Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd

Federal Court of Australia|2022-11-21|Before: Ms P, Rofe J

THE COURT ORDERS THAT:

Leave to appeal be granted to the Respondents to appeal from declarations 1 and 2, and orders 5-11 and 14-15, of the orders made on 28 October 2022 (Orders).
Order 9(a) of the Orders be amended to read: "deliver up to the Applicants, or their nominated agent, the tubular housing including the circuit board inside that housing of all Infringing Tools and all core sample orientation tools or systems referred to in paragraphs 5(a) and 5(c) above."
Upon the undertaking noted in paragraph 8 below, order 4 of the Orders be extended until the expiry of the Patent.
Order 5 of the Orders be stayed insofar as it restrains the Fourth Respondent from continuing use of each of the Infringing Tools presently being used by the Fourth Respondent's drilling services division in Australia, until such time as that Infringing Tool has been replaced by the Applicants' ACT III tool (or other such substitutable tool supplied by the Applicants), provided that use of each Infringing Tool is to cease as soon as practicable after the delivery of the replacement tool to the site in question.
The Third and Fourth Respondents' interlocutory application dated 11 November 2022 (Application) otherwise be dismissed.
The Third and Fourth Respondents pay the Applicants' costs of the Application.
The time for compliance with order 15 of the Orders be extended to 5 December 2022. THE COURT NOTES THAT:
The Applicants, by their counsel, give the following undertakings to the Court: (a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct), to any person (whether or not that person is a party) affected by the operation of orders 4 (including its continuation by order 3 above, with or without variation) and 5 of the Orders; (b) to pay the compensation referred to in order 8(a) above to the person affected by the operation of the orders referred to therein; and (c) to retain all delivered up material pursuant to order 2 above and order 9(a) of the Orders until the determination of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ROFE J: 1 I gave judgment in this matter on 6 October 2022: Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd (No 3) [2022] FCA 1189. In that judgment I concluded that the patent was valid and infringed with respect to the UPIX Tool (also known as the "V6 Tool"). Any abbreviations used in these stay reasons are the same as those used in my judgment. 2 On 28 October 2022, I made final orders including an injunction (order 5) and for delivery up of infringing tools (orders 9 and 10) (Final Orders). On 11 November 2022, the respondents filed an application for leave to appeal, and an application for a stay (Application) was filed by the third and fourth respondents (together, the BLYA respondents). The first and second respondents make no application for a stay. 3 As a consequence of filing the application for leave to appeal, orders 5, 6, 8, 9 and 10 were stayed pending determination of the Application. By their interlocutory application, the BLYA respondents seek an order that upon provision of an undertaking as to damages that: (a) order 5 be stayed, insofar as it restrains BLYA from continuing to hire the TruCore UPIX Tools presently on hire to its Australian customers but for the avoidance of doubt, BLYA is not permitted to supply any further TruCore UPIX Tools in the event that the TruCore UPIX Tools presently on hire become damaged or require repair; (b) orders 9 and 10 be stayed; (c) order 9 be amended by the addition of certain words; and (d) costs be costs in the cause. 4 The BLYA respondents rely upon the affidavits of: (a) Ms Shannon Emrick, General Counsel, Asia Pacific, BLYA made 11 November 2022; and (b) Mr Joshua Brent Cameron, Instrumentation Regional Manager, Asia Pacific, Geological Data Services of BLYA made 11 November 2022. 5 The applicants (AMC) opposed the application. AMC relies on the following affidavits: (a) Mr Christopher Williams, partner at Gilbert + Tobin, made on 16 November 2022; and (b) Dr Michelle Carey, chief of product management and marketing at Imdex Limited, the parent company of the applicants, made on 16 November 2022. 6 Order 5 is an injunction, and BLYA seeks that it be stayed only insofar as it restrains BLYA from continuing to hire UPIX Tools which are presently on hire to its Australian customers. BLYA does not seek to hire out any further UPIX Tools pending the determination of the appeal, nor does it seek to replace any UPIX Tools that may become damaged or require repair with new tools pending the appeal. The BLYA respondents submit that they only seek to maintain the status quo which has existed since it first started acquiring UPIX Tools from the first respondent (Globaltech Corporation) in February 2019. 7 Orders 9 and 10 of the Final Orders concern delivery up of UPIX Tools and destruction of associated materials concerning promotions and advertising as well as instructional manuals. 8 Whether or not a stay is granted, the BLYA respondents propose the addition of the following words to order 9(a) of the Final Orders: …or at the option of the respondents, the disassembly of such tools in the manner set out in paragraph 17 of the affidavit of Shannon Emrick made 11 November 2022.

