Centor Australia Pty Ltd v RMD Industries Pty Ltd

REASONS FOR JUDGMENT 1 In these proceedings the applicant ("Centor") sued the respondent ("RMD"), alleging infringement of various claims of a patent. RMD cross-claimed for revocation of the patent. At the commencement of the trial the only matters remaining in issue were the alleged infringement of claims 1 and 2 of the patent. Other allegations of infringement had been abandoned, as had the cross-claim for revocation of claims 1, 2, 4, 6, 7 and 9. The applicant failed on the infringement issue. I am now considering appropriate orders as to costs. 2 RMD submits that its cross-claim was purely "defensive", and that its abandonment should be attributed to the abandonment by Centor of the claims alleging infringement of claims other than claims 1 and 2. Centor points out that although it persisted in its claim of infringement of claim 1, RMD nonetheless abandoned its cross-claim for revocation of that claim. 3 I am not aware of the circumstances which led to the abandonment of substantial parts of the claim and the whole of the cross-claim. I infer that each party's conduct reflected its assessment of its prospects of success in connection with those aspects which it abandoned. Each party should be treated as having failed on those issues. 4 There is a further issue concerning costs. On 7 December 2010 the solicitors for RMD wrote to the solicitors for Centor, setting out their assessment of the case and proposing as follows: … Our client's settlement proposal With reference to your client's proposal outlined in your letter of 7 October, our client is prepared to resolve these proceedings on the following "in principle" basis, as it wishes to avoid, if possible, the time and cost involved in conducting this litigation which it considers has been brought by your client without merit having regard to the matters referred to above: 1. A sole royalty-free licence in respect of the patent in suit, including all foreign counterparts ('the licensed patents') for the life of those patents; 2. A release from all part liability, on a worldwide basis, in respect of the licensed patents. Such release includes a release in respect of all claims for legal costs and monetary relief and covers our client's related entities, customers, agents and distributors who re-sell or use our client's products; 3. Our client will not challenge the validity of the licensed patents; 4. A mutually agreed press release regarding the resolution of the proceeding. However, the grant of the licences will remain confidential; 5. Your client will use reasonable commercial endeavours to bring, and diligently pursue, patent enforcement proceedings against infringers of the patent in suit in Australia; and 6. Our client will pay and all-inclusive sum of $10,000.00 as a gesture of goodwill to your client and as a payment toward your client's legal costs in this proceeding and its claims for monetary relief. In doing so, our client is foregoing its claim for the substantial legal costs it has incurred in defending your client's allegations which, for the reasons above, it considers have no merit. Our client's above offer is open for acceptance for a period of 14 days from the date of this letter. If the offer is accepted, formal terms of settlement will be required. If this offer is not accepted and this matter proceeds to trial and our client is successful in defending the claims brought by your client, our client reserves all of its rights, particularly to produce this letter to the Court on the question of costs. … This offer was not accepted. 5 On 14 July 2011 the solicitors for RMD wrote to the solicitors for Centor, again providing its view of the case and stating that: Our client's settlement proposal Our client is prepared to resolve these proceedings on the "in principle" basis set out below to avoid the significant further time and cost to be spent in conducting this litigation through to trial. Our client continues to consider that this matter has been brought by your client without merit, and considers that its evidence and the evidence that has been filed by your client is strongly supportive of this view. Our client's offer of settlement in respect of this proceeding is as follows: 1. A sole royalty-free licence in respect of the patent in suit, for the life of that patent; 2. A release from all past liability, in respect of the patent in suit. Such release includes a release in respect of all claims for legal costs and monetary relief and covers our client's related entities, customers, agents and distributors who re-sell or use our client's products; 3. Our client will not challenge the validity of the patent in suit; 4. A mutually agreed press release regarding the resolution of the proceeding. However, the grant of the licence will remain confidential; 5. Your client will pay $160,000.00 in respect of our client's legal costs in this proceeding. This amount represents a discount on an assessment of our client's party/party costs to date. Our client has incurred substantial legal costs in defending your client's allegations which, for the reasons above, it considers have no merit. Also, as the patent in suit has foreign counterparts or related patents, our client considers that the position in respect of those patents should be resolved as well. Our client's offer in respect of these patents is as follows: 1. A sole royalty-free licence to our client and its related entities in respect of all foreign counterparts and related patents ('the licensed patents') for the life of those patents; 2. A release from all past liability, on a worldwide basis, in respect of the licensed patents. Such release includes a release in respect of all claims for legal costs and monetary relief and covers our client's related entities, customers, agents and distributors who re-sell or use our client's products; 3. Our client will not challenge the validity of the licensed patents; 4. A mutually agreed press release. However, the grant of the licences will remain confidential. Our client's above offer is open for acceptance for a period of 7 days from the date of this letter. If the offer is