Wake Forest University Health Sciences v Smith & Nephew Pty Ltd ACN 000 087 507

Federal Court of Australia|2009-06-15|Before: Ryan J

REASONS FOR JUDGMENT 1 Before the Court is an application for an interlocutory injunction restraining the respondent ("Smith & Nephew") from: '… importing, promoting, offering for sale, selling, otherwise disposing of, offering to otherwise dispose of or keeping for any of those purposes;

(a) Foam dressing kits (including the Respondent's "Renasys F" foam dressing kits) for use with Negative Pressure Wound Treatment (NPWT) systems; and (b) NPWT systems (including the Respondent's "Renasys EZ" systems) incorporating foam dressings' 2 On 11 March 2009, I gave directions for the filing and service of further affidavits supporting and opposing the application for interlocutory relief which I then directed should be heard on 27 March 2009. On the same day, upon the applicants by their Counsel giving the usual undertaking as to damages, Smith & Nephew by its Counsel undertook: 'to refrain until 4:15pm on 27 March 2009 or further order from selling or disposing of the respondent's Negative Pressure Wound Therapy Foam Dressing Kits (including the respondent's "Renasys F" foam dressing kits)'

"The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument [(1968) 118 CLR 618 at 620]. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal [(1968) 118 CLR 618 at 622]:

"How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks."' 11 In resisting the continuation of interlocutory relief in the present case, Mr Catterns QC, who appeared with Mr Maryniak for Smith & Nephew, drew an analogy between an action for infringement of a patent in which the respondent or defendant puts in issue the validity of the patent and an action in defamation in which a defence of justification is pleaded. On the basis of that analogy, it was argued that only when the attack on the validity of the patent has been evaluated can it be known whether the alleged infringer has invaded a legal right of the patentee. 12 In my view, the existence or otherwise of a serious question to be tried can turn either on a perceived difficulty faced by a plaintiff or applicant in making out some element of the cause of action, or on an assessment of the strength or weakness of a defence to the cause of action which the defendant or respondent claims to be available. In some cases, the existence of a serious question may depend on an evaluation of each of these aspects in combination. In the present case, the applicants would have been entitled, in the absence of evidence affirmatively supporting a challenge to the validity of the Patent, to rely solely on their long and undisturbed enjoyment of the Patent and the establishment in some other jurisdictions of the validity of patents in substantially similar terms. That entitlement, I consider, would be consistent with the observations of the High Court in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, at 623-624 that; 'The first of these inquiries [whether the plaintiff has made out a prima facie entitlement to relief] in the present case is not complicated by the special considerations which generally arise in a patent action where there is a substantial issue to be tried as to the validity of the patent. In such an action the plaintiff's prima facie case must be a strong one so far as the question of validity is concerned, for he asserts a monopoly and must give more proof of the right he claims than is afforded by the mere granting of the patent: Smith v. Grigg Ltd.[[1924] 1 K.B. 655] per Atkin L.J. [[1924] 1 K.B., at p. 659]; Bonnella v. Espir [(1926) 43 R.P.C. 159] . The general practice in that kind of case has long been to refuse an interlocutory injunction unless either the patent has already been judicially held to be valid or it has stood unchallenged for a long period: Smith v. Grigg Ltd. [[1924] 1 K.B. 655, at p. 658]. Even if the patent is an old one--which for this purpose is generally taken to mean more than six years old--it has been said that an interlocutory injunction will generally be refused provided that the defendant shows by evidence "some ground" for supposing that he has a chance of successfully disputing the validity of the patent at the trial: Marshall and the Lace Web Spring Co. Ltd. v. Crown Bedding Co. Ltd.[(1929) 46 R.P.C. 267, at p. 269]. This should be read, however, with Sir George Jessel's statement in Dudgeon v. Thomson[(1874) 30 L.T. 244] which divides into three classes the cases in which an injunction may be granted before the hearing in such a case. They are: (1) cases where the patent is an old one and the patentee has been in long and undisturbed enjoyment of it; (2) cases where its validity has been established elsewhere and the court sees no reason to doubt the propriety of the result; and (3) cases where the conduct of the defendant is such as to enable the court to say that, as against the defendant himself, there is no reason to doubt the validity of the patent.' 13 That entitlement does not preclude Smith & Nephew from seeking by evidence adduced and submissions made in this interlocutory hearing to demonstrate a prospect of successfully disputing the validity of the Patent at trial. The question would then become one of whether that prospect is so strong as to dispel the existence of a serious question to be tried. Of course, even if the Court were to find that there is such a question, the degree of conviction which attends that finding can have a bearing on the ultimate resolution of the interlocutory application after taking into account the balance of convenience and other discretionary factors.