History and Background 9 The history of the parties and the related proceedings is set out in my 6 October 2022 reasons at [13] to [18]. 10 Globaltech has made several variations of the Orifinder core orientation tool since it was first released in 2011. Each variation has been the subject of infringement proceedings between AMC and Globaltech, and versions 3A, 3B and 5 were found to infringe by Besanko J in Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd (2019) 138 IPR 33 (the Globaltech FI proceeding). Globaltech's appeal was unsuccessful, and an application for special leave to appeal to the High Court was refused. Globaltech was recently unsuccessful in seeking a stay of the quantum aspect of the Globaltech FI proceeding: Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd [2022] FCA 445. 11 Separate proceedings for patent infringement were issued in respect of another core orientation device, the V4 Tool. These were resolved by consent with orders made by Bennett J on 19 October 2015, including a restraint on both Globaltech Corporation and Globaltech Pty Ltd (GTCPL) from dealing with the V4 Tool. 12 The patent infringement proceedings are not all one way. Jagot J recently found that the second applicant in this proceeding (Reflex) infringed Globaltech's Australian standard patent (in what was referred to as the Olart Proceeding). Jagot J made stay orders in that proceeding pending appeal, pursuant to which Reflex is able to continue to hire out the infringing EZ-TRAC and EZ-GYRO tools with IR Couplings presently on hire to its Australian customers, but it is not permitted to supply any further tools or IR Couplings in the event that any of them become damaged or require repair. BLYA was not a party to those proceedings. BLYA has supplied the V5 Tool (January 2016 to February 2019) and the V6 Tool (February 2019). 13 BLYA has been aware of the patents since February 2016, and it was aware of the earlier Globaltech FI proceeding and the final orders including the permanent injunction. 14 BLYA hires out the UPIX Tool in its business in two ways: first as part of its drilling services offering to mineral exploration customers, and second, the larger portion of its hire by hiring the tools to third party providers of drilling services. The UPIX Tool is supplied in kits of two TruCore tools. Whilst a core sample is being removed from one tool, the second core orientation tool in the kit is deployed down the hole so the drilling can continue. The UPIX Tools are used in remote mining locations, and they are usually in constant use. Some customers may require multiple sizes of orientation tools, which are kept on site to ensure minimal down time in the event of the hole changing size due to geological or drilling requirements. 15 Reflex and AMC have a suite of compatible tools, which includes the ACT tool - AMC/Reflex's commercial embodiment of the patent in suit which was launched in late 2004. The current version, the ACT III, competes with the UPIX Tool. Reflex supplies its instruments by renting them or occasionally selling them outright. Reflex's current range of hired tools includes the EZ-TRAC and EZ-GYRO (with IR Couplings) which are the subject of the OLART Proceeding. The Reflex ACT II and III are directly substitutable for the V6 Tool.

Principles 16 The applicable principles for a stay are well established and were summarised by Jagot J in Sigma Pharmaceutical (Australia) Pty Ltd v Wyeth (No 2) (2010) 88 IPR 633 at [15]. 17 The court has a broad discretion and special circumstances are not required. But the judgment is not to be treated as provisional. The successful party is entitled to its benefit and the presumption that it is correct. Consequently, the applicant for a stay carries the burden of demonstrating that a stay is appropriate. 18 A stay should not be granted unless the appeal is at least arguable - although speculation as to prospects of success is usually inappropriate. Without more, however, an arguable case is not sufficient justification for a stay. 19 In the exercise of the discretion, the court will weigh up such factors as the balance of convenience and the competing rights of the parties including, in particular, any prejudices of the parties that would be caused by granting or refusing a stay. A substantial factor in favour of a stay is the risk that, without a stay, the appeal would be rendered nugatory: In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd (No 2) [2020] FCA 772 at [25] per Katzmann J.

