FEDERAL COURT OF AUSTRALIA Breezway Australia (Holdings) Pty Ltd v Preference Manufacturing Pte Ltd (No 3) [2013] FCA 67 Citation: Breezway Australia (Holdings) Pty Ltd v Preference Manufacturing Pte Ltd (No 3) [2013] FCA 67 Parties: BREEZWAY AUSTRALIA (HOLDINGS) PTY LTD ACN 105 521 640 v PREFERENCE MANUFACTURING PTE LTD, PREFERENCE MANUFACTURING (AUST) PTY LTD ACN 100 826 695 and LGI AUSTRALIA PTY LTD ACN 090 088 289 File number: QUD 45 of 2011 Judge: MCKERRACHER J Date of judgment: 11 February 2013 Catchwords: PATENTS – infringement – whether third respondent engaged in exploitation of patent within meaning of s 13(1) of the Patents Act 1990 (Cth) PRACTICE AND PROCEDURE – application for default judgment under r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) – non appearance by unrepresented third respondent Legislation: Federal Court of Australia Act 1976 (Cth) s 51A Federal Court Rules 2011 (Cth) r 5.23(2)(c) Patents Act 1990 (Cth) s 13(1) Cases cited: Australian Building & Construction Commissioner v Abbott (No 3) [2011] FCA 340 Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467 Chanel Limited v Ayad [2005] FCA 820 Date of hearing: 18 and 19 June 2012 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 31 Counsel for the Applicant/Cross-Respondent: A Fox and K Philp Solicitor for the Applicant/Cross-Respondent: Bennett & Philp Counsel for the First and Second Respondents/Cross-Claimants: A Crowe SC and D Grigg Solicitor for the First and Second Respondents/Cross-Claimants: Holding Redlich Counsel for the Third Respondent: The Third Respondent did not appear IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 45 of 2011 BETWEEN: BREEZWAY AUSTRALIA (HOLDINGS) PTY LTD ACN 105 521 640 Applicant/Cross-Respondent AND: PREFERENCE MANUFACTURING PTE LTD First Respondent/First Cross-Claimant PREFERENCE MANUFACTURING (AUST) PTY LTD ACN 100 826 695 Second Respondent/Second Cross-Claimant LGI AUSTRALIA PTY LTD ACN 090 088 289 Third Respondent JUDGE: MCKERRACHER J DATE OF ORDER: 11 FEBRUARY 2013 WHERE MADE: perth (HEARD IN BRISBANE) THE COURT ORDERS THAT: 1. Within 14 days, the applicant file a minute of final orders and any supporting submissions reflecting these reasons for judgment. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 45 of 2011 BETWEEN: BREEZWAY AUSTRALIA (HOLDINGS) PTY LTD ACN 105 521 640 Applicant/Cross-Claimant AND: PREFERENCE MANUFACTURING PTE LTD First Respondent/First Cross-Claimant PREFERENCE MANUFACTURING (AUST) PTY LTD ACN 100 826 695 Second Respondent/Second Cross-Claimant LGI AUSTRALIA PTY LTD ACN 090 088 289 Third Respondent JUDGE: MCKERRACHER J DATE: 11 FEBRUARY 2013 PLACE: PERTH (HEARD IN BRISBANE) REASONS FOR JUDGMENT INTRODUCTION 1 These are reasons for judgment in proceedings against the third respondent only (LGI). The applicant (Breezway) seeks relief in respect of alleged infringement of its patent. Breezway is the holder of Australian Standard Patent No. 2009212763 for an invention entitled 'A Louvre System' (the Patent). Breezway contends that claims 1 to 10 of the Patent are infringed by a product known as the 'fresAir' louvre (fresAir Product). 2 The first respondent, Preference Manufacturing Pte Ltd (Preference Singapore) is a Singaporean company which is related to the second respondent, Preference Manufacturing (Aust) Pty Ltd (Preference Australia). Preference Singapore manufactures the fresAir Product. It is then distributed to Preference Australia for on-sale within Australia. Those two respondents are described in the singular as Preference. 3 LGI is unrelated to Preference. However, on Breezway's case, LGI has been involved in the distribution and sale of the fresAir Product in Australia. Although LGI was represented by the same solicitors for Preference until shortly prior to the trial, it has since become self-represented and has played no further role in the proceedings. LGI did not appear at the proceedings from the time it became self-represented although it had been given notice of the proceedings. Once the contested case between Breezway and Preference had concluded, Breezway proceeded against LGI ex parte on an undefended basis. 4 As noted in the proceeding against Preference, the cross-claim for invalidity brought by LGI was dismissed by my orders of 18 June 2012. 