FEDERAL COURT OF AUSTRALIA Vehicle Monitoring Systems Pty Ltd v SARB Management Group Pty Ltd (No 2) [2020] FCA 961 File number: NSD 75 of 2018 Judge: BURLEY J Date of judgment: 9 July 2020 Catchwords: PRACTICE AND PROCEDURE – form of final orders – unsuccessful appeal from opposition to a standard patent pursuant to s 60(4) of the Patents Act 1990 (Cth) – application for stay of orders pending outcome of application for leave to appeal and, if granted, appeal – stay granted COSTS – whether costs should follow the event – where offer made by the appellant in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 – where Calderbank offer proposed agreed claim construction and undertaking as to infringement – whether it was unreasonable for the respondent to refuse to accept the Calderbank offer – held costs follow event Legislation: Federal Court Rules 2011 (Cth) r 35.13 Patents Act 1990 (Cth) s 57(1), s 60(4) Cases cited: Calderbank v Calderbank [1975] 3 All ER 333 Jupiters Ltd v Neurizon Pty Ltd [2005] FCAFC 90; 22 ALR 155 Vehicle Monitoring Systems Pty Ltd v SARB Management Group Pty Ltd [2020] FCA 408 Date of last submissions: 13 May 2020 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 9 Counsel for the Appellant: Mr C Burgess with Ms J Ambikapathy Solicitor for the Appellant: Spruson & Ferguson Lawyers Counsel for the Respondent: Ms C Cunliffe Solicitor for the Respondent: Norton Rose Fulbright Australia ORDERS NSD 75 of 2018 BETWEEN: VEHICLE MONITORING SYSTEMS PTY LTD Appellant AND: SARB MANAGEMENT GROUP PTY LTD Respondent JUDGE: BURLEY J DATE OF ORDER: 9 July 2020 THE COURT ORDERS THAT: 1. The appeal from the decision of the Delegate of the Commissioner of Patents given on 15 December 2017 be dismissed. 2. The Appellant pay the Respondent's costs of the appeal. 3. Claims 1 to 24 of Australian Patent Application No 2013213708 proceed to grant. 4. Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) (FCR), the costs be paid in a lump sum in an amount agreed between the parties within 28 days of this order. 5. If the parties cannot agree on the amount of the lump sum to be paid pursuant to order 4, the costs be paid in a lump sum in an amount determined by a Registrar of the Court. 6. The Registrar is directed, pursuant to FCR 1.37, to determine the quantum of costs in order 5 in such a manner as she or he deems fit including, if thought appropriate, on the papers. 7. The Registrar is directed at the conclusion of the process to order the applicant to pay whatever sum has been determined within 28 days. 8. The sum of $400,000 (or such part thereof as necessary to satisfy the order for costs under order 4) presently held as security for the Respondent's costs in an interest-bearing account of the Court (pursuant to order 7 dated 2 March 2018, order 6 dated 14 September 2018 and order 1 dated 8 March 2019) be released to the Respondent within seven days of: (a) the parties notifying the Court of agreement pursuant to order 4, should the amount agreed be equal to or higher than $400,000; or (b) the determination of the quantum of the lump sum for costs pursuant to order 5, should the amount determined be equal to or higher than $400,000, in full or partial satisfaction of its costs under order 4 above. 9. Orders 2 to 8 be stayed pending determination of any application for leave to appeal, or further order of the Court, provided that: (a) any application for leave to appeal in respect of order 1 is filed within 14 days of the date of this order; and (b) within seven days of the date of this order the appellant file and serve a written undertaking to the Court to prosecute such application for leave with expedition. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BURLEY J: 1 In Vehicle Monitoring Systems Pty Ltd v SARB Management Group Pty Ltd [2020] FCA 408 (judgment), I delivered judgment concerning an appeal brought pursuant to s 60(4) of the Patents Act from a decision of a delegate of the Commissioner of Patents. The delegate had dismissed an opposition brought by the appellant, VMS, to the grant of Australian patent application No 2013213708. I determined that the appeal should be dismissed. The present dispute concerns the orders to be made consequent upon the judgment. These reasons assume familiarity with the judgment and adopt the abbreviations used in it. 2 The orders that I will make are as follows: (1) The appeal from the decision of the Delegate of the Commissioner of Patents given on 15 December 2017 be dismissed. (2) The Appellant pay the Respondent's costs of the appeal. (3) Claims 1 to 24 of Australian Patent Application No 2013213708 proceed to grant. (4) Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) (FCR), the costs be paid in a lump sum in an amount agreed between the parties within 28 days of this order. (5) If the parties cannot agree on the amount of the lump sum to be paid pursuant to order 4, the costs be paid in a lump sum in an amount determined by a Registrar of the Court. (6) The Registrar is directed, pursuant to FCR 1.37, to determine the quantum of costs in order 5 in such a manner as she or he deems fit including, if thought appropriate, on the papers. (7) The Registrar is directed at the conclusion of the process to order the applicant to pay whatever sum has been determined within 28 days. (8) The sum of $400,000 (or such part thereof as necessary to satisfy the order for costs under order 4) presently held as security for the Respondent's costs in an interest-bearing account of the Court (pursuant to order 7 dated 2 March 2018, order 6 dated 14 September 2018 and order 1 dated 8 March 2019) be released to the Respondent within seven days of: (a) the parties notifying the Court of agreement pursuant to order 4, should the amount agreed be equal to or higher than $400,000; or (b) the determination of the quantum of the lump sum for costs pursuant to order 5, should the amount determined be equal to or higher than $400,000, in full or partial satisfaction of its costs under order 4 above. (9) Orders 2 to 8 be stayed pending determination of any application for leave to appeal, or further order of the Court, provided that: (a) any application for leave to appeal in respect of order 1 is filed within 14 days of the date of this order; and (b) within seven days of the date of this order the appellant file and serve a written undertaking to the Court to prosecute such application for leave with expedition. 