Submissions 20 BLYA submits there are six principle reasons why the proposed stay should be granted. 21 First, the UPIX Tools have been on the market for many years. The present status quo has existed since at least February 2019. There are a large number of UPIX Tools in the possession of BLYA's customers. They are spread far and wide in remote locations and are in constant use by those customers. Thus, effecting a product recall will be difficult, time consuming, disruptive and destructive of BLYA's customers' operations. Mr Cameron estimates that the cost of air freighting all the tools back from every location in Australia would cost at least $10,000. 22 Second, there is a real risk that BLYA will suffer irreparable loss and damage, and the possibility that the appeal will be rendered nugatory. BLYA submits that customers typically use the whole suite of tools offered by a third-party manufacturer, which gives them the range of compatible tools they require under a single package. If the injunctive order is not stayed, BLYA submits that there is a prospect that BLYA's customers will seek to replace the UPIX Tool with the Reflex ACT III tool, with the consequence that customers will move to replace all 'TruTools' (including non-infringing tools such as the TruShot and TruGyro) with the suite of tools in the Reflex range. 23 BLYA submits that AMC's evidence confirms that it has the capacity and ability to destroy BLYA's rental business by the supply of ACT III tools within the period of a month. AMC has sufficient ACT III tools to replace the entire UPIX fleet and believes it can effect a customer transition to ACT III tools with no real disruption. 24 BLYA submits that the proposed stay orders essentially mirror those made by Jagot J in the OLART Proceeding. In other words, the stay of the OLART Proceeding permits Reflex to preserve its position pending its appeal with its current customers who are sourcing a suite of tools from it. But a refusal of the stay sought herein would deprive BLYA of a similar position. If a similar stay is not granted to the BLYA respondents in the present case, then the stay in OLART Proceeding has the potential to give AMC/Reflex an unfair advantage. 25 The BLYA respondents submit that once customers switch brands they may well not turn back. But rather, stay wedded to the new suite of tools - BLYA's long-term relationships with customers would thus be destroyed. BLYA acknowledges that the Reflex ACT III tool is not the only competitor to the UPIX Tool. But AMC's evidence is that it also licences the AXIS Champ Ori. According to BLYA, no competitor tool exists in the Australian market that is not owned or authorised by AMC. 26 Third, AMC elected not to seek an interlocutory injunction to restrain exploitation of the UPIX Tool and BLYA submits that AMC delayed in prosecuting its claim for patent infringement. BLYA submits that AMC's conduct permitted BLYA to establish its hire business in Australia using UPIX Tools. BLYA notes that its calculated risk in entering the Australian market is to be understood in the context of AMC's permissive conduct. 27 Fourth, BLYA offers to submit to an undertaking as to damages. The form of the undertaking is that set out in [8] of Ms Emrick's affidavit. 28 Fifth, there is no real prejudice to AMC if the stay of injunction is granted. BLYA notes the following elements of Dr Carey's evidence: (a) Dr Carey's candid acknowledgment that AMC cannot estimate the negative effects on its business by the static presence in the Australian market of the UPIX Tools pending the appeal. (b) Dr Carey makes plain that AMC can quickly replace all UPIX Tools with ACT III tools once the injunction operates if the injunction is affirmed on appeal. (c) The only AMC market share that has been lost is that which is presently being met by BLYA. BLYA's share is static. It does not seek, pending the appeal, to capture any other part of the market which exists or may develop. (d) Dr Carey's acknowledgement that over the Christmas/New Year period there is no market activity for a couple of months. 29 The BLYA respondents observe that the period and extent of any potential prejudice to AMC is therefore limited and confined. Given BLYA does not seek to supply new UPIX Tools in the market pending the appeal it is solely within AMC's domain to exploit all other areas of the market. 30 Sixth, the BLYA respondents hold a genuine belief that the appeal grounds are meritorious. 31 AMC submits that the balance of convenience here weighs in favour of refusing the stay application, and the BLYA respondents have not established sufficient basis to justify the stay sought. AMC makes the following submissions in relation to BLYA's six reasons in support of the stay. 32 First, BLYA has been on notice that it is susceptible to the risk of the injunctive relief sought in this proceeding since at least the commencement of this proceeding in December 2019. Any prejudice that might be suffered by BLYA arise as the consequence of the calculated risks undertaken by it. The imposition of an injunction BLYA pending the appeal in those circumstances is not an undue burden on BLYA and is not unjust. BLYA only has itself to blame. In those circumstances, the presence of the infringing tools on the market is not a reason to keep them there pending appeal. AMC submits that the current status quo of the V6 being on the market is not a reason to keep them there pending appeal. 33 AMC submits that the current status quo of the V6 Tool being on the market is only due to the conduct of BLYA at the outset and launch. If the respondents, including BLYA had sought a non-infringement declaration or provided details of the V6 Tool prior to launch, AMC would have taken action to prevent the launch. AMC submits that BLYA is seeking to retain the benefit of a business built on conduct that was found to amount to conduct sufficient to enliven an award of additional damages. 34 AMC submits that it has waited for a long time for the injunction. The patentee whose patent rights have once again been found to be infringed and vindicated should be permitted to enjoy the benefit of the injunction against all established infringers pending the appeal. 35 Second, as to operational difficulties for BLYA's existing customers, Reflex has more than sufficient inventory of ACT tools immediately available to replace the V6 Tools that will need to be recalled. The 90-day period afforded under order 10 allows the V6 Tools to be recalled from BLYA's customers during an idle December to January summer period when it is typical for mining operations to slow or shut down. 36 Third, in relation to BLYA's possible irreparable harm from a drop in demand for BLYA's entire line of tools, AMC submits that such a risk is speculative and overstated and a minor issue at best. AMC notes that the evidence of Dr Carey is that as a practical matter, tools from different manufacturers are compatible and operable together. AMC also submits that BLYA would not be precluded from communicating with its customers as to the recall of the V6 Tool. AMC further submits that BLYA would maintain its relationship with those customers through its provision of its broader drilling services and equipment. 37 The fact that the V6 Tool is a "key component" of BLYA's "instrumentation package" and required throughout the drilling process, speaks to the value of AMC's patent rights and the significance of the injunction to AMC. AMC submits that BLYA had no global data services division prior to its exploitation of the infringing V5 and V6 Tools and has since developed and expanded the business on the back of that technology. 38 Fourth, there would be considerable prejudice to AMC if the stay is granted. The undertakings volunteered by BLYA do not adequately protect the applicant's position if the appeal fails. Not only would the applicants continue to lose market share of the ACT and license products, there is a prospect that the losses occasioned by lost sales to competing V6 Tools would not be quantifiable. Also, if the V6 Tool remained on the market rather than being delivered up to AMC, then the respondents would be in a better position to substitute the V6 Tool with a further attempted workaround and supply it to their customers. 39 Fifth, as to the OLART Proceeding, AMC notes the following: the stay of the destruction orders was consented to by the patentee, the infringement involved a minor component that is coupled to the EZ-TRAC and EZ-GYRO survey tools to provide for transmission of infrared signals through a sidewall without decoupling. The form of the stay of the injunction ordered was necessary to obviate the need for Reflex to recall the EZ-TRAC and EZ-GYRO survey tools which are independently operable survey tools and were not themselves infringing product. As such, reference to the orders made in that case provides no assistance to the respondents in this case. 40 Sixth, the proposed appeal has weak prospects of success. This is because any appeal on infringement and invalidity will be difficult give the clear consistency between the court's construction of claim one of the patents and the provisional in the judgment and the construction of Besanko J and the Full Court. Further, and in any event, an arguable case on appeal does not, of itself, justify the grant of a stay.

