Costs apportionment / indemnity costs
25 Now VCC seeks orders apportioning costs which reflect that it has succeeded in obtaining relief to prevent the use of the branding for the Prior Branded New Certan Wine but it has failed to obtain relief in relation to the revised branding, which was first introduced into the case by the respondents in evidence in answer. VCC has also failed to obtain relief in relation to the cancellation of Kreglinger's NEW CERTAN trade mark registration.
26 VCC seeks its costs concerning its case related to the Prior Branded New Certan Wine, but accepts that it should pay the respondents' costs concerning the case related to the New Branded New Certan Wine and on the trade mark revocation question. VCC says that its proposed costs orders are appropriate for the following reasons.
27 First, it is said that they reflect the substantive outcome of the proceeding and the successes and failures of the parties. It is said that the orders do not separately address the costs of the passing off claim because there were no incremental costs associated with this claim. Further, VCC's evidence and submissions in respect of the claims under the ACL and in passing off were overlapping.
28 Second, it is said that the majority of the written evidence in the case, and the majority of the oral evidence and submissions, concerned the current branding. VCC's evidence in chief was directed only to the current branding, as the revised branding was only introduced by the respondents in evidence in answer. Subsequently, the revised branding was the subject of a modest body of evidence. Further, it is said that VCC's claim for the cancellation of the trade mark registration was also "a very modest issue".
29 Third, it is said that the respondents have at all times before and during the proceeding denied VCC's reputation in the relevant product and features in Australia. Further, the respondents were on notice of VCC's objections to the current branding from April 2014, and had given consideration to the legal risks associated with continuing the challenged conduct. Further, it is said that the undertaking to withdraw the current branding from the Australian market was first proposed by senior counsel for the respondents to Mr Devlin during evidence in chief.
30 But I reject VCC's proposal that the respondents pay its costs related to the Prior Branded New Certan Wine on the basis that these are distinct from costs in respect of the New Branded New Certan Wine and the trade mark revocation claim. The proposal is artificial, and there is no bright line between the various costs categories.
31 One has to be cautious in engaging in the sort of exercise that VCC suggests concerning the apportionment of costs as between issues.
32 Of course in patent litigation this may be appropriate because of its nature concerning the distinction between invalidity questions and infringement questions, and yet further subsidiary distinctions between varying and separate invalidity grounds. Conceptual and forensic compartmentalisation readily manifests itself in such a complex context.
33 In BlueScope Steel Limited v Dongkuk Steel Mill Co. Ltd (No 3) [2020] FCA 113 I said at [15] to [19]:
In my view, there should be an appropriate discount on the costs to be awarded to Dongkuk to reflect the fact that Dongkuk's challenge to the validity of the patents in suit succeeded only on the issue of failure to disclose the best method, and Dongkuk's challenge on the other asserted grounds of invalidity, being novelty, inventive step, clarity, fair basis, sufficiency and false suggestion, was unsuccessful. Further, I note that in relation to the 258 Patent, only five dependent claims adding limitations relating to controlling thickness variation were found to be invalid. BlueScope succeeded in defending the validity of the substantive claims, including each of the key independent claims.
The Full Court in Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [300] per Bennett, Besanko and Beach JJ recognised that in patent cases:
The practice has developed that where a party relies on grounds that are not established and where time has been expended and costs incurred as a consequence, that party, although it may ultimately be successful, might not recover all of its costs.
Servier involved an application for revocation of a patent on a number of grounds, but the best method ground was the only successful ground. An application to amend the patent in suit was refused. The Full Court determined that Apotex should recoup 40% of its costs of the revocation action and 75% of its costs of the amendment application.
It seems to me that given the plethora of issues that are usually raised in patent litigation, costs apportionment reflecting each party's relative success and failure on the issues litigated should be the norm rather than the exception. Such an approach is firm but fair. Moreover, if parties know in advance that a judge is likely to take such an approach at the end of what is usually protracted and complex litigation, that prospect may have a salutary disciplinary effect on the use and allocation of the parties' limited resources and judicial time. Of course, I accept that in this field I am not dealing with the usual problem of feral litigators. But it is to say that the judicious use of an economic tool such as costs apportionment is not out of place in the patent field where parties should be incentivised to run only their strong points, particularly once all the evidence is in.
