… with more games available soon”. One brochure stipulates that jackpot prizes are won randomly during game play and when the jackpot is triggered the player presses the “take win” button to transfer the win to the credit meter. Mr Cutmore’s evidence indicates that the base game Incan Pyramid included a feature which made it possible to win up to 100 free games during play of the base game. The RTP for the base game was 85% and the progressive varied from 3.45% to 9.06%.

218    Up until 2005, Konami only used random mystery triggers for its progressive feature games. The first of Konami’s feature games with a proportional trigger was Rapid Fire which was developed by one of Konami’s game designers, Osamu (Sam) Yoshimi. Rapid Fire was a symbol driven progressive jackpot game that used overlay reels in which the more the player bet on the base game, the greater the chance of the player triggering a jackpot.

219    According to Mr Crosby’s evidence, which I accept, the underlying mathematics for Rapid Fire were substantially derived from Konami’s existing Wildfire game. Mr Robertson’s oral evidence explained that Wildfire used a mystery trigger and awarded two levels of jackpot that were relatively small but awarded relatively regularly. Mr Martin’s evidence was that, when he joined Konami in 2005, Wildfire had been a successful standalone progressive game which utilised a mystery trigger. Firestorm was a linked progressive version of Wildfire. It was also sold with various base games. Some of the base games were attractive to players because they offered the opportunity to win large numbers of free games as well as the opportunity to win a jackpot.

Rapid Fire

220    Rapid Fire was released in 2005 as a standalone progressive. Rapid Fire was different to Wildfire in that it had a symbol driven jackpot trigger rather than a mystery trigger. It also used a proportional trigger. It used overlay reels so that players could see symbols spinning over the top of the ordinary reels. According to Mr Martin, the spinning of these overlay reels added to player anticipation. Rapid Fire Grand Prix, a linked version of Rapid Fire, was also released in 2005. This was followed by other games including, in 2006, Round One and, in 2008, Cash Carriage, which was launched on Konami’s new K2V platform.

221    According to Mr Crosby’s evidence, the Rapid Fire trigger was reused for Cash Carriage as it had already been developed, used and approved, and Rapid Fire had proven to be popular on Konami’s Endeavour platform. High Velocity Grand Prix was an enhanced version of Rapid Fire Grand Prix which was first released in 2011 for Konami’s K2V platform for the Queensland market. An enhanced version of Cash Carriage known as Full Steam Express was first released in 2011 for Konami’s new KP3 platform.

222    Konami also developed various free spin games after Konami decided to develop a game that would award progressive free games. The first of these, Free Spin Festival, was released in 2010 for Konami’s K2V platform. Free Spin Festival employed the 689 trigger which was also used in various other “Free Spin” games including Free Spin Dragons, Free Spin Safari and Free Game Festival. The latter was a modified version of Free Spin Festival that was adapted for use in Western Australia on Konami’s K2V platform. Free Spin Safari was a high denomination version of Free Spin Festival first released in 2013 for use on Konami’s KP3 platform.

223    Catch Me was another linked progressive game with a fishing theme released in 2007 for Konami’s Endeavour platform. In 2010 Konami released Pirate’s Jackpot for use on the K2V platform. It was what is known as a metamorphic game in which the player’s odds of winning a prize increased the longer the player was playing the game. An enhanced version of Pirate’s Jackpot known as Caribbean Jackpot was released in 2012 for use on the KP3 platform. King’s Reward was released in 2012 for Konami’s KP3 platform in response to Ainsworth Gaming Technology’s Double Shot series of game. The Double Shot game awarded a jackpot based on the player achieving a five of a kind on the reels in the base game and another symbol on an overlay reel on the fifth reel of the game.

224    Mr Martin gave evidence of his sales of Cash Carriage, including his first sales in December 2008 to a number of clubs. Cash Carriage was more interactive than Rapid Fire or Wildfire. It used the same type of overlays as Rapid Fire to signal to the player that a jackpot had been won. The carriages on the train appeared in an animation which disclosed the size of the jackpot.

225    The sales figures produced by Mr Martin indicate that Cash Carriage and Rapid Fire Grand Prix were by far the most popular of the 689 Games. He said that he did not consider the trigger mechanism of the feature game to be an important or significant factor. Similar evidence was given by other sales representatives called by Konami. I will say more about that evidence shortly but it is sufficient to say that I am satisfied, notwithstanding that evidence, the fact that the feature game incorporated the proportional trigger was an important matter even though it might not have been something that was emphasised by the sales representatives in their discussions with customers. I can well understand that, all other things being equal, most players would prefer to play on an EGM in which the chances of activating the feature game increased with the amount they wagered on the base game. But the fact that Cash Carriage and Rapid Fire Grand Prix were by far the most popular of the 689 Games shows that all other things are not equal and that the popularity of those games compared to other 689 Games was attributable to other factors besides the proportional trigger.

Mr Yoshimi

226    Aristocrat contended that, in or about September 2004, Konami, in particular Mr Yoshimi, began developing Rapid Fire in response to what it said was the success of Aristocrat’s Hyperlink products. Further, Aristocrat submitted that Konami was “in a very difficult position in the Australian market” by this time and that this was in large part due to the introduction of Aristocrat’s Hyperlink products. The suggestion was that the modified trigger condition was incorporated in Rapid Fire by Mr Yoshimi and later replicated in each of the other 689 Games in direct response to the success of Hyperlink.

227    The documents relied upon by Aristocrat in support of its submission that Konami focussed on developing a competitive product to Hyperlink, include what were referred to in Aristocrat’s submissions as the Sam Yoshimi documents. These documents consist of a series of internal communications including emails and Konami Game Design Weekly Reports (“Game Reports”), from September to November 2004. These documents refer (inter alia) to the proposed development of a “symbol driven jackpot” game which appears to have been inspired not by the Hyperlink product, but by a product marketed by IGT Australia, which it is clear from other evidence is Jetsetter. References in those documents to patent issues and the need for legal advice relate to IGT’s patent application which concerned the effect of increasing the amount bet on the chances of winning. It is apparent that what is referred to as the IGT patent was at that stage only an application and that another business by the name of Stargames also had a patent application very similar to that filed by IGT.

228    Aristocrat relied on a statement made by Mr Danny Gladstone, a director of Konami, in an internal Konami meeting held in September 2004 in which Mr Gladstone described Hyperlink as “the best product in the market”. Mr Gladstone was a senior officer of Konami and an influential figure in the gaming industry. It is not apparent whether other officers or employees of Konami held the Hyperlink products in the same high regard, but there can be no doubt that it was, as of September 2004, a very successful product.

229    The statement attributed to Mr Gladstone appears in a minute of a meeting dated 8 September 2004 attended by various employees of Konami including Mr Gladstone, Mr Yoshimi, Mr Crosby, and Mr Quayle. The purpose of the meeting was to “get positive and negative feedback from the AGE and look at the possibilities for next year”. AGE is a reference to the Australian Gaming Expo at which manufacturers of gaming machines (including Konami, Aristocrat and IGT) display their products. The only statement attributed to Mr Gladstone in the meeting was this:

The only thing that KAP [Konami] has to stand out from the rest is Konxion. We are sitting in the middle range of products and you now must have a Jackpot or Multilink – to be in the market. Hyperlink is the best product in the world.

230    There is no reason to doubt that the last statement in that entry reflected Mr Gladstone’s belief at the time. What it was that led Mr Gladstone to hold that view is not apparent from the minute of the meeting. But in referring to the Hyperlink product he was referring to the progressive feature game marketed and supplied by Aristocrat under that name and not any particular form of trigger technology. There is nothing in the minute to indicate that he regarded the proportional trigger (whereby the triggering of the progressive feature was proportional to the credits bet) used in Hyperlink as the foundation of its success or whether his view was shaped primarily by the presentation of the game including the quality of the animations, artwork or the way in which the award of a feature game, or a feature outcome, was announced. There is nothing in the minutes of the meeting to suggest that any participant regarded the proportional trigger used in Hyperlink as significant or that it would be to Konami’s advantage to adopt such a trigger going forward. It is possible that Mr Gladstone was focused on the success of Hyperlink as a well presented linked progressive which is clearly how it was primarily marketed and sold. On this view of Mr Gladstone’s remarks, he may have been seeking to encourage a move towards the development of new and more exciting games (in particular multi-link games) but in the absence of any other evidence as to what he thought I make no finding on that topic. It is simply not possible to say why it was that Mr Gladstone regarded Hyperlink as the best product in the market. There could be many different reasons for him holding that view.

231    The documents referred to by Aristocrat as the Sam Yoshimi documents were brought into existence after the AGE. Some of the email communications provide information that was used in the preparation of the minutes of the meeting. That aside, they also reflect a concern with some patent issues arising out of IGT’s application for a patent including a claim for a game in which “the odds of winning an award change whenever any component of the bet changes”. They do not include any discussion of any patent application filed by Aristocrat in respect of the 689 Patent, the 341 patent or the 847 patent. I mention the 341 patent and the 847 patent because these are two additional patents that Konami was alleged to have infringed in this proceeding. Each of those patents, or at least the claims on which Aristocrat sued Konami, were held to be invalid, the 341 patent due to a lack of novelty and the 847 patent due to a lack of inventive step.

232    The Game Reports indicate that Mr Yoshimi had received “an official final response from the lawyer about a symbol driven jackpot” he had previously written about and which he understood may infringe an IGT patent if it was granted. But there is nothing else said that would suggest that Mr Yoshimi, or any other person within Konami, believed that Rapid Fire would infringe any valid claim of a patent. I make that observation only because of the suggestion, obliquely conveyed in Aristocrat’s final submissions, that Konami knowingly adopted the features of the invention the subject of Aristocrat’s application for the 689 Patent in order to save what Aristocrat characterised as a failing business.

233    Aristocrat referred to a statement in Mr Crosby’s cross-examination in which he agreed that one of the jobs given to the game designers employed by Konami was to “go out and make a game which looks like Hyperlink”. It is tolerably clear that Mr Crosby misspoke and that he intended to refer not to Hyperlink, but to Jetsetter. This was my view at the time of listening to his evidence and that view was confirmed by my subsequent reading of the transcript of his evidence.

