FEDERAL COURT OF AUSTRALIA Load and Move Pty Ltd v Container Rotation Systems Pty Ltd [2016] FCA 843 File number: NSD 1715 of 2015 Judge: RARES J Date of judgment: 15 April 2016 Catchwords: PATENTS – Patents Act 1990 (Cth) – infringement – where goods manufactured in China sold f.o.b. or ex works for shipment to Eritrean purchaser by Australian vendor through Australian websites or online – whether such sale within meaning of the patentee's exclusive right to sell or exploit the patented invention in the patent area under Patents Act 1990 (Cth) – where goods never entered patent area, being Australia – application for preliminary discovery to determine whether sale of goods infringed Australian patent Legislation: Federal Court of Australia Act 1976 (Cth) ss 37M, 37N Federal Court Rules 2011 (Cth) r 7.23 Patents Act 1990 (Cth) s 13, Sch 1 Sale of Goods Act 1893 (UK) Sale of Goods Act 1923 (NSW) Statute of Monopolies 1623 (UK) Cases cited: Badische Anilin Und Soda Fabrik v Hickson [1906] AC 419 George v Rockett (1990) 170 CLR 104 James v Commonwealth (1939) 62 CLR 339 Paul's Retail Pty Limited v Lonsdale Australia Limited (2012) 294 ALR 72 PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] 2 WLR 1193 Saffron v Société Minière Cafrika (1958) 100 CLR 231 Date of hearing: 8, 15 April 2016 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 36 Counsel for the Applicant: Mr JS Cooke with Mr DB Larrish Solicitor for the Applicant: Harris Gomez Group Counsel for the Respondents: Mr AR Lang with Ms F St John Solicitor for the Respondents: Norman Waterhouse Lawyers ORDERS NSD 1715 of 2015 BETWEEN: LOAD AND MOVE PTY LTD Applicant AND: CONTAINER ROTATION SYSTEMS PTY LTD First Respondent AUSTRALIAN MOBILE MINING EQUIPMENT SYSTEMS AND ACCESSORIES PTY LIMITED Second Respondent JUDGE: RARES J DATE OF ORDER: 15 APRIL 2016 THE COURT ORDERS THAT: 1. The originating application by the prospective applicant for discovery, filed on 22 December 2015, be dismissed. 2. The prospective applicant pay 75% of the prospective respondents' costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) RARES J: 1 This is an application for preliminary discovery under r 7.23 of the Federal Court Rules 2011 (Cth). Load and Move Pty Limited is the patentee of patents for equipment known as spreaders or tipplers that are large machines for loading and tipping over shipping containers. It also manufactures shipping containers that are adapted to carry, among other things, minerals and bulk materials that can be loaded and unloaded by the spreaders or tipplers through being opened or turned over so as to allow their contents to enter or leave through the containers' specially adapted roofs. Such containers can carry, among other products, wheat, copper concentrate, coal, mineral sands, nickel and iron ore. 2 Matthew Chalmers is the general manager of companies within a group that includes Load and Move and Intermodal Solutions (Group) Pty Limited (ISG group). He has made four affidavits in these proceedings, which Load and Move commenced in late December 2015. 3 Load and Move has a number of patents that make claims for certain spreader machines, their designs and features, as well as other patents that make claims relating to the construction of the containers that are adapted for use with spreaders. 4 Container Rotation Systems Pty Ltd and its associated company, Australian Mobile Mining Equipment Systems and Accessories Pty Limited (AMMESA), have manufactured and supplied similar equipment to that produced by Load and Move since before the priority dates for Load and Move's patents. On that basis, AMMESA had since 15 November 2012 asserted to the ISG group, that it had prior use rights to exploit the product, method or process used to manufacture its spreaders. Container Rotation and AMMESA are controlled by their managing director, Murray Bridle. 5 When Load and Move commenced the proceedings, it sought preliminary discovery only against Container Rotation. However, when Container Rotation appeared at the first case management hearing on 3 March 2016, I ordered it to file and serve any affidavits on which it proposed to rely, together with a short statement of the issues, by 10 March 2016. That was in part because at that case management hearing, Container Rotation was represented by a lawyer who knew nothing about the case and, contrary to the efficient use of the Court's processes and the overarching objective in ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth), he had no information about Container Rotation's response to the originating application, despite it having had that and Mr Chalmers' extensive first affidavit for about three months. 