FEDERAL COURT OF AUSTRALIA Welcome Real-Time SA v Catuity Inc (No 2) [2001] FCA 785 PATENTS – infringement claim and cross-claim for invalidity – form of order – injunction – whether confined to conduct considered at trial – delivery up – combination patent involving devices and software – costs – interlocutory order – whether costs should be payable forthwith Patents Act 1990 (Cth) s 117 Federal Court Rules O 62 r 3(3) Coflexip SA v Stolt Comex Seaway MS Ltd [2001] RPC 9 followed Commonwealth Industrial Gases Ltd v MWA Holdings Pty Ltd (1970) 180 CLR 160 at 171 applied Welch Perrin & Co Pty Ltd v Worrel (1961) 106 CLR 588 at 606, 622 applied Interlego AG v Toltoys Pty Ltd (1973) 130 CLR 461 at 489 applied Minnesota Mining and Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253 at 299 applied Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 498 applied Vavasseur v Krupp (1878) 9 Ch D 351 at 360 mentioned Codex Corporation v Racal-Milgo Ltd [1987] FSR 87 at 90-91 mentioned WELCOME REAL-TIME SA v CAUITY INC & ORS (No 2) V 526 OF 2000 HEEREY J 24 JULY 2001 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 526 OF 2000 BETWEEN: WELCOME REAL-TIME SA [RDC 403 099 625 00036] APPLICANT AND: CATUITY INC [ARBN 089 327 882] FIRST RESPONDENT CHIP APPLICATION TECHNOLOGIES LIMITED [ACN 057 883 333] SECOND RESPONDENT CIT CARDS (AUSTRALIA) LIMITED [ACN 072 773 052] THIRD RESPONDENT CATUITY INC [ARBN 089 327 882] FIRST CROSS-CLAIMANT CHIP APPLICATION TECHNOLOGIES LIMITED [ACN 057 883 333] SECOND CROSS-CLAIMANT CIT CARDS (AUSTRALIA) LIMITED [ACN 072 773 052] THIRD CROSS-CLAIMANT WELCOME REAL-TIME SA [RDC 403 099 625 00036] CROSS-RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 24 JULY 2001 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: In these orders: "CiT Transcard system" means the smart card system for use in public transit and retail described in paragraphs 20 to 25 of the affidavit of Anthony Benjamin Garton dated 3 August 2000 and slides 6 to 8, 13 to 22 and 25 to 26 of the Catuity Technical Briefing slides which are exhibit DBBM 4 confidential to the affidavit of Doron Berl Ben-Meir made 6 December 200. "Catuity system" means the smart card system for use in multiple every-day consumer applications described in paragraphs 28 to 36 of the affidavit of Anthony Benjamin Garton dated 3 August 2000 and slides 10, 25 and 26 of the Catuity Technical Briefing slides which are exhibit DBBM 4 confidential to the affidavit of Doron Berl Ben-Meir made 6 December 2000." "CiT Transcard device" means a device for use in the CiT Transcard system for processing coded information during a purchase or payment operation by a user, holder of a card with a chip, possessing each of the integers described in paragraphs 3.36-3.53 of confidential exhibit DBBM-5 to the affidavit of Doron Berl Ben-Meir made 6 December 2000. "Catuity device" means a device for use in the Catuity system for processing coded information during a purchase or payment operation by a user, holder of a card with a chip, possessing each of the integers described in paragraphs 4.2-5.4 and 5.6 of confidential exhibit DBBM-5 to the affidavit of Doron Berl Ben-Meir made 6 December 2000." "The Patent" means Australian Patent 712925. 1. The Court declares that the operation of the CiT Transcard system involves infringement of claims 1 to 4 of the Patent and the use of the CiT Transcard system involves infringement of claims 6 and 7 of the Patent and that: (a) the first respondent is liable for the said infringements from 23 November 1999; (b) the second respondent is liable for the said infringements from 31 July 1997; (c) the third respondent is liable for the said infringements from 31 July 1997. 2. The Court declares that the operation of the Catuity system involves infringement of claims 1 to 5 of the Patent and the use of the Catuity system involves infringement of claims 6 and 7 of the Patent and that: (a) the first respondent is liable for the said infringements from 1 April 2000; (b) the second respondent is liable for the said infringements from 1 April 2000. 3. The Court orders that, in Australia and during the term of the Patent, the respondents (and each of them) be restrained from, whether by their directors, officers, servants or agents or otherwise howsoever, infringing the Patent provided that in relation to the CiT Transcard system and the CiT Transcard device such restraint shall operate only on and after 17 October 2001. 4. The Court declares that in respect of the said infringements of the patent the applicant is entitled to any damages suffered by it and interest thereon, or, at the applicant's election, an account of any profits made by the respondents (and each of them) by reason of these said infringements and payment of the amount found to be due on the taking of such account and interest thereon. 5. For the purpose of enabling the applicant to make the election referred to in paragraph 5 hereof, order that on or before 17 September 2001 the respondents file and serve an affidavit setting forth an estimate of the sums received or receivable in respect of the following matters and the cost of obtaining those sums and particulars as to how that estimate is made: (a) operating or using the CiT Transcard system; (b) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, any Transcard validator, chip card or software for use in the CiT Transcard system; (c) operating or using the Catuity system; (d) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, any point of sale terminal or validator or any chip card or software for use in the Catuity system. 