234    In its submissions, Aristocrat also made reference to a patent application filed by Konami in October 2005 which refers to what was at that time Aristocrat’s application for the 689 Patent. Konami’s patent application was not concerned with a trigger mechanism, but rather topology or mechanisms of display. The discussion contained in that application concerning Aristocrat’s application noted that Aristocrat’s patent was “concerned primarily with trigger conditions”, and therefore was not concerned so much with topology or mechanisms of display.

235    Neither Konami’s patent application nor the other documents referred to by Aristocrat justify any inference that Mr Yoshimi, or any other relevant person within Konami involved in the design of Rapid Fire, was seeking to replicate the proportional trigger described in what was then Aristocrat’s patent application. Rather, it is in my view apparent from the contemporaneous records that in September 2004 Mr Yoshimi was instead focussed on IGT’s Jetsetter which used a symbol driven trigger. I infer that Jetsetter provided the inspiration for Mr Yoshimi’s Rapid Fire game design and, in particular, aspects of the trigger design. I do not consider that the Yoshimi documents, or the evidence more generally, support a finding that, at the time Rapid Fire was developed and released to the market, Konami was deliberately seeking to copy or replicate the proportional trigger used in Hyperlink.

236    Aristocrat relied on Mr Crosby’s evidence that Konami originally adopted the proportional trigger to improve the attractiveness of the game, that such triggers had never previously been used by Konami, and that it continued to deploy them because they were perceived to be successful. It further submitted that the evidence disclosed that Mr Yoshimi intended to and did adopt the proportional trigger as his starting point for the first infringing product (i.e. Rapid Fire) and that “… he must have believed that those features were the key to the new product”. I do not think that last statement is supported by the evidence.

237    As I have previously found, the proportional trigger has advantages over other triggers that were used by Konami and this in all likelihood is what led Mr Yoshimi to use it in Rapid Fire. Mr Crosby’s evidence, which I accept, was that it was used in other 689 games because it had been developed and approved. Although I infer that Konami would not have used the proportional trigger unless it considered that there were advantages in doing so, I also consider it unlikely that Mr Yoshimi would have regarded the proportional trigger as “the key to the new product” or as being any more important than other attributes of a feature game.

238    A central theme of Aristocrat’s submissions was that, by 2004, Konami’s business was in serious decline and that Konami deliberately appropriated Aristocrat’s invention with a view to ensuring the survival of its business. The financial data relied upon by Aristocrat in support of this narrative was largely drawn from the report of Mr Wohlsen. Most of the data relied on by Aristocrat on this topic is a product of what might fairly be described as “cherry picking” which led it to rely on some metrics while ignoring others or to take statements or data found in Mr Wohlsen’s report out of proper context. For example, it was submitted by Aristocrat that, at the time the first 689 Game was supplied in 2005, Konami’s business had already experienced several years of decline, due to Aristocrat’s 1999 launch of Hyperlink. In fact, Konami’s financial records show that its revenue fluctuated significantly between 1998 and 2018. However, the 2002/2003 and 2003/2004 years were, in revenue terms, relatively strong. There was no material variation in revenue for the 2003/2004 and 2004/2005 years, but there was a steady decline in revenue in the years 2005/2006, 2006/2007, 2007/2008 and 2008/2009. That is wholly inconsistent with the narrative that Aristocrat sought to develop. Profitability in those years fluctuated, but operating profit was at its highest in the 1999/2000 and 2002/2003 years. Operating profit was higher in the 2003/2004 years than it was in any of the subsequent years except for the 2004/2005 year. And while operating profit in the 2004/2005 year improved by about 15% compared to the previous year, revenue for those two years was not materially different. The proposition that either Konami’s revenue or its profitability was significantly impacted by the introduction of Hyperlink is not established by the evidence. Other evidence shows that the businesses of gaming machine manufacturers (including Aristocrat) were impacted by a variety of factors that contributed to fluctuations in revenue and profitability.

239    Mr J Duffy’s analysis of market share data shows that, for the period May 2002 to October 2004, Konami’s market share was reasonably consistent. In particular, his summary of month to month market share records (Figure 45) shows that, for the period May 2001 to July 2006, while Konami’s market share experienced fluctuations on a monthly basis, the overall trend was broadly consistent and that in the three years following the introduction of Hyperlink, Konami’s market share was relatively stable.

240    I do not accept the submission that by 2004 Konami’s business was in a state of decline or that Rapid Fire was developed in response to any such decline. It is more likely than not that Rapid Fire was developed in the ordinary course of a business that was continually engaged in the development of new and more attractive games rather than out of a desire to appropriate Aristocrat’s patented invention in order to save the business.

241    In support of its submission that none of the relevant EGMs or conversion kits would have been made or supplied had they not incorporated the 689 trigger, Aristocrat referred me to the findings of King J in Dart Industries Inc v Decor Corporation Pty Ltd (1990) 20 IPR 144 at 153-154. The decision turned on the finding by his Honour that sales of the relevant press button canisters were attributable to the use of the patented invention. The reasoning that led his Honour to that conclusion appears at 153-154:

Evidence on the point was given by Raymond David Gordon, a director of the first defendant, who deposed that when the first defendant's range of press button canisters were introduced in November 1980 it joined three competitors in the sale of such goods. He says that the press button range was introduced in response to requests from retailers. The catalogues of the first defendant put in evidence show that the only feature of the press button range distinguishing it from some other containers in the first defendant's range of products is the press button lid which is the subject of the plaintiff's patent. Over at least part of the relevant period each press button canister marketed by the first defendant has carried a label featuring the words “press button” much more prominently than any other word in the label. Mr Gordon has expressed the view that the press button has been only one of seven selling features of this particular product, and that it is plain from sales comparisons that the lid is not a key factor in the sales of the product. I think that this argument is beside the point. The defendants must have adopted the patented invention with the intention of increasing their sales, and I think that it must be assumed that trade customers purchased press button canisters rather than canisters incorporating only the other six selling features because they wanted the patented feature. That being so, sales of press button canisters are for present purposes attributable to use of the patented invention. I think that the pressure from retailers on the first defendant to market such a container and the prominence that the first defendant has given in marketing to the press button feature show that it has been more important than Mr Gordon makes out. My finding is therefore that the profits for which the defendants must account are the profits from the containers to which the patented closures are fitted.

242    There are several matters to note about his Honour’s findings. First, the press button range was introduced in response to requests from retailers. Secondly, the first defendant’s catalogues showed that the only feature distinguishing the press button range from other canisters in the first defendant’s product range was the patented press button lid. Thirdly, the defendants were found to have adopted the patented invention with the intention of increasing sales. From these findings his Honour inferred that customers only purchased the press button canisters because they wanted the press button seal.

243    Aristocrat relied in particular upon brochures issued by Konami which were said to prominently depict the name of the jackpot feature game and the associated special jackpot prizes, the simplified nature of the jackpot feature game, the greater probability of winning a major prize in the feature game than in base game, and (on the occurrence of the trigger event) the award of the jackpot feature game.

244    It is not clear whether Aristocrat contends that the brochures issued by Konami focused on the proportional trigger used in any of the 689 Games. In any event, that contention is not supported by the evidence. The description in the earliest of the brochures for Rapid Fire Grand Prix notes that “any 3 or more RAPID FIRE symbols will trigger the feature to win either the MAXI or MINI Jackpot”. Similarly, Cash Carriage is described in the brochure as a symbol driven standalone two level progressive game. There is nothing to indicate that the player has a chance of triggering the feature with every bet he or she places or that this chance increases with the amount bet.

245    I note that other brochures in evidence describe not only the feature games (both linked and standalone progressives) and the various base games with which those feature games may be combined, but also the EGM on which they can be installed. The description of the EGM emphasises the use of dual LCD displays, the ergonomics of the button panels and deck, the angle of the displays, lighting effects, sound effects, and what is said to be the small foot print of the device.

246    Aristocrat also relied on evidence given by Mr Martin in cross-examination which was said to show that Konami’s sales people emphasised the occurrence of the trigger condition, how it worked, and how it appeared to players. Mr Martin’s evidence was broadly consistent with what appears in the brochures to which I have referred. When taken to the brochure for Rapid Fire, Mr Martin acknowledged that he told customers that the product was “symbol driven” and that it used “overlay reels”. He also acknowledged in cross-examination that he understood one of the features of Rapid Fire was that “the player had a chance of winning on any spin” and he agreed that he emphasised that as part of his dialogues with venue operators.

247    For those players who are interested in knowing what the rules of the games are, a summary of the rules can be accessed at the EGM where a player can call them up for display on the monitor. It is not possible to say from the evidence what proportion of players are likely to read the rules and thereby acquaint themselves with the workings of the proportional trigger. However, it is likely that the more time and money a player spends playing EGMs, the more likely he or she is to become acquainted with the rules including the rule specifying the relationship between the amount wagered on a game and the probability of winning a jackpot in the Hyperlink and the 689 games.

248    It was not suggested to Mr Martin or any other sales representative called by Konami that any particular sale would not have been made were it not for the presence of the proportional trigger. In fact, there was no evidence directed to establishing that any particular sale made by Konami of an EGM with a 689 Game installed on it would not have been made if the feature game had used a different trigger. It is therefore not possible to extrapolate from any such evidence what proportion (if any) of the infringing sales would not have been made had the relevant EGMs or conversion kits included a feature game that did not use a proportional trigger.

Mr J Duffy’s evidence

249    I found Mr J Duffy’s evidence persuasive in many respects. He is highly experienced in game design and development. Although he was not a sales person, it is apparent that he has considerable experience on the sales side through contract negotiations with larger operators and in accompanying sales staff on customer visits. And while I am not persuaded that all of his conclusions should be adopted, I should note that I found him to be an excellent witness. Much of his training and experience is in the field of mathematics and computer science which is reflected in the mathematical nature and style of his analysis. The fact that I have not accepted some of his conclusions does not diminish my confidence in the overall quality of his evidence.

