Is Mr ChappelL liable for authorising SMS's infringements?
70 Blueport seeks to hold Mr Chappell liable for the infringement of SMS on two bases: first, for authorising the infringing conduct under s 13(1) of the Act; and secondly as a joint tortfeasor with SMS for the infringing conduct.
71 The authorisation claim relies on s 13(1) of the Act, which is set out above but may usefully be set out again here:
Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.
72 It will be noted that s 13(1) provides that a patent gives the patentee the "exclusive rights" during the relevant period "to exploit the invention and to authorise another person" to exploit the invention. The term "exploit" is defined in Sch 1 to the Act and is set out above at [6]. As Gummow J observed in Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 25 IPR 119 at 153, exploitation and authorisation are distinct concepts. That is to say, there are two "exclusive rights" granted by s 13(1) in those respects.
73 Gummow J then observed, at 155, that as a result of the introduction into Australian patent law of the concept of authorisation by s 13, it is an infringement "not only to exploit the invention but also to authorise another person to exploit it".
74 His Honour then briefly mentioned the different strands of thought in the authorities as to the meaning of "authorisation", one being that it means to "sanction approve and countenance", the other to "grant or purport to grant to a third person the right to do the act complained of".
75 His Honour further noted that counsel for the respondent in that case did not dispute the width of the expression "authorise another person to exploit the invention" and accepted the continued subsistence of the law in Walker v Alemite Corporation (1933) 49 CLR 643 at 658; [1933] HCA 39, where Dixon J had emphasised the narrow view taken on the authorities as to what constituted a participation in infringement or threatened infringement.
76 Section 120(4) of the Act provides that infringement proceedings must be started within:
(a) three years from the day on which the relevant patent is granted; or
(b) six years from the day on which the infringing act was done;
whichever period ends later.
77 Blueport submits that the "exclusive rights" of a patentee include the right to "exclude" others from exploiting the invention or authorising another person to exploit the invention, referring to Grain Pool of Western Australia v Commonwealth of Australia (2000) 202 CLR 479 at [83]-[85]; [2000] HCA 14.
78 It will be noted that there is no express "right to exclude" in s 13(1) and the word "exclude" does not appear there. What is given are the exclusive rights "to exploit" and "to authorise". There can be little doubt, however, that in Grain Pool the plurality (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ), by reference to authority, accepted a monopoly identified in this way for the purposes of the patent law, referring, among other authorities, to Steers v Rogers [1893] AC 232 at 235, where Lord Herschell LC spoke of the right of a patentee as "the right to exclude others" from manufacturing in a particular way and using a particular invention.
79 Blueport says it therefore has the right to authorise another person to exploit the invention and that right has been infringed. It submits that the relevant question is whether the product being exploited infringes the claimed invention, not whether a person authorising that conduct intends to authorise the infringement or knows that the product will infringe, and that there is no requirement that the person knows that the authorisation is of an infringement of a patent, referring to Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Ltd (2010) 85 IPR 525 at [193]; [2010] FCA 108.
80 Thus, Blueport submits that it is an infringement of the patentee's exclusive rights under s 13 not only to exploit an invention but also to authorise another person to exploit it. It says the word "authorise" in s 13 has the same meaning as in the comparable context of the Copyright Act 1968 (Cth) as discussed in Inverness at [194], citing Bristol-Myers Squibb Company v FH Faulding & Co Limited (2000) 97 FCR 524 at [97]; [2000] FCA 316 and Rescare at 155.
81 Accordingly, Blueport says authority has now settled the view that a person authorises an infringement if he or she "sanctions, approves or countenances" the infringement. See Inverness at [194]; Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380 at [137]-[140]; [2006] FCAFC 187.
82 Blueport accepts that a director of a company does not authorise any act of infringement by the company by reason only of his or her position as a director, and says it is necessary to show actions that demonstrate that the director did sanction, approve or countenance the act of infringement. In this case, it is submitted that Mr Chappell is liable for authorising the infringements if:
(1) he knew that the infringing acts of manufacture and sale of the pipe connectors by SMS would occur; and
(2) he had the power to prevent SMS from committing those acts.