Infringement 14 The fundamental issue which will arise for determination at trial goes to infringement. In the light of the statutory monopoly conferred on the holder of a patent by s 13 of the Patents Act 1990 (Cth) ("the Patents Act"), any infringement or exploitation of a patented invention is in itself a serious matter. However, that does not entail that it raises a serious question. Whether or not there is a serious question to be tried is to be determined by reference to the actual or contemplated "use" or "exploitation" by the infringer (or prospective infringer). That raises, as an anterior question, the susceptibility of the patent to impeachment on any ground, including, in this case, the grounds adverted to above. 15 As the leading authorities on exploitation of patents demonstrate, the patentee, in order to establish infringement, must show that the alleged infringer has taken each and every integer of a particular claim in the patent; see eg Populin v HB Nominees Pty Ltd (1982) 41 ALR 471 and Olin Corporation v Super Cartridge Co Pty Ltd (1977) 180 CLR 236, per Gibbs J, at 246. 16 In the Particulars of Infringement delivered with their Statement of Claim, the applicants contend that Smith & Nephew has infringed or threatened to infringe claims 1, 2, 3, 4, 6, 7, 8, 9, 24, 27, 28, 29, 36, 37, 38, 47, 48, 49, 50, 51, 52, 74, 75, 76, 84, 85, 89, 90, 91, 99, 100, 104, 108, 109, 110, 111, 112, 116, 117 and 121 of Patent No. 674837 ("the Patent"). Of those, there are seven independent "apparatus" claims and three independent "method" claims. 17 Counsel on each side tended to focus their submissions on claim 49 which is one of the independent "apparatus" claims of the Patent. It is, accordingly, useful to treat claim 49 as exemplifying the central questions to be litigated at trial. Claim 49 is in these terms; 'An apparatus for applying negative pressure to a wound beneath a fluid-impermeable seal comprising: a screen means for positioning beneath said seal for preventing overgrowth of tissue in the wound, said screen means being sufficiently porous to allow gases to reach the wound and sufficiently rigid to prevent wound overgrowth, said screen means comprising an open cell polymer foam section configured to overlie the wound such that said negative pressure is maintained within said foam and applied to the wound; a flexible tube having an inlet end inserted into said open cell polymer foam section and an outlet end for extending from beneath said seal and for supplying said negative pressure; and wherein said apparatus is in an aseptic package' 18 In an affidavit sworn 19 March 2009, Gregory Richard Munt, a patent attorney retained by Smith & Nephew, has suggested that there are two alternative ways of interpreting the independent claims of the Patent, including claim 49. The first is to treat the "functional language" in the claims as limiting their scope for the purpose of assessing the validity of each claim and whether it has been infringed by a competing product or invention. That method of interpretation, according to Counsel for Smith & Nephew, entails, in order to establish validity, evidentiary demonstration, in respect of each integer, that the invention performs the function attributed to it by that integer. Thus, for example, to make out claim 49, the applicants will have to establish that the foam section comprising the "screen means" is "sufficiently rigid to prevent wound overgrowth." 19 The alternative interpretation of claims like claim 49 which has been postulated by Mr Munt involves placing "no weight whatsoever on the functional language in the claims. The consequence of this option is to greatly simplify what is covered by the claims." By way of example, Mr Munt suggests; '16. … interpreting independent apparatus claim 49 of the Patent so that it is not confined to the functional language of the claim means that the claim defines an apparatus that comprises the following integers, with no qualifications as to the characteristics of the integers:

(b) flexible tube with an inlet end inserted into the foam and an outlet end; and

20 The applicants appeared, at least impliedly, to accept that the claims in the Patent should be construed in the first of the ways suggested by Mr Munt. I have, for present purposes, adopted the same interpretation. I have also been influenced by the fact that the Patent has been registered for a considerable time during which the applicants or their predecessors have enjoyed it undisturbed. As Gyles J explained in Genrx Pty Ltd v Sanofi-Aventis (2007) 73 IPR 502, at 503-504 [4]-[6], that factor is permitted a degree of influence by the Beecham Group case (supra) as explained in Australian Broadcasting Corporation v O'Neill (supra) and Martin Engineering Co v Trison Holdings Pty Ltd (1988) 81 ALR 543; 11 IPR 611. 21 Taking the approach which I favour for the reasons just explained, I am satisfied that the applicants have an arguable prima facie case that their claimed invention comprises each of the integers described in at least some of the claims in the Patent. I am also satisfied that, if the evidence at trial were to be to the same effect as that presently before the Court, there is a probability that Smith & Nephew's "Renasys F" foam dressing kits would be found to come within some of the claims, including claim 49, of the Patent. (For the application of this test, see Hexal Australia Pty Ltd v Roche Therapeutics Inc (2006) 66 IPR 325, per Stone J, at 327 [17]). The evidence which has led me to attain this degree of satisfaction includes the affidavits of Robert Douglas Wilkins, respectively affirmed on 9 and 12 March 2009. Dr Wilkins is a consulting biomedical engineer and has expressed the opinion, on the assumption that Smith & Nephew's "Renasys F" MPWT system incorporates an open cell polymeric foam dressing, that the "Renasys F" system, if used in the manner described in the Smith & Nephew information sheet which was Exhibit BC-3 to the affidavit of Brett Connor, a Patent Attorney retained on behalf of the applicants, would have each of the features of various claims of the Patent, including claim 49. Mr Connor's affidavit was sworn 3 March 2009. 22 As well as a general challenge to the validity of the Patent based on the applicants' asserted inability to prove a correspondence between the claimed invention and the functional limitations discussed at [18] above, Counsel for Smith & Nephew have foreshadowed that various other attacks on the validity of the Patent will be made at trial. Only two of those, one asserting a lack of novelty and the other invoking a want of fair basis, have been developed in opposition to the claim for interlocutory relief.