250    Mr J Duffy sought to assess the importance of the 689 trigger to the player of an EGM on which a 689 Game had been installed. He did this on the basis that game performance, traditionally measured by average turnover per day, was the most important factor operators consider before determining whether to purchase an EGM. This is consistent with other evidence as to the importance of turnover in determining purchasing decisions, although I think Mr Spencer overstated matters in claiming that a 10% performance premium would be “completely determinative in terms of the purchasing decision”. If that was correct it would mean that a manufacturer could charge whatever it wanted for an EGM (i.e. without reference to competitors’ pricing) if its EGMs were generating turnover to that level. I consider that inherently unlikely. I also consider it to be inconsistent with evidence that shows there was, at relevant times, a significant market for EGMs that included a standard game only, which EGMs were likely to generate considerably less turnover than those that included a progressive feature.

251    Mr J Duffy’s evidence shows that there are a number of factors outside the game itself which will influence purchasing decisions including the relationship between the manufacturer and the operator, the price, the availability of payment plans, the terms of performance warranties, and the availability of trade-in options. Of various considerations identified by him, price plays an important part in the purchase of a game while the other matters he mentioned play only a small part. In Mr J Duffy’s opinion, the recent game performance is the most important factor driving sales. He considered that it accounts for 80% of an operator’s purchase decision. By that I understood Mr J Duffy to mean that of the considerations weighed up by a purchaser in determining whether or not to purchase an EGM, recent game performance would be the primary driver of the sale.

252    Mr J Duffy explained that a game was a combination of a large number of attributes put together into a package to create a particular gaming experience. These attributes include the math, art, sound, software, algorithms or other components that are part of the game package. The number of resulting combinations of attributes that can be achieved is extremely large. Manufacturers may re-use math and other attributes of games that have been successful or they may try something that is new. But the decision made in relation to the selection of attributes is based on performance. And if certain games are performing well, then the manufacturer will tend to re-use their attributes when designing other games. According to Mr J Duffy, the goal of the manufacturer each time it designs and develops a game is to select and combine attributes with a view to making the playing of the game an enjoyable experience. It is the attractiveness of the game to players that drives performance.

253    In his report Mr J Duffy describes base games, features (games played separately from the base game but excluding progressive features) and progressive features. A progressive feature is a feature played after a positive trigger (including a positive 689 trigger) that either awards dollar jackpot values or free games. Virtually every game reviewed by Mr J Duffy for the purposes of his report included a base game, a feature and a progressive feature. His report included a detailed analysis of some Konami games that included a 689 Game, and a description of the display configuration, the denomination, the number of play lines, hit rates, reel structures, base game features, triggers, themes and other attributes. In Mr J Duffy’s opinion, there are many things to be considered by a player when choosing to play a particular game and it is never the presence of any single attribute that determines which game he or she will play.

254    Within progressive features themselves, including those with the 689 trigger, there are a range of important differences. For example, while all of the 689 Games include the 689 trigger, their triggers incorporate differences in the way the feature is triggered and how this is represented (e.g. symbol or mystery driven) to the player, the number of jackpot levels, and whether the jackpots are contained in one machine (standalone) or a number of them (linked). In Cash Carriage, the feature game appears to be triggered by three scattered overlay symbols while in Catch Me, the feature game appears to be triggered randomly. In the case of Cash Carriage, when the feature game is triggered, an animated train travels along the track to reveal either a maxi, major or mini jackpot without the need for any further interaction with the player. In the case of Catch Me, a player who has triggered the feature game must “fish” in order to win one of four levels of jackpot. In the case of the various Rapid Fire games (both standalone and the linked progressive Rapid Fire Grand Prix), any three or more rapid fire symbols will trigger the feature to win either the maxi or mini jackpot and, when the feature is won, the rapid fire engine on the LCD “… revs up to display the winning jackpot”. This is merely a visual presentation that does not require player interaction.

255    According to the brochure for Rapid Fire Grand Prix, there is a wide selection of Rapid Fire jackpot parameters available with the operator’s chosen denomination and game. In the example depicted in the brochure, Rapid Fire Grand Prix is combined with Wild Tiki. There are 10 base games referred to in the brochure with which it may be combined. All but one of these has their own associated features, leading to an award of free games. For example, Arabian Gold has an associated feature called “the Arabian Gold Feature” and Dragons Return has an associated feature called “Dragon Feature” each capable of awarding up to 25 or 20 free games respectively.

256    Mr J Duffy’s evidence shows that the return to player of a progressive feature (including those incorporating the 689 trigger) vary from one game to another. The various components of the RTP also vary including the reset values, upper limits, start-up % and increment %. These numbers will in turn determine the average jackpot win and the turnover to jackpot. For example, the average level 1 jackpot win on Caribbean Jackpot is in excess of $1,000, while the average jackpot win for Cash Carriage is less than $150. In general, the size of these average jackpot wins is directly related to the “turnover to jackpot” meaning that, in the long run, it will require much more turnover on Caribbean Jackpot for the average jackpot to be triggered than is the case for Cash Carriage. These are all attributes (which Mr J Duffy refers to as “the math”) which manufacturers of games use to differentiate products. Mr J Duffy’s analysis of the RTP data for the various 689 Games shows that there are significant differences between the math for the different progressive features.

257    Mr J Duffy conducted an analysis using turnover data collected over a period of 56 months in respect of 91 games which included Cash Carriage, Wizard’s Wish, Lucky Garden, Double Dynasty and Free Spin Festival. He analysed the data to evaluate the performance of the various games and after doing this he was able to draw a number of conclusions. First, progressive products in general perform better than products that do not incorporate a progressive (regardless of the trigger mechanism). Secondly, games without a progressive, although not performing as well as those with one, were still able to generate reasonable performance (i.e. turnover) showing that other factors are involved in generating performance.

258    In its submissions Aristocrat contended that Mr J Duffy’s analysis showed that the standalone version of the game Wizard’s Wish (i.e. with no progressive feature) underperformed its infringing counterpart, Wizard’s Wish Cash Carriage (with progressive feature), in average daily turnover by 26.58%. There are two points I would make in relation to that submission. First, it is important to recognise that the comparison drawn by Mr J Duffy was between the standalone game without any progressive feature and the corresponding game with the Cash Carriage progressive added. The 26.58% difference calculated by Mr J Duffy between a machine that has a progressive feature and a machine that does not have any progressive feature is consistent with other evidence indicating that the inclusion of a progressive feature is likely to increase turnover significantly. But the point made by Mr J Duffy was that, while the progressive version was very strong, the non-progressive version was strong but not very strong. From this he reasoned, correctly in my view, that there are many other factors affecting the performance of a game apart from the inclusion of a progressive feature.

259    Mr J Duffy’s analysis also shows that most new games attract a reasonable level of play when they are first released but, if players decide they do not like a game, the numbers will start to decline relatively quickly. According to Mr J Duffy, most strong games (meaning those that generate relative high turnover) continue to perform well, indicating that the game has “… a math model that resonates, and this model is presented in a way that creates an enjoyable overall play experience for a broad player pool”.

260    Mr J Duffy’s analysis of turnover data showed that performance varied from game to game. Among a number of games achieving performance levels that were “strong” or “strong to very strong” were the progressive features Double Dynasty and Lucky Garden. The instructions provided to Mr J Duffy indicated that neither of those games included the 689 trigger. In his oral evidence he expressed the opinion that the performance of Double Dynasty was very strong and that, in the case of Lucky Garden, it performed at similar levels to Cash Carriage. At the very least, that evidence tends to confirm that the use of the 689 trigger was likely to be one of many factors contributing to the performance of the 689 Games and that a progressive feature that used a different trigger mechanism could still perform very strongly.

261    Mr J Duffy performed another analysis aimed at determining the contribution made by the 689 trigger to the performance of each of the 689 Games. For this purpose he performed a calculation on the basis that 80% of performance (i.e. turnover) is attributable to the attributes of a game (regardless of whether it includes the 689 trigger). He then sought to determine similar weightings for the base game, the features and the progressives. He took as a starting point the assumption that base games, features, and progressive features should all be equally weighted (i.e. 33.33% for each) but recognised from the outset that this was not true. His prior analysis showed, as mentioned previously, that games that did not include a progressive feature would perform, on average, worse than games that did have a progressive feature and that average turnover on a game increased by 18.77% where it included a progressive. He reasoned that this showed that, on average, players were 18.77% more attracted to games with progressive features. He then adjusted the weighting for the progressive feature by increasing it by 18.77%. In the result, he concluded that a weighting of 39.59% which he called the (“Progressive Segment Attraction”) should be attributed to the progressive feature.

262    Mr J Duffy then made further adjustments to his calculations in recognition of the fact that the progressive feature includes various components. The first of these was the “Math” (including start-up dollar amounts, increment percentage, hit rates, average jackpot, average turnover to jackpot) but excluding the 689 trigger math which he referred to as the “Mechanic”, and non-math components which he referred to as the “Presentation” (including themes, animations, and sounds). He considered that the Mechanic had to be fair and, if it was, then from a player’s perspective, it achieves the required result. He considered that the Presentation, which he described as the packaging for the other components, had to be visually appealing and to present the Math for the game in an easily digestible form. He regarded the Presentation as key since it must resonate with the players and must facilitate rapid learning of the math model. Mr J Duffy assumed that each of the Math, Mechanic and Presentation components of the Progressive Segment should be weighted equally (i.e. 33.33% each). In order to then calculate the weighting of the Mechanic component of the Progressive Segment, Mr J Duffy took 33.33% of the Progressive Segment Attraction, which is 13.20%. He then took 13.20% of the overall player attraction (80% of turnover) i.e. 13.20% of 80%. He therefore concluded that the 689 trigger contributed to performance (i.e. turnover) to the extent of 10.56% with the balance accounted for by other attributes. I will refer to the method by which he arrived at this figure which he referred to as the “Weighted Mechanic Attraction” as DM-1.

263    Mr J Duffy also performed another calculation using a different methodology which assumed that the Math, Mechanic and Presentation should each be weighted at 33.3%. He then adjusted the weighting for the Mechanic by reference to the average RTP for a progressive game. I refer to this method as DM-2. The resulting calculation produced a figure of 2.66%, which is much lower than the 10.56% obtained using DM-1. It appears he used this method for the purpose of performing a cross-check in relation to his first result, and he did not suggest in his report that it was likely to be more accurate than his first result or that it raised any significant doubt in his mind as to the accuracy of the 10.56% obtained using DM-1. The figure of 10.56% was said by Mr J Duffy to represent what he considered to be the upper bound in terms of the attractiveness to players of the progressive’s Mechanic and, at least implicitly, that the 2.66% figure represented the lower limit.