See Inverness at [203].
83 Blueport, as explained in more detail below, contends that Mr Chappell arranged for the necessary testing of the pipe connectors and for other criteria of the Water Corporation of Western Australia to be satisfied in order to have the pipe connectors entered onto the Water Corporation's approved products list. Once the pipe connectors were entered on that list, it is submitted, he knew their manufacture and sale would occur. That was the sole purpose of seeking the approval of the Water Corporation - to be able to sell the pipe connectors to contractors for their intended use in underground wastewater systems. Blueport contends Mr Chappell then personally participated in the soliciting of sales of pipe connectors to contractors. Finally, it submits he had the power to prevent the manufacture and sale because he was a director of SMS and had the ability to influence and control its operations, given its small size.
84 Blueport, in making these submissions, also refers to Bodkin C, Patent Law in Australia (2nd ed, Thomson Reuters, 2014) at [9290]-[9310] under the subheading of "Infringement by authorisation of an infringing act". At [9290] Dr Bodkin says:
It was noted in [9110] that not only is it an infringement to exploit an invention the subject of a valid patent claim without authorisation by the patentee to do so, but it follows from the form of s 13(1) that it is also an infringement to authorise the carrying out of an infringing act. It has been observed [footnote omitted] that in s 13(1), the word 'authorise' has the same meaning as it has in a comparable context in the Copyright Act 1968. [footnote omitted] An early explanation of the meaning of 'authorise' in this context is to be found in the following words of Atkin LJ:
to 'authorise' means to grant or purport to grant to a third person the right to do the act complained of, whether the intention is that the grantee shall do the act on his own account, or only on account of the grantor. [Falcon v Famous Players Film Co [1926] 2 KB 474 at 499]
In the same case, Bankes LJ considered that 'authorise' had the dictionary meaning of 'sanction, approve, and countenance'. [footnote omitted] This view has been accepted and applied in the High Court of Australia, [footnote omitted] although Gibbs J considered that it also meant 'permit'. [University of New South Wales v Moorhouse (1975) 133 CLR 1] It follows that authorisation does not require express permission or approval. [footnote omitted] In relation to copyright, Jacobs J has said, of the meaning of 'authorisation':
It is a wide meaning which in cases of permission or invitation is apt to apply both where an express permission or invitation is extended to do the act comprised in the copyright and where such a permission or invitation may be implied. Where a general permission or invitation may be implied it is clearly unnecessary that the authorizing party have knowledge that a particular act comprised in the copyright will be done. [University of New South Wales v Moorhouse (1975) 133 CLR 1]
85 The respondents generally accept that a person may be the subject of a claim made under s 13(1) for authorising exploitation, without approval. They submit, however, that the Court should read and have regard to Bodkin, particularly at [9290], as supporting the respondents' submission that infringement by authorisation is a species of direct infringement distinct from infringement by exploitation of a patented invention. The respondents submit it follows that Blueport's cause of action against Mr Chappell accrued when he committed the acts of which Blueport complains. They say, assuming the act of authorisation can be made out, the action against Mr Chappell is barred by s 120(4)(b) of the Act because any authorisation, if it occurred, occurred before 20 December 2006, thus infringement proceedings were not commenced within six years from the day on which "the infringing act" was done.
86 The respondents say the key first sentence of Bodkin at [9290] appears to have been based on the passage in Gummow J's decision in Rescare at 155, which is the authority cited by the author earlier in [9110]. It is submitted that Gummow J's obiter dicta should be taken in context of the statement his Honour made at 153, namely, "[e]xploitation and authorisation thus are distinct concepts".
87 Similarly, it is submitted the Court should also note that Dr Bodkin, following [9310], concludes his discussion of authorisation before turning to the separate topic of "[i]ndirect infringement".
