FEDERAL COURT OF AUSTRALIA Microsoft Corporation v Intertrust Technologies Corporation [2003] FCA 656 INTELLECTUAL PROPERTY – Patents – application for revocation of patent – no cross-claim for infringement – motion by applicant for revocation seeking order that respondent-patentee provide particulars of "inventive step", "relevant art" and "qualifications and experience of person(s) skilled in the relevant art" – no evidence yet filed by applicant for revocation – only sparse particulars of invalidity provided by applicant for revocation – onus on applicant for revocation to prove invalidity – whether patentee should be required to supply particulars as an aspect of case management with a view to narrowing ambit of dispute. PRACTICE AND PROCEDURE – particulars – application for revocation of patent – no cross claim for infringement – motion by applicant for revocation seeking order that respondent-patentee provide particulars of "inventive step", "relevant art" and "qualifications and experience of person(s) skilled in the relevant art" – no evidence yet filed by applicant for revocation – only sparse particulars of invalidity provided by applicant for revocation – onus on applicant for revocation to prove invalidity – whether patentee should be required to supply particulars as an aspect of case management with a view to narrowing ambit of dispute. Patents Act 1990 (Cth) ss 7(2), (3); 18(1)(b)(ii); 138 AMP Inc v Utilux Pty Ltd (1971) 45 ALJR 123 cited Arrow Pharmaceuticals Ltd v Merck & Co Inc [2003] FCA 642 referred to Bailey v Commissioner of Taxation (1977) 136 CLR 214 distinguished British United Shoe Machinery Co Ltd v A Fussell & Sons Ltd (1908) 25 RPC 631 cited Grace Australia Pty Ltd v MBT Holding AG [2002] FCA 1512 not followed James Keith & Blackman Co Ltd v Tilley High Pressure Gas Syndicate Ltd (1913) 30 RPC 537 cited Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001) 207 CLR 1 cited Minnesota Mining and Manufacturing Co v Tyco Electronics Pty Ltd (2002) 56 IPR 248 discussed Raleigh Cycle Co Ltd v H Miller & Co Ltd (1948) 65 RPC 141 cited Sonotone Corporation v Multitone Electric Co Ltd (1955) 72 RPC 131 cited MICROSOFT CORPORATION & ANOR v INTERTRUST TECHNOLOGIES CORPORATION N 1260 OF 2002 LINDGREN J 1 JULY 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1260 OF 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD (ABN 29 002 589 460) SECOND APPLICANT AND: INTERTRUST TECHNOLOGIES CORPORATION RESPONDENT JUDGE: LINDGREN J DATE OF ORDER: 1 JULY 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicants' motion brought by notice of motion filed on 20 May 2003 be dismissed. 2. The applicants pay the respondent's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1260 OF 2002 BETWEEN: MICROSOFT CORPORATION FIRST APPLICANT MICROSOFT PTY LTD (ABN 29 002 589 460) SECOND APPLICANT AND: INTERTRUST TECHNOLOGIES CORPORATION RESPONDENT JUDGE: LINDGREN J DATE: 1 JULY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT INTRODUCTION 1 The applicants (I will refer to them collectively as "Microsoft") apply under s 138 of the Patents Act 1990 (Cth) ("the Act") for a declaration that Australian Patent No 728776 ("the Patent") of the respondent ("Intertrust") is invalid, and an order that it be revoked. 2 The title of the invention is: "Techniques for defining, using and manipulating rights management data structure". The invention has been referred to in oral submissions as a "software configuration". The Specification comprises 64 pages of text followed by 14 pages of figures. There are 57 claims, of which three are independent claims. Claims 1—20 concern a method of using a "descriptive data structure"; claims 21—44 concern a method of creating a "first secure container"; and claims 45—57 are for a "distributed data processing arrangement". 3 The Court may revoke a patent only on the grounds specified in subs 138(3) of the Act. Relevantly, for the purposes of the motion referred to below, Microsoft relies on the ground "that the invention is not a patentable invention" (s 138(3)(b)). The notion of a "patentable invention" for the purposes of a standard patent is defined in subs 18(1) of the Act. In order to be a patentable invention, an invention must involve an inventive step "when compared with the prior art base as it existed before the priority date of that claim" (s 18(1)(b)(ii)). The notion of "inventive step" is explained in subss 7(2) and (3) of the Act (with which must be read par (a) of the definition of "prior art base" in Schedule 1 to the Act). Those two subsections are as follows: "(2) For the purposes of this Act, an invention is to be taken to involve an inventive step when compared with the prior art base unless the invention would have been obvious to a person skilled in the relevant art in the light of the common general knowledge as it existed in the patent area before the priority date of the relevant claim, whether that knowledge is considered separately or together with the information mentioned in subsection (3). (3) The