Novelty 23 Smith & Nephew's foreshadowed challenge on this ground relies centrally on Bagautdinov (supra). That paper, so it is said by Mr Munt; '… discloses a wound treatment device with a polyethylene film to seal skin, polyurethane foam to be positioned in a wound, and a vacuum creating a negative pressure of 10 to 60 mmHg in the wound. The paper also discloses a vacuum capable of creating a negative pressure of up to at least 500 mmHg in the wound. The paper also discloses that the treatment accelerates healing of the wound process, particularly by changing the area and volume of the wound.' 24 Smith & Nephew claims, on the basis of that evidence, that Bagautdinov anticipated claims in the Patent. The test for lack of novelty has been succinctly restated by Gyles J in Apotex Pty Ltd v Sanofi-Aventis (2008) 78 IPR 485. His Honour there reviewed the relevant authorities beginning with Hill v Evans (1862) 4 De G, F & J 288 and including General Tire & Rubber Co v Firestone Tyre and Rubber Co Ltd [1972] RPC 457 ("General Tire") and concluded, at 514 [54]; 'The main principle is that, if the prior inventor's publication contains a clear description of something that would infringe the patentee's claim if carried out after the grant of the patentee's patent, the patentee's claim will have been shown to lack the necessary novelty. Alternatively, if the prior inventor's publication contains clear instructions to do or make something that would infringe the patentee's claim if carried out after the grant of the patentee's patent, the patentee's claim will have been shown to lack the necessary novelty.' 25 The principle there distilled by his Honour raises the question in the present case of whether Bagautdinov provides a reasonable basis for impugning the Patent for lack of novelty. The applicants say that it does not: the device described by Bagautdinov, they contend, has no sealing means; the foam insert is not stated to be open-celled; the screen does not create negative pressure on the area of skin surrounding the wound; the device has no mechanism for maintaining continuous or cyclical negative pressure over the therapeutic period and it does not seek to heal the wound by increasing the rate of formation of granulated tissue. Counsel for the applicants also point out that the purpose of the device contemplated in Bagautdinov is the pre-healing cleaning of purulent tissue, whereas the purpose of the subject of the Patent is the post-cleaning healing of serious wounds. As a final point, the applicants contend that the Bagautdinov device, contrary to accepted good medical practice, would leave an object likely to cause toxic shock in an open wound. 26 The applicants also rely on an affidavit by Ms Worswick, the Manager, Libraries for Ballarat Health Services and an affidavit by Ms Vaysman, a Russian-speaking solicitor employed by the applicants' solicitors, Freehills. Ms Worswick has had extensive experience in searching for Australian and international medical publications. She deposed to the facilities available for making such searches in Australia in 1991 and explained that English translations of foreign language publications were then difficult to obtain. At the same time, publications in their original languages were hard to identify as likely to be useful and, in any event, were expensive to translate. Ms Vaysman deposed to her inability, in March 2009, after searching copies of the Index Medicus from 1986 to 1993 inclusive, to find any reference to either an English or a Russian version of Bagautdinov or Volkov. Ms Vaysman also deposed that she had instructed a Freehills librarian, Ms Zygmuntowicz, to search the current online versions of the databases identified by Ms Warswick and examine the catalogues of the National Library of Australia, the British Library and the United States National Library of Medicine. As well, Ms Zygmuntowicz made an electronic search of the Libraries Australia Union Catalogue but no search of any of the catalogues yielded any reference to Bagautdinov or Volkov. Only the "Google" search engine yielded a reference to Bagautdinov which was on a Smith & Nephew "Renasys" website. "Google" disclosed no reference to Volkov. 27 The various contentions advanced by the applicants in relation to Bagautdinov, were vigorously contradicted by Smith & Nephew. The Russian paper, it claimed, discloses all integers sufficient for infringement and would therefore "reverse infringe" each integer of the Patent and deprive each claim of the requisite novel. 28 Substantially the same issue of lack of novelty was raised in related proceedings in the UK Patents Court on 13 January 2009; see Wake Forest University Health Sciences v Smith & Nephew Plc [2009] FSR 11. In that case also, the defendant relied, in the course of an application by the plaintiff for an interim injunction, on Bagautdinov. As to that work, Lewison J observed, at 412 [8]; '… The citation on which Smith & Nephew rely is a paper by Bagautdinov, published in Russia in 1986. It relates to the drainage of wounds with vacuum aspiration which promotes the outflow of tissue fluid. One of the questions I have to determine is whether there is a serious issue to be tried based upon that citation, which is whether the patent in suit is anticipated or is invalid for obviousness.

One of the points taken by Mr Speck is that it is by no means clear on the evidence that the citation was made available to the public at or before the priority date of the patent in suit. The evidence is that it was in a public library within the Soviet Union and, I am bound to say, the suggestion that that was not available to the public seems to me to be a very weak suggestion. I will proceed, therefore, on the basis that it was something that was available to the public at or before the priority date. Nevertheless, reading that citation in the light of the patent, I am satisfied that there is a serious issue to be tried.'

29 Section 7(1) of the Patents Act erects a test for novelty by providing; 'For the purposes of this Act, an invention is to be taken to be novel when compared with the prior art base unless it is not novel in the light of any one of the following kinds of information, each of which must be considered separately: (a) prior art information (other than that mentioned in paragraph (c)) made publicly available in a single document or through doing a single act; (b) prior art information (other than that mentioned in paragraph (c)) made publicly available in 2 or more related documents, or through doing 2 or more related acts, if the relationship between the documents or acts is such that a person skilled in the relevant art would treat them as a single source of that information; (c) prior art information contained in a single specification of the kind mentioned in subparagraph (b)(ii) of the definition of prior art base in Schedule 1.' 30 The definition of "prior art base" in Schedule 1 to the Patents Act as originally enacted in 1990 was in these terms; '"prior art base" means:

(a) in relation to deciding whether an invention does or does not involve an inventive step: (i) information in a document, being a document publicly available anywhere in the patent area; and (ii) information made publicly available through doing an act anywhere in the patent area; and (iii) where the invention is the subject of a standard patent or an application for a standard patent - information in a document publicly available outside the patent area; and (b) in relation to deciding whether an invention is or is not novel: (i) information of a kind mentioned in paragraph (a); and (ii) information contained in a published specification filed in respect of a complete application where: (A) if the information is, or were to be, the subject of a claim of the specification, the claim has, or would have, a priority date earlier than that of the claim under consideration; and (B) the specification was published after the priority date of the claim under consideration; and (C) the information was contained in the specification on its filing date and when it was published;' 31 "Prior art information" in the Dictionary to the Patents Act has at all times been, relevantly, the subject of this somewhat circular definition; '"prior art information" means

(a) for the purpose of subsection 7(1) - information that is part of the prior art base in relation to deciding whether an invention is or is not novel;' 32 However, paragraph (a) of the definition of "prior art base" was repealed by Item 1 of Schedule 103 to the Patents Amendment (Innovation Patents) Act 2000 (Cth) (No 140 of 2000) which substituted for it the following paragraph; '(a) in relation to deciding whether an invention does or does not involve an inventive step or an innovative step; (i) information in a document that is publicly available, whether in or out of the patent area; and (ii) information made publicly available through doing an act in the patent area.' (emphasis added) 33 The result seems to be that, in deciding whether an invention was or was not novel, before the amendment referred to at [28] above came into force on 24 May 2001, a court is required to have regard to documentary information only if the document had been publicly available in the patent area, ie Australia and the Australian Continental Shelf. This may be a basis for distinguishing the present case from Wake Forest University Health Sciences v Smith & Nephew Plc discussed at [28] above. That is because Lewison J was probably required in that case to apply what the learned authors of Lahore, Patents Trade Marks & Related Rights Vol 1 p 12,618 [12,607] call "a test of universal novelty". 34 A specific ground on which Smith & Nephew attacks the validity of the Patent is that, insofar as it can be characterised as a "combination patent", it consists only of integers revealed by the prior art which do not interact with each other to produce a new result or product. Rather, they were said to comprise, in the language of the High Court in Firebelt Pty Ltd v Brambles Australia Ltd (2002) 188 ALR 280, at 285, a "mere collocation of separate parts." Their Honours there approved the analysis of Aickin J in Minnesota Mining and Manufacturing Co v Beiersdorf (Aust) Ltd (1980) 144 CLR 253, at 266 and 293. In the first of those passages his Honour observed; 'The patent thus claimed is a combination patent in the proper sense of that term, ie it combines a number of elements which interact with each other to produce a new result or product. Such a combination may be one constituted by integers each of which is old, or by integers some of which are new, the interaction being the essential requirement.' In the second passage, at 293, Aickin J reasons that; 'In the case of a combination patent the invention will lie in the selection of integers, a process which will necessarily involve rejection of other possible integers. The prior existence of publications revealing those integers, as separate items, and other possible integers does not of itself make an alleged invention obvious. It is the selection of the integers out of, perhaps many possibilities, which must be shown to be obvious.

It is in relation to this process that the misuse of hindsight is most common. When once an idea or an object or a process or a combination, admittedly novel, has been published, it is very easy to say after perhaps months of search and study in the Patent Office and the public libraries that the integers into which the patent might be dissected could be found scattered amongst the prior documents by a person who already knew the solution to the problem and therefore knew what to look for and what to discard. But that process does not demonstrate lack of an inventive step. The opening of a safe is easy when the combination has been already provided.'

35 Even if it be assumed that Bagdautinov had been publicly available in Australia at a time which would deny certain of the integers claimed in the Patent the requisite novelty, it is not clear to me, without the benefit of further expert evidence and of cross-examination of the relevant witnesses, that the Patent discloses merely a collocation of integers revealed by Bagdautinov rather than an interaction of those integers, and perhaps some others, to produce a new result or product. 36 It will be seen that the issue of novelty alone raises in this case difficult questions of a technical kind as well as requiring a complex exercise in statutory interpretation. Moreover, once that exercise has been undertaken, it may be necessary to fix on a date as at which an identified test of novelty has to be applied. It is undesirable, given the limited time which the parties have so far had to address these issues, to express even a provisional view in these reasons. For present purposes, it is sufficient to say that the competing arguments going to the issue of novelty have contributed significantly to my conclusion that there is a serious question to be tried.

Fair Basis 37 The next ground upon which a challenge to the patent has been foreshadowed is a want of "fair basis", referring to the requirement imposed by s 40(3) of the Patents Act. Section 40 in its entirety provides; 'Specifications

(1) A provisional specification must describe the invention.

(a) describe the invention fully, including the best method known to the applicant of performing the invention; and (b) where it relates to an application for a standard patent--end with a claim or claims defining the invention; and (c) where it relates to an application for an innovation patent--end with at least one and no more than 5 claims defining the invention. (3) The claim or claims must be clear and succinct and fairly based on the matter described in the specification. (4) The claim or claims must relate to one invention only.'