6. Reserve to the applicant liberty to apply for limited discovery to assist in the making of the election referred to in paragraph 5 hereof. 7. The Court certifies under s 19 of the Patents Act 1990 (Cth) that the validity of each claim of the patent was questioned. 8. Order that the cross-claim be dismissed. 9. Order that the respondents pay the applicant's costs to date of the claim and the cross-claim, such costs to be taxed in default of agreement and paid forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 526 OF 2000 BETWEEN: WELCOME REAL-TIME SA [RDC 403 099 625 00036] APPLICANT AND: CATUITY INC [ARBN 089 327 882] FIRST RESPONDENT CHIP APPLICATION TECHNOLOGIES LIMITED [ACN 057 883 333] SECOND RESPONDENT CIT CARDS (AUSTRALIA) LIMITED [ACN 072 773 052] THIRD RESPONDENT CATUITY INC [ARBN 089 327 882] FIRST CROSS-CLAIMANT CHIP APPLICATION TECHNOLOGIES LIMITED [ACN 057 883 333] SECOND CROSS-CLAIMANT CIT CARDS (AUSTRALIA) LIMITED [ACN 072 773 052] THIRD CROSS-CLAIMANT WELCOME REAL-TIME SA [RDC 403 099 625 00036] CROSS-RESPONDENT JUDGE: HEEREY J DATE: 24 JULY 2001 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Since my findings were announced on 17 May 2001 ([2001] FCA 445) the parties engaged in discussion as to the appropriate form of orders. Agreement could not be reached and counsel made submissions on 17 July 2001. 2 It will be convenient to deal with the minutes proposed by the applicant. They commence with the following definitions: "Note that in this order: 'CiT Transcard system' means the smart card system for use in public transit and retail described in paragraphs 20 to 25 of the affidavit of Anthony Benjamin Garton dated 3 August 2000 and slides 6 to 8, 13 to 22 and 25 to 26 of the Catuity Technical Briefing slides which are exhibit DBBM 4 confidential to the affidavit of Doron Berl Ben-Meir made 6 December 2000. 'Catuity system" means the smart card system for use in multiple every-day consumer applications described in paragraphs 28 to 36 of the affidavit of Anthony Benjamin Garton dated 3 August 2000 and slides 10, 25 and 26 of the Catuity Technical Briefing slides which are exhibit DBBM 4 confidential to the affidavit of Doron Berl Ben-Meir made 6 December 2000." 3 For reasons which will become apparent, it is convenient to note here two definitions proposed by the respondents: "'CiT Transcard device' means a device for use in the CiT Transcard system for processing coded information during a purchase or payment operation by a user, holder of a card with a chip, possessing each of the integers described in paragraphs 3.36-3.53 of confidential exhibit DBBM-5 to the affidavit of Doron Berl Ben-Meir made 6 December 2000. 'Catuity device' means a device for use in the Catuity system for processing coded information during a purchase or payment operation by a user, holder of a card with a chip, possessing each of the integers described in paragraphs 4.2-5.4 and 5.6 of confidential exhibit DBBM-5 to the affidavit of Doron Berl Ben-Meir made 6 December 2000." 4 The definitions should also include "'The Patent' means Australian Patent 712925". Declarations 5 Paragraphs 1 and 2 of the applicant's minutes are as follows: "1. The Court declares that the operation of the CiT Transcard system involves infringement of claims 1 to 4 of the Patent and the use of the CiT Transcard system involves infringement of claims 6 and 7 of the Patent and that: (a) the first respondent is liable for the said infringements from 23 November 1999; (b) the second respondent is liable for the said infringements from 31 July 1997; (c) the third respondent is liable for the said infringements from 31 July 1997. 2.The Court declares that the operation of the Catuity system involves infringement of claims 1 to 5 of the Patent and the use of the Catuity system involves infringement of claims 6 and 7 of the Patent and that: (a) the first respondent is liable for the said infringements from 1 April 2000; (b) the second respondent is liable for the said infringements from 1 April 2000." 6 Although initially opposed, on the hearing before me senior counsel for the respondents did not object to these declarations. They appear to be in appropriate form. Declarations will be made accordingly. Injunction 7 The applicant proposed the following: "3. The Court orders that, in Australia and during the term of the Patent, the respondents (and each of them) be restrained from, whether by their directors, officers, servants or agents or otherwise howsoever, doing or authorising or causing the doing of any of the following acts: (a) operating or using, or promoting in any way the operation or use of, on or after 17 October 2001, the CiT Transcard system; (b) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, on or after 17 October 2001, any Transcard validator, chip card or software, for use in the CiT Transcard system; (c) operating or using, or promoting in any way the operation or use of, the Catuity system; (d) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, any point of sale terminal or validator device or any chip card or software, for use in the Catuity system, or otherwise infringing the patent." 8 The commencing date of 17 October 2001 in relation to the CiT Transcard system reflects the agreement of the parties that it is reasonable to allow some time for the respondents to wind down this system and make necessary arrangements with third parties. 