Sydney Cellulose Pty Ltd v Ceil Comfort Home Insulation Pty Ltd

Federal Court of Australia|2001-09-20|Before: Conti J

THE COURT ORDERS THAT: 1. The Respondents and each of them be restrained pursuant to s 128(1)(b) of the Patents Act 1990 (Cth) from continuing to threaten the Applicants, or either of them, with proceedings for infringement of Australian Patent No 526490 relating to the application by the Applicants or either of them of their cellulose fire retardant spray (CFRS) in connection with the process of installation by the Applicants or either of them of cellulose insulation material in buildings. 2. The Respondents and each of them be restrained pursuant to s 80 of the Trade Practices Act 1974 (Cth) from making representations to any person or entity, including Brombal & O'Brien Builders Pty Limited and the New South Wales Department of Housing, to the effect that the application by the Applicants or either of them of their cellulose fire retardant spray (CFRS) in connection with the process of installation by the Applicants or either of them of cellulose insulation material in buildings, constitutes infringement of Australian Patent No 526490. 3. Orders 1 and 2 to continue until further order. 4. The parties or any one or more of them to have liberty to apply, including any application as to the terms of the foregoing injunctions. 5. The Respondents pay the Applicants' costs of the proceedings, other than in relation to such matters for which orders for costs have already been made in the proceedings. 6. The proceedings be stood over for directions as to the hearing of the Applicants' claims for damages. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

Preliminary 1 The Applicants (individually referred to as "Sydney Cellulose" and "Aussie Fluff" respectively) have sought relief from the Court pursuant to s 128(1) of the Patents Act 1990 (Cth) ("the Act") in respect of threats made by or on behalf of the Respondents to bring certain patent infringement proceedings against the Applicants, and also against Brombal & O'Brien Builders Pty Limited ("Brombal & O'Brien"), a building operator unrelated to the Applicants and for whom the Applicants have been undertaking installation work. The full text of ss 128 and 129 of the Act reads as follows: "128 Application for relief from unjustified threats (1) Where a person, by means of circulars, advertisements or otherwise, threatens a person with infringement proceedings, or other similar proceedings, a person aggrieved may apply to a prescribed court, or to another court having jurisdiction to hear and determine the application, for: (a) a declaration that the threats are unjustifiable; and (b) an injunction against the continuance of the threats; and (c) the recovery of any damages sustained by the applicant as a result of the threats. (2) Subsection (1) applies whether or not the person who made the threats is entitled to, or interested in, the patent or a patent application. 129 Court's power to grant relief The court may grant an applicant under section 128 the relief applied for unless the respondent satisfies the court that the acts about which the threats were made infringed, or would infringe: (a) a claim that is not shown by the applicant to be invalid; or (b) rights under section 57 in respect of a claim that is not shown by the applicant to be a claim that would be invalid if a patent had been granted." Each of the Applicants are in my opinion "a person aggrieved" within s 128(1) of the Act, notwithstanding that the letter of demand extracted in [29] below was addressed only to the First Applicant (see Meth v Norbert Steinhardt and Son Ltd (1962) 107 CLR 187 at 200), and the Respondents did not contend to the contrary. The Applicants also seek relief in respect of conduct of the Respondents, arising out of the same circumstances, in contravention of ss 52 and 53(g) of the Trade Practices Act 1974 (Cth). The relief which I am presently required to consider is confined to that of declarations and injunctions.