information for the purposes of subsection (2) is: a) any single piece of prior art information; or (b) a combination of any two or more pieces of prior art information; being information that the skilled person mentioned in subsection (2) could, before the priority date of the relevant claim, be reasonably expected to have ascertained, understood, regarded as relevant and, in the case of information mentioned in paragraph (b), combined as mentioned in that paragraph." (my emphasis) 4 By notice of motion filed on 20 May 2003 Microsoft moves for the following orders (Microsoft does not press for a fourth order specified in the Notice of Motion): "1. That, within 21 days of the date of this Order, the respondent specifically identify the alleged inventive step in the invention claimed in Australian Patent No 728776 (the "Patent") compared to the prior art base. 2. That, within 21 days of the date of this Order, the respondent specifically identify, and give particulars of, the relevant art to which the Patent relates. 3. That, within 21 days of the date of this Order, the respondent specifically identify, and give particulars of, the qualifications and experience of the hypothetical person(s) skilled in the relevant art referred to in Order 2 in Australia before the priority date of each claim of the Patent." 5 Microsoft's statement of claim asserts that the Patent "is and at all material times has been invalid on the grounds set out in the accompanying Particulars of Invalidity". 6 The Particulars of Invalidity furnished by Microsoft pursuant to O 58 r 15 of the Federal Court Rules give the following particulars of lack of inventive step: "Lack of Inventive Step 3 The alleged invention as claimed in each claim of the Patent is not a patentable invention within the meaning of the Act in that it did not involve an inventive step when compared with the prior art base as it existed before the priority date of each claim. Particulars The applicant will rely on the common general knowledge of persons skilled in the relevant art in Australia as at the priority date (including any admissions contained in the specification) either alone or in combination with prior art information made publicly available in any one of the documents referred to in Annexure 'B' prior to the priority date, on or about the date specified in Annexure 'B'. The applicant reserves the right to add further instances of prior art information to Annexure 'B'." (emphasis in original) Annexure B to the Particulars of Invalidity is in the form of the following table: "ANNEXURE B No. Citation Date of Publication 1 WO 96/27155, "Systems and methods for secure transaction management and electronic rights protection" 18 September 1996 2 Olin Sibert, David Van Wie and David Bernstein, "Digibox: A Self-Protecting Container for Information Commerce" July 1995 3 Such further particulars as are later provided Annexure A to the Particulars of Invalidity is in the form of the same table and is said to constitute the basis of a lack of novelty ground of invalidity. REASONING (INCLUDING SUBMISSIONS) Power 7 It is common ground that: · Microsoft bears the onus of proving invalidity; and · the Court has power, as an aspect of case management, to order Intertrust to provide particulars generally of the kind sought (it is not necessary for me to dwell on the precise terms of the three orders sought). In the course of oral submissions, senior counsel for Microsoft said that it might be more appropriate that Intertrust be ordered to provide a statement "of the nature of the case on which [it] relies", rather than "particulars". A power to order such a statement (and to order particulars) is provided for in O 12 subr 5(1) of the Federal Court Rules, which is, relevantly, as follows: "5(1) The Court may order a party to file and serve on any other party: (a) particulars of any claim, defence or other matter stated in his pleading, or in any affidavit ordered to stand as his pleading; or (b) a statement of the nature of the case on which he relies; or (c) ..." Other relevant powers are found in O 10 r 1(1) and (2)(a)(v) and (xii) of the Federal Court Rules. 8 No affidavits have yet been filed in the substantive proceeding. Intertrust's filed defence is a bare denial that the Patent is invalid on any of the grounds set out in the Particulars of Invalidity or on any other grounds. 