The University of Sydney v ResMed Ltd

BRIEF CHRONOLOGICAL INTRODUCTION TO THE FACTS 9 (1) On 21 May 1990 the University filed provisional specification PK0228 under the Patents Act 1952 (Cth) (Provisional Specification - the parties have also used the term Provisional Application). The opening paragraph of the Provisional Specification was: This invention relates to a nasal mask and, in particular, to a mask that has the facility to conform to the facial contours of a wearer. 10 The key to the invention is, and was stated in the Provisional Specification to be, a membrane formed as a thin-walled balloon-like pocket, moulded from a soft, flexible plastics material. The Provisional Specification explained (p 2): In contrast with the prior art masks, the present invention provides a nasal mask which comprises a shell which is shaped to overfit a wearer's nose and a distendable membrane which, together with the shell, defines a chamber. 11 The Provisional Specification stated (p 3): The shell is preferably moulded from a rigid plastics material and the membrane, which may be moulded from a thin elastic plastics material, is preferably removably mounted to the periphery of the shell. 12 When the mask is fitted to the wearer, it is connected to a pressurised air supply so that the soft membrane is caused to billow or distend outwardly from the shell. When the mask is placed in contact with the wearer's nose, the membrane begins moulding around the wearer's nose and in fact moulds completely around the nose and conforms to the facial contours which are actually overlaid by the membrane. 13 Hand drawn figures numbered 1 to 8C were annexed to the Provisional Specification (in professionally drawn form, these were subsequently to form part of the patent specification referred to below). 14 The expressions "bubble mask" and "membrane mask" have been used by the parties to refer to the invention. 15 (2) On 25 February 1991, the University and ResMed entered into a "Confidential Disclosure Agreement" (CDA). The CDA recited that the University had agreed to supply to ResMed in confidence information relating to the "Nasal Mask (Provisional Patent No PK0228) …". In the CDA that information was called "the Information" (the term "the Information" as used in the CDA is to be distinguished from that term as it is used in the SFASOC - see [33]ff below). 16 Clauses 1 and 2 of the CDA were as follows: 1. The Company undertakes as follows: 1.1 to evaluate the extent of its interest in the Information and report to the University within thirty (30) days of the date of its receipt or such longer period as the parties hereto may agree in writing. 1.2 to regard the information as confidential and the property of the University. The Company shall make no commercial use of the Information unless it enters a further agreement with respect to the use of the Information, and 1.3 not to disclose the Information to any third party from the date hereof without the written consent of the University. 2. The above undertaking shall not apply to that part of the Information which the Company is able to demonstrate: 2.1 was known to it prior to such disclosure, or 2.2 was in the public domain at the time of disclosure, or 2.3 becomes part of the public domain through the actions of the University or of a completely independent entity subsequent to such disclosures, or 2.4 becomes available to the Company from a third party who has not obtained it directly or indirectly from the University. 17 (3) On 16 May 1991, the University filed patent application numbered 77110/91 and accompanying specification for a patent. The stated title was "Nasal Mask". The stated priority date was the date of the filing of the Provisional Specification - 21 May 1990. 18 (4) On 17 May 1991, the day following the filing of the patent application, the parties entered into the Licensing Agreement which lies at the heart of the present proceeding. 19 Because many of the provisions of the Licensing Agreement are referred to, I have annexed a copy of it to these reasons for judgment (Annexure A). It will be noted that the Licensing Agreement provided that it commenced on 1 January 1991, some 4½ months before its date, and continued until 7 December 1992 (cl 2). 20 (5) On 21 November 1991, the University's patent application and complete specification were published. Accordingly, by that date, if not before, all information contained in the complete specification had become part of the public domain through the actions of the University. 21 For this reason, any part of the information the subject of the CDA that was included in the patent application and accompanying complete specification was excluded by cl 2.3 from the scope of the CDA. 22 (6) On 24 December 1992, shortly after the Licensing Agreement had expired on 7 December 1992, ResMed wrote to the University referring to a discussion in which the University's representative had indicated his wish to extend the Licensing Agreement "for the life of the patent(s)". At that time, no patent had been granted. The letter continued: Given that we are investing considerable money and time in this area, we are in agreement with this approach and will continue to pay the 3.5% royalty as per Schedule 3 of the above agreement. Could you please confirm the University's agreement to this by signing and returning the enclosed duplicate of this letter. The reference to "the above agreement" was a reference to the Licensing Agreement. 23 Mr D S Maclennan, Executive Director, Business Liaison Office of the University, signed and returned a duplicate of the letter on 25 January 1993 "indicating the University's acceptance of the extension of [the] agreement". 24 (7) On 2 December 1993 Australian Patent No 643994 (the Patent) was issued.

