FEDERAL COURT OF AUSTRALIA Gambro Pty Limited v Fresenius Medical Care Australia Pty Limited [2004] FCA 1025 GAMBRO PTY LIMITED AND ANOR v FRESENIUS MEDICAL CARE AUSTRALIA PTY LIMITED NG 474 of 1997 ALLSOP J 11 AUGUST 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 474 of 1997 BETWEEN: GAMBRO PTY LIMITED FIRST APPLICANT SECOND CROSS-RESPONDENT GAMBRO LUNDIA AB SECOND APPLICANT FIRST CROSS-RESPONDENT AND: FRESENIUS MEDICAL CARE AUSTRALIA PTY LIMITED RESPONDENT CROSS-CLAIMANT JUDGE: ALLSOP J DATE OF ORDER: 11 AUGUST 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The notice of motion dated 9 June 2004 and filed 10 June 2004 be dismissed. 2. The respondent (applicant to the motion) pay the applicants' (the respondents to the motion) costs of the motion. 3. Within 7 days, the parties file a form of order conformable with the request of the applicants for orders which are in dispute but subject to the qualifications expressed in the reasons herein. 4. In default of any such agreement each party file within 14 days the orders that it contends comply with order 3 above, together with brief written submissions as to the form of the orders proposed. 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 NG 474 of 1997 BETWEEN: GAMBRO PTY LIMITED FIRST APPLICANT SECOND CROSS-RESPONDENT GAMBRO LUNDIA AB SECOND APPLICANT FIRST CROSS-RESPONDENT AND: FRESENIUS MEDICAL CARE AUSTRALIA PTY LIMITED RESPONDENT CROSS-CLAIMANT JUDGE: ALLSOP J DATE: 11 AUGUST 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I refer to my reasons published on 25 March 2004 and 31 May 2004. 2 The respondent as applicant has moved the Court by notice of motion dated 9 June 2004 and filed on 10 June 2004 for orders that it be given leave to withdraw the admissions in [37] and [39] of the notice of admit facts dated 15 May 2001, made in its notice disputing facts dated 29 May 2001 and the admissions made in [14(i)] of the further amended defence dated 30 July 2003. 3 In [24] and [28] of my reasons dated 31 May 2004, I set out the terms of the admission in [37] of the notice to admit facts and the terms of [14] of the further amended defence. For ease of reference I set them out again, together with the admission from [39] of the notice to admit facts: [37] That Fresenius biBag Dialysis Machines (as defined) are capable of only one reasonable use having regard to their nature and design, namely use in conjunction with a source of water and a biBag Article to perform Treatment Procedures. …………… [39] That systems referred to in paragraph 38 are capable of only one reasonable use, having regard to their nature and design, namely use as described in paragraph 38. …………… [14] In relation to paragraph 8(k) of the Further Amended Statement of Claim, the Respondent admits that it supplied to another person or persons, biBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits but denies that any such use of all, each or any of those products by that other person or persons would infringe the Patent. The Respondent further admits that: (i) BiBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits are capable of only one reasonable use having regard to their nature and design, namely use as, or as a component of, or in connection with a system which prepares a concentrate solution of bicarbonate powder concentrate in water and a mixes that concentrate with water and with an acid concentrate to perform a haemodialysis, haemofiltration or haemodiafiltration treatment. (ii) biBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits are not staple commercial products and the Respondent had reason to believe that the person or persons to whom they were supplied would put them to the use which they were to be put, namely use as, or as a component of, or in connection with a system which prepares a concentrate solution of bicarbonate powder concentrate in water and a mixes that concentrate with water and with an acid concentrate to perform a haemodialysis, haemofiltration or haemodiafiltration treatment. (iii) biBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits were used or were to be used in accordance with instructions or inducements supplied by the Respondent or contained in advertisements published by or with the authority of the Respondent. but otherwise denies the matters alleged. 4 These admissions can be seen to underpin s 117(2)(a) of the Patents Act 1990 (Cth). 5 It is to be noted that the admissions in [42], [43] and [44] set out in [24] of my reasons of 31 May 2004, which underpin s 117(2)(b) and (c) of the Patents Act, are not sought to be withdrawn. 6 Having heard the further submissions of the parties, I do not resile from anything in my reasons of 31 May 2004, in particular [34] of the reasons. 