FEDERAL COURT OF AUSTRALIA Damorgold Pty Ltd v JAI Products Pty Ltd (No 3) [2014] FCA 651 Citation: Damorgold Pty Ltd v JAI Products Pty Ltd (No 3) [2014] FCA 651 Parties: DAMORGOLD PTY LTD (ACN 051 905 705) and VERTILUX CORPORATION PTY LTD (ACN 074 643 182) v JAI PRODUCTS PTY LTD (ACN 126 185 377); JAI PRODUCTS PTY LTD (ACN 126 185 377); DAMORGOLD PTY LTD (ACN 051 905 705) and VERTILUX CORPORATION PTY LTD (ACN 074 643 182) File number: VID 1051 of 2010 Judge: MIDDLETON J Date of judgment: 20 June 2014 Legislation: Patents Act 1990 (Cth) Cases cited: Bristol-Myers Squibb Co v Apotex Pty Ltd (No 5) (2013) 104 IPR 23 Grant v Australian Temporary Fencing Pty Ltd (2003) 59 IPR 170 Pharmacia Italia SpA v Interpharma Pty Ltd (2005) 67 IPR 397 Date of hearing: 6 June 2014 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 42 Counsel for the Applicants: Mr G McGowan QC with Dr W Rothnie Solicitor for the Applicants: Phillips Ormonde Fitzpatrick Lawyers Counsel for the Respondent: Ms H Rofe with Mr C Thompson Solicitor for the Respondent: Griffith Hack Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1051 of 2010 BETWEEN: DAMORGOLD PTY LTD (ACN 051 905 705) First Applicant VERTILUX CORPORATION PTY LTD (ACN 074 643 182) Second Applicant JAI PRODUCTS PTY LTD (ACN 126 185 377) Cross-Claimant AND: JAI PRODUCTS PTY LTD (ACN 126 185 377) Respondent DAMORGOLD PTY LTD (ACN 051 905 705) First Cross-Respondent VERTILUX CORPORATION PTY LTD (ACN 074 643 182) Second Cross-Respondent JUDGE: MIDDLETON J DATE: 20 JUNE 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 6 June 2014, I made the following orders: (1) The respondent pay the applicants' costs of and incidental to the determination of the issue of whether the second applicant was an exclusive licensee of the Patent, to be taxed (in default of agreement) and paid forthwith. (2) The respondent pay the second applicant's costs of and incidental to the proceeding down to and including 4 April 2014, to be taxed (in default of agreement) and paid forthwith. 2 I now provide the reasons which led to the making of those orders. 3 On 4 April 2014, I made orders in this proceeding, but one issue with the concurrence of the parties remained undecided on the basis it may have become unnecessary to consider. 4 That issue related to the exclusivity of the licence given to the second applicant ('Vertilux') by the first applicant. 5 This issue remains contentious, and requires determination by the Court. 6 The applicants contend that Vertilux is the exclusive licensee of the Patent in suit. The respondent rejects this. The burden of proof is upon the applicants to demonstrate, on the balance of probabilities, the existence of the exclusive licence. I am persuaded that the applicants have satisfied this evidentiary burden. 7 The applicants rely on the terms of a written licence agreement dated 9 July 2010 ('the Licence Agreement') which is Exhibit RL-1 to the affidavit of Mr Ross Lava sworn on 31 May 2013. The Licence Agreement records and confirms the terms of an oral licence granted by the first applicant to Vertilux, since at least 1 January 2006. The evidence indicates that the terms of the oral and written licence arrangements were identical, and no issue is taken by the respondent with this conclusion. 8 Section 120 of the Patents Act 1990 (Cth) ('the Act') provides that "infringement proceedings … may be started … by the patentee or exclusive licensee." 9 An "exclusive licensee" for the purposes of the Act is defined to mean: … a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the right to exploit the patented invention throughout the patent area to the exclusion of the patentee and all other persons. 10 I need to set out some background facts and the evidence. 11 Ross Lava is the CEO and one of the two directors of both applicants, and has held those positions since, respectively, 1 July 1991 and 28 June 1996. 12 The roles of the two companies are that the first applicant holds the assets used in Vertilux's business, and Vertilux is the operating company. 13 Vertilux manufactures some of the components in the blinds that it sells, but buys others from separate companies. 14 Mr Lava's evidence in his affidavit was that Vertilux has been the exclusive licensee of the Patent since at least 1 January 2006. The evidence was not that the exclusive licence commenced on 1 January 2006 (although this was the 'Commencement Date' of the Licence Agreement); rather, that the exclusive licence had been in place since at least that date. It is significant to note that the business structure through which the applicants have operated has been in place since 1996. Further, Mr Lava executed the Licence Agreement in his capacity as a director of both applicants. 15 By cl 3.1 of the Licence Agreement the first applicant granted Vertilux: a royalty-free exclusive licence to Exploit the Patented Invention throughout the Patent Territory to the exclusion of Damorgold and all other persons for the Term, subject to the terms of this Agreement. 16 There were no reservations of rights to exploit the Patent, or to authorise others to exploit the Patent, in the other terms of the Licence Agreement. 