LEGAL PRINCIPLES GOVERNING STRIKING OUT AND SUMMARY DISMISSAL 25 Order 11 r 16 of the Rules provides, relevantly: Where a pleading - (a) discloses no reasonable cause of action …; (b) has a tendency to cause embarrassment or delay in the proceeding; or (c) …; the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out. 26 I will not refer to any of the numerous authorities in which this rule or its counterparts in other jurisdictions have been discussed. ResMed does not dispute that it must appear "clearly" or "plainly" or "obviously" that the pleading discloses no reasonable cause of action before it is appropriate to order a striking out. It is important to remember that O 11 r 16 is concerned with what is disclosed by the pleading. 27 Subsection (2) and (3) of 31A of the FCA Act provide: (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. 28 I will not discuss the authorities in which s 31A has been considered. The emphasis on the word "no" reminds us that "a cautious approach" should be taken to the exercise of the Court's power under s 31A: cf Bonnell v Deputy Commissioner of Taxation (No 5) [2008] FCA 991 at [81] per Graham J.

Consideration 29 ResMed's attacks on the SFASOC are numerous and detailed. I do not propose to deal expressly with every aspect of every one of them. To the extent that any detailed aspect of an attack is not dealt with expressly in these reasons, it is not sustained. Also, my views expressed in relation to the construction of the Licensing Agreement and the CDA are preliminary views only - I decide nothing finally.

The "Membrane Mask" 30 ResMed submits that the University's use of the expression "the Membrane Mask" in the SFASOC is ambiguous and therefore embarrassing. The expression is defined in para 4A of the SFASOC, which reads as follows: Prior to 21 May 1990, an employee of the Applicant, Professor Colin Sullivan (Professor Sullivan) together with his assistant, Jakob (Jim) Bruderer invented a facial gas delivery mask involving the use of a thin, flexible membrane to provide an airtight seal between the mask and the face of the wearer (the Membrane Mask). ResMed contends that it is unclear whether, when the University uses the expression "the Membrane Mask" later in the SFASOC, it does so consistently with this definition. It points to para 5 of the SFASOC which states: The Applicant is the registered proprietor of Australian Patent No 643994 for the Membrane Mask. Similarly, the particulars to paras 18A, 26A and 41 of the SFASOC refer to "the Membrane Mask disclosed in the Provisional Application and the Patent". 31 ResMed also refers to paras 3(a), 6(a), 7(a), 9(a), 14(a) and 15(a) of Annexure B to the SFASOC. The full expression in para 3(a) is "the Membrane Mask disclosed in United States patent no. US5243971, as also disclosed in Australian Patent No AU643994" and the full expression in the other paras mentioned is "the Membrane Mask of US5243971". 32 I do not think that there is any ambiguity. The University is alleging in para 5 of the SFASOC that the Patent, in the particulars to paras 18A, 26A and 41 that the "Provisional Application" and the Patent, and in Annexure B that US Patent No 5243971, are all in respect of a facial gas delivery mask involving the use of a thin, flexible membrane to provide an airtight seal between the mask and the face of the wearer. It does not necessarily matter that the "Provisional Application", the Patent or the US Patent may not be expressed in the terms of the definition found in para 4A of the SFASOC.