accepted, formal terms of settlement will be required. The offer in relation to the resolution of this proceeding is made "without prejudice except as to costs" in accordance with the principles in Calderbank v Calderbank. If this offer is not accepted and this matter proceeds to trial and our client is successful in defending the claims brought by your client, our client reserves all of its rights, particularly to produce this letter to the Court on the question of costs. … 6 On 19 July 2011 the solicitors for Centor responded, setting out their assessment of the case and then making the following offer: … 2. Centor will grant RMD a sole, non-transferable, personal, non-sublicensable, worldwide license in relation to the floating pivot patent the subject of 374/2010 and any patents that claim priority from that patent anywhere in the world, but only in respect of RMD's current product range (i.e., the parts set out in the Amended Statement of Claim). 3. Centor will not grant any other licenses of these patents to any other person. 4. The licenses will cover the past as well as the future. 5. All claims and counterclaims will be dismissed, with no order as to costs. 6. Centor will pay RMD a total of $10,000, within 7 days. 7. Mutually agreed press release. This offer is open for acceptance until 12 noon on Wednesday, 20 July 2011. If this offer is not accepted by that time, then Centor will do the following: C. Centor will send RMD a reasonable Calderbank offer for the 374/2010 case. That offer is likely to be an offer that RMD pay to Centor the amount of $110,000 for damages and costs. The offer is unlikely to include a license going forward. It is noted that any judgment in Centor's favour would likely include injunctive remedies, and not a license. Moreover, when Centor wins the 384/2010 case, Centor will be entitled to its costs in full from RMD for the trial and a portion of its costs incurred to date, and will heavily promote its win. If RMD does not accept the offer set out in C above, the floating pivot matter will proceed to trial. Centor considers that it has good prospects in this case. If successful, there will be more legal costs in the damages phase of the case. Even if Centor is unsuccessful at trial, RMD will have to pay a significant sum in legal fees over the next two weeks, much of which will not be recoverable from Centor in any costs award in RMD's favour. This letter is a reasonable attempt to bring all matters to a close before both parties spend substantial amounts for trial. We look forward to your prompt response. … 7 The counter-offer was not accepted. 8 Whilst it is pleasing that the parties, or their legal advisers made such constructive and considered attempts to settle the matter, the point is that nonetheless it was not settled. The decision in Calderbank v Calderbank [1976] Fam 93 establishes that in certain circumstances an offer made by one party to another may be taken into account on the question of cost where the outcome for the offeree is less favourable than was the offer. However the established view in this Court is that the refusal of a Calderbank offer does not, of itself, warrant an order for indemnity costs. The onus is on the offeror to show that the conduct of the offeree was unreasonable. See Black v Lipovac (1998) 217 ALR 386 at 432. See also Alpine Hardwoods (Aust) Pty Ltd v Hardies Pty Ltd (No 2) (2002) 190 ALR 121 at [27] and [28]. 9 I find it difficult to assess the offer made on 7 December 2010 or the reasonableness of Centor's conduct in not accepting it. This difficulty flows from the proposal that RMD have a royalty-free licence, not only in respect of the patent-in-suit but also in respect of all foreign counterparts, and a release from any liability worldwide. I have no idea of the consequences of that proposal, nor do I have any understanding of the consequences of an undertaking by Centor to use reasonable commercial endeavours to enforce the Patent as against other infringers in Australia. There can be no presumption that the offer is reasonable. RMD has not sought to demonstrate that it is so. I do not wish to be taken as encouraging further litigation in order to demonstrate or disprove the reasonableness of a party's conduct in declining an offer. However it may well be that a Calderbank offer can only operate where the relevant offer is relatively simple in terms, and closely related to the relief sought in the case. The offer of 7 December 2010 seems to me to have gone well beyond the issues joined between the parties. Thus any examination of the offer or the reasonableness of Centor's conduct would necessarily involve a major enquiry as to the possible legal and commercial effects of acceptance of the offer. 10 The offer of 14 July 2011 was not quite as ambitious or extensive in its operation. However it again required a royalty-free licence in respect of foreign counterparts and related patents, and a release of all past liability on a world-wide basis. It is, again, impossible for me to identify the consequences of such a licence and release. Further, there was a requirement that Centor pay to RMD the amount of $160,000 in respect of the latter's legal costs. I have no way of knowing whether or not such an amount reflected a reasonable quantification of RMD's costs. As much as I wish to encourage attempts to settle litigation by reasonable offers, I cannot assume that a particular offer is reasonable unless I am aware of the circumstances in which it was made and its possible consequences. I conclude that the Calderbank letter is not relevant to my determination of the question of costs. 11 The starting point in determining that question must be the applicant's failure in the proceedings. RMD ought have its costs of the infringement proceedings concerning claims 1 and 2. Were it not for the fact that the respondent abandoned its invalidity claims, I would have allowed the respondent its costs of the applicant's abandoned infringement claims. However as both sides abandoned substantial parts of their claims, it is appropriate that each bear its own costs of those issues. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.