9 In the course of the correspondence between the parties the respondents at one stage suggested that the injunction should only go to restrain infringing conduct of the kind considered at the trial. This position was not taken by senior counsel for the respondents at the hearing before me. I wish to make it clear that there is no basis for it. Particularly when the validity of the patent has been an issue, the patentee is entitled to an injunction restraining all infringement, and not just the particular form of infringement which was the subject of evidence at the trial. The point was dealt with very recently by the English Court of Appeal in Coflexip SA v Stolt Comex Seaway MS Ltd [2001] RPC 9. The trial judge had found a patent valid and infringed. However he refused to grant an injunction in the usual form, which restrained the defendants from "infringing patent no …", but instead granted an injunction restraining the defendants from using or offering to use in the United Kingdom a process for laying a flexible conduit employing a system defined by reference to the actual process found to infringe. On the plaintiff's cross-appeal the Court of Appeal granted an injunction in the usual form. Aldous LJ, with whom the other members of the Court agreed, said: "12. … I … will deal generally with the reasons why injunctions in patent actions are usually granted in the form which prevents the defendant from infringing the patent. 13. The court has under s.37 of the Supreme Court Act 1981 a general power to grant an injunction 'in all cases in which it appears to the court to be just and convenient to do so'. Section 61 of the Patents Act 1977 provides for 'a claim for an injunction restraining the defendant … from any apprehended acts of infringement'. In so doing the section accords with the general law prior to the passing of that Act. An injunction is a remedy against further injury and the court will not make the order if satisfied that no such injury is likely to occur. It is not because a defendant has done a wrong that an injunction will be granted against him. Where a patentee has conclusively established the validity of his patent and that it had been infringed, as a general rule an injunction will be granted. However that will not happen as a matter of course as an injunction is a discretionary remedy. It is for that reason there have been cases where injunctions have been refused, for example, where the defendant satisfied the court that further infringement was not likely. In the present case the judge was not satisfied that no further infringement was threatened and therefore concluded that an injunction was an appropriate remedy. The contrary was not suggested in this Court. The issue argued concerned the terms of the injunction. 14. It is important that an order, such as an injunction, is drafted so as to set out, with such clarity as the context admits, what may not be done. It is for that reason that the standard form of injunction is in the terms restraining the defendant from infringing the patent. Such an injunction is limited in term and confined to the right given by section 60(1) and (2) of the Patents Act. It also excludes acts, carried out by the defendant and which fall within the ambit of the monopoly, but are excluded from infringement by the Act; for example, private use coming within section 60(5)(a) of the Act. Such an injunction is confined to the monopoly as claimed. The claim has been construed by the court with the aid of the parties and in the context of the acts alleged by the plaintiff to infringe and any other potentially infringing acts which the defendant wishes to bring before the court. Of course a dispute can arise as to whether acts, not brought before the court, amount to a breach of the injunction. But such a dispute arises against the background where the ambit of the claim and therefore the injunction has been the subject of consideration by the court and has been construed by it. … 18. When deciding what is the appropriate form of injunction in a patent action, it must be borne in mind that the injunction is being granted to prevent apprehended use of the patentee's statutory monopoly, as defined in his claim. The decision as to form is taken against the background of the claim having been construed by the court as between the parties. That, of course, does not happen in other intellectual property cases. An injunction which just restrained breach of confidence would not be appropriate for many reasons, including because the extent of the confidential information would not have been determined. In passing-off cases a change of circumstances can alter the representation made and therefore the injunction normally sets out the act which is to be prevented, qualified by such words as 'so as to pass-off'. 19. The judge seemed to believe that injunctions which restrained infringement of a patent were broad injunctions: but they equate to the statutory right given, a right which has been held to have been validly granted and infringed. The injunction granted by the judge would allow the defendant to do other acts even though they may infringe. The defendant in those circumstances would be better off in that a change from that which is described and shown in the process description would allow him to continue in business without having to seek guidance from the court before adopting the change. The advantage to the defendant of only having the injunction cover a particular article or process is clear. If he makes a change he will not be in breach and it will be up to the patentee to bring another action. However, the disadvantage to the patentee is equally clear. To obtain an injunction he has to establish his monopoly and that it has been infringed, and the judge must conclude that further infringement is apprehended. From his point of view, it is the infringer who should seek guidance from the court if he wishes to sail close to the wind. In the normal course of events that would be reasonable. 