Collins v Northern Territory of Australia

THE ISSUES 9 In the light of the pleadings, on 6 February 2006 I directed that there be a separate trial of issues as to whether: (a) the Territory had supplied a product to ACOC the use of which would infringe the Patent; and (b) the product if so supplied was capable of only one reasonable use, namely that of producing a blue coloured oil by the process protected by the patent, or the product is not a staple commercial product and the Territory had reason to believe it would be put to the infringing use complained of by the Collins. That order was made to address the alleged contributory infringement of the patent by the Territory without extending the hearing into issues as to the validity of the patent, and its infringement by ACOC. As I have said, for present purposes I have assumed the validity of the patent, and that ACOC's alleged actions have infringed it. 10 I also note that the Collins do not now contend that the timber was capable of only one reasonable use, so that the arm of the claim based upon s 117(2)(a) has fallen away. 11 Consequently, the parties agree that there are really three issues which the present application requires the Court to address. 12 The first issue involves a few steps. It arises under the wording of s 117(1). The evidence shows that at material times the Territory licensed ACOC to enter upon the Howard Springs land and to harvest the timber on it and to remove the timber. The Collins agree that the appropriate description of the arrangement was a licence as described. The Territory contends that · the grant of the licences, being permissive, did not involve the Territory in supplying the timber to ACOC; · if it did supply the timber to ACOC, that the product it supplied was the timber itself, but that the timber, or parts of it, is only an input into the product the use of which by ACOC (it is assumed for present purposes) would have infringed the patent, and that in the case of a process patent such as the patent it is the process or method which constitutes the infringement and not the supply of an input. Consequently, the Territory contends that on the Collins' own allegations and on the evidence, there can be no contributory infringement of the patent as s 117(1) simply does not apply. 13 The second issue is a more straightforward one. It addresses whether the timber is a "staple commercial product" as referred to in s 117(2)(b). If the timber is a staple commercial product, then s 117(2)(b) would not be activated and there would be no use of a product by ACOC within the ambit of s 117(1) (assuming, of course, that the first issue is decided in the Collins' favour). 14 The third issue is a little more complex. It also arises under s 117(2)(b). It is tied up with the first issue to a degree, as it also involves the question of the supplier of a product being a contributory infringer of a process patent when the product is an input into the process only. The issue is as to the extent of the knowledge of the Territory necessary to show it had the requisite "reason to believe". I find that the Territory had reason to believe that ACOC would use the timber from the trees for the purpose of producing blue cypress oil. There is ample evidence to support that finding. Counsel for the Territory did not submit that I should not make that finding, so I do not need to refer to the evidence. The contention of the Territory was that it was necessary for the Territory to have reason to believe that the timber from the trees would be used in a particular way by ACOC, in particular by the mixture of bark and wood, to produce the infringing oil because the mixture of bark and wood in the process is the minimum essence of the patent. The Collins dispute that, but in any event they contend that the Territory did have reason to believe the timber would be used by ACOC in that way.

SUPPLY OF A PRODUCT 15 The term "product" is not defined in s 117 of the Act. What has been "supplied" by the Territory to ACOC is the timber, and ACOC has then used bark and wood from the timber to produce blue cypress oil. 16 The timber, or bark and wood from the timber, is but an input into the process by which the (assumed) infringing blue cypress oil by ACOC was produced. As I understand the Territory's submission, it said that the use of the timber by ACOC does not infringe the patent per se because it is a process patent. Consequently, the "supply" of the timber by the Territory to ACOC did not activate s 117(1) at all because the "use" referred to must be an infringing use. 17 Section 13(1) provides a patentee with exclusive rights to exploit the invention or to authorise another person to do so. The term "exploit" is defined in Sch 1 to the Act as including: "(a) where the invention is a product - make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or (b) where the invention is a method or process - use the method of process or do any act mentioned in paragraph (a) in respect of a product resulting from such use." It therefore appears that the exclusive rights of the Collins through the patent, it being a process patent, are to use the process to make, sell, hire or otherwise dispose of the product resulting from its use. The product resulting from the use of the process, which the patent protects, is the infringing oil. It is not the timber (or the wood and bark from the timber) which the patent protects but the process by which the wood and bark from the timber is used so as to result in the product, namely blue cypress oil. The use of the bark and wood from the timber does not infringe the patent per se. It is the method or process of production which is protected by the patent. 