9 There cannot be "particulars" of a bare denial: cf Trade Practices Commission v Leslievale Pty Ltd (1986) 64 ALR 573. A statement of the nature of the case on which Intertrust relies may seem at first blush more apt to describe what Microsoft is seeking. But even this formulation raises the question how to state the nature of a case consisting of a bare denial. Order 10 r 2(a)(v) gives me power, with respect to "the defining of the issues", to order Intertrust to identify those matters of which Microsoft seeks particulars on which Intertrust proposes to rely on the hearing. But until Intertrust sees Microsoft's evidence, it does not know the case it has to meet and whether it will go into evidence at all. Nonetheless, I think the better view is that I have inherent (or implied) power or power under O 10 r 2(a)(v), to make an order generally of the kind sought. The question is whether it is appropriate to exercise that power in the absence of any evidence whatsoever from Microsoft. Discretion 10 Microsoft submits that it would serve to narrow the issues in the case if Intertrust were required to identify the inventive step involved. Microsoft submits that the terms of the Specification are "opaque" and that the inventive step does not clearly emerge from them. 11 Senior counsel for Microsoft took me to the terms of the Specification with a view to showing that they do not expose the alleged "inventive step", "relevant art" or "qualifications and experience of the hypothetical person(s) skilled in the relevant art", of which particulars are now sought. Senior counsel ventured various suggestions as to what the inventive step might be, and said that if it was identified, the ambit of the evidence of "common general knowledge as it existed in the patent area before the priority date of the relevant claim" would be likely to be much reduced, with a resulting saving in time and cost. 12 Microsoft points to judicial warnings against showing the patent to the expert witnesses of an applicant for revocation if their evidence in relation to obviousness is to carry weight (cf Minnesota Mining and Manufacturing Co v Tyco Electronics Pty Ltd (2002) 56 IPR 248 ("3M v Tyco") at [45]). Microsoft's submission is that if its experts are not to be shown the patent, the utility of the patentee's supplying the particulars sought is all the greater. 13 Consistently with the stance which he contends a patentee in these circumstances is entitled to take, senior counsel for Intertrust did not attempt to demonstrate that the matters of which Microsoft seeks particulars can be divined from the Specification. He made the point, however, which I think senior counsel for Microsoft accepted, that those matters may become clear in the light of the affidavit evidence to be filed. 14 Intertrust points to O 11 r 1B of the Federal Court Rules which requires that a pleading prepared by a party's legal representative be accompanied by a certificate in accordance with Form 15B completed by that legal representative. Form 15B is a certificate that in relation to the pleading: "the factual and legal material available to [a legal representative] ... provides a proper basis for: (a) each allegation in the pleading; and (b) each denial in the pleading; and (c) each non-admission in the pleading." Microsoft's statement of claim was accompanied by such a certificate. Clearly, the certificate relates, inter alia, to the allegation in the Statement of Claim that the Patent is invalid on the grounds set out in the Particulars of Invalidity. 15 Intertrust emphasises that an applicant for a patent is not required to identify the inventive step involved in an invention as a condition of obtaining a grant. 16 Senior counsel for both parties referred me to single judge decisions of the Court in which an order for particulars of inventive step has been ordered or refused. Microsoft relies, in particular, on the order made by Heerey J in Grace Australia Pty Ltd v MBT Holding AG [2002] FCA 1512 ("Grace") (about a month earlier his Honour had ordered similar particulars of his own motion and without opposition in Eli Lilly & Co v Pfizer Research & Development Co (unreported, V 604 of 2002, 22 October 2002), stating that it would be "useful" if the patentee gave particulars of the alleged inventive step). However, in Datadot Technology Ltd v Alpha Microtech Pty Ltd (unreported, N 799 of 2002, 21 November 2002), Emmett J declined an application for a similar order, and in fact ordered that the party seeking revocation, when filing its affidavits in chief on invalidity, provide further particulars of the "prior art base" and of the "person skilled in the relevant art". 17 Like the present proceeding, Grace was an application for revocation, there was no issue of infringement, and the defence was a bare denial. Like Microsoft, the applicant for revocation in Grace relied on the same particulars as particulars of want of novelty and of lack of inventive step. Those particulars were, however, much more extensive than the citation of the two documents referred to in the table mentioned earlier. Counsel for the applicant for revocation, like senior counsel for Microsoft here, submitted that the Specification was ambiguous and unclear, and that the provision of particulars by the patentee would serve to limit the area of dispute and thus the time and cost of the litigation. In particular, it was submitted that "it may be wasteful if the applicant has to gather evidence to counter every possible ground on which it might be shown that the invention was not obvious" (at [7]). 