As I have said, in the present case an apportionment is warranted. Of course the question of apportionment is a matter of discretion and generally does not lend itself to mathematical precision. …
34 In this respect, I endeavoured to keep faith with what was said in Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [300] and [301] where Bennett, Besanko and Beach JJ said:
The practice has developed that where a party relies on grounds that are not established and where time has been expended and costs incurred as a consequence, that party, although it may ultimately be successful, might not recover all of its costs. This, in turn, may depend on whether evidence and argument can be separated. For example, evidence from the skilled worker in the art may be relevant to different grounds of revocation and to an understanding of the patent for the purposes of construction and disclosure. Further, the question of apportionment is a matter of discretion and generally does not lend itself to mathematical precision, by reference to time or to importance. In any event, as the primary judge recognised, it has not hitherto been the case that such a successful party which obtains an order for revocation of the patent is ordered to pay the patentee's costs.
On the other hand, Courts have been increasingly concerned, generally, to use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. This has led to decisions whereby the successful party does not recover all of its costs where it has been unsuccessful on a discrete issue or in what is decided to be an unmeritorious objection. While it is acknowledged that, ordinarily, costs follow the event, the wide discretion in awarding costs has led to circumstances where a successful party who has failed on certain issues may be ordered to pay the other party's costs of them (as discussed in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748 per Toohey J), although warnings have been stated that care should be taken in such a course and consideration be given to whether the issues on which the successful party failed are clearly dominant or separable (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331 per Mahoney JA) and to whether the issues involved different factual enquiries in the one proceeding or multiple causes of action, even if based on a common substratum of fact.
35 But in the present case I am dealing with a situation far removed from the patent context and much less suitable for costs apportionment of the type suggested by VCC.
36 Further, I reject the basis contended for by VCC for this approach, which is that the respondents should pay its costs in seeking to establish the relevant reputation, given that the respondents denied that reputation.
37 The foundation of VCC's case was the assertion that it has and has had for many decades a substantial and valuable reputation in Australia in relation to its wines, the distinctive features of the presentation of its wines and the name CERTAN. Evidence as to reputation was relied on in respect of all of VCC's claims. Now for the Prior Branded New Certan Wine it partially succeeded. But on the New Branded New Certan Wine it failed. Further, the trade mark revocation claim failed.
38 The revocation claim failed because VCC's evidence did not establish the requisite reputation as at 1999. And the claim against the New Branded New Certan Wine failed because VCC's evidence did not establish any reputation in CERTAN alone. Moreover, even as at 2013, I held that VCC had just established the requisite reputation to support its ACL claim, and that that reputation was only established amongst a narrow subset of consumers.
39 So, even in relation to establishing reputation, VCC's case was only partially successful.
40 Further, VCC's passing off claim failed, including in relation to the Prior Branded New Certan Wine, because I was not satisfied that it had or would suffer any damage.
41 Now VCC's solicitors have endeavoured to calculate the proportion of the parties' evidence and closing submissions that they say addressed the reputation of VCC and the VCC wines, the Prior Branded New Certan Wine, the New Branded New Certan Wine and the revocation claim. But the evidence on those matters overlapped significantly and VCC's proposed distinction is problematic and impractical.
42 In my view, in all the circumstances it is more appropriate, subject to the indemnity costs question that I will come to in a moment, that I should make no order for costs in favour of any party. Each has had a substantial measure of success and allowing costs to lie where they have fallen is the most just and practical outcome.
43 Let me dispose of one other matter. The respondents have sought an indemnity costs order in their favour. The context for this is the following.
44 VCC rejected three settlement offers made by the respondents, each made as a Calderbank offer and also under rule 25.01(1) of the Federal Court Rules 2011 (Cth). Those offers were made on 3 August 2022, 2 November 2022 and 7 March 2023. All three offers included a permanent injunction against all respondents regarding the Prior Branded New Certan Wine, plus payment of VCC's legal costs. The third offer made on 7 March 2023 also added declarations, delivery up of stock of the Prior Branded New Certan Wine, and a further payment of $200,000 in respect of VCC's claim for damages and exemplary damages. Let me elaborate.
