FEDERAL COURT OF AUSTRALIA AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 419 Citation: AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 419 Parties: ASTRAZENECA AB and ASTRAZENECA PTY LTD (ACN 009 682 311) v ALPHAPHARM PTY LTD File number: VID 876 of 2013 Judge: JESSUP J Date of judgment: 30 April 2014 Catchwords: INTELLECTUAL PROPERTY – whether applicant entitled to solicitor/client costs under s 19(2) of the Patents Act 1990 (Cth) – s 19(2) creates a presumption that the holder of a certificate issued under s 19(1) is entitled costs on a solicitor/client basis in subsequent proceedings – s 19(3) gives the court a discretion to depart from the s 19(2) position if the circumstances warrant it – whether the s 19(3) discretion should be exercised – respondent failed to present applicants with a complete offer to settle the case – applicants did not engage in unduly aggressive litigation – s 19(3) discretion ought not to be exercised – costs payable in accordance with s 19(2) Legislation: Patents Act 1990 (Cth) ss 19(2), 19(3) Federal Court of Australia Act 1976 (Cth) s 43(1) Federal Court Rules 2011 (Cth) Cases cited: British Vacuum Company Ltd v Exton Hotels Company Ltd (1908) 25 RPC 617 Edison-Bell Phonograph Company v Waterfield, Clifford & Co (1902) 19 RPC 329 Hoffman-La Roche AG v New England Biolabs Inc (2000) 99 FCR 56 Molnlycke AB v Proctor & Gamble Ltd (No 5) [1994] RPC 49 Ranbaxy Laboratories Ltd v AstraZeneca AB (2013) 101 IPR 11 The Welsbach Incandescent Gas Light Company, Ltd v The Daylight Incandescent Mantle Company, Ltd (1899) 16 RPC 344 Saccharin Corp Ltd v Dawson (1902) 19 RPC 169 Date of hearing: 25 February 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 33 Counsel for the Applicants: Mr C Dimitriadis Solicitor for the Applicants: Ashurst Counsel for the Respondent: Mr L Merrick Solicitor for the Respondent: Corrs Chambers Westgarth IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 876 of 2013 BETWEEN: ASTRAZENECA AB First Applicant ASTRAZENECA PTY LTD (ACN 009 682 311) Second Applicant AND: ALPHAPHARM PTY LTD Respondent JUDGE: JESSUP J DATE OF ORDER: 30 APRIL 2014 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. During the term of Australian Patent No. 676337 (AU 337), the Respondent, by itself, its directors, officers, servants, agents or otherwise, be permanently restrained from infringing claims 1 to 3 and 18 to 27 of AU 337 and, in particular, from engaging in the following acts within the patent area (as that term is defined in the Patents Act 1990 (Cth)) without the licence or authority of the Applicants: (a) making, selling or otherwise disposing of its esomeprazole products intended for supply in Australia, or any other product or product produced by a method or process, within claims 1 to 3 and 18 to 27 of AU 337 (Alphapharm Products (337)); (b) offering to make, sell or otherwise dispose of the Alphapharm Products (337); (c) using or importing the Alphapharm Products (337); (d) keeping the Alphapharm Products (337) for the purpose of doing any of the acts referred to in sub-paragraphs (a) to (c) above; (e) using any method or process within claims 21 to 27 of AU 337; (f) authorising, inducing, procuring or joining in a common design with any other person to do any of the acts referred to in sub paragraphs (a) to (e) above. 2. During the term of AU 337, the Respondent, by itself, its directors , officers, servants, agents or otherwise, be permanently restrained from, without the licence or authority of the Applicants, taking any steps to obtain listing of any of the Alphapharm Products (337) under the PBS with an effective listing date prior to expiry of AU 337, and be required to withdraw any such application that has been made. 3. During the term of AU 337, the Respondent be restrained from assigning the ARTG registrations of the Alphapharm Products (337) to any third party. 4. During the term of Australian Patent No. 695966 (AU 966), the Respondent, by itself, its directors, officers, servants, agents or otherwise, be permanently restrained from infringing claims 1 to 4, 6, 12, 14 to 20 and 22 to 28 of AU 966 and, in particular, from engaging in the following acts within the patent area (as that term is defined in the Patents Act) without the licence or authority of the Applicants: (a) making, selling or otherwise disposing of its tablet esomeprazole products intended for supply in Australia, or any other product or product produced by a method or process, within 1 to 4, 6, 12, 14 to 20 and 22 to 28 of AU 966 (Alphapharm Products (966)); (b) offering to make, sell or otherwise dispose of the Alphapharm Products (966); (c) using or importing the Alphapharm Products (966); (d) keeping the Alphapharm Products (966) for the purpose of doing any of the acts referred to in sub-paragraphs (a) to (c) above; (e) using any method or process within claims 17 to 20 and 27 to 28 of AU 966; (f) authorising, inducing, procuring or joining in a common design with any other person to do any of the acts referred to in sub paragraphs (a) to (e) above. 