The First Respondent's business operations and its acquisition of patent rights 2 The First Respondent Ceil Comfort Home Insulation Pty Limited ("Ceil Comfort") is a company incorporated and operating at least partly in the State of New South Wales. The remaining Respondents are directors of Ceil Comfort. Ceil Comfort forms part of a consolidated group of companies which carry on business under the trade name of "Cool or Cosy Home Insulation", or "Cool and Cosy". Ceil Comfort and its related companies are involved in manufacturing, marketing, and installing cellulose fibre insulation material for buildings, being mainly residential premises. The Ceil Comfort group of companies employs some four hundred employees and subcontractors in activities conducted throughout Australia, and claims to have insulated about twenty to twenty-five thousand homes in Australia. The Cool and Cosy group of companies claim to be the largest cellulose fibre manufacturer in Australia. 3 Cellulose fibre insulation material usually comprises recycled paper or clean and dry newsprint. In accordance with the requirements of Australian Standard 2462 ("AS2462"), cellulose fibre is pulverised, with the addition of boric acid and borax to the extent of ten per cent of each by value, into a fluffy substance called cellulose fibre insulation. Boric acid and borax are fire retardants, and the addition of the latter product to such fibre material is to enable the acidic effect of the former product to be neutralised. Other forms of loose fill for home insulation include mineral wool and glass fibre. Natural sheep wool can also be used as loose fill, but such use is uncommon. 4 For the purpose of installation in roof cavities, cellulose fibre material is brought to a site in ten kilogram bags. Following the removal of several roof tiles, the cellulose fibre is placed into a hopper, and then mechanically blown into the roof cavities. A roof cavity is the space between the ceiling and the roof tiles. In that area of space, there are roof beams, and the cellulose fibre is blown into the area which lies between the beams. The objective is that the cellulose fibre be distributed evenly throughout the roof cavity, thereby forming a spread of the material above the top of the ceiling and under and between the roof beams. The cellulose fibre, when installed correctly, nestles evenly to a level between the ceiling rafters of approximately 100mm in depth, thereby preventing the fibre from moving. Although the fibre material is very light, nevertheless it is able to "sit" on the roof cavity. The cellulose fibre once installed provides insulation to the inside living areas of buildings, in order to keep the same warmer in the winter months and cooler in the summer months. 5 Cellulose fibres are very small in size and matt together when pumped into a roof cavity and in the course of being levelled out in height. For a time in the distant past, it was thought that there was no significant problem with the circumstance of cellulose fibre becoming blown around in roof cavities, in circumstances where, for instance, a tile had become fractured and wind had entered into the roof cavity area. This belief, adopted by participants in the insulation industry, was based on what was described as "the black dust theory". Such theory may be summarised as follows: when dust would enter through air-gaps in tiles by the propulsion of wind and accumulate in the ceiling over a period of many years, a layer of such dust would form in the roof cavities of the house or other building, yet because dust, being lighter than cellulose fibre, remained on top of the cellulose fibre and did not continue to blow around once settled into the same, it supposedly followed that the cellulose fibre itself would also remain in place. 6 During the hearing of the proceedings, two Cool or Cosy Home Insulation brochures applicable to Ceil Comfort were tendered in evidence. The first brochure, which apparently was in existence before 1990, contained a warranty by the Cool or Cosy group of companies, including Ceil Comfort, that its cellulose fibre insulation would not become blown around inside the roof cavities in which it was installed. Approximately ten years ago however, the Fifth Respondent, to whom I shall hereafter refer as Mr Iezzi, encountered an incident of cellulose fibre having been blown from one end of a roof to the other, and where the dust had subsequently fallen through exhaust fans installed in the ceiling into a bathroom and kitchen. It became thereafter accepted that the theory that the cellulose fibre material did not become imbalanced within roof cavity areas could no longer be substantiated, and that the guarantees provided by the Cool or Cosy companies, including Ceil Comfort, to the effect that the cellulose insulation would not become thus imbalanced within the confinement of roof cavity areas had been misconceived. 7 In response to this dilemma, Ceil Comfort and its related companies sought to find ways and means by which the cellulose fibre would not be susceptible to movement within roof cavity areas in consequence of exposure to wind and air drafts. Ceil Comfort implemented the practice or methodology whereby a product which it produced, and which became known as "Flexicoat", was sprayed onto the surface of the cellulose fibre insulation material in order to stabilise the same, and thus to prevent the material from moving within the roof cavities of buildings. Such methodology of stabilisation of cellulose fibres present in roof cavity areas has led to what has become the focus of the dispute the subject of present proceedings, by reason of the Australian patent rights which became established in respect thereof. 8 Ceil Comfort presently claims as sub-licensee the exclusive right to use the patent method bearing the mark Flexicoat in the State of New South Wales, under and pursuant to a certain Patent and Trade Mark License Agreement dated 20 February 1997, for the period of time expiring on 30 March 2002, subject to the right of termination on three months notice by the head licensee and sub-licensor. The head licensor is Flexicoat Australia Pty Limited, and the head licensee and sub-licensor is Natural Fibre Pty Limited ("National Fibre"). Ownership of the shareholdings in such companies is not disclosed in the evidence. The Agreement records in recital "F" that Ceil Comfort had been granted a sub-license of the patented method for the Territory of New South Wales for a period of seven years pursuant to an agreement dated 27 August 1991, but that the term of the sub-license was reduced by the said 1997 Agreement to such period. 9 I digress at this stage of the judgment narrative to record that the Applicants have submitted that Ceil Comfort, not being the original patentee, or an assignee of the patent therefrom, but according to the Applicants' contended construction of the sub-license, are merely a sub-licensee in common with other sub-licensees operating in Australia, does not have standing to bring proceedings for infringement of the Flexicoat methodology of stabilisation of cellulose fibre insulation material in the roof cavities of buildings. I do not think that such submission is correct. On my reading of Clause 3(a) relating to the sub-license conferred under the terms of the multi-partied Agreement of 20 February 1997, whilst the same contains a measure of ambiguity, the preferable view, given the context of such Clause in the Agreement as a whole, is that Ceil Comfort is the exclusive licensee of the patent for the State of New South Wales. 10 The patent application for the Flexicoat methodology was made to the Patent Office in Melbourne on 24 April 1981 by OTA Pty Limited, a company apparently controlled by the inventor(s), and that company became the original patentee. Such Patent was numbered 526490, and the invention the subject thereof was described therein as "Improved Method of Insulating a Building"; the summary of the invention is framed by the claim segment of the Patent called "Claim 1" as follows: "A method of insulating the ceiling of a building having ceiling lining material, comprising the steps of placing loose fill insulating material directly above the ceiling lining material to a desired thickness, applying a coating of liquid glue or adhesive to the surface of the insulating material remote from the lining material and allowing the glue or adhesive to dry or set forming a cohesive skin on the surface of the insulating material." The specification the subject of the Patent, which followed the above description of the claim embodied in the Patent, thereafter purported to incorporate the requirements of s 40(1) and (2) of the Patents Act 1952 (Cth) then in force, which read as follows: "40 (1) A complete specification - (a) shall fully describe the invention, including the best method of performing the invention which is known to the applicant; and (b) shall end with a claim or claims defining the invention. (2) The claim or claims shall be clear and succinct and shall be fairly based on the matter described in the specification." In relation to such requirements, Sheppard J, sitting as a member of a Full Court in Décor Corporation Pty Ltd v Dart Industries Inc (1988) 13 IPR 385 at 397, said in relation to the "best method" requirements of s 40(1)(a) of the 1952 Act: "Its object is to teach or inform those concerned to know the state of the art in a particular area at the time the patent is applied for. Statements made in relation to the preferred embodiment of the invention are not directly relevant to the matters which arise for determination in an infringement action…" 11 The terms of s 52 of the 1952 Act continue to govern the requirements of the content of the Patent the subject of the proceedings by virtue of the transitional and savings provisions of the 1990 Act presently in force. However it is apparent that the present successor to s 52, namely s 40 of the 1990 Act, is materially the same as its said precursor. 12 The "best method" provisions of subject Patent No 526490 commence by referring to what had been previously devised for building insulation, particularly ceiling insulation, referring thereby to the two kinds of material historically used, namely glass fibre material and loose fill insulating material, and to the disadvantages of both. The latter material and its disadvantages have already been discussed in [3-7] above. After describing such disadvantages, the Patent continued its "best method" segment as follows: "It is therefore an object of the present invention to provide a method of insulating a building which will obviate or minimise the foregoing disadvantages in a simple yet effective manner or which will at least provide the public with a useful choice". 13 Thereafter appears what may be described as the consistory provisions of Patent No 526490, commencing as follows: "Accordingly the invention consists in a method of insulating the ceiling of a building having ceiling lining material, comprising the steps of placing loose fill insulating material directly above the ceiling line material to a desired thickness, applying a coating of liquid glue or adhesive to the surface of the insulating material remote from the lining material and allowing the glue or adhesive to dry or set forming a cohesive skin on the surface to dry or set forming a cohesive skin on the surface of the insulating material. Preferably said coating of liquid glue or adhesive is applied by spraying. Preferably said liquid glue or adhesive comprises P.V.A. glue diluted with water. Notwithstanding any other forms that may fall within its scope one preferred form of the invention will now be described by way of example only." Next follows more detail of the so-called "preferred form", referring by way of example in particular to "a domestic dwelling". Significantly for the purposes of the present litigation, there is frequent use of the expression "glue or adhesive", the "preferred form" being "liquid glue or adhesive". Finally there appears, in conformity with s 40(1)(b) of the 1952 Act (and now s 40(2)(b) of the 1990 Act), a description of the "claims defining the invention", which first include what has been already extracted as Claim 1 in [10] above, and thereafter nine alternative methods which need not be reproduced. Such alternative methods for the most part refer to "liquid glue or adhesive", "liquid glue or adhesive comprises P.V.A. glue diluted with water" (in varying ratios) and "diluted glue", as well as referring to two forms of "ceiling lining material" and "loose fill insulating material", namely "cellulose fibre" and "cellulose fibre compris[ing] wood pulp paper treated with fire retardants".