264    I will return to the percentage figures obtained by Mr J Duffy but it is convenient at this point to address some of Aristocrat’s criticisms of Mr J Duffy’s methodology which were developed in Aristocrat’s closing submissions but not in any expert evidence specifically addressing Mr J Duffy’s report or his methodology.

265    First, Aristocrat submitted that Mr J Duffy’s methodology had “no theoretical or logical support” and that he accepted that it was not based on any industry methodology. Mr J Duffy did not dispute that his analysis formed the basis of what should be understood as an opinion held by him as to the relative significance of various attributes of a game. And he did not suggest that his calculations were based on any industry methodology. I did not find that surprising. The exercise performed by him was no doubt novel, but that is likely due to the novel nature of the question he was asked to answer. While I approach Mr J Duffy’s methodology on the basis that it is not tested, it reflects what is in my opinion a logical analysis undertaken by a person with extensive experience in the gaming industry.

266    Secondly, it was contended that Mr J Duffy’s selection of the 80% figure for the purpose of determining the role game performance plays in accounting for an operator’s purchase decision was arbitrary and unsupported. I do not agree with either of those criticisms. Mr J Duffy’s figure takes into account, the price which he regarded, and I accept, is an important consideration that would influence an operator’s purchase decision. However, as will be seen, I propose to make an adjustment to his figures that attributes more weight to game performance and which in my opinion more than adequately addresses Aristocrat’s criticism of Mr J Duffy’s 80% figure.

267    Thirdly, Aristocrat also submitted that the allocation of an equal weighting for all Math, Mechanic and Presentation was “intuitively contrary to common sense, and the evidence as to the importance of the jackpots speaks for themselves [sic]”. This overlooks the fact that in Mr J Duffy’s weightings the components most relevant to the “jackpot” are given a weighting of 66.66% (Math + Mechanic).

268    Fourthly, there were criticisms made about the underlying data used by Mr J Duffy and that his calculations required amendment more than once during the course of the trial. This is a reference to the fact that his original report specified a range of 2.77% to 10.56% which was later amended to 2.66% to 10.56%. The errors that gave rise to the need for this amendment were not shown to be significant and they do not affect my assessment of Mr J Duffy’s evidence. This is also true of a small number of typographical errors in his report.

269    Fifthly, it was suggested by Aristocrat that Mr J Duffy did not understand the invention, that he had mischaracterised it, and that he had overlooked the language of the claims, including, in particular, claims 3 and 4. I do not think there is any substance to this criticism. The proper characterisation of the invention is a matter for the Court. It is clear from Mr J Duffy’s evidence that he considered the substance of the invention was the proportional trigger. But I regard his evidence as helpful whether one is assessing the value of the invention as either a proportional trigger or a random prize awarding feature with a proportional trigger.

270    Mr J Duffy’s cross-examination was robust and searching. It was put to him in cross-examination that it is the feature outcome that drives the sale of an EGM and to give it a weighting of anything less than 100% or 90% “is just divorced from reality”. In referring to the “feature outcome” in this questioning, the cross-examiner may have been intending to refer to the progressive feature (i.e. the feature game) which is not necessarily the same as the feature outcome (e.g. a free game or a jackpot awarded in the feature game). In any event, the exchange between the cross-examiner and Mr J Duffy is instructive because it highlights exactly why Mr J Duffy was not willing to accept what was put to him.

271    Mr J Duffy’s attention was drawn to the figure of 39.59% appearing in his report which he calculated as the “Progressive Segment Attraction” which he arrived at in the manner I have previously described. The cross-examination with regard to that figure went as follows:

MR BANNON: All right. Can I suggest to you that an outcome of 40 per cent attraction should demonstrate to you that your methodology is unsound? Do you agree with that?---No.

See, what I want to suggest to you – a fair allocation to the – a sensible allocation to the feature outcome is 100 per cent because that’s the thing which tips the manufacturer into adding the feature outcome. Do you agree with that?---No

Because, as I said, a broad range of players will play these games. So it’s just – it’s –it’s another component. It’s like adding a free games and a pick bonus to a game and saying that that makes the game more attractive now because it has got two discrete features on it.

And if you added 90 per cent or only applied 90 per cent to the feature outcome, that would be the bare minimum which you would bottom out at if you’re going to get any attraction to the base game. Do you agree?---No. I think the base game and the associated features of the base game have to be popular with the players.

272    After some discussion concerning the form of a question being put to the witness, the following exchange occurred:

HIS HONOUR: Well, sorry. I don’t think it’s clear. So you’re suggesting that in terms of what contributes to the attractiveness of the console to the player - - -

MR BANNON: Yes. It’s 90 per cent.

HIS HONOUR: - - - it’s 100 per cent or perhaps 90 per cent - - -

MR BANNON: Yes.

HIS HONOUR: - - - that resides in the – the progressive.

MR BANNON: Correct.

HIS HONOUR: All right. That’s what is being put to you. So what do you say about that?---I don’t agree. You know, Aristocrat was successful with this product when it came out because they re-used base games that were popular. The reason for that was they knew that players who enjoyed those games would come across and try the new games with the jackpots in them. If it was just all the progressive the player was playing for, then every single progressive product would perform at a high level and that’s not the case. When you change base games, you will get a spectrum of performance from high down to the low. So if the base game is not attractive and the features associated with the base game is not attractive then that won’t get the level of performance simply by adding a progressive on it. And it’s not about just categorising one type of player. What you’re trying to do is take the player that used to enjoy the existing base game into another experience adding another component on that game. It’s not about saying – okay, these guys are going to stay there. I want a whole new player pool. It’s about just progressing the player pool because players are looking for something – something more all the time. So re-using popular base games was a key strategy in these links performing well.

And would any player in your assessment not be attracted to the progressive feature?---There might be some, yes.

Rather than – sometimes they would play that notwithstanding they weren’t going to be – they prefer that to the base game without the feature? Is that what you’re saying?---No. There might be some that – that – there’s all different types of players out there. So there might be some that don’t want to – to play progressive. But if you look at what has happened in the market and predominantly through this period, virtually all game development headed towards incorporating some sort of progressive feature on the games.

And what do you talk – when you mentioned before about the advantage of using a known base game – I think, as you’ve indicated, Konami was selling base games on their own - - -?---Yes.

- - - previously. And continued to do during this period?---Yes.

And I think you agreed before lunch that employing the features of claims 1 to 4 of the invention enabled them to integrate the – integrate the feature outcome – the progressive feature outcome – into the single unit?---For – for the infringing games, yes.

Yes?---They did do some games that didn’t infringe and other manufacturers did progressive games very similar that didn’t infringe the patent.

And to the extent that the base game had an attraction to a player in an integrated unit, which I think is what you’re suggesting?---Yes.

That was an attraction as part of the integrated unit?---That was part of the whole – the whole package.

(Although the transcript is less than clear, all but the first of the questions asked of Mr J Duffy in that passage of evidence were asked by Mr Bannon SC.)

273    Mr J Duffy was also cross-examined in relation to the importance of what was referred to as presentation. On that topic he gave the following evidence in cross-examination:

And that was part of what you would agree is part of the presentation?---Well, the presentation is your theming, your colouring, how you put it together – you know, is it the train coming past, is it reels spinning – you know, how – they can – you can construct that in many, many ways that, you know, wouldn’t be covered – covered by a patent.

What are your chances of getting which truck as part of the presentation?---Well, they should, by regulations, have some visual relationship to the probability.

Yes?---So they wouldn’t be able to show maxi-mini-maxi-mini on the trains, because that’s just not realistic to the player, because that’s showing a 50/50 chance, which wouldn’t be the case.

No. But the fact is the simplified – well, the type of presentation which you see once the outcome is triggered is a matter of reality. The player will soon learn that their chances of winning something in that presentation are, well, certain, although they don’t know how much they’re going to win?---Yes. They will soon learn that – what outcome – what possible outcomes there are as part of a feature, but the presentation itself might not be very simple. A lot of effort actually went into the artwork for these feature games. Much more effort than went into the actual – the base game. So in terms of the actual presentation, you know, you wouldn’t say that the – they were always simple.

And what I want to suggest to you is that the – if there’s any element of presentation which is other than the notion of it being a simplified game with a higher probability of success, it’s bells and whistles which you wouldn’t give more than a few per cent to, in terms of significance for a player; do you agree with that?---In terms – yes, well, in terms of making the quality of the presentation attractive – so picking a theme that you think resonates, picking a presentation that would resonate with the players, and then designing the artwork over the top that. And the sounds as well. Sounds is part of your presentations, too, because they’re a key part of the gaming experience.

What I’m suggesting to you is that the key for the player is the win they’re going to get, and bells and whistles – colours, sounds – you wouldn’t attribute more than a couple of per cent for that, if you gave it anything, in terms of attraction?---No, absolutely not. Presentation is key. Some themes – and you can see that with clone games. You put a different set of artwork on a math model that has worked well and it just – it doesn’t work. So having a theme and a presentation to the player that resonates, and that they like, is absolutely a critical part of game design and game development.

And so that – what, winning a thousand credits from a machine from a train is something which some people might find acceptable, but not if it comes out of a box; is that your position?---Possibly, yes. Yes. So that’s why manufacturers try lots of different presentations.

274    I found Mr J Duffy’s evidence persuasive. It demonstrates that there are many attributes of an EGM on which a base game and a progressive feature is installed, that affect the EGM’s performance. Leaving aside the differences in progressive features themselves, the base game and other features associated with it are important attributes of an EGM that directly contribute to its performance.

275    Aristocrat also submitted that Mr J Duffy’s evidence was inconsistent with the evidence given by Mr Wohlsen, who was said by Aristocrat to have accepted that the 689 trigger had an “influential” and “material” impact in generating sales and to have considered “jackpot structure and perceived chances of winning” as of high importance to players. I do not think there is any force in this submission. On the contrary, if anything, I think Mr Wohlsen’s evidence provides some support for Mr J Duffy’s conclusion, at least with respect to the 10.56% figure obtained by him using DM-1.

