Berhaz v Master Control A/C P/L

[1993] FCA 962

962 193

JUDGMENT NO. ........ ........ .. ........ ..*.

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WALES DISTRICT REGISTRY	) No. NG819 of 1993
)
GENERAL DIVISION	)

BETWEEN :

BERHAZ & ANOR.

Av~licants

AND :

MASTER CONTROL A/C PTY. LIMITED and ORS.

Res~ondents

SHEPPARD J.	RECEIVED
6 DECEMBER 1993	22 DEC 1993
FEDERAL COURT OF

AUSTAAUA PRINCIPAL

REASONS FOR JUDGMENT

HIS HONOUR: This is an application for interlocutory relief in an action in which the applicants sue the respondent for the infringement of a patent. The respondents deny the infringement and have cross-claimed for revocation of the patent on the ground of its alleged invalidity. The patent is for a thermal storage apparatus. It was sealed in July 1993; its priority date is 3 January 1989. The applicants did not know of the alleged infringement until September 1993. The proceedings were commenced on 28 October 1993 after correspondence with the respondents.

It is agreed by the parties that the principal claim made in the specification is claim 1 which is as follows:-

"1. A thermal storage module including

a substantially planar base having a top

surface and a bottom surface;

a flexible wall integral with and extending

from said base along the perimeter of said base;

a path extending across and parallel to said

base for circulating a phase change medium (PCM) fluid from an inlet to an outlet, said path being defined by projections extending from said base substantially normal thereto; and

said base including heat exchange fluid (HEF)

means for circulating a HEF from a HEF inlet to an HEF outlet across said base, said HEF means substantially conforming to the shape of said path."

In describing what is involved in the patent it is helpful to describe an article or module which is in evidence and which the applicants claim is an embodiment of the invention. The article is circular in shape and is manufactured for the most part of fibreglass. It has a flat bottom which is circular and a wall surrounding its perimeter. The diameter of the article is somewhat less than a metre. The height of the wall is approximately 10 or 12 centimetres. Inside the perimeter is a further wall which is continuous. It is in the form of a spiral and forms a continuous channel which runs from the outer edge of the article to its centre. The channel

is five or six centimetres wide; its walls are flexible.

It may be mentioned at this point that claim 2 of the specification claims a thermal storage module as claimed in claim 1 "wherein said wall is substantially cylindrical, said wall and said base being made of fibreglass or plastics material", and claim 3 "a thermal storage module as claimed in claim 2 wherein said path is serpentine or spiral."

Inside the channel of the article or module is placed copper piping or tubing. It is not fixed but runs along the bottom or floor of the channel. The article is a heat exchanger. A refrigerant is piped through the copper tubing with the aid of a refrigerator or compressor which is not part of the invention. Water is run through the channel. As it passes through it, it passes over the copper tubing and is cooled. The intention is that some but not all the water will freeze and that the remaining water, by then quite cool, will flow freely through the channel.

Depending on the purpose for which the equipment is to be used will depend the number of modules which will be used. Numbers of them can be connected together by placing them successively one on top of the other or perhaps in other ways so that they form a battery which itself is enclosed in a cylindrical housing. All this is summarised at least in part in the specification at page 3 where it is said under the heading, "Summary of the Inventionw:-

"According to one aspect of the invention there is

provided a thermal storage module including

a substantially planar base havlng a top

surface and a bottom surface;

a flexible wall integral with and extending

from said base along the perimeter of said base;

a path extending across and parallel to said base for circulating a phase change medium (PCM) fluid from an inlet to an outlet, said path being defined by projections extending from said base substantially normal thereto; and

said base including heat exchange fluid (HEF)

means for circulating a HEF from a HEF inlet to a HEF
outlet across said base, said HEF means substantially
conforming to the shape of said path (i.e. the
channel)."

Although a wide range of applications or uses of the invention is contemplated as being possible, the use to which the article or module in question was intended to be put was in relation to the cooling of fresh milk from about 27 degrees centigrade which is its usual temperature immediately after milking to about 3 degrees centigrade which is the desirable temperature at which the milk should enter the refrigerated storage vats usually installed on dairy farms.

