University of Sydney v ResMed Limited - [2012] FCA 232 - FCA 2012 case summary — Zoe

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University of Sydney v ResMed Limited

[2012] FCA 232

Federal Court of Australia|2012-03-16|Before: Stone J

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Source facts

Court

Federal Court of Australia

Decision date

2012-03-16

Before

Stone J

Source

Original judgment source is linked above.

Judgment (36 paragraphs)

[1]

Save for the inclusion of paragraphs 100 to 117 the respondent/cross-claimant has leave to file the fourth further amended defence and second further amended cross-claim in the form annexed to the amended interlocutory application filed on 8 November 2012.
The respondent has leave to replead paragraphs 100-117 of the proposed further amended defence/cross-claim annexed to the amended interlocutory application filed on 8 November 2012 in accordance with these reasons.
The issues raised in paragraphs 1-16, 17A-18C, 19-26E, 27-34, 35-40A, 41-44, 46 of the statement of claim and the issues raised in the second further amended cross-claim other than those raised in paragraph 22 be determined separately from and prior to all other issues arising in the applicant's claim or in the second further amended cross-claim.
The issues raised in paragraphs 17, 18D, 26F, 45 and 47-48 of the statement of claim and the issue raised in paragraph 22 of the second further amended cross-claim and the quantification of any pecuniary relief be determined separately from and subsequent to the issues referred to in order 1.
The notice of motion filed by the applicant on 14 July 2011 is otherwise dismissed.
The amended interlocutory application filed by the respondent on 8 November 2011 be otherwise dismissed.
The costs of the notice of motion filed by the applicant on 14 July 2011 and the costs of the amended interlocutory application filed by the respondent on 8 November 2011 be costs in the cause.
The proceeding be listed for further directions on a date to be advised by the Court.
Liberty to apply on 3 days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

[2]

[5]

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.

[8]

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.

[11]

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.

[15]

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.

[16]

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".

[18]

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.

University of Sydney v ResMed Limited

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