University of Sydney v ResMed Limited

JUDGE: STONE J DATE: 16 MARCH 2012 PLACE: SYDNEY

BACKGROUND 1 This proceeding was commenced by application filed on 13 February 2007. The applicant, The University of Sydney, is the registered proprietor of Australian Patent No. 643994 (Patent) entitled Nasal Mask. The respondent, ResMed Limited, is a manufacturer and supplier of products for the screening, treatment and management of breathing sleep disorders and other respiratory disorders. It is one of a group of companies wholly owned by ResMed Inc, the ultimate shareholder. The applicant claims that ResMed has infringed the Patent and has breached a written Licensing Agreement (Agreement) between it (under its former name of Rescare Limited) and the University dated 17 May 1991. It also claims that ResMed has used information that the University provided in confidence to ResMed in breach of its obligation of confidentiality. 2 According to the respondent the Agreement has expired and has been replaced by a later licensing agreement on the same terms, the only difference being the commencement date of the later agreement and its duration. Given that the terms of each are said to be the same, for present purposes it is not necessary to pursue this point.

The Licensing Agreement 3 Pursuant to clause 3.1 of the Agreement, ResMed has a licence to use "the Intellectual Property to manufacture and market the Product within the Territory for the term of [the] Agreement". The Agreement defines 'Intellectual Property' as "trade marks, patents, copyrights, processes, know-how, registered designs or other like rights" particularised in Schedule 2 to the Agreement. The particulars in Schedule 2 are: (a) Patent Applications in respect of an Invention entitled Nasal Mask Australian Applic No PK0228 Filed 21May 1990 (b) Information and know-how relating to the Nasal Mask but not including that information which was known by the Licensee or which was in the public domain prior to 21 May 1990. 4 The Agreement defines the "Product" as "Nasal Mask" which incorporates the use of the "Intellectual Property". Relevantly, the Agreement also provides that ResMed: not use the Intellectual Property for any purpose other than that permitted by the Agreement: Clause 3.3; pay the University a licence fee, calculated at six monthly intervals, in respect of all Product sold in the preceding six months: Clause 5; and disclose to the University any improvements made or discovered in connection with the Intellectual Property "whether patentable or not". It contains other subclauses relevant to any such improvements: Clause 11. 5 The University claims that ResMed has breached clauses 3, 5 and 11 of the Agreement and has infringed its Patent. Paragraph 14 of the Fourth Further Amended Statement of Claim (Statement of Claim) alleges that since about August 1997, ResMed, or other companies in the ResMed group, has sold Nasal Masks known as "Mirage" Masks. The University claims these masks fall within the definition of "Product" in the Agreement and that ResMed has breached the Agreement by failing to pay a licence fee in respect of sales of these masks by ResMed or by other companies within the ResMed group. As a result, the University says it has suffered and continues to suffer loss and damage. 6 In the alternative, the University says that if the Mirage Mask is not itself "Product", then in creating it ResMed has used the University's Intellectual Property in breach of the Agreement. In so far as ResMed claims to have developed Patents and Designs, the University pleads that ResMed is in breach of clause 3 of the Agreement, or of an equitable obligation of confidence and clause 11, or an implied term of the Agreement. 7 The University seeks declaratory, injunctive and pecuniary relief in respect of ResMed's sale of Mirage masks. It also seeks orders for the transfer to it of over 160 Patents and Designs, which ResMed claims to have developed and which it claims are held on a constructive trust for it.

INTERLOCUTORY APPLICATIONS 8 On 14 July 2011 the University filed a notice of motion seeking orders that certain issues be determined separately from, and prior to all other issues arising in its claim. In broad terms, the University is seeking a determination of liability before the quantification of any pecuniary relief and some associated claims of other relief. It also seeks to postpone the quantification of loss and damage claimed in paragraph 22 of the Amended Cross-Claim until liability has been determined. 9 On 30 August 2011, ResMed applied for leave to file a fourth further amended defence (Amended Defence) and second amended cross-claim (Amended Cross-Claim) (together the Amended Defence/Cross-Claim). The University opposes the grant of leave generally on the basis of unexplained delay, and in relation to many of the proposed amendments. It is not necessary to discuss in detail the minutiae of all the proposed amendments to the Amended Defence/Cross Claim and I shall confine my comments to those which are the subject of specific submissions by the University.

LEAVE TO AMEND DEFENCE AND CROSS-CLAIM 10 In support of its application for leave to file the Amended Defence/Cross-Claim ResMed submits that, by its Statement of Claim filed on 22 June 2011, the University's claim that ResMed has used the University's "information and know-how" in breach of its obligations and has "considerably" expanded the scope of the proceeding "without proper foundation". In response to that claim it wishes to amend its defence to claim 'just allowances' for the substantial skill and expertise, expense and effort which it has contributed to the commercial exploitation of the University's Intellectual Property. 11 The University claims that each of the 16 Mirage Masks constitute a "Product" within the meaning of the Agreement and ResMed has breached the Agreement by not paying royalty fees on the sale of these masks. Accordingly, ResMed seeks leave to add additional defences to its pleading in relation to its obligation to make such payments and the obligations of other members of the ResMed corporate group and ResMed's sub-licensees.

