Cementech Pty Ltd v Austral Masonry

Should Adbri be removed as a party? 11I see no basis upon which Adbri should be removed as a party. It is joined as a defendant for the obvious reason that Cementech contends it has infringed the Patent. 12Ms Cochrane, who appeared for Adbri, explained that the basis for Adbri's application to be removed as a defendant was its apprehension that, in the course of dealing with Cementech's application to have Austral join it as plaintiff, the Court might make findings as to whether Adbri had infringed the Patent, which findings might prejudice Adbri's later defence of the proceedings. 13I do not accept that such an apprehension provided any sound basis for Adbri's application that it be removed as a party. 14In any event, the issue does not arise as I made clear to the parties during argument that I consider it neither necessary nor appropriate that I express any view, at this stage of the proceedings, as to whether there has been an infringement of the Patent. That will be a matter for another day, and, for the reasons I explain below, another Court. I received the evidence adduced by Cementech and Austral on the question of infringement as evidence only of the parties' contentions on that subject.

The Licence Agreement 15By cl 3.1 of the Licence Agreement, Cementech grants to Austral: "An exclusive licence with the right... to use, copy, adapt, modify, improve, develop, exploit and commercialise the Intellectual Property and to use the Intellectual Property to manufacture, have made, use and supply the Products within the Territory [that is, Australia] for the Term [that is, until 11 February 2014]". 16"Intellectual Property" is defined to include the Patent. 17Clause 9 is the critical clause and, relevantly, is in the following terms: "9. INFRINGEMENT 9.1 Notice of Infringement If [Austral] becomes aware of: ... (b) any infringement or threatened infringement of the Intellectual Property rights licensed under this Agreement; ... [Austral] must immediately give notice of same in writing to [Cementech] (Infringement Notice). 9.2 Infringement Actions (a) Upon receipt of an Infringement Notice [Cementech] may, at its sole discretion, take all steps reasonably required to protect the Intellectual Property from infringement. (b) In the event that [Cementech] elects to initiate proceedings for prosecuting or defend any Claims with respect to the Intellectual Property, all expenses incurred by [Cementech] in conducting any such proceedings or defending any Claims will be borne by the parties equally and all amounts received (including in respect of costs) from settlements or adjudications will be dealt with in the manner described in clause 9.2(f). (c) If required by [Cementech], [Austral] shall, at the expense of [Cementech], lend its name and do all things within its power to promote the success of any proceedings in relation thereto. (d) If the parties agree, they may jointly institute proceedings against or defend proceedings against any person responsible for an infringement, and must share equally all costs included in such proceedings and all amounts received either through settlements or adjudications (including in respect of costs) will be dealt with in the manner described in clause 9.2(f). (e) If, within a reasonable time, [Cementech] fails to take steps which [Austral] considers to be reasonable to protect the Intellectual Property from infringement, [Austral] may commence legal proceedings against a third party in respect of the infringement at the expense of [Austral]. If required by [Austral], [Cementech] shall, at the expense of [Austral], lend its name and do all things within its power to promote the success of any proceedings in relation thereto. In the event that [Austral] commences legal proceedings, [Austral] shall indemnify and keep indemnified [Cementech] against all costs incurred in such proceedings and any amounts payable pursuant to any settlement or order of the court. All amounts received (including in respect of costs) from settlements or adjudications will be dealt with in the manner described in clause 9.2(f)." 18Clause 9.2(f) provides a formula for distribution between Cementech and Austral of the proceeds of any settlements or actions, including the repayment of costs.

Standing 19The question of standing to commence proceedings for patent infringement is governed by s 120(1) of the Patents Act (Cth) which provides: "... infringement proceedings may be started in a prescribed court, or in another court having jurisdiction to hear and determine the matter, by the patentee or an exclusive licensee." 20There is no dispute that Cementech, as patentee, is entitled to bring these proceedings against Adbri. 21Cementech contends, but Austral and Adbri dispute, that Austral is its "exclusive licensee" in respect of the Patent and thus also has standing to bring these proceedings under s 120. 22It is not necessary for me to resolve that dispute for the purposes of dealing with the applications before me.