18 As counsel for the Territory recognised, there is an apparent difference in the views of the Full Court in Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) 50 FCR 1 (Rescare) on the one hand and in Bristol-Myers Squibb Company v FH Faulding & Co Ltd (2000) 97 FCR 524 (Bristol-Myers) on the other, as to the construction of s 117(1). 19 In Rescare, Lockhart J (with whom Wilcox J agreed) at 24 said: "The lasts remaining point is whether the primary judge erred in holding that s 117 of the 1990 Act did not apply in relation to the alleged infringement of claims 9 and 11 in that he held that it was a precondition to the operation of that section in relation to a method claim that there be a product the use of which would infringe that method claim. In my opinion his Honour decided that question correctly." The other member of the Full Court, Sheppard J, did not address the issue. In the decision at first instance, Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205 Gummow J at 243, concluded: "As I have indicated, where the invention relevantly claims a method or process, exploitation occurs, other than by use of the method or process, only by the doing of an act mentioned in para (a) of the definition of 'exploit'. There must be an act done 'in respect of a product resulting from such use'. Here, the respondent urges, and I agree, there is no such product with the result that, in a case such as the present, s 117 has no operation." Gummow J in Sartas No 1 Pty Ltd v Koukourou & Partners Pty Ltd (1994) 30 IPR 479 at 495 repeated that view. 20 The contrast with Bristol-Myers can be seen from the remarks of Black CJ and Lehane J at 559 [95] where their Honours said: "We may say, with all the advantages of hindsight, that the drafting of s 117 is less than felicitous … it is perhaps a pity that the drafter chose to use the phrase 'use of a product', which contains such a clear reference to the terminology of para (a) of the definition of 'exploit'. But s 117 provides its own dictionary, in subs (2). And our paraphrase of s 117(1), incorporating subs(2)(c), shows, in our view, that the construction urged by the appellant is not only a possible construction but a literal one. That literal construction being consistent with the apparent purpose of the provision, it is, in our view, plainly to be preferred." The reference to the construction of the appellant is to the contention that the use of an input to the process would amount to contributory infringement of the process patent then in suit by the supplier of the input. 21 It is correct, as counsel for the Territory contended, that Bristol-Myers was decided on the ground of want of novelty, so that strictly speaking those observations are obiter dicta. 22 As I have decided this matter on another basis in any event, I think it is preferable simply to note the Territory's contention that I should follow the decision in Rescare, and not to decide the issue as between those two lines of authority. If I were to accept the Territory's contention, it would follow that s 117(1) did not apply to the "supply" of the timber to ACOC by the Territory in any event, because ACOC's use of the product supplied (the timber) did not itself infringe the patent, and that to conclude otherwise would extend the protection afforded a patentee beyond that provided for by s 13(1) of the Act. 23 The additional contention of the Territory on this topic is that, in any event, it was the trees or the timber which was "supplied", and that the relevant product used by ACOC (if Bristol-Myers is to be followed) is not the timber itself but the selected bark and wood from that timber. 24 In my view, that alternative contention draws attention to the further submission of the Territory that it did not supply any product at all by the grant of the licences referred to. 25 I have referred briefly to the licences to ACOC above. They were permissive, as ACOC was not obliged to enter upon the Howard Springs land and lop or clear any trees and remove any timber. ACOC was permitted, but not obliged, to enter upon the Howard Springs land and to harvest the trees and remove the timber from that land. Similar characteristics of an arrangement under a statutory licence were described by Wilson J in The Queen v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 352 as the grant of rights under a statutory scheme (in that case, grazing rights) rather than as a supply of fodder. See also per Brennan J in Harper v Minister for Sea Fisheries (1989) 168 CLR 314 at 334 (in that case, with respect to fishing rights). 26 The term "supply" is defined in Sch 1 of the Act in terms which do not readily accommodate a licence which merely enabled ACOC to go upon the Territory's land at Howard Springs and to harvest the trees there and to remove the timber so harvested. There is no positive act of the Territory which, in terms of the definition of "supply", amounted to the "sale, exchange, lease, hire or hire-purchase" or the offer to supply by way of sale etc of the timber. 27 In my judgment, for those reasons, the grant of the licences to ACOC in their terms, and in their context, did not amount to the supply of the timber to ACOC so as to expose the Territory to liability as a contributory infringer of the patent under s 117(1) of the Act, even if - contrary to my conclusion - the conduct amounted to the use of the timber within s 117(2)(b) of the Act, and even assuming on the Collins' favour that the timber was used by ACOC so as to infringe the patent, notwithstanding the decision in Rescare.