276    Mr Wohlsen prepared a detailed report that addressed a number of questions. One question he was asked was whether it was possible to identify whether the 689 trigger played a role in sales of the affected games. In answering this question he said he was able to qualitatively describe the relative importance of the 689 trigger but could not do so quantitatively. His ultimate conclusion was as follows:

In my view, considering the various markers examined through this report, I am not able to isolate and quantify the level to which the patented trigger, on its own, influences the attractiveness of the game to the player nor am I able to quantify the level to which the patented trigger, on its own, influences the attractiveness of the game to venue owners and operators as a game to be made available on the gaming floor of venues. I am able to conclude presence [sic] of a jackpot and the way that the jackpot is anticipated and celebrated is an influential factor. However, the patented trigger, alone, forms only a part of this aspect of the game.

The presence of the patented trigger is only one of many influences on the attractiveness and performance of a game. The patented trigger's direct relationship to the size of the bet is more likely to be influential on more regular players and for this reason it may be more influential in some games and venue environments that [sic] others that appeal to a more regular player market.

277    Aristocrat objected to parts of Mr Wohlsen’s report that directly related to that conclusion on the basis that they were outside his expertise. The relevant parts of the affidavit were admitted but on the basis that I would consider what weight to give them. Although Mr Wohlsen’s report contains the results of a great deal of data analysis which he was eminently qualified to undertake, it also contained a number of opinions relating to the behaviour of venue operators and consumers which were two areas in which Mr J Duffy had greater experience and expertise. For that reason I have given less weight to Mr Wohlsen’s evidence concerning the behaviour of market operators and consumers. However, with respect to Aristocrat’s criticisms of Mr J Duffy’s evidence, I do not accept that Mr Wohlsen’s conclusion is inconsistent with Mr J Duffy’s conclusion. Both agreed that there were many influences on the attractiveness and performance of a game apart from the proportional trigger.

278    There is material in Mr Wohlsen’s report that may usefully be contrasted with aspects of Mr J Duffy’s analysis. In New South Wales, the games sold by Konami with the proportional trigger (what Mr Wohlsen referred to as “the affected games”) performed about 10% better than the non-affected games (those using a different trigger) across the period 2008 to 2015. However, while the data shows that the affected games performed better than the non-affected games, it also shows that one of the best performing games Konami released was Dragon Fury, a non-affected game released in 2014. Similarly, Lucky Garden (another non-affected game) in the year of its 2009 release appears to have achieved the highest turnover of any of the Konami games (both affected and non-affected) for New South Wales in the entire period including Cash Carriage (an affected game). The figures for Cash Carriage show that it performed well in 2008 and 2009, but that its performance steadily declined in each of the following years as new games were released.

279    The data for the Queensland market is, as Mr Wohlsen explained, problematic due to the very small number of non-affected games sold by Konami in that state. The data shows that Dragon Fury performed strongly in the first year of its release, but its performance faded in the second year. That said, Mr Wohlsen’s evidence does show that some of the non-affected games performed very strongly even if (as might be expected) their performance declined over time.

280    It is necessary to return to Aristocrat’s contention that none of the EGMs or conversion kits which incorporated the 689 trigger would have been made or sold without it. The correctness of that contention depends on an assessment of the importance of the patented invention in the venue operator’s purchasing decision. The evidence establishes that the primary driver of such decisions is performance (i.e. turnover) which is itself a function of a game’s popularity with players. Progressive features are an important driver of a game’s popularity, but so too is the base game and any associated feature. The mathematics of the base game (jackpot levels, hit rates, start-up values etc) play a key role in determining the popularity of an EGM with players. Animations, sounds, artwork and the overall presentation of the game are also important.

281    The evidence shows that the sense of anticipation and excitement created by a progressive game is an important factor and that it is in turn influenced by the timing of announcements (i.e. that a feature outcome has been awarded) and by the use of attractive animations, sounds and artwork that all contribute to the anticipation and excitement generated during game play, including from the moment at which a feature outcome is triggered until the size of the jackpot or other prize is announced. But accepting that performance (i.e. turnover) is a function of game attractiveness, the question is whether it should be inferred that a feature game with a proportional trigger is of such importance to players, and therefore venue operators, that Konami would not have sold any of the relevant EGMs or conversion kits incorporating a feature game that did not use a proportional trigger. In my opinion the evidence does not support the drawing of that inference. In that respect this case is fundamentally different from Dart.

282    That is not to say that Konami is not liable to account for any of the profits it has made. The profits for which Konami is liable are confined to those profits which are attributable to the use of the patented invention which is something less than the total profits made. Konami does not dispute that it made some profits as a result of its use of the patented invention. But the total profits made by Konami are those that are attributable to a wide range of attributes identified by Mr J Duffy and other witnesses. I am satisfied that there must be some apportionment made which excludes from the scope of the account those profits which have no reasonable connection with Konami’s appropriation of the invention.

283    I do not accept Aristocrat’s contention, developed in its submissions but not in the evidence of its own witnesses, that even if some apportionment is justified, then 90% or more of Konami’s profits are attributable to the use of the invention. Aristocrat’s submission is based on a mischaracterisation of the invention. I do not see any support in the evidence for that extreme position. Similarly, I do not accept Konami’s submission that no more than 5% of its profits should be attributable to its use of the invention. Konami’s submission is also based on a mischaracterisation of the invention.

284    In my opinion, Mr J Duffy’s DM-1 provides useful guidance as to how the Court might arrive at an appropriate figure. That said, I am not bound to apply the particular figures adopted by him if I consider that these underestimate, or contribute to the underestimation of, the value to be attributed to the invention. In that regard, DM-2 produces a result that does not sit well with the whole of the evidence in that it seems to me to attribute to the proportional trigger an altogether insignificant role in generating performance (i.e. turnover). While I accept, as Mr J Duffy recognises, that the RTP of a progressive game has a definite effect on the “overall play experience”, the evidence demonstrates that there are many other factors that generate performance. Accordingly, I do not think a methodology that focuses on RTP is useful when seeking to measure the importance of the invention. In any event, Mr J Duffy did not suggest that DM-2 should be preferred to DM-1, only that the former was useful in providing the “minimum” contribution made by the proportional trigger.

285    Konami also relied on the evidence of Mr G Duffy concerning the amount of time spent on the development of a progressive feature relative to the base game and (non-progressive) features. Konami submitted that the figure of 10% attributed by Mr G Duffy to the development of the progressive feature provided support for its contention that, on the evidence as a whole, a fair and reasonable apportionment was no more than 5%. I do not accept that submission. Firstly, I do not consider time spent on the development of a progressive feature is of any assistance in attributing value to the proportional trigger. Moreover, the analysis based on Mr G Duffy’s evidence which happened to arrive at a figure of 5% is based on the calculation of an average of five different weightings for the trigger ranging from 20% to 80% (i.e. 20%, 33%, 50%, 66% and 80%) of the 10% attributed to the progressive feature. The critical question is what weighting should be given to the trigger and to simply take an average from a range of those five figures does not appear to me to reflect a logical approach. For that reason, I do not find Konami’s analysis based on Mr G Duffy’s evidence of any real assistance.

286    Returning to Mr J Duffy’s analysis, there is one specific issue I have with his calculations which in my opinion justifies some adjustment to his numbers. It concerns Mr J Duffy’s 80% figure which Aristocrat submitted was “arbitrary”. As I have explained, I do not accept that characterisation, but I do consider that it attributes excessive weight to matters that are not related to game performance. I therefore propose to use a figure of 90% in lieu of Mr J Duffy’s 80%. The resulting “Weighted Mechanic Attraction” arrived at using his formula after making that adjustment is (after rounding) 12%. If I were to apportion Konami’s profits on the basis that the substance of the invention was, as Konami submitted, nothing more than the proportional trigger, then that is the figure I would use.

287    However, if the substance of the invention is, as I have found, a prize awarding feature with the proportional trigger then the figure to be used for apportionment purposes is Mr J Duffy’s “Progressive Segment Attraction”. When that figure (i.e. 39.59%) is weighted for player attraction (i.e. 90%) by taking 39.59% of 90%, the adjusted figure is (after rounding) 35%. In my opinion this broadly represents the weight that should be attributed to the prize awarding feature with the proportional trigger relative to all other attributes of the infringing EGMs and conversions sold by Konami during the relevant period.

288    In arriving at that conclusion I have had regard to the relative significance of the use of a progressive feature with a proportional trigger in the relevant EGMs and conversions and the extent to which this was likely to have contributed to their performance and their overall attractiveness to venue operators who purchased them. In my opinion the 35% figure on which I have settled is an appropriate one which will produce a just and equitable apportionment of profits between those fairly attributable to Konami’s appropriation of the invention and those attributable to other factors.

289    In the context of an appropriate apportionment figure, Konami did not in its submissions contend for different figures for EGMs and conversions. Nor did Aristocrat contend that different figures should be used for EGMs and conversions. In my opinion the apportionment figure on which I have settled is appropriate for both EGMs and conversions.

290    The accounting experts were agreed that any relevant apportionment could be made by determining an appropriate percentage figure and applying that to the net profit attributable to Konami’s sales of infringing EGMs and conversions. Accordingly, the profit which Konami must disgorge is 35% of its relevant net profit, i.e. 35% of its revenue from infringing sales less any allowable deductions and subject to any related adjustments. For reasons explained below the net profit should be calculated on a pre-tax basis but with the tax component discounted to take account of contingencies.

Revenue and allocation of costs

291    It is common ground that costs that are directly attributable to the manufacture and sale of the infringing products may be deducted from the revenue generated by those activities in calculating the profit for which the infringer must account. The present dispute primarily concerns the extent to which a deduction should be allowed for fixed overheads incurred by Konami which are not directly attributable to such profit.

292    The decision of the High Court in Dart is authority for the following principles:

(a)    General overheads may not be deductible where the “infringing articles were a side line”: Dart at 113 per the majority (Mason CJ, Deane, Dawson and Toohey JJ) cf. McHugh J at 135. After referring to the direction given by Windeyer J in Colbeam Palmer at 39 concerning the defendant’s general overheads costs and managerial expenses, the majority said at 113:

The explanation of the direction given by Windeyer J. is that mentioned by him, namely, that the infringing articles were a side line. There appears to have been unused capacity in the defendant's business in the form of overheads which would have been incurred whether or not the infringing articles had been sold and delivered. The sale and delivery of the infringing articles took up that surplus capacity or some of it, and none of the overhead costs was attributable to the infringing activities because those costs would have been incurred in any event.