88 Blueport notes the respondents argue that because infringement by authorisation may be characterised as a form of "direct infringement", the relevant acts of authorisation must take place during the limitation period for infringement, and so it follows that any authorisation by Mr Chappell of SMS to exploit the patent occurred prior to 20 December 2006 and is barred by operation of s 120(4) of the Act.
89 Blueport does not accept that an act of authorisation that occurs before the relevant period of infringement cannot be infringement itself where that authorisation is of an act to be performed in the future, during the limitation period for infringement. It submits the acts of authorisation by Mr Chappell that occurred before 20 December 2006 were for SMS to exploit the patent after 20 December 2006, therefore even if the only conduct relied upon is conduct before 20 December 2006, the claim is not barred by the operation of s 120(4) of the Act.
90 Further, Blueport submits that, in any event, Mr Chappell was a director of SMS until 1 May 2011, had the power to stop the infringement from occurring and knew or should have known that an infringement was likely to occur. Therefore his authorisation occurred each time SMS exploited the patent, which extended well after 20 December 2006; this satisfies the test set out in University of New South Wales v Moorhouse (1975) 133 CLR 1; [1975] HCA 26, referred to in Bodkin.
91 In my view, having regard to the monopoly identified by s 13(1), in Grain Pool, and the nature of the "exclusive rights" created by s 13(1), to which Gummow J referred to in Rescare, it is an infringement, being a direct infringement, not only to exploit the invention but also to authorise another person to exploit it.
92 Therefore, in my view, s 120(4)(b) of the Act applies to this authorisation claim. In that case, any alleged authorisation that occurred prior to 20 December 2006 is barred by operation of s 120(4) of the Act.
93 That leaves, however, the submission of Blueport that what happened before 20 December 2006 effectively operated at various times after date because it was an authorisation to do things after that date. In my view, the only authorisation given was before the relevant date.
94 The more substantive submission, relying on Moorhouse, is that, because Mr Chappell failed to stop infringement occurring on each occasion SMS exploited the patent after 20 December 2006, he is to be taken to have authorised the exploitation on each such occasion.
95 In Moorhouse, a graduate of the University of New South Wales used a photocopying machine, in breach of copyright, to photocopy portions of a book. The question was whether the university had authorised the doing of the act, being photocopying. Jacobs J, with whom Gibbs J agreed, said at 20 that the word "authorise" in the manner it was used in s 36(1) of the Copyright Act 1968 (Cth), had been given the meaning (referred to above), taken from the Oxford Dictionary, of "sanction, approve, countenance". His Honour, at 21, considered the word has a wide meaning which in cases of permission or invitation is apt to apply both where an express permission or invitation is extended to do the act comprised in the copyright and where such a permission or invitation may be implied. Where a general permission or invitation may be implied, his Honour held it is clearly unnecessary that the authorising party have knowledge that a particular act comprised in the copyright will be done.
96 Thus, the university could be taken to have authorised the student's unlawful photocopying.
97 It is argued here that, in fact, each time SMS exploited the patent, it was, by way of analogy, acting under an implied authorisation (the expressions "permission" or "invitation" are not entirely applicable in this particular factual circumstance) to do so.
98 I do not consider the analogy to be particularly apt.
99 There is, in any event, a general question whether on the facts of the case Mr Chappell can be said at any time to have authorised the exploitation distinctly from SMS.
100 If he did not authorise conduct before 20 December 2006 then the contention that his earlier authorisation was, in effect, adopted from time to time after 20 December 2006 must logically fall away.
101 The facts relevant to Mr Chappell's alleged liability either on the basis of authorising the conduct of infringement or as a joint tortfeasor, discussed below, are set out in his affidavit dated 14 October 2014, read at the hearing (Mr Chappell's affidavit), and are as follows.
102 Mr Chappell was a director of SMS between 17 November 2003 and 1 May 2011, some seven and a half years. During that period his brothers were also directors, and shareholders.