The "Information" 33 Items of information which formed "the Information" are identified in 13 paragraphs lettered (a) to (m) in para 11B of the SFASOC. 34 The SFASOC relies on the 13 items of information comprising the Information in three ways, pleaded in the alternative: 1. as Intellectual Property within the meaning of the Licensing Agreement and therefore as the basis of a contractual cause of action under the Licensing Agreement (para 11E); 2. as information the subject of an equitable obligation of confidentiality owed by ResMed to the University (para 11G); and 3. to the extent that any of the Information does not form part of the Intellectual Property within the meaning of the Licensing Agreement, as information subject to the provisions of the CDA and therefore as the basis of a contractual cause of action under the CDA (para 11I). 35 As a preliminary point, ResMed submits that some or all of the 13 items (a) to (m) of the Information do not set out any identifiable information. 36 I do not accept this submission. ResMed illustrates its complaint by reference to items (l) and (m) which are as follows: (l) That a children's version of a facial mask with membrane could be made, but the shape of the mask should be different because of the different shape of a child's face, including that the nose is flatter. (m) A suitable shape for a children's version of a facial mask with membrane. Item (l) was information that it was possible to make a children's version which would have to be not just smaller but of a different shape, in order to match the different shape of a child's face. Item (m) was information as to what was a particular suitable shape for a children's version. Both are identifiable pieces of information.

Pleading of facts in relation to each category of legal obligation that relies on the Information 37 ResMed submits that in relation to all three categories of legal obligation referred to at [34] above, the University should be required to plead separately the facts on which it relies as giving rise to each of the three categories. Further, ResMed submits in relation to each category that the University has not pleaded and particularised facts capable of supporting that ground. 38 I agree with ResMed that the University must indicate all of the facts, matters and circumstances on which it relies as establishing each of the three categories of legal obligation. However, in my opinion, the University does so. 39 Paragraphs 11A, 11B, 11C, 11D and 11E plead the facts on which the University relies as establishing that the items of the Information formed part of the Intellectual Property for the purposes of the Licensing Agreement (later paragraphs of the SFASOC also plead elements of contractual claims based on the Licensing Agreement). 40 Paragraphs 11B, 11F and 11G plead the facts relied on as giving rise to the equitable obligation of confidentiality. 41 Paragraphs 11B and 11I plead the facts giving rise to a liability under the CDA.

Timing of the supply of the Information pursuant to the Licensing Agreement and the CDA 42 There is, however, in my view a defect in the pleading that needs to be remedied. The Licensing Agreement was dated 17 May 1991, and was deemed to commence on 1 January 1991 (see [18]-[19] above). On its face it purported to operate prospectively from 1 January 1991. However, according to para 11B of the SFASOC, the Information was supplied by the University to ResMed during the period 21 May 1990 to the end of 1991. If it is to be alleged that some of the items of the Information were supplied prior to 1 January 1991, facts should be pleaded showing the basis on which it is said that those items constituted "Intellectual Property" within the meaning of the Licensing Agreement. 43 Likewise, the CDA purported to operate prospectively from its date, 25 February 1991. There is no pleaded basis on which the para 11B items of Information supplied by the University to ResMed during the period 21 May 1990 to 25 February 1991 could have been supplied pursuant to the CDA. 44 The pleading should be amended in order to make clear to ResMed and the Court precisely what the University's case is in these respects. It is not enough to say, as counsel for the University said, that the evidence may disclose pre-contract facts which would cause the contracts to be construed in such a way so as to catch the pre-contract supplies of items of the Information. The express terms of the contracts point too clearly in the opposite direction to make it fair to ResMed for such an unexpected construction to prevail on the hearing without advance notice. 45 I do not, however, accept ResMed's submission that any item of the Information supplied on or after 17 May 1991 could not have been supplied pursuant to the CDA. It may be that an item of Information constituted information supplied pursuant to the CDA, but that the item did not satisfy the definition of Intellectual Property in, or was otherwise excluded from, the Licensing Agreement. In these circumstances, that item of the Information could have been supplied pursuant to the CDA and remain subject to its provisions (see cl 1.2 of the CDA set out to at [16] above).

