Federal Court of Australia Vald Pty Ltd v KangaTech Pty Ltd (Costs) [2024] FCA 693 File number(s): QUD 440 of 2019 Judgment of: DOWNES J Date of judgment: 28 June 2024 Catchwords: COSTS – where applicant achieved partial success in patent infringement proceeding – where applicant was successful in defending cross-claim alleging invalidity – where respondent advanced aspects of its invalidity case on premise that applicant's construction of claims was correct (which construction was not accepted) – where parties agreed that global costs order should be made but each side sought a costs order in its favour – where applicant accepted that a discount was appropriate – where respondent succeeded in relation to the dominant issues – costs order made in favour of applicant but with 70% discount Legislation: Federal Court Rules 2011 (Cth) rr 25.14, 40.02 Cases cited: Vald Pty Ltd v KangaTech Pty Ltd (No 5) [2024] FCA 333 Vehicle Monitoring Systems Pty Limited v SARB Management Group Pty Ltd trading as Database Consultants Australia (No 11) [2024] FCA 456 Division: General Division Registry: Queensland National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Number of paragraphs: 23 Date of hearing: 24 June 2024 Counsel for the Applicant/ Cross-Respondent: Mr D Logan KC and Mr D Larish Solicitor for the Applicant/ Cross-Respondent: Holding Redlich Counsel for the Respondent/ Cross-Claimant: Mr B Fitzpatrick Solicitor for the Respondent/ Cross-Claimant: Wrays Table of Corrections 1 July 2024 In paragraph 19, in the fourth sentence, the word "2024" has been replaced with "2023" 1 July 2024 In paragraph 20, in the final sentence, the word "pecuniary" has been inserted before the word "relief" ORDERS QUD 440 of 2019 BETWEEN: VALD PTY LTD (ACN 609 070 340) Applicant AND: KANGATECH PTY LTD (ACN 603 446 171) Respondent AND BETWEEN: KANGATECH PTY LTD (ACN 609 070 340) Cross-Claimant AND: VALD PTY LTD (ACN 603 446 171) Cross-Respondent order made by: DOWNES J DATE OF ORDER: 28 JUNE 2024 THE COURT ORDERS THAT: 1. Other than existing costs orders made in the proceedings to date, the Respondent/Cross-Claimant pay 30% of the Applicant/Cross-Respondent's costs of the Amended Originating Application and Notice of Cross-Claim up to and including 24 June 2024. 2. Any existing costs orders made in the proceedings to date be payable forthwith. 3. Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the costs which are payable pursuant to orders 1 and 2 be paid in a lump sum. 4. The issue of the quantum of the lump sums for costs, as identified in these orders, including any procedural directions relating to that issue, be determined by a Registrar of the Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DOWNES J: 1 On 5 April 2024, I published my reasons for judgment in this proceeding: Vald Pty Ltd v KangaTech Pty Ltd (No 5) [2024] FCA 333 (J or judgment). 2 Pursuant to an Order made on 23 April 2024 (Order), the parties were given an opportunity to make submissions on costs, and each did so, including at a hearing held on 24 June 2024. These reasons deal with the costs issue associated with the liability aspect of the proceeding and should be read together with the reasons for judgment. I adopt the same definitions as in the judgment. 3 Pursuant to the Order: (1) Vald obtained declaratory relief in relation to the KangaTech Product and the Pre-SM KT360, and injunctive relief in relation to those products along with orders for delivery up or destruction; (2) Vald obtained a permanent injunction restraining infringement of identified claims of the Patent; (3) Vald obtained certification pursuant to s 19(1) of the Patents Act 1990 (Cth) that the validity of each of the claims of the Patent was unsuccessfully questioned in this proceeding; (4) subject to certain conditions, the proceeding will be listed for case management in respect of an inquiry as to the quantum of damages (including any additional damages) or an account of profits or interest associated with the established infringements; (5) the Amended Originating Application was otherwise dismissed (being the infringement claim associated with the Post-First SM KT360 and Post-Second SM KT360); (6) the Notice of Cross-Claim was dismissed (being the invalidity claim). 4 As the principles were not in dispute and as this is a costs judgment, it is appropriate to issue short form reasons. Whether global costs order should be made 5 Claims for patent infringement and invalidity are typically treated as separate events upon which the ordinary rule applies. However, it is common ground that this is not an immutable principle. Indeed, here, the parties are united in submitting that a global costs order should be made. 6 Such an order is appropriate. That is because the cross-claim was responsive to the infringement proceeding, and was therefore defensive, in that the validity of the claims was challenged by KangaTech for the purposes of defending the infringement case (see, for example, [10] of the Amended Defence). Further, the proper construction of the claims was relevant to both the infringement case and the invalidity case, such that the claim and cross-claim involved a common issue, which was one of the key issues in the case. Which party was the victor? 7 Each side claims victory as a result of the judgment and the Order. 8 Vald relies upon the fact that, by the Order, it obtained relief which aligned with the relief sought in its Amended Originating Application, and the fact that the cross-claim was dismissed. 9 Vald also relies upon an internal email dated 4 December 2019 in which it is said that KangaTech recognised that the Pre-SM KT360 infringed the claims of the Patent, but that KangaTech proceeded to file a defence which denied infringement and it only accepted that the KangaTech Product and the Pre-SM KT360 infringed many of the relevant claims just before the trial. 10 KangaTech claims victory on the basis that its posited construction of the claims was accepted, and that the construction issue and the infringement case concerning the Post-First SM KT360 and Post-Second SM KT360 (on which it also succeeded) were the key issues in the proceeding. 