38 The phrase "fairly based on matter disclosed in the provision specification or the complete specification" as used in what was then s 45(5) of the Patents Act was construed by Fullagar J in Societe des Usines Chimiques Rhone-Poulenc v Commissioner of Patents (1958) 100 CLR 5 at 11 as requiring "a real and reasonably clear disclosure". 39 As Gummow J pointed out in Rehm Pty Ltd v Websters Security Systems (International) Pty Ltd (1988) 11 IPR 289 at 304, an assertion that a claim is not fairly based raises the question of; '[W]hether there is a real and reasonably clear disclosure in the body of the specification of what is then claimed, so that the alleged invention is broadly, that is to say in a general sense, described in the body of the specification.' That approach has been endorsed by a Full Court of this Court (Leonardis v Sartas [No 1] (1996) 67 FCR 126, at 143; (1995) 35 IPR 23, at 41) and by the High Court (Lockwood Security Products v Doric Products (2004) 217 CLR 274, at 300). 40 In his second affidavit sworn 23 March 2009, Mr Munt identifies three respects in which the claimed invention is said to lack a fair basis in the body of the specification of the Patent. 41 The first deficiency to which Mr Munt points is that claims 1 and 24 of the Patent define a "method of treating tissue damage" which includes a step of "placing a screen means for preventing overgrowth in a wound said screen means being sufficiently porous to allow gases to reach the wound and sufficiently rigid to prevent wound overgrowth." However, the specification of the Patent under the heading "Summary of the Invention" recites; 'A first aspect of the invention is a method of treating tissue damage which comprises applying a negative pressure to a wound over an area sufficient to promote the migration of epithelial and subcutaneous tissue toward the wound and for a time period sufficient to facilitate closure of the wound. The method is particularly useful for treating pressure sores.' 42 As I understand it, that part of the specification is said not to be fairly based on the claims because there is no disclosure of how the "screen means" described in the claims is to be used to treat "tissue damage." 43 The second criticism made by Mr Munt under this head is that claims 104, 110 and 113 each calls for, amongst other things; 'A single tubular member having a first end inserted beneath at least a portion of the foam section and having a second end extending from beneath said cover to a location external to said cover.' That integer, according to Mr Munt, "is not otherwise described in the specification of the Patent at all." 44 The third example of an absence of fair basis instanced by Mr Munt is that independent claims 89 and 110 each have, as a common integer, "screen means having a pore size sufficiently large … to prevent the overgrowth of tissue in the wound." The specification of the Patent, Mr Munt asserts, does not disclose a "screen means" so described and "[i]n particular, the specification does not mention pore size at all." 45 Assessment of whether the specification of an invention in a patent is fairly based on the integers of the various claims can be, depending on the language used, a highly technical exercise. However, the High Court was at pains in Lockwood Security Products Pty Ltd v Doric Products Pty Limited (2004) 217 CLR 274 to point out what it regarded as erroneous principles in the application of s 40(3) of the Patents Act. Their Honours there said, at 300 [68]; 'The comparison which s 40(3) calls for is not analogous to that between a claim and an alleged anticipation or infringement. It is wrong to employ "an over meticulous verbal analysis". It is wrong to seek to isolate in the body of the specification "essential integers" or "essential features" of an alleged invention and to ask whether they correspond with the essential integers of the claim in question. (Footnotes omitted) 46 In the same case it was pointed out, at 310 [99] of the joint judgment that; 'Doric submitted that Olin decided that a claim based on a consistory clause cannot be fairly based. It did not. Rather, as the Patentee submitted, the correct position is that a claim based on what has been cast in the form of a consistory clause is not fairly based if other parts of the matter in the specification show that the invention is narrower than that consistory clause. The inquiry is into what the body of the specification read as a whole discloses as the invention . An assertion by the inventor in a consistory clause of that of which the invention consists does not compel the conclusion by the court that the claims are fairly based nor is the assertion determinative of the identity of the invention. The consistory clause is to be considered by the court with the rest of the specification.' (Footnotes omitted) 47 Smith & Nephew's central contention of a lack of fair basis is that the specification is not limited by its integers; therefore, it fails to meet the requirements of s 40(3). The basis for that contention does not spring readily to mind when comparing the specification with the integers of the various claims. On a superficial examination of the evidence, the "Renays F" Kit and the printed instructions which accompany it correspond substantially with what emerges on a fair reading of some of the claims in the Patent. It is said by Smith & Nephew that "the invention described in the specification is not limited by the integers". Although I again refrain from expressing a concluded view on the issue, I consider that Smith & Nephew's contention involves a departure from the approach taken by this Court in Pfizer Overseas Pharmaceuticals v Eli Lilly (2005) 68 IPR 1, at 52-54 [247]-[250] per French and Lindgren JJ to the interpretation of the description in a patent of the subject invention. As with the issue going to novelty, I consider that the competing arguments as to fair basis contribute to the existence of a serious question to be tried. 48 For these reasons, I am persuaded that the applicants have established that there is a serious question to be tried and that, prima facie, they have an arguable prospect of success if the evidence remains as it is. However, to succeed in obtaining an interlocutory injunction, the applicants must also demonstrate that damages would not be an adequate remedy to compensate them for the harm they would suffer if no interlocutory relief were granted.

