Seiko Epson Corporation v Calidad Pty Ltd [2018] FCA 104 | Case summary

Costs 8 Calidad submits that costs should be addressed on the basis of the parties' success in each of the several different causes of action litigated. It submits that it should have all of its costs in respect of Seiko's failed actions in relation to trade mark infringement, breach of statutory duty and misleading or deceptive conduct. It submits that costs in relation to the case brought for breach of the Settlement Deed should be reserved, because special considerations arising from an earlier offer are present that cannot be determined until quantum is resolved. Calidad accepts that it should pay Seiko's costs in relation to the joint tortfeasorship issue. 9 In relation to the patent infringement case, Calidad submits that, subject to 2 costs orders already made, each party should bear its own costs. This, it submits, is appropriate because while Seiko succeeded on 5 cartridge types, none of these are manufactured using the "current process" that Ninestar has adopted since April 2016 and as a result Seiko's success is confined to a finding of liability for historical conduct. By comparison, Calidad has established that it is lawfully entitled to continue to exploit its current product range in Australia. Calidad further submits that much evidence and argument on the patent issues was directed towards matters such as the research and development work that Ninestar had undertaken and evidence about resetting and reprogramming of the memory chip, each of which was found to be irrelevant to the assessment of infringement. 10 Calidad submits that this is not a case where an applicant has commenced a claim for relief supported by several independent grounds and succeeded on some but not others. In such a case, costs would ordinarily follow the "event" of each ground. It submits that rather, this is a case where an applicant has sought to impugn several discrete species of conduct and has succeeded in doing so in respect of some, but failed in relation to the rest. The result has been mixed, but overall has led to Calidad succeeding in respect of half of the cartridges, and Seiko in respect of the other half. It submits that the appropriate result is that each party should bear the costs of its own success, with the broad result being that there should be no order as to costs on the patent case. In the alternative, Calidad submits that if the Court considers that a proportion of the costs should be awarded to Seiko, then that proportion should be modest and in the order of 25% of the costs of the patent issues. 11 Seiko advances as its primary case a wholly different approach. It submits that Calidad should pay 60% of its costs of the whole proceeding without dissecting costs by reference to causes of action. It submits that the decision of the Full Court in Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 (Servier) indicates that: the broad principle applicable to the allocation of costs is that subject only to limited exceptions relating to disentitling conduct of the successful party, a successful party is entitled to an award of costs, however, where a party relies on grounds that are not established the successful party might not recover all of its costs. Further, the question of apportionment is a matter of discretion and does not lend itself to mathematical precision, and that the Courts have been slow to order a successful party to pay the costs where it has been unsuccessful on some issues. 12 Seiko submits that it has been the successful party in the proceedings and that it is entitled to an award of costs. It proposes a 40% reduction in its overall costs as a "generous" allowance given that the central dispute concerned patent infringement. Seiko commenced the proceeding in September 2015 to restrain Calidad from exploiting its patents in respect of the category 4, 5, 6 and 7 cartridges which were found to infringe. In September 2016 Calidad revealed in its evidence that it was now importing and selling in Australia the category 1, 2 and 3 cartridges, which were found not to infringe. No undertaking was proffered not to resume sales of the infringing cartridges and the Court ultimately accepted that Seiko was entitled to declaratory, injunctive and potentially pecuniary relief in respect of the infringing conduct. In light of these matters Seiko submits that it should have 60% of its costs of the whole proceeding because the addition of the non-infringing category 1, 2 and 3 cartridges did not lead to a significant increment in time or cost of the proceedings, while the patent infringement claim occupied a "large proportion" of the time at trial and the majority of the submissions and cross-examination were directed to it and the patent infringement claim was the most important of the causes of action. 13 The power of the Court in relation to costs is well established. As the Full Court recently observed in Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [2]: Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]). 14 For the following reasons I do not accept Seiko's submission that a general award of 60% of all of its costs of the proceedings is appropriate in the present case. 15 First, the breach of statutory duty, infringement of trade mark and misleading or deceptive conduct cases that were brought by Seiko (as addressed in the judgment in Sections 7, 8 and 9) were each discrete causes of action. Seiko did not succeed on these issues and Calidad should have its costs of each. Secondly, it is common practice in cases of this type for costs to be awarded on an issues basis where they can sensibly be separated; Servier [300], [301]. The 6 different claims in the present case can in my view be so separated and the clear success of Calidad in respect of 3 of those should be recognised in a costs award. Thirdly, although Seiko's general award approach does purport to take into account Calidad's success, it seems to me that, in the absence of further information, the question of whether or not it represents a fair allocation of costs is a matter of chance. No evidence suggests that the 40% allowance has any bearing on an appropriate apportionment. In the absence of any agreement between the parties on the subject, I am left to speculate whether or not it has any foundation in reality; cf Hislop v Paltar Petroleum Limited (No 4) [2017] FCA 1632 at [7], per Gleeson J. Fourthly, an award of costs that adopts an issues based approach enables the question of costs in relation to the Breach of Settlement Deed issue to be deferred for consideration at an appropriate time. 16 I turn now to the award of costs in respect of the patent infringement case, which is specifically addressed in sections 3 - 6 of the judgment. Seiko succeeded in respect of that issue, albeit only in relation to the category 4, 5, 6 and 7cartridges. Nevertheless, it succeeded in establishing infringement, and secured declaratory and injunctive orders and will be entitled to prosecute an inquiry into the amount of any pecuniary relief to which it is entitled. In my view Seiko is entitled to a substantial portion of its costs in relation to the action for patent infringement. However, Seiko failed to establish infringement in respect of the category 1, 2 and 3 cartridges. Seiko proposes (in the alternative to its primary argument) that a 10% reduction in its costs would be appropriate to allow for this failure. My impression, having regard to the evidence read, the cross-examination conducted at trial and the submissions made, is that a fairer apportionment is to allow a reduction of 25% of Seiko's costs of the patent claim. I do not consider that Calidad's submission that each party pay its own costs accurately reflects the outcome of the issue, which was that Seiko succeeded in its patent infringement claim. Accordingly, Calidad should pay 75% of Seiko's costs of the patent infringement claim. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Burley.