5. During the term of AU 966, the Respondent, by itself, its directors , officers, servants, agents or otherwise , be permanently restrained from, without the licence or authority of the Applicants, taking any steps to obtain listing of any of the Alphapharm Products (966) under the PBS with an effective listing date prior to expiry of AU 966, and be required to withdraw any such application that has been made. 6. During the term of AU 966, the Respondent be restrained from assigning the ARTG registrations of the Alphapharm Products (966) to any third party. 7. The Applicants be released, with effect on and from the date of this order, from the undertaking given by them to the Court in the Order of Justice Gordon dated 29 August 2013, being an undertaking to: (a) submit to such order (if any) as the Court may consider to be just for the payment of compensation , to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and (b) pay the compensation referred to in (a) to the person referred to. 8. The respondent pay the applicants' costs of the proceeding, such costs to be taxed (if not agreed) conformably with s 19(2) of the Patents Act 1990 (Cth). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 876 of 2013 BETWEEN: ASTRAZENECA AB First Applicant ASTRAZENECA PTY LTD (ACN 009 682 311) Second Applicant AND: ALPHAPHARM PTY LTD Respondent JUDGE: JESSUP J DATE: 30 APRIL 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This proceeding has been settled and, save for the matters dealt with in the reasons which follow below, the parties are in agreement about the final orders which should be made. 2 The first of two matters upon which the parties do not agree is whether the successful applicants are entitled to a declaration to record the measure of their success. For reasons which I made clear to counsel in court, I consider that a declaration is neither necessary nor appropriate in the circumstances. That aspect of the case did not require me to reserve judgment, and nothing further needs to be said about it. 3 The other matter relates to costs, and its treatment will require some rehearsing of the history of this proceeding, and of the outcome of an earlier proceeding with has become important in that context. 4 On 23 April 2013, Middleton J gave judgment in Ranbaxy Laboratories Ltd v AstraZeneca AB (2013) 101 IPR 11. In orders made on 9 May 2013, his Honour certified, pursuant to s 19(1) of the Patents Act 1990 (Cth) ("the Patents Act"), that the validity of claims 1-3 and 18-27 of Australian patent No 676337 ("the 337 patent") and of claims 1-8, 10 and 12-28 of Australian patent No 695966 ("the 966 patent") had been unsuccessfully questioned in that proceeding. 5 In the present proceeding, which was commenced on 26 August 2013, the applicants, AstraZeneca AB and AstraZeneca Pty Ltd, allege that the respondent, Alphapharm Pty Ltd, threatened to infringe claims 1-3 and 18-27 of the 337 patent and claims 1-10 and 12-28 of the 966 patent. In its Defence filed on 24 September 2014, the respondent's only point of substance was that the claims referred to were invalid. 6 The terms of the respondent's Defence, notwithstanding Middleton J's judgment in Ranbaxy, are explicable by the circumstance that, on 30 May 2013, an appeal from that judgment was lodged by Ranbaxy Laboratories Ltd. The appeal was pending at the time when the respondent was obliged, by r 16.32 of the Federal Court Rules 2011 (Cth), to file its Defence in this proceeding. The Defence contained an allegation that the 337 patent and the 966 patent were invalid on the grounds pleaded in Ranbaxy and the related appeal. 7 By email sent on 14 November 2013, the applicants' solicitors informed the respondent's solicitors that the applicants had reached a confidential settlement with Ranbaxy Laboratories Ltd, in consequence of which the appeal of the latter from the judgment of Middleton J had been discontinued. That removed the respondent's only point of substance in this proceeding and, save for the questions with which these reasons are concerned, the proceeding was promptly settled favourably for the applicants. 8 To the extent that they relate to costs, those questions are whether the applicants are entitled to costs as the successful parties in the litigation, and, if so, whether the court should give a direction under s 19(3) of the Patents Act to exclude the effect of subs (2) of the section. 