7 Mr Kerr, the solicitor for the respondent (the applicant on the motion), who has, and has had, the care and conduct of the proceedings on behalf of the respondent, swore an affidavit dated 9 June 2004 explaining the basis for the request for the withdrawal of the admissions. He was not cross-examined. The affidavit makes clear that the question of the appropriateness of admitting [37] and [39] given the capacity of the machine to be used with two bottles of liquid (with the biBag option attachment unused as a connection) was canvassed with the client. In an email to the solicitor assisting Mr Kerr (Ms Young) two officers of the client, having been asked for their view about the admissions sought, said the following about the admission in [37] of the notice to admit: (a) Mr Mu-hsien Hieu said the following: Paragraph 37 – see below. Fresenius BiBag Dialysis Machines are also able to be used in treatment procedures with liquid bicarbonate. Rubin thinks that the biBag operating manual indicates how treatment with liquid bicarbonate can be carried out – our copy is with you, can you please check? (b) Mr Bernard Mathieu said the following (being the matter referred to by Mr Hieu in his reference "see below"): Paragraph 37. "That …Machines are capable of only one reasonable use …". This is wrong. A bibag machine is able to dialyse a patient based on regular liquid concentrates as well. As a matter of fact, in many countries this is even the most propular [sic] use of these machines. 8 Mr Kerr and Ms Young evidently gave the matter careful consideration and responded shortly thereafter to these comments from the client and discussed the other admissions related to s 117 as follows: Paragraph 37 We believe that this paragraph does not make sense, because of the definition of "Fresenius Bibag Dialysis Machines". Although we understand that all Fresenius dialysis machines are capable of dialysing patients with liquid bicarbonate, the paragraph should probably be admitted because of the problematic definition of the "Fresenius Bibag Dialysis Machines". You will see that in the Notice, the definition of such machines is any machine that, when "used in conjunction with a Bibag Article and a source of water is able to produce a concentrate solution of the bicarbonate concentrate in water". Strictly speaking, such a machine is capable of having only one reasonable use (which is stated in paragraph 37) ie "use in conjunction with a source of water and a Bibag Article to perform a Treatment Procedure". However, can you please let us know whether Fresenius dialysis machines of the model types identified in the definition are nevertheless capable without further modification to use liquid bicarbonate? These comments also apply to paragraph 39, which should be admitted for these reasons. Paragraphs 42, 45, 48 and 53 – "staple commercial products" "Staple Commercial Products" are basic commodities which are available commercially, such as wool, wheat, or sugar. Although sodium bicarbonate could be considered to be a staple commercial product, biBag articles would not be. Similarly, dialysis machines and modification kits are not staple commercial products. Contributory Infringement The paragraphs in the Notice that refer to "one reasonable use" and "staple commercial products" are directed to the issue of contributory infringement, details of which are set out in paragraph 8(1) of Gambro's Amended Statement of Claim. That paragraph relies on section 117 of the Patents Act. Section 117 provides that if use of a product by a person would infringe a patent, the supply of that product is also an infringement by the supplier if that use is: (a) the only reasonable use of the product; (b) any use that the supplier had reason to believe the person would put it to (if the product is not a staple commercial product); or (c) in accordance with any instructions for the use of the product, or any inducement to use the product, given the supplier. We think these paragraphs of the Notice should be admitted because: § the dialysis machines, modification kits and biBags are not staple commercial products; and § Fresenius supplied instructions with the dialysis machines, modification kits and biBags which meant Fresenius had reason to know how these articles would have been used. If any issues relating to the Notice are unclear at present, a fact can be denied now and admitted at a later stage if the position changes. As we mentioned earlier, if you do not admit a fact in the Notice and that fact is later proved by Gambro in the proceedings, you will be required to pay Gambro's costs of proving that fact, even if Gambro is unsuccessful on the question of infringement. Please let us have your thoughts on these issues as soon as possible. We are required to provide a response to Gambro's lawyers by tomorrow. [emphasis in original] 9 With these clear and carefully expressed views the client, a sophisticated commercial entity, provided the instructions to admit [37] and [39] of the notice to admit facts. 10 In his affidavit Mr Kerr explained the following: I refer to paragraph 37 of the Notice to Admit Facts dated 15 May 2001. Incorporating the definition of "Fresenius biBag Dialysis Machines" in the Notice to Admit Facts, I read paragraph 37 as follows: "That [any of the [identified] models of Fresenius dialysis machine, which is manufactured, modified or adapted (by means of a Modification Kit or otherwise) such that when the dialysis machine is used in conjunction with a Bibag Article and a source of water, the dialysis machine is able to produce a concentrate solution of the bicarbonate powder concentrate in water] are capable of only one reasonable use having regard to their nature and design, namely use in conjunction with a source of water and a biBag Article to perform Treatment procedures." I interpreted paragraph 37 of the Notice to Admit Facts to mean that when Fresenius machines are used in conjunction with a biBag® article and a source of water, the system (that is, the machine plus the biBag® article) is only capable of one reasonable use. At no time did I think that by admitting this statement