5 The remaining questions arising with respect to patent infringement against LGI are confined to these: (a) Whether Breezway has established that LGI has been involved in the exploitation in Australia of the fresAir Product within the meaning of s 13(1) of the Patents Act 1990 (Cth) (the Act). (b) If the answer to question (a) above is yes, whether such conduct constitutes an infringement of at least one of claims 1 to 10 of the Patent. PROCEEDING IN THE ABSENCE OF APPEARANCE BY A RESPONDENT 6 In Chanel Limited v Ayad [2005] FCA 820 Jacobson J (at [23]-[25]) said: 23. I am also satisfied that the applicants have proved the necessary circumstances to justify the grant of the remedy. In Zomba Production Music Australia Pty Limited v Roadhouse Productions Pty Limited (2001) 190 ALR 288 at [6], Stone J considered it was appropriate to proceed with a trial on liability in the absence of appearance by the respondents. 24. Her Honour was satisfied that the respondents were notified of the proposal to invoke the relevant rules of court. Her Honour had considered that the applicants were entitled to have the claims dealt with notwithstanding the respondents' refusal to acknowledge the proceeding and that no apparent purpose would be served by further delay. 25. In my view the same considerations apply with full force in the present matter. It is clear that the respondents have not only been served with the proceedings but have been informed of today's application and a proposal to seek default judgment. However, by their failure to attend they refuse to acknowledge the proceeding. There is no purpose served by delay. The power to enter judgment by default under the various paragraphs of order 35A to which I have referred is plainly enlivened and it is appropriate that I exercise my discretion to make the orders which are sought. (emphasis added) 7 In Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467 Jacobson J again noted (at [7]): However, recent authorities indicate that the introduction of Order 35A of the Federal Court Rules eliminates the requirement of proof by way of evidence of the applicant's claims, at least where the application is supported by a statement of claim. All that is necessary is that on the face of the statement of claim there is a claim for the relief sought and jurisdiction to grant the relief: Arthur v Vaupotic Investments Pty Limited [2005] FCA 433 at [3] per Heerey J; see also Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856 at [14] per RD Nicholson J. 8 More recently Gilmour J noted in Australian Building & Construction Commissioner v Abbott (No 3) [2011] FCA 340 (at [11]): Order 35A rule 3(2)(c) FCR may be invoked upon an event of default of a kind prescribed in O 35A r 2(2) FCR, and contemplates that judgment may be given against a respondent for relief to which the applicant appears entitled "on the statement of claim" and which the Court is satisfied it has "power to grant". In determining the relief, O 35A permits regard to be had to the "face of the statement of claim"; no evidence need be adduced to prove the factual contentions; allegations of fact in the statement of claim are deemed admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 244 ALR 300 at [42]. See also: Wu v Avin Operations Pty Ltd [2006] FCA 36 at [57]; Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3] per Heerey J; Australian Competition and Consumer Commission v 1 CellNet LLC [2005] FCA 856 at [14] per Nicholson J; Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467 at [6]- [7] per Jacobson J; Deisel Spa v Hwang [2005] FCA 1619 at [2] per Tamberlin J; Macquarie Bank Ltd v Seagle (2005) 146 FCR 400. The facts set out under paras 5(b), 6(b), 7(b) and 8(b) above constitute events of default pursuant to O 35A r 2 (2)(b) of the Federal Court Rules. 9 Order 35A was replaced in August 2011 by the Federal Court Rules 2011 (Cth) (FCR). Relevantly, r 5.22(c) FCR provides that a party is in default if it fails to attend a hearing in the proceeding. 10 Rule 5.23(2)(c) FCR provides that if a respondent is in default, an applicant may apply to the Court for an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled, if the applicant's proceeding was started by an originating application supported by a statement of claim. 11 Breezway's originating application and supporting statement of claim were filed on 25 February 2011. 