18 Heerey J cited Bailey v Commissioner of Taxation (1977) 136 CLR 214 ("Bailey") as authority for the proposition that there may be cases in which it is appropriate to order a party who does not bear any relevant onus, to provide particulars. In Bailey, the Commissioner of Taxation had included in the assessable income of a taxpayer the amount of a distribution by a company in which the taxpayer had been a shareholder. The Commissioner disallowed the taxpayer's objection, and the taxpayer appealed to the Supreme Court of New South Wales. Correspondence between the parties revealed that the Commissioner had relied on s 260 of the Income Tax Assessment Act 1936 (Cth) ("the ITAA") to include the amount of the distribution in the taxpayer's assessable income. The taxpayer requested particulars of the "arrangement" upon which the Commissioner had relied for the purpose of the application of s 260. 19 All members of the High Court had no difficulty in holding that the Supreme Court had possessed power to order the Commissioner to provide those particulars, notwithstanding provisions of the ITAA which imposed the burden of proof on the taxpayer (s 190(b)) and made notice of the Commissioner's assessment conclusive evidence of the due making of the assessment (subs 177(1)). Heerey J set out (at [8]) the following passage from the judgment of Jacobs J (136 CLR at 221): "A court has inherent power to order particulars. It is far more usual to order particulars of an allegation or claim which the party advancing it bears the burden of proving than particulars of a matter which may be alleged without undertaking the burden of its proof; but this is so because the latter case is comparatively rare. The present case is such a case because of the operation of s 190(b). But rules or practices as to particulars much be sufficiently flexible to allow all parties to an action or matter to meet with necessary evidence and without delay to court processes questions which may be raised at the hearing. Their purpose is to concentrate and define the issues of fact and to prevent surprise and consequent delay." 20 In my opinion, the case for ordering particulars was stronger in Bailey than it is in a proceeding under s 138 of the Act for revocation of a patent. In Bailey the issues for determination arose as between a person challenging of a decision and the decision-maker, in circumstances in which only the decision-maker could have known course of the decision-making process. A taxpayer's statutory right of appeal against a decision could be rendered illusory if particulars of the reasons which led to the making of the decision could not be ordered. Microsoft is not in the same position as the taxpayer was in Bailey. Microsoft has the status of "any other person" referred to in subs 138(1) of the Act. Bailey is more akin to a proceeding between an applicant for a grant and the Commissioner for Patents (cf ss 51, 60(4) of the Act). While statements can be found in the judgments of all five judges of the Court in Bailey emphasising the inherent and broad nature of a court's power to order particulars in order to identify and confine issues, I do not regard the case as pointing strongly in favour of an exercise of the discretion to order them in this case. 21 Importantly, generally speaking an applicant for a grant is not required, by the statutory requirement to define the invention, to identify the inventive step involved, or, it follows, the associated "relevant art", skilled addressee, or common general knowledge: British United Shoe Machinery Co Ltd v A Fussell & Sons Ltd (1908) 25 RPC 631 at 651—652 per Fletcher Moulton LJ; James Keith & Blackman Co Ltd v Tilley High Pressure Gas Syndicate Ltd (1913) 30 RPC 537 at 546 per Astbury J; Raleigh Cycle Co Ltd v H Miller & Co Ltd (1948) 65 RPC 141 at 148, 161 per Lord MacDermott; Sonotone Corporation v Multitone Electric Co Ltd (1955) 72 RPC 131 at 139 per Evershed MR; AMP Inc v Utilux Pty Ltd (1971) 45 ALJR 123 at 128 per McTiernan J (appeal allowed, but without relevance to present issue, at (1974) 48 ALJR 17; Kimberly-Clark Australia Pty Ltd & Arico Trading International Pty Ltd (2001) 207 CLR 1 at [18]—[21]. The statutory requirement is that the Specification must describe (fully) "the invention" (see s 40(1) and (2)(a)) and end with a claim or claims defining "the invention" (s 40(2)(b)). It is the Commissioner of Patents who must be satisfied that the invention is a patentable one, and, therefore, that the invention propounded "involves an inventive step", "when compared with the prior art base as it existed before the priority date": s 18(1)(b)(ii) of the Act. Intertrust can only ever give its opinion as to the inventive step involved. 22 Senior counsel for Microsoft accepted that Intertrust could do no more than give its opinion as to the inventive step involved. Indeed, he accepted that Intertrust should have reasonable liberty to vary any particulars of inventive step which it may supply, in the light of the evidence as it emerged. However, he submitted that identification by Intertrust of what, in its opinion, was the inventive step involved, may well limit the field of context as between the parties to this particular piece of litigation. It may do so, but as will appear below, in the circumstances of this proceeding, and, in particular, at this early stage of it, I think this consideration is outweighed by others. 