The history of the Applicants' involvement in roof insulation 14 Sydney Cellulose was established by Messrs Stephen Morea ("Mr Morea") and Philip Smith in April 1992. Mr Morea has been involved in the manufacture, sale and installation of cellulose fibre material for about twenty-four years. Sydney Cellulose has been an accredited manufacturer of cellulose fibre insulation for at least seven and one half years. Aussie Fluff has been involved with Sydney Cellulose in the same activity for at least seven and one half years. Both companies are of course the Applicants in the proceedings. There exists an Australian Standard for the production of cellulose fibre material, namely AS2462, which the respective parties to the litigation claim to comply with. No dispute arises in the litigation in that regard. 15 Aussie Fluff has been engaged for approximately the past five years as a sub-contractor in relation to cellulose fibre insulation for the building company Brombal & O'Brien referred to in [1] above, which is sometimes referred to in the evidence as "Brombal & O'Brien Building Services". Brombal & O'Brien has been in turn retained by the New South Wales Department of Housing as a head contractor for the improvement of homes under its control, in the circumstances explained in [22] below. Such supply and installation activity has been undertaken on a relatively small scale, comprising four to five homes at a given time. 16 Mr Morea testified that during the twenty-four years of his involvement in the roof insulation industry, it has been the practice in the industry for warranties to be given to customers to the effect that the insulation material, when installed in roof cavities, would not "blow around" within the same, and that during that time, none of the operators involved in the roofing industry engaged in the practice of spraying any product upon or over the surface of the cellulose fibre materials installed in roof cavity areas for the purpose of preventing such "blowing around". He further said that it was the inherent characteristic of cellulose fibre material, namely the smallness of its fibres, and the fact that the same matt together when pumped into roof cavities, that provided the advantage of a perceived absence of the "blowing around" of the fibres in roof cavities by the intrusion of external winds. 17 Mr Morea further testified that since about the year 1994, the Applicants have nevertheless sprayed a fire retardant solution in the form of a mist floating above the surface of the cellulose insulation fibre material resting upon the ceilings of buildings, such fire retardant solution being known as "cellulose fire retardant spray" (abbreviated hereafter as CFRS). The objective of the Applicants of spraying such solution in that way has been to "double fire rate" the cellulose insulation fibres, the description "double" reflecting the circumstance that cellulose insulating fibre material already contains a measure of a fire retardant element, namely boric acid and borax, in conformity with the requirements of AS2462. That course on the part of the Applicants to double fire rate its cellulose fibre material has been since followed as a matter of practice by the Applicants because in prior years, competitors of the Applicants such as ACI, Boral, Bradford and CSR, who are fibreglass manufacturers, propagated to customers and potential customers of Sydney Cellulose that the cellulose material produced by Sydney Cellulose was merely shredded paper that would readily catch fire. Representatives of those major companies are said to have labelled cellulose fibre as a "bomb waiting to catch fire in peoples' rooves". So much was asserted, albeit apparently informally, despite the fact that Sydney Cellulose manufactured its product according to the requirements of AS2462. By reason of the size and strength of such public company competitors of Sydney Cellulose, the institution of legal proceedings against them by Sydney Cellulose for what it considered to be misrepresentations of the quality of its product was not considered to be a financially viable option for a relatively small operator. I have no reason to doubt the veracity of Mr Morea's testimony in the proceedings. He struck me as particularly frank and straightforward in the giving of his evidence in the witness box. 18 Thus it remains the case that the Applicants' product has been installed since about 1994 in a form supplemented to an extent (ie by additional fire retardant) not required by the said applicable Australian Standard. It is of importance to the Applicants' case that the additional or "double" fire rating is not constituted by boric acid and borax incorporated into the insulation fibre material, as referred to in [17] above. The sole elements of the Applicants' CFRS above referred to comprise mono-ammonium phosphate and water. Traditionally the use of mono-ammonium phosphate has been as a fertiliser, and it is only coincidentally that such chemical element also operates as a fire retardant. So much is readily apparent from what appears from the description of "Ammonium Phosphates" in "Encyclopedia of Chemical Technology" (Kirk-Othmer) Volume 10 page 399 reading as follows: "Ammonium Phosphates. These salts were recommended for treating theatre curtains in 1821 (32). Their use in forest-fire control is well established. Monoammonium phosphate [7722-76-1] and diammonium phosphate [7783-28-0], or mixtures of the two, which are more water soluble and nearly neutral, are still used in large amounts for nondurable flame-retarding of paper, textiles, disposable nonwoven cellulosic fabrics, and wood products. Their advantage is high efficacy and low cost. Ammonium phosphate finishes are not resistant to laundering or even to leaching by water, but they are resistant to organic solvents such as dry cleaning solvents. One important advantage of ammonium phosphates as flame retardants, and phosphorus flame retardants in general over borax (also used for nondurable cellulosic flame retardants), is their effectiveness in preventing afterglow. The crystalline nature of ammonium phosphates may produce a gritty texture on the surface of some substrates." 19 The present process of installation of cellulose insulation fibre by the Applicants has been summarised by the Applicants, by way of addition to the basic or traditional process described in [4] above, as follows. Upon the removal of four or five tiles to gain access to the roof cavities, the Applicants' tradesmen enter the same and make the necessary preparations to accommodate exhaust fans, ceiling vents, recess lights and manholes. The installers then insert a hose into the roof cavities from a truck standing in the adjacent street, the hose being connected to blower equipment which enables the installers to pump the insulation to the height of the ceiling joists. In that regard, AS2462 requires that the insulation fibres measure 100mm in thickness. The product as so laid is then levelled off so that the building joints are then visible. Another hose is then inserted through the roof cavities, and a fire retardant is sprayed therefrom above and to the surface of the cellulose fibres. By applying the Applicants' fire retardant spray in that way, the same seeps into the cellulose fibre forming a light crust. However the critical point, so it is asserted by Mr Morea on behalf of the Applicants, is that the crust thereby formed is unlike a cohesive skin, which is akin to a glued surface or seal which is impenetrable by water. Instead, such crust forms in consequence of moisture penetrating into the surface of cellulose fibre material, being moisture brought about by the spraying above such material of the Applicants' double rating fire retardant spray (CFRS). Put another way, the Applicants' case is that their CFRS product does not remain glued or adhered to the cellulose fibre material, and in particular the surface thereof, unlike what is described by the Respondents in Patent No 526490 in relation to the Respondent's "Flexicoat" additive. In short, the Applicants' CFRS is neither a glue nor an adhesive, and does not form a cohesive skin "on" the surface of the insulating material.

