Rakman International Pty Limited v Boss Fire & Safety Pty Ltd

Introduction 1 This matter has been remitted to me by a Full Court to determine a specific question in respect of costs. 2 On 20 September 2022, I made an order that the applicants/cross-respondents pay the respondents'/cross-claimant's costs of the proceeding (including the cross-claim) to date: (a) up to 11.00 am on 30 July 2019 on a party-party basis; and (b) from 11.00 am on 30 July 2019 on an indemnity basis. 3 My reasons for making that order are set out in Rakman International Pty Limited v Boss Fire & Safety Pty Ltd (No 2) [2022] FCA 1113 (PJ). 4 Rakman International Pty Limited (Rakman) and Trafalgar Group Pty Ltd (Trafalgar Group) (together, Trafalgar) sued Boss Fire & Safety Pty Ltd (Boss) and its sole director, Mark Prior, for infringement of Patent No. 2017101778 (the patent), in reliance on s 117(1) of the Patents Act 1990 (Cth) (the Patents Act). The respondents denied infringement. Boss cross-claimed seeking revocation of all the claims. Boss also cross-claimed seeking relief pursuant to s 128(1) of the Patents Act for unjustifiable threats, and for relief based on the Trafalgar Group's contravention of s 18(1) of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)). 5 I found that all the claims of the patent were invalid. Claims 1, 2, 3, and 4 were invalid on the ground that the invention, as claimed in each claim, was not novel. I found that claim 5 was invalid on the ground that the invention, as claimed in that claim, did not involve an innovative step. Had I not found that the invention claimed in claim 3 was not novel, I would have found that the invention claimed in that claim did not involve an innovative step. Other grounds of invalidity advanced by Boss failed. 6 It followed from these findings that Trafalgar's claim of infringement could not succeed. However, had the claims of the patent not been invalid, Trafalgar's case on infringement against Boss, but not against Mr Prior, would have succeeded. 7 I was not satisfied that Boss had established that Trafalgar Group had made unjustifiable threats within the meaning of s 128(1) of the Patents Act. I was satisfied, however, that Trafalgar Group had contravened s 18(1) of the Australian Consumer Law by sending a letter to a number of firms engaged in the building industry which made a number of statements concerning Boss's conduct and the fact that Trafalgar had commenced proceedings against Boss for patent infringement. 8 On the question of costs, Trafalgar proposed that Boss should pay 90% of the costs of the infringement claim. Its reasoning was that it had succeeded on the question of construction of the patent claims and, subject to my adverse findings on claim validity, substantially on the question of infringement. Because it did not succeed in establishing that Mr Prior authorised Boss's alleged infringement, it proposed that there be a discount of 10% on the costs which Boss should otherwise be ordered to pay. 9 Trafalgar proposed that it should be ordered to pay 30% of the costs of Boss's cross-claim on the basis that a discount of 70% was warranted to reflect Boss's lack of success on a large number of issues. Trafalgar estimated that "close to 90%" of the written submissions, and a significant proportion of the written and oral evidence, addressed grounds of revocation raised by Boss which were either abandoned or determined in Trafalgar's favour. 10 Boss proposed that Trafalgar pay its costs of the proceeding on an indemnity basis having regard to a series of offers of compromise it had made, including an offer made on 26 July 2019 to the effect that the claim and cross-claim be discontinued on the basis that Trafalgar pay 80% of Boss's party and party costs up to the date of the offer (Offer 1). 11 Boss relied on r 25.14(2) of the Federal Court Rules 2011 (Cth), which provides: 25.14 Costs where offer not accepted ... (2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. ... 12 Despite numerous arguments advanced by Trafalgar, I was satisfied that its failure to accept Offer 1 was unreasonable and that r 25.14(2) was engaged. In reaching that decision, I noted that Trafalgar had raised an argument that, because Offer 1 merely offered the discontinuance of proceedings, it was not unreasonable for it to fail to accept that offer. 13 As to this argument I said (at [PJ 53]): 53 … I do not find this argument persuasive. It is based on the proposition that, having extricated itself from legal proceedings because of Trafalgar's acceptance of Offer 1, Boss would then turn around and commence proceedings against Trafalgar afresh, raising the same claims. I can think of no rational basis for Boss doing so as the party that was originally sued. The argument seems more theoretical than real. What is more, Trafalgar has not adduced any evidence to support the proposition that its failure to respond to Offer 1 was because Boss was only offering discontinuance. 