(b)    However, where the infringing articles “were an integral part of one consistent product range produced, marketed and sold according to a common system” then it might be inferred that, had the infringing articles not been manufactured and sold, the “… capacity for those activities would have been taken up in the manufacture and marketing of alternative products”: Dart at 113-114 per the majority.

(c)    The respondent may not deduct the “profit forgone on the alternative products”: Dart at 114 per the majority. However, as their Honours also noted at 114:

… there would be real inequity if a defendant were denied a deduction for the opportunity cost as well as being denied a deduction for the cost of the overheads which sustained the capacity that would have been utilized by an alternative product and that was in fact utilized by the infringing product. If both were denied, the defendant would be in a worse position than if it had made no use of the patented invention. The purpose of an account of profits is not to punish the defendant but to prevent its unjust enrichment.

Their Honours also said at 114:

… the cost of manufacturing and marketing the [infringing product] may have included the cost of forgoing the profit from the manufacture and marketing of alternative products. The latter cost is called an opportunity cost. “Opportunity cost” can be defined as “the value of the alternative foregone by adopting a particular strategy or employing resources in a specific manner ... As used in economics, the opportunity cost of any designated alternative is the greatest net benefit lost by taking an alternative.” The practical reality of this concept was recognized in Schnadig Corp. v. Gaines Manufacturing Co. Inc. [(1980) 620 F. 2d 1166, at p. 1175.], where the Court stated: “The alternative available uses of the facilities devoted to the infringement must be considered, and these too will vary.”

See also McHugh J at 123-124.

(d)    Where the respondent has foregone the opportunity to manufacture and sell alternative products “it will ordinarily be appropriate to attribute to the infringing product a proportion of those general overheads which would have sustained the opportunity”: Dart at 114 per the majority.

(e)    In some cases, “profit can only be properly assessed by deducting a proportion of at least some of the overheads, including fixed costs”. What overheads to deduct and the basis of apportionment “will depend upon the facts of each case, bearing in mind always that the aim of the exercise is to arrive as closely as possible at the true profit”: Dart at 117 per the majority.

(f)    It is a matter of “fact and substance” whether overheads which are sought to be deducted are attributable to the manufacture and sale of the infringing product: Dart at 119. As the majority also observed at 119:

… In arriving at an answer, the Court must consider such questions as whether the overheads in any particular category were increased by the manufacture or sale of the product, whether they represent costs which would have been reduced or would have been incurred in any event, and whether they were surplus capacity or would, in the absence of the infringing product, have been used in the manufacture or sale of other products. Dealing with the last of these questions may require the use of the concept of opportunity cost.

(g)    It is notoriously difficult in some cases to isolate those costs that are attributable to infringement from those that are not. Approximation may be necessary in allocating overheads. As the majority said at 119:

If any of the categories [of overheads] are to be brought into account, the proportion to be allocated to the infringing product must be determined and it is here that approximation rather than precision may be necessary. But such an approach has long been accepted. As was said in Colburn v Simms [(1843) 2 Hare 543, at p 560]:

The Court, by the account, as the nearest approximation which it can make to justice, takes from the wrongdoer all the profits he has made by his piracy, and gives them to the party who has been wronged.

The majority also observed at 118 that “the guiding principle would seem to be that the onus is on the infringer to provide a reasonably acceptable basis for allocation” which “may be the basis of allocation typically used by a manufacturer in that industry” (emphasis added).

293    The majority referred to the distinction between the incremental costing and absorption costing as follows at 112:

… Incremental costing takes account only of the change in costs incurred by the manufacture or sale of a particular product and does not seek to apportion to the manufacture or sale of that product any part of general overheads, such as rent, light, heating or office expenses, which cannot be identified as a direct result of producing that product. Absorption costing on the other hand is a costing method whereby general overheads are apportioned by some appropriate means, often by sales or volume, to the manufacture or sale of each product.

294    Their Honours said at 114-115:

Where the defendant has forgone the opportunity to manufacture and sell alternative products it will ordinarily be appropriate to attribute to the infringing product a proportion of those general overheads which would have sustained the opportunity. On the other hand, if no opportunity was forgone, and the overheads involved were costs which would have been incurred in any event, then it would not be appropriate to attribute the overheads to the infringing product. Otherwise the defendant would be in a better position than it would have been in if it had not infringed. It is not relevant that the product could not have been manufactured and sold without these overheads. Nor is it relevant that absorption method accounting would attribute a proportion of the overheads to the infringing product. The equitable principle of an account of profits is not to compensate the plaintiff, nor to fix a fair price for the infringing product, but to prevent the unjust enrichment of the defendant.

Of course, further possibilities may in some cases be open on the evidence. Overhead costs might have been increased by the manufacture and sale of the infringing product, or overhead costs might have been reduced had the infringing product not been produced. In either case it may be appropriate to attribute the difference in overhead costs to the infringing product.

295    McHugh J gave separate reasons on the issue of the deductibility of expenditure and, in particular the concept of “opportunity cost”. His Honour defined “opportunity costs” at 123-124 in much the same terms as the majority. His Honour also said at 124:

To say that general overhead would have been incurred “in any event”, does not necessarily lead to the conclusion, as Dart asserted, that the respondents will profit from their wrong if an allowance is made for that overhead. If a preferred product cannot be produced or distributed (because, for example, it infringes property rights), a rational entrepreneur will choose the next best alternative. General overheads will then be partially absorbed in the cost of the substitute product. If the infringing product had not been produced or sold, Decor, as a rational entrepreneur, would have sought the next best alternative for its resources. Thus, it might have produced another line of goods or more of its existing lines. Whatever the next best alternative may have been, that alternative, once adopted, would have absorbed part of the general overheads. Consequently, in so far as general overhead or costs that would have been incurred “in any event” assisted in the production or distribution of the infringing product, they form a relevant cost of that product. In the event that the next best alternative to producing the infringing product was to produce nothing, Decor still had the option of reducing some of its overheads.

(Citation omitted)

296    There is nothing in that paragraph which I would regard as inconsistent with what was said by the majority. However, his Honour has, unlike the majority, explicitly recognised that, in the counterfactual, the respondent would not have manufactured or sold the infringing product, and in the event that the next best alternative was to produce nothing, they may have instead taken steps to reduce its fixed overheads.

297    His Honour went on to endorse as an acceptable formula for the allocation of overheads an absorption method based on “sales ratio form of allocation”. While that was a method rejected by the majority, I do not understand their Honours to have excluded the possibility of using that method (or some other suitable method of allocation) in an appropriate case. However, the occasion for doing so would only arise, according to the majority’s reasons, where it was shown that the respondent had forgone the opportunity to manufacture and sell alternative products.

298    These principles were applied in Kettle Chip Co Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466 by Burchett J who said at 471:

“… the ground of the allowance of [fixed] overheads (the question only arises in the case of fixed overheads, since there is no dispute that the appropriate amount of variable overheads must be allowed) involves a matching of the contribution made by the particular overheads to the manufacture of the infringing product with the contribution that the same overheads would have made to the manufacture of the alternative. The logic is that, since the infringing product did not cause any increase in these fixed overheads, no part of it is an expense except upon the opportunity cost principle, which allows it only because the manufacture of the infringing product has involved the forgoing of the opportunity to recoup this expenditure.”

299    In that case the respondent (Smith’s) was sued by the applicant (Country Kettle) for passing off. His Honour held at 473 that Smith’s had to “account for so much of the fixed costs recouped by Country Kettle as would not have been recouped by an alternative product”. In the result, and on the facts before him, his Honour held that “the amounts of the allocated proportionate deductions of fixed costs claimed in Smith’s account should be reduced to 30 per cent of those amounts”. An appeal was dismissed: see Apand Pty Ltd v Kettle Chip Co Pty Ltd (No 2) (1999) 88 FCR 568 (Beaumont, Heerey and Emmett JJ) at [28]-[39] per Beaumont J and at [70]-[76] per Heerey J.

300    Konami has the onus of establishing that any amount that it seeks to have deducted from gross profit represents expenditure that is attributable to the manufacture and supply of the infringing products. However, it is important to recognise that it may not be possible to attribute general overheads specifically or with precision to each product in a range of products.

301    It is not necessary for a respondent to prove its overheads or their relationship to the infringing product in minute detail. As McHugh J observed in Dart “what is required is not mathematical exactness but only a reasonable approximation” in accordance with a “reasonably acceptable formula” which may provide a reasonable basis for allocation. The accounting records of a respondent may not disclose any allocation of some expenditure. In the case of general overheads, that will very often be the case. And although the Court may not engage in speculation for the purposes of determining whether and if so what proportion of overhead is attributable to the infringing products, if the evidence supports the inference that some proportion of overhead is attributable to the infringements, then it may be open to the Court to arrive at a figure by way of a reasonable approximation. I say this because there were times during Aristocrat’s submissions when it seemed to be suggesting, although not in these precise terms, that there was a need for clear and exact proof of such matters. That is not correct.

Further background

302    It is useful at this point to identify the three categories of costs most relevant to the account of profits. The first category comprises costs of goods sold (“COGS”) that are directly attributable to the infringing sales (e.g. costs of raw materials).

303    The second category of costs comprises variable costs which, although not included in COGS, are also directly attributable to the infringing sales (e.g. freight out). Variable costs are so described because they vary with the value or volume of the infringing sales. Leaving aside the issue of the NCCs, the total of the COGS and the variable costs are close to agreed. For convenience, I will refer to the figure derived after deducting COGS and variable costs from the agreed revenue as “gross profit”. However, in doing so I recognise that Konami’s accounting records approach the matter slightly differently by accounting for variable costs “below the gross margin line”. Since both parties accept that COGS and variable costs are allowable deductions, nothing turns on this.

304    The third category of costs are those referred to by Mr Ross as other costs which Konami necessarily incurred in the design, manufacture and sale of the infringing products but which cannot be directly attributed to the profit derived from infringing sales. This is the category of costs that was the focus of the debate between the experts and which I refer to as fixed overhead. The question is what proportion (if any) of overhead should be attributed to the infringing sales. Both experts agreed that the term “attributable” (as used in Dart) has a legal rather than an accounting meaning.

