FEDERAL COURT OF AUSTRALIA Occupational and Medical Innovations Limited v Retractable Technologies Inc [2006] FCA 1814 OCCUPATIONAL AND MEDICAL INNOVATIONS LIMITED v RETRACTABLE TECHNOLOGIES INC QUD 146 OF 2006 DOWSETT J 30 NOVEMBER 2006 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD 146 OF 2006 BETWEEN: OCCUPATIONAL AND MEDICAL INNOVATIONS LIMITED Applicant AND: RETRACTABLE TECHNOLOGIES INC Respondent JUDGE: DOWSETT J DATE: 30 NOVEMBER 2006 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application pursuant to Order 15A, rule 6 for disclosure of documents in advance of action. 2 Retractable Technologies Inc ("Retractable Technologies") is an American company involved in the manufacture and distribution of retractable syringes. It holds patents which it exploits in connection with such manufacture. In 2002, it was approached by an organization, which appears to be based in China. It has been described in evidence as "Double-Dove". Double-Dove suggested to Retractable Technologies that it might be able to manufacture their syringes. Retractable Technologies investigated this possibility but found that Double-Dove was incapable of producing syringes to an acceptable standard. 3 However Retractable Technologies identified some benefit in seeking to deal with Double-Dove and entered into further negotiations with them. In 2002 and 2003 the two entities entered into contracts for the manufacture by Double-Dove of Retractable Technologies' products. The contracts regulated the provision of confidential information by Retractable Technologies to Double-Dove to assist in the manufacturing process. The contract restrained the use of that information by Double-Dove, particularly in connection with the supply of syringes to other persons. Such restraint extended to companies "affiliated" with Double-Dove. 4 In the year 2000, Occupation and Medical Innovations Ltd ("OMI"), an Australian company, obtained an Australian patent for a syringe with retractable capacity. In late 2003, it entered into a contract with an organisation called China Medical Group for the manufacture of retractable technology syringes. As I understand it, no syringes have yet been manufactured for commercial distribution, or at least there has been no commercial distribution of them. There appears to be a connection between Double-Dove and China Medical Group, although the nature of such connection is not clear. OMI denies that Double-Dove has a controlling interest in China Medical Group. That may or may not be so, but I accept for present purposes that there is an association between those companies, and that they share some manufacturing facilities. 5 On 5 October 2004, Messrs Locke Liddell and Sapp, who appear to be American lawyers, wrote to OMI, asserting that they had: '...recently learned that your company may be sourcing medical devices, having retractable needles through a division or commonly owned or controlled affiliate of Double Dove, a Chinese company with which RTI has had an exclusive manufacturing agreement in effect for more than a year. Under the terms of the manufacturing agreement...Double Dove has expressly agreed not to manufacture any needle product that utilizes automated retraction technology of any type for any entity, other than RTI, without prior written consent from RTI. RTI has not given any such consent. Furthermore, you should be aware that Double Dove has possession of confidential and trade secret information of RTI and Double Dove has expressly agreed not to use or disclose any such confidential information or trade secrets, except for the benefit of RTI. Considering these facts, you can appreciate that RTI is prepared to take any legal action necessary to protect its patented and unpatented technology, its products, and its proprietary position, with respect to Double Dove and any company with which Double Dove or its affiliates may be dealing. Recently, for example, RTI successfully invalidated Double Dove's own Chinese patent rights for syringes having retractable needles. RTI has also recently achieved other great successes in protecting its intellectual property rights throughout the world. If our information regarding sourcing of OMI products through entities related to Double Dove is incorrect, then we regret any unwarranted adverse inference that may be drawn from this letter. On the other hand, if future revelations indicate that Double Dove has violated any aspect of its obligations to RTI, by impermissibly assisting others in the manufacture of prohibited devices, RTI intends to pursue all available remedies against both Double Dove and any entity with which Double Dove may be co-operating. Please provide us your written assurances, at your earliest opportunity, that OMI has had not contact with Double Dove or any of its affiliates and is not sourcing medical devices having retractable needles through any Chinese entity related in any way to Double Dove.' 6 On 15 October 2004, Messrs Nicholsons, solicitors, responded on behalf of OMI as follows: 'We are the solicitors for Occupational and Medical Innovations Limited and have been handed your letter of 5 October 2004 with instructions to reply. Would you please forward to us copies of the appropriate agreement or agreements that RTI has with Double-Dove that you allege impacts upon our client's ability to contract with China Medical Group? Without a copy of the relevant agreement, your terms of the restraint are that it is not in a position to comment upon the matters raised in your letter. We await your reply.' 