The Information as Intellectual Property within the meaning of the Licensing Agreement 46 Schedule 2 ("The Intellectual Property") to the Licensing Agreement is supposed to give "particulars" of the "trade marks, patents, copyrights, processes, knowhow, registered designs or other like rights" which constitute the definition of "Intellectual Property" in cl 1 of the Licensing Agreement. ResMed argues that the expression "like rights" in the definition of Intellectual Property in cl 1 is referring to a more conventional notion of intellectual property than "mere information". It may be, as ResMed submits, that para (b) of Schedule 2 should be construed so as to refer only to information of a kind falling within conventional intellectual property rights so that it does not go beyond the definition of "Intellectual Property" in cl 1. 47 Furthermore, the information referred to in para (b) of Schedule 2 is limited to information "relating to" the Nasal Mask, being the invention described in the Provisional Specification and later the subject of the Patent (see the Discovery Judgment at [52]). ResMed submits that the "information" relating to the Nasal Mask referred to in para (b) of Schedule 2 must be information distinct from any part of the information contained in the Provisional Specification or the Patent. Therefore, so the argument goes, the Information cannot be simply any of the features of the invention described in the Provisional Specification or integers of the invention described in the Patent disaggregated from the combination of those features or integers that comprise the claimed invention. ResMed submits that upon analysis many of the items of Information (a) to (m) within para 11B of the SFASOC will be found to be no more than such features or integers. 48 In the Discovery Judgment I said (at [48]) that I could not be precise as to the meaning of "relating to" for the purposes of the discovery dispute. Nor do I think that I should rule on the present argument that a feature described in the Provisional Specification, or an integer within a claim of the Patent cannot also be information relating to the Nasal Mask for the purposes of para (b) of Schedule 2 to the Licensing Agreement. Nor should I decide conclusively as to the meaning of "information", or indeed, whether any particular item of the para 11B Information is capable of being "information" within the Licensing Agreement. 49 There are two reasons why it would be inappropriate to do so. First, it is conceivable that evidence on the final hearing as to the background against which the Licensing Agreement was entered into may throw some light on the meaning that both parties should be taken to have intended the expressions "relating to" and "information" to bear. Second, it would be necessary to have a protracted argument as to whether particular items among the 13 constituting items (a) to (m) constituted such features or integers of the invention the subject of the Provisional Specification and the Patent.

The Information as founding an equitable obligation of confidentiality 50 ResMed complains that, in alleging that it owed the University an equitable obligation of confidentiality in respect of the Information, the University does not plead facts showing satisfaction of the conditions of the operation of cl 3.4 of the Licensing Agreement. However, the University's case of breach of an equitable obligation of confidentiality is not one of breach of cl 3.4. Nowhere in the SFASOC does the University expressly refer to cl 3.4. I do not think it is appropriate for me to decide conclusively that in the circumstances of this case an equitable obligation of confidentiality cannot exist unless cl 3.4 of the Licensing Agreement is activated. 51 ResMed also asks me to strike out certain items of para 11B on the basis that they are not capable of founding an equitable obligation of confidentiality (or alternatively of being information subject to the CDA). ResMed submits that certain items of the Information are disclosed in either the Provisional Specification, the Patent, or various pieces of prior art, or are disclosed by the manufacture, sale and use of a mask embodying any features described in the items of the Information. The prior art on which ResMed relies form Annexure A(2) to its submissions and exhibits AM-6 to AM-11 to an affidavit of Anthony Muratore sworn 25 August 2008. The construction of the Provisional Specification, the Patent, and disclosures in the prior art are matters that are too complex and arguable to provide the basis for a striking out. 52 On a related point, ResMed also complains that the University has not pleaded that the Information remained confidential at the time of the alleged breaches of the equitable obligation of confidentiality pleaded in paras 18A, 18B and 38 of the SFASOC. ResMed points to the fact that by applying for the Patent, the University made public the information contained in the complete specification. 53 I agree with the University that it is for ResMed to plead in its defence that particular items of the Information or particular parts of such items were made public by the University and therefore lost their confidential character: see, for example Bullen & Leake & Jacob's Precedents of Pleadings (16th ed, London, Sweet & Maxwell, 2008) vol 2, 66-R3, 66-R6, pp 1062-1063. As I understand it, ResMed's defence will so allege (without admitting that the items of the Information were ever confidential in the first place). 54 Finally, ResMed referred to numerous legal authorities in support of an argument that the Information is too "vague" or "imprecise" to be subject to an equitable obligation of confidentiality. I discussed two particular items of the Information at [36] above. 55 With some misgiving, I have come to the conclusion that the 13 items of the Information are sufficiently precise to permit the pleading of an equitable obligation of confidence. However, it is often the case that the more general the scope of the information, the more likely it will ultimately be found that it was not originally, or did not continue to be, confidential.