Adequacy of Damages 49 Obviously enough, the loss to KCIM of the monopoly in the market for NPWT foam dressing kits would have serious consequences for the profitability of its Australian operations. Many of the oral submissions made on its behalf in this context were directed to demonstrating that damages would not adequately compensate it for those consequences. 50 KCIM's market, it was emphasised, comprises primarily public health authorities buying on behalf of public hospitals and aged care facilities. That market is extremely sensitive to fluctuations in the prices of comparable goods. That was said, in part, to reflect a policy of several State government health departments that institutions under their control should never pay more for goods than the lowest price at which goods adequately able to perform the relevant function can be purchased. 51 The applicants claim to be especially vulnerable to irremediable damage because their main business is the manufacture and sale of the NPWT kits and the sale or leasing of associated equipment (such as the pumps to which the kits are attached when in use). Counsel for the applicants sought to reinforce their submissions under this head by a document detailing the following respects in which KCIM would suffer irremediable damage in the absence of an interlocutory injunction: · Loss of sales and rental income, flowing from the need to compete with a cheaper product on the market; · Price depression, flowing from downward price pressure which would be exerted by purchasers of NPWT foam dressing kits if a cheaper version of the same product were available; · Loss of goodwill which would be caused to KCIM if it were to seek to maintain the prices of its NPWT foam dressing products at a level above those for a comparable product; and · Loss of goodwill should an injunction be granted at trial and KCIM seek to enforce its monopoly and return to its present price structure (in other words, KCIM would come to be seen as "the villain" in the market). 52 Smith & Nephew makes similar claims for the effect on its own business if it were shut out of the market until a final determination of the present action. The tender process conducted by various public health agencies and other prospective purchasers of the NPWT systems would prevent it from breaking into the market for a substantial time after the determination of the action if it were to succeed in resisting a permanent injunction. It is also claimed by Smith & Nephew that the costs and expenses incurred to date in launching the new product, as well as whatever goodwill and reputation may have been built up during the launch will be irretrievably lost if Smith & Nephew is shut out of the market until the completion of the trial of this action. 53 In written submissions, Mr Catterns QC and Mr Maryniak, for Smith & Nephew, contended: 'The cost to the health care system and impact on patients are powerful reasons not to restrain the Respondent but to move quickly to resolve the commercial dispute between the parties with an undertaking to keep an account by the Respondent.' 54 However, arguments similar to those advanced by Smith & Nephew in this case to the effect that it now be allowed into the market pending a resolution of the patent dispute between the parties were rejected by Gyles J in GenRx Pty Ltd v Sanofi-Aventis (2007) 73 IPR 502 where his Honour said, at 506; 'I am much influenced by the effects of disturbing the status quo, particularly as it relates to the operation of the PBS. A new entrant in this field would have an effect which may be both unpredictable and irreversible. There is also likely to be interference with the trade patterns of Sanofi with its customers, both wholesale and retail, that may not be detectable or measurable in money terms… Temporary disturbance of that status quo is not justified. My view is consistent with that of Moore J in Merck & Co Inc v Genrx Pty Ltd (2006) 70 IPR 286.' 55 In my view, similar considerations apply with equal force to the present case. The applicants have demonstrated a serious question to be tried so that there is at least a reasonable chance that they will prevail at trial. An interim entry into the market by Smith & Nephew would disturb KCIM's monopoly over the supply of NPWT foam dressing kits and associated medical devices, and would be likely to alter the market in ways which are not readily predictable or for which an award of pecuniary damages would not afford adequate compensation. 56 For these reasons I have concluded that, unless the balance of convenience dictates otherwise, a temporary disturbance of the status quo (which is otherwise maintained by an interlocutory injunction as pointed out in Australia Broadcasting Corporation v O'Neill (supra) at 82 [65]), should not occur so as to leave the applicants to their remedy in damages for that disturbance if they ultimately prevail at trial.