9 By s 43(1) of the Federal Court of Australia Act 1976 (Cth), and subject to some presently irrelevant exceptions, the court has jurisdiction to award costs in all proceedings. The discretion to do so is broad, but that discretion must, of course, be exercised judicially and in accordance with principle. A general rule of long standing is that costs follow the event, which means, for example, in a case in which one party is wholly successful against another party, that the latter should pay the former's costs. A permissible exception to that rule – in the discretion of the court on the particular occasion, of course – is that a party who commences or maintains a proceeding needlessly should not expect to have the losing party pay for the exercise. If for no other reason (and I do not imply that there may not be other reasons), that is why a party intending to sue will be well-advised first to send a letter of demand. 10 In the present case the respondent submits that, although the applicants have succeeded, they had no need to litigate at all. It submits that, subject to the appropriate protections (to which I shall turn), it made it clear to the applicants that it would desist from conduct of the kind that was alleged to be in infringement of the 337 patent and the 966 patent until such time as the result of the appeal in Ranbaxy was known. Not content with that (so the submission runs), the applicants instituted this proceeding, ultimately obtaining nothing more, either at the interlocutory or at the final level, than the respondent itself would have agreed to without the need to sue. 11 For their part, the applicants submit not only that they are entitled to their costs in the normal course, but also that those costs should be taxed on the special basis for which s 19(2) of the Patents Act provides. It is necessary, therefore, to commence with the terms of that section. 12 Section 19 of the Patents Act reads as follows: (1) In any proceedings in a court in which the validity of a patent, or of a claim, is disputed, the court may certify that the validity of a specified claim was questioned. (2) If a court issues a certificate, then, in any subsequent proceedings for infringement of the claim concerned, or for the revocation of the patent so far as it relates to that claim, the patentee, or any other person supporting the validity of the claim is, on obtaining a final order or judgment in his or her favour, entitled to full costs, charges and expenses as between solicitor and client, so far as that claim is concerned. (3) Subsection (2) has effect subject to any direction by the court trying the proceedings. In the present case, both parties accepted that the effect of subs (3) was to give the court a discretion to direct that subs (2) have no effect. However, there is some controversy as to the height at which the bar should be set before this discretion might be exercised. 13 There appear to be no reported Australian cases which involved a decision whether to give a direction under s 19(3), or its predecessors. In Hoffman-La Roche AG v New England Biolabs Inc (2000) 99 FCR 56, 65, Emmett J said that s 19 imposed a "sanction" on any person who, after the issue of a certificate under subs (1), sought to re-agitate the question of the validity of the relevant claims, but his Honour said nothing about subs (3). Furthermore, his Honour appears not to have had his attention drawn to Molnlycke AB v Proctor & Gamble Ltd (No 5) [1994] RPC 49, 141, in which the Court of Appeal held that the corresponding UK provision was protective, not penal. 14 The Explanatory Memorandum which led to the enactment of the Patents Act described the effect of s 19 as giving the court "a discretion to award a higher level of costs against the person alleging invalidity than would otherwise be the case", but (apart from the fact that the section was not, in point of substance, new in 1990) that was a misdescription of the way the section operates: it provides, where a certificate has been issued, that there will be a higher level of costs, and gives the court a discretion to direct otherwise. 15 There is little assistance to be had from the English authorities. I shall mention some of them presently, but it will be seen that they all commence from a position in which the successful party would get his or her costs as following the event, against which background there follows a consideration of whether sufficient cause has been shown to negative the effect of the provision which now finds Australian expression in s 19(2). The question whether the provision leaves any scope for the court to order that the successful party not have his or her costs at all appears not to have arisen. In terms, subs (2) provides that such a party is, "on obtaining a final order or judgment in his or her favour, entitled to full costs [etc] …." (emphasis added) That is to say, the entitlement is not only to have such costs as would otherwise be ordered taxed as between solicitor and client, but also, and perhaps more fundamentally, to have his or her costs regardless of what the court might otherwise (ie in the absence of s 19(2)) have ordered. 