STAPLE COMMERCIAL PRODUCT 28 The term "staple commercial product" is not defined in the Act, and there is a dearth of authority on the topic in Australia: per Stone J in Hexal Australia Pty Ltd v Roche Therapeutics Inc (2005) 66 IPR 325 at 331; [2005] FCA 1218 at [30]. In Theta Developments Pty Ltd v Leonardis (2002) 59 IPR 368 at 384; [2002] FCAFC 170 at [100] Wilcox and French JJ held that a spacer for foundation fastenings was a "staple commercial product", but there is no discussion in that case of that expression which directly pertains to the present issue. Dowsett J, the other member of the Full Court, did not need to expressly address the issue. 29 The phrase "staple commercial product" also appears in s 60(3) of the Patents Act 1977 (UK). In Pavel v Sony Corporation (CA (UK), 13 January 1993, unreported) the Court at [6.4] to [6.5] held that the term means a product that is of a kind which is needed every day and is generally obtainable. See also the brief discussion in Lahore, Patents, Trade Marks and Related Right, Butterworths, 2006 at [18,285], fn 1. The term "staple article commodity of commerce suitable for substantial non-infringing use" appears in the United States Code - Patents (35 USC, s 271 (1952)). As discussed by A Monotti, "Contributory Infringement of a Process Patent under the Patents Act 1990: Does it Exist after Rescare?" (1995) 6 AIPJ 217 at 218-221, both the UK and the US provisions were said to be of significance to the Industrial Property Advisory Committee in its Report, "Patents, Innovation and Competition in Australia" (AGPS, Canberra, 1984) leading to the Act. That background does not, however, itself give meaning to the words of s 117 as enacted, although of course it is of assistance in construing those words. 30 It is not necessary to explore fully the content of that expression. The Collins accepted that, but for one feature, the timber was a staple commercial product. The distinguishing feature, it was said, was that the Territory had "written off" the trees on the Howard Springs land as a commercial crop for use as timber (which they described as included within the term silverculture) in November 1995, and therefore that the Territory thereafter regarded the Howard Springs land as only suitable for clearing so that the licences permitting the removal of the timber were merely part of a "salvage" operation. Silverculture, they said, included forestry operations for commercial timber, woodchips, aesthetics, and other commercial uses. But for having been "written off", there would (as the Collins submitted) have been no issue but that the timber was a staple commercial product. 31 I accept that, in November 1995 or thereabouts, the Territory decided upon advice that the trees on the relevant property at Howard Springs were not of sufficient quality for their initially intended use for commercial timber and other associated products. 32 It does not follow from a decision that a staple commercial product being grown for harvesting fails, so that it is not proposed to be harvested for its initial purpose, that the crop being grown thereby loses its character as a staple commercial product. Nor does it follow that because the initially intended commercial use of that product, when harvested, is not pursued that the crop therefore has no commercial value at all. Clearly the timber retained some commercial value because ACOC was prepared to become a licensee of the Territory so as to enter on the Howard Springs land and to remove the timber for its commercial purposes, and to pay to the Territory a licence fee for being able to do so. The licence fee was a royalty payment on the blue cypress oil which ACOC then produced. Indeed, the evidence discloses that it was not simply ACOC, but the Collins and others, who were interested in negotiating with the Territory for the right to enter the Howard Springs land and to remove and use the trees or the bark and wood from the trees. 33 The expression that the tree plantation be "written off" as a production area emerged from the recommendations in the Report from the House of Representatives Standing Committee on Expenditure, May 1978, entitled "Northern Territory Forestry Program" (AGPS, Canberra, 1978). Whilst the Territory accepted that allowing the further growth of the trees for harvesting for timber was no longer commercial, it did not accept that the trees had no commercial value. The subsequent dealings with the trees confirms that the timber on the Howard Springs land was not regarded by the Territory as having no value or as having salvage value only. It also confirms that in fact the timber on the Howard Springs land had, and continued to have, value to the Territory. 34 When the decision was taken that the trees in their then configuration were not suitable for their initially intended forestry use for timber, it was acknowledged that there were other commercial uses for it. Mr Collins himself proposed certain of those uses. Those uses included selective culling to enable the remaining trees to be managed for ultimate felling for timber, felling and storage for individual assessment as to their potential use as milled timber, woodchip mulch, pine oil extraction, potting mix, and firewood. He provided a detailed assessment of those various options. The option of pine oil extraction itself was identified as having potential uses in disinfectants for cleaning products, in the perfume industry, for pharmaceutical purposes, as a paint additive, or as an insecticide. The same proposal described those potential uses as "only the tip of the iceberg". Mr Collins' proposal suggested a substantial residual net worth of the timber. 35 Those views of Mr Collins, reflect the views of Peter Brocklehurst, forester, about the characteristics and uses of the timer. 