The proposed order that Austral "lend its name" 23Subclauses 9.2(c) and 9.2(e) of the Licence Agreement impose identically worded obligations on Austral and Cementech, respectively, to "lend its name" to proceedings commenced by the other against a third party for infringement of the "Intellectual Property rights" (including the Patent) licensed under the Licence Agreement. 24The precise obligation in both clauses is to "lend its name and do all things within its power to promote the success of any proceedings"; proceedings commenced by Cementech in the case of cl 9.2(c) and proceedings commenced by Austral in the case of cl 9.2(e). 25In my opinion, the phrases "lend its name" and "do all things within its power" are each directed to the words "to promote the success of any proceedings". Each party's obligation is thus to both "lend its name" and "do all within its power" to "promote the success of" the proceedings in question. 26Cementech contends that the effect of these provisions is that, relevantly, Austral has agreed that, if required by Cementech, it will join Cementech as plaintiff in these proceedings because to do so would "promote the success" of these proceedings. 27The reason Cementech contends that the joinder of Austral as a plaintiff would "promote the success" of these proceedings is not because such joinder is said to increase Cementech's prospects of establishing successfully that Adbri has infringed the Patent; but because (it is said) such joinder would increase Cementech's prospects of successfully fending off Adbri's pending application for security for costs. Austral is a subsidiary of a substantial public company. Cementech apprehends that Austral's joinder as a plaintiff will provide it with a basis upon which to resist Adbri's application for security; and that absent Austral as plaintiff, the proceedings may well be stultified by the order for security sought by Adbri. 28I read the words "lend its name" to mean "allow its name to be used". It is a very serious thing for a party to allow its name to be used by being added as a party to legal proceedings; particularly legal proceedings of the potential complexity and cost of patent infringement proceedings, and particularly as a plaintiff in such proceedings with the concomitant exposure (jointly and severally with the existing plaintiff) to a costs order if the proceedings are unsuccessful. 29There is a qualification to Austral's obligation to "lend its name" under cl 9.2(c); Austral has only agreed to "lend its name" to proceedings instituted by Cementech in order "to promote the success" of those proceedings. 30In my opinion, the controversy before me can be resolved by reference to the proper construction of this qualification. Contrary to the submissions of Mr Birch SC, who appeared for Cementech, I do not see judicial observations made in the context of rights subrogated to insurers (see, for example, Groom v Crocker [1939] I KB 194) as being of assistance to the resolution of the question. 31In the context in which it appears, and in the circumstances referred to in [28] above, I read the expression "promote the success" of proceedings as meaning ensuring that Cementech is able to make out its pleaded case in the proceedings; that is, in this case, that Adbri has infringed the Patent. 32In my opinion, Austral's joinder as a plaintiff would not "promote the success" of the proceedings in this sense. 33As Mr Murray, who appeared with Mr Colquhoun for Austral, pointed out, one circumstance in which it would be necessary for Austral or Cementech to "lend its name" to proceedings commenced by the other to ensure that the other made out its pleaded case in those proceedings (and thus "promote the success" of the proceedings) would be if the party desiring to commence proceedings did not itself have standing to do so; or if, for some other reason, it was necessary for the other to be joined as a party. 34Mr Murray gave the example of proceedings for breach of copyright (which also forms part of the "Intellectual Property" licensed under the Licence Agreement). Section 120(1) of the Copyright Act 1968 (Cth) requires that both the copyright owner and any exclusive licensee be joined as a plaintiff, or added as a defendant, in any proceedings for infringement. Thus, were Cementech to commence proceedings against a third party in respect of infringement of copyright forming part of the Intellectual Property licensed under the Licence Agreement, Austral's agreement to "lend its name" to promote the success of the proceedings would carry with it an agreement to consent to being, at the very least, a defendant. 35Another example would be proceedings commenced by Austral under cl 9.2(e) for infringement of the Patent. If, as Austral contends, it is not an exclusive licensee, then by reason of s 120 of the Patents Act (Cth), it would have no standing to bring the proceedings. In those circumstances, in order to "lend its name" to the proceedings to cure the issue of standing, Cementech would have to be joined as plaintiff. 36Another example might arise by reason of cl 7.1 of the Licence Agreement. That clause permits Austral to "alter, modify and adapt" the Intellectual Property licensed to it under the Licence Agreement but provides that Cementech will own all such alterations, modifications and adaptations. Were either Cementech or Austral to commence proceedings for infringement of such modified Intellectual Property, it may be necessary for the other to "lend its name" to such proceedings by agreeing to become a party. 37But no such circumstance arises in this case. 38Cementech, as patentee, has standing under s 120 of the Patents Act (Cth) to sue for infringement of the Patent. The addition of Austral as a plaintiff in these proceedings will make no difference to whether Cementech does, or does not, make out that case. 39The joinder of Austral as a plaintiff may assist Cementech resisting Adbri's pending application for security for costs; although that is a matter of speculation. But that would be a collateral benefit to Cementech unconnected with its ability to prove that Adbri has infringed the Patent. And it would expose Austral to the risk of the costs of the proceedings. 40I cannot accept that the parties intended that the Licence Agreement have this effect. 41For those reasons, I refuse to make the order sought by Cementech.