The catalyst for disputation between the parties 20 Mr Iezzi testified that Ceil Comfort first heard rumours in approximately May 1999 that Sydney Cellulose and Aussie Fluff (ie the Applicants) were infringing Patent No 526490 the subject of Ceil Comfort's patent sub-license for the State of New South Wales. He asserted that since he had no conclusive proof as to the substance of such rumour, no legal action was taken by Ceil Comfort, nor by the other Cool or Cosy companies referred to in [2] above. I am unable to accept Mr Iezzie's testimony in that latter regard. The inference I would draw from the evidence before me is that the Respondents have never been prepared to put their Patent No 526490 to the positive test of any litigation against the Applicants initiated on their part, but instead have adopted the course of speaking adversely about the Applicants and their practices to third parties. Even when the Applicants found themselves obliged to commence the present proceedings, the Respondents appear to have been in no haste to bring the proceedings on for hearing. On the contrary, they were so dilatory in compliance with certain Court directions that they incurred an adverse costs order for non-compliance. 21 Mr Morea recounted a somewhat different course of events concerning the genesis of the dispute between the Applicants and the Respondents. He testified that he had a number of conversations with persons engaged in the building industry, as early as mid 1998, who disclosed that Cool or Cosy had complained to them that the application of the Applicants' CFRS spray infringed Ceil Comfort's patent rights. The objective fact remains in any event that Ceil Comfort has never moved any court of competent jurisdiction to restrain the conduct of the Applicants complained of in these proceedings, notwithstanding its awareness of the Applicants' CFRS spraying activity for at least a significant period of time. 22 As foreshadowed in [15] above, the context for the institution by the Applicants of the present proceedings in this Court was the participation on the part of Mr Morea on behalf of Aussie Fluff in the tendering process for insulating five hundred homes for the Department of Housing in the Western Sydney region, being a process which was required to be completed by early May 2000. The works the subject of the tender were required to be performed in accordance with the provisions of the "Specification and Extent of Works" document proffered by the NSW Department of Housing, and to the satisfaction of the Department or its appointed representatives. The installation of cellulose fibre material in the roof cavities for such homes was additional to a number of improvements which the Department carried out by way of installation of energy and water saving devices. The provisions of such specification, prepared by the Department of Housing so far as is material, are as follows: "General Requirements: · To AS/NZS2627.1; · Compliance with BCA early fire hazard indices; · "R4" rating; · Branded with manufacturers name and Australian Standard marking; · Life time warrant. … Cellulose Fibre (Loose fill) · To AS2462; · Material to be supplied on site in sealed bags bearing manufacturer's name/ trademark; · Supplier licensed under Standards Association of Australia Certification Trademark; · Supplier to provide Contractor with a certificate in respect of each ceiling insulated to guarantee that the insulation is free from defective material or workmanship, fire resistant, vermin proof, permanently chemically treated, not harmed by condensation, will not pack or settle, blow around or move and will continue in such state during the existence of the structure for which it has been supplied; · Installation by trained applicator approved by manufacturer; · After levelling of loose fill, material surface to be spray sealed with approved surface spray sealant, to manufacturer's recommendations. Cellulose Fibre Surface Spray Sealant All cellulose fibre ceiling insulations listed must be spray sealed with either: · "FLEXICOAT" (Patent No. 524690) (Flexicoat Aust. Pty Limited); or · "CELLULOSE FIRE RETARDANT SPRAY" (Sydney Cellulose Pty Limited); or · "BIOFAX" 2000 (Biofax Aust. Pty Ltd)." Thus it will be seen that the Department of Housing implicitly recognised from the outset that the Respondents' insulation methodology was patented, whereas that of the Applicants was not. There was no evidence tendered in the proceedings concerning the above third mentioned product Biofax. 23 As I have already mentioned, Aussie Fluff had been installing the cellulose fibre material for Brombal & O'Brien, who in turn had been retained as builders by the NSW Department of Housing for about five years preceding the commencement of this litigation. Sometime toward the end of February 2000, Brombal & O'Brien requested Mr Morea to provide a quotation for the insulation of the five hundred homes mentioned above. By letter dated 6 March 2000, Mr Morea informed Brombal & O'Brien that it would cost $595.00 per home for Aussie Fluff to insulate the same with an R4 rating of cellulose fibre insulation ("R4 rating" being a requirement of AS2462), and to seal the same with an approved sealant. 24 The price offered to Brombal & O'Brien by Aussie Fluff became the subject of further negotiation. During the period of negotiation, namely from March 2000 to May 2000, Brombal & O'Brien was frequently contacted by Ceil Comfort's parent company, which asserted that by reason of the inherent nature of the subject matter of tender, Ceil Comfort was the only operator in New South Wales which could lawfully supply the requisite cellulose fibre material for the roof cavities of the Department of Housing's residential buildings. Mr Morea informed Brombal & O'Brien that Cool or Cosy, the firm name associated with Ceil Comfort (see [6] above), had been alleging for several years that both Sydney Cellulose and Aussie Fluff were infringing Cool or Cosy's patent rights. Mr Morea further informed Brombal & O'Brien that the allegations were without substance, upon the footing that Ceil Comfort knew that the CFRS product was a fire retardant spray which did not operate as such as a sealant, not being a "glue" or "adhesive" as envisaged by Patent No 526490, but which would be effective nevertheless to prevent cellulose fibre insulation material becoming blown around in roof cavities. 25 Mr Morea also testified to a conversation between he and Mr Peter Packham, President of the Cellulose Fire Insulation Manufacturers and Agents Association, in the course of which Mr Morea was told by Mr Packham that Cool or Cosy had been advising installers and contractors that an infringement of its Patent was occurring as a result of the use by the Applicants of their CFRS spray. Mr Morea's response to Mr Packham was that such complaints were already commonplace but without foundation. 26 Despite these apparently frequent assertions made by Ceil Comfort and its related Cool or Cosy companies made to third parties, the same did not stifle the continuation of negotiations between Brombal & O'Brien and Aussie Fluff for the Department of Housing tender. At further stages of the bargaining process however, the quotation for the Aussie Fluff insulation became reduced from $595.00 to $540.00 per home, which figure was later reduced further to $530.00 per home, in each case following upon Brombal & O'Brien informing Mr Morea that Ceil Comfort had offered a lower price for performing the work. 27 Sometime in early May 2000, Brombal & O'Brien told Mr Morea that the $530.00 quotation had been accepted by the Department of Housing. Aussie Fluff set about the insulation of the five hundred homes for the Department soon after such notification of acceptance. During the period of time when the insulation work was being carried out, Brombal & O'Brien continued to be subjected to assertions emanating from Ceil Comfort sources to the effect that Aussie Fluff was thereby infringing Ceil Comfort's patent rights, so the Applicants alleged. 28 Mr Iezzi was not involved in the day to day supervision of Ceil Comfort's activities in New South Wales, he being based in Perth. On one version of his evidence, Mr Iezzi did not become personally aware of Aussie Fluff's tender for the Department of Housing Project in the Western Sydney region until May 2000 at the earliest, and on another, he may have been aware of the use of the Applicants' cellulose fire retardant spray at an earlier time. However it was claimed by the Applicants that Mr Michael Nesbitt, who was involved in the management of Ceil Comfort's activities in the State of New South Wales, was in any event aware of Aussie Fluff's involvement in the tender process relating to the Department of Housing Project for some months before the close of that process in May 2000. It would also appear that various personnel involved in the management of Ceil Comfort may have seen the tender documents that were submitted by Aussie Fluff to the Department of Housing. 29 Whatever ultimately came to be known by Ceil Comfort about the contents of Aussie Fluff's tender documents in relation to the Department of Housing project, Ceil Comfort did not seek to restrain Aussie Fluff by injunction from engaging in the tender process for the Department of Housing project with a view to an intended use of the Applicants' CFRS product, or from breaching Ceil Comfort's patent rights in any other commercial context. Nevertheless Ceil Comfort maintained its contention that by reason of the inherent nature of the specifications of the Department of Housing's tender invitation document in relation to the Department's requirements for sealant, there would necessarily occur an infringement of its Patent No 526490 on the part of Aussie Fluff by its undertaking the works the subject of its tender. Evidence was given to the effect that the management of Ceil Comfort held the view that even if Aussie Fluff obtained an award of the tender for the Department of Housing project, the works which Aussie Fluff could lawfully undertake would be limited to installing the cellulose fibre material in the roof cavities of the Department's homes, and that Aussie Fluff would have to request Ceil Comfort to provide the sealing solution for such material. In any event, the sales personnel employed by Ceil Comfort were apparently optimistic in their prediction provided to management concerning the prospects of Ceil Comfort obtaining the tender from the Department to the exclusion of Aussie Fluff, such management of Ceil Comfort being apparently informed "that Ceil Comfort had this contract in the bag". When Ceil Comfort came to an appreciation that there was a serious possibility of its exclusion from the entire Department of Housing contract in favour of Aussie Fluff, Ceil Comfort's management approached its lawyers to obtain legal advice, Ceil not apparently knowing by that time that Aussie Fluff had already won the tender. 30 By letter dated 16 May 2000, Ceil Comfort's legal representatives wrote the following letter of demand to Sydney Cellulose: "Dear Sirs CEIL COMFORT PTY LTD ACN 003 239 763 t/as COOL OR COSY NATURAL INSULATION ("COOL OR COSY") We confirm that this firm acts on behalf of Cool or Cosy. Our client is the sole and exclusive licensee in the State of NSW for Patent No. 526490 and Australian Trademark No. A354109 for the name FLEXICOAT. Amongst other things, the specification for Patent No. 526490 (copy attached for your reference) includes the following: 1. A method of insulating the ceiling of a building comprising the steps of placing loose fill insulating material directly above the ceiling lining material to a desired thickness, applying a coating of liquid glue or adhesive to the surface of the insulating material remote from the lining material and allowing the glue or adhesive to dry or set forming a cohesive skin on the surface of the insulating material. 2. Our client has exclusive rights to a method of insulating a building as claimed in item 1 above wherein the said coating of liquid glue or adhesive is applied by spraying. 3. Our client has exclusive rights to a method of insulating a building as claimed in paragraphs 1 and 2 above wherein the said liquid glue or adhesive may comprise PVA glue diluted with water. We have been instructed by our clients that you have tendered for a Department of Housing Development Contract claiming that you can insulate buildings by utilising a top coat sealant identical or similar to FLEXICOAT. The principle tender requirements were for a coating to be applied on top of the cellulose fibre insulation. That is a FLEXICOAT process. In our opinion, by the very nature of the tender only our clients can comply due to the exclusivity of the protection afforded by Patent 526490. We are further informed by our client that they spoke with Mr Philip Smith who indicated that his company was permitted to use a surface spray to seal cellulose fibre. This view is clearly erroneous as you are clearly precluded from utilising a top coat spray of glue or adhesive which forms a crust over the cellulose fibre. Consequently, we immediately demand that you provide the following within 24 hours: 1. An irrevocable undertaking clearly stating that you do not, cannot and will not utilise our client's protected process, namely the application of a liquid glue or adhesive to the surface of the insulating material forming a cohesive skin on the surface of the insulating material. 2. A list of all jobs undertaken by you where our client's protected process has been unlawfully utilised. 3. Copies of any written, printed or electronic promotional material that is misleading and deceptive because of the fact that it claims an ability to utilise a system of installation which is exclusively the property of our client. Should you not comply with our client's demands, we are instructed to issue legal proceedings for injunctive relief against you without further notice. We reserve the right to utilise this letter in support of submissions for indemnity costs against you." It may be observed that the letter used the expression "forms a crust over the cellulose fibre", but otherwise used the Patent expression "forming a cohesive skin". The controversial nature of the former description, in contrast to the latter, will later be addressed. 31 On the following day, the legal representatives for Sydney Cellulose (and of course for Aussie Fluff) wrote back to Ceil Comfort and asserted that it was inappropriate, for reasons therein stated, for Ceil Comfort to be threatening interlocutory proceedings against Sydney Cellulose. On 19 May 2000, the legal representatives for Sydney Cellulose wrote a further letter to Ceil Comfort's lawyers denying any infringement of Patent No 526490, in the following terms: "Our clients deny that they have infringed Australian patent No. 526490 ("Patent") and deny that the Patent is valid. In particular, as your client is aware, at no time have our clients applied as a coating a liquid glue or adhesive to a surface of an insulating material. Our clients apply to the surface of a cellulose fibrous salt solution formed using a fire-retardant salt. As a consequence, the process being performed by our clients does not include a "glue or adhesive" and does not fall within the scope of the claims of the Patent. In addition, we note that the Patent describes only the use of glue or adhesive to achieve the formation of the "cohesive skin" also the subject of the claims of the Patent. There is no disclosure or suggestion anywhere else in the patent specification or in the claims that any other substance may be used as an alternative arrangement. Accordingly, the substitution of other compounds and products for the "glue or adhesive" as claimed, cannot represent infringement of the Patent." Such letter of Sydney Cellulose also warned that the continued threats being made by Ceil Comfort had the potential to cause Sydney Cellulose significant irreversible harm to its future business opportunities, in addition to the harm which had already been caused by Ceil Comfort sending a copy of the above extracted letter of demand dated 16 May 2000 to the Department of Housing, and by direct approaches and representations having been made by Ceil Comfort to Mr Peter Day of the Department of Housing. As a consequence, Ceil Comfort was informed that the legal representatives of the Applicants had been instructed to commence proceedings against Ceil Comfort and its responsible officers, as a result of the threats that had been so made. In contrast to the Respondents, the Applicants carried out their threats of litigation by thereafter commencing the present proceedings.