6 On 10 March 2016, it became apparent that a number of issues in respect of which Load and Move had sought preliminary discovery had fallen away. Container Rotation's solicitor, Gregory Tye, had made an affidavit on information and belief from Mr Bridle that clarified several matters. Shortly afterwards, Load and Move decided that it was necessary for it to join AMMESA as a respondent to the proceedings because it was likely that documents that it sought were in the control of AMMESA within the meaning of r 7.23 of the Federal Court Rules 2011 (Cth). Based on Mr Tye's revelation of matters in his affidavit, Load and Move accepted that it then had sufficient information to make its own decisions as to whether to proceed for infringement of its relevant patent or patents concerning spreaders in respect of what Container Rotation or AMMESA (collectively, the vendor) had done in Australia. The issues 7 Relevantly, Load and Move now seeks orders for preliminary discovery for only two categories of documents, first, documents relating to sales of containers by the vendor (i.e. Container Rotation or AMMESA) to a purchaser in Eritrea and, secondly, sales by the vendor of containers through one or other's website. That was because Load and Move asserts that it does not presently believe it has sufficient information to make a decision as to whether it should bring proceedings for infringement of its patents. Background 8 Mr Tye said that each vendor had not manufactured containers in, or exported them from, Australia, in respect of which Load and Move sought preliminary discovery in respect of sales from their websites or to the Eritrean mine It appears that each of Load and Move and each vendor manufacture containers at the same factory in China that are adapted for use with their respective spreader or tippler machines. 9 Mr Tye said (in his affidavit of 10 March 2016) that the vendor had sold containers to Nevsun Bisha Mine in Eritrea that were not manufactured in Australia but were made in China and exported from China to Eritrea. Mr Tye annexed, as examples, copies of three purchase orders issued by Bisha addressed to AMMESA or Container Rotation as supplier to Bisha in Eritrea that required delivery of various items, including the containers. Two of the purchase orders, under the heading "shipping/special instructions", provided that the goods were to be sent sea freight, ex works Nantong, China and, the third, provided that they were to be sent sea freight, free on board (f.o.b.) a nominated port. Each of the purchase orders referred to Bisha's standard terms and conditions, that were attached, as being applicable to the orders. However, the purchase orders, of themselves, do not present the full contractual picture of the dealings between AMMESA or Container Rotation on the one hand and Bisha on the other. 10 It was common ground that at no point did the containers, that were manufactured in China, ever come into the patent area (i.e. Australia). Rather, they went from the factory in which they were manufactured in Nantong, China to Eritrea, ultimately to be delivered to Bisha for use in its mining operations. The legislative scheme 11 Relevantly, r 7.23 provides: 7.23 Discovery from prospective respondent (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 12 The Patents Act 1990 (Cth) provides in s 13: 13 Exclusive rights given by patent (1) Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention. … (3) A patent has effect throughout the patent area. (emphasis added) 13 The dictionary in Sch 1 to the Patents Act provides the following definitions for "exploit" and the "patent area": exploit, in relation to an invention, includes: (a) where the invention is a product – make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or (b) where the invention is a method or process – use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use. patent area means: (a) Australia; and (b) the Australian continental shelf; and (c) the waters above the Australian continental shelf; and (d) the airspace above Australia and the Australian continental shelf. 14 Part 1 of Ch 11 of the Patents Act gives certain rights to a patentee or exclusive licensee to proceed against another person for infringement of the patent. Load and Move's submissions 15 Essentially, Load and Move argued that it had a reasonable belief that it may have the right to obtain relief in the Court against one or both of Container Rotation and AMMESA and that, having made reasonable inquiries, it did not have sufficient information to decide whether to start proceedings in the Court to obtain that relief. It contended that it reasonably believed that each vendor had the contractual documents by reference to which Load and Move could ascertain whether, for the purposes of the definition of "exploit" in the dictionary to the Patents Act, some act or acts created a constituted sale that took place within the patent area, being Australia, for the purposes of the Sale of Goods Act 1923 (NSW). 16 Load and Move argued that it needed to know, first, the terms of each vendor's contracts with Bisha to determine where title to, or property in, the containers that had been manufactured in China had passed to the purchaser, being Bisha, and, secondly, what the value of the potential profits or damages might be that it could seek to recover were it to take infringement proceedings in Australia. 