36 It was in the light of there being residual commercial value in the timber, which the Territory recognised as including timber processing, oil production, woodchip production and for decorative purposes, that it exposed the utilisation of the timber to a public tender process. By the time of the tender invitation in mid 1997, the Territory recognised that the major commercial interest was in harvesting the timber for the extraction of essential oils, but its tender invitation was not limited to that use and expressly said that alternative proposals would be considered. 37 On the evidence, four licences were granted to ACOC to go on to the Howard Springs land and to take timber from that land. They are Miscellaneous Licences No 1858, 1863, 1869 and 1875 issued under the Crown Lands Act (NT). They covered the periods 3 July 1998 to 6 August 1998, and 1 April 1999 to 30 June 2001. The first licence required a royalty payment per tree, and subsequently the licences required a royalty payment of five per cent of the price of the "essential oil and any other products derived for the timber harvested". 38 In The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993, Vol 2, p 3031) a "staple" is relevantly defined as "a staple commodity, the principal or an important item of diet, production, trade etc; a major component or element; a new material". In The Macquarie Concise Dictionary (Macquarie, 2ed, 1988, p 974) it is similarly defined. No doubt in the light of those definitions, the Collins acknowledged that the timber, until it was "written off", was a staple commercial product. In my view that was an appropriate acknowledgment. 39 For the reasons I have given, I do not think that the decision of the Territory in about 1978 not to maintain the plan to allow further growth of the trees on the Howard Springs land for harvesting for timber resulted in the timber from those trees losing that character. 40 The potential variety of commercial uses for the timber, even though not economically usable directly by felling or harvesting the trees for timber, indicates that the timber was not (to use the words at one point used by the Collins) "some special product not generally available in the marketplace". I think that way of putting the argument tends to run together the alternatives expressed in s 117(2)(a) and (b), and so to distort the line the legislature sought to draw in determining when there may be contributory infringement of a process patent by a supplier of products. 41 Consequently, the application of the Collins must fail because they are unable to rely upon s 117(2)(b) of the Act to show "use" of the timber (or the bark and wood from the timber) in terms of s 117(1) of the Act. As noted, they do not rely upon subs 117(2)(a) or (c) for that purpose. 42 The second issue arising under s 117(2)(b) does not arise in view of the conclusion I have reached that the timber was a staple commercial product. 43 I note that the Territory submitted that, at the least, it needed to have reason to believe that the timber would be used by a combination of its bark and wood to produce blue cypress oil before it could be caught by the operation of s 117(2)(b). That, of course, is assuming (contrary to my conclusion) that the timber in the circumstances was not a staple commercial product. The parties did not fully develop their submissions as to whether "reason to believe" at such a general level would be sufficient (on that assumption) to enliven s 117(2)(b), or on the other hand that "reason to believe" beyond use of the timber to produce blue cypress oil was even necessary. 44 I do not need to finally determine those subtle questions. 45 However, it may be helpful to record my findings about the level of knowledge of the Territory at material times. As I have indicated, the evidence clearly shows that ACOC was licensed to remove the trees, at least partly to produce blue cypress oil. The Territory contends that the Collins must show that the "use" of which it had reason to believe is at least the use of the bark and wood of the timber in combination. In my view, the Territory had reason to believe that ACOC would use the bark and wood from the timber in combination for the purpose of producing blue cypress oil. 46 There is no direct evidence by which the Territory or its officers is shown to have acknowledged an awareness of the fact that the patent required the process of mixing a combination of bark and wood from the timber. The tender documents do not suggest any actual awareness of the process, or of the elements or components required to produce blue cypress oil. What is proven is that the provisional patent by which the bark and wood of the timber was to be used to produce blue cypress oil was tabled in the Legislative Assembly of the Territory on 28 November 1995. The patent itself was provided to the Territory by the Collins in about July 1997. The possession of the patent by the Territory, which of course disclosed the combination of the bark and wood from the timber as part of the process, is in my judgment sufficient to conclude in this matter that the Territory had reason to believe that ACOC would use the timber, by combining the bark and the wood from the timber, to produce blue cypress oil. The particular circumstances of this matter also inform that conclusion. Mr Collins had extensive communications with officers of the Territory over some years including about the way to best realise the economic potential of the timber after it was decided that it should not simply be harvested. The detail of those discussions was likely to have disclosed that the process of producing blue cypress oil was not simply by feeding the timber into some processing operation. The availability of the patent was, in that context, information from which the manner of use of the timber could reasonably have been discerned.

CONCLUSION 47 As the Collins agreed, in the event that I decided any of the steps which the preliminary questions raised contrary to their contentions, their application itself must be dismissed. 48 I accordingly dismiss the application 49 The Collins must pay the Territory its costs of the application. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate: Dated: 7 December 2006 Counsel for the Applicants: Vincent Joseph Collins appeared in person and with leave on behalf of Maryann Collins