Delay 12 In opposition to the application for leave to amend, the University submits that ResMed proposes amendments that would significantly expand the case without explanation for the delay in seeking to do so: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at [114]. The University submits that the proposed amendments: (a) involve significant factual assertions going back three to four years before the factual matrix currently the subject of the dispute (see, for example, paragraphs 93 and 94 of the proposed amended defence); and (b) give rise to the need of the University to investigate its agents' knowledge as to the respondent's understanding during that expanded time period (see, for example, paragraph 102 of the proposed amended defence). 13 Apart from complaints about delay, there are three aspects of the proposed amendments to which the University specifically objects. I shall discuss each in turn. Before doing so some general observations about the relevant principles and the proposed amendments are in order. 14 ResMed seeks leave to amend pursuant to Rule 16.53 of the Federal Court Rules 2011. It is not in dispute that the Court has a broad discretion to grant leave however that discretion is to be exercised with regard to the overarching purpose set out in s 37M of the Federal Court of Australia Act 1976 (Cth). In doing so it is necessary to consider all the circumstances of the case in order to achieve a just resolution of the proceedings. As was observed in the joint judgment of Gummow, Hayne, Crennan, Kiefel and Bell JJ, in Aon at [98] in relation to the relevant rule of the ACT Supreme Court: Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed on re-pleading when delay and cost are taken into account. 15 Their Honours emphasised that the requirements of justice cannot necessarily be met by an order that the applicant pay the costs occasioned by the application and said, at [111]-[112]: All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. … A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed on their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to the parties having a sufficient opportunity to identify the issues they seek to agitate. 16 ResMed submits that the amendments it seeks to make involve substantial matters and that it would be severely prejudiced if it were not permitted to raise them. Apart from its claim that the case would be significantly expanded the University does not point to any significant prejudice. The complaint that it would have to deal with "factual assertions going back three to four years before the factual matrix currently the subject of the dispute" is not supported by any details of the practical difficulty that it would encounter. ResMed submits that in the context of the University's claims little weight should be attributed to this complaint. The written submissions for ResMed make the following points: (a) the applicant chose to commence these proceedings some 10 years after the commencement of the conduct complained of; (b) the factual allegations it currently makes extend back to 1990, more than 20 years ago, in any event; and (c) the applicant has, in the 4 years this proceeding has been on foot, only recently finalised its own pleading, which is now in its sixth iteration. 17 There is considerable force in these submissions. The defences that ResMed now wishes to raise go to the heart of the dispute between the parties and, in the absence of unreasonable delay or significant prejudice to the University it should be given leave to amend its defence and cross-claim. 18 In an earlier judgment in this proceeding I commented on the 'chequered history' and the number of interlocutory applications that have already been the subject of judgments in this proceeding: University of Sydney v ResMed Limited (No 4) (2010) 120 ALD 16 at [2]. The Statement of Claim, which, as defined earlier is the fourth further amended statement of claim, was filed on 22 June 2011. A third further amended defence and further amended cross-claim was filed on 7 July 2011. ResMed filed an interlocutory application for leave to file the Amended Defence/Cross-Claim on 30 August 2011 and an amended application on 8 November 2011. The circumstances here are quite different from those considered by the High Court in Aon. Although preparation for trial has not been as fast as one would wish, the parties are making progress. No dates for trial have yet been set and, in the circumstances of this complex litigation ResMed's delay has not been excessive.

The proposed amended defence 19 As mentioned above the University has made specific objections to certain aspects of the Amended Defence/Cross-Claim. In its submissions ResMed makes the point that the University's objections, in particular in relation to its just allowance claim, are directed to the drafting of the pleading rather than to its entitlement to make such a claim. This is also the case with other parts of the pleading although the objections also go to the substance of the claims in some instances. 20 It is important to emphasise that taking issue with the drafting is not, at least in this case, mere technical pedantry but a vital element of fairness in the conduct of litigation. If the pleading does not allow the University to know with reasonable clarity and particularity the defence it has to meet then the pleading is defective. To the extent that the pleading does not meet the necessary standard, leave to amend should not be granted.