3 There are two principal areas of dispute between the parties as to the form of orders, which I address below. 4 First, whilst there is no disagreement that order 1 should be made, VMS submits that there should be a stay of that order to enable any application for leave to appeal and, if successful in that application, then also the appeal, to be determined. SARB opposes that course. It submits: that it is entitled to the benefit of the judgment in its favour; that the fact of an application for leave to appeal does not operate automatically as a stay; and that the Court must be satisfied that VMS has demonstrated an appropriate case to warrant the exercise of its discretion in favour of a stay, having regard to the balance of convenience and the competing rights of the parties. It submits that it will be prejudiced by being kept out of holding a granted patent in circumstances where it has "serious concerns" as to whether VMS' current systems fall within the scope of the SARB application. 5 In my view, and subject to VMS undertaking to prosecute any application for leave and subsequent appeal expeditiously, it is appropriate that a stay be put in place. Doing so maintains the status quo of the contested subject matter, being the grant of a patent application. To permit the application to proceed to grant will convert the status of that application to a granted patent. VMS wishes, in seeking leave to appeal and, if granted, appealing, to challenge SARB's entitlement to that status, which will apply not only inter partes, but as a right in rem; the granted patent will be able to be asserted against third parties. VMS has provided draft grounds of appeal. It must file any application for leave to appeal within 14 days of the making of orders: FCR 35.13. As VMS points out, the date of grant of the patent does not affect the date of first entitlement of SARB to damages for infringement, which extends to the date of the publication of the patent: s 57(1) of the Patents Act. Furthermore, neither party is aware of any authority where a patent, once granted, has been revoked on the basis that an appeal from the result in an opposition has succeeded. It may be that there is such a power in the Patents Act, but the usual course in such cases is to stay the operation of orders permitting the application to proceed to grant. That is the course that I propose to take in the present case. 6 Secondly, SARB submits that in accordance with the usual rule as to costs, VMS ought to pay SARB's costs of the proceedings. VMS contests that proposition on the basis that VMS made an offer by letter dated 26 September 2018 (the September 2018 letter) in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. VMS submits that the result of the offer is that, having regard to the reasoning set out in the judgment, SARB stands in no better position as a result of refusing the offer than it would have been in had the offer been accepted in September 2018. 7 The offer itself was to the effect that if SARB agreed to a particular claim construction, whereby each independent claim of the SARB application required "the VDU (as distinct from another system component, such as a portable data collection device or the ticket issuing device) to process and communicate the infringement data in the particular data format that is used to populate the data fields in the infringement issuing software", then VMS would not pursue the appeal. The rationale offered in the September 2018 letter, and in VMS's submissions, was that: first, SARB had agreed to that construction in the proceedings before the delegate; and secondly, that such a construction would mean that the VMS POD system would not infringe the patent when granted. VMS additionally sought an open undertaking and release from SARB that would prevent SARB from alleging that VMS's POD system infringed the SARB application. By letter dated 15 October 2018, SARB rejected that offer. VMS submits that the judgment at [67] – [72] indicated that the construction advanced by VMS in its offer was accepted. 8 Creative attempts to settle proceedings should be encouraged. What follows in these reasons should not be interpreted otherwise. However, I am unable to accept the submission advanced by VMS. First, the subject of the proceedings was not whether or not the VMS product infringed the claims, but whether the SARB application should proceed to grant. The determination of the appeal could not determine the question of infringement. Secondly, the construction of the claims is a matter of law: Jupiters Ltd v Neurizon Pty Ltd [2005] FCAFC 90; 22 ALR 155 at [67]. It was for VMS to form a view as to whether or not its POD system falls within the scope of the claims. If it formed the view that it did not, then, based on the reasoning set out in the September 2018 letter, it was unnecessary to conduct the appeal from the opposition proceedings. Thirdly, the offer sought by VMS included a request for an open undertaking and release from SARB that it would not bring any claim for patent infringement in respect of VMS's past or future exploitation of the POD system. Having regard to the fact that infringement was not the subject of the proceedings, and that SARB did not accept the construction proposed, it was not unreasonable for it to reject the offer at the time. Furthermore, although there appears to be a substantial overlap between the construction proposed by VMS and that set out in the judgment at [67] – [72], aspects of the submission advanced by SARB were also accepted. Whether or not that difference is material to any question of infringement is not to be determined now. 9 Finally, VMS contends that any costs order should be stayed, pending the outcome of the application for leave to appeal. In my view it is appropriate that a general stay be granted, in the terms that I have indicated above. However, the price of doing so must be that VMS undertakes to the Court that it will prosecute that application, and any subsequent appeal, expeditiously. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Burley. Associate: Dated: 9 July 2020