17 Load and Move argued that potentially there may be retention of title, or Romalpa, clauses, under which the vendor retained property in, or title to, the containers until payment to it or until other unspecified conditions had been satisfied. It argued that such matters could have been fulfilled in Australia, so as to constitute a sale occurring in this country for the purposes of the Sale of Goods Act and the definition in the Patents Act of "exploit", which includes "sell". 18 Load and Move acknowledged that there was no case in which consideration had ever been given to the argument that it was advancing. In essence, it contended that an infringement of a patent could occur, for the purposes of the Patents Act or analogous legislation protecting patents, involving goods that were manufactured or dealt with outside a patent area and had never entered the patent area, but where the seller and or buyer had made the contract for a sale of those goods within the patent area and either had paid or received the price there as a means of creating a transfer of the property in, or entitlement to, the goods the subject of the contract of sale. Consideration 19 The issue is whether objectively it is reasonable for Load and Move to believe, as I accept Mr Chalmers does believe, that it may have the right to obtain relief in the Court from either vendor in respect of the way in which the vendor's contract for the manufacture of the containers in China, their sale and carriage by sea from China to Eritrea, operated. Mr Chalmers formed that belief on the basis of what he thought were or would be conditions in the contracts for those sales, and he drew what he considered was the reasonable inference that, at some point, the money that constituted consideration for those sales came to, or had to be received by, the vendor in Australia. 20 The question whether a person reasonably believes a matter involves a consideration of whether there are objective circumstances from which a reasonable person could form such a belief. Belief is a state of mind. In George v Rockett (1990) 170 CLR 104 at 112, Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ said: When a statute prescribes that there must be "reasonable grounds" for a state of mind – including suspicion and belief – it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person. 21 In other words, it must be made to appear to the Court that the basis for which the prospective applicant contends under r 7.23 that he, she or it holds that state of mind is also sufficient to induce that state of mind in a reasonable person. Their Honours went on to say (170 CLR at 116): The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture. (emphasis added) 22 Their Honours said that it was necessary to identify the subject matter of the relevant belief. Here, the subject matter of Mr Chalmers' belief is that a sale, for the purposes of both the Sale of Goods Act and the definition of "exploit" in the Patents Act, occurred in Australia in respect of the containers that were made in, and then shipped from, China to Eritrea and never came into this jurisdiction. 23 The purpose of the Patents Act is to grant a limited monopoly to a patentee to do things to exploit the invention within the patent area, that is, relevantly, within Australia. The monopoly is thus geographic, being limited to exploitation of the invention within the patent area. The Patents Act does not control activities that would amount to infringement of the patent outside the patent area. All infringement must be local. That is because the rights created by the Patents Act, which interlock in a broad but independent way with similar rights created by its statutory analogues in other nations, including those that are parties to the international treaties relating to patents, are structured to protect rights the subject of the claims in the patents within the jurisdiction of each State that grants such rights. 24 The House of Lords rejected an argument of the kind advanced by Load and Move in Badische Anilin Und Soda Fabrik v Hickson [1906] AC 419. In that case, the patentee brought an action for infringement against a defendant who had entered into a contract in England with a purchaser in England to sell a quantity of the patented article with delivery to be made in Basle, Switzerland. The defendant then procured the goods in Switzerland and had them forwarded to Basle where they were at his disposal. The seller then transferred the goods by order to his agent in Basle to await the purchaser's disposal. After that, the purchaser assented to the appropriation of the goods, became interested in them and imported them into England to be used in manufacture there. The patentee argued that, based on those facts, the defendant had vended the invention, that is, sold it, within the United Kingdom. As the law report made clear, Mr Cripps KC for the patentee, argued that by consent of the seller and buyer in England, the goods had been appropriated and property passed in England pursuant to s 18, r 5(1) of the Sale of Goods Act 1893 (UK) which is the exact analogue of s 23, r 5(1) of the Sale of Goods Act (NSW). 