305    There is another category of costs identified by Mr Ross which I mention for completeness. This is the category which has no connection with the development, manufacture or sale of the infringing products. Examples of these costs include COGS and variable costs attributable to non-infringing products, and costs associated with the sale of fixed assets. These costs cannot be attributed to the infringing products.

Mr Bishara’s evidence

306    According to Mr Bishara’s evidence, there are two parts to Konami’s business. The first relates to the development, manufacture and sale of gaming machines. The second part of the business is the Konami Casino Management System (KCMS), a system used by casinos and clubs to connect EGMs to a central computer used to collect information.

307    Konami’s operations are divided into the following eight departments:

(a)    Manufacturing Department: The manufacturing department (also known as the Factory) is responsible for building gaming machine products and KCMS products.

(b)    Administration Department: This department is responsible for IT support, accounts, executive management, and human resources, corporate planning and other general administration (excluding sales administration, which is in the operations department for accounting purposes).

(c)    Compliance Department: This department is responsible for technical compliance in relation to gaming machine products and systems including referral of games to testing laboratories, preparing submissions, and lodging and facilitating gaming approvals with government agencies.

(d)    Operations Department: This department is responsible for sales administration, including receiving orders, processing orders and arranging for delivery to the customer.

(e)    Research and Development: This department is responsible for developing games and gaming products, including designing and testing the games.

(f)    Sales & Marketing Department: This department is responsible for communicating with customers to generate sales, including preparing sales orders, and sending the order to sales administration for processing and data entry.

(g)    Service Department: This department is responsible for servicing gaming machines and systems in the field and providing spare parts. Prior to 2010, Konami held service contracts for all machines in particular venues regardless of manufacturer. It no longer provides servicing of machines.

(h)    Systems: This department is responsible for development and maintenance of KCMS.

308    The KCMS part of the business started in the financial year ending 31 March 2010 (Konami’s financial year runs from 1 April to 31 March) and is, according to Mr Bishara, a relatively small part of Konami’s business. Mr Bishara included in his written evidence a summary of the revenue generated by KCMS for each of the financial years 2010 to 2017 (inclusive).

309    Mr Bishara gave evidence concerning the electronic record keeping system (“Pronto”) used by Konami to record expenditure information which is automatically integrated by Pronto into Konami’s general ledger. The primary records used to enter this information into Pronto includes sales orders, purchase orders, and invoices. Konami’s financial reports distinguish between domestic (Oceania) sales and export (non-Oceania) sales.

310    Pronto is used by Konami to generate monthly management reports and management profit and loss statements for each year. The evidence includes the management profit and loss statements for each of the financial years ending 31 March 2005 to 31 March 2017 and also includes the statutory accounts for each of those years which have been independently audited.

311    According to Mr Bishara’s evidence, operational expenses incurred by Konami include variable and fixed expenses. Variable expenses include commission, freight, installation, packaging, royalty and warranty. Fixed expenses include depreciation, employment, general administration, licensing, marketing and product development. When entered into Pronto the fixed and variable expenses are allocated to one of the following seven departments: Administration, Compliance, Operations, Product Development, Sales and Marketing, Service and System Sales.

312    In his evidence Mr Bishara also described the manner in which Konami calculates COGS which includes the actual cost to Konami of purchased parts and manufactured parts. It also includes labour costs and overhead costs allocated to the product. The labour costs are a direct cost calculated by reference to standard labour rates. The overhead costs reflect the indirect costs incurred in manufacturing the product including payroll expenses for indirect labour and indirect manufacturing expenses (e.g. rent, maintenance and motor vehicles). Indirect labour refers to manufacturing employees other than those working on the production line (e.g. manufacturing manager, manufacturing supervisor and warehouse worker). This overhead does not include the costs of persons working outside the manufacturing department (i.e. the factory) or the costs of any other department. COGS does not include any amount in respect of non-manufacturing costs.

313    Mr Bishara also describes other indirect manufacturing expenses in COGS including air freight, costs of tools and related consumables, delivery costs, depreciation, entertainment expenses for manufacturing staff, equipment hire (e.g. ladders and forklifts), maintenance, motor vehicles, packaging materials, printing, rent, security, stationery, telephone and various other categories. Again, Mr Bishara’s evidence makes clear that these indirect expenses as recorded by Konami are for the manufacturing department and do not include the costs of any of the other departments.

The accountants’ evidence

314    Mr Ross’ profit calculation included an allowance for the NCC costs of $2.45 million which were recorded by Konami as COGS. He was instructed that the NCC costs were to be included in his profit calculations and, as a result, he included all NCC costs which were reported as COGS and also included allocations of overhead in relation to NCCs on a unit sales basis. Mr Ross allowed a further $61.5 million comprising $58.7 million for overhead (around 27% of the total overhead reported during the relevant period) and $2.8 million non manufacturing depreciation.

315    Ms Wright performed four alternative calculations. Her first (scenario 1) included the NCCs’ costs as COGS and the second (scenario 2) excluded the NCCs as COGS. Both Mr Ross’ and Ms Wright’s figures for COGS will need to be adjusted in light of my findings in relation to the NCCs (discussed below). For present purposes, it is sufficient to focus on Ms Wright’s scenario 1 which included an amount for the NCCs in COGS. She calculated two alternative versions of scenario 1. Under the first (scenario 1A) Ms Wright allowed for variable expenses in the amount of $16.7 million which she considered attributable to the infringing products. But she did not allow for any amount for what she regarded as fixed overheads on the basis that these could not be attributed to the infringing products.

316    Under her alternative scenario 1 (scenario 1B) Ms Wright allowed the same figure (i.e. $16.7 million) in respect of variable expenses. But she also allowed $16.9 million in respect of fixed overhead on the basis that, even if it was concluded that some part of that overhead may be attributable to the infringing products, there were some categories of overhead included in Mr Ross’ calculations which she still did not consider could be attributed (either in whole or part) to the infringing products. Even if Ms Wright were to allow some amount for fixed overheads, it would be more than $40 million less than what Mr Ross has allowed.

317    I note that Ms Wright’s (and Mr Ross’) figures for COGS include some manufacturing overhead which Konami classifies as COGS in its financial records. Similarly, the amount allowed by Ms Wright (and Mr Ross) for variable expenses includes amounts that may properly be described as variable overheads. The main difference between them relates to what I will refer to as the fixed overhead.

318    Additional matters on which the accounting experts disagree include depreciation and income tax. Mr Ross includes a deduction of approximately $300,000 for manufacturing depreciation (eg. tooling) which he included as COGS and approximately $2.8 million for non-manufacturing depreciation (eg. office equipment, motor vehicles) representing about 30% of the depreciation reported by Konami during the relevant period. Ms Wright makes no allowance for depreciation in any of her calculations.

319    Mr Ross allows a further deduction of $4.2 million in respect of income tax paid by Konami during the relevant period. Ms Wright expressed no opinion on whether income tax should be deducted on the basis that this was not a matter within her expertise.

320    There is a difference between the accounting experts as to whether the profit calculation should be made in relation to the entirety of the relevant period or, as Aristocrat contends, only for those financial years within the relevant period in which Konami derived a profit from the manufacture and sale of the infringing products.

321    There is also a dispute between the parties as to whether any damages awarded to Aristocrat in respect of the NCCs should be treated as deductible expenditure for the purpose of the account of profits. I will return to this issue when considering the damages claim.

322    The expenditure which Konami has deducted in calculating profit includes COGS, the “Rock Around the Clock” royalty (“RATC royalty”) (which is an agreed variable expense) and other variable expenses to give profit (before overhead, depreciation and income tax) derived from the manufacture and sale of the infringing products. The parties are in substantial agreement in relation to the resulting figure. The differences between them with respect to COGS relate to the treatment of the NCCs and manufacturing depreciation in the calculation of the COGS. There is a minor difference between the accounting experts in relation to variable expenses which reflects a disagreement in relation to allocation methodology. I will come back to this issue when considering allocation methods used by Mr Ross and Ms Wright’s criticisms of them. The figure for profit (before overhead, depreciation and income tax) will require adjustment in light of my rulings on those points.

323    The very large difference between the accounting experts in relation to fixed overheads is primarily the result of differences in their instructions. Mr Ross was instructed that had Konami not developed, marketed and sold the infringing games, it would have developed, marketed and sold other non-infringing games. Ms Wright, who was not given any such instruction, agreed in her oral evidence that this is what gave rise to the main difference between Mr Ross and her regarding the allowance that should be made for fixed overhead. The principal difference between Mr Ross’ $61.5 million and Ms Wright’s zero (scenario 1A) comes down to the question whether Konami suffered any relevant opportunity cost as a result of it having sold the infringing products. The difference between Mr Ross’ $61.5 million and Ms Wright’s $16.9 million (scenario 1B) requires a closer examination of the disputed categories of fixed overhead.

324    In the joint expert report (“JER”) Ms Wright explains the approach she has taken under her scenario 1B. What appears in the JER is mostly a summary of matters that are explored in more detail by Ms Wright in her expert report. In determining whether a fixed overhead would be appropriately attributed to the infringing products, Ms Wright applied the following criteria in relation to the disputed categories of fixed overhead:

(a)    whether an incremental cash flow occurred;

(b)    whether the cost is directly attributable to the infringing games;

(c)    whether the cost would have been incurred in any event regardless of sales volumes;

(d)    the nature of the cost; and

(e)    whether the department that incurred the cost was involved in producing and selling the infringing games.

325    Ms Wright’s application of these criteria is best considered by reference to the disputed categories of fixed overhead which is a matter to which I will return. In the meantime, it is necessary to consider a number of submissions made by Aristocrat which would, if accepted, lead to the rejection of all of Konami’s claims to fixed overheads not included in COGS. These submissions concern the related concepts of “a side line” and “opportunity costs”.

A sideline

326    Aristocrat did not submit that the manufacture and sale by Konami of the infringing products was “a side line”: see Colbeam Palmer at 39 and Dart at 113, cf. 135 per McHugh J. Rather, Aristocrat submitted that the reference to “side line” in the authorities should be understood as a synonym for unused or surplus capacity.