7 This letter may not have reached Messrs Locke Liddell and Sapp. Alternatively, it went missing in their offices. There was no further communication from Locke Liddell and Sapp until 24 March 2006. I will come to that letter in a moment. It is relevant, at this stage, to look at the steps taken by OMI as a result of its receipt of the letter of 5 October 2004. On 8 October 2004, Messrs Nicholsons (the solicitors for OMI) wrote to Mr Lee who was, apparently, one of the principals of China Medical Group, enclosing a copy of the letter from Locke Liddell and Sapp dated 5 October 2004 and saying: 'To enable Occupational and Medical Innovations Limited to properly respond to Locke, Liddell and Sapp, I request that you provide me with a copy of the relevant clauses of the agreement between RTI and Double-Dove which expressly, or by implication, prohibit Double-Dove from manufacturing any "needle product that utilises automatic retraction technology for any entity other than RTI without RTIs written consent". I also request that you advise the association or relationship between Double-Dove and China Medical Group Inc.' 8 On 11 October 2004, Nicholsons wrote to Mr Ramzi Abulhaj, the company secretary of China Medical Group Inc, in broadly similar terms, save that, in respect of the requests for information concerning the association or relationship between Double-Dove and China Medical Group Inc, the letter also asked that this include: '...details of the respective shareholders, directors, etc.' 9 According to Mr Kiehne, he was told, in response to the inquiries by Nicholsons, that: '1. Double-Dove had no controlling interest in China Medical Inc or in Zhejing Vital Care Limited (another company associated in the manufacturing project). 2. Double-Dove was not in breach of its agreement with RTI. 3. Double-Dove could not provide a copy of the relevant agreement or clause, as it was bound by confidentiality obligations.' 10 Retractable Technologies submits that its letter of 5 October 2004 should have put OMI on notice of the relationship between Retractable Technologies and Double-Dove and of the possibility that China Medical Group was, in some way, implicated in a breach by Double-Dove of its obligations to Retractable Technologies. It is further submitted that I may infer that OMI has subsequently dealt with China Medical Group and Double-Dove in ways which make it a party to any breach by Double-Dove of its contractual and other obligations to Retractable Technologies. However it seems to me that OMI's conduct in response to the letter of 5 October was perfectly reasonable, keeping in mind the fact that it received no reply to its response of 15 October 2004. Although the absence of a response, as we now know, may have been attributable to the fact that the letter was not received or went astray, nonetheless, as far as OMI knew, Retractable Technologies and their lawyers simply did not respond to it, suggesting that they were not sufficiently concerned to do so. In those circumstances, it is hardly surprising that they did not take the matter any further, particularly as they received apparently satisfactory assurances from China Medical Group. 11 As I have said, Locke, Liddell and Sapp wrote again, but not until 24 March 2006. The letter is a lengthy one. It referred to the earlier correspondence and asserted that 'OMI did not reply to the letter, a copy of which is enclosed'. We now know that to be incorrect. The letter of 24 March then continued: 'Instead, having already received express written notice of Double Dove's preexisting contractual obligations to RTI from this firm, OMI has continued its cooperation with Double Dove for the manufacture of syringes having retractable needles, has instructed its personnel and representatives to tour the Double Dove factory in which RTIs syringes are manufactured, and has caused representatives from Terumo, another RTI competitor, to inspect and audit the equipment, manufacturing methods and quality control procedures that were first obtained by Double Dove from RTI.' 12 Reference was then made to a number of stock market disclosures by OMI which indicated that it was continuing with its retractable syringe project, and was dealing with a Chinese manufacturer. Although I will not set them out, they are significant aspects of Retractable Technologies' case. The letter then concluded: 