20. The usual form of injunction which protects the right established by the patentee, with its ambit construed by the court, does in general provide a fair solution. However, each case must be determined on its own facts and the discretion exercised accordingly. 21. In the present case, nothing has been brought to my attention which would suggest that anything other than the usual form of injunction would be appropriate. The injunction suggested by the judge was in my view inappropriate." 10 The reference to seeking guidance of the court would in Australia include an application for a non-infringement declaration under Ch 11 Pt 2 of the Patents Act 1990 (Cth) (the Act). 11 However the applicant's proposed form is not confined to a restraint "infringing the patent". It also restrains various forms of behaviour expressed in complicated alternatives. The invariable practice in the High Court has been to grant an injunction which simply restrained infringing the patent: Commonwealth Industrial Gases Ltd v MWA Holdings Pty Ltd (1970) 180 CLR 160 at 171, Welch Perrin & Co Pty Ltd v Worrel (1961) 106 CLR 588 at 606, 622, Interlego AG v Toltoys Pty Ltd (1973) 130 CLR 461 at 489, Minnesota Mining and Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253 at 299. I see no reason why an injunction in that straightforward form should not be adopted in the present case. There will be an order as follows: "The Court orders that, in Australia and during the term of the Patent, the respondents (and each of them) be restrained from, whether by their directors, officers, servants or agents or otherwise howsoever, infringing the Patent provided that in relation to the CiT Transcard system and the CiT Transcard device such restraint shall operate only on and after 17 October 2001. Delivery up 12 The applicant proposed the following: "4. The Court orders that on or before 4.00 pm on 17 October 2001 there be delivery up to the applicant on oath or destruction under the supervision of the applicant of the following things and all copies thereof: (a) any chip card or software, for use in the CiT Transcard system; (b) any promotional or instructional material concerning the operation or use of the CiT Transcard system; (c) any promotional or instructional material concerning the operation or use of the CiT Transcard system; in the possession, custody or power of the respondents (or any of them) as at the date of this Order." 4A. The Court orders that on or before 4.00 pm on 31 July 2001 there be delivery up to the applicant on oath or destruction under the supervision of the applicant of the following things and all copies thereof: (a) any chip card or software for use in the Catuity system; (b) any point of sale terminal or validator for use in the Catuity system; (c) any promotional or instructional material concerning the operation or use of the Catuity system; in the possession, custody or power of the respondents (or any of them) as at the date of this Order." 13 The respondent submitted there should be no order at all for delivery up or alternatively that the only order should be in the following form: "The Court orders that on or before 4.00 pm on 21 September 2001 the respondents deliver up on oath to the solicitors for the respondents for safekeeping and for destruction under the supervision of the solicitors for the applicant any CiT Transcard device or Catuity device in the possession, custody or power of the respondents (or any of them) in Australia as at the date of this order." 14 It was put on behalf of the respondents, and I accept, that delivery up should only be ordered in relation to something which infringes all the essential integers of a patent. Something which is capable of substantial non-infringing use should not be delivered up: see Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 177 CLR 480 at 498. The basis of delivery up is not that the infringing item becomes the property of the patentee (it does not) but rather to remove from the infringer a source of temptation: Vavasseur v Krupp (1878) 9 Ch D 351 at 360; Meagher, Gummow and Lehane "Equity Doctrines and Remedies" (3rd edition) at 688-687. 15 In the present case the order which the applicant seeks includes delivery up of "any chip card or software for use in the Catuity system". It may well be practically impossible to determine whether a particular chip card in the respondents' possession was "for use in the Catuity system" or for use in some other and non-infringing system. Senior counsel for the applicant argued that something would have to be delivered up unless it is only capable of non-infringing use. I do not accept this. Rather the position is the reverse. Terrell on the Law of Patents (15th edition) says at 486: "… though the normal form of the order is for actual destruction or delivery up of infringing articles, it is modified in suitable cases, as, for instance, where an infringing article can be rendered non-infringing by some alteration or by the removal of some part. Machinery and equipment especially adapted for using an infringing process may be the subject of an order for delivery up or destruction but only where it cannot be used for non-infringing purposes. Equally, no order may be made for the delivery up of an article which is not itself an infringement but which is capable of being used as part of an infringing apparatus." See also Codex Corporation v Racal-Milgo Ltd [1987] FSR 87 at 90-91. I think the appropriate order is that proposed by the respondents, which will extend to any existing CIT/Transcard or Catuity device. 