327    For most years in the relevant period sales of the infringing products accounted for more than 20% of total sales. In one year infringing sales generated more revenue than non-infringing sales. In my opinion the manufacture and sale of the infringing products could not be described as a side line.

328    That said, I agree that the question whether some proportion of Konami’s overheads is an allowable deduction is not advanced by determining whether or not the manufacture and sale of the infringing products was a “side line”. In my opinion, the real question is whether Konami incurred an opportunity cost by engaging in the manufacture and sale of the infringing products. That is the topic I will now address.

Opportunity costs

329    Aristocrat submitted that all of the relevant overheads were fixed and would have been incurred by Konami in any event had it not manufactured and supplied any of the infringing products. The accounting experts agreed that during the relevant period overheads did not fluctuate materially. I agree with that conclusion. An examination of the sales revenue and overheads does not suggest any correlation between fluctuations in the number of infringing products and overhead costs. Although the overheads were not static I think it is appropriate to treat them as essentially fixed. I therefore accept Aristocrat’s submission to that effect.

330    In her consideration of the third category of costs (i.e. overheads), Ms Wright placed emphasis on the fact that those costs would have been incurred in any event. Her primary position was that since the overheads were essentially fixed, none could be shown to be directly attributable to the manufacture and sale of the infringing products and were therefore not allowable deductions. This reflects an incremental approach to the allocation of overheads on which Konami does not rely. Rather, Konami seeks to bring itself within the principles considered in Dart which permit a deduction in respect of overheads which sustained the capacity that a respondent would have utilised in manufacturing and supplying an alternative product that was in fact utilised in manufacturing and supplying the infringing products.

331    In this case, if it is concluded that Konami, by manufacturing and supplying the infringing products, deprived itself of the opportunity to manufacture and sell alternative products, it would be appropriate to allocate to the infringing products a proportion of those overheads on the basis that they sustained that opportunity. How such overheads are to be allocated is a question that only arises once it is established that the respondent has suffered an opportunity cost.

332    I previously held that Aristocrat had not discharged its onus in showing that (as it alleged) none of the infringing products would have been sold were it not for the inclusion of the proportional trigger. Since I am now considering the claim for a deduction for fixed overheads, Konami is the party that carries the onus of showing that it incurred an opportunity cost by manufacturing and supplying the infringing products. To do so Konami must show that the other products it says it would have made using a different trigger would have generated revenue which would have defrayed Konami’s fixed costs.

333    Aristocrat submitted that Konami had not proved that any alternative products would have been made in place of the infringing products or to what extent any such alternative products would have contributed to revenue and that Konami should therefore not be allowed any of the overhead it claimed. Alternatively, Aristocrat submitted that if, contrary to that submission, the Court were to find that Konami would have made and sold alternative products then it should also conclude that the contribution to revenue that these would have made would have been relatively small and that any proportion of Konami’s fixed costs that is brought into the account should be reduced by 90% on that basis. Aristocrat sought to justify such a substantial reduction on the basis that Konami’s evidence in support of the counterfactual analysis was “vague and speculative” and that “[t]o apply a discount of anything less than 90% … is to reward Konami for its evidentiary failings”.

334    There are a number of considerations that are relevant to whether or not Konami incurred an opportunity cost in manufacturing and selling the infringing products including:

    Whether Konami had the manufacturing capacity to manufacture and supply alternative products;

    Whether Konami had the technical resources to develop and manufacture alternative non-infringing products;

    Whether there was a market for the alternative products which Konami could have supplied.

335    In the normal course of counterfactual analysis the counterfactual world is treated as the same as the real world minus the event or condition the subject of the counterfactual inquiry. In the present case the relevant event or condition is the manufacture and supply of the EGMs and conversions with a feature game incorporating the proportional trigger rather than one incorporating some other trigger.

336    It is clear that Konami had more than adequate manufacturing capacity to make and supply at least as many alternative non-infringing products as infringing products that were actually supplied. Aristocrat not only did not dispute the correctness of that proposition, it relied on it in support of its submission that Konami did not suffer any opportunity cost.

337    The majority in Dart recognised at 119 that, in deciding whether an overhead is attributable to the manufacture and sale of an infringing product, one relevant matter to consider is whether the overhead represents “surplus capacity”. But it is apparent from what their Honours said in the whole of that paragraph that the question is whether, in the absence of the infringing product, any surplus capacity would have been used in the manufacture or sale of other products. The existence of surplus capacity is not necessarily inconsistent with the infringer having incurred an opportunity cost.

338    Aristocrat submitted that, during the relevant period when Konami was making and supplying infringing products, it had surplus manufacturing capacity which it could have utilised to make and supply additional products if it was motivated to do so. Aristocrat submitted that in 1999 Konami manufactured around 5,500 EGMs but that in 2005, the number of EGMs manufactured had declined to around 1,200. During the relevant period Konami’s annual EGM sales were significantly less than 5,500. The implication of this submission is that in circumstances where Konami had the manufacturing capacity to produce more gaming products, the fact that it did not do so indicates that it was either unwilling or unable to produce any more than it in fact produced during the relevant period.

339    Konami submitted that Aristocrat’s submission in relation to capacity ignores the fact that high manufacturing numbers achieved by Konami in 1998 and 1999, immediately followed Konami’s launch into the Australian market and should not be seen as evidence of manufacturing capacity at any later point in time. It submitted that there was no evidence that Konami had the capacity to manufacture the same number of EGMs in 2005 as it had in 1999 and that this was not a question explored in the cross-examination of any of Konami’s witnesses. Konami submitted the cross-examination of Mr Ross and Mr Wohlsen which required them to assume that manufacturing capacity was at all relevant times 5,500 units was not supported by the evidence and does not accord with authority.

340    Aristocrat submitted that it was for Konami to prove what its manufacturing capacity was during the relevant period. In support of this submission Aristocrat referred to a number of cases concerned with claims for damages or equitable compensation as illustrative of the kind of evidence that Konami should have led: Ashcroft v Curtin [1971] 1 WLR 1731 at 1737-1738 per Edmund Davies LJ, Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (2018) 136 IPR 8 at [207], [840]-[843] per Jagot J. However, these cases do not support Aristocrat’s submission. They were concerned with claims for loss of opportunity to supply goods or services, where it was contended that there was no satisfactory proof of the capacity to supply those things because the business in question was operating at capacity.

341    In any event, the difficulty with Aristocrat’s argument is that it assumes that a manufacturer that may already have excess capacity would not be willing or able to adapt or modify its operations in response to (for example) the loss of a large contract or the grant of an injunction that prevented it from making a particular product. While a manufacturer may be content to maintain some level of surplus capacity, it may not be reasonable to assume that it would be willing to maintain the same level where its surplus capacity was significantly increased due to such an event. It would not make commercial sense for Konami, in the relevant counterfactual scenario, to have not produced different products. Aristocrat’s submission really amounts to saying that Konami would not have sought to utilise any increase in its surplus capacity by making alternative products because it would have no reason to believe that there was any market for them. That is contrary to evidence on the topic from Mr Crosby which I found persuasive.

342    In its submissions in reply Aristocrat submitted that the focus of the enquiry in relation to overheads must be on “spare capacity” and whether the particular expenses could have sustained a higher level of production and sales. I do not accept that submission. In my opinion it is based on a misreading of Dart in that it would, if accepted, exclude the possibility of there being any opportunity cost if at the time the infringing products were made there was surplus capacity. The fallacy in the analysis can be demonstrated by a simple example. Assume that a motor vehicle manufacturer releases three or four new models each year. It has more than enough manufacturing capacity to meet demand. Whether it suffered an opportunity cost as a result of not being able to manufacture and supply two new models in a given year must depend on what other models (if any) it would have produced in their place and whether these would have contributed to revenue. The critical question is whether there was an opportunity foregone to make and supply alternative products to which it would have been appropriate to attribute some proportion of the fixed overheads.

343    In support of its submissions based on the existence of spare capacity Aristocrat relied on the decision of the English Court of Appeal in Hollister Inc v Medik Ostomy Supplies Limited [2012] EWCA Civ 1419 (“Medik”) and, in particular, on the discussion of the allocation of overheads and opportunity cost appearing in the reasons of Kitchin LJ (with whom Jackson and Peter Smith LJJ agreed). However, in that case his Lordship merely applied the law as explained by the High Court in Dart observing at [85] that the defendant must show that the relevant overheads are properly attributable to the infringing activity. His Lordship further observed that “[a]ll will depend on the facts and circumstances of the case” and that “it may be relevant to consider whether a defendant has surplus capacity, whether the infringing activity was an additional line to an established business and whether the defendant’s overheads have been increased as a result of the infringing activity or whether its overheads would have been lower had it not engaged in that activity”. In the same paragraph his Lordship observed that “it is not permissible for a Defendant simply to allocate a proportion of its general overheads to an infringing activity …”. He further noted at [87] that Medik had not (inter alia) attempted to prove that, but for the infringement, it would have sold other products.

344    Aristocrat also relied on the decision of the Full Court in Apand Pty Ltd v Kettle Chip Co Pty Ltd (No 2) (1999) 88 FCR 568 (Beaumont, Heerey and Emmett JJ) which was the appeal against the decision of Burchett J in Kettle which I have previously considered. Each member of the Full Court gave separate reasons. Aristocrat submitted that Kettle was a case in which there was no suggestion that Smith’s had any surplus capacity. That submission is correct. But Aristocrat also submitted that the Full Court’s decision is authority for the proposition that fixed overheads are not recoverable where there is surplus capacity. I do not think there is anything in the reasons of either Beaumont J or Emmett J to support that proposition. Contrary to Aristocrat’s submission, I do not think what Beaumont J said at [9] assists. I do not understand the majority to have held in Dart (at 113) that fixed overheads could never be recovered where there was surplus capacity and I do not understand Beaumont J to have expressed a view to that effect: see also Emmett J at [128]. In any event, any observation to the effect that fixed costs could never be recovered where there was surplus capacity would not have been necessary to the decision given that it was not in dispute that Smith’s had no surplus capacity.

345    Aristocrat primarily relied on what was said by Heerey J at [70]-[71]: