Colin CM Moore Pty Ltd v Sivathasan

Supreme Court of NSW|2022-04-20|Before: Lindsay J

thasan Cross Claimant: Niroshan Sivathasan First Cross Defendant: Colin CM Moore Second Cross Defendant: Colin CM Moore Pty Ltd ACN 063650939 Representation: Counsel: Plaintiffs/Cross Defendants: JP Knackstredt and EL Bartley Defendant/Cross Claimant: JV Gooley and RM Higgins

Solicitors: Plaintiffs/Cross Defendants: Somerville Legal Defendant/Cross Claimant: Goldman & Co Lawyers File Number(s): 2018/00392205

BACKGROUND TO THE PARTIES' DISPUTE

Much of the controversy in the proceedings arises from the following facts: 1. Two of the ten patents listed in the Schedule to the Licensing Agreement (respectively, numbered 1 and 5 in the Schedule) had expired before the date of commencement of the licence period (8 July 2018); 2. A third patent (numbered 2 in the Schedule) expired on 12 August 2018, eight days after execution of the Licensing Agreement; 3. Each of those three patents was an Australian patent, their expiry leaving only one remaining Australian patent (numbered 9 in the Schedule), all other listed patents relating to jurisdictions other than Australia. 4. The common assumption of all parties to the Licensing Agreement was that any phalloplasty procedures carried out by the defendant using the Moore Technique during the currency of the licence were likely to be carried out in Australia.
The parties are at issue, inter alia, about whether Patent 9 was, of itself, sufficient to sustain the licence ostensibly granted to the defendant. The plaintiffs contend, and the defendant denies, that: (a) Patent 9 provided a statutory monopoly that covered the same territory as Patents 1, 2 and 5; and (b) the fact that Patent 9 was due to expire a few months short of the first five year term of the Licensing Agreement was of no moment because the second plaintiff could reasonably have been expected, in substance, to renew patent protection for the Moore Technique in the meantime.
The dispute between the parties has been articulated by reference to general principles of contract law and an allegation by the defendant that he was induced to execute the Licensing Agreement by misleading or deceptive representations of the plaintiffs, inter alia, about the patents listed in the Schedule to the Agreement.
A common feature of each way the parties' dispute is articulated is a fundamental dispute about: (a) whether the currency of Patent 9 throughout the short life of the Licensing Agreement in 2018 covered the expiry of all other Australian patents, Patents 1, 2 and 5; and (b) whether the licence granted by clause 2.1 of the Licensing Agreement was merely a right to carry out procedures using the Moore Technique (described in the Patents) or (to paraphrase section 13 of the Patents Act 1990 Cth) a "right to exploit the invention(s) protected by the listed patents (or Patent 9)".
The plaintiffs contend that what was not agreed was a licence of "the Patents". They contend rather that the parties agreed only to a licence of "the techniques referred to in the patents". They contend, further, that what the parties agreed was important was protection of "the Moore Technique", not the form in which that protection came. On their case, it matters not that Patents 1, 2 and 5 expired; the Moore Technique was "referred to" (described) in Patent 9; and it was not open to the defendant to terminate the Licencing Agreement in anticipation of the future expiry of Patent 9 before the expiry of the Licence Period.
The defendant, for his part, contends that the object of the Licensing Agreement was to confer upon him a licence of the Patents so that he could enjoy the statutory monopoly which, he believed, they collectively provided. He contends that, in any event, the expiry of Patents 1, 2 and 5 had substantive consequences because Patent 9 did not offer the same statutory monopoly as any or all of the expired patents. On his case, the Moore Technique was not fully available to him as a licensee of patent protected techniques (as was intended by the Licensing Agreement) without the benefit of all four Australian patents.
The plaintiffs contend that, if the parties really intended that the defendant have a licence to exploit any or all of the patents, the Licensing Agreement could simply have said so.
The force of that contention can be met by three responses. First, contrary to the plaintiffs' submissions the language of the Licensing Agreement is open to construction as a grant of a licence of patents. Indeed, inherent in the grant of a "right and license to carry out phalloplasty procedures using the Moore Technique" is a grant of permission to "[use] the techniques referred to in the Patents". Such permission is but a licence by another name, an excuse for an act which would otherwise be unlawful: Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 at 533; H Lundbeck A/S v Sandoz Pty Ltd [2022] HCA 4; 96 ALJR 208 at [90]. Without such permission, any exploitation by the defendant of techniques protected by one or more of the second plaintiff's patents would be actionable.
Secondly, if the intention of the parties was that the Licensing Agreement would have patent protection only in relation to Patent 9, there was no need to refer in Schedule 1 to the Agreement to any of Patents 1, 2 or 5. Thirdly, if it was the intention of the parties that the defendant have a licence only to use particular techniques (which may or may not have had patent protection) they could have given clarity to the meaning of the expression "the Moore Technique" by inclusion in the Agreement of an express statement of the essential features of those techniques. Speculation about how the parties could have expressed their agreement in language other than that used in the Licensing Agreement is of little assistance in construction of the Agreement as executed.
The plaintiffs contend that it would have made little sense for them knowingly to grant a licence of patents that had expired (Patents 1 and 5) or were about to expire (Patent 2) and, so, the Court should accept that it was not the intention of the parties that the defendant have the benefit of all four Australian patents.
Fallacies in this contention are, first, that the second plaintiff executed the Licensing Agreement without turning his mind to the currency or otherwise of the patents listed in Schedule 1 to the Agreement and, secondly, his subjective state of mind is irrelevant to an objective construction of the Agreement.
The parties appear to have, and at all material times to have had, different perspectives about the nature and role of patents in the context of the plaintiffs' business and any business to be conducted by the defendant using the "Moore Technique" of phalloplasty procedures.
The second plaintiff appears to have viewed his phalloplasty patents as a device for promoting the Moore Technique as unique, allowing him (he believed) from time to time to obtain fresh patents by varying the description of his Technique. He contends that, in his dealings with the defendant, it was sufficient for him to have current a single patent that, in some part of the patent documentation, described his Technique, enabling him to grant a franchise of his name and his methodology to the defendant, if not others.
The defendant assumed, and in these proceedings contends, that the purpose of taking a licence to conduct phalloplasty procedures protected by patents was to take advantage of a statutory monopoly that protected all such procedures. In the conduct of these proceedings, his submissions have focused on the protection available from potential competitors in operative patents. Thus it is that he has contended that the monopoly protection afforded by Patents 1, 2 and 5 ceased with the expiry of those patents and could not be revived, or covered, by Patent 9 because, once Patents 1, 2 and 5 expired, the inventions protected by those patents were in the public domain and no longer unique. The defendant contends that the object of the Licencing Agreement was to enable him, as a licensee, to exploit inventions protected by the patents, and each of the patents, listed in the Schedule to the Agreement, not merely to enable him to promote the Moore Technique as described in patent documents.
The defendant's trainee fellowship with the second plaintiff was conducted pursuant to a written "Training Agreement" dated 3 August 2016 made between Australian Centre for Penile Surgery Pty Ltd (a company owned and controlled by the second plaintiff) and the defendant.
That agreement contemplated a training period of seven months following which, at the discretion of the second plaintiff's company (described as "the educator"), the defendant might enter into a further licence agreement "to perform to Phalloplasty by the educator's technique". The Training Agreement contained a restraint of trade provision predicated upon an assumption that no further licence agreement eventuated.
Although the second plaintiff was not, in terms, a party to the Training Agreement, the Agreement appears to have been predicated upon identification of the second plaintiff with his company. The preamble recited that "the educator" had "certain patents relating to phalloplasty" and the Agreement spoke of "the educator's technique", intending thereby to refer to what is described in the subsequent Licensing Agreement as the "Moore Technique".
In the course of a long career, the second plaintiff became the owner of several patents, at least ten of which related to inventions for the conduct of phalloplasty surgery. His business model involved him in periodic applications for fresh patents (based, he contends, upon development of his surgical and post operative procedures) to maintain a statutory monopoly of some form upon the basis of which his services were marketed as unique.
There is no evidence that he was ever required, in fact, to take action to enforce any statutory monopoly he possessed as a result of a patent protecting the Moore Technique. It is nevertheless common ground that he represented to the defendant that: (a) if the defendant did not enter into the Licensing Agreement he would be restricted from performing phalloplasties using the Moore Technique; and (b) the defendant could not perform the Moore Technique without a licence and, if he did so, the plaintiffs would sue him.
Counsel for the defendant expressly disclaimed in these proceedings any attack on the validity of the ten patents listed in the schedule to the Licensing Agreement. This requires formal notice because, from time to time, the defendant's presentation of his case bordered upon such an attack with suggestions that, whatever might be meant by "the Moore Technique" it was not unique. The defendant's essential point is that, once Patents 1, 2 and 5 expired, the inventions formerly protected by them were in the public domain and, accordingly, no longer unique.
The common assumption of the parties to the Licensing Agreement at the time the Agreement was made (be that time identified as the date of execution or the date of commencement of the Agreement) was that all ten patents listed in the schedule to the Agreement were operative. No party appears to have turned a mind to the currency or duration of the patents at the time the License Agreement was negotiated and executed.
The second plaintiff appears not to have done so because he was confident that, by persistent engagement with the Australian Patents Office, he could always reformulate descriptions of his technique in a way that would support a fresh grant of patent protection.
The defendant did not do so because he trusted the second plaintiff's assertion of ownership of patents that described, and protected, the Moore Technique.
The second plaintiff was cross-examined to the effect that between February and May 2018 or thereabouts he had unsuccessfully applied for further patents to protect "Improved Phalloplasty Method(s)"; it was he who instructed the plaintiffs' solicitors to prepare the Licensing Agreement; and he must therefore have been aware of the dates of expiry of the Australian patents. The defendant was cross-examined to the effect that, before entry into the Licensing Agreement, he had ample opportunity to conduct a search of the patents listed in the Schedule to the Agreement and, despite his absence of recollection of having undertaken a patent search, the fact that he conceded that he might have done so should support a finding that he entered the Licensing Agreement knowing the limited terms of the Australian patents. In my assessment, neither man, in fact, turned his mind to the currency or otherwise of the listed patents until after the execution of the Licensing Agreement. Neither party made pre-contractual due diligence inquiries that could have exposed the expiry dates of the Australian (or any other) patents.
The Licensing Agreement was drafted by the plaintiffs' solicitors (the same solicitors who prepared the Training Agreement) on the second plaintiff's instructions. Its execution was not, however, supervised by any legal practitioner. It was executed by the parties, in the home of the second plaintiff and his wife (Mrs Lynn Moore), in the presence of Mrs Moore. She was the plaintiffs' practice manager.
The defendant had an opportunity to obtain independent legal advice, and to negotiate the terms of the Licensing Agreement, before the Agreement was executed. He contemplated obtaining legal advice at that time but he did not materially act upon that contemplation. He made an attempt to negotiate the terms of the draft Agreement (by substitution of a "case by case" license for the licence subsequently granted by the Licence Agreement) but he did not pursue that attempt when rebuffed by the second plaintiff.
The License Agreement was executed on 4 August 2018 in the same form as it was provided by the second plaintiff to the defendant a month earlier.
The License Agreement had its origins in the second plaintiff's plans to retire from medical practice, which he did on 30 June 2018, shortly before the parties' entry into the Agreement.
The License Agreement was drafted in terms that are imprecise and, viewed from a distance, not entirely apt to the way the parties conducted, and expected to conduct, their business relationship: 1. Although the second defendant was said, in a recital to the License Agreement, to be "the owner" of patents, the first plaintiff was the grantor of a (sub) licence to the defendant without any express foundational grant of a (head) licence to it by the second plaintiff. His grant of a "head licence" to the first plaintiff is implicit in a recital to the effect that "[the] parties have agreed that the Licensee shall grant a licence" to the defendant. 2. Although centrally focused upon a grant of a licence referable to patents, the Licence Agreement appears also to bear features of a franchise agreement. It, at least implicitly, granted the defendant a licence to use the name the "Moore Technique" in connection with a business to be conducted by him using methodology controlled by the plaintiffs. It required the first plaintiff to provide, and the defendant to comply with, a "manual" to regulate surgery proceedings despite the fact that no manual ever existed and was never sought or provided. It made provision for the plaintiffs to conduct audits of the defendant's conduct of phalloplasty surgery using the "Moore Technique" notwithstanding the second plaintiff's retirement from medical practice. It contemplated that the plaintiffs could grant up to two additional licences to persons other than the defendant, although this did not transpire after the second plaintiff and the defendant fell into disputation. 3. The Licensing Agreement contemplated that the second plaintiff would remain available to assist the defendant's conduct of phalloplasty surgery despite his retirement from medical practice before the date of commencement of the Licensing Agreement. The second plaintiff maintained his registration as a medical practitioner until April 2019, after termination of the Licensing Agreement. 4. Although the Licensing Agreement made no provision for the plaintiffs to supply administrative assistance for the defendant, the common assumption was that, for an indefinite time, Mrs Moore would voluntarily provide administrative services for the defendant as he endeavoured to establish his phalloplasty practice.
The second plaintiff contemplated that, despite his retirement from medical practice, he might continue to update the "Moore Technique", apply for new patents and make any "updated" patents available to the defendant and other potential licensees.
The defendant, for his part, appears to have assumed that, despite his written agreement with the plaintiffs to pay a fixed licence fee, and to perform a minimum number of phalloplasty surgeries each year of the License Period, the plaintiffs would not insist upon enforcement of his obligation to pay licence fees and the cost of the second plaintiff's website in a timely manner.
The defendant executed the Licensing Agreement under the joint influence of: (a) the second plaintiff's promotion of "the Moore Technique" as a lucrative vehicle for the conduct of a medical practice by the defendant; and (b) the second plaintiff's insistence that the defendant could not perform phalloplasty surgery using "the Moore Technique", protected by patents, unless he executed the Licensing Agreement.
The parties' business relationship began to unravel when the defendant, having made independent inquiries after execution of the Licensing Agreement, became doubtful about the meaning of the expression "Moore Technique" and the uniqueness the second plaintiff claimed for it, and apprehensive about his ability to generate sufficient revenue from phalloplasty surgery to pay the licence fees and website costs payable by him under the Licensing Agreement.
He sought to renegotiate the Licensing Agreement with the second plaintiff, and the second plaintiff was willing to make some concessions to him, but no renegotiated agreement eventuated.
The Licensing Agreement did not, in unambiguously express terms, warrant that the ten patents listed in the Schedule to the Licensing Agreement were all current; that they would all remain current during the License Period or any extension of the License Period; or that the second plaintiff was the owner of the patents that provided him with a statutory monopoly for the Moore Technique. A central question for determination in the proceedings is whether the Licensing Agreement nevertheless contained a term or terms to similar effect and, if so, what (if any) consequences flowed from a breach of such a term.
The language in which a licence was granted to the defendant to use the "Moore Technique" by reference to the patents listed in the Schedule to the Licensing Agreement was opaque. Clause 2.1 granted to the defendant "the right and licence to carry on phalloplasty procedures using the Moore Technique throughout the Licence Period". By clause 1.1, "Moore Technique" was defined to mean "the provision of phalloplasty surgery using the techniques referred to in the Patents". By the same clause, the expression "Patents" was defined to mean "the patents relating to phalloplasty listed in Schedule 1".
On a cover page, Schedule 1 was headed "Patents". The next page, which listed ten numbered patents, was headed "Phalloplasty patents held by Dr Colin CM Moore".
Nowhere in the Licensing Agreement was a distinction drawn between "the Patents" (plural) and any one or more particular patents. On the face of the Agreement, a distinction was drawn between "Australian" Patents and those registered in foreign jurisdictions, but no patent was otherwise distinguished from other patents listed in Schedule 1 to the Agreement. There was nothing to suggest that "the Moore Technique" was to be defined by reference only to Patent 9 or that one could disregard Patents 1, 2 and 5 in defining the concept.
There is no dispute that the descriptive labels used to identify the ten patents in Schedule 1 were insufficient, of themselves, to identify their respective dates of expiry or their terms or to describe particular medical procedures. Nowhere within the Licencing Agreement were the "phalloplasty surgery techniques" said to constitute the "Moore Technique" explicitly described. At its most explicit, the Licencing Agreement described the "Moore Technique" as "the techniques referred to in the Patents".
Clause 2.1 of the Licencing Agreement, and the expressions incorporated by reference to the definitions in clause 1.1, appeared in the context of the Licencing Agreement as a written agreement (not expressed to be a deed but otherwise bearing formal indicia of a deed, "signed, sealed and delivered") including a preamble (headed simply "whereas") comprising recitals in the following terms: "A. Professor Moore [the second plaintiff] has developed and is the owner of patents relating to the performance of phalloplasty procedures. B. The Licensor [the first plaintiff] has been providing phalloplasty services throughout Australia and New Zealand, using the techniques, which are the subject of the Patents. C. The Parties have agreed that the Licensor shall grant a licence to [Dr Sivathasan, the defendant] to act as licensee of the Moore Technology on the terms in this agreement."

An Objective Approach

The construction of a contract is to be determined objectively: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[52].
A convenient statement of the law is found in the judgment of the High Court of Australia in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]: "This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462[22]."

The Role of Recitals

Recitals in the preamble to a contract are part of the contract and can be used as an aid to construction of an operative provision in the contract; but, prima facie, they are not themselves operative terms of the contract. They can provide a means of proving background facts that are themselves legitimate aids to construction. In so far as they state that a party will carry out a particular action they can be used to support an implied term of the contract. There is no need to identify an ambiguity in the operative provisions of the contract before having regard to the terms of a recital: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [29], [42] and [379]-[390].

Implied Terms

The parties are agreed that, if a term is to be implied in the Licensing Agreement, the criteria for the implication of a term are those summarised in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26 (and explained in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 345-347) as relating to an implied term necessary to give business efficacy to the Agreement: 1. The term must be reasonable and equitable; 2. It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; 3. It must be so obvious that "it goes without saying"; 4. It must be capable of clear expression; and 5. It must not contradict any express term of the contract.

PRINCIPLES GOVERNING CONSRUCTION OF A PATENT

As a determination of these proceedings requires consideration of the proper construction of the Licensing Agreement and the proper construction of patents referred to in the Licensing Agreement, recognition must be given to the fact that a patent is a public document which confers special rights and privileges and which must conform to the requirements of the Patents Act 1990 Cth and the Patents Regulations 1991 Cth.
Section 29 of the Patents Act 1990 provides that a person may apply for a patent for an invention by filing, in accordance with the regulations, a patent request and such other documents as are prescribed. The patents the subject of these proceedings are "standard" patents, the application for which must be accompanied by an "abstract", a "complete specification" and a "claim or claims defining the invention".
An abstract must consist of a summary that indicates the technical field to which the invention the subject of a patent request pertains. It must be drafted in such a way that it allows a clear understanding of the technical problem, the gist of the solution of that problem through the invention, and the principal use or uses of the invention: regulation 3.3.
A complete specification must generally: disclose the invention the subject of a request in a manner that is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art; disclose the best method known to the patent applicant of performing the invention; and where it relates to an application for a standard patent, end with a claim or claims defining the invention: section 40(2).
A claim or claims defining the invention the subject of a patent request must be clear and succinct and supported by matter disclosed in the specification: section 40(3).
The claims section of a specification must contain at least one "independent claim" (which defines the invention) and may contain a number of "dependent claims" which incorporate the independent claim but add further features. An independent claim is one that does not include a reference to any other claim; a dependent claim incorporates reference to one or more other claims by number. The usual practice (to which the Australian patents listed in Schedule 1 to the Licensing Agreement conform) is that a dependent claim includes reference to one or more preceding claims, all identified by number: see Bodkin, Patent Law in Australia (Lawbook Co, 3rd ed, 2019), paragraphs [21900]-[21910].
A patent request is independently reviewed, in a process that includes reporting by an examiner, before any patent is granted.
The claims in a patent request define the boundaries of the monopoly conferred upon grant of a patent: Welch Perrin & Co Pty Ltd v Worrel (1961) 106 CLR 588 at 610; Interlego AG v Toltoys Pty Ltd (1973) 130 CLR 461 at 478; Ransburg Co v Aerostyle Ltd [1968] RPC 287 at 297; Glaverbel Sa v British Coal Corp [1994] RPC 443 at 486; Sartas No 1 Pty Ltd v Koukourou & Partners Pty Ltd (1994) 30 IPR 479 at 485-486.
The text of a claim is broken down into its elements, each element being described as an "integer". There is no infringement of a patent (defined by a claim) unless the alleged infringer has taken all of the essential integers of the claim: Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 41; 94 ALJR 1044 at [46]; Populin v HB Nominees Pty Ltd (1982) 41 ALR 471 at 475; Fresenius Medical Care Australia Pty Ltd v Gambro Pty Ltd [2005] FCAFC 220; 224 ALR 168 at [49].
The integers of a claim are rarely inessential, having been deliberately inserted in a claim for the significant purpose of demarcating the extent of the monopoly claimed: Wake Forest University Health Sciences v Smith & Nephew Pty Ltd (No 2) [2011] FCA 1002; 92 IPR 496 at [333].
An omnibus claim, at the end of a series of broad claims, is taken to be an attempt to claim the features (other than trivial ones of a preferred embodiment of the invention set out in the description in the specification: Glaxo Smith Kline Australia Pty Ltd v Reckitt Benckiser Healthcare (UK) Ltd [2016] FCAFC 90; 120 IPR 406 at [49]. While not necessarily corresponding with every detail, any method alleged to infringe an omnibus claim must be, in substance, the same as the preferred embodiment: Britax Childcare Pty Ltd v Infa-Secure Pty Ltd (No 3) [2012] FCA 1019 at [30]. An omnibus claim cannot broaden a claim to substitute for an essential feature of the described method, something different: Glaxo Smith Kline Australia Pty Ltd v Reckitt Benckiser Healthcare (UK) Ltd at [52].
Guidance in construction of a patent is commonly obtained by reference to the ten principles set out in Décor Corp Pty Ltd v Dart Industries Inc (1988) 13 IPR 385 at 399-400: 1. The claims define the invention which is the subject of the patent. These must be construed according to their terms upon ordinary principles. Any purely verbal or grammatical question that can be answered according to ordinary rules for the construction of written documents is to be resolved accordingly. 2. It is not legitimate to confine the scope of the claims by reference to limitations which may be found in the body of a specification, but are not expressly or by proper inferences reproduced in the claims themselves. To put it another way, it is not legitimate to narrow or expand the boundaries of monopoly as fixed by the words of a claim by adding to those words glosses drawn from other parts of the specification. 3. Nevertheless, in approaching the task of construction, one must read the specification as a whole. 4. In some cases the meaning of the words used in the claims may be qualified or defined by what is said in the body of the specification. 5. If a claim be clear, it is not to be made obscure because obscurities can be found in particular sentences in other parts of the document. But if an expression is not clear or is ambiguous, it is permissible to resort to the body of a specification to define or clarify the meaning of words used in the claim. 6. A patent specification should be given a purposive construction rather than a purely literal one. 7. In construing the specification, the Court is not construing a written instrument operating inter partes, but a public instrument which must define a monopoly in such a way that it is not reasonably capable of being misunderstood. 8. The body, apart from the preamble, is there to instruct those skilled in the art concerned in carrying out the invention; provided it is comprehensible to, and does not mislead, a skilled reader, the language used is seldom of importance. 9. Nevertheless, the claims, since they define the monopoly, will be construed with as much care as is used in construing other documents defining a legal right. 10. If it is impossible to ascertain what the invention is from a fair reading of the specification as a whole, it will be invalid. But the specification must be construed in the light of common knowledge in the art before the priority date.
By section 13 of the Patents Act 1990, a patent generally gives to the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit it. The exclusive rights are personal property and are capable of assignment and of devolution by law. A patent has effect throughout the patent area.
The term of a standard patent is 20 years from the date of the patent: Patents Act, section 67. The "date of a patent" is generally the date of filing of the relevant complete specification: section 65(a).
Section 13 of the Patents Act is consistent with the general rule (confirmed by Norbert Steinhardt & Son Ltd v Smith (1961) 105 CLR 440 at 443-444) that a patent for an invention gives a monopoly within the territory of the country which grants it and that, outside that territory, the patent has no force or effect.
The plaintiffs submit that section 145 of the Patents Act 1990 (Cth) lends force to their contention that the defendant should not be held to have had an entitlement to termination of the Licensing Agreement, unless and until Patent 9 (the last of the Australian patents) expired.
Section 145 is on the following terms: "145 Termination of contract after patent ceases to be in force (1) A contract relating to the lease of, or a licence to exploit, a patented invention may be terminated by either party, on giving 3 months' notice in writing to the other party, at any time after the patent, or all the patents, by which the invention was protected at the time the contract was made, have ceased to be in force. (2) Subsection (1) applies despite anything to the contrary in that contract or in any other contract."
In Regency Media Pty Ltd v MPEG LA, LC (2014) 231 FCR 588 at [35] the Full Court of the Federal Court of Australia (constituted by Bennett, Nicholas and Pagone JJ) held that the statutory right conferred by section 145 requires that there may be termination of a contract pursuant to the section only after all the patents the subject of the contract (that is, all the patents for all the inventions the subject of the contract) have expired.
Section 145 does not speak to the present case, in which the defendant claims to have had a contractual right of termination. Section 145 confers a separate right of termination.
The expiry of Patents 1 and 5 before the commencement of the Licensing Agreement also distinguishes the present case from section 145, which speaks to the expiry of all patents "by which the invention was protected at the time the contract was made". Attention in the present proceedings is focused on the proper construction of the Licensing Agreement.

The Preamble

Resort has to be made to the preamble to explain the fact that, while the second plaintiff was expressed (in the preamble itself and Schedule 1) to be the owner of the patents listed in the Schedule, the first plaintiff (not the owner of a patent) was expressed to be the grantor of the clause 2.1 licence granted to the defendant by reference, indirectly, to the Patents. Recital C's reference to an agreement between "the Parties" implicitly carries with it a statement that the first plaintiff is able to grant a licence to the defendant because it has a head licence from the second plaintiff.
Reading the Licensing Agreement as a whole, I do not accept, as the plaintiffs contend, that nomination of the first plaintiff as a licensor is an indication that the subject matter of the grant of a licence was something other than the grant of a right to exploit the invention(s) protected by the listed patents (or, on the plaintiffs' case, Patent 9).
The patents collectively listed in Schedule 1 to the Licencing Agreement were foundational to the operation of the whole Agreement. This is demonstrated by the preamble; use of the expression "the Moore Technique" throughout the Agreement; definition of "the Moore Technique" by reference to the patents listed in the Schedule; a restraint of trade provision (clause 10.1.1) which prohibited the defendant, upon termination of the Agreement "for any reason whatsoever", from breaching "any of the Patents ever"; and use throughout the Agreement of the plural form of the word "patent".
Furthermore, the first plaintiff was a service company of the second plaintiff, it bore his name. The Licencing Agreement, in those provisions suggestive of a franchise agreement, contemplated that the second plaintiff would supervise the "Licensed Business", defined by clause 1.1 to mean "the business to be conducted by [the defendant] to carry out phalloplasty procedures using "the Moore Technique", defined by reference to "the Patents". Without the second plaintiff's concurrence in the first plaintiff's grant of a licence to the defendant, the grant would constitute a breach of any patent by reference to which the "Moore Technique" was performed.
Use in recital A of the generic expression "patents" (unqualified by the definite article, "the", and without capitalisation of the letter "p") is consistent with the fact that the second plaintiff held "patents" generally, offering a contrast with recital B which, in context, identified "the Patents" as the subject of the grant of a licence to the defendant. The grant of a licence by reference to "the Patents" was a grant of permission to exploit a property right protected by a statutory monopoly, not permission to do something which the grantee could do without permission.

Terms of the Licensing Agreement Regarding Patents

As articulated in each of his Defence and his Cross Claim the defendant contends (and the plaintiffs, in their pleadings, deny) that the Licensing Agreement included the following "express and/or implied" terms: 1. That the defendant was given a licence to use each of the Patents specified in the Schedule 1 of the Licensing Agreement for the term of the Agreement. 2. That each of the Patents specified in Schedule 1 of the Licensing Agreement was current and valid. 3. That each of the Patents specified in Schedule 1 of the Licensing Agreement would remain valid for the duration of the Licensing Agreement. 4. That the "Moore Technique" as described in the Patents referred to in Schedule 1 of the Licensing Agreement was a medical procedure that was novel, inventive and innovative and not one which was in the public domain. 5. That the Licensing Agreement would terminate if any of the Patents specified in Schedule 1 of the Licensing Agreement expired and/or ceased.
The defendant contends (and the plaintiffs deny) that a breach of any of these alleged terms conferred upon him "a right to rescind" the Licensing Agreement.
Although the plaintiffs deny that they, in any way, gave an assurance that all the Patents listed in Schedule 1 to the Licensing Agreement were operative at the time of the parties' entry into the Agreement, they do not contend that the Agreement could have operated if all patent protection for the Moore Technique were absent. In their closing submissions they accepted that they had "agreed to licence to [the defendant] the right to perform a patent-protected surgical technique". They contend, in essence, that it was sufficient for the operation of the Agreement that one patent (Patent 9) was operative or might, upon its expiry towards the end of the Licence Period, be replaced by the second plaintiff's development of a further patent. On the plaintiffs' case, reference in Schedule 1 to expired patents may, at least, have been relevant to an understanding of what was meant in the Agreement by the "Moore Technique".
In my opinion, the Licensing Agreement included a term ("the Patents Term"), partly express and partly implied, to the effect that the plaintiffs vouched that each of the Patents listed in Schedule 1 to the Agreement was operative at the time the Agreement was made and undertook that each of the Patents would remain operative throughout the Licence Period, including the period of any renewed licence following an exercise of the defendant's option.
In so far as the Patents Term was express, it can be found in: 1. clause 2.1 of the Licensing Agreement, incorporating (i) the definition of "Moore Technique", (ii) the definition of "the Patents", (iii) Schedule 1 to the Agreement and (iv) use of the plural form of the word "patent", informed by the preamble; 2. the provisions of the Licensing Agreement (including clause 2.1) that contemplated that, under the supervision of the plaintiffs, the defendant would "throughout the Licence Period" perform phalloplasty procedures "using the Moore Technique"; and 3. clause 10.1.1 of the Licensing Agreement which provided for the defendant to be under a post-Agreement restraint of trade not to "Breach any of the Patents ever".
In so far as the Patents Term was implied, it was necessary to give business efficacy to the Licensing Agreement because the foundational assumption of the Agreement was that the second plaintiff owned the patents listed in Schedule 1, as a result of which he enjoyed a statutory monopoly over "the provision of phalloplasty surgery using the techniques [plural] referred to in the Patents" (plural).
In my opinion, the term I have identified as "the Patents Term" is obvious, clearly expressed and not in contradiction with any express term of the Licensing Agreement. It is also reasonable and equitable in circumstances in which the Licensing Agreement required the defendant to pay a substantial licence fee each month; to perform a minimum number of phalloplasty operations each year; and to submit to the plaintiffs' control of his business, all predicated upon an assumption that "the Patents" were (and would remain) operative. The defendant did not agree to pay a licence fee merely for a "right" (freely available if unprotected by a patent) to perform phalloplasty procedures described in documentation not reproduced in the Licensing Agreement.
In my opinion, the Patents Term was in the nature of a condition, an essential term (rather than a warranty, an inessential term), breach of which entitled the defendant to terminate the Licensing Agreement. That is because the plaintiffs' assurance that the Patents listed in Schedule 1 were operative, and their undertaking that they would maintain the operation of the Patents, went to the root of the contract: they were of such importance to the defendant, viewed objectively, that he would not have entered into the Agreement unless he had been assured that the Patents were, and would remain, operative, and this ought to have been apparent to the plaintiffs: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [47]-[48]) There would be little point in the defendant assuming an obligation to pay a substantial amount of money to the plaintiffs, by monthly payments over a five year term, and subjecting his business to the plaintiffs' control, without full patent protection of the Moore Technique.
If the Patents Term were to be characterised as an "intermediate term", (as discussed in Koompahtoo at [49]-[56] by reference to Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69-70) the defendant would nonetheless have had a right to terminate the Licensing Agreement when he became aware of the plaintiffs' breach of the term. That is because denial to the defendant of the statutory monopoly for which Patents 1, 2 and 5 severally provided deprived him of a substantial part of the benefit to which he was entitled under the Agreement.
Debate about the proper characterization of the Patents Term, and the consequences of the plaintiffs' breach of that term (by reason of the unavailability of a statutory monopoly under the expired Patents 1, 2 and 5), focuses attention upon whether the plaintiffs' promise of patent protection required strict or only substantial performance of the promise and, if the latter, whether the availability of protection under Patent 9 of itself constituted substantial performance of the promise.

THE NATURE AND SCOPE OF PATENT PROTECTION FOR THE MOORE TECHNIQUE

In their submissions about the operation of the patents listed in Schedule 1 to the Licensing Agreement, both sides of the record concentrated attention on the Australian patents: Patents 1, 2, 5 and 9. I do likewise. The Australian patents, of themselves, provide sufficient material for an assessment of the parties' competing contentions.
I note, in passing, that the second plaintiff's evidence was that his international patents were put together so that (for example) "if somebody in Malaysia wanted to harvest patients here in Australia and then do Phalloplasties in Malaysia, he couldn't do it without a licence".
Patents 1 and 5 expired on 11 February 2018, before the commencement of the Licensing Agreement. Patent 2 was operative at the time the Licensing Agreement was executed, but it expired eight days later on 12 August 2013.
Patent 9 was operative at the time the Licensing Agreement was executed, but it was due to expire on 3 April 2023. In the event, it was surrendered by the second plaintiff on 20 October 2021 (after termination of the Licensing Agreement) by his non-payment of fees necessary to sustain it.
A comparison of Patents 1, 2, 5 and 9 confirms that: 1. the claims in respect of which the four Australian patents were granted were distinctively different; 2. the expiry of Patents 1, 2 and 5 brought to an end any statutory monopoly for the inventions in respect of which they were granted (respectively, a method of penile widening, a method of enhancement of a penis specifically for persons who have an artificial erection device, and a method of lengthening a penis); and 3. the claim for which Patent 9 was granted (an independent claim) comprised a method of lengthening the penis (using language found in a dependent claim in Patent 5) together with a "post operative treatment regime" not found in any part of the documentation relating to Patents 1, 2 or 5; but 4. expressions used in the Specification and Claims sections of Patent 9 mirrored some of the expressions found in Patents 1, 2 or 5.
The independent claim in Patent 9 (which defined the boundaries of the monopoly upon grant of Patent 9) was limited to penis lengthening with a particular post operative treatment regime. Dependent claims in the patent mentioned methodology referred to in Patents 1, 2 or 5, but they were dependent for their operation on the primary claim. They offered no monopoly protection independent of the primary claim.
The monopoly protection afforded to the defendant upon execution of the Licensing Agreement did not include the stand-alone method of widening a penis formerly protected by Patent 1 or the stand-alone method of lengthening a penis formerly protected by Patent 5. Upon expiry of Patent 2, the defendant lost that patent's protection of a stand-alone method of penis enhancement for a person with an artificial erection device. Upon expiry of each patent, others than the defendant became entitled to apply those methods of phalloplasty surgery without infringement of Patent 9, essential integers of which protected only a method of lengthening a penis in combination with a post operative regime, albeit that references in dependent claims to methodology formerly the subject of the expired patents might describe aspects of the second plaintiff's methodology.
Put another way, after expiry of those patents, any suitably qualified medical practitioner could perform phalloplasty surgery using one or more of the methods formerly protected by those patents without infringement of Patent 9 provided they did not appropriate the post operative treatment regime which was the critical, inventive integer of the claims in Patent 9.
The monopoly protection conferred by Patent 9 was (by reason of the nature and scope of claim 1 in Patent 9) something less than the "techniques referred to in the Patents", the pivotal expression in the definition of "Moore Technique" in clause 1.1 of the Licensing Agreement.
The difference between the patent protection afforded by Patent 9 (on the one hand) and the patent protection afforded by all four Australian Patents operating together (on the other hand) was not merely a matter of form. If (as I find) "the Moore Technique" referred to the inventions protected by each of Patents 1, 2, 5 and 9 (in their respective independent claims), the loss of patent protection for the patented inventions as stand-alone techniques was more than nominal. It meant that patent protection was limited to procedures involving the lengthening of a penis and a particular post-operative treatment regime, whether or not other techniques formerly protected by Patents 1, 2 and 5 were deployed.

TERMINATION OF THE LICENSING AGREEMENT

Because "the Moore Technique" was to be understood, on the proper construction of the Licensing Agreement, to refer to the inventions collectively protected by all four Australian patents, the plaintiffs were in breach of the Patents Term from the time the Licensing Agreement was executed. Their breach was ongoing.
The defendant was entitled, because of that breach, to terminate the Licensing Agreement.
He did so by an email addressed to the second plaintiff on 30 October 2018 in the following terms (with a subject heading "Cessation of Licence Subscription"): "Dear Prof I am unable to continue being a licensee to undertake Moore's Procedure. My current trip overseas has allowed me to reflect upon my schedule, professional direction, and financial commitments. I am not agreeable to a prospectively levied licence fee which does not consider workload. I was previously hoping that you'd agree to a case-load-based retrospective payment which is the norm for this sort of thing (or to a much smaller prospective amount), but you were not agreeable to this. Paying > $170k p.a. is too much for me, certainly at this stage. Aside from the significant increase in my indemnity premiums, I am uncomfortable with a comment that was made by the M.D.O. re. a potential submission from a patient that your operation was pushed in order to fulfil rigid and expensive licence requirements. I have been referring to your procedure as 'Moore's Phalloplasty' and shall cease doing that. I obviously understand that the bookings service offered by Mrs Moore shall cease from 01 November, 2018. Whilst this situation sadens me, given we both appreciate an upfront approach, I have made this difficult decision at an early stage and whilst not owing you any money. Best regards, Niro"
Although the defendant's email did not, in express terms, "terminate" the Licensing Agreement, that was, in substance, the intention of the defendant that it conveyed.
Although the email did not specify a ground, or grounds, upon which the defendant relied for termination of the Licensing Agreement, earlier emails manifested increasing concerns about the nature and scope of patent protection for "the Moore Technique".
At 7.28 am on 26 October 2018 the defendant addressed an email to the second plaintiff, and copied it to Mrs Moore, in the following terms: "Dear Prof., I have spent some time with a Brazilian plastic surgeon and an Italian urologist, both of whom undertake surgical augmentation phalloplasties. I have discussed their work and compared this with respect to your patent applications. They have similar general approaches, although I don't know the intricacies of specific points during the operation (eg approximation of graciles). I know that a cosmetic surgeon in California (Krakovsky) also uses similar methods, and that there is a Mexican surgeon who does a lot of augmentation phalloplasties using free grafts. Obviously, ligament release, dermal fat-grafts, etc, are established techniques worldwide. However, I've looked at your patent paperwork as per your previous direction, and I am confused as to what is specific to 'Moore's Phalloplasty'. Put another way, it appears that there are a number of surgeons who are employing similar techniques. So, may you tell me what is being done to protect 'Moore's Phalloplasty', please? Or, is it a comparable situation to Jayson Oates' non-surgical augmentation phalloplasty which is basically just a trademarked name ('Calibre') and is not a unique technique given it is performed extensively around the world and has been for many years? Thank you. Niro"
On 26 October 2018 at 10.34 GMT+8 the defendant sent another email to the second plaintiff (and copied it to Mrs Moore) in the following terms: "Dear Prof., After great deliberation during my travels, and having read your patents (which I've crossed-checked with existing literature, and discussed with colleagues and various former mentors), I am writing to advise that I am very unlikely to continue offering 'Moore's Phalloplasty' from next month. A lot of the steps are well-established and not unique, and, therefore, only minor changes need to be made for a competitor to offer a very similar procedure - which is already being done in Europe and The Americas. This massively reduces the ability to offer the procedure at a premium, and therefore weakens the license fee amount of $14,300 p.c.m.. I am awaiting some feedback from two patent lawyers - based in Australia, and therefore familiar with Australian rulings, etc.. I should have an answer by Monday evening. If I were to pull out, I think that Kish [at that time a person under consideration by the second plaintiff for the grant of a licence of 'the Moore Technique'] is very interested in offering your procedure. When I last spoke to him, I believe he said that he'd be a position to commence next year. Thank you and kind regards. Niro"
It is common ground between the parties that termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at that time and even though the ground actually relied on is found to be without substance: Shepherd v Felt & Textiles Australia Ltd (1931) 45 CLR 359; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262.
As I have found that the Licensing Agreement included the Patents Term (a condition or essential term), and that breach of that term deprived the defendant of substantially the whole benefit (namely, the benefit of all four Australian patents in operation together) which it was intended that he would obtain from the Licensing Agreement, I find that he was entitled to terminate the Agreement, and that he did so effectively, on 30 October 2018.
The effect of the defendant's termination of the Licensing Agreement was to relieve him of any future obligation to pay licence fees, or to meet the cost of the Moore Website.
A finding that he effectively terminated the Licensing Agreement on 30 October 2018 does not, of itself, entitle him to recover the payments he earlier made to the plaintiffs, a total of $42,900 by payments made respectively on 6 August 2018 ($14,300), 31 August 2018 ($14,300), 1 October 2018 ($7,000) and 9 October 2018 ($7,300). He made those payments at a time when the Licensing Agreement was subsisting and, it might be added, he communicated his intention to terminate the Agreement on the basis that, having made all payments due under the Agreement, he did not owe the plaintiffs any money.
On the basis of a finding that the Licensing Agreement was terminated by the defendant on 30 October 2018 with operative effect from that date, the proceedings should be determined by a declaration that the Agreement was validly terminated by the defendant on 30 October 2018 and orders otherwise for dismissal of both the plaintiffs' statement of claim and the defendant's amended statement of cross claim.

ALTERNATIVE ANALYSES

Before embracing that conclusion, attention should be given to alternative ways in which the defendant presented his case.
Amongst the several different ways of formulating his case, the defendant contended that he was induced to execute the Licensing Agreement by representations of the second plaintiff to the effect that: (a) the second plaintiff held, and would continue to hold, the Patents for the Moore Technique for the duration of the Licensing Agreement; (b) if the defendant did not enter into the Licensing Agreement, he would be restricted from performing phalloplasties using the Moore Technique; and (c) if the defendant did not enter into the Licensing Agreement and he performed any surgery involving the penis, the second plaintiff would have a right to sue him.
The second and third of the representations were admitted on the pleadings by the plaintiffs. The first representation was, on the pleadings, admitted subject to the qualification that the plaintiffs said that Patents 1 and 5 were covered by Patent 9, which would be renewed by the second plaintiff in due course.
In my opinion, the first of the three representations was made by the plaintiffs' proffering to the defendant for execution the Licensing Agreement containing what became Recital 1 and by an email addressed by the second plaintiff to the defendant on 11 July 2018.
That email contained the following passage: "… as I will retain ownership in the name of the website, I will be doing any 'promoting' so you can hardly be blamed for that even if most of your patients come from that source. My Phalloplasty is patented. Therefore, the only access that you have to use that technique is for you to be granted a licence under the patent. This is no different to any form of franchising such as 'Jim's Mowing, VIP Cleaning or Hire a Hubby' to name a few, or to any other form of medical licensing. You do not seriously think that those franchisees would inappropriately mow the lawn, etc? …"
I am satisfied that the first of the three alleged representations was made, as well as the second and third, directed to the existence of all patents listed in Schedule 1 to the (Draft) Licensing Agreement and that the representations were misleading or deceptive, at least in so far as Patents 1 and 5 were not operative at the time the Licensing Agreement was executed.
Each of the three representations was made in trade or commerce, and was misleading or deceptive.
I accept the defendant's evidence that he relied on the representations in his decision to execute the Licensing Agreement. They were foundational to his decision because the availability of patent protection justified his submission to the obligations of a licensee for which the Licensing Agreement provided.
On the basis of such findings, the plaintiffs could be found to have caused the defendant loss and damage (in his entry into the Licensing Agreement and his assumption of the liabilities of a licensee pursuant to that Agreement) by misleading and deceptive conduct in contravention of section 18 of the Australian Consumer Law, justifying a grant of relief to the defendant under sections 237 or 243 of the Australian Consumer Law.
That analysis, though, is predicated upon an assumption that the Licensing Agreement did not include the Patents Term. If (as I have found) the Agreement did include the Patents Term the foundation for a finding of misleading or deceptive conduct will have been displaced.
In my assessment, the several other contentions by which the defendant has advanced his case, cannot succeed. First, I reject the contention that the Licensing Agreement was vitiated by a mistake (unilateral or common) arising from the fact that the first defendant, in its own right, did not own any patent; as I have found, the Licensing Agreement acknowledged that the first plaintiff implicitly held a licence from the second plaintiff that supported its grant of a licence to the defendant. I reject, also, the defendant's contention that the Agreement was void for a want of consideration; the Agreement, including the Patents Term, contained promises by the plaintiffs enforceable by the defendant.
The defendant endeavoured to reinforce his case by relying upon allegations of representations (said also to be implied terms in the Licensing Agreement) going to topics other than the subsistence of the Patents listed in Schedule 1 to the Licensing Agreement. I am not satisfied that those representations were made, or relied upon by the defendant or, if made and relied upon, were reasonably relied upon. Nor am I satisfied that business efficacy required implication of terms of the Licensing Agreement to similar effect.
In my opinion, the correct determination of these proceedings is a finding that the Licensing Agreement was effectively terminated for breach of the Patents Term or, alternatively, on a finding of misleading and deceptive conduct predicated upon misrepresentations substantially to the same effect as the Patents Term.

CONCLUSION

Subject to allowing the parties an opportunity to make submissions about the form of orders to be made, and costs, I propose to make the following orders in disposition of the proceedings: 1. DECLARE that the Licensing Agreement dated 8 July 2018 made between the plaintiffs (of the one part) and the defendant (of the other part) was validly terminated by the defendant on 30 October 2018. 2. ORDER that the plaintiffs' statement of claim and the defendant's amended statement of cross-claim otherwise be dismissed.
Prima facie, costs should follow the event, with a consequence that the plaintiffs should pay the defendant's costs of the proceedings on the ordinary basis; but I am presently inclined to discount the costs recoverable by the defendant from the plaintiffs because much time and money was spent on dealing with unproductive, alternative formulations of the defendant's case.

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: 04 May 2022

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