Commencement of present proceedings 32 On 18 May 2000, the Applicants commenced the present proceedings against Ceil Comfort and the other Respondents. An amended statement of claim was ultimately filed some months later on 17 October 2000 which avers as follows: "7. Since, at the latest, mid 1998, the Respondents have represented to customers or potential customers of the Applicants that the Applicants are infringing the Patent and on 16 May 2000 the First Respondent threatened to bring an action against the First and Second Applicants and Brombal & O'Brien Building Services (for whom the First and Second Applicants have been undertaking installation work) on the ground that each of them has infringed, and will continue to infringe, the Patent by allegedly using a top coat sealant identical or similar to the First Respondent's product known as "FLEXICOAT"." PARTICULARS Letter dated 16 May 2000 from the First Respondent's solicitors, Margaretic Barristers & Solicitors, to the First Applicant, Second Applicant and Brombal & O'Brien Building Services. 8. The acts of the First and Second Applicants and Brombal & O'Brien Building Services in respect of which the First Respondent has threatened to bring an action do not constitute an infringement of Patent. 9. At all material times the First Applicant has been a "person aggrieved" within the meaning of Section 128 of the Patents Act 1990. 10. At all material times the Second Applicant has been a "person aggrieved" within the meaning of Section 128 of the Patents Act 1990." 33 The amended statement of claim additionally pleads that Ceil Comfort had engaged in conduct in contravention of ss 52 and 53(g) of the Trade Practices Act 1974 (Cth), in the following terms: "11. Further, or in the alternative, the First Respondent has represented to the First Applicant, the Second Applicant, Brombal & O'Brien Building Services and the New South Wales Department of Housing that: (a) it is the sole and exclusive licensee in the State of New South Wales for the Patent; (b) the First Applicant's application for a fire retardant spray insulation materials infringes the Patent; (c) it was entitled to bring proceedings for injunctive relief for infringement of the Patent; and (d) it was entitled to inform the third parties of the said alleged infringement. PARTICULARS Letter dated 16 May 2000 from the solicitors for the Respondents, Margaretic Barristers & Solicitors, to the First Applicant, the Second Applicant and Brombal & O'Brien Building Services. 12. The representations referred to in paragraph 11 were made in trade or commerce and were false and misleading in that: (a) the First Respondent was not the sole and exclusive licensee of the Patent in the State of New South Wales; (b) the Applicants do not infringe the Patent; (c) the First Respondent had no entitlement to sue the Applicants for infringement of the Patent; (d) the First Respondent had no entitlement to represent to third parties that it had an entitlement to sue the Applicants for infringement of the Patent. … 15. By reason of the matters set out above, the Applicants have suffered loss and damage and shall continue to suffer loss and damage unless the conduct of the Respondents complained of above is restrained by this Honourable Court." For the reasons appearing in [9] above, I do not think that paragraphs 11(a) and 12(a) of the amended statement of claim are correct. 34 In its defence to the amended statement of claim, Ceil Comfort and the Second to Fifth Respondents deny that the acts of the Applicants and Brombal & O'Brien, in respect of which Ceil Comfort had threatened to bring infringement proceedings, did not constitute an infringement of the Patent, and further that the "applicant": "10.1 Tendered for a Department of Housing development contract claiming that it could insulate buildings by utilising a top-coat sealant identical or similar to that protected by the Patent. 10.2 The principal tender requirements by the Department of Housing were for a coating to be applied to the surface of the cellulose fibre insulation. 10.3 By the very nature of the tender requirements, only the application of the process protected by the Patent and licensed to the First Respondent could be utilised. 10.4 Mr Philip Smith, a representative for the First Applicant, has indicated to Mr Michael Nesbit, the manager of the First Respondent, that the First Applicant was permitted to use a surface spray to seal cellulose fibre this being in clear contravention of the Patent." The Respondents joined issue upon the claim that either of the Applicants was a "person aggrieved" within the meaning of s 128 of the Patents Act 1990 (Cth). The Respondents also denied that they had engaged in misleading and deceptive conduct pursuant to s 52 or s 53(g) of the Trade Practices Act 1974 (Cth) in respect of the representations pleaded in paragraph 11 of the amended statement of claim. Pending the determination of the proceedings, the Respondents have been made the subject of orders restraining them from making any threats against the Applicants for infringement of Patent No 526490 by the promotion, offer for sale or sale of the Applicants' cellulose fire retardant spray, or the use or application thereof in the installation of insulation materials in buildings, as a coating on the insulation materials, or otherwise. I should add for completeness that no evidence was tendered at the hearing by the Respondents in support of para 10.4 of the Defence extracted above.