16 In the absence of authority on this point, I would hold that s 19(3) has the potential to operate at both levels. That is to say, it goes further than merely empowering the court to negative so much of the effect of subs (2) as entitles the successful party to have his or her costs taxed on the higher basis: it also empowers the court to direct that subs (2) have no effect at all, thereby returning the case to the realm of the general discretion under s 43 of the Federal Court Act, where, depending on the circumstances, the successful party may be denied his or her costs wholly or in part, even at the party/party level. 17 Turning then to the English authorities, counsel for the applicants relied upon what had been said by Byrne J in The Welsbach Incandescent Gas Light Company, Ltd v The Daylight Incandescent Mantle Company, Ltd (1899) 16 RPC 344, 353-354: "The rule applies to all actions of infringement, and not necessarily to actions disputing the validity of the Patent, and, unless some very special reason is shewn, I see no reason to depart from what the section says." I think the sense intended by his Lordship would have been better rendered as "… and not necessarily only to actions disputing …", but the force of the dictum, in the present case, is in the proposition that "some very special reason" needs to be shown before a direction will be given excluding the patentee's presumptive entitlement to a higher level of costs. 18 With respect to s 19(3) of the Patents Act, I would not accept the correctness of that proposition. The need for there to be "some very special reason" does not appear in the words of the subsection. The correct position is, in my view, reflected in a later passage in the transcript of the exchange between counsel and Byrne J as reported in the Reports of Patent Cases, namely, where his Lordship said that the patentee's entitlement to the higher level of costs was the "ordinary rule" and that the other party had to show a good reason to depart from it (16 RPC at 354). It is reflected also in the reasons of Warrington J in British Vacuum Company Ltd v Exton Hotels Company Ltd (1908) 25 RPC 617. Having considered Welsbach, Saccharin Corp Ltd v Dawson (1902) 19 RPC 169 and Edison-Bell Phonograph Company v Waterfield, Clifford & Co (1902) 19 RPC 329, his Lordship said (25 RPC at 630): The Act provides that the plaintiff shall have solicitor and client costs unless the Judge otherwise directs. It seems to me that it is for the Defendants to make some case for a direction, and the only case they make out is that the validity was not disputed. Although in Edison-Bell &c. Company v. Waterfield Mr Justice Farwell did otherwise direct, I do not think he intended to lay down any rule to bind other Judges, and the matter is still in my discretion, and this is not a case in which I think I ought to exercise it in favour of the Defendants. 19 Turning next to the facts of the present case, the applicants' letter of demand was sent to the respondent on 25 July 2013. It referred to the judgment of Middleton J in Ranbaxy, as well as to the pending appeal. It enclosed the relevant s 19 certificates. It noted that the respondent had caused a number of products to be registered on the Australian Register of Therapeutic Goods, and expressed concern that these products would be marketed and listed on the Pharmaceutical Benefits Scheme ("the PBS"), in circumstances which would constitute infringements of one or other of the 337 patent and the 966 patent. The applicants demanded the giving of undertakings by 5 pm on 30 July 2013, together with the provision of information and other things. A period of frenzied correspondence followed. 20 On 4 August 2013, the respondent (which had by then turned the responsibility for dealing with the applicants over to its solicitors) offered an undertaking not to make, market, import, etc the allegedly infringing products, and not to take any steps whatsoever to obtain a listing of those products on the PBS, until 5 pm on 22 August 2013. It said that any extension of this undertaking beyond then would be contingent on the applicants undertaking to pay the respondent just compensation for any losses it suffered as a result of complying with its undertaking as so extended, adding "such undertaking being comparable to, and with the same effect as, the usual undertaking as to damages in exchange for a court ordered interlocutory injunction". In their response of 5 August 2013, the applicants said that they were unwilling to offer, and did not accept the respondent's entitlement to, the proposed cross-undertaking. 21 Further correspondence between the parties followed, in which, ultimately, the respondent agreed to extend its undertaking to 9 am on 30 August 2013. However, 1 September 2013 was, it seems, a critical date for the respondent to take a step if it proposed to move to have its products listed on the PBS, and the applicants were concerned that the respondent's disinclination to make undertakings running beyond this date left them exposed to the risk that it might, by then, be too late to make any meaningful application for an interlocutory restraint, should it be necessary to litigate. Thus the applicants sought, and the respondent gave, an assurance that, if proceedings were commenced and urgent interlocutory relief sought, the respondent would fully co-operate, and use its best endeavours, to have an application for that relief heard and determined by 9 am on 30 August 2013. That limited degree of consensus was reached on Friday 23 August 2013. 