Paragraph 48A: Amended Defence - "Just Allowances" 21 The University claims that Patents and Designs developed by the respondent using the University's Intellectual Property are owned by the University and that any interest that ResMed has in them is subject to a constructive trust for the University. ResMed wishes to plead that just allowances should be made for the contribution made to the Patents and Designs by the respondent. This is because, according to its Amended Defence, "the conception, development and commercial exploitation of the Patents and Designs was attributable to substantial expense, skill, expertise and effort contributed by the respondent". 22 The University objects to this pleading submitting that it is "rolled-up", by which it means that the pleading does not provide sufficient detail or particulars. It submits that ResMed must: (a) specify which particular Patents and Designs are the subject of the allegation; (b) in relation to each such individual Patent and Design, specify: (i) the nature and extent of the conception, development and commercial exploitation; and (ii) the nature and extent of the respondent's contribution. 23 I do not accept this submission. In the context of a response to specific paragraphs in the Statement of Claim the Patents and Designs to which ResMed refers are sufficiently identified. Among others, paragraph 48A responds to paragraph 38 of the Statement of Claim. The term "Patents and Designs" is defined in paragraph 38 and it is reasonable to understand the term to have the same meaning in paragraph 48A. The nature and extent of ResMed's contribution can be the subject of evidence.

Paragraphs 100 to 108 Amended Defence & Paragraphs 45 and 46 Amended Cross-Claim - Royalties on the "Cushion" 24 ResMed proposes to plead that licence fees payable by ResMed to the University in respect of sales of the Mirage Masks should be calculated on the "Cushion" part of the mask, not on the entire mask system. ResMed says this is based upon construction of the Agreement, as well as estoppel, acquiescence, waiver or laches or on a rectification claim: paragraphs 88-108 Amended Defence; paragraphs 32-46 Amended Cross-Claim. 25 In paragraph 100 of its Amended Defence, ResMed says that it "has not paid, and has not made any provision to pay, licence fees in respect of any component of the Bubble Mask … other than the Cushion". It claims that at all material times the University has been aware that it has paid licence fees only on the Cushion component and has accepted the payments without objection. 26 According to ResMed this conduct has given rise to a representation that its obligation to pay a licence fee is limited to the Cushion and in reliance on this representation it has acted to its detriment. ResMed alleges that the University's knowledge was based on the matters set out in paragraphs 89 to 100 of the Amended Defence which describe relevant dealings and agreements between the University and the Travenol Centre for Medical Research Pty Ltd (later Baxter Centre for Medical Research Pty Limited) and the assignment of Travenol's rights to ResMed. 27 The University has a number of objections to the line of pleading in the proposed paragraphs 100 to 108. It submits that a plea of "non-payment" does not constitute a detriment, which is required for an estoppel claim adding that, "It is difficult to see how failure to make a provision could constitute a detriment in the absence of any pleading about the effect of such failure on the respondent's financial position". Moreover, ResMed has failed to give particulars of the facts of which the University is said to have knowledge, the detriment suffered or the agent by which the applicant is alleged to have obtained knowledge of the matters pleaded in paragraphs 89-100. Particulars of the knowledge are required pursuant to Rule 16.43 of the Federal Court Rules and, in its current form, the pleading is "embarrassing". 28 I accept the University's submission that ResMed has not pleaded facts or detriment in support of the claims made in paragraphs 100 to 108. It may be that the detriment could be particularised or that the pleading could have been of estoppel by convention as, for instance, in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226. That is not, however, what has been pleaded. As Mr Moore, senior counsel for the University, observed in oral submissions, the pleading is of a detrimental reliance case and the detriment said to be based on the University's "completely unpleaded conduct". 29 I also agree that the failure to provide particulars of the knowledge attributed to the University results in the pleading, in particular in paragraphs 101 and 102, being embarrassing in its present form. These omissions are, directly or indirectly, fatal to paragraphs 100-108 of the Amended Defence.

Paragraphs 109 to 117 - Licence fees on sales by ResMed corporate group members and sub-licensees 30 Paragraphs 109 to 117 also concern licence fees in respect of Cushions of Bubble Masks. They allege that the University was aware that ResMed paid licence fees in respect of the sales it made but not by members of its corporate group or its sub-licensees. In relation to sales by members of ResMed's corporate group or sub-licensees the Amended Defence substantially repeats the claims of acquiescence, estoppel, reliance, detriment and laches that were made in paragraphs 100 to 108. The paragraphs suffer the same deficiencies as paragraphs 100-108.

Amended Cross-claim 31 As ResMed submits, paragraphs 32 to 46 of the Amended Cross-Claim make a cognate claim of rectification in relation to the royalty calculation issue. In paragraphs 45 and 46 ResMed pleads it was not the intention of the parties that the Licence Fee be payable in respect of any component of the Nasal Masks other than the Cushion. It claims that if the relevant agreements do not support this construction they should be rectified to reflect the common intention of the parties. 32 It is submitted on behalf of the University that, as with paragraphs 104 to 106 and 109 to 115 of the Amended Defence, paragraphs 45 and 46 "rely on allegations of what was done in relation to the very specific circumstances of the Bubble Mask to support an allegation of common intention, and hence rectification in relation to any Nasal Mask. There is no link pleaded between the different subject matters …". In response to this submission ResMed says that the "Bubble Mask" is a "nasal mask" and that, as set out in paragraphs 89-96 of the Amended Defence, it had previously acquired from the University rights in respect of a CPAP nasal mask system. 33 Contrary to the University's submission that the amendments in these paragraphs should not be permitted because the precise manner in which the agreements should be rectified has not been set out, ResMed submits that the form is sufficiently clear from paragraph 46. I accept that submission. Paragraph 46 claims that the relevant agreements should provide that "the licence fee is payable in relation only to the Cushion of a nasal mask" and that definitions in the agreements should be rectified to reflect that requirement.