Applicable principles relating to issues arising 35 The combined operation of ss 128 and 129 is such as to impose the onus of proving justification of the threats upon the patentee or patent licensee who advanced the same: U & I Global Trading (Australia) Pty Ltd v Tasman-Warajay Pty Ltd (1995) 32 IPR 494 at 500 per Cooper J. Earlier in Mechanical Services (Trailer Engineers) Ltd v Avon Rubber Co Ltd [1977] RPC 66 at 74-5, Graham J found the same statutory requirement to operate in the United Kingdom, for the following policy reason to be identified in its patent legislation: "A patentee's first and proper remedy when he considers the defendant is infringing is to bring an action for infringement, without making any threats at all. This is however in the life of the market place no doubt a counsel of perfection and, patentees and travellers being human as they are, no doubt threats against potential defendants will continue to be made. That does not mean to say that the law approves of such action, which, as already stated, can obviously cause serious damage which it is often difficult or impossible to recover. On the other hand there is good reason for saying that a patentee who proves that his patent is valid and has been infringed by a defendant ought not to be liable for an action for damages in respect of threats which he is able, in any action brought by virtue of the section, to show are justified. What the section therefore does is to give to the person threatened (the plaintiff) a right to damages and an injunction against the continuance of the threats in question unless the person making the threat (the defendant) is able to justify them in any action under the section. The section gives a right to the plaintiff but not to the defendant. The latter is only given a shield or defence when he is able successfully to prove justification. He is not given any right to make a threat even if in fact it ultimately turns out to be justified. As patentee he can perfectly well bring his action for infringement without making a threat… If however a defendant does make a threat and it is held that he was unjustified, there is every reason why, if in all the circumstances including the generality of the threat it appears just and convenient, he should be restrained in general terms from making such threats in the future in respect of the plaintiffs' goods or methods of manufacture. Such an injunction causes him no hardship for the reasons given above. The person threatened, on the other hand, will by such an injunction expressed in general terms be properly protected in the future against again having to go through the very expensive business of bringing an action to invalidate another of his rivals' patents in order to show that such threats were unjustified. Only thus can the damage liable to be caused by threats unaccompanied by a patent action be positively prevented." 36 On my reading of the letter of Ceil Comfort's legal representatives the same plainly constituted a threat made at least to Sydney Cellulose of infringement proceedings, in the event that Sydney Cellulose was to undertake the Department of Housing contract. Given that Aussie Fluff, a company related to Sydney Cellulose, was to undertake such contract, the letter by clear implication constituted a threat to Aussie Fluff as well within s 128 of the Act, and no suggestion has been advanced to the contrary on behalf of the Respondents. It has been long established incidentally that a threat of infringement proceedings may be contained in a solicitor's letter: see Halsbury's Laws of England (4th ed) Vol 35, p 375. As indicated in [30] above, the Respondents for their part did not initiate any legal process against the Applicants, pursuant to the threats made in their lawyers' lengthy letter of demand, notwithstanding that the Applicants or one of them at least had been awarded the Department of Housing contract. The Respondents were apparently content to make threats of legal proceedings, but to take no further action, notwithstanding the following judicial advice of Bowen LJ in Skinner & Co v Perry (1893) 10 RPC 1 at 8: "The legislature desires that threats of patent action shall not hang over a man's head; that the sword of Damocles, in such case, should either not be suspended, or should fall at once…" 37 As is usually the case in relation to patent infringement proceedings, issues as to the correct interpretation of the subject Patent are at the centre of the matters in dispute between the parties. There has been much judicial discussion in the United Kingdom and Australia of the principles of interpretation of Patents and the same have been carefully and conveniently digested by Sheppard J in Décor at 397-400. It suffices to extract his Honour's summary of the authorities at 400 as follows: "(1) The claims define the invention which is the subject of the patent. These must be construed according to their terms upon ordinary principles. Any purely verbal or grammatical question that can be answered according to ordinary rule for the construction of written documents is to be resolved accordingly. (2) It is not legitimate to confine the scope of the claim by reference to limitations which may be found in the body of the specification but are not expressly or by proper inference reproduced in the claims themselves. To put it another way, it is not legitimate to narrow or expand the boundaries of monopoly as fixed by the words of a claim by adding to those words glosses drawn from other parts of the specification. (3) Nevertheless, in approaching the task of construction, one must read the specification as a whole. (4) In some cases the meaning of the words used in the claims may be qualified or defined by what is said in the body of the specification. (5) If a claim be clear, it is not to be made obscure because obscurities can be found in particular sentences in other parts of the document. But if an expression is not clear or is ambiguous, it is permissible to resort to the body of the specification to define or clarify the meaning of words used in the claim. (6) A patent specification should be given a purposive construction rather than a purely literal one. (7) In construing the specification, the court is not construing a written instrument operating inter partes, but a public instrument which must define a monopoly in such a way that it is not reasonably capable of being misunderstood. (8) The body, apart from the preamble, is there to instruct those skilled in the art concerned in the carrying out of the invention; provided it is comprehensible to, and does not mislead, a skilled reader, the language used is seldom of importance. (9) Nevertheless, the claims, since they define the monopoly, will be scrutinised with as much care as is used in construing other documents defining a legal right. (10) If it is impossible to ascertain what the invention is from a fair reading of the specification as a whole, it will be invalid. But the specification must be construed in the light of the common knowledge in the art before the priority date." 38 In the context of the foregoing summary of principles applicable to the construction of patents, it is next appropriate to refer to authorities governing the kind of infringement issues arising in the present proceedings. The first of such principles, apart from that relating to onus of proof already discussed, is that the Applicants' process of using and applying its CFRS spray must be such that it takes "each and every one of the essential integers" of the Respondents' patent rights: Rodi & Wienenberger AG v Henry Showell Ltd [1969] RPC 367 at 391. It does not follow however from that principle that protection will not be given to a patentee or a licensee simply because the alleged article of infringement is not identical in every respect with the invention described in the patent: see Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 at 573 per Wilcox J. It is enough that the infringing article comprises the "substance", or what may otherwise be described as the "pith and marrow" of the invention. In those circumstances, the party alleged to have infringed the patent in question will not be able to avoid the implications of infringement by implementing immaterial alterations to the patented methodology which in reality constitute little or no effect upon the manner in which the invention works, for example, by omitting an inessential part or step described in patent claim: see Populin v HB Nominees Pty Ltd (1982) 41 ALR 471 at 475 per Bowen CJ, Deane and Ellicott JJ. 39 What is regarded as the classic expression of the so-called "pith and marrow" test is to be found in the judgment of James LJ in Clark v Adie (1875) LR 10 Ch App 667 at 675 where his Lordship said: "The patent is in the entire combination, but there is, or may be, an essence or substance of the invention underlying the mere accident of form; and that invention, like every other invention, may be pirated by a theft in a disguised or mutilated form, and it will be in every case a question of fact whether the alleged piracy is the same in substance and effect, or is a substantially new or different combination." 40 Adherence to the principle so enunciated in Clark is to be found in the judgment of Dixon J (as he then was) in Radiation Ltd v Galliers & Klaerr Pty Ltd (1938) 60 CLR 36 at 51, where his Honour said: "But, on a question of infringement, the issue is not whether the words of the claim can be applied with verbal accuracy or felicity to the article or device alleged to infringe. It is whether the substantial idea disclosed by the specification and made the subject of a definite claim has been taken and embodied in the infringing thing." 41 The modern approach of the Courts is to emphasise that the "substantial idea" or the "pith and marrow" of a patented invention shall not be treated as infringed where it is clear, from the words used in the claim set out in the patent, that a relevant integer has been "deliberately left outside the claim": see Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253 per Aickin J, (with whom Barwick CJ, Stephen, Mason & Wilson JJ agreed), where at 286 his Honour said as follows: "Notwithstanding the undoubted fact that the doctrine of Clark v Adie concerning the taking of the pith and substance of an invention, but nonetheless staying outside the express words of the claim, is less often applicable at the present time than it was at the time of that decision, it remains the law that a defendant may not take the substance of an invention unless the wording of the claims makes it clear that the relevant area has been deliberately left outside the claim." 42 On the other hand, strict compliance may not be taken to have been intended by the patentee, in circumstances where some variant to the literal description could have a material effect upon the way a patented invention was intended to work. In Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183 at 243 Lord Diplock observed in the following frequently cited passage: "A patent specification should be given a purposive construction rather than a purely literal one derived from applying to it the kind of meticulous verbal analysis in which lawyers are too often tempted by their training to indulge. The question in each case is: whether persons with practical knowledge and experience of the kind of work in which the invention was intended to be used, would understand that strict compliance with a particular descriptive word or phrase appearing in a claim was intended by the patentee to be an essential requirement of the invention so that any variant would fall outside the monopoly claimed, even though it could have no material effect upon the way the invention worked. The question, of course, does not arise where the variant would in fact have a material effect upon the way the invention worked. Nor does it arise unless at the date of publication of the specification it would be obvious to the informed reader that this was so. Where it is not obvious, in the light of then-existing knowledge, the reader is entitled to assume that the patentee thought at the time of the specification that he had good reason for limiting his monopoly so strictly and had intended to do so, even though subsequent work by him or others in the field of the invention might show the limitation to have been unnecessary. It is to be answered in the negative only when it would be apparent to any reader skilled in the art that a particular descriptive word or phrase used in a claim cannot have been intended by a patentee, who was also skilled in the art, to exclude minor variants which, to the knowledge of both him and the readers to whom the patent was addressed, could have no material effect upon the way in which the invention worked." 43 The principles enunciated by Lord Diplock in Catnic above have been the subject of further analysis by Hoffman J (as he then was) in Improva Corp v Remington Consumer Products Ltd [1990]FSR 181 at 189: "If the issue was whether a feature embodied in an alleged infringement which fell outside the primary, literal or a contextual meaning of a descriptive word or phrase in the claim ('a variant') was nevertheless within its language as properly interpreted, the Court should ask itself the following three questions: (i) Does the variant have a material effect upon the way the invention works? If yes, the variant is outside the claim. If no - (ii) Would this (ie that the variant had no material effect) have been obvious at the date of the publication of the patent to a reader skilled in the art. If no, the variant is outside the claim. If yes - (iii) Would the reader skilled in the art nevertheless have understood from the language of the claim that the patentee intended that strict compliance where the primary meaning was an essential requirement of the invention [?] If yes, the variant is outside the claim." This purposive approach to construction enunciated by Lord Diplock in Catnic, and the above restatement of his Lordship's observationsin Improva, have been more recently followed by the English Court of Appeal in Kastner v Rizla Ltd [1995] RPC 585, and by the Full Federal Court in Nesbit Evans Group Australia Pty Ltd v Impro Ltd (1998) 39 IPR 56 at 81-2 per Lindgren J (with whom Hill J agreed).