Balance of Convenience 57 Having been persuaded that there is a serious question to be tried and that damages would not adequately compensate the applicants for the likely consequences of withholding the protection of an interlocutory injunction until trial, I now have to consider, as the third factor bearing on the Court's discretion, the balance of convenience. 58 As already mentioned, interlocutory relief of the type sought by the applicants is primarily directed to preserving the status quo; see O'Neill, supra, at 82 [65] and Interpharma Pty Ltd v Commissioner of Patents [2008] FCA 1498 per Jessup J, at [72] et seq. My findings on the first two factors afford powerful reasons for preferring an interim maintenance of KCIM's monopoly of NPWT foam dressings over allowing what may be a temporary incursion into the market by Smith & Nephew. 59 In the same context, a related factor requiring consideration is that Smith & Nephew came to the position in which it now finds itself "with eyes wide open", or, in other words, fully cognisant of the risk that entry into the market for NPWT foam dressings might expose it to an action for infringement of the Patent. That risk has eventuated in the present proceedings and could have been averted had Smith & Nephew instituted revocation proceedings before entering the market. 60 The authorities on this point speak with a single voice. Where a party enters into contracts or arrangements for supply which are contingent upon its successfully challenging the validity of an existing patent, it is no answer to an application for an interlocutory injunction for that party to say that arrangements are "already in place". Nor can that party be heard to complain that the grant of an interlocutory injunction would impinge adversely upon its standing or reputation in the market: see Merck & Co Inc v GenRx Pty Ltd (2006) 70 IPR 286, at 922 [19] per Moore J; Martin Engineering Co v Trison Holdings Pty Ltd (1988) 11 IPR 611, per Gummow J, at 622; and Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, at 626 per totam curiam. 61 Here, Smith & Nephew is a subsidiary of a multinational company which has been engaged in patent litigation in the United Kingdom, the United States and Germany concerning essentially the same substratum of facts. It can be taken, therefore, to have been on notice that it was "on the cards" that its entry into the Australian market for NPWT foam dressings would provoke similar litigation in this country. Having elected to enter the market without first seeking to clarify the validity of the Patent, it should not readily be allowed to take advantage of the uncertainty which its own conduct has fostered; see SmithKline Beecham Plc v Apotex Europe Ltd [2003] FSR 30, 524 at 542-3, per Jacob J whose reasoning on this aspect was approved by the Court of Appeal; Smith Kline Beecham Plc v Apotex Europe Ltd [2003] FSR 31, 544 at 558. 62 After submissions had been received on the evidence recounted above and the Court had reserved its decision on the application for interlocutory relief, Smith & Nephew filed and served an additional affidavit, being that sworn by Judy Helen Haviland on 29 May 2009. Ms Haviland became the Manager, Surgical Technologies, Australia for Smith & Nephew in December 2007 after extensive experience, successively as Marketing Assistant, Product Manager and Group Product Manager. 63 As Mr Catterns QC explained during the further hearing on 11 June 2009, part of the effect of Ms Haviland's affidavit is to demonstrate that the damage which Mr Hoare, Smith & Nephew's President, hypothesised in an affidavit sworn on 19 March 2009 as likely to be suffered by Smith & Nephew if an interlocutory injunction were granted, has actually eventuated. In particular, Ms Haviland has deposed that, since the undertaking referred to at [2] above, Smith & Nephew has suffered damage as a result of a falling off in orders from the Royal Brisbane and Women's Hospital ("RBWH") for gauze dressing kits because, by supplying foam dressing kits to RBWH before 11 March 2009, Smith & Nephew has "effectively transitioned a number of key RBWH clinicians from the Gauze Kits to the Foam Kits." As well, Ms Haviland has deposed in relation to RBWH; 'Smith & Nephew has also suffered reputational damage from the sudden withdrawal of Foam Kits. The extra expenditure by the RBWH as it rents the NPWT Units from KCI also places additional strain on the public health system. Based on my discussions with the Smith & Nephew Australia sales representative responsible for the RBWH contract, I am aware that 15 of the Second Applicant's NPWT Units are currently being rented by the RBWH. Based on information of which I am aware as a result of my role, I believe that the cost to the RBWH will be at least $1,000 per day, or $65 per patient, in rental expenditure alone, plus an additional $1,125 per day, or $75 per patient, for the Foam Kits and the canisters. That is a total cost of $2,125 per day.' 64 In relation to a decision by the Western Australian Minister for Health to call for fresh tenders for the supply of NPWT systems which was the subject of evidence on affidavit by each of Mr Hickey, the Managing Director of KCIM and Mr Hoare, Ms Haviland has deposed that, since 11 March 2009; '22. … the tender process has moved on to the evaluation phase, which is essentially clinical trials of the NPWT systems referred to in tender proposals in the major public hospitals in WA.

The Foam Kits referred to in Smith & Nephew Australia's proposal for the WA Tender are not able to be clinically tested by reason of the terms of the Order. As a result, Smith & Nephew Australia cannot progress its tender for that Foam Kit component of its proposal. Smith & Nephew Australia's Gauze Kits are being evaluated but I am aware that gauze alone is not viable as an alternative in relation to the State-wide WA Tender. The Second Applicant, who is offering its Foam Kits, will almost certainly succeed in winning the WA Tender if Smith & Nephew Australia is not able to compete with it in relation to the supply of Foam Kits.

If Smith & Nephew Australia could supply the Foam Kits within one to two weeks of the date of this affidavit it may leave enough time for the relevant hospitals to commence clinical evaluations of Smith & Nephew Australia's Foam Kits before the deadline. I am aware that the timing is critical, as, if Smith & Nephew Australia is prevented from supplying the Foam Kits for another week or two weeks it will more than likely be forced to pull out of the WA Tender evaluation process. I am aware that the contract offered under the WA Tender is for one year with three options to extend the contract term, each having a one year duration, which options I am aware the WA Government typically takes unless an economically viable alternative becomes available.'