12 Rule 5.23(2)(d) FCR further provides that an applicant may apply to the Court for an order giving judgment against the respondent for damages to be assessed or any other order. As can be seen from the language of the rule, this is a wide, discretionary power. Evidence as to notice given to LGI and the question of costs 13 Breezway relies upon an affidavit of Ms Nicole Murdoch, sworn 18 June 2012, which identifies with clarity all steps taken recently to inform LGI as to the conduct of the hearing and the steps which would be taken against LGI in the event of its non-appearance. It is unnecessary to refer to the detail of that affidavit. I am satisfied that LGI has been fully informed of all relevant consequences of its non-appearance. Costs 14 Although Breezway contended it was entitled to succeed against LGI, it did not press for costs against LGI at this stage, rather submitting that all questions of costs between those parties in relation to Breezway's statement of claim and LGI's amended defence should be stood over for determination following the Court's determination of liability as to patent infringement between Breezway and Preference. I am content with this course. INFRINGEMENT CLAIM AS AGAINST THE FIRST AND SECOND RESPONDENTS 15 As will be seen from the substantive judgment in this matter against Preference, Breezway's infringement claim has been established. For the same reasons, it is established as against LGI subject only to the question of proof of the involvement of LGI in relation to the exploitation in Australia of the fresAir Product within the meaning of s 13 of the Act. The involvement is established by reference to admissions referred to below and also to a limited extent portions of evidence in chief upon which Breezway relies against LGI. Additionally, Breezway is entitled to rely on r 5.23(2)(c) FCR. ADMISSIONS BY LGI 16 It is unnecessary to record all of the admissions made by LGI. LGI admits, by its amended defence filed 29 April 2011, that it is an incorporated company engaged in the manufacture and sale of louvre window clips and louvre window systems to the design of Preference. It is engaged in the importation into Australia and subsequent sale within Australia of louvre window systems and louvre window clips for such systems that were manufactured by Preference. The activities of Preference are admitted together with the promotions that Preference advances on its website and other promotional material. LGI also admits it was previously known as LGI Pty Ltd, having registered a change of its name to LGI Australia Pty Ltd with the Australian Securities and Investments Commission on or about 29 June 2010. LGI further admits that it has entered into an agreement with Preference for the manufacture and/or sale within Australia of clips and louvre window systems incorporating the clips. 17 LGI also admits that it has made or further or alternatively offered for sale, sold or otherwise disposed of clips and louvre window systems incorporating them in Australia (the fresAir Product) but it denies that the fresAir Product infringes as asserted by Breezway or at all. LIABILITY IS ESTABLISHED 18 Given that the involvement of LGI is clearly proven on the admissions taken with the findings and conclusions in the defended primary proceedings, the only question is the appropriate orders to be made following liability being established against LGI. QUANTUM 19 In relation to quantum, Breezway relies upon expert evidence of Mr Norbert Charles Calabro contained in three reports. Mr Calabro gives evidence in relation to quantum for the limited period between 11 November 2010 and June 2011. Breezway submits that the question as to an account of profits for the period after June 2011 should be referred to a referee for resolution, consistent with the approach agreed between Breezway and Preference. 20 Counsel for Breezway confirmed that LGI had been put on notice as to the quantum of the claim and that all material has been served on LGI including the affidavits of Mr Calabro. LGI has also been informed in relation to the proposal to refer the account of profits for the post-June 2011 period to a referee for resolution. 21 I do not propose in the circumstances of the non-appearance of LGI to record in detail all of the evidence as to quantum. It is considerable. 