Vald Performance Pty Ltd v Kangatech Pty Ltd

1. The applicant in the principal proceeding pay the costs of the first respondent thrown away by reason of the amendments to the originating application and the statement of claim, due to the lack of standing issue, including the costs of the Case Management Hearing held on Tuesday, 12 November 2019, on an indemnity basis.
2. Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GREENWOOD J: 1 These proceedings are concerned with a short point which arises out of a Case Management Hearing held in the matter yesterday morning. 2 In the proceeding, the applicant ("Vald") seeks relief against the first respondent ("Kangatech") in the form of a declaration that Kangatech has infringed particular claims of the patent in suit; injunctions in relation to contended infringing conduct; damages and other relief. All relief is sought against Kangatech. 3 The second respondent is the Queensland University of Technology ("QUT"). At the commencement of the proceeding, the QUT was the registered proprietor of the patent in suit. 4 By its statement of claim, Vald asserts that by a Licence Agreement dated 16 December 2014, the QUT granted an entity called QUTbluebox Pty Ltd ("QUTBB") an exclusive licence to commercialise the patent, and by a licence dated 19 December 2014, QUTBB granted Vald an exclusive licence to commercialise the patent in suit for a period of 20 years from 19 December 2014. 5 By its defence, Kangatech admits that the QUT granted QUTBB a licence to exploit the patent by an agreement dated 16 December 2014 and it admits that QUTBB granted a licence to Vald to commercialise the patent by way of a Licence Agreement dated 19 December 2014. However, Kangatech says that Vald's purported exclusive licence is not an exclusive licence for the purposes of the Patents Act 1990 (Cth) (the "Act") having regard to s 120(1) of the Act which confers standing to bring infringement proceedings on the patentee or an exclusive licensee. 6 Kangatech says that Vald is not an exclusive licensee having regard to s 3 and Schedule 1 of the Act which defines an exclusive licensee to mean "a licence under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons". 7 Kangatech says that Vald's purported exclusive licence is not a licence granted by the QUT; does not include the right to import; reserves to QUTBB the right to use the patent for research, development and education and to sub-licence the patentee on the same terms; and at the date of grant to Vald, QUTBB had already granted licences of the patent to other parties. 8 This question of Vald's standing to bring the proceedings has been agitated quite extensively on the correspondence. 9 It started with a letter from Vald's then solicitors, Maxwell IP ("Maxwell"), dated 22 March 2019 asserting that Vald is the exclusive licensee of the patent. In that letter, Vald's solicitors also set out the scope of the infringing conduct asserted against Kangatech. 10 On 4 April 2019, Kangatech's advisers, Griffith Hack ("GH"), responded noting, as a preliminary matter, that the contended exclusive licence was not recorded with IP Australia and, having regard to s 120(1) of the Act, observed that it "would be grateful if you would let us have a copy of that licence". 11 By letter dated 5 April 2019, Maxwell responded saying that it was obtaining a copy of the licence with appropriate redactions. That letter went on to say some things about infringement. 12 By letter dated 18 April 2019, GH pressed the notion that it had not yet been given access to the licence document constituting Vald as an exclusive licensee of the patentee. GH asserted that in the absence of any records maintained by IP Australia, Kangatech was proceeding on the assumption that Vald did not have standing to assert rights under s 120(1) of the Act. 13 By letter dated 26 June 2019, incoming solicitors for Vald, Holding Redlich, reasserted the proposition that Vald is the exclusive licensee of the patent and went on to say some things about patent infringement and made a claim for certain undertakings to be given by Kangatech. 14 By letter dated 10 July 2019 to Holding Redlich, GH reasserted its concern that Vald had not demonstrated that it had standing to assert rights under s 120(1) of the Act. By letter dated 11 July 2019, Holding Redlich reasserted that Vald "is an exclusive licensee in respect of the patent". 15 On 23 July 2019, proceedings were filed supported by a statement of claim filed that day. 16 By letter dated 31 July 2019, GH pressed its request for access to the licence documents referred to in the pleading earlier mentioned. Discussion took place about confidentiality issues concerning the licence documents and the provision of an appropriate Fielder Gillespie undertaking as to those matters. Those issues were resolved and, on 5 August 2019, redacted versions of the two pleaded licences were produced. 17 By letter dated 16 August 2019, GH observed that the licence documents were so heavily redacted that they were inadequate for the purpose of enabling GH to consider Kangatech's position and advise it and prepare a defence. 18 By an email dated 19 August 2019, an un-redacted copy of each pleaded licence was provided to GH. 19 By letter dated 25 September 2019, Vald sought additional time, in light of the matters raised in Kangatech's defence, in order to prepare its reply. On 1 October 2019, GH consented to an extension until 24 October 2019 for the filing of the applicant's reply (supported by appropriate consent orders). 20 By letter dated 15 October 2019, Holding Redlich sought a further four weeks to put on its reply to Kangatech's defence. By letter dated 18 October 2019, GH took issue with aspects of that request. 21 By letter dated 21 October 2019, Holding Redlich advised GH that Vald was in the process of formalising an assignment of the patent the subject of the proceeding from the QUT to Vald and the assignment would include any and all rights of action in relation to the patent accrued prior to the date of assignment. Vald anticipated that the assignment would be completed "shortly" and would then be followed by an application to IP Australia to amend the ownership details of the patent. Vald's proposal was that within 14 days of that amendment being registered, it would file and serve an amended statement of claim and discontinue the proceedings against the QUT. 22 By letter dated 24 October 2019, GH observed that it was clear from the correspondence that Vald now accepted, for the first time, that it had no entitlement to bring the proceedings under s 120(1) of the Act. 23 By an affidavit of Tanya Maree Jackson sworn 12 November 2019, a Deed of Assignment of the patent between QUT, QUTBB and Vald dated 11 November 2019 is Exhibit TMJ-2. 