23 In Grace,on the question of the discretion to order particulars, Heerey J stated (at [10]): "Counsel for the respondent argued that at worst there should only be an order for particulars of inventive step after the applicant had given general particulars of common general knowledge. There may be some force in that as a matter of general principle. However, in the present case, as I have already indicated, very substantial particulars of common general knowledge were given by the applicant as far back as February of this year. There has been no complaint about the adequacies of these particulars or a request for any further particulars. Realistically the respondent has been for a substantial period of time in possession of what might be called at least the main thrust and substance of the applicant's case as to common general knowledge. It is true that what the inventor actually thought was the inventive step is not conclusive, although it is certainly a starting point and the respondent proposes to lead evidence of those matters in the present case." (my emphasis) 24 While I do not decide that a patentee defending a proceeding for revocation should never be ordered to provide particulars of inventive step, in my opinion it would be premature to make such an order at this stage in this case. To date Microsoft has filed no evidence and has supplied only the sparse particulars of lack of inventive step set out in [6] above. Yet, when commencing its proceeding, it must have had some understanding of the basis of its allegation of obviousness. Alternatively, it may not have been able to divine an invention from the Specification at all, in which case the Specification may not have met the requirements of s 40(2)(a) and (b) of the Act. (In its Particulars of Invalidity, Microsoft also relies on alleged non-compliance of the Specification with subs 40(2)). In my opinion, as patentee, Intertrust is entitled to have its forensic position respected, and Microsoft, as initiating party, must make its own position clear before any question should arise of Intertrust being required to identify the inventive step involved. 25 The passage from the Full Court judgment in 3M v Tyco at [45] (referred to in [12] above) is directed against providing an expert with the Specification's description of the invention in suit, not against explaining to the expert any background to the making of the invention, which the Specification may identify. It is necessary that the expert be informed of certain background. With the expert's assistance, the applicant for revocation should then be able to identify the relevant prior art and hypothetical skilled addressee. The passage from 3M v Tyco was a warning against the expert's becoming aware, from reading the patent, of the nature of the invention in suit. 26 When serving its affidavits in chief, Microsoft should supply the best particulars of obviousness it can then give. 27 If Microsoft forms a clear view, in the course of consulting with experts and preparing its affidavit evidence, that there is a strong case for revocation because the Specification simply does not "describe the invention fully" or end with "a claim or claims defining the invention", or because the claims are not "clear and succinct" (subs 40(2) and (3), and s 138(3)(f) of the Act), Microsoft could, I suppose, move for determination of that issue as a separate question in an attempt to save itself further delay and costs. In the course of the hearing of such a question, evidence which Intertrust might choose to lead might identify the inventive step for which it contends. 28 I say nothing as to the likelihood of success of such a motion. It is not desirable, or perhaps possible, to foresee and describe all the various courses which the proceeding may take in the future. It suffices to say, in my opinion, that Microsoft must go further than it has to date, before any question should even arise of its obtaining particulars of the kind it now seeks. 29 Since I wrote the above, Conti J has delivered judgment (last Friday 27 June 2003) in Arrow Pharmaceuticals Ltd v Merck & Co Inc [2003] FCA 642 on a generally similar motion by an applicant for revocation of a patent, for particulars, including particulars of inventive step. The conclusion reached by his Honour is in accord with mine. CONCLUSION 30 The motion will be dismissed with costs. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 1 July 2003 Counsel for the Applicants: D K Catterns QC and S C G Burley Solicitor for the Applicants: Mallesons Stephen Jaques Counsel for the Respondent: D M Yates SC and A H Bowne Solicitor for the Respondent: Piper Alderman Lawyers Date of Hearing: 5 June 2003 Date of Judgment: 1 July 2003