The Information as subject to the provisions of the CDA 56 ResMed complains that the University does not plead that at the times of the alleged breaches of the CDA, the Information had not fallen within one of the exceptions contained in cl 2 of the CDA (set out at [16] above). However, cl 2 makes it plain that the onus is on ResMed to demonstrate that a particular item of Information fell within one of the exceptions.

Discoveries and improvements 57 Clause 11 of the Licensing Agreement deals in cl 11.1 and 11.2 with the making or discovery of improvements in connection with the Intellectual Property by ResMed, and in cl 11.3 with the making or discovery of any improvements in connection with the Intellectual Property by the University. Clause 11.4 gives the meaning of the term "improvements" for the purpose of cl 11. 58 In para 26A of the SFASOC, the University alleges that, in respect of each "Mirage Mask", ResMed has made and incorporated in the mask one or more discoveries or improvements in connection with the Intellectual Property. In para 26B of the SFASOC, the University alleges that use by a person other than the University or its licensees of those discoveries or improvements would infringe the Patent. Particulars of the alleged discoveries or improvements are set out in Annexure A to the SFASOC. 59 "Mirage Mask" is the term used in the SFASOC to refer to any one of a series of masks (set out in the particulars to para 14 of the SFASOC) sold by ResMed since about August 1997, and in respect of which ResMed has paid no licence fee to the University. 60 In my preliminary opinion, the expression in cl 11.3 "any application for Letters Patent or other equivalent protection in respect thereof" is a reference to any application for Letters Patent or other equivalent protection that the University may make in respect of any improvement made or discovered by the University in connection with the Intellectual Property. 61 However, ResMed raises a difficult issue as to the construction of cl 11.4 of the Licensing Agreement. The question which arises is whether the expression "the said Letters Patent" in cl 11.4 refers to the application for Letters Patent referred to in the immediately preceding cl 11.3, as the University submits, or to the Patent, as ResMed submits. ResMed attacks parts of the SFASOC, such as para 26A, that allege that a discovery or improvement could be other than an infringement of the Patent. 62 A problem with ResMed's construction is that there is no explicit reference anywhere in cl 11 to the Patent (although I accept that it is captured by the references to "Intellectual Property" in cl 11). On the other hand, the difficulty in treating the expression "the said Letters Patent" in cl 11.4 as referring only to the "application for Letters Patent" of cl 11.3 is that there may never be such an application. 63 Both constructions are arguable and I do not dismiss other possible constructions. However, I am inclined to think that the meaning of the expression "the said Letters Patent" in cl 11.4 refers to the expression "Letters Patent" in cl 11.3. There is no other reference to Letters Patent anywhere in cl 11. The relevant paragraphs of the SFASOC should be allowed to stand. 64 Another attack which ResMed makes on the "improvements" cause of action is that there is no pleading of "a relevant connection" between the discoveries or improvements allegedly incorporated into the Mirage Masks, and the Intellectual Property. 65 I agree with ResMed that the University must plead facts showing "the connection" it alleges between the discoveries and improvements identified in Annexure A to the SFASOC and the particular aspects of the Intellectual Property. The improvements described in Annexure A to the SFASOC and the patent applications, patents and designs described in Annexure B to the SFASOC speak for themselves. The expression "Intellectual Property" for the purposes of the SFASOC is defined in the particulars to para 10. The University should identify in the SFASOC the particular piece or pieces of the Intellectual Property with which each improvement is alleged to have a connection.