16 Senior counsel for the applicant referred to s 117 of the Act which provides: "117 (1) If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent. (2) A reference in subsection (1) to the use of a product by a person is a reference to: (a) if the product is capable of only one reasonable use, having regard to its nature or design – that use; or (b) if the product is not a staple commercial product – any use of the product, if the supplier had reason to believe that the person would put it to that use; or (c) in any case – the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier." 17 I do not see that provision as assisting on the present issue. The "product", the use of which would infringe the patent, must be a product which infringes all the essential integers of the patent. As senior counsel for the respondents submits, the software in the present case cannot by itself infringe claims 1 to 5 of the patent which claim a method involving a combination of physical devices and software. However claims 6 and 7 claim a device. Although these claims did not loom large at the trial, it necessarily follows that a device within these claims would infringe. Thus there should be an order for delivery up in the terms put by the respondents as an alternative. Election as to damages or account of profits 18 The applicant proposed: "5. The Court declares that in respect of the said infringements of the patent the applicant is entitled to any damages suffered by it and interest thereon, or, at the applicant's election, an account of any profits made by the respondents (and each of them) by reason of these said infringements and payment of the amount found to be due on the taking of such account and interest thereon. 6. For the purposes of enabling the applicant to make the election referred to in paragraph 5 hereof, order that on or before 17 September 2001 the respondents file and serve an affidavit setting forth an estimate of the sums received or receivable in respect of the following matters and the cost of obtaining those sums and particulars as to how that estimate is made. (a) operating or using the CiT Transcard system; (b) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, any Transcard validator, chip card or software for use in the CiT Transcard system; (c) operating or using the Catuity system; (d) making, hiring, selling or otherwise disposing of and offering to make, hire, sell or otherwise dispose of and using and keeping for the purpose of doing any of the aforementioned things, any point of sale terminal or validator or any chp card or software for use in the Catuity system." 19 This was not in dispute save that the date of 17 September 2001 was fixed by me, the parties not being able to agree on an appropriate date. Liberty to apply 20 The applicant proposed: "7. Reserve to the applicant liberty to apply for limited discovery to assist in the making of the election referred to in paragraph 5 hereof." 21 This was not disputed. Certificate 22 The applicant proposed: "8. The Court certifies under s 19 of the Patents Act 1990 (Cth) that the validity of each claim of the patent was questioned." 23 This was not disputed Dismissal of cross-claim 24 The applicant proposed: "9. Order that the cross-claim be dismissed." 25 This was not disputed. Costs 26 The applicant proposed: "10. Order that the respondents pay the applicant's costs to date of the claim and the cross-claim, such costs to be taxed in default of agreement and paid forthwith." 27 It was accepted that, strictly speaking, the order I make will be an interlocutory order because damages or an account of profits remain to be ascertained. In such event O 62 r 3(3) of the Federal Court Rules is applicable: "An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principle proceeding in which the interlocutory order was made is concluded or further order." 28 Typically an interlocutory proceeding will involve some dispute about pleading, discovery or the like. It is usually desirable that any costs order not be taxed and paid until the proceeding is completed. Were this not so, a party with a meritorious substantive claim or defence might be greatly prejudiced by the burden of costs on unsuccessful interlocutory hearings. However the present case is very different. There was a substantial hearing in which important substantive rights were established. The costs order sought by the applicant is in my opinion appropriate. Stay 29 The respondents brought on a motion seeking a stay pending appeal. However, as I understand it, if their position on delivery up was accepted that would have the same practical effect. Orders 30 There will be orders accordingly. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 24 July 2001 Counsel for the Applicant: J McLEmmerson QC and A J Ryan Solicitor for the Applicant: Allens Arthur Robinson Counsel for the Respondent: D K Catterns QC Solicitor for the Respondent: Baldwin Shelston Waters Date of Hearing: 17 July 2001 Date of Judgment: 24 July 2001