103 Mr Chappell was also employed by Advanced Concrete Products Pty Ltd (ACP) as operations manager for a period until about July 2003 when he joined Wormall Contracting Pty Ltd as project manager, which position he held until 26 March 2004.
104 In about July 2003, while still employed by ACP, he attended a meeting with Mr Rohan Wallace of the firm of Griffith Hack Lawyers, patent attorneys.
105 He attended that meeting at the direction of Mr Shane Wormall, a manager at ACP, with the instructions:
I want you to go and see Griffith Hack to help them with some product technical queries to do with our patent.
106 Mr Chappell says at that time he did not know what patent Mr Wormall was talking about.
107 At the meeting, Mr Wallace showed him a draft application for a patent in respect of a pipe connector but he did not read through the entire document. He now believes the document was an early version of a draft application for the patent that is the subject of these proceedings.
108 Mr Chappell says that he directed a number of questions to Mr Wallace, because the draft application appeared to him to be "nothing more than a version of a type of pipe connector I had seen previously" and there were a number of products or product ranges he had in mind.
109 In that regard, one such product range was produced by a German company known as "Rehau". He had seen their products in about 1996 at a trade fair in Munich. He had also, at another trade fair, seen another such product range, by an Israeli company, known as "Hofit".
110 Another product he had in mind was manufactured in Australia and known as "Polypit". He had used that product five years before the meeting with Mr Wallace while working as a manager for a company known as Geocrete.
111 After SMS was incorporated and Mr Chappell had left the employ of Wormall following his employment at ACP, he started work on multi-shaft products similar to the Rehau and Hofit products. He provided a set of drawings to attempt to obtain Water Corporation approval for the product. At that point he says SMS abandoned further development of the multi-shaft product and then began to develop the product that is the subject of this proceeding.
112 He says that at SMS his role was liaising with the Water Corporation to gain acceptance by their Criterion Committee of any products that SMS wished to bring to the land development market. The Water Corporation is effectively in a position to regulate the products that can be used in new systems. If approved, then there would be a commercial market for SMS's product in Western Australia.
113 On or about 12 April 2005, about a year after ceasing employment with ACP and commencing with SMS, Mr Chappell received a letter from Griffith Hack Lawyers, acting for Blueport, Wormall and ACP and reminding him (amongst other things) of their clients' intellectual property rights in the patent. He was reminded that the manufacture, promotion, offering for sale and sale of pipe connectors with the features described in the claims of the patent, without the authorisation of Blueport, was conduct that would infringe the patent.
114 Mr Chappell says he showed that letter almost immediately to his brothers, the other directors of SMS, who by that stage were all familiar with the ACP pipe connector product.
115 He says they reached the conclusion that if the patent mentioned covered SMS's product, about which they had doubts, then it was invalid and presented no reason why SMS should not proceed with its product.
116 Mr Chappell identifies annexures ANO-6 to ANO-8, ANO-11 and ANO-15 to ANO-17 to Ms Owen's affidavit, read in evidence, which he says comprise correspondence between SMS and the Water Corporation concerning SMS's application to have its product included in their list of approved products and an agreement executed as part of that process. However, he does not think that pages 139 to 142 of Ms Owen's affidavit and the annexures, being material concerning the Rehau and Wormall products, were enclosed with the letter from Mr Chappell to the Water Corporation forming page 138, as they have no relevance to that subject matter.
117 He notes that ANO-9 is a copy of an email message dated 24 October 2005 from Mr Stewart Buckby, who at that time had recently started a business known as Buckby Contracting and was interested in using SMS's product, which had only recently been approved on a trial basis. He says the email contained a request for proof of that approval.
118 Mr Chappell identifies ANO-10 as a copy of a chain of email messages between him and Mr Stuart Herrald, who was an engineer working for Engineering Dynamics Consultants Pty Ltd, and was performing finite element analyses for SMS as part of its efforts to get Water Corporation approval.