14 At PJ [55] I also said: 55 It is not necessary for me to address in any detail Trafalgar's contentions that, absent the application of r 25.14(2), it should be awarded 90% of its costs of the infringement claim and that Boss should only be awarded 30% of its costs of the cross-claim. I will simply note that, had I been persuaded that r 25.14(2) should be displaced in respect of the patent proceedings, I would not have awarded costs on this basis. In particular, I would not have been persuaded that Trafalgar should necessarily have an order for costs in its favour in respect of the infringement claim and I would not have been persuaded that Boss's costs of the cross-claim should be subject to the very deep discount that Trafalgar seeks. 15 In earlier paragraphs of my reasons, I addressed Trafalgar's submission that Boss had raised issues which it subsequently abandoned or which had failed. At PJ[41] - [42], I said: 41 It is undoubtedly true that, ultimately, a number of the issues pleaded in the cross-claim, insofar as they were directed to claim validity, were abandoned by Boss or failed. In the normal course of events, this circumstance might justify a discount being applied to the costs to which Boss is entitled. But it is equally true that Trafalgar raised a great many factual issues that were directed to establishing that Boss's evidence had been fabricated. The alleged fabrications found a particular focus in the evidence of the Seltor meeting: whether the Pass-It Version 2 was in existence at the time of the Seltor meeting; whether the Firestopit PDS was a genuine document; whether the photographic images of the samples and the Firestopit PDS that were displayed at the Seltor meeting had been falsified. These challenges raised myriad sub-issues. Trafalgar even went so far as to challenge whether the Seltor meeting had taken place. 42 All of these challenges by Trafalgar were fruitless. All added significantly to the complexity of the case - complexity that was not otherwise present in this part of the cross-claim. All added considerably to the volume of evidence that Trafalgar called at the hearing. And all added to the intricate web of factual issues that, ultimately, fell for determination. Had these unsuccessful challenges not been made, much of the factual complexity attending the question of claim validity would have been avoided, and the hearing of the cross-claim considerably shortened. 16 Trafalgar appealed against the costs order. In relation to Offer 1, it raised three substantive submissions. First, it contended that I should have found, as a matter of fact, that it was not unreasonable for it to reject Offer 1. Secondly, it contended that I erred in concluding that Offer 1 was a genuine offer in circumstances where only the discontinuance of proceedings was offered. Thirdly, it contended that I erred in failing to take into account Boss's failure in, or abandonment of, significant parts of its cross-claim. 17 The Full Court accepted the second submission (Rakman International Pty Limited v Boss Fire & Safety Pty Ltd [2023] FCAFC 202), finding (at [165]): 165 ... The offer merely to discontinue the cross claim served to leave the validity of the patent at large, with no contractual obligation on the respondents not to bring fresh proceedings for cancellation. Whilst there was no evidence to say that Boss would resurrect its cross-claim alleging the invalidity of the patent, there was no legal impediment to Boss doing so. Whilst, for the reasons set out by the primary judge at [53], that might not have eventuated, we consider that those advising the appellants were entitled, if not obliged, to take that fact into account and to conclude that an offer merely to discontinue the proceedings may not quell the controversy between the parties. We respectfully consider that the primary judge erred in discounting the difference between the offer to discontinue the claim and the cross-claim and a dismissal of both. 18 As to the third submission, the Full Court noted my observation at PJ[55], and said (at [168] - [169]): 168 In our view, the discount proposed by Trafalgar was manifestly excessive. In saying that, we are mindful of his Honour's observations concerning Trafalgar's case and the many factual issues it raised directed to establishing that Boss' evidence had been fabricated, that the infringement case formed a very small part of the patent proceeding and that much of the factual complexity attending the questions of claim validity would have been avoided and the hearing of the cross-claim considerably shortened, were it not for Trafalgar having raised such issues. 169 Nevertheless, given we have found that FCR 25.14(2) did not apply, it seems to us that it may be appropriate to apply some discount to the costs to be awarded to Trafalgar (sic) in the patent proceeding to take account of costs it incurred in respect of issues which were either abandoned by Boss or not pressed by it. In saying this, we are not to be taken as suggesting that a discount should be necessarily allowed. However, it seems to us given our conclusion in relation to the application of FCR 25.14(2), that the parties should be given an opportunity to make further submissions to the primary judge on that issue. In our opinion, it is an issue best considered by the primary judge who presided at the trial and who is in a far better position than we are to determine what discount (if any) is appropriate. We therefore propose to remit this issue to the primary judge for determination. 19 The Full Court made the following order: ... 2. Order 4 made by the primary judge in Proceeding NSD 1589 of 2018 (the Patent Proceeding) be set aside and, in lieu thereof: (a) the applicants/cross-respondents pay the respondents'/cross-claimant's costs of the Patent Proceeding (including the cross-claim) on a party/party basis subject to any order made pursuant to subpara (b) below; (b) the Patent Proceeding be remitted to the Primary Judge for the purpose of determining whether the costs payable to the respondents/cross-claimant pursuant to subpara (a) above should be reduced on account of matters that were either abandoned or decided against them and, if so, by what proportion. ... 20 Although at [169] the Full Court referred to the parties being given an opportunity to make further submissions on whether a discount should be applied, the remittal order made no provision for that to be done. Notwithstanding that fact, and notwithstanding the fact that the parties had already addressed the question of a discount in the submissions they had made at the time that costs were argued before me, I allowed the parties to file further submissions on this question in deference to the Full Court's observations: Harvard Nominees Pty Ltd v Nicoletti [2022] FCAFC 179 at [96].

Submissions 21 In light of the observations I made at PJ[55] (quoted above), Trafalgar now proposes that Boss be awarded its costs of the proceeding on a global basis subject to a discount of 60% to account for issues that Boss abandoned or were decided against it. 22 Boss does not resist the proposition that costs be awarded on a global basis. In fact, it submits that, because of "intertwined" issues, the costs of the claim and cross-claim should not be separated. Boss does resist, however, the proposition that its costs be discounted. 23 Boss submits that the discount that Trafalgar seeks remains a "deep discount" that does not confront the realities of the way in which Trafalgar conducted the case or the outcome of the litigation. Boss relies on my earlier findings at PJ[41] - [42] (quoted above). It submits that Trafalgar's conduct of the case was, in these respects, "wasteful". 24 Further, Boss submits that, although it raised other allegedly novelty-defeating events which it abandoned at trial or which the Court rejected as discrete anticipations, it should not be penalised for doing so. It calls in aid the following remarks of Burchett J in Australian Conservation Foundation v Forestry Commission of Tasmania (1988) 81 ALR 166 (AFC v Forestry Commission) at 169 (quoted with approval by the Full Court in Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (No 2) [2015] FCAFC 155 at [17]): A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment. 25 In any event, Boss submits that the evidence of these matters was relevant to, and corroborated, the disclosures that were made at the Seltor meeting in September 2015, which I found to be novelty-destroying. In this regard, Boss submits that these matters were consistent with Boss's activities at the time and relevant to rebutting Trafalgar's case that Boss had fabricated the events of the Seltor meeting. 26 Finally, Boss submits that, although Trafalgar's failure to accept Offer 1 did not engage r 25.14(2), the making of the offer, and Trafalgar's failure to accept, nevertheless remain relevant to the Court's broad discretion in making an appropriate costs order. Boss submits that, fully-armed with Boss's evidence of the Seltor meeting, Trafalgar put Boss to the cost of running a trial, which Boss won. It submits that it would be unjust to deprive Boss of all its party and party costs.

Consideration 27 Although the parties are of one mind that a single order for the costs of the proceeding as a whole should be made without separating the costs of the claim and the cross-claim, it is important to understand that any other order is, in fact, foreclosed by the terms of Order 2(a) made by the Full Court on 19 December 2023. 28 Further, given that r 25.14(2) is not engaged, the only question that remains is what, if any, discount should be made in respect of those costs. This is the specific question that has been remitted for my determination. Although the Full Court concluded that it might be appropriate to apply some discount to Boss's costs, it did not reach a concluded view on that question. It did find, however, that the discount originally proposed by Trafalgar was manifestly excessive. 29 At PJ[41], I acknowledged that a number of issues pleaded in the cross-claim, insofar as they were directed to claim validity, were abandoned by Boss or failed and that, in the normal course of events, that circumstance might justify a discount being applied to the costs to which Boss is entitled. Trafalgar's present submissions directed to that proposition - which, in substance, are not substantively different to the submissions it previously advanced before me - must be understood in the context of other findings I made. 30 At PJ[43], I found that Trafalgar's infringement case was a very small part of the overall proceeding and turned on limited questions of claim construction. In that connection, Boss unsuccessfully raised two questions of construction in respect of the patent claims - the meaning of "around" (referred to by the parties as integer 1.11) and the meaning of "thermally insulative" as used in claim 1. 31 Relative to the other issues that were agitated in the proceeding, these questions were not only limited; they were not complex. Moreover, Boss accepted that, for the purposes of s 117(2) of the Patents Act, all integers of the claimed method other than integer 1.11 were to be found in certain instructions it had issued. It followed from my finding as to the proper construction of integer 1.11 that Boss's defence to infringement could not succeed to that extent. 32 Although I rejected Boss's contentions on construction, they were not unarguable. They were supported by expert evidence (to the extent that such evidence was admissible and probative). What is more, Trafalgar itself raised questions of construction, which I also rejected. 33 In these circumstances, I am not persuaded that any discount is warranted in respect of Boss's defence of the infringement case insofar as it turned on questions of claim construction. Further, as I have noted, Boss succeeded in persuading me that, regardless of the construction issues it had raised, Trafalgar's allegations of infringement against Mr Prior could not be established on the evidence before me in any event. 34 In relation to Boss's cross-claim, Boss succeeded in establishing that the invention claimed in claims 1, 2, 3, and 4 was not novel based on the disclosures made at the Seltor meeting. Although I was critical of some aspects of Boss's presentation of its case on lack of innovative step, my finding that the invention claimed in claims 3 and 5 lacked an innovative step followed, largely, from my findings as to what had been disclosed at the Seltor meeting. To the extent that features of the invention were not disclosed at that meeting, I was readily persuaded that those features did not involve an innovative step. Indeed, Trafalgar did not advance a positive case to the contrary. 35 Boss raised other grounds of invalidity - namely, lack of utility and lack of claim support - which I rejected. These grounds were not at the forefront of Boss's validity challenge and were, in part, determined by the construction issues to which I have referred. They did not occupy substantial time at the hearing. However, I am persuaded that some discount should be made in respect of Boss's failure on these grounds, especially since I found that its lack of utility ground proceeded on a misunderstanding of the invention that was described and claimed in the specification. 36 It is convenient to note at this point that Boss originally advanced another ground of invalidity - lack of sufficient description. This ground was abandoned at the commencement of the trial. I am persuaded that some discount should be made in respect of this abandonment. Boss should not be entitled to its costs in respect of grounds it abandoned. In this regard, I am not persuaded that Boss is assisted by Burchett J's observations in AFC v Forestry Commission. Undoubtedly, Boss abandoned this ground for good reason. It is not to be criticised for having done so. However, having done so, it cannot expect to be compensated in costs for having raised it in the first place. 