65 Ms Haviland has also sworn that, since 11 March 2009, Smith & Nephew has been inhibited in participating in an "evaluation process" being conducted, or to be conducted, by the Austin Health Network in Victoria for NPWT systems utilising both gauze and foam dressing kits. A similar contention has been advanced in relation to Ballarat Health Services ("BHS") which has called for tenders for NPWT systems to close on 2 July 2009. As to that tender, Ms Haviland has deposed; '27 … The contract offered pursuant to the tender is for a term of one year with an option to extend for one further year. This is the first tender released in the Ballarat District for NPWT systems because there were previously no alternatives to the NPWT systems offered by the Second Applicant. The capacity to provide Foam Kits is critical in relation to the BHS Tender as the surgeons in those districts are familiar with the Foam Kits supplied by the Second Applicant and as far as I am aware from my experience in managing sales and marketing in that region, those surgeons have a strong preference for using foam dressings on patients with major wounds. If Smith & Nephew Australia is not able to offer Foam Kits as part of its tender submission and then follow through with supply of the same, it has significantly lower prospects of winning any substantial business in relation to the BHS Tender.' 66 Similarly, Ms Haviland has deposed that the inability to dispose of foam kits, even for the purpose of tender evaluation, is likely to have a "negative impact" on Smith & Nephew's chances of successfully tendering for the supply of NPWT systems to other public health purchasing entities, Southern Health and Hospital Purchasing Victoria in Victoria and New South Wales Health. She also suggests that independent community nursing services in various States will be disadvantaged by higher prices for NPWT foam kits in what she contends would be "a market without competition", during any period for which Smith & Nephew might be restrained from selling NPWT foam kits. 67 Ms Haviland also deposed to an adverse effect on the morale of sales staff of Smith & Nephew who have been trained in the marketing of foam kits and who were involved, until 11 March 2009, in their promotion. Those members of staff have complained that they are losing credibility and have received expressions of frustration and irritation from clinicians who cannot be told when Smith & Nephew foam kits will be available without restriction. Finally, Ms Haviland expressed her agreement with Mr Hoare's contention that any drop in sales which might be suffered by the applicants as a result of Smith & Nephew's temporary entry into the market for foam kits would be easily quantifiable in pecuniary terms. 68 Counsel for the applicants strenuously resisted the reception of Ms Haviland's affidavit a considerable time after the original affidavits in support of, and opposing, interlocutory relief had been filed and submissions on the availability of that relief had been completed. Reference was made in particular to Nominal Defendant v Manning (2000) 50 NSWLR 139, at 143 and 147, Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 All ER 745, at 751 and Re Australian Meat Industry Employees Union (WA Branch); ex parte Ferguson (1986) 67 ALR 491, at 493. In the light of the principles established by those authorities, it was contended that Ms Haviland's affidavit did not reveal any material change of circumstances since this Court had reserved its decision and did not adduce any new evidence which could not previously have been discovered. It is unnecessary for me to resolve this controversy about the Court's discretion to rely on Ms Haviland's affidavit because, with the exception noted at [72] below, it has not persuaded me to formulate an order in any different terms from those upon which I have fixed after reviewing the evidence and submissions received to 27 March 2009. 69 I acknowledge that there is significant public interest in maximising competition, particularly in a market like that for wound dressings where the major consumers are public hospitals and similar institutions operating under severe budgetary constraints. However, there is also a countervailing public interest recognised by the exclusive right granted by s 13 of the Patents Act to a patentee to exploit an invention. That public interest is in encouraging scientific and technological research and innovation and would not be served if a patentee's rewards from the subject invention were suspended or diluted for a period before the determination of litigation in which the patentee is, presumptively, successful. 70 On the other side of the scales for balancing convenience must be put the difficulty which Smith & Nephew will encounter in quantifying the damages which the applicants, pursuant to the usual undertaking, will be obliged to pay if it eventually be held that an interlocutory injunction should not have been granted. That difficulty is similar to that which will face the applicants if they are refused an interlocutory injunction but ultimately succeed in obtaining a permanent restraint. Smith & Nephew's difficulty would be reflected in an indeterminate loss of sales and a diminution of goodwill through being unable, between now and trial, to offer a full range of NPWT products including foam dressings. However, I do not consider that the problem would be as acute if Smith & Nephew had to enforce the undertaking as to damages. That is because Smith & Nephew, unlike KCIM, is not yet established in the market with a recognised and profitable price structure and an extensive network of regular customers for foam dressings. A related consideration is that, if an interlocutory injunction were to go, it would be open to Smith & Nephew or other participants in the market to inform purchasing agencies of the pending litigation with a view to dissuading them from accepting tenders which "lock them in" to contracts with KCIM which would extend beyond the likely duration of the interlocutory injunction. 71 Additional weight can now be given to that consideration as Mr Caine SC for the applicants volunteered at the resumed hearing on 11 June 2009 that his clients would endeavour to agree on the text and mode of publication of a public announcement to existing and prospective purchasers of NPWT systems utilising foam dressings, and other interested persons, of the effect of any interlocutory injunction which the Court might grant and the likely duration of such an injunction pending a substantive determination of the issues in this litigation. If necessary, the Court, by the making of a further interlocutory direction, can assist in the publication of an announcement of that kind which should ensure that tenders and purchases in relation to foam wound dressing kits occur in the interim in a market that is reasonably fully informed.

Conclusion 72 Taking into account all of the matters canvassed earlier in these reasons and evaluating them in the context of the principles conveniently stated by Stone J in Hexal (supra), I have been persuaded, on balance, that the status quo before the entry of Smith & Nephew into the market for foam wound dressing kits should be maintained until trial or further order. I have been reinforced in that conclusion upon ascertaining from the docket Judge that a speedy trial of this action can occur if the parties are able to attend, with reasonable expedition, to the pleadings and other interlocutory steps. In the result, I shall order that Smith & Nephew be restrained until the hearing and determination of the action or further order from selling or disposing of its NPWT foam dressing kits including its "Renasys F" foam dressing kits. However, I consider that it would unduly distort the balance of convenience and would be inimical to the public interest if Smith & Nephew were restrained from submitting its foam dressing kits for evaluation as part of a tender process to be conducted by a public health authority or purchasing entity or other substantial purchaser or prospective purchaser of NPWT systems. I shall therefore add to the restraint which I propose, a proviso excepting from it the supply without charge of Smith & Nephew's NPWT foam dressing kits solely to enable those kits to be evaluated as part of a tender process to be conducted by a purchaser or prospective purchaser of NPWT systems. 73 Counsel for Smith & Nephew foreshadowed that, in the event that an interlocutory injunction were granted, it would seek to have a corresponding restraint imposed on any third parties who, during the term of such injunction, might "promote, supply or sell foam dressing kits for use in relation to negative pressure wound therapy." However, there is no evidence of any presence to date by third parties in the relevant market. Accordingly, that foreshadowed application for relief against third parties should be considered by the docket Judge if and when the need arises. I shall reserve liberty to any party to apply. The costs of the application for interlocutory relief should be costs in the cause. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate: Dated: 15 June 2009 Counsel for the Applicants: Mr B Caine SC and Ms H Rofe

Counsel for the Respondent: Mr D K Catterns QC with Mr A J Maryniak

Date of Hearing: 11 and 27 March and 11 June 2009

Patents Amendment (Innovation Patents) Act 2000(Cth)

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