119 He also notes that his emails to Mr Herrald were sent from the address contracts@muscon.com. He said that at that time he was employed by Musgrave Contracting where he was allowed to use his company email account for other communications. At that time SMS was not in a financial position to pay him a salary or give him full time employment and did not have its own email addresses.
120 The email communications between Mr Chappell and Mr Herrald are dated 30 June 2006, which is the pleaded limitation date in [20A] of the amended defence in the proceeding.
121 It is said, in relation to Mr Chappell's dealings with Mr Herrald and Engineering Dynamics Consultants Pty Ltd, that he was acting as more than a director of SMS at this point. I should say, at this point, it is not easy to draw from this communication any such conclusion.
122 From that point until he ceased to be a shareholder and director of SMS from 1 May 2011, no other conduct of any consequence is identified by the evidence.
123 In my view, if there was any sanctioning, approval or countenancing of the infringement, for the purposes of "authorising" exploitation under s 13(1) of the Act, the authorisation was given by SMS and not by Mr Chappell. It is accepted that the mere fact that a director participates in the decision-making of a company is not sufficient to draw the conclusion that the director authorised the act. It is necessary to show actions that demonstrate that the director sanctioned, approved or countenanced the act of infringement. In that regard, as noted above, it is suggested that if the director has knowledge that the infringing acts would occur and had the power to prevent the company from committing those acts, but did not take any steps to prevent the acts, then the director may be taken to have authorised the act.
124 In particular, on the facts of this case I do not consider that there is anything more, in all of the acts relied on of Mr Chappell acting on behalf of SMS and in gaining the listing of the SMS product on the Water Corporation's list of approved products, to justify a finding that he separately authorised the exploitation. In my view, only SMS did so.
125 This is not a case where it can be said that Mr Chappell "made himself a party to the act of infringement" which is conduct that s 13 would embrace: see Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (1998) 42 IPR 111 at 129; [1998] FCA 1103.
126 In Inverness, at [203], Bennett J, having stated the test for authorisation as set out above, found that the director (Dr Appanna) sanctioned, approved and countenanced the sale of products that infringed Inverness' exclusive right to exploit the invention of the first patent and the second patent in question, as he knew the infringing act of the sale of the devices would occur, had the power to prevent those acts and had some duty to interfere. Her Honour said that express or formal permission is not essential and inactivity or indifference may reach a degree from which authorisation or permission may be inferred, referring to her Honour's decision in Australasian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 61 IPR 575 at [19]; [2004] FCA 1123.
127 The facts and circumstances of that case are different from those of this case. Here Mr Chappell, at material times, with two of his brothers, was one of three shareholders and directors of SMS. Due to his background, he had responsibilities for dealing with the Water Corporation in order to have the SMS product placed on the Water Corporation's approved list. I do not consider that the dealings that he had, as a director, with the Water Corporation and the steps he took to obtain that approval went beyond work that he as a director was expected to do. It was part and parcel of the business that SMS was to undertake. It is not at all clear that Mr Chappell by himself could necessarily have prevented the infringement complained of, being but one of the three directors in a company whose business it was to pursue that line of activity. Whilst Mr Chappell's view may have been important, he was not a sole director. In that regard his position seems to me to have been quite different from that of Dr Appanna in Inverness: see Inverness at [190]. Dr Appanna was directly and personally involved in obtaining regulatory clearance of the devices in Australia as managing director of the company. At [192], Bennett J said she was satisfied that Dr Appanna's position as managing director and his participation in the procurement and distribution of devices in New Zealand and Australia were sufficient to establish that he deliberately, wilfully or knowingly pursued a course of conduct that resulted in the company selling products that infringed the Inverness patents. While that finding was directly concerned with the question of whether Dr Appanna was a joint tortfeasor, characterisation of the conduct in that way, in my view, discloses how it was materially different from the conduct of Mr Chappell here that is said to "authorise" the exploitations.
128 For these various reasons, I find that Mr Chappell did not "authorise" the exploitation of the invention for the purposes of s 13(1) of the Act.