Exhibit B contains a useful diagram which shows the way in which the water enters the unit, the refrigeration unit, that is the compressor, the battery of modules which are embodiments of the invention, a pump pumping the emerging iced or very cold water from the battery, the pipe through which it is flowing being passed through a small tank, or so it appears from the diagram, but which is described as a plate heat

milk from freshly milked cows is passing, the milk now cooled	exchanger into which through a separate piping system, the
passing into the storage vat in the milking shed and the water, then quite warm, being recirculated to a storage tank from which it will once again pass through the system supplemented as necessary with further water from the mains supply
Two benefits which may be described as side benefits which are said to flow from the use of the unit are a saving on electricity costs - if desired, the refrigeration equipment can be operated entirely in off peak periods - and the availability of hot water which can be used for other purposes.
There is evidence of how, without an appliance manufactured in accordance with the applicants' invention, milk may be cooled, and there are claims that the invention offers a far more efficient method of achieving this. It should be emphasised, however, that the invention is only part of the unit, which I have described. The modules through which the water and the refrigerant pass are the essence of it. The balance of the equipment is not part of it.
The inventor and owner of the patent is Mr A.E. Merryfull. The first applicant is a trust company which Mr Merryfull set up for his family. The second applicant is the exclusive licensee of the patent. The licence was granted on 21 July
invention, not only in the dairy industry, but in a variety of 1993. It is the second applicant which intends to exploit the
other areas as well.
Prior to the grant of the licence to the second applicant, Mr Merryfull had endeavoured to market an embodiment of the invention. For this purpose, he approached Mr C.M. Walker, the second respondent, who carries on business as a fibre glasser. He manufactures a variety of fibreglass articles, including street furniture, boats, planter boxes and so on. In 1989, Mr Merryfull asked Mr Walker to manufacture thermal storage units for sale to dairy farmers in Australia. Between 1989 and the middle of 1992, Mr Walker manufactured 21 units. These were sold to dairy farmers in New South Wales, Queensland, Victoria and King Island. In his affidavit, he describes a series of problems encountered by dairy farmers with the units.
His evidence is that the problem with them was that the entirety of the water in the channels froze. The water did not pass through the unit to cool the milk. In some cases the expansion resulting from the freezing of the entirety of the water caused distortion of the units and in some instances explosions or fracturing of them. The flexibility of the walls of the channels was apparently not sufficient to stop this.
caused by faulty manufacture of the modules. Mr Walker blames of these problems. Mr Merryfull believes that they were Mr Walker and Mr Merryfull are not at one about the causes
their design. There is lengthy evidence about all this, but there has been no cross-examination to test it, the matter being interlocutory and I make no findings about the matter. In any event, it seems to me that this evidence is explanatory of what subsequently followed rather than of direct relevance.
In the upshot Mr Walker thought the problem could be alleviated in two ways. Firstly, he thought that the copper tubing, instead of resting on the bottom of the channel of the module, should be elevated from it. He devised a system whereby, with the aid of a series of clips, the tubing could be held above the floor of the channel. Secondly, he installed what he described as control devices. One of these was obtained from a M r Cottam, whose company, Master Control A/C Pty Limited is the first respondent. Mr Walker sald that he endeavoured to involve Mr Merryfull in the redesign of the equipment but Mr Merryfull was not interested, claiming that if the fibreglass were properly manufactured the units would operate satisfactorily without control units and with the tube on the floor of the channel.

There are conflicts between Mr Merryfull's and Mr Walker's

evidence about this. There is a good deal of detail in the

affidavits about it. Again, I make no findings. The

questions have not been fully investigated. In the event, the

respondents decided to proceed to make their own units. Their

evidence shows that these were manufactured with the copper	-
tubing raised from the floor of the channels of the modules and that they were fitted with control devices. Exhibit B, to which I have referred, is a brochure distributed by them. Their evidence establishes that they have been moderately successful in this venture. The units they have sold have not given any substantial trouble.
The evidence is not clear on precisely when the respondents became aware of the applicant's patent, but there can be little doubt that their marketing activities continued after they did become aware of it. At some stage, advice was sought about infringement from a firm of patent attorneys who advised the respondents that they were not infringing. In their defence they deny infringement. They also say that the patent is invalid. In their cross-claim they claim invalidity on the grounds that the invention claimed is not novel, that it does not involve an inventive step, that it was secretly used before the priority date, and that the claims are not clear and succinct and are not fairly based on the matter described in the specification.
The respondents' defence to the action for infringement is based on the fact that their articles have the copper tubing raised above the floor of the channel. This was the matter relied upon by the patent attorneys in giving their advice. They relied on the last paragraph of claim 1, which has
means for circulating a HEF from a HEF inlet to a HEF outlet	earlier been quoted, but to which I refer again, where it is said, in effect "said base including heat exchange fluid ( H E F )	across said base, said HEF means substantially conforming to the shape of said path."
The respondents' case concentrates attention on the phrase, "said base including heat exchange fluid." Their case is that the base of their modules do not infringe, because the base of them does not include the heat exchange fluid. It passes above it. I was referred to dictionary definitions of the words, "include", "included" and "including". According to the Shorter Oxford Dictionary, "including" means to contain as part of a whole.
The respondents emphasised that it is not the whole module to which the word "including" is applied. It is to the base. Their modules, so they submit, do not have the copper tubing as part of the base. That means that their product is not an infringement. Whilst I see the force of the submission, it is not appropriate, at this stage, to express any final view about it. All I say is it does not, in my opinion, warrant the conclusion that the applicants have not established a prima facie case of infringement. My conclusion is that they have a prima facie case. It is not helpful to speculate about the strength of that case but it would not be correct to describe it as weak.