The claim that ResMed holds certain patent applications on constructive trust for the University 66 ResMed submits that the pleading at paras 40 and 43 of the SFASOC that certain patent applications are held by ResMed on a constructive trust for the University is embarrassing on the basis that there is no property in a patent application. ResMed points to University of Western Australia v Gray (No 20) (2008) 246 ALR 603 at [1355] per French J and SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No 6) (2008) 77 IPR 62 at [32] per Edmonds J. 67 My present view is that there is no property in an application for a patent and so a constructive trust could not subsist over such an application. However, I think it appropriate that the matter be left for determination on the final hearing.

Other respects in which the SFASOC should be amended 68 I agree with ResMed that the SFASOC should be made clearer in the following respects.

Pleading of chain of causation facts 69 Product is defined in cl 1 of the Licensing Agreement as meaning the products and/or processes set forth in Schedule 4 which incorporate the use of the Intellectual Property. Schedule 4 refers simply to "Nasal Mask". 70 Paragraph 15(f) of the SFASOC states the claim that each Mirage Mask is a "Product" because it "incorporates" one or more items of the Information. Paragraph 15(g) pleads the claim that each Mirage Mask is a "Product" because it "has been developed by the use of" one or more items of the Information. 71 It appears that in para 15(g), the University is alleging that an item of the Information may be incorporated in a Mirage Mask, notwithstanding that the incorporation is not apparent from a visual inspection of the relevant Mirage Mask. Rather, the item of the Information may be incorporated in the relevant Mirage Mask if ResMed used the item of the Information to develop the Mirage Mask. However, there is no pleading of extraneous facts showing a chain of causation (except perhaps by way of the concept of "development by use"). If the University intends to rely on anything more than a visual comparison to establish the chain of causation, the SFASOC must be amended, at a minimum, to allege chain of causation facts.

Pleading that Mirage Mask are not Products in respect of certain claims 72 I accept the following two submission made by ResMed: … logically, use of the Intellectual Property in developing the Mirage Masks could constitute a breach of clause 3.3 only if those masks are not Products within the meaning of the Agreement. However, the SFASOC does not indicate that the allegations made at SFASOC [18]-[18D] are limited to those circumstances. Indeed, it is not clear whether, in repeating SFASOC 15 - (g) at SFASOC [18] & [18A], the University should be taken to repeat the assertion at SFASOC [15] that "each Mirage Mask is a Product within the meaning of the Agreement". For this reason also, the pleading at SFASOC [18]-[18D] tends to cause embarrassment. …it would be implausible to suggest that the use by ResMed of the Intellectual Property for the purpose of manufacturing and marketing the Product, being expressly authorised under clause 3.1 of the Agreement, constituted a breach of an equitable obligation of confidence owed by ResMed to the University. Logically, use of the Intellectual Property in developing the Mirage Masks could only be in breach of an obligation of confidence if those masks are not Products within the meaning of the Agreement. However, the pleading at SFASOC [18]-[18D] is not so limited and, for that reason, is embarrassing.

Pleading of facts contained in Annexures to the SFASOC 73 The SFASOC contains Annexures which are referred to only in the particulars to paragraphs of the SFASOC, rather than in the pleading of material facts within the body of those or other paragraphs. However, the Annexures to the SFASOC allege some facts that should be alleged in the text of the SFASOC, not necessarily verbatim but through a cross reference. This should be corrected.

Conclusion 74 The University should have a further opportunity to amend its proposed SFASOC in the ways suggested in these reasons and to file and serve the resulting Second Further Amended Statement of Claim. 75 Both parties have had a measure of success and there should be no order for costs on the motions. I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 23 December 2008 Counsel for the Applicant: Mr C A Moore and Mr N Murray

Solicitor for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr A J Bannon SC and Mr A R Lang