22 As mentioned above, it was on Monday 26 August 2013 that the applicants commenced this proceeding. After some negotiation on matters not directly relevant to the present issue, on 29 August 2013 the parties forwarded to the court the terms of interlocutory orders to which they consented. Those orders were made by Gordon J on the same day. The orders included an interlocutory injunction restraining the respondent in conventional terms, and were made on the applicants offering the usual undertaking as to damages. Pending the making of final orders in the proceeding (which will accompany the publication of these reasons), that injunction remains extant. 23 On behalf of the respondent, it is submitted that its offer of 4 August 2013 would have given the applicants everything which they might have got on an interlocutory basis from the court, and everything which they did in fact get by the consent orders which were made on 29 August 2013. It is said that it was only the applicants' refusal to provide a cross-undertaking as to damages which stood in the way of the matter being settled on the basis proposed by the respondent, and that it was not reasonable for the applicants to have taken the position which they did, given the price for an interlocutory injunction which they would inevitably have been required to pay on a contested application. 24 These submissions on behalf of the respondent do not accurately reflect the correspondence which passed between the parties in the period before this proceeding was commenced. It is only that correspondence which has been led in evidence: the court knows nothing of any discussions which may have taken place between the parties or their legal advisers. The respondent's letter of 4 August 2013 did not contain an offer the equivalent of the interlocutory injunction which the applicants achieved, by consent, on 29 August 2013. At no time did the respondent offer to desist from advancing its allegedly infringing products towards the Australian market, and PBS listing, beyond 30 August 2013. In its letter of 4 August, it attached a contingent condition to any undertaking which it would be prepared to make which ran beyond 22 August 2013, and it is true that the applicants made it clear that no such condition would be acceptable. Whatever the justification, however, the result was that the respondent never got to the point of articulating the terms or duration of the undertaking which it contingently proposed, or, equally importantly, the terms of the cross-undertaking which was required. The applicants never had directly put to them a complete offer to settle the case which they might have accepted by saying "yes". 25 Neither did the respondent, at any stage before the commencement of this proceeding, put it directly to the applicants that it accepted all aspects of their allegations save for those relating to the validity of the 337 patent and the 966 patent, and that it desired only to protect its position in the latter respect against the prospect that the appeal in Ranbaxy would be successful. At least so far as the evidence discloses, the respondent did not formulate for the applicants' consideration a form of undertaking that was linked to the determination of that appeal; and it did not make an offer that would have been the equivalent of the final injunctive relief which the applicants will achieve in the proceeding, contingent upon the Ranbaxy appeal failing. 26 I take the view, therefore, that the respondent did not, before the commencement of the proceeding, sufficiently acknowledge the applicants' legal entitlements to sustain the submission that the applicants should not have their costs as the conventional expectation of parties who succeeded in the case. The respondent has not displaced the presumption that the applicants were required to litigate in order to derive the practical benefit of the patents on which they sued. 27 There remains the question whether there should be a direction under s 19(3) of the Patents Act which would negative so much of subs (2) of the section as would entitle the applicants to have their costs taxed as between solicitor and client. Here the respondent carries the evidentiary and argumentative burden of demonstrating the existence of sufficient grounds to depart from the normal course. On its behalf, it is submitted that there are four such grounds. 