11 So much may be accepted: the construction debate occupied a substantial proportion of the evidence which was filed in this case and the submissions at the hearing (as is reflected in J [80]–[159]). That debate was central to the infringement case relating to the Post-First SM KT360 and Post-Second SM KT360 (which infringement case failed because of this and other reasons: J [282]–[373]). The construction debate and the infringement claim relating to the Post-First SM KT360 and Post-Second SM KT360 were the dominant issues which occupied the bulk of the evidence, as well as the hearing time at the trial. 12 Further, as to the invalidity case advanced in the cross-claim which alleged lack of disclosure and lack of support relating to claim 1 and its dependent claims (as addressed in J [160]–[178]), that case would have succeeded if Vald's construction of the claims had been accepted: J [178], [186]. The balance of the invalidity case, which failed, did not occupy a significant proportion of the evidence or hearing time. 13 In support of its claim for a costs order in its favour, KangaTech relies on Vehicle Monitoring Systems Pty Limited v SARB Management Group Pty Ltd trading as Database Consultants Australia (No 11) [2024] FCA 456 (Besanko J). However, contrary to the present proceeding, that case did not involve a global costs order and, for that reason, is of limited assistance for the purposes of determining the appropriate costs order in this case. 14 On balance, I cannot agree that KangaTech was the successful party in light of the relief sought and obtained by Vald, KangaTech's belated and incomplete acceptance of the infringement case brought by Vald in relation to the KangaTech Product and Pre-SM KT360, the failure of other aspects of its invalidity case irrespective of construction (see J [185] and [231]) and that all of the claims would not have been invalidated even if Vald's construction of the claims had been accepted. 15 It therefore follows that, at least as a starting point, Vald should be the beneficiary of a costs order as it was, in substance, the successful party. Impact of any offer to settle 16 In support of a claim for indemnity costs, KangaTech relies upon offers which it made to settle the proceeding, being an offer to compromise on 5 July 2023 which it submits falls within r 25.14 of the Federal Court Rules 2011 (Cth), and a later Calderbank offer made on 13 July 2023. 17 However, these offers did not include any agreement by KangaTech to submit to an inquiry as to whether additional damages ought to be awarded, and if so, in what amount (being relief which Vald has obtained pursuant to the Order). Nor did these offers include an undertaking in the same terms as the general injunctive relief, or an offer to consent to any declarations, being relief which was sought in the Amended Originating Application and which relief was obtained by Vald pursuant to the Order. 18 Although KangaTech submits that it could not offer an undertaking in general terms because of the dispute about the construction of the claims, that submission only serves to highlight that Vald did not act unreasonably in persisting with its claim in order to have that construction issue resolved, and to then obtain an injunction in general terms. 19 For these reasons, it is not the case that Vald obtained a judgment that was less favourable than the terms of these offers within the meaning of r 25.14(1). Further the rejection of these offers was not unreasonable in the circumstances. This is especially as the 5 July 2023 offer proposed that Vald's costs be paid from 10 December 2019 to 8 July 2020, and the 13 July 2023 offer proposed that Vald's costs be paid from 10 December 2019 to 31 December 2021. Both offers were made just before the trial which commenced on 17 July 2023 and in circumstances where KangaTech made limited admissions as to infringement by its opening submissions filed on 11 July 2023. It was therefore not unreasonable for Vald to persist with a claim for its costs beyond 31 December 2021, especially in light of these admissions. Discount to be applied to any global costs order 20 Vald submits that a discount of 25% is appropriate. However, in the circumstances, the fair result is that there should be a discount of 70% such that KangaTech pays 30% of Vald's costs of the liability aspect of the proceeding up to and including 24 June 2024, being the date of the hearing as to costs, and excluding existing costs orders. To reach this conclusion, I rely upon (in particular) the matters identified in [6], [11] and [12] above. I note that the question of whether Vald should recover any costs incurred by it which are incidental to its claim for pecuniary relief should be determined following that phase of the proceedings. Other matters 21 KangaTech submits that any costs which are ordered should be assessed on a lump-sum basis, but this is resisted by Vald. However, the preference of this Court is to make a lump-sum costs order wherever it is practicable and appropriate to do so: see Costs Practice Note (GPN-COSTS). In the circumstances of this case, and in the absence of any substantive reason being advanced against such orders being made, I consider that such orders are appropriate. 22 KangaTech also submits that any existing costs orders made in the proceeding be taxable forthwith. This is opposed by Vald because it submits that there is no basis for such an order. However, as the existing costs orders were made a considerable time ago (including one over four years ago) and as a lump-sum costs order should be made in relation to those costs orders for the same reasons as above, it is appropriate to order that any existing costs orders should be payable (rather than taxable) forthwith. Disposition 23 For these reasons, the following orders will be made: (1) Other than existing costs orders made in the proceedings to date, KangaTech pay 30% of Vald's costs of the Amended Originating Application and Notice of Cross-Claim up to and including 24 June 2024. (2) Any existing costs orders made in the proceedings to date be payable forthwith. (3) Pursuant to r 40.02(b) of the Federal Court Rules, the costs which are payable pursuant to orders 1 and 2 be paid in a lump sum. (4) The issue of the quantum of the lump sums for costs, as identified in these orders, including any procedural directions relating to that issue, be determined by a Registrar of the Court. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes. Associate: Dated: 28 June 2024