Federal Court of Australia Aristocrat Technologies Australia Pty Limited v Konami Australia Pty Limited (No 4) [2022] FCA 1501 File number: NSD 1429 of 2011 Judgment of: NICHOLAS J Date of judgment: 15 December 2022 Catchwords: COSTS – whether applicant's costs should be reduced on account of lack of success on particular issues – offer of compromise – proper approach to consideration of offer of compromise and pre-judgment interest Legislation: Federal Court of Australia Act 1976 (Cth) s 51A Patents Act 1990 (Cth) s 122(1) Federal Court Rules 2011 (Cth) rr 1.34, 25.14(3), 36.03(b) Cases cited: Hockey v Fairfax Media (No 2) (2015) 237 FCR 127 Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47 Westpac Banking Corporation v Wittenberg (2016) 242 FCR 505 Division: General Division Registry: New South Wales National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Number of paragraphs: 19 Date of hearing: 12 December 2022 Counsel for the Applicant: Mr ADB Fox SC and Mr WH Wu Solicitor for the Applicant: Gilbert + Tobin Counsel for the Respondent: Mr HPT Bevan SC and Ms ARP Spies Solicitor for the Respondent: Thomson Geer ORDERS NSD 1429 of 2011 BETWEEN: ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715) Applicant AND: KONAMI AUSTRALIA PTY LTD (ACN 076 298 158) Respondent order made by: NICHOLAS J DATE OF ORDER: 15 December 2022 THE COURT ORDERS THAT: 1. The respondent pay to the applicant, by way of an account of its profits under s 122(1) of the Patents Act 1990 (Cth), the amount of $16,248,116 plus interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the amount of $11,642,730. 2. The respondent pay to the applicant damages under s 122(1) of the Patents Act 1990 (Cth) in the amount of $4,995,000 plus interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the amount of $3,014,008. 3. Pursuant to r 1.34 of the Federal Court Rules 2011 (Cth), the time for compliance with r 39.02 for the payment of the amounts referred to in orders 1 and 2 be extended to 31 January 2023. 4. The respondent pay 80% of the applicant's costs of this proceeding from 6 August 2015 calculated as follows: (a) from 6 August 2015 up to 11.00am on 26 August 2019, on a party/party basis; and (b) from 11.00am on 26 August 2019 on an indemnity basis. 5. The second further amended originating application otherwise be dismissed. 6. Pursuant to r 1.34 and r 36.03(b) of the Federal Court Rules 2011 (Cth), the time for the filing of any notice of appeal be extended to 28 February 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT NICHOLAS J: 1 The parties' accounting experts have now agreed on the amounts payable by the respondent ("Konami") to the applicant ("Aristocrat") by way of account of profits and damages in accordance with the reasons for judgment published on 18 November 2022 and a discussion involving the experts at a further hearing on 12 December 2022. The experts' calculations are recorded in an email from Ms Wright on behalf of Mr Ross and herself dated 12 December 2022. In the email the experts explain why they considered an adjustment should be made in relation to the 2018 year. I agree with their reasoning on that point which is consistent with what is said in [469] of the reasons for judgment. The amounts agreed by the experts have also been updated to take account of additional interest that will have accrued since the experts made their calculations. The total amount which Konami must pay Aristocrat is $35,899,854 inclusive of interest. 2 Konami has sought an order extending the time in which it is required to pay the relevant amounts to 28 February 2023. Mr Bevan SC, who appeared for Konami, submitted that an order to that effect was reasonable given the time of year, the amount of money involved, and the fact that Konami is a member of a group of companies carrying on business in different parts of the world. In the absence of any further or more specific information, I do not think extending the time to 28 February 2023 is reasonable. I will allow Konami until 31 January 2023 in which to make payment. 3 Two issues arise in relation to costs. 4 The first issue is whether the costs payable to Aristocrat should be reduced to take account of issues on which Aristocrat was unsuccessful. In this regard, Konami contends that Aristocrat should be awarded only 50% of its costs to take account of what was said to be Aristocrat's lack of success on various issues including apportionment, opportunity cost, and the notional licence fee which informed the calculation of the damages award. It is convenient to deal with this issue first. 5 It is common ground that the Court has a discretion to reduce the amount of costs awarded to a successful applicant based on the parties' success on particular issues. In Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47 (Nicholas, Yates and Beach JJ) the Full Court referred to some of the relevant authorities and principles as follows at [30]-[31]: [30] The Court's discretion to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth) (the "FCA Act") is broad. But it is a power that must be exercised judicially and in accordance with well-established principles. As stated by French CJ, Hayne, Bell, Gageler and Keane JJ in Gray v Richards (No 2) (2014) 315 ALR 1 at [2]: The disposition of costs is within the general discretion of the court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court [Stewart v Atco Controls Pty Ltd (In liq) (No 2) (2014) 252 CLR 331 at 334 [4]]. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires. [31] The relevant principles were summarised by the Full Court in EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 as follows at [9]: Costs are in the discretion of the Court (Federal Court of Australia Act 1976 (Cth) s 43). The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. The furtherance of the goal of compensation means that, in general, a successful party will obtain an order for costs in its favour (Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65]-[68]). However, "a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them…" (Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136). If apportionment of costs is appropriate, the object is not mathematical precision (Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272) but a result that best reflects the interests of justice in the overall circumstances of the case. See also Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at [11] per Black CJ and French J. 6 The Full Court also referred with