Conclusion 34 In summary, I reject the University's objections to paragraph 48A of the Amended Defence and paragraphs 45-46 of the Amended Cross-Claim. I allow the University's objection to paragraphs 100-108 and 109-117 in their present form. ResMed should have leave to file the Amended Defence and Cross-Claim not including those paragraphs and to replead the issues raised in those paragraphs redressing the deficiencies pointed out in these reasons.

THE UNIVERSITY'S APPLICATION FOR SEPARATE DETERMINATION 35 Pursuant to Rule 30.01(1) of the Federal Court Rules, the University seeks an order that paragraphs 1-12, 14-16, 17A-18C, 19-26E, 27-34, 35-39, 41-42B and 46 of the Statement of Claim be determined separately from and prior to all other issues arising in its case. As noted previously, the University seeks to postpone the consideration of claims to pecuniary and other relief. The University's claim involves postponing paragraphs 13, 17, 18D, 26F, 39A-40A, 42C-45 and 47-48 of the Statement of Claim for determination subsequent to those first mentioned. 36 The University also seeks an order that the issue of quantification, raised by paragraph 22 of the Amended Cross-Claim, be determined separately and subsequent to all other issues arising under the Amended Cross-Claim. It does not press the claim in its notice of motion for a separate and subsequent hearing of the issues raised by paragraphs 19, 20 and 30 of the Amended Cross-Claim. 37 ResMed opposes the application for separate determination on the basis that it is not conducive to the efficient administration of justice. It submits that this is not the usual kind of intellectual property infringement case in that the contractual relationship between the parties gives rise to a range of claims, defences and cross-claims not normally found in such a case. 38 The University provided the Court with detailed written submissions which it summarised thus: (a) … the quantification of the University's claims will be a far larger exercise, and indeed is likely to dwarf, the consideration of issues of liability. (b) Different quantification exercises will need to be performed depending upon which of the University's claims (if any) are successful. Depending on the findings on liability, some or all of the vast quantification exercise will not need to be performed. (c) The present case is somewhat unusual in that some of the University's claims are mutually exclusive. If issues of quantification are not separated then a considerable amount of preparation, evidence and Court time will inevitably be wasted. (d) If quantification is to be determined with liability, then there will need to be a further process of discovery by ResMed and an extensive process of evidence preparation on both sides. Thus the hearing of the matter will be delayed for a further significant period. (e) There are strong reasons in the interests of proper case management, and the quick, inexpensive and efficient determination of the proceedings, for the Court to order the separate determination of questions of liability in advance of damages and other relief. 39 For its part ResMed submits that, in addition to there being a contractual relationship between the parties, other factors militate against any separation of the issues. In particular it submits that: (a) if the issues are determined separately, substantial matters will remain unresolved after a hearing on liability, including the University's entitlement to ResMed's Patents and Designs; (b) there is a substantial risk that issues and witnesses will overlap if the hearing is split; and (c) the proceeding will be further delayed rather than shortened if the issues are determined separately.