24 As a result of these exchanges, the position which emerged at the Case Management Hearing is that the parties were in agreement that four orders ought now be made. First, the applicant be granted leave to file an amended originating application and amended statement of claim by 13 December 2019; QUT be removed as a party to the proceeding; Kangatech file an amended defence and cross-claim by 8 February 2020; and the matter be referred to mediation before a Registrar of the Court on a date not before 15 February 2020. 25 Vald accepts that it ought to pay the costs of Kangatech and QUT thrown away by reason of the amended originating application and the amended statement of claim including the costs of the Case Management Hearing held yesterday. 26 On the other hand, Kangatech says that it ought to have its costs of the entire proceeding to date on an indemnity basis on the ground that Vald simply never had standing to bring the proceedings and, by GH, it sought to test and interrogate that position from the very outset. It says that costs have been incurred in circumstances where the proceeding was commenced on a misconceived footing that Vald had standing to sue when it clearly did not have that standing. Kangatech says that Vald ought to have obtained an exclusive licence from the QUT before commencing the proceeding or have put in place an assignment that gave it the rights it needed to acquire. 27 Vald does not concede that it is not an exclusive licensee for the purposes of the Act. It says that the question is academic because an assignment is now in place and the action is to be reconstituted having regard to those new circumstances. Nevertheless, the question remains alive for the purposes of costs. 28 Vald says that relevant to the question of the discretion is the set of circumstances apparent under the licences upon which Vald relied. It says that under the Head Licence between QUT and QUTBB, QUT granted QUTBB a perpetual, exclusive, worldwide, royalty-free licence to exploit the intellectual property as defined for the purposes of that licence including the patent in suit. Vald says that under the licence between QUTBB and Vald, QUTBB granted Vald an exclusive licence, in the "territory", to commercialise the intellectual property as defined (including the patent in suit) within a territory described as "the whole world", subject to the agreement. 29 Vald did not enjoy the right to grant sub-licences to any person to commercialise the intellectual property without the prior written consent of QUTBB. In addition, notwithstanding anything else in the agreement, QUTBB reserved the right to use the intellectual property for research, development and education, with the right to grant a sub-licence to the QUT on the same terms and with the right in the QUT to grant sub-licences to its research collaborators. 30 In Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121, a question arose as to whether a licence granted by Orion to Novartis Pharma AG ("Novartis") on 7 March 2014 was properly characterised, having regard to the terms of the agreement and the relevant history of the preceding arrangements, as an exclusive licence for the purposes of the Act. It was held to be such a licence. A further question arose as to whether an exclusive sub-licence "in relevantly similar terms to the 2014 licence", granted by Novartis to Novartis Pharmaceuticals (Australia) Pty Limited ("Novartis Australia"), conferred standing upon Novartis Australia to bring a claim of infringement of the patent under s 120(1). As the argument transpired before the Full Court, neither Orion nor Novartis nor Novartis Australia sought to support the primary judge's conclusion that Novartis Australia had standing to sue. The respondents were content to adopt the position that Novartis Australia was not "an exclusive licensee of the patent". 31 As to that, two observations of the Full Court might usefully be noted. First, the definition of "exclusive licensee" in the Act "makes explicit that the exclusionary character of an exclusive licence covers 'the patentee and all other persons'": [231]. Second, as to the concession made by the respondents concerning the position of Novartis Australia, the Court said this: The respondents' position is properly taken. We think that the primary judge erred in concluding that Novartis Australia had standing to sue for infringement. In our view, s 120(1) of the Act is clear on that subject. Although s 120(1) uses the word "may", it is specific as to who may sue for infringement - the patentee or an exclusive licensee. We do not read s 120(1) as merely being indicative of the persons who can sue for infringement. 32 In order to sue for infringement, Vald must be an exclusive licensee within the meaning of the Act. 33 Although Vald asserts, at least for the purposes of this costs debate, that it was, at all material times, an exclusive licensee of the QUT presumably on the footing that it says that it is properly characterised as a licensee, under a licence, granted by the patentee and conferring on the licensee the relevant right to exploit. For the purposes of this debate, I am not satisfied that an exclusive licensee of an exclusive licensee is within the scope of the term "exclusive licensee" for the purposes of the Act and, in any event, having regard to the terms of the licences, there seem to be reservations which operate as a derogation from the exclusivity of the grant, in any event. 34 I am satisfied that a body of costs have been incurred by Kangatech which ought never to have been incurred having regard to Vald's lack of standing to bring the proceeding. The proceeding, however, is to be reconstituted and it follows that some small part of the costs going to the question of infringement and other continuing issues, are not entirely lost. This circumstance is relevant to the exercise of the discretion under s 43 of the Federal Court of Australia Act 1976 (Cth). 35 Accordingly, the applicant in the principal proceeding is ordered to pay the costs of the first respondent thrown away by reason of the amendments to the originating application and the statement of claim, due to the lack of standing issue, including the costs of the Case Management Hearing held on Tuesday, 12 November 2019, on an indemnity basis. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.