Before I come to the question of the balance of

cross-claim. Again, nothing I say is intended to indicate	convenience, I should say a little about the respondents'
that I have any final or ultimate view on that question. Two things need to be said. Heat exchange devices or mechanisms are by no means new. Countless examples of them are to be found in all sorts of areas. A boiler which produces steam under pressure is an example, as is refrigeration equipment of various kinds. Secondly, I have difficulty myself in understanding what this invention is claimed to be. I have not found it easy to glean from the specification what it is or what is the inventive step which is involved. I expressed concern about this matter to counsel for the applicants who said that the invention comprised a method for the maximisation of the efficient use of a known principle by exposing water to a refrigerating process and using water as a cooling mechanism. That seems to me to be the most that once can say. Counsel's statement does not remove any of my anxieties about validity, but it is helpful because it tends to confirm my own view of what the specification involves. It follows that I am seriously concerned about whether there is disclosed in the specification an inventive step. Novelty may also be a problem for the applicants, as may be the provisions of section 40 of the Patents Act 1990 on which they rely in the cross-claim.
What it comes down to is whether the whole matter is really one of invention or is more accurately an improvement in industrial design. All these matters are for the final hearing. It is enough for present purposes to say that just as the applicants have a prima facie case on infringement so
the respondents have a prima facie case on invalidity. It, too, ought not be regarded as weak.
Before coming directly to the balance of convenience, I should refer to the relevant principles which guide me as to how I should approach this application. These are collected in the judgment of Gummow J in Martin Enaineering v. Trison Holdinas Ptv Limited (1988) 81 ALR 543. Amongst other things, his Honour held that, in a case of this kind, the applicants must show that there is at least a serious question to be tried which if resolved in their favour would entitle them to final injunctive relief. He said the changes in patent law over the last century had meant that the grant of a patent had become a good prima facie reason for supposing the patent to be valid, and that that was the approach to be adopted in relation to standard patents. The patent in suit is a standard patent. His Honour thought that petty patents might involve somewhat different considerations. His Honour thought that, on the facts before him, although there were triable Issues on all the grounds urged, the case for infringement was stronger than that for invalidity. In relation to that aspect of his judgment, I would not draw the same conclusion here. I prefer not to express any view of the relative strengths of the two cases other than those that I have already expressed.