Consideration 41 The starting point is that the patentee has been successful and is entitled to the fruits of its victory which includes an injunction. The onus is on BLYA to show that a stay is appropriate in the circumstances. 42 Both parties have offered undertakings as to damages and there is no evidence that neither party would be good for the money if the undertaking was to be called upon. 43 I consider that there will be little disruption to the operation of BLYA's customers if the stay is not granted. The evidence is that the AMC orientation tool is substitutable for the V6 Tool, and that AMC has inventory on hand and can supply the ACT III before recall of the V6 Tool on its usual commercial terms and with no locked in, long-term contract. 44 Whilst some customers may prefer to acquire a full suite of tools from the one supplier, there was no detail in the evidence as to the likely proportion or numbers of such customers. There is nothing in the orders that would preclude BLYA from managing the V6 Tool recall process by informing customers that the recall may be only a short duration if the appeal is successful and the steps by which it would then replace the V6 Tools in that event. 45 I note that both AMC and BLYA consider that December and January are quiet months in the mining industry and thus the period and extent of any prejudice is limited. 46 Accordingly, I do not consider that the appeal would be rendered nugatory if a stay is not granted. 47 This case is not the usual patent infringement proceeding. It has transformed from the ordinary by reason of the circumstances of the case including the lengthy history involving various iterations of the UPIX Tool leading to the V6 Tool, the multiple infringement proceedings, and the conduct of the respondents including BLYA. 48 I acknowledge that BLYA and BLY were not parties to the V3A, V3B, and V5 proceedings, but equally, they were not uninformed or innocent infringers. As I found in my judgment, BLY had an exclusive distribution and supply arrangement with Globaltech and at [323], I found that they engaged in a concerted action to a common end. 49 As I found at [368] of my judgment, Boart Longyear took a calculated risk by supplying the infringing V6 Tool in light of the terms of the general injunctive relief of the December orders and the penalty notice. The 20 February 2019 letter shows that BLY was acutely aware of the effect of the orders, including the penal notice. BLY was clearly alive to the risk that the tool it was renting out and supplying to the Australian market as the new version of the TruCore UPIX Tool may infringe the patent. 50 There was no material before the court at the hearing to suggest that BLY had conducted its own due diligence as to whether there was any arguable case as to non-infringement before it commenced supply. Ms Emrick had not read the Globaltech FI reasons or the December orders, but may have read a summary of the orders prior to BLY launching the alternative solution. 51 There was no delay by AMC of the kind suggested by BLYA. At trial, Globaltech submitted that it may be regarded as having cooperated with AMC to provide information and documents about the operation of the V6 Tool. At [359] of my judgment, I found that Globaltech did not proffer details of the working of the V6 Tool and why it did not infringe. I observed that any cooperation only came after AMC had filed an application for preliminary discovery some five months after the respondents publicly announced the launch of the alternative solution. In those circumstances, it cannot be said that AMC may be seen to have delayed in prosecuting its claim for patent infringement. 52 Finally, I am prepared to accept that an appeal is at least arguable, and I have granted leave to appeal. 53 Taking all relevant matters into account and giving them due weight, I am not satisfied that the respondents have made out an appropriate case for a stay. Accordingly, their application must be refused.