45 By the time of the first offer, VCC had filed all its evidence in chief. The written offer explained that the offer would not restrain the respondents from using the name NEW CERTAN, on the basis that VCC did not "have any realistic prospect of establishing that the use by [the Respondents] of the name NEW CERTAN, in isolation from other elements of the branding of [the] New Certan wine, is [or would be] misleading or deceptive or constitute passing off." It is said that VCC ought to have recognised that from its own evidence. Similarly, it is said that VCC's own evidence showed that it had not suffered any loss or damage.
46 Consequently, by the time of the first offer, the respondents say that VCC ought reasonably to have understood that it was unlikely to achieve the additional relief it sought, being pecuniary relief, declarations and the revocation of the NEW CERTAN trade mark. It is said that VCC ought reasonably to have expected that it would not achieve a better outcome than it was offered.
47 Further, it is said that when it received the second offer, VCC had been put on notice of the visual appearance of the New Branded New Certan Wine which would be used with effect from the 2022 vintage. But it is said that not only did VCC reject the second offer, on 18 November 2022 it amended its pleadings to broaden its case to seek injunctions, damages and other relief against the New Branded New Certan Wine.
48 Further, when VCC received the third offer, all of the parties' evidence had been filed and the trial had been fixed. And VCC had been on notice of the visual appearance of the New Branded New Certan Wine for more than five months.
49 Generally, it is said that each of the three offers would have given VCC at least substantially the same relief that it would ultimately obtain in the proceeding, but in addition, recovery of its costs and recovery of the security for costs it had provided.
50 It is said that VCC unreasonably rejected each offer. And it is said that VCC unreasonably persisted with its claims to seek damages for the Prior Branded New Certan Wine, to enjoin the New Branded New Certan Wine and to revoke the NEW CERTAN trade mark. It failed on all of those claims. It is said that VCC acted unreasonably in rejecting these offers.
51 But I agree with VCC that this is not an appropriate case to award indemnity costs based on the refusal of the respondents' offers of compromise.
52 The fact that an offer of compromise was made which is more favourable than the outcome achieved does not automatically result in an award of indemnity costs. And it does not follow that any rejection of such an offer by VCC was unreasonable. In State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd (No 3) [2021] FCA 568, I said (at [38]):
Further and more generally, the fact that an offer of compromise is made which is more favourable than the final result does not automatically result in an award of indemnity costs. Further, it does not follow that even if an offer involved a genuine compromise, any rejection is unreasonable. The question of whether indemnity costs should flow from a rejected offer is whether, given the information then available to the offeree, it should have known that its case was likely to fail. The question of the unreasonableness of the rejection is to be analysed utilising the perspective at the time of the offer.
53 VCC's claims were genuinely raised and reasonably litigated. And it was successful on most of its case concerning the Prior Branded New Certan Wine.
54 Further, the expert and trade witnesses who gave evidence for VCC substantially supported some of the claims made by VCC as to the nature of its reputation over time and the problems with the presentation of the New Branded New Certan Wine. And important aspects of the case turned on how I evaluated competing bodies of expert evidence. Moreover, the outcome of some issues could not be known in advance and it was not unreasonable for VCC to proceed with its case in those circumstances. Let me add some further detail.
55 It was not unreasonable for VCC to reject the 3 August 2022 offer. First, at that time VCC had filed a significant body of evidence which supported the reputation pleaded by VCC. The respondents were then yet to file evidence in answer. Second, the offer left unaddressed many matters.
56 Further, it was not unreasonable for VCC to reject the 2 November 2022 offer. The 2 November 2022 offer was received at a time when the New Branded New Certan Wine had been introduced into the proceeding in evidence in answer. When this offer was received, having been placed on notice of the proposed presentation, VCC sought the opinions of Mr Hooke, Mr Caillard and Ms Faulkner in relation to the New Branded New Certan Wine. As VCC rightly contends, each of those witnesses later gave opinions that the continued use of the name NEW CERTAN with respect to the New Branded New Certan Wine was problematic.
57 Further, it was not unreasonable for VCC to reject the 7 March 2023 offer for the reasons given in VCC's solicitors' letter of 24 June 2023, which included new evidence of confusion.
58 In my view, in summary, an indemnity costs order in favour of the respondents is not justified and in my discretion should be refused. If rule 25.14(2) applies, assuming that "proceeding" can include a claim, there has been no unreasonable failure to accept. If rule 25.14(1) applies, I would dispense with its effect or override it under rules 1.34 and 1.35 for similar reasons.