'Summarizing, OMI has consistently and intentionally interfered with the contractual relationship between RTI and Double Dove, has knowingly conspired with Double Dove in contravention of RTIs legal rights in China, Australia, and the United States, has misappropriated for its own purposes, and benefited from the illegal and wrongful disclosure by Double Dove of confidential and proprietary technological and business information from RTI, and has repeatedly made representations to the Australian Stock Exchange, and to the United States Patent Office, that OMI knew, or should have known, were not factually correct. In doing so, OMI has caused great harm and damage to RTI, and has defrauded its investors and the public. If OMI has a contrary view of any of these matters, it should immediately provide a complete explanation to the undersigned, otherwise RTI can only assume that OMI fully intends to continue its present course of action in total disregard of the rights of RTI and its shareholders.' 13 OMI does not deny knowledge of Double-Dove or of the fact that it had some connection with China Medical Group. However there is no evidence of knowledge of the exact nature of that connection. There is no suggestion that it had any knowledge of the dealings between Double-Dove and Retractable Technologies other than that derived from the letters to which I have referred. Retractable Technologies is now contemplating legal proceedings against OMI for use of confidential information obtained in breach of Double-Dove's obligations to Retractable Technologies and for interference in contractual relations or for inducing breach of contract. 14 In the course of argument today, a further aspect of the potential litigation has been raised. Retractable Technologies asserts that even if, at the time OMI entered into its contract with China Medical Group in late 2003, it did not know of any potential breach of duty by Double-Dove, it can no longer insist upon performance of its contract with China Medical Group because of its current knowledge that Double-Dove or China Medical Group has, or may, in the future, use confidential information derived from Retractable Technologies in satisfying the requirements of any contract between OMI and China Medical Group. In my view a cause of action based on that assertion would be unmaintainable. For the purposes of this argument it must be accepted that OMI entered into its contract with China Medical Group in good faith. It has contracted to purchase syringes of a particular quality at a particular price. Although I have not perused the contract, I understand that to be a fair description of it. There is no suggestion that the contract expressly contemplates any breach by Double-Dove or China Medical Group, in the performance of its contractual obligations, of any obligation owed to Retractable Technologies. It contemplates only the supply of a particular product at a particular price. I see no legal basis upon which Retractable Technologies could deprive OMI of the benefit of that contract. 15 Unless Retractable Technologies manages to restrain China Medical Group from manufacturing syringes to meet OMI's contract, it will presumably do so and supply them to OMI. OMI will be bound to accept them. If, on the other hand, Retractable Technologies, by enforcing such rights as it has against Double-Dove and/or China Medical Group, is able to restrain China Medical Group from manufacturing syringes for supply to OMI, it will have to purchase syringes elsewhere – presumably from Retractable Technologies – in order to meet its contractual obligations to OMI. I see no way in which, assuming innocence on the part of OMI, Retractable Technologies can interfere in the contract between OMI and China Medical Group. 16 In support of this argument, Retractable Technologies referred to a passage in Meagher, Gummow and Lehane at par 41-110. It concerns the use of confidential information with knowledge of breach of duty. It, in my view, offers no guidance for present purposes. I was also referred to the decision of Dunn J in Franklin v Giddins [1978] Qd R 72. That case appears to have involved the use of confidential knowledge by somebody who had obtained it from an infringer. The case establishes that the law will restrain continued use once the relevant person becomes aware of the unlawfulness attending the original obtaining of the information. The case says nothing about the position of a person who, at arm's length, and for good consideration, enters into a contract. This aspect of the proposed case, as put to me today, cannot possibly succeed. I do not understand this aspect of Retractable Technologies' case to involve reliance on patent rights. 