25 Lord Loreburn LC said ([1906] AC at 421): A contract to sell unascertained goods is not a complete sale, but a promise to sell. There must be added to it some act which completes the sale, such as delivery or the appropriation of specific goods to the contract by the assent, express or implied, of both buyer and seller. Such appropriation will convert the executory agreement into a complete sale. What actually happens need not involve any change either in the condition of the goods or in their location. They were the property of the seller before the appropriation; they become the property of the buyer as soon as they are appropriated; and that is all. But if the goods are abroad when the property so passes, it seems to me you cannot say that the sale wholly took place in England. In my opinion, if you must decide in what country an appropriation of goods by consent takes place, it takes place not where the consent is given, but where the goods are at the time situate. (emphasis added) 26 He also agreed with Lord Davey, as did Lord Robertson. Lord Davey remarked that he was not aware of any case where a person had been held to infringe a patent by selling foreign-made goods that were not to be delivered to the purchaser within the United Kingdom. His Lordship held and, in concurring speeches, Lords James of Hereford and Atkinson agreed, that the construction of the expression "vending the invention" in the statutory form of patent then in use in the United Kingdom (an expression that is analogous to the concept of "sell" in the definition of "exploit" in the Patents Act) had to be construed consistently with the purpose and language of the Statute of Monopolies 1623 (UK); that is to give the inventor the full benefit of his invention in the forum. Lord Davey said ([1906] AC at 422-423): It must be such a vending as will be in a sense a working or use and exercise of the invention in this country or an appropriation by the vendor of some advantage which the patentee can derive from such use and exercise. A contract to deliver the goods abroad does not in any way interfere with the patentee's rights to work and utilize his invention in this country. It is a contract to do a perfectly lawful act, and whether the contract be made in this country or abroad does not in itself affect the patentee's monopoly of working his invention. Nor is it material to consider whether or when the property in the goods passed to the purchaser. It is lawful to be the owner of the goods if made and situate abroad, and neither the vendor nor the purchaser in my opinion thereby infringes the patent. The goods may or may not be afterwards brought into this country, and a different question will then arise, but that is no concern of the vendor after he has parted with them. I am of opinion that "vending the invention" in the common form of patent is confined to selling goods made or brought into this country, and that the respondent in this case has not, directly or indirectly, made, used or put in practice the appellants' invention within the meaning of the prohibition contained in the patent. (emphasis added) 27 Lord James said ([1906] AC at 424) that, having regard to the intention and effect of the Statute of Monopolies in which the word "vend" did not appear: … it seems to me that the entering into a contract here to transfer goods abroad, coupled with no delivery by the defendant here, does not constitute a vending in respect of which a cause of action arises. The manufacture of the dye at Basle did not infringe the British patent. If by bought and sold notes made here it had been contracted that such goods at Basle should be transferred for use there, it would be somewhat difficult to contend that an action would lie here; … The appellants sustain no actionable injury until the goods arrive in this country, when an action will lie against any one who "uses or exercises" the said invention. (emphasis added) 28 And Lord Atkinson reasoned similarly ([1906] AC at 425 and 427). He said (at 427) that: One would not readily accept that an agreement for sale that involves delivery outside the territory is authorised by the grant of permission "to promote, distribute and sell … in the Territory". To accept that the licence should be construed in that way would be to deny the evident intention of the parties that the authorised supply of goods bearing the mark should be confined to the defined geographic area. (emphasis added) 29 Similarly, in a trademark infringement case, Paul's Retail Pty Limited v Lonsdale Australia Limited (2012) 294 ALR 72 at 78-79 [38]-[47], Keane CJ, Jagot and Yates JJ applied what Dixon J had said in