EIS Gmbh v LELO Oceania Pty Ltd

1. The Applicant/Cross-Respondent pay 60% of the Respondent's/Cross-Claimant's costs of the Originating Application and the Notice of Cross-Claim, as taxed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. On 18 September 2025, I published reasons for judgment in EIS Gmbh v LELO Oceania Pty Ltd (Liability Trial) [2025] FCA 1111 (LJ or liability judgment) and sought submissions from the parties on the question of costs. This judgment addresses that question. Definitions used in the liability judgment will also be adopted in these reasons.

1. The relevant background is set out at [1]-[10] LJ_._
2. The outcome of the liability trial was as follows:

(1) the claims do not comply with ss 40(2)(a), 40(2)(b) and 40(3) of the Patents Act. It follows that the Patent is invalid and should be revoked;

(2) the cross-claims should otherwise be dismissed;

(3) none of the LELO Products infringes the relevant claims. This has the consequence that the application should be dismissed.

1. EIS submits that a separate costs order should be made in respect of EIS's infringement case and LELO's cross-claim in each proceeding.
2. However, in my view, a global costs order should be made because LELO cross-claimed for the revocation of the Patent as a defence to the infringement proceedings and that defence and the successful invalidity claims had a "common substratum of fact", being the proper construction of the claims of the Patent: see, generally, GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 2) Ltd v Generic Partners Pty Ltd (No 2) [2018] FCAFC 100 at [8] (Middleton, Nicholas and Burley JJ). Further, the approach pressed by EIS will lead to increased costs on any taxation in the course of attempting to disentangle the costs associated with the case brought by EIS and the case brought by LELO. It therefore appears to have no real utility.

1. EIS submits that an appropriate discount is 50%. LELO submits that there should be no discount, submitting that it could not have known which points would be successful and that parties should not be discouraged from vigorously defending themselves in infringement proceedings, including by way of a cross-claim for invalidity.
2. LELO did not succeed in relation to its cross-claim on the grounds of best method, utility, novelty or inventive step, which topics occupied a large proportion of the evidence and the time spent at trial: [258]-[338] LJ. It also failed on its claims concerning statements made by EIS: [368]-[459] LJ. Further, its attack on the Outerspace experiments and the Cobalt experiments was rejected: [69] LJ.
3. Thus, LELO made the decision to advance its cross-claim to judgment in relation to an extensive range of invalidity grounds and attacks on the experimental evidence which resulted in significant costs being incurred by EIS, including additional time spent at trial, but which grounds and attacks did not bear fruit. LELO also called two experts, instead of one, in circumstances where Mr Duff should not have given evidence in any event for the reasons explained in [42]-[46] LJ. The involvement of Mr Duff in the proceeding, including the experiments which he conducted and his criticisms of the experiments conducted by others, expanded the factual and legal issues required to be addressed by EIS, including evidentiary objections, and prolonged the concurrent expert evidence session.
4. Apportionment of costs where a party succeeds on some of its claims is consistent with modern case management principles: see Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47 at [34] (Nicholas, Yates and Beach JJ). For the reasons explained above, such an approach is appropriate in this case. Parties in patent litigation should be encouraged to pursue their best points only, not all arguable points. The prospect of a discounted costs order might provide an incentive for that to occur.
5. In relation to the claims relating to the statements made by EIS, LELO submits that minimal time was spent on these claims. However, these claims were the subject of two interlocutory applications prior to trial and, as observed at [369] LJ, they were run in closing submissions in a way that expanded upon LELO's pleaded case.
6. Finally, while it is correct that LELO was successful in defending the infringement case, that success arose for reasons other than that its devices had not been measured when used on the clitoris, being one of LELO's primary defences to the infringement case. In particular, I did not accept that LELO's devices needed to be measured when in use on the clitoris in order to establish infringement: see, for e.g., [363]-[364] LJ.
7. Taking all of these matters into account but also recognising that LELO was the successful party, I consider that a discount of 40% is appropriate. As I consider that the costs payable by EIS should be discounted, it is unnecessary to consider EIS's alternative argument that it should be awarded indemnity costs.

1. LELO relies upon a letter of offer to settle the proceedings which its solicitors sent to the solicitors for EIS on 19 September 2024 and submits that it should have an award of indemnity costs after that date. The letter was not a "Notice of offer to compromise" in accordance with Form 45 (see r 25.01 of the Federal Court Rules) with the consequence that r 25.14 of the Federal Court Rules does not apply.
2. Mere refusal to accept a Calderbank offer followed by a result more favourable to the offeror than that represented by the offer does not of itself warrant an order for indemnity costs. The offeror needs to show that there was a genuine offer of compromise and that it was unreasonable for the offeree not to accept it.
3. As to the last issue, the following matters should ordinarily be considered:

(1) the stage of the proceeding when the offer was made;

(2) the time afforded to the offeree to consider the offer;

(3) the extent of compromise involved;

(4) the offeree's prospects of success, assessed as at the date of the offer;

(5) the clarity with which the terms of the offer were expressed;

(6) whether the offer foreshadowed an application for indemnity costs in the event of refusal.

See Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd (No 2) (2016) 118 IPR 156; [2016] FCA 470 at [31] (Katzmann J).

1. The terms of the offer in the Calderbank letter are stated in clear terms, the letter put EIS on notice that the offer may be relied on to seek costs on an indemnity basis, and the letter gave EIS sufficient time to consider the offer, being a period of two weeks. There is also no dispute that the offer was better than the result which EIS achieved at trial.
2. However, much of the evidence in support of a finding of lack of clarity had not been adduced as at the date of that letter. EIS had only just completed its evidence in answer and evidence in reply had not been filed. Furthermore, the joint expert conclaves that resulted in JER 1 and JER 3 had not yet occurred. Thus, EIS was not in possession of JER 1 which included certain pivotal passages of evidence which are cited at [199]-[204] LJ and [364] LJ (for example).
3. LELO submits that it highlighted to EIS that it could not prove infringement because the words in claim 1 "when used on the clitoris" meant what they said long before the Calderbank letter. It relies upon the letter sent to EIS's solicitors dated 22 December 2023 in which it was stated that:

[We] propose to submit that the experiments are irrelevant because the claims of the Patent require that the "volume change" is to be measured when a device is in use on the clitoris.

1. However, while I accepted LELO's construction argument ([124] LJ), I did not accept that LELO's devices needed to be measured when in use on the clitoris in order to establish infringement (as noted above) and nor did I accept that the fact that they could not be measured when used on the clitoris meant that the claims did not comply with ss 40(3) and 40(2)(b) of the Patents Act: see, for e.g., [363]-[364] LJ; see also [203]-[205] LJ. When one has regard to the submissions advanced by EIS at trial (see, for e.g., [138], [140] and [143] LJ), it is apparent that EIS was grappling with the contention as notified by LELO prior to trial, and which LELO maintained at trial without success notwithstanding that LELO's own expert did not agree with it: see [203] LJ.
2. For these reasons, it was not unreasonable for EIS to refuse to accept the offer. This has the consequence that indemnity costs will not be awarded. Even if r 25.14 does apply, I am permitted to make an order inconsistent with it and do so in this case for the same reasons: see r 1.35 Federal Court Rules.

1. An order will be made in each proceeding to the effect that EIS pay 60% of LELO's costs of the application and cross-claim. Of course, this is subject to costs orders already made in either proceeding. For that reason, I do not consider it necessary to include that qualification in the orders as proposed by EIS.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.