28 Under its first ground, the respondent points to a passage in the Explanatory Memorandum to the Bill which became the Patents Act to the effect that s 19(2) "is designed to discourage unnecessary and repetitious disputes about the validity of patents". It is submitted that, by not yielding immediately to the applicants' letter of demand, the respondent was not engaging in unnecessary or repetitious disputation about the validity of the 337 patent and the 966 patent: it was merely protecting its position against the prospect that the Ranbaxy appeal might succeed. As noted above, however, the respondent did not, at least clearly, propose to the applicants an expedient by which their position might be protected pending the outcome of the appeal. Rather, it made it clear to the applicants that the validity of the patents was in play. Further, while it may be accepted that the avoidance of "unnecessary and repetitious disputes about the validity of patents" was a purpose of s 19, it could not be suggested that the discretion arising under subs (3) must necessarily be exercised favourably to the alleged infringer unless it be held that he or she was engaging in, or promoting, disputation of that kind. In the present case, the prima facie position for which subs (2) provides is not displaced merely by pointing to well-intentioned attempts by the respondent to have the applicants accept something less than their legal entitlements established by the certificates issued in Ranbaxy. 29 It is also submitted on behalf of the respondent that an award of solicitor/client costs to the applicants in the present case would "encourage an unduly aggressive approach in disputes where a s 19 certificate has been granted". The holder of such a certificate, it was said, would have "an incentive to issue early, rather than seek a negotiated resolution" in order to maximise the period with respect to which the higher level of costs would be awarded. I do not accept that submission. Whatever its theoretical attraction – which, I note in passing, I have difficulty in perceiving – it achieves no traction in the circumstances of the present case. There could be no suggestion that the applicants were unduly precipitate in litigating. They wrote a letter of demand and followed that with a period of negotiation which I have not been invited to hold was not carried through in good faith. It is as clear as may be that the applicants genuinely considered that the absence of any legally binding restraint on the respondent before 1 September 2013 would expose them to the very real risk of the respondent moving to have its products listed on the PBS. Having failed to secure a satisfactory undertaking from the respondent, the applicants issued about a week before that date. Their conduct does not fit the theoretical template of the respondent's "unduly aggressive" litigator. 30 Under its second ground, the respondent submits that, had the applicants been willing to give a cross-undertaking as to damages as between the parties, the need for this proceeding to have been commenced would have been avoided. It will be noted that this is tantamount to a submission that the applicants should not have their costs at all because they unnecessarily or unreasonably commenced the proceeding. I have already addressed such a contention above, and there is nothing further to be said about the matter here. 31 Under its third ground, the respondent submits that its conduct during the dispute has been "reasonable and co-operative". Within the framework of a party conscientiously defending its own position, so much may be accepted. I have held, however, that the respondent did not go the extent of placing before the applicants a concrete proposal which might have been accepted without qualification or further negotiation. In that sense, while the respondent might well have been co-operative, it did not offer a level of co-operation that would have justified the conclusion that the applicants need not have sued. What matters particularly is that the respondent's formal position was that the 337 patent and the 669 patent were invalid and, while one might not be able to criticise the respondent for seeking to protect its position pending the outcome of the Ranbaxy appeal, that circumstance is not, in my view, sufficient to attract the exercise of the s 19(3) discretion to displace the general rule under subs (2). 32 The respondent's fourth ground involves the submission that an award of solicitor/client costs "is usually reserved for cases where a party has behaved unreasonably", of which some common instances are given. Quite clearly, this submission is unresponsive to the terms of s 19 of the Patents Act: under subs (2), the "usual" position, where a certificate has been issued, is that solicitor/client costs are the entitlement of the subsequently successful patentee. 33 For the above reasons, I am not persuaded that I should exercise the discretion arising under s 19(3) of the Patents Act to negative the effect of subs (2). The applicants' costs will be taxed conformably with s 19(2). I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup. Associate: Dated: 30 April 2014