The respective contentions of the parties and my conclusions in relation thereto 44 It is mutually accepted between the Applicants and Respondents that the essential integers of the claim and specification of Patent No 526490 comprise the following: (i) insulating the ceiling of a building having ceiling lining, comprising the steps of : (ii) placing loose fill insulating material directly above the ceiling lining material to a desired thickness; (iii) applying a coating of liquid glue or adhesive to the surface of the insulating material remote from the lining material; and (iv) allowing the glue or adhesive to dry or set forming a cohesive skin on the surface of the insulating material. 45 It follows that the Applicants' process of using and applying its CFRS product must be such that it takes each of such four integers (see the authorities cited in [38] above). It is common ground that the Applicants' said process takes the first and second integers. The essential issue remaining therefore is whether the Applicants' process takes the third and fourth of such integers. 46 As to the third integer described in [44] above, the Respondents have contended that the Applicants' description of the method of spraying its CFRS to the surface of cellulose insulation fibre in the ceiling of buildings represents a mere colourable evasion of the language of Patent No 526490 by companies skilled in the art of cellulose fibre. The components of the CFRS, comprising mono-ammonium phosphate and water as earlier explained in [18] above, are said by the Respondents to constitute an "adhesive" within the meaning of that word appearing in both the claim and specification segments of the Patent, as extracted wholly in [10] and partly in [13] above respectively. Although the claim refers to "liquid glue or adhesive", the Respondents contended that the words "glue or adhesive" should not be read synonymously, and that the word "adhesive" provides the patent with a broader scope of operation, such as to include liquids which, when applied to the insulation material, would cause both substances to join together. The Respondents accept that the Applicants' CFRS product is not a glue. Consequently, so the Respondents' submission continues, the Applicants' method of spraying its CFRS product onto the insulation material, thereby causing the surface of the insulation material to "dry or set", to further adopt the language of the Patent specification, constitutes an infringement of the Patent, given that the application by the Applicants of their CFRS product is also made "to the surface of the insulating material remote from (ceiling) lining material", as stipulated by the Patent. 47 As to the fourth integer described in [44] above, the Respondents have contended that there is no difference between a cohesive skin formed on the surface of the insulating material, to adopt the Patent's description contained in the claim and specification segments of the Patent (again see [10] and [13] above), and what the Applicants have in effect described as the formation of a light crust in and below the surface of the cellulose insulation material (see [19] above) which is a consequence of the application of the Applicants' CFRS product to such material. The Respondents thereafter contended that the ultimate effect of the application of the Applicants' CFRS product is to harden the surface of the material by way of such asserted cohesive skin, so that the same would not blow around the roof cavity. 48 Whether in the context of such submissions or by way of supplement thereto, the Respondents have also asserted that the focus of the dispute should be not only on the method utilised in the insulation of the loose fill cellulose fibre material, such method being the subject of [46-47] above, but also on the result of the application of that method. By "result" of the application of that method, I understood the Respondents to refer to the product of the patented method, namely cellulose fibre insulation material lying on ceilings of buildings in a condition not susceptible to being blown around by intrusive winds. It is not enough however to point to the result or product of a patented process, otherwise than in the circumstances described in the following dicta of the High Court in Olin Corporation v Super Cartridge Co Pty Ltd (1977) 180 CLR 236 at 263 per Stephen and Mason JJ: "The consideration which the appellant gave for the monopoly which it sought was the disclosure that a serviceable one-piece plastic shot shell case having uniform and increased strength in the side walls could be made by the process which the specification disclosed. His monopoly must be limited by reference to that disclosure. It cannot extend to the production of plastic shell cases produced by new and different means.