THE COURT ORDERS THAT: 2. By 28 March 2018, the Respondents deliver up on oath to the Applicants at an address nominated by the Applicants in New South Wales, all printer cartridges within Categories 4, 5, 6, 7 and B identified in the table in Annexure A to these Orders which are in the possession, power, custody or control of any of the Respondents. 3. During the term of each of the Patents, each Respondent, by itself, its directors, officers, servants, agents or otherwise, be permanently restrained from infringing claim 1 of each of the Patents by engaging in the following acts within the Patent Area without the licence or authority of the First Applicant: (a) selling, otherwise disposing of, offering to sell or otherwise disposing of the Infringing Cartridges, or any other original Epson cartridges that are embodiments of claim 1 of the Patents that have had one or more of the following modifications made to them (Materially Modified Cartridges): (i) removal of the integrated circuit board and replacement of the memory chip with a generic memory chip; (ii) cutting of the interface pattern; and (iii) replacement of the integrated circuit assembly; (b) importing Infringing Cartridges or Materially Modified Cartridges; (c) keeping Infringing Cartridges or the Materially Modified Cartridges for the purposes of doing any of the acts described in sub-paragraph 3(a) above; and (d) authorising other people to engage in any of the acts described in sub-paragraphs 3(a) to (c) above. 4. There be inquiries, including appropriate discovery, as to: (a) damages or an account of profits in respect of the Respondents' infringements of the Patents; and (b) damages in respect of the First, Second and Third Respondent's breach of the Settlement Deed between them and the Applicant dated October 2013. 5. The inquiries in Order 4 be stayed: (a) initially for a period of 21 days from the date on which these Orders are pronounced (calculated in accordance with rule 1.61 of the Federal Court Rules 2011 (Cth)); and (b) if an appeal is lodged within that period, until the final determination of that appeal, or further order. 6. The application, including the Applicant's claims of trade mark infringement, breach of statutory duties under sections 145 and 148 of the Trade Marks Act 1995 (Cth), contravention of sections 18 and 29 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law), breach of contract and patent infringement other than by reason of the conduct referred to in Order 1 above, otherwise be dismissed. 7. To the extent necessary, leave is granted to the parties to appeal from these orders. 8. The Applicants pay the Respondents' costs to the extent that those costs relate to: (a) the Applicants' claims of trade mark infringement; (b) the Applicants' claims of breach of statutory duties under sections 145 and 148 of the Trade Marks Act 1995 (Cth) (including the costs associated with the Applicants' Interlocutory Application filed 3 November 2016); and (c) the Applicants' claims of contravention of sections 18 and 29 of the Australian Consumer Law. 9. Costs relating to the breach of the Settlement Deed as addressed in Section 10 of the judgment in Seiko Epson Corporation v Calidad Pty Ltd [2017] FCA 1403 be reserved. 10. Subject to order 9 made on 21 December 2016 and order 2 made on 26 April 2017, the respondents pay 75% of the applicants' costs in relation their claim for patent infringement. 11. The Respondents pay the Applicants' costs to the extent that those costs relate to joint tortfeasorship. 12. The matter be listed for a case management hearing on a date to be fixed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A No. Type of modification Calidad model / type Current (all cartridges sold after April 2016, excluding the Calidad 260H referred to in Category 1) Category 1 Preparation Calidad 260 Std (originally Epson T200) refilling processes + Formerly, Calidad 260H (originally Epson T200XL) Reset in normal mode; Normal mode R&D processes+ Category 2 Preparation Some Calidad 253 (originally Epson 133) Refilling processes + Some Calidad 258 (originally Epson 138) Reset/reprogram in test mode for ink level, cartridge status Test mode R&D processes + Category 3 Preparation Some Calidad 253 (originally cartridges other than Epson 133) Refilling processes + Some Calidad 258 (originally cartridges other than Epson 138) Reset/reprogram in test mode for model number, ink colour, ink level, cartridge status and date of manufacture Test mode R&D processes + Category A Cartridge categories 2 or 3 above, without the gas membrane cut (95% of cases) 5% of Calidad 253 and Calidad 258 cartridges Former (all cartridges sold before April 2016) Category 4 Preparation Calidad 260H (originally cartridges other than Epson T200XL) refilling processes + Chip replacement process Compatible chip R&D processes + Category 5 Same as category 4 cartridges which have also had interface pattern cutting process Some Calidad 250 Category 6 Same as categories 2 or 3 plus interface pattern cutting process Some Calidad 253 Some Calidad 258

Seiko Epson Corporation v Calidad Pty Ltd

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