17 Clause 1.1 of the Licence Agreement defined: (a) "Commencement Date" to be 1 January 2006; (b) "Exploit" to have the same meaning as in the Act; (c) "Patented Invention" to mean the invention the subject of, and defined by the claims of, the Patent; (d) "Patent" to mean Australian Patent No. 760547 (the Patent in suit); (e) "Patent Territory" to mean Australia and all the other places set out in the definition of "patent area" in the Dictionary to the Act; and (f) "Term" to mean the period when the Licence Agreement is in effect. 18 The licence granted to Vertilux conferred on Vertilux (and persons authorised by sub-licence from Vertilux with the prior written consent of the first applicant) all the rights under the Act to exploit the Patent in the patent area to the exclusion of the patentee and all other persons. It is to be noted that Vertilux could not sub-license without the first applicant's 'prior written consent'. There is no evidence of any 'written consent' to any sub-licence, although this requirement could be waived by the first applicant. 19 If there was no other evidence before the Court, the terms of the Licence Agreement and the evidence in chief of Mr Lava would enable the Court to readily conclude that Vertilux was the exclusive licensee of the Patent within the meaning of s 120 of the Act. 20 The respondent's contention is that Vertilux was not an exclusive licensee because there was a pre-existing licence given to an entity called Acmeda, in or about the years 2000 to 2004, which continues to this day. 21 This contention is primarily based upon the cross-examination of Mr Lava. 22 The applicants' response is that the first applicant had granted Vertilux an exclusive licence, and pursuant to that exclusive licence Vertilux granted a sub-licence to Acmeda with the concurrence of the first applicant (although such concurrence was not in writing). 23 The applicants contend that the evidence of Mr Lava in cross-examination about the applicants' dealings with Acmeda is entirely consistent with Vertilux's exclusive licence and Acmeda as a sub-licensee of Vertilux. 24 The respondent did not contend that if there was a sub-licence as submitted by the applicants, this would mean that as a matter of law Vertilux could not be an exclusive licensee. The respondent's contention was encapsulated in paragraph 9 and paragraph 10 of its written submissions dated 30 May 2014: 9. Damorgold [being the first applicant] could not and did not grant Vertilux an exclusive licence (as defined in the Act) as at the date of alleged grant (and written confirmation of the alleged grant) there was a pre-existing licence (authority) to Acmeda to exploit the Patent by selling the spring assist products in Australia. Damorgold having exercised its rights under s 13 to authorise Acmeda to exploit the Patent was then unable to grant an exclusive licence to Vertilux. 10. The existence of the pre-existing authority to Acmeda to sell spring assist products in Australia precluded Damorgold from being able to grant an exclusive licence to Vertilux to exploit the Patent. The effect of the existence of that pre-existing authority is that Vertilux could not exploit the invention to the exclusion "of all others". Vertilux is not an "exclusive licensee" as that term is defined in the Act. 25 As I have said, the respondent's contention is primarily based upon the cross-examination of Mr Lava. The entire cross-examination of Mr Lava on this issue was as follows: And do you or does, sorry, at 2004 did Damorgold license any other companies to use the spring assist product?---We licensed – not in Australia – we licensed a company called Acmeda, they'd have the licence to sell it overseas. So Acmeda doesn't sell blinds with - - -?---In Australia, not at that time, no. So Acmeda does now sell blinds?---Yes, they do. And when did it get the licence to sell in Australia?---We really haven't given them a licence. We gave them the authority to sell it. And "we" being?---Vertilux and Damorgold. And what approximate timing would that authority be?---That would have been early 2000, 2002, 2003, around that time, maybe even a bit later, I can't recall exactly. 26 For the reasons propounded by the applicants, I consider that the evidence indicates that there is an exclusive licence as alleged by the applicants. 27 The chronology, as best that can be gleaned from the short cross-examination, supports the coming into existence of an exclusive licence in the terms of the Licence Agreement prior to the authority given to Acmeda by Vertilux with the concurrence of the first applicant. 28 Before going further, I emphasise that Mr Lava in his cross-examination made it clear that it was both applicants that gave the authority to an entity called Acmeda to sell in Australia. Mr Lava was the directing mind in this regard of both applicants. 29 There was no attack upon the credibility of Mr Lava, nor any direct attack upon his evidence in chief as to the existence of an exclusive licence being given to Vertilux even prior to 1 January 2006. 30 Mr Lava in his affidavit gave concise evidence as to the existence of the exclusive licence by reference to the Licence Agreement. Until the cross-examination of Mr Lava, the existence and nature of the exclusive licence granted to Vertilux was not otherwise in issue, apart from a bare denial by the respondent in its pleading. 