Relevant principles 40 In considering the specific paragraphs of the Statement of Claim that the University seeks to be determined subsequent to issues of liability, it is necessary to bear in mind the general principles applied by the courts in determining such applications. The principles are well developed and not controversial. They are, however, principles and not rules and their application depends on a multiplicity of factors and the weight that, in all the circumstances, the Court ascribes to them. 41 In general all issues in proceedings should be determined at the one time: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142; Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495 at [7]. That is not invariably the case and in the exercise of its wide ranging powers of case management the Court may determine that consistent with s 37M of the Federal Court of Australia Act 1976 (Cth), the most efficient and inexpensive approach will be to separate some issues or questions for earlier determination: see Olbers v Commonwealth of Australia (No 3) [2003] FCA 651 at [8]. Sometimes the early determination of some issues will substantially narrow the issues to be determined at trial or even lead to partial or total settlement of the proceeding: Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013. 42 The party seeking to have a separate determination bears the onus of demonstrating that there should be a departure from the ordinary course: Liberty Financial Pty Ltd v Scott [2003] FCA 226 at [35]; and Energy Australia v Australian Energy Ltd [2001] FCA 1049 at [5]. 43 In Reading Australia Pty Ltd v Australian Mutual Providence Society (1999) 217 ALR 495 at [8], Branson J summarised the relevant principles: (a) the term "question" in O 29 r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an "issue" and a "question" is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an "issue", and less decisive matters of dispute being "questions" (Landsal Pty Ltd (in liq) v REI Building Society (1993) 113 ALR 643 at 647); (b) a question can be the subject of an order for separate decision under O 27 r 2 even though a decision on such a question will not determine any of the parties' rights (Landsal Pty Ltd (in liq) v REI Building Society at 647); (c) however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd [1999] HCA 9 at para 45); (d) where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Nissan v Attorney-General [1970] AC 179 at 242-243 per Lord Pearson; Bass v Perpetual Trustee at para 53); (e) care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not "ripe" for separate and preliminary determination. An issue may not be "ripe" for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O'Neill per Kirby P at 606); (f) factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may - (i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or (ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neil (1985) 1 NSWLR 601 per Kirby P at 607); (g) factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may - (i) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934; (ii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General for Victoria [1995] FCA 727). This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or (iii) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth). 44 Justice Branson also referred to the decision of CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at 606 where Kirby P stated "a matter is 'ripe' for separate and preliminary determination where it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy". Her Honour at [9] also summarised the position thus: Ultimately the issue for the court to determine when consideration is being given to the making of an order under O 29 r 2 is whether it is 'just and convenient' for the order to be made... There are classes of proceedings in which it is commonly recognised that it is just and convenient for an order under O 29 r 2 to be made. One such class is proceedings concerning intellectual property rights where an applicant cannot be compelled to make an election as between damages and an account of profits at least until all of the evidence has been received so that, if an order has not been made separating the determination of the issues of liability and relief, the parties will have to call evidence to deal with both damages and an account of profits…" Although the Federal Court Rules have been changed since her Honour made those observations, there is no material difference in the present Federal Court Rules and the guidelines to which her Honour refers are still applicable. 45 The University submits that it is common for there to be a separate determination of liability ahead of quantum in intellectual property cases, even where there is some overlap between the issues if the benefits of separation outweigh this: see Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013 at [8]. 46 ResMed refers to Reading at [12] where her Honour observed that where a claim for estoppel is pleaded and a party seeks to have liability and quantum determined separately, there is a risk that in establishing detriment, issues relevant to quantum may arise. There are other cases in which issues were so intertwined that ordering a separate determination was not appropriate: see Energy Australia v Australian Energy Ltd [2001] FCA 1049; Instyle Contract Textiles Pty Limited v Good Environmental Choice Services Pty Ltd (No 3) [2010] FCA 466; Nunagin Holdings Pty Ltd v Evertop Investments Pty Ltd (No 2) [2010] FCA 1228; Breezway Australia (Holdings) Pty Ltd v Preference Manufacturing Pte Ltd [2011] FCA 764. 47 For these reasons courts are cautious about exercising the discretion to order a separate determination. In separating issues of liability from those of quantum there is always a risk that the efficiencies of time and cost will be more illusory than real. In ABB Engineering Construction Pty Ltd v Freight Rail Corp [1999] NSWSC 1037, Rolfe J, at [19], raised as an argument against the separation of liability and quantum that until the parties have some assessment of the amount to which a successful plaintiff claims to be entitled they can give no "meaningful consideration" of the financial stake involved and therefore proper consideration of an "appropriate commercial settlement".

The University's claims 48 In considering whether some of the University's claims should be determined separately from and prior to others, I propose first to give a brief summary of those claims and then, at the risk of some repetition, specifically consider the paragraphs of the Statement of Claim that the University submits should be postponed. 49 The University makes a series of claims in the alternative to its principal claim that the Mirage Masks developed by ResMed are "Product" within the meaning of the Agreement and licence fees are payable in respect of them. Quantification of its claims will depend upon which claim is successful. To illustrate its point that a separate determination would be more efficient the University made written submissions as to what would be involved in quantifying each of its claims.

Claim for licence fee - construction of "Product" 50 The proceeding involves, among others, a dispute as to the application of the term "Product" which is defined in the Agreement. The University claims that each Mirage Mask developed and sold by ResMed is "Product" within the meaning of the Agreement. That is, it is a Nasal Mask which incorporates the use of the Intellectual Property. If the University is correct, ResMed is in breach of the Agreement by failing to pay licence fees to the University in respect of sales of the Mirage Masks. 51 The University submits that this claim also raises the question whether "Product" has "an ambulatory meaning" which extends to "any product that involves the use of the Intellectual Property, or whether it refers only to particular product". The University refers to a decision of Lindgren J earlier in this proceeding where his Honour expressed a preliminary view that it was arguable that "Product" was limited to the particular invention described in the Provisional Application referred to in Schedule 2 paragraph (a): The University of Sydney v ResMed Limited [2008] FCA 1020 at [7] and [49]-[57]. 52 This in turn is said to raise the issue as to whether "Product" is "a particular embodiment of that Provisional Application in existence at the date of the Agreement (e.g. the 'Bubble' Mask) or any embodiment of the Provisional Application". If it is the latter, the University submits that there may be "some conceptual overlap between the claim for a licence fee and the claim for patent infringement". 53 The University submits that until the question whether the Mirage Mask is "Product" is determined it would be inefficient and a waste of time and money to quantify any licence fees that may be payable. Quantification of the Licence Fees, if the University is successful in this claim, will involve, among other things, a consideration of whether the sales were made to 'arms length distributors'. This consideration is relevant because ResMed is now part of a multinational group of companies and many of the masks manufactured by it were internally distributed to entities within its corporate group. 54 There is an issue as to whether ResMed is contractually obliged to pay licence fees in respect of sales of the masks by other members of its corporate group (as claimed by the University) or whether the transfers can be regarded as sales to "arms length distributors". The University says this issue will in turn raise: (a) an issue of contract construction - whether related bodies corporate are "arms length distributors"; and (b) a factual issue - whether the relevant terms of supply are "arms length", which in turn may require an examination into transfer pricing within the ResMed Group, and a consideration of comparable sales to external third parties. 55 If the Mirage Mask is found to be "Product" then, the University submits that its claims of patent infringement, breach of clause 3.3 of the Agreement and misuse of confidential information, and any damages or account of profits payable pursuant to these claims, would disappear.