37 The remaining aspects of Boss's cross-claim - whether Trafalgar had made unjustifiable threats within the meaning of s 128(1) of the Patents Act or engaged in misleading or deceptive conduct in contravention of s 18(1) of the Australian Consumer Law - were based on the same substratum of fact. Although I was not satisfied that the conduct in question contained a "threat" for the purposes of s 128(1) of the Patents Act, I was satisfied that the conduct was, nonetheless, misleading or deceptive. I am not persuaded that a discount is warranted because Boss failed to establish that Trafalgar's conduct also contained a threat for the purposes of s 128(1) of the Patents Act. 38 I now turn to the claims that were either abandoned by Boss as part of its lack of novelty case or were decided against it. 39 Trafalgar undertook a detailed, but fruitless, attack on the genuineness of the Firestopit PDS (it claimed that the evidence of this document had been fabricated) and on the existence of the Pass-It Version 1, the Pass-It Version 2, and the Pass-It with butterfly screws (the Pass-It devices) (it claimed that these devices were not in existence at the time of the Seltor meeting). I found this attack to be fantastical. I observed that, apart from other matters, it was based on theories which: (a) were not established by the evidence; and (b) lacked coherence. It was, nonetheless, an attack which Boss was compelled to meet. 40 Even though I was not satisfied that the evidence of the prior public display, demonstration, offer for sale, and installation of the Pass-It devices (leaving to one side the demonstration and discussion of the Pass-It Version 2 at the Seltor meeting) was, itself, sufficient to deprive the claimed invention of novelty, I accept Boss's submission that the evidence concerning these devices, particularly as to their development and commercial history, was, nonetheless, relevant to, and corroborative of, the evidence of what transpired at the Seltor meeting. 41 Similarly, although Boss abandoned its claim that the prior publication of the Firestopit PDS was, itself, novelty-destroying, the evidence concerning that document, including as to its creation and contents, was also relevant to, and corroborative of, what transpired at the Seltor meeting. 42 I am not persuaded that a discount is warranted because of Boss's abandonment of, or lack of success on, these aspects of its cross-claim. 43 The position is different in relation to Boss's abandonment of its case in respect of the disclosures of (using Trafalgar's descriptions) the Multiplex Emails, the Fyreclamp Instructions, and the Trafalgar Prototype. Once again, Boss is not to be compensated in costs for claims it elected to abandon. 44 This leaves Boss's lack of novelty case based on publication of the FSi Drawings and disclosures made at a meeting in October 2014 called the Speedpanel Meeting. Although Boss did not succeed on these aspects of its lack of novelty case they were, nevertheless, integral to that case, which was successful. It is not said that these issues were not raised bona fide as anticipations and I do not consider that, without more, Boss's mere lack of success on them warrants a discount to the costs it should be awarded.

Conclusion and Disposition 45 Plainly, the issues which I found in Boss's favour were dispositive of the whole proceeding. Boss established that: (a) the claims of the patent were invalid; (b) accordingly, Trafalgar had no entitlement to sue it for infringement; (c) Mr Prior could not be held personally liable in any event for the infringement that Trafalgar alleged; and (d) Trafalgar had engaged in misleading or deceptive conduct which resulted in Boss suffering loss and damage. The significance of Boss's success should not be underrated. Nevertheless, for the reasons I have given, I am satisfied that some discount should be applied to its party and party costs. 46 As to this, mathematical precision is not possible. Further, while calculations of, for example, the number of pages or paragraphs in the parties' written submissions, or in the Court's reasons for judgment, devoted to unsuccessful claims or issues, can provide some assistance in reaching an evaluative judgment on the size of the discount to be applied, such calculations are not determinative. Of themselves, they do not necessarily reflect the importance or the complexity of those issues relative to other issues in contest in the proceeding; nor do they account for the relevance of these matters to other matters on which the party entitled to costs succeeded. 47 Having experienced the trial of this matter, and having faced the task of analysing the evidence and determining the legal questions that were raised, I am not satisfied that a discount greater than 20% of Boss's party and party costs is warranted. The discount of 60% sought by Trafalgar is extravagant and, if made, would not reflect a just outcome. 48 In reaching this conclusion, I have not taken into account the fact that Trafalgar failed to accept Offer 1. That fact is not relevant to the discount that should be applied to Boss's party and party costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.

SCHEDULE OF PARTIES NSD 1589 of 2018 Cross-Respondents Second Cross-Respondent TRAFALGAR GROUP PTY LTD