James v Commonwealth (1939) 62 CLR 339 at 377-378 about the time at, and the way in, which property passed in a contract for the sale of unascertained goods once they were appropriated abroad. They held that such a sale occurred overseas. Their Honours rejected an argument that the transaction generating such a sale had infringed the trademark holder's rights in Australia. They said that the ordinary meaning of the word "sale" in various statutory and contractual contexts was an exchange of commodities for money. But, they noted, a characteristic feature of a licence to use a trademark was the grant of authority to supply and market goods in a defined geographic area and observed (294 ALR 79 [47]): One would not readily accept that an agreement for sale that involves delivery outside the territory is authorised by the grant of permission "to promote, distribute and sell … in the Territory". To accept that the licence should be construed in that way would be to deny the evident intention of the parties that the authorised supply of goods bearing the mark should be confined to the defined geographic area. (emphasis added) 30 In my opinion, the reasoning in Badische [1906] AC 419 is compelling as to the way in which the Patents Act should be construed in respect of the construction of the definition of "exploit" in the dictionary to that Act. Their Lordships found that the sale occurred wholly in Switzerland because the goods were delivered there and property in the goods passed to the purchaser there, so that the sale itself, that is, the exchange of the goods for money, was completed in Switzerland and that no infringement of the patent occurred in the United Kingdom, even though the money was paid in the latter place. 31 The position on the material in evidence here is exactly the same. The containers were to be manufactured in China for delivery to Bisha either ex works Nantong or f.o.b. there or the like. Parties can and often do make special provisions in contracts that alter the ordinary and natural uses of the expressions "ex works", "f.o.b." or "free on board" in international trading transactions: see also Saffron v Société Minière Cafrika (1958) 100 CLR 231 at 242 per Dixon CJ, McTiernan and Menzies JJ. The existence of such conditions is recognised in ss 21-24 of the Sale of Goods Act. Romalpa clauses may create contracts with features that are sui generis and may not be strictly sales of goods: cf PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] 2 WLR 1193 at 1207 [34] per Lord Mance JSC (for Lords Neuberger of Abbotsbury PSC, Clarke of Stone-cum-Ebony, Hughes and Toulson JJSC). However, that does not affect the characterisation of the vendor's activities here as not involving any exploitation in Australia. 32 The reasoning in Badische [1906] AC 419 was that the property in the goods, in a transaction in which the goods never entered the jurisdiction, passed outside the jurisdiction whatever the terms of the sale or transaction. In that case, the contract was made between two parties in England, where the money in exchange for transfer of the property in the goods was also paid but the transfer of the goods occurred in Switzerland and on those facts, no infringement of any right to exploit an English patent could occur. 33 Thus, the mere fact that the vendor here advertised or made contracts for the sale of containers on its website, or had included conditions in those contracts that may have affected the time at, or the circumstances in, which property in the containers sold from the factory in China to the Eritrean miner would pass, does not affect the fact that that property passed and could only pass overseas. That is because the goods never arrived in, or came into, the patent area: Badische [1906] AC 419. 34 For that reason, I am satisfied that it is not reasonable to believe that a cause of action for infringement based on such a contract for sale, where the goods never have come into the patent area, is capable of giving rise to any interference with the exclusive rights to exploit the invention by a patentee pursuant to s 13(1) of the Patents Act. Therefore, no case could be brought for infringement of those rights by reference to such a transaction. Conclusion 35 Accordingly, I am satisfied that it is not reasonable for Mr Chalmers to believe, as I accept he does believe, that Load and Move may have a right to obtain relief in the Court from the vendor in respect of the containers the subject of any contracts that the vendor made on its website, or otherwise involving the vendor's actions in Australia, for sale of the containers in Eritrea that were manufactured in China. It is therefore not necessary for me to decide whether there are other discretionary reasons for refusing relief. 36 For those reasons, I will dismiss the originating application. I will order Load and Move to pay 75% of Container Rotation's and AMMESA's costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 27 July 2016