17 I turn to the other causes of action. Retractable Technologies claims very extensive disclosure based upon the assertion that there must have been a breach by Double-Dove of its obligations because of what are said to be similarities between OMI's products and its own, or between the technologies necessarily involved in the production of such products. Many of the alleged similarities appear to be a little difficult to identify with precision. However, for present purposes, given the contract between Double-Dove and Retractable Technologies, I assume that Retractable Technologies reasonably suspects an infringement by Double-Dove of its obligations and reasonably suspects that Double-Dove may have used, or plan to use, information derived from Retractable Technologies in connection with the supply of syringes by China Medical Group to OMI. There is a logical gap in that thought process because the relationship between China Medical Group and Double-Dove is still not entirely clear. Nonetheless, I can understand that Retractable Technologies might reasonably suspect that Double-Dove's knowledge will find its way to China Medical Group. 18 The area in which I find difficulty with Retractable Technologies' case is in the implied assumption that OMI, at any relevant time, had knowledge that completion of its contract with China Medical Group would involve breach by Double-Dove of its obligations to Retractable Technologies. Retractable Technologies seems to rely on the fact that it was told, at some stage, that Double-Dove proposed to supply syringes to an Australian company. Whilst that may lead to some suspicion about Double-Dove and its intentions, it says nothing about the state of mind of the Australian company, whichever company it was. 19 Secondly, reliance is placed upon a press release by OMI dated 4 November 2003. It is in the following form: 'Occupational and Medical Innovations Ltd, OMI, a Queensland-based medical devices company, today announced it has signed an exclusive world wide agreement with the China Medical Group, CMG, for the manufacture of OMI's patented safety retractable syringe. Under the terms of the agreement, CMG will also distribute OMI syringes in the Chinese market, where it enjoys an established position as a leading medical device distributor.' 20 It is suggested that the description of China Medical Group inevitably discloses awareness of a connection between China Medical Group and Double-Dove. As I have previously said, I do not understand that to be in dispute. Nonetheless, I cannot see that it says anything about OMI's knowledge of any actual or potential breach of its obligations by Double-Dove. 21 It is also said that neither OMI nor Double-Dove, in 2002, had the knowledge or expertise necessary to manufacture workable retractable syringes. That may be so but again, it says nothing about OMI's knowledge of the source of China Medical Group's relevant knowledge in 2003 or, for that matter, the source of Double-Dove's knowledge. 22 I have previously dealt with the other matters upon which Retractable Technologies relies in this regard, in particular, its letters of 2004 and 2006 and OMI's responses to them. 23 I conclude that nothing which was available to OMI should or could have led it to suspect that its contract or proposed contract with China Medical Group might involve misconduct by Double-Dove towards Retractable Technologies. I see no basis upon which Retractable Technologies can claim to have reasonable cause to believe that OMI had any such knowledge. 24 There may be certain similarities between the product that OMI proposes to market and that produced by Retractable Technologies. As I have said, there are some difficulties in identifying those similarities from the material. In any event such similarities do not point to any knowledge in OMI as to the source of technical skill to be used by China Medical Group in performing its contract. 25 Given that there is some connection between Double-Dove and China Medical Group, and given that Double-Dove derived some information from Retractable Technologies, there is a theoretical possibility that Double-Dove has made, or will make, that technology available to China Medical Group for use in performing its contract with OMI. There is a theoretical possibility that OMI may, at a relevant time, in some way, have become aware of these circumstances. However there is no evidence that it so did and, in my view, no basis for reasonable cause to believe that it did so. In those circumstances, the present motion should be dismissed. I order that Retractable Technologies Inc pay the costs of Occupational Medical Innovations Ltd of and incidental to the motion. 26 There will also be an order in terms of paragraph two of the draft which I have initialled and placed with the papers. The document marked A will be similarly treated. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 22 December 2006 Counsel for the Applicant: Mr D Jackson QC Mr J Horton Solicitor for the Applicant: Clayton Utz Solicitors Counsel for the Respondent: Mr Macaw Mr D Logan Solicitor for the Respondent: Davies Collison Cave Solicitors Date of Hearing: 30 November 2006 Date of Judgment: 30 November 2006