22 Mr Calabro is a chartered accountant from Brisbane and was engaged by Breezway's solicitors to prepare accounting reports for the proceedings. Mr Calabro was instructed to inspect records produced by all the respondents in order to ascertain the quantum of profits in respect of sales of the infringing product. At para 1.13 and para 1.14 of his first report he set out the following methodology (footnotes omitted): 1.13 In my opinion, the Statement of Claim, Defence and amended Cross-Claim and the Affidavits filed for the Respondents and the Respondents' discovered documents show that there are three separate profit areas that is:- (i) Preference Singapore makes in Singapore the allegedly infringing clips and parts used in louvre window systems. It then sells those clips and parts at a profit to Preference Australia. Therefore, there is a first profit area, that is, with Preference Singapore; (ii) Preference Australia buys those clips and parts from Preference Singapore. It appears to do some minimal work on galleries or frames (just drilling holes in them) at its Brisbane factory. It then sells those clips and parts at a profit to LGI and a number of other third parties identified in its discovered documents (it does not appear to assemble or manufacture complete louvre window systems, that is, systems that are ready to install by an end user). Therefore, there is a second profit area, that is, with Preference Australia. (iii) LGI buys clips and louvre window systems parts from Preference Australia. It assembles them into complete window louvre systems to the order of its customers. It sells those complete window louvre systems to its customers at a profit. Therefore, it is the third profit area that I have identified for the purposes of this report. 1.14 The support for my conclusion that there are in fact those three profit areas was found by me at paragraphs 8, 11, 12, 15, 20, 30-39, 40-53 of Mr Tan's Affidavits and 12, 13, 14, 28-31 and 64 of Mr Morrison's Affidavit although, as I state later in this report, in my opinion the Respondents' Cross-Claims are not made out on the materials provided to me and the researches I have made. I cite those paragraphs of this Affidavit to show that each Respondent is a separate profit area. In addition, the Respondents' discovered documents show that three separate groups of transactions and the making of a separate profit by each on those transactions. 23 At para 1.20 Mr Calabro records that he was provided with invoices from Preference Australia to LGI for the period 1 July 2010 to 27 September 2011. He was not provided with LGI's records prior to 1 July 2010. Accordingly, his calculation of the profit on sales by LGI did not include a profit for the period from 8 December 2009 to 30 June 2010. He was not provided with any records beyond 27 September 2011. His calculations were based on the material he was able to identify which is discussed in his report. 24 Mr Calabro discloses that the total of the profits earned by the three respondents (from the methodology explained in the report) was a figure exceeding a million dollars. In the case of LGI for the period of 1 July 2010 to 30 June 2011 this does not take into account any allowance for costs necessarily incurred to achieve the sale. The income recorded for LGI was $342,881. That figure has been adjusted taking into account the date at which the respondents were first put on notice of the allegations of infringement. He explains that the figure of $342,881 is calculated as follows (footnotes omitted): $ Sales 152mm $2,065,550 (total sales se Annexure 4 of this report) x 80% 39 (of total sales) x 18% 40 (gross profit) = 297,439 Sales 102mm $2,065,550 (total sales see Annexure 4 of this report) @20% 41 (of total sales) x 11% 42 (gross profit) = 45,442 ________ 342,881 25 In Mr Calabro's second report dated 4 June 2012, he essentially repeats the same figure subject to the limitations spelt out in the first report. The second report is not substantially directed towards LGI. 26 In the third report dated 13 June 2012, prepared shortly prior to the hearing, Mr Calabro updates his calculation of profits to reflect the date upon which the respondents were advised of Breezway's allegation of patent infringement, being 11 November 2010. He notes that LGI has not produced any further information which would warrant any amendment to the opinions expressed in the initial report except for adjusting to reflect sales from 11 November 2010 to 27 September 2011 noting that the approach adopted to calculate the profit derived by LGI during the period 11 November 2010 to 27 September 2011 uses the same methodology as his previous reports and results in a calculation of $206,223. 27 I accept the unchallenged evidence of Mr Calabro. ORDERS SOUGHT 28 By an affidavit of Ms Murdoch, a solicitor employed by solicitors for Breezway, Ms Murdoch affirms service of a significant volume of documents putting LGI completely on notice as to the nature of the proceedings and the relief that would be sought against it. I do not propose detailing all of that communication in the circumstances. One such communication was an advice from Breezway's solicitors to Mr Morrison of LGI Australia Pty Ltd on 12 April 2012 that should LGI: fail to appear at the trial then our client will ask the Court to order the permanent injunction and damages (or account of profits) claims it seeks against [LGI] and in its absence. It will also ask for interest payment and costs orders against [LGI]. 