approval to the following observations of White J in Hockey v Fairfax Media (No 2) (2015) 237 FCR 127 at [88]: However, courts are now more ready to apportion the costs awarded to a party who succeeds in only some of the claims he or she brings. This may reflect the increasing factual and legal complexity of modern litigation and the multiplicity of factual and legal issues it entails, and the tendency of applicants to pursue multiple claims involving different factual enquiries in the one proceeding. It may also reflect an encouragement by the courts to applicants to exercise some discrimination in their selection of the claims they litigate. It is to be remembered that the inclusion of multiple causes of action in the one proceeding, even if based on a common substratum of fact, adds to the costs of the pleadings, interlocutory activity, preparation and presentation of the evidence at trial as well as of the trial itself. Nowadays, courts are particularly conscious of their role in attempting to control the cost of litigation. 7 Each party took up what I would describe as a quite extreme position in terms of what it contended was the proper outcome at the substantive hearing. Aristocrat's position on the account of profits was that it was entitled to an award of approximately $80 million (exclusive of interest) primarily on the basis that there should be no apportionment and no allowance for any of Konami's fixed costs. Konami's position was that its true profit after an appropriate apportionment was a small fraction of that amount. 8 Aristocrat's contention that there should be no allowance made in respect of fixed costs was based on the related contention that Konami did not suffer any opportunity cost by reason of it having made and supplied the infringing products. Both of those contentions were rejected. 9 Konami was also required to prove in some detail its allowable costs and deductions. On this issue Konami bore the onus and, in circumstances where it was put to proof by Aristocrat, it was necessary, of course, for Konami to adduce the relevant evidence. On the other hand, it is an issue that occupied a great deal of attention in evidence and submissions on which Konami was substantially successful and in respect of which I consider some percentage reduction in the costs to be awarded to Aristocrat is justified. 10 So far as the other issues relied upon by Konami in support of its submission that Aristocrat's costs should be reduced, its position is not nearly as strong. On the question of apportionment, Konami had mixed success. Aristocrat sought to prove that the infringing products (EGMs and conversion kits) would not have been made or sold without a feature game incorporating the proportional trigger. That contention was rejected. Konami was found to be entitled to an apportionment in the account of profits, but on the basis that the substance of the invention was a prize awarding feature with the proportional trigger rather than the proportional trigger. In terms of the ultimate outcome, the amount of the apportionment allowed (35%) was substantially greater than that for which Konami contended (5% or less) but was still much less than Aristocrat's figure (90% or more). 11 On the issue of damages, Konami argued for a royalty rate that was less than 10% of what was adopted in the damages calculation. The only discreet issue on which Konami had complete success was the relatively minor issue of additional damages. That issue did not take up any hearing time but was addressed in some detail in Aristocrat's written submissions. All arguments advanced by Aristocrat in support of the claim for additional damages were rejected. 12 While I consider that some reduction in the costs to be awarded to Aristocrat is justified to take account of its lack of success in relation to opportunity cost, allowable deductions, and additional damages, I do not think any other adjustment is justified. In all the circumstances, I consider it appropriate to reduce Aristocrat's costs by 20% to take account of Konami's success on these issues. 13 The second issue is whether there should be an order for indemnity costs in favour of Aristocrat from 26 August 2019 by reason of an offer of compromise it served on 22 August 2019. Aristocrat's costs of the proceeding up to 6 August 2015 (the liability stage of the proceeding) is covered by a previous costs order. 14 By its offer of compromise dated 22 August 2019 Aristocrat offered to settle the proceeding for $27,500,000 inclusive of interest and costs. The judgment obtained by Aristocrat is more favourable than the terms of the offer it made to Konami. 15 Aristocrat relies on r 25.14(3) of the Federal Court Rules 2011 (Cth) which provides: If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant's costs: (a) before 11.00 am on the second business day after the offer was served—on a party and party basis; and (b) after the time mentioned in paragraph (a)—on an indemnity basis. 16 Mr Bevan SC referred me to the Full Court's decision in Westpac Banking Corporation v Wittenberg (2016) 242 FCR 505. The decision in that case makes clear that in assessing an applicant's offer of compromise, it is necessary to consider the offer having regard to any interest component at the time of the offer. As Buchanan J (McKerracher and White JJ agreeing) said at [325]: The comparison to be made is between the substantive amount of an offer and the substantive amount of a verdict, with interest only being taken into account to the same date in each case. Interest of this kind is, after all, just a method of preserving the value of a verdict between the occurrence of actionable loss and judgment. 17 I requested that the accounting experts perform an additional calculation which discloses the amount of interest that would have been payable to Aristocrat at the time of the offer assuming that judgment was given at that time. The amount of the profits and damages awarded to Aristocrat together with pre-judgment interest calculated up to then is $32,767,047. Hence, Aristocrat's offer was for an amount substantially less than that awarded to Aristocrat after deducting interest allowed in respect of the period subsequent to the offer of compromise. 18 Subject to my earlier ruling reducing Aristocrat's costs by 20%, I do not see any reason why there should be any departure from the result prescribed by r 25.14(3). 19 Orders accordingly. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Nicholas. Associate: Dated: 15 December 2022