The final hearing of this matter has been provisionally

from now. Allowing for contingencies and the period for the	fixed for 11 April next, that is approximately four months
delivery of a reserved judgment, there should be finality in this case in six months. What it boils down to is whether the respondents' marketing and selling activities should be restrained during this period. If they are, they will be protected by the applicants' undertaking as to damages which will be secured by provision of security in the sum of $100,000, an amount which I consider to be sufficient in the circumstances.
If there is a restraint, the respondents' marketing activities will be halted at least temporarily. Their evidence satisfies me that this will cause them damage additional to loss of profits, costs and other expenditure, which would be capable of calculation but not without difficulty, with the consequence then that they may not be adequately compensated by the award of damages which would flow to them if the restraint were imposed and the applicants were ultimately unsuccessful. The loss of goodwill and the disruption of their business may well be substantial, and it is possible that this side of their business may not recover.
There is a further problem. The units which they market sell for between $30,000 and $40,000. Purchasers of the units are at the moment presumably ignorant of the patent and of its possible infringement. Section 123 of the Patents Act 1990 provides that a court may refuse to award damages or to make an order for an account of profits in respect of an
infringement of a patent if the defendant satisfies the court that at the date of the infringement the defendant was not aware and had no reason to believe that a patent for the invention existed. Nothing in the section affects a court's power to grant relief by way of an injunction.
It is to be observed that the provisions of section 123 are discretionary. Until a particular case is dealt with by a court, one cannot be certain how the discretion will be exercised and, in any event, as counsel for the applicants pointed out, section 123 does not exclude the applicants' right to delivery up of an infringing article if action were taken against a dairy farmer for infringement on the basis of his or her use of the equipment. There were discussions during the argument concerning the question whether, if interlocutory relief were refused, the respondents should be required to undertake to inform purchasers or intending purchasers of the existence of the patent, of these proceedings and of the purchaser's possible infringement of the patent by use of the equipment. The respondents have, for understandable reasons, refused to give such an undertaking.
So, into the balance must come the fact that dairy farmers, not often people of affluence, may find themselves in the months to come faced with proceedings which may deprive them of the benefit of a substantial expenditure. The respondents
profits and have supported those undertakings with an offer of have offered undertakings to keep proper accounts of sales and
security for $15,000, which is all they can afford. It is offered in respect of past as well as future infringements. They are prepared also to consider providing further security in respect of profits which may be earned as a consequence of sales taking place between now and the final hearing. The applicants contend that the undertakings are insufficient to protect them, and that the amount of security offered is inadequate.
In summary the considerations to be weighed in the balance in reaching a conclusion on what should be done are as
follows:  -
(1) The applicants have established a prima facie case of infringement.
(2) There are serious questions to be tried concerning the
validity of the patent; in other words the respondents have a prima facie case for its revocation.
(3) The case can be heard on 11 April next; it is likely to be
finished, allowing for the reservation of judgment, two months thereafter, that is in about six months.
(4) An interlocutory injunction granted today will bring the relevant business activities of the respondents to a halt; they will lose money and goodwill; some of their loss is likely to be intangible; damages may not be an adequate
remedy.
(5) If the respondents' activities are stopped, two of their
(6) If the injunction is not granted, the applicants may suffer damage additional to the loss of potential sales.
employees will lose their jobs. exploiting the invention. If the applicants fail in the final proceedings, they will have suffered no compensable loss. If the applicants succeed, the respondents will then have to cease business and pay damages or the amount of profits earned by the respondents depending on the applicants' election. It is not a straightforward exercise to determine at this stage how the applicants entitlement in either of those events would be calculated but I have misgivings about the amount of
$15,000 which the defendants offer as security. On the other
hand, it must be said that, if the respondents ceased to commence business six months from now because of an adverse result at the final hearing rather than cease immediately, it is difficult to see what other loss the appellants would suffer. They will be the only persons in the market unless they license others to exploit the invention.
( 7 ) The respondents have continued to carry on their business
very much relied upon the fact that they had gone ahead with despite being aware of the patent. Counsel for the applicants
their eyes open. It should be said, however, that they did so after receiving advice that they were not infringing the patent.
(8) Both parties have offered security against the possibility
that damages may have to be paid. The applicants will provide

security in the sum of $100,000 in support of the undertaking as to damages which they will be required to give in the event that interlocutory relief is granted. The respondents have undertaken, as I have mentioned, to keep a proper account of sales and profits and in support of the undertaking have offered security in the sum of $15,000 which is all they can presently afford. They will, as I have said, consider the provision of further security for further profits which may arise prior to the final disposal of the matter.

( 9 ) A quite serious matter concerns dairy farmers not parties

to the litigation who may acquire units between now and the hearing. As earlier said, they may quite innocently find themselves deprived of their purchase which will have involved them in an expenditure of several thousand dollars. The respondents are not prepared to undertake that they will inform potential purchasers of the existence of the patent or of these proceedings.

weighed them as carefully as I can. The matter mentioned in	be relevant to the determination of this matter. I have The matters I have summarised are those which I consider to
paragraph ( 9 ) of the summary, that is the possible losses which may be suffered by purchasers of the equipment from the respondents, has I am afraid tlpped the scales in the applicants' favour in a matter which I regard as otherwise fairly evenly balanced. In this respect, I should mention that the possible plight of dairy farmers was not submitted by counsel for the respondents to be an irrelevant matter to be considered.
In many ways I would have thought it desirable not to grant interlocutory relief because that would have had the effect of maintaining the status quo so long as the respondents gave undertakings concerning the keeping of