FMCA was agreeing that the supply of the Fresenius dialysis machines, in circumstances where the biBag® is not also supplied, would expose Fresenius to a finding that it infringed the Patent. My interpretation of paragraph 37 of the Notice to Admit Facts was based on: (a) the knowledge and belief set out in paragraphs 5 of this Affidavit; (b) the belief that the purpose of Gambro seeking the admission was: (i) to ensure there would be no debate at trial as to whether the supply of the Fresenius machines together with biBag® articles made in accordance with the invention claimed in the Patent exposed Fresenius to a finding of indirect infringement under section 117 of the Patents Act 1990 (Cth); and (ii) to remove the need for the Applicants to sue end-users of the system (that is, the machine plus the biBag® article); (c) a view that, in the light of the definition of "Fresenius biBag Dialysis Machines", the phrase "only one reasonable use" does not rule out the possibility of other actual uses of the machines, particularly uses in the future where the biBag® was not available to end-users; (d) a view that a Fresenius machine without a biBag® article could not be an infringing device (as it did not possess all of the essential integers of any of the claims of the Patent), as a matter of interpretation of s 117 of the Patents Act 1990 (Cth). Notwithstanding the comments in the 23 May 2001 email in Exhibit PJK-1, FMCA admitted paragraph 37 of the Notice to Admit Facts. This admission was made on the basis of the interpretation of paragraph 37 set out in paragraph 7 above and the logic expressed in the 28 May 2001 fax in Exhibit PJK-1. I have no clear recollection or record of how instructions were received from FMCA in relation to the 28 May 2001 fax, however they were probably received orally. 11 Mr Kerr explained that he interpreted [1(b)], [1(k)] and [2] of the further amended application (see [12] of my reasons of 31 May 2004) as: ..referring to the supply of Fresenius machines together with biBag® articles made in accordance with the invention claimed in the Patent. This interpretation was made in the context set out in paragraphs 5 and 9 of this Affidavit. 12 Mr Kerr explained the terms of [14] of the further amended defence as follows: By paragraph 14 of the Further Amended Defence, I intended that FMCA would: (d) deny that supply or use of "biBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits" as a collective would infringe the Patent; and (e) admit that "biBag Articles, Dialysis Machines with the biBag Option and biBag Modification Kits" as a collective were capable of only one reasonable use, thus obviating the need for the Applicants to sue end-users of the system (that is, the machine plus the biBag® article). 13 Mr Kerr explained in his affidavit that he was comforted in his interpretation by what he took to be the understanding of the applicants as displayed in the evidence led by them that the relevant machines could be used with two bottles of liquid, without the use of the biBag option attachment in any way. 14 From the evidence before me it is common ground that the factual understanding of Mr Kerr was correct – the machines can be used in the two ways identified in annexure 1 to my reasons of 31 May 2004. 15 Mr Catterns QC brought the issue to light in his opening: see [33], [34], [35] and [36] of my reasons of 31 May 2004. This conduct amply fulfilled what I would have seen as Mr Catterns QC's responsibilities as I expressed them in an entirely different context in White v Overland [2001] FCA 1333 at [4] which expression of view has been approved by the New South Wales Court of Appeal in Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116 at [1], [28] and [39]. 16 No explanation was given as to why nothing was said in answer to Mr Catterns QC's invitation in his opening. The respondent's legal representative may well have had the views expressed in Mr Kerr's affidavit. If so, such were views reasonably open, and which had been carefully expressed to the client. It may well be that a view was taken about the proper scope of s 117. Unfortunately the pleading raised no clear issue about that. Whatever may have been the reason nothing was said and Mr Catterns QC proceeded on the basis that he had identified. 17 I raised with Mr Catterns QC at the hearing of the motion what I saw (I think, now, incorrectly) to be a middle course: not a withdrawal of the admission but a modification of the admission to express the limitation of it to the use of the biBag option fitting. His response was, nevertheless, that if this had been made known at or before the hearing he would have sought to run an authorisation case under s 13 of the Patents Act. That would have involved factual material and a factual controversy involving the behaviour and likely behaviour not only of the respondent but of third parties. He said that his clients were prejudiced by now being faced with this withdrawal (or modification) of the admissions by having either to abandon the authorisation case or seek to re-open and run it a year after the case was otherwise heard. 