The proposed declaration as to Austral's obligation to bear costs equally 42There is a controversy between the parties as to two aspects of the proper construction of cl 9.2(b). 43The first area of disagreement is as to whether the subclause imposes on Austral what Mr Murray described as a "pay as you go" obligation; that is, an obligation to meet Cementech's costs as and when they arise during the course of any proceedings (as opposed to after the conclusion of the proceedings). 44In that respect, I accept the submission of Mr Birch that the words "will be borne by the parties equally" in cl 9.2(b) demonstrate that the parties' intention is that the costs burden referred to in the subclause is to be shared throughout the conduct of the proceedings. 45The other controversy between the parties is as to whether Austral's obligations under cl 9.2(b) survive beyond the expiry of the Licence Agreement on 11 February 2014. 46In that regard, I accept Mr Birch's submissions that, on the proper construction of cl 9.2(b), once Cementech "elects to initiate proceedings" of the kind referred to in the subclause, Austral's obligation to bear 50 per cent of the costs of the proceedings is enlivened and that the expiry of the Licence Agreement makes no difference to that obligation. In my opinion, the obligation is in the nature of an accrued right "unconditionally acquired" by Cementech upon the commencement of these proceedings: see McDonald v Dennys Lascelles (1933) 48 CLR 457 at 477 per Dixon J; and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [217] per Hodgson JA (Allsop P and Macfarlan JA concurring at [1] and [389] respectively). 47I also accept Mr Birch's submission that there is utility in making the declaration; for two reasons. 48First, there is a dispute between the parties as to the proper construction of the subclause and there is utility in having that dispute quelled. Second, the evidence establishes that Cementech has sought from Austral contribution to the cost of these proceedings and that that contribution has not been forthcoming. No doubt one reason for that is because of the disagreement between the parties as to the nature of Austral's obligation under the subclause. Were Cementech to commence proceedings for the recovery of 50 per cent of the costs incurred to date, and thereafter for 50 per cent of the costs incurred from time to time, the court in which such proceedings were commenced would be called upon to decide the question of construction now before me. 49In those circumstances, I do not see that the making of a declaration would be the giving of an advisory opinion about a hypothetical, future matter (cf Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [49]; and see the recent discussion by Lindsay J of the making of declarations without consequential orders in Lend Lease (Millers Point) Pty Limited v Bangaroo Delivery Authority [2013] NSWSC 1848 at [11] - [16]). 50In those circumstances, I propose to make the following declaration (which is not precisely that sought by Cementech): "Declare that, on the proper construction of cl 9.2(b) of the Exclusive Intellectual Property Licence Agreement made between Cementech Pty Ltd and Austral Masonry (NSW) Pty Ltd of 11 February 2010 Austral is obliged to pay Cementech one half of the costs and disbursements incurred by Cementech in the bringing and prosecuting of these proceedings as and when those costs and disbursements are incurred except in so far as the incurring of such costs and disbursements is not reasonably necessary for the bringing and prosecuting of these proceedings."

Transfer to the Federal Court 51As I have mentioned, Adbri moves for an order that the proceedings be transferred to the Federal Court. 52There is no doubt that this Court has jurisdiction (as a prescribed Court under the Patents Act (Cth)) and the judicial capacity to deal with patent suits. 53Nonetheless, in my opinion, there are powerful reasons why these proceedings should be transferred to the Federal Court including that: (1)the Federal Court has a specialist patent panel; (2)doubtless for that reason, most patent infringement actions in this country are brought in the Federal Court. The senior patent litigation specialist acting for Adbri in these proceedings, Mr Wayne McMaster, gave evidence that in his 35 years experience as a solicitor and patent attorney he has never been involved in a patent suit otherwise than in the Federal Court. Mr McMaster said his searches had not revealed any reported patent suits, other than in the Federal Court, since the 1990s; (3)my own searches, and those of counsel, have revealed only two recent cases in this Court dealing with patent issues, and both those were concerned with a dispute concerning a settlement of patent suits originally conducted in the Federal Court: McDougall J in Fermiscan Ltd v James [2009] NSWSC 546; on appeal at Fermiscan Pty Ltd v James [2009] NSWCA 355 and Sackar J in ATF Mining Electrics v Bramco Electronics Pty Limited [2012] NSWSC 1126; on appeal at Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd [2013] NSWCA 392; (4)Cementech originally contemplated bringing these proceedings in the Federal Court; prior to the commencement of these proceedings, Cementech sent Adbri draft Federal Court pleadings containing allegations of patent infringement; (5)any appeal from the decision of the trial judge in these proceedings (whether in this Court or the Federal Court) would, by reason of s 155 and s 158 of the Patents Act (Cth) and s 7(5), s 7(7) and s 7(8) of the Jurisdiction of Courts (Cross Vesting) Act 1989 (Cth) lie only to the Full Court of the Federal Court: see Bramco Electronics Pty Ltd v ATF Mining Electrics Pty Ltd [2013] NSWCA 392 at [6] per Meagher JA and at [15] per Barrett JA; and (6)in Adbri's pending application for security for costs, the trial judge will need to deal with conflicting lines of Federal Court authority concerning the appropriate ambit of any order for security in a case, such as this, where the plaintiff sues for infringement of a patent and (as Adbri has foreshadowed) the alleged infringer cross-claims for revocation of the patent. 54For these reasons, I am satisfied that it is in the interests of justice that the proceedings be transferred to the Federal Court. Indeed, it emerged during argument that there was little, if any, dispute between the parties that this was the appropriate course. 55It is common ground that, in those circumstances, Adbri's application for security for costs should be dealt with by a judge of the Federal Court.

Conclusions 56I make the declaration set forth at [50] above. 57Otherwise, I dismiss the proceedings against Austral. 58I order, pursuant to s 5(1) of the Jurisdiction of Courts (Cross Vesting) Act (Cth), that the balance of these proceedings be transferred to the Federal Court of Australia. 59I will now hear argument as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 December 2013