However, it is accepted that a monopoly may be sought in the result or product of a process so long at least as the specification describes distinctive characteristics of the result or product and in the case of an article the limitation is "sufficient to characterize the construction of the article claimed", (referring thereby to dicta of Barwick CJ and Mason J in Interlego AG v Toltoys Pty Ltd (1972-1973) 130 CLR 461 at 480." I have had difficulty in comprehending the point of this submission, since the result of the application of the Applicants' methodology represents merely the fulfilment by the Applicants of the second integer referred to in [44(ii)] above, which as already indicated in [45] above, is common ground. I have found the Respondents' submission based on Olin to be of no ultimate assistance. 49 In order to make good their respective submissions in relation to the third and fourth integers set out in [46-47] above, the Respondents placed reliance essentially upon dictionary meanings or definitions. Thus in relation to the Respondents' case that the words "glue or adhesive" contained in the Patent claim and specification are not to be read synonymously, the Respondents accepting that the Applicants' CFRS product is in any event not a glue, the Respondents point to the Macquarie Dictionary meanings of "adhesive", namely "clinging; tenacious; sticking fast, a substance for sticking things together", and they assert that such meanings encompass the Applicants' CFRS product. Mr Morea emphatically contradicted the application of such descriptions to the Applicants' CFRS, he asserting for instance "[t]he product which Sydney Cellulose uses is not a glue or adhesive but a fire-retardant solution formed in fire retardant salts dissolved in water". Mr Morea was plainly a person with knowledge and skill in relation to the art the subject of Patent No 526490, and was well placed to consider what meanings the various phrases in the claim and specification thereof have carried at all material times: see Sunbeam Corporation v Morphy-Richards (Aust) Pty Ltd (1961) 180 CLR 98 at 102. And as I indicated at [17] above, I found Mr Morea to be a credible witness. 50 I do not think that the Respondents gain support from dictionary meanings, such as those to be found in the Macquarie Dictionary, which in any event in its definition of "glue", includes "any adhesive substance". Moreover, as I construe the Patent claim and specification it appears that the terms "glue or adhesive" are to be treated synonymously since the documents refers variously to "liquid glue or adhesive" and "glue or adhesive", without elaboration or qualification, except for the interchangeable references to "P.V.A. glue diluted with water" on pages 3 and 4 of the specification, and to "P.V.A. adhesive" on page 4 thereof. Furthermore an essential characteristic of the "glue or adhesive" (see pages 3 and 3a of the specification) is that it must be allowed "to dry or set forming a cohesive skin on the surface of the insulating material". I draw specific attention to the word "on" in such context as this indicates the location where the skin is formed. This suggests that the "glue or adhesive" must possess intrinsic properties that enables it to bind itself and then form a cohesive skin "on" as distinct from "in" the surface of the insulating material. Accordingly it cannot be rightly maintained upon the true construction of the claim and specification that the word "adhesive" includes any liquid which, in fact, when applied to the insulating material causes both substances to adhere to one another. The claim and specification in no way require that there be some sort of interaction between the "liquid glue or adhesive" and the surface of the insulating material. Furthermore, the claim and specification require that the liquid glue or adhesive dry or set as distinct from any of the insulating material drying or setting. It is important to note that the scope of the First Respondent's monopoly is restricted by what is claimed: see Rodi at 380 per Lord Morris of Borth-y-Gest and Rhone-Poulenc at 577-8 per Wilcox J. Moreover there is no evidence that the Applicants' CFRS product, in contrast to the "glue or adhesive" specified in Patent No 526490, possesses the intrinsic properties required to enable it to bind and harden itself (let alone form a cohesive skin) independently of any interaction with the cellulose fibre. Put another way, the application of the CFRS hardens the surface layers of the cellulose fibre, as distinct from drying or setting on top of the surface of the cellulose fibre (see [51] below). The components of the CFRS are simply water and mono-ammonium phosphate which do not combine to make the product sticky or clingy of itself. It follows that the Respondents' case as to the Applicants' taking of the third integer must fail, and with such failure must follow the loss of the Respondents' case for infringement. 51 The Respondents' case in support of the fourth integer must also fail, that is, their case for the proposition that the Applicants' process of applying their CFRS product by way of spraying over the surface of cellulose fire insulation material produces a "cohesive skin" on such surface: see again the relevant texts of the claim and specification reproduced in [12-13] above. The Applicants' case is that all that may be formed by reason of the spraying thereon of the Applicants' CFRS, is a crust formed "in" rather than "on" the surface of such material, which is quite unlike a cohesive skin (see again [19] above), particularly since it does not stop water from penetrating the surface after completion of the spraying has taken place. Mr Morea was emphatic that a cohesive skin is in the nature of a seal, and that the CFRS product was not "a sealant" nor a "spray seal", and also that whilst such product "hardens the cellulose fibre", it merely did so in the sense that it "lightly crusts the surface". 52 I do not think that the Respondents' case on the fourth integer finds support from the dictionary meanings to which I have been referred. The Respondents have referred to the Macquarie Dictionary definition of "crust" as including "any more or less hard external covering or coating", and of "cohesive" as importing "the state or process by which the particles of a body or substance are bound together, esp. the attraction between the molecules of a liquid". Another dictionary meaning cited for "cohesion" is "a surface layer", or "a sheeting or casing forming the outer surface of a structure", hardly akin to a "gritty texture", being the encyclopedia description reproduced in [18] above. Moreover the Applicants' evidence is further that whereas the Respondents' product purportedly operates to prevent water or other liquid substance from penetrating through the so-called cohesive skin created thereby, the Applicants' product does not prevent water from seeping into and penetrating the cellulose fibre material. 53 My conclusion is therefore that the Respondents have failed to establish the third and fourth integers of Patent No 526490, with the consequence that the Applicants are entitled to succeed on the entire issue as to alleged patent infringement on their part. The third and fourth integers clearly formed part of the "pith and marrow" or "substantial idea" or "substance" of what is protected by Patent No 526490 (see again such expressions as respectively cited from dicta in Clark, Radiation and Minnesota in [39-41] above). Put another way, the Applicants' application of its CFRS spray to cellulose fibre material constitutes a "variant hav[ing] a material effect upon the way the invention works", to cite also from the passage in Improva set out in [43] above. The Respondents have failed to discharge the onus cast upon them by s 129 of the Act to establish otherwise. 54 I would add that in the particular circumstances of this case, including the reliance which the Respondents have found necessary to place upon dictionary meanings, it is not without significance that the Respondents never sought to invoke, in the context of the present proceedings, the processes available under Order 17 Rule 1 of the Federal Court Rules, which relevantly provide as follows: "(1) The Court may, for the purpose of enabling the proper determination of any matter in question in any proceeding, made orders for: (a) the inspection of any property; (b) the taking of samples of any property; (c) the making of any observation of any property; (d) the trying of any experiment on or with any property; (e) the observation of any process …." In Lahore, Patents, Trade Marks and Related Rights at p 18,140 to 18,161, emphasis is placed upon the need for parties alleging infringement to gain access to the premises of alleged infringers in order to observe or witness the infringement processes being allegedly adopted, or to obtain samples to assist the obtaining of evidence in support of their case for infringement. The Respondents did not initiate any such courses of action made available to them by the rules of the Court, nor any proceedings for infringement, without proffering any explanation for such inaction on their part. 55 I have included reference to the Second to Fifth Respondents in my findings as to absence of infringement, not merely because they have been directors of the First Respondent Ceil Comfort at the material times, but by reason of testimony of Mr Iezzi to the effect that he and the Second, Third and Fourth Respondents authorised the sending of the letter of 16 May 2000 extracted in [30] above, and the subsequent preparation by him of the principal Affidavit was made on behalf of all of the Respondents in the proceedings, and further that all of the Respondents had a knowledge generally of the subject matter of present disputes, and of the proceedings. In addition as to the Fourth Respondent, he has been at all material times, and presumably continues to be, the managing director of Ceil Comfort. No submission has been made to the effect that any of the Second, Third, Fourth and Fifth Respondents was not properly joined as a respondent to the proceedings. 56 That leaves for consideration the further causes of action based upon ss 52 and 53(g) of the Trade Practices Act. The conduct of Ceil Comfort relied upon is that described in [21], [24], [25] and [27] above. Although the references therein to Ceil Comfort's officers making allegations to third parties, including the Department of Housing and Brombal & O'Brien, of infringing conduct on the part of the Applicants, involve evidentiary materials in the nature of hearsay, there has been no repudiation of such testimony by Mr Iezzi. Indeed consistent with the position adopted by the Respondents in this litigation, it would be surprising if the Respondents had not done so. In light of my conclusion on the patent infringement issue, such conduct was inherently likely to mislead and deceive industry participants and actual and potential acquirers of the Applicants' goods and services. In circumstances of that kind, s 52 provides appropriate relief: cf Hornsby Building Information Centre Pty Ltd and Another v Sydney Building Information Centre Limited (1978) 140 CLR 216. No submissions were made on behalf of the Respondents to the effect that if the cause of action based upon ss 128 and 129 of the Patents Act was made out by the Applicants, the consequence should not be success for the Applicants against Ceil Comfort in relation to the causes of action for contravention of ss 52 and 53(g) of the Trade Practices Act, and further success for the Applicants against the Second and Fifth Respondents for conduct of knowingly being concerned in such contraventions. 57 I shall therefore grant temporary injunctions in favour of the Applicants against the Respondents, pending resolution of the precise text which permanent injunctive relief should take. I make orders for payment by the Respondents of the Applicants' costs of the proceedings, save as to those segments of the proceedings in relation to which costs orders have already been made. I stand the proceedings over for directions as to the Applicants' claim for damages. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti .

Solicitor for the Respondent: Margaretic Barristers & Solicitors

Date of Hearing: 9-10 April 2001; last written submissions received on 6 July 2001

Patents Act 1990(Cth)ss 40, 128, 129

Trade Practices Act 1974(Cth)ss 52, 53(g)

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Judgment (12 paragraphs)

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Legislation Cited (3)

Cases Cited (13)