Disassembly of components of UPIX Tools 54 As to the disassembly of the components of the UPIX Tools, BLYA seeks a stay of orders 9 and 10 of the Final Orders which provide for the delivery up of the infringing tools and the destruction of promotional material. AMC presses for the continuation of orders 9 and 10 in their current form on the basis that those orders would remove from the respondents all sources of temptation. AMC submits that the respondent's past conduct establishes that in this case there is a significant risk of repetition of infringement unless the V6 Tools are delivered up to applicants. 55 Ms Emrick gives evidence on information and belief from Mr Hejleh, the managing director of the Globaltech respondents, that the TruCore UPIX Tool can be disabled so that it is not capable of operating in the manner in which it was found to infringe. AMC submits on the basis of Dr Carey's evidence that it is not industry practice to recycle standard hardware components such as batteries, washers and circuit boards in the manufacture of other products and technology, much less specialised hardware components specifically created for the purpose of manufacturing the infringing tools such as the respondent's OLART device and AMC does not itself do so. 56 It seems to me from the evidence of Ms Emrick that many of the disassembled components of the V6 Tools are capable of other (non-infringing) uses if they are undamaged and remain in a usable state. The heart of the infringing device is the firmware located on the circuit board inside the tubular housing. If this aspect of the V6 Tool is removed and delivered up to the applicants, the V6 Tools will not be able to infringe. 57 AMC's concern that the V6 Tools will be reprogramed is ameliorated in part by the removal of the circuit board and further by the existence of order 6 which provides for notification to AMC of any further versions of the infringing tools which use the same hardware as the infringing tools in Australia.

Orders 58 Upon the applicants giving an undertaking to retain all of the delivered-up material until determination of the appeal, I amend order 9(a) to add after the words, "or their nominated agent", the words, "the tubular housing including the circuit board inside that housing of". 59 There being no objection to the continuation of an order in the form of order 4, I make an order varying order 4 to replace, "until 4 pm on 21 November 2022", with, "until determination of the respondents' appeal or further orders of the court". 60 Upon the applicants giving the usual undertaking as to damages in respect of the injunction in order 5 pending the determination of the appeal, I make an order staying order 5 until such time that the Infringing Tool has been replaced by the applicants' ACT III tool. I otherwise dismiss the BLYA respondent's application for a stay of order 5. 61 The BLYA respondents are to pay the applicants' costs of the application dated 11 November 2022. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rofe.

SCHEDULE OF PARTIES NSD 1040 of 2019 Respondents Fourth Respondent: BOART LONGYEAR AUSTRALIA PTY LTD

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Judgment (9 paragraphs)

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Cases Cited (5)