29 Shortly before the trial commenced there was a further letter dated 14 June 2012 that attached by way of service a copy of the third report of Mr Calabro and reaffirmed Breezway's intention previously conveyed to Mr Morrison that if LGI did not attend at the trial, Breezway intended to proceed to obtain judgment against it. The letter attached a minute of the orders that Breezway would be seeking at the trial against all respondents and noted that Mr Morrison had not responded to any of the communications from early March 2012. CONCLUSION 30 For present purposes, given that these reasons relate only LGI albeit that they adopt some conclusions reached in the reasons for judgment concerning Preference, the orders, which I am satisfied are appropriate to make, will be confined to LGI only. (In the proceedings between Breezway and Preference, the parties are to negotiate appropriate orders in light of the reasons given.) For the foregoing reasons, I am satisfied that orders in the following terms should be made: In these orders: 'fresAir Product' means the louvre window clip product referred to as the 'fresAir Premium clip' (also known as Mark II clips) at paragraphs 62 and 88 of the affidavit of Timothy Kok Boon filed 25 November 2011 and louvre window systems incorporating such clips 'proceedings' includes each version of any cross-claim made in this action by any of the first, second or third respondents. BY THE COURT, IT IS DECLARED THAT: 1. The third respondent has infringed claims 1-10 of the Australian Patent No. 2009212763 (Patent) by selling, disposing of, offering to sell and keeping the fresAir Product. BY THE COURT, IT IS ORDERED THAT: 2. The third respondent and whether by itself or by its respective servants or agents or otherwise howsoever, be restrained from infringing the Patent during the term thereof. 3. The third respondent and whether by itself, its directors, servants, agents or otherwise, be restrained during the term of the Patent from, without licence from the applicant: (a) supplying, selling or disposing of, or offering to sell or dispose of, any fresAir Product; (b) keeping any fresAir Product for the purpose of doing any of the acts referred to in paragraph 3(a) above; (c) authorising, procuring or inducing others to do any of the acts referred to in subparagraphs 3(a) or 3(b), or to use any fresAir Product or to keep any fresAir Product for the purpose of using them. 4. Within 21 days of the date of this order, the third respondent shall destroy all fresAir Product in its possession, custody or power and provide to the applicant an affidavit certifying destruction. 5. Within 7 days of entry into Australia of any FresAir Product in transit as at the date of these orders, the third respondent will destroy those products and provide to the applicant an affidavit certifying destruction. 6. The third respondent shall pay to the applicant the sum of $206,223, being the profits made by it from the sale and disposal or otherwise of fresAir Product in the period from 11 November 2010 to 27 September 2011. 7. Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act), interest be paid to the applicant by the third respondent as and from 7 June 2011, 1 July 2011 and 1 July 2011 respectively to the date of judgment on such sums found by the Court to be payable by it to the applicant under the orders above. 8. An inquiry be held to determine the quantum of pecuniary relief to which the applicant is entitled in respect of the profits made by the third respondent in the importation, sale, disposal or otherwise of the fresAir Product from the end dates specified in orders 6 above together with the quantum of interest pursuant to s 51A of the Federal Court Act on such amounts of that pecuniary relief as the inquiry determines. 9. All questions of costs be stood over for further argument. 31 Before making the final orders and declarations sought by Breezway, I will afford the parties 14 days to make any further submissions as to the precise terms of the orders. The final orders will be made in open court on a date to be advised. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate: Dated: 11 February 2013