31 The cross-examination of Mr Lava did not confront the issue of the exclusive licence head on by reference to Mr Lava's evidence in chief. In circumstances where Mr Lava's evidence in chief was credible and in itself convincing, I do not consider the cross-examination, to the extent it touched upon the issue of the exclusivity of the licence, impacted upon the evidence in chief of Mr Lava and the position put by the applicants. In particular, the state of affairs as recorded in the Licence Agreement and attested to by Mr Lava was not impugned. 32 I find the position to be as follows. 33 At 2004, Acmeda was licensed to sell spring assist products overseas, and not in Australia. This could not affect Vertilux's status as an exclusive licensee within the patent area as it related only to selling outside the patent area. Mr Lava's cross-examination makes it clear that Acmeda was not in fact doing any acts conferred by the Patent within the patent area at that time. At some time, probably after 2004, but before 1 January 2006, Acmeda was given authority to sell in Australia by Vertilux as a sub-licence with the concurrence of the first applicant. There was some lack of clarity in the evidence of Mr Lava given in cross-examination as to the relevant years, but the chronology of events is more likely to be as I have described. 34 Accepting Mr Lava's cross-examination, with the emphasis on both applicants being involved in granting authority to Acmeda to sell the spring assist product in Australia, Vertilux (effectively with the first applicant's consent), authorised Acmeda to sell in Australia as a sub-licensee. For its part, Vertilux was acting as exclusive licensee, and Acmeda was only given authority to sell in accordance with the terms of the exclusive licence. This exclusive licence had already conferred upon Vertilux, and persons authorised by Vertilux, the right to exploit the Patent. 35 The fact that there was no written consent given to Vertilux to sub-licence as envisaged by the terms of the Licence Agreement does not detract from this conclusion, having regard to the position and involvement of Mr Lava with both applicants. As I have indicated, there is no doubt that the requirement for there to be a prior written consent could be waived by the first applicant, and effectively was through Mr Lava's involvement as director of both companies. 36 My conclusion as to the role of Acmeda is consistent with Mr Lava's evidence in chief, the arrangements set out and referred to in the Licence Agreement, his cross-examination, and the structure and business arrangements between the applicants. 37 Contrary to the suggestion of the respondent, I do not consider that after the cross-examination referred to above, the applicants needed to re-examine Mr Lava to clarify the position, or lead any further evidence as to the exclusive licence in favour of Vertilux. As I have said, I consider the applicants had proved on the balance of probabilities the existence of the exclusive licence which the cross-examination did not impugn. 38 In addition to the cross-examination of Mr Lava, the respondent also relies upon correspondence received from the first applicant's attorneys in September 2004, where the only claim made in the letters of demand, was on behalf of the first applicant and not Vertilux (as exclusive licensee). This was to be contrasted to the letter of demand written on 29 January 2010 on behalf of both applicants, where specific reference was made to Vertilux as the exclusive licensee. 39 I do not infer from this correspondence that at the time the correspondence was written in September 2004, Vertilux was not an exclusive licensee. The letters in their terms were simply letters of demand by reference to alleged infringement by RolaShades Australia Pty Ltd, and were seeking to prevent the continued alleged infringement. The failure to make any claim by Vertilux does not lead to the inference that Vertilux was not the exclusive licensee at the time the letters were written and sent seeking to prevent infringement. 40 Therefore, I find that Vertilux is the exclusive licensee of the Patent, and had the ability to start this proceeding. 41 I do not need to consider an alternative submission put by the applicants that in any event, as Acmeda had only a right to sell, the Licence Agreement operated according to its terms in respect of all other rights comprised in the Patent and accordingly, Vertilux was the exclusive licensee of all those other rights. There are conflicting indications in some of the authorities on this issue: see Grant v Australian Temporary Fencing Pty Ltd (2003) 59 IPR 170 at [41] (per Holmes J) and Pharmacia Italia SpA v Interpharma Pty Ltd (2005) 67 IPR 397 at [17] – [22] (per Sundberg J), but contra Bristol-Myers Squibb Co v Apotex Pty Ltd (No 5) (2013) 104 IPR 23 at [424] – [440] (per Yates J). 42 It was accepted that upon my finding that Vertilux was the exclusive licensee, the cost orders I proposed and made on 6 June 2014, followed upon the previous orders made and reasons for judgment delivered in this proceeding. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 20 June 2014