18 Mr Catterns QC raised other questions of prejudice which I need not deal with. 19 Whilst it is most unfortunate that the issue has arisen in the way it has, I am not prepared to take a course which would put the applicants in the position of having to make a choice about re-opening and running an authorisation case. 20 Mr Archibald QC said that no such prejudice exists since even with an authorisation case the applicants are not entitled to the orders sought. But that depends ultimately, I think, on an argument about s 117 which was not adequately pleaded. Further, if that argument is good and if it raises no fresh facts, it is an argument that can be sought to be run in the Full Court. 21 Parties in litigation are entitled to the benefit of the opportunity of informed and reasonably contemporaneous assessment of relevant evidence and issues so that, with the benefit of contemporaneity, choices can rationally be made in the conduct of such an expensive and difficult endeavour as litigation. 22 I accept Mr Catterns QC's statements from the bar table about the authorisation case and I am not prepared to countenance either the re-opening of this litigation or the placing of the applicants in a position of asking for such. I think it would work a prejudice to the applicants (respondents on the motion) and would not be in the interest of justice. 23 It is also to be noted that no withdrawal is sought to be made of the admissions underpinning s 117(2)(b) and (c). 24 In all the above circumstances, I propose to dismiss the notice of motion with costs. 25 That leaves the finalisation of the orders. One matter dealt with for the first time in an affidavit of Mr Frost filed on 8 June 2004 concerns the form of the order. In that affidavit Mr Frost dealt in some detail with the hydraulics of the biBag option. Some of the components of this hydraulic system performed functions for the general hydraulics of the machine assuming it was used with two bottles and not the biBag option, as well as for the biBag option. Other components only performed functions for the biBag option. 26 Thus, the respondent said that the orders in the terms sought would require disablement of functions essential for the use of the machine with two bottles of fluid. The applicants disclaim any desire for such disablement. The applicants said that the disablement should only be as to the functions solely referable to the biBag option. 27 The respondent then submitted that there may be future technical developments which did not infringe which required the use of the functions presently related only to the biBag option. Some very generalised evidence of Mr Mechtersheimer was led in this regard. It is unnecessary to deal with this evidence. The point to be made is that the orders should encompass the possibility of the respondent having liberty to apply to the Court to permit the reversal of the disablement of any part which becomes relevant to a non-infringing use in the future. 28 Thus, for the reasons in my main judgment, my reasons of 31 May and these reasons I am prepared to make the disputed orders which the applicant seeks with the following qualifications. First, the order sought in [2] should make clear that the restraint is for the selling etc of the dialysis machines with the biBag option otherwise than with the disablement of the identified hydraulic function components during the currency of the patent. The order should also provide for the ability of the respondent to approach the Court for a variation of the order during the currency of the patent should any component become referable not only to the use of the biBag option alone, but also to the use of an asserted non-infringing article. It will then be for the Court to carve out an exception appropriately worded to the circumstances at hand. The orders in [3] should likewise provide for these matters. 29 The parties should provide me with a form of order which conforms with the orders sought by the applicant under dispute and which also conforms with these reasons. 30 If there is any further debate about the form of the order each party should file the orders contended for which are said to conform with the orders sought and these reasons and any submissions as to the appropriateness of the preferred form. 31 I note that the applicants (respondents to the motion) have indicated that they will agree to the stay of any delivering up or disablement order pending the resolution of the appeal. 32 Finally, the parties should consider whether further leave to appeal is required from the further orders to be made. Conformably with my granting leave to appeal earlier, I would be prepared, subject to hearing the parties, to grant leave to appeal in order that all issues other than monetary relief can be resolved on appeal. 33 The orders I make are: 1. The notice of motion dated 9 June 2004 and filed 10 June 2004 be dismissed. 2. The respondent (applicant to the motion) pay the applicants' (the respondents to the motion) costs of the motion. 3. Within 7 days, the parties file a form of order conformable with the request of the applicants for orders which are in dispute but subject to the qualifications expressed in the reasons herein. 4. In default of any such agreement each party file within 14 days the orders that it contends comply with order 3 above, together with brief written submissions as to the form of the orders proposed. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 11 August 2004 Counsel for the Applicant: Mr D K Catterns QC and Ms K Howard Solicitor for the Applicant: Blake Dawson Waldron Counsel for the Respondent: Mr A Archibald QC Solicitor for the Respondent: Allens Arthur Robinson Date of Hearing: 26 July 2004 Date of Judgment: 11 August 2004