Breach of clause 3.3 - use of Intellectual Property 56 In the alternative to the Licence Fee claim, the University claims that ResMed used the Intellectual Property, as defined in the Agreement, to develop the Mirage Masks in breach of clause 3.3 of the Agreement. The University submits that a determination of the damages it has suffered, as particularised in paragraph 18D of the Statement of Claim, should be postponed because it involves "hypothetical questions of some complexity". For example, the University claims that ResMed would have sold more Membrane Masks, on which it is required to pay royalties, if it had not developed the Mirage Masks. The University says determining this issue would involve a consideration of the extent to which the Membrane Mask would have continued to be an attractive product in the market place; the extent to which other products in the market place would have taken away from sales of the Membrane Mask; and the extent to which each version of the Mirage Mask was sold in substitution to demand for the existing Membrane Mask or the extent to which it created its own demand and grew the market.

Breach of obligation of confidentiality 57 This claim is made in the alternative to the Licence Fee claim. If the claim made by the University at paragraphs 11F and 11G of its Statement of Claim is made out, namely that ResMed owed the University an equitable obligation of confidence in respect of information provided to ResMed and ResMed used that information to develop Mirage Masks in breach of its obligation (see paragraphs 18, 18B and 18C of the amended Statement of Claim), then quantification of any relief flowing from the claim would be different from any relief based in contract.

Breach of clause 11 - Improvements in connection with the Intellectual Property 58 The University also claims that ResMed made improvements or discoveries in respect of the Intellectual Property and has incorporated these in each Mirage Mask in breach of clause 11 of the Agreement. It claims ownership of these discoveries and improvements and that ResMed has failed to pay a licence fee on sales of the Mirage Masks. 59 The damages it seeks for breach of contract would involve "factual enquiries of considerable complexity" according to the University because, for example, in relation to a lost opportunity to make profits from the manufacture or sale of products incorporating the discoveries or improvements, it would be necessary to have regard to the form the product would have taken, how the University would have gone about commercialising the product and the profit which would have been made by it. Therefore the issue of whether there has been a breach of clause 11 of the Agreement should be determined separately and prior to the issue of quantification.

Patent Infringement 60 If the University is successful in its claim that the Mirage Mask is "Product", then this claim does not arise. The applicant contends that each Mirage Mask infringes the Patent and it is therefore entitled to damages or, if it so elects, an account of profits. Quantifying the account of profits to which the University is entitled if this claim is successful would involve an extensive exercise. The University says the following issues may arise: (a) ascertaining whether the relevant infringing product is the whole of the device or system sold by ResMed, or only part of that device or system; (b) if the latter, ascertaining the revenue properly attributable to the infringing part; (c) in either case, establishing the costs attributable to the relevant infringing products, in circumstances where ResMed manufactures and sells a variety of products including products not the subject of the present proceedings.

Patents and Designs 61 ResMed has applied for registration of patents in respect of various Patents and Designs which the University claims have been developed by ResMed in breach of clauses 3 and 11 of the Agreement. By way of relief, the University seeks specific performance, declarations as to a constructive trust, damages and an account of profits. Again, it submits calculating this relief will involve complex factual issues and so the issue of liability should be determined first.

ResMed's submissions 62 ResMed submits that a hearing on liability only will result in substantive issues being left unresolved. For example, the University's claim for a constructive trust over ResMed's Patents and Designs or its claim for specific performance. It says the parties are unlikely to settle the proceeding without having these issues and the question of quantification resolved.

Overlap of issues and witnesses 63 In its written submissions, ResMed provides 7 examples of the way in which issues and witnesses may overlap. It says it is difficult to identify all the ways in which this may occur given the complexity of the proceeding. Most of the examples relate to the University's claim for constructive trust over the Patents and Designs in the context of ResMed's claim for just allowances. As discussed below the University has conceded some merit in these examples and has not pressed for separate determination in that case: see [74] below. 64 ResMed also submits that the hearing of this proceeding, no matter how it is structured, will be "very lengthy and complex", but a separate hearing on questions of liability and quantum will further delay resolution of the proceeding. If separate hearings are ordered, ResMed submits that not all of the substantial matters will be determined at the liability hearing which will have the effect of postponing any settlement between the parties and will promote the risk of multiple appeals. It says these considerations outweigh the applicant's arguments in favour of separate hearings. There is undoubtedly merit in these submissions ultimately however, the issue involves an exercise of discretion that takes into account these factors and weighs them against other benefits.

Postponement of determination 65 Notwithstanding all the reservations expressed above, which I have considered carefully, it is as well to state now my conclusion that in this case, the cost effective and efficient management of the proceeding will be enhanced by ordering that the determination of some issues, in particular those involving the quantification of pecuniary loss or damage, be determined separately and subsequent to others. My reasons for this conclusion are explained below. It is convenient to do this by focusing on the paragraphs that the University submits should be determined subsequent to other issues.

Paragraph 13 of the Statement of Claim 66 Paragraph 13 alleges that ResMed has an obligation to pay the Licence Fee under the Agreement in respect of all Product (as defined in the Agreement) whether: (a) it is sold by any company in the ResMed corporate group, (b) manufactured or supplied by ResMed and sold by any company in the ResMed corporate group; or (c) sold by ResMed and its sub-licensees. The allegation is made on the basis of a construction of the Agreement set out in paragraph 12 of the Statement of Claim which claims that ResMed is required to pay a licence fee "in respect of all Product sold in the preceding six months". The particulars to paragraph 12 refer to the clauses of the Agreement, in particular clause 5.1, which describe, in tortuous language, the method by which the fee is to be calculated. 67 The reference to "all Product" in paragraph 12 is neither qualified nor amplified whereas in paragraph 13 the ambit of the claim is very specific. Nevertheless both paragraphs are concerned with the construction of the Agreement and the extent of ResMed's obligation to pay the Licence Fee. I see no merit in a determination under paragraph 12 being made prior to that under paragraph 13. I find support for this view in the particulars to paragraph 13 which state that the matters "arise from a proper construction of the Agreement" and that the University "does not rely upon any additional facts, matters or circumstances".

Paragraph 17 of the Statement of Claim 68 Paragraph 17 asserts loss and damage suffered by the University as a consequence of ResMed's alleged breach of its obligation to pay the Licence Fee as claimed in paragraph 12. It is concerned with the quantum of that loss, the calculation of which will not arise unless the breach is made out. There is every reason to expect that the quantification of the loss would be an extensive and laborious enterprise which it would be more efficient to postpone pending determination of the breach.

Paragraph 18D of the Statement of Claim 69 Paragraph 18D claims loss and damage as a result of the breaches referred to in 18B and 18C. The latter paragraphs concern a breach and breaches of clause 3.3 of the Agreement and misuse of confidential information. If the University's claim to a licence fee in paragraphs 12 and 13 is successful then the quantification of damages or an account of profits under 18D would not arise. For that reason it would be more efficient for the determination of this claim to await the prior determination of ResMed's liability in this regard.

Paragraph 26F of the Statement of Claim 70 Paragraph 26F pleads loss and damage arising from a breach of clause 11.1 of the Agreement. Clause 11.1 concerns discoveries or improvements made in connection with the University's Intellectual Property. It provides that any such discoveries or improvements "shall belong to and be the absolute property of the University". Paragraph 21 of the Statement of Claim alleges that it is a term of the Agreement (express or implied) that ResMed may not use or exercise such discovery or improvement without a licence from the University. 71 If the University's claim in paragraph 21 is not successful then the quantification of damages or an account of profits under 18D will not arise. Given that the University claims that ResMed has made one or more discoveries or improvements that are incorporated in each Mirage Mask there is no reason to doubt that quantification of the claimed loss and damage would be a major task. In paragraph 26F the loss and damage is particularised as including: loss of opportunity to negotiate a licence fee or to otherwise exploit the discoveries or improvements. In its written submissions the University states: Each of these various methods of quantifying loss involves factual enquiries of considerable complexity. For example, in relation to the loss of the opportunity to make profits from the manufacture or sale of items incorporating the discoveries or improvements, it will be necessary to consider the form that the relevant item would take, how the University would go about commercialising such an item, and what sales and what profit would be likely to be made. 72 The scope of this exercise is such that I am satisfied that it would be more efficient for the determination of this claim to await the prior determination of ResMed's liability in accordance with paragraph 21.

Paragraphs 39A to 40A of the Statement of Claim 73 These paragraphs follow the assertion in paragraph 38 that, in breach of its contractual or equitable obligations to the University, ResMed has incorporated the University's Intellectual Property in patents and registered designs (Patents and Designs) for which it has applied or which it has obtained. It asserts that ResMed cannot in good conscience retain its interest in those Patents and Designs, that damages are not an adequate remedy and that ResMed holds its interest as constructive trustee for the University. 74 In written submissions and at the hearing Mr Moore conceded that, if, as is the case; (see [23] above) ResMed were given leave to raise the just allowances defence in paragraph 48A of the Amended Defence then there would be "some merit" in the issues in paragraphs 39A-40A being determined in the first phase so as to avoid undue overlap. I agree that the merits of the just allowances defence should be determined along with other issues of liability, that is, in the first phase if there are to be two phases. If the defence were to be successful, quantification of ResMed's 'just allowance' could be postponed.

Paragraphs 42C to 45 of the Statement of Claim 75 The claims made in paragraphs 42C to 45 arise from the alleged breaches of clause 11 of the Agreement pleaded in paragraphs 41 to 42B. Those allegations related to ResMed's discoveries and improvements incorporated in the Patents and Designs and the associated misuse of Intellectual Property and breach of the University's Patent. It is claimed that damages are an inadequate remedy for the alleged breaches and that the University is entitled to specific performance of the alleged obligation of ResMed to assign such rights to the University and that ResMed holds those rights on a constructive trust for the University. There is also a claim that the University is entitled to have the patent application proceed in its name, a claim for injunctive relief and for an account of profits. 76 The claims for the equitable remedies of specific performance, injunction and constructive trust raise similar issues as under paragraphs 39A to 40A. Postponing a determination for such relief would very likely involve considerable overlap between the two hearings and for this reason the determination of the claims in paragraphs 42C to 44 should not be postponed. The account of profits sought in paragraph 45 would not involve such overlap. For reasons already given in relation to earlier claims to pecuniary relief consideration of paragraph 45 should be postponed pending the determination of liability.

Paragraphs 47 and 48 of the Statement of Claim 77 Paragraph 46 of the statement of claim repeats the claims made in paragraphs 28-30. Those claims concern the Mirage Masks manufactured by ResMed and sold by the ResMed Group in Australia and throughout the world. Paragraph 46 alleges that those activities involve the exercise by ResMed of rights associated with the Patents and Designs. As alleged in paragraphs 47 and 48 they give rise to an obligation to account and to compensate for loss and damage for breach of ResMed's obligation to assign the Patents and Designs to the University. 78 For reasons already given in connection with early paragraphs of the statement of claim, it is my view that quantification of these claims for pecuniary relief should be postponed pending the determination of liability.

Paragraph 22 of the Amended Cross-Claim 79 In its Amended Cross-Claim ResMed contends at [21] that clauses 11.1 and 11.2 of the Agreement apply only to discoveries or improvements "which fall within the claims of any patent that would issue from the provisional Application or fall within the claims of the Patent. It claims that, if those clauses are not so limited that they are liable to be rectified so as to reflect that limitation. ResMed claims that the University represented that clauses 11.1 and 11.2 would be so limited. Paragraph 22 involves a claim for loss and damage suffered by ResMed and which is alleged to be equal to any claim for damages sought by the University. 80 Consistent with the conclusions expressed above, the determination of the claim made under paragraph 22 and the quantification of any damages suffered by ResMed should be postponed pending the determination of the underlying claims made in the Amended Cross-Claim.

Conclusion 81 In summary then, I find that the determination of the claims in paragraphs 17, 18D, 26F, 45 and 47-48 of the Statement of Claim and paragraph 22 of the Amended Cross-Claim should be separate from and subsequent to the determination of the claims made in all other paragraphs of the statement of claim and cross-claim.

COSTS 82 Each of the University's notice of motion and ResMed's Amended Interlocutory Application asks for such other orders as the Court sees fit. In addition the University seeks an order for costs. Neither party made any mention of costs in oral submissions however the written submissions for the University made the following argument in favour of its costs application: If, contrary to the applicant's submissions, the respondent is given leave to amend its pleadings, or leave to re-plead, the applicant seeks the usual order for its costs thrown away by reason of the amendment, including any additional costs incurred by reason of multiple proposed versions of the amendments. Any amendment may well result in duplicated costs (for example, the need to revisit discovery on areas thought to be closed). Accordingly, the applicant seeks that any leave to amend or re-plead be given on appropriate terms as to costs, including the costs of the application to amend. 83 In my view the interlocutory applications addressed in these reasons were not unexpected in the course of preparing for a complex trial. It is perhaps regrettable that amendments to pleadings on both sides are often necessary as a case develops and the details of the opposing party's case become more clear. The fact that the University's Statement of Claim is now in its sixth iteration is ample evidence of this. In the circumstances each party has required the case management assistance of the Court and each has had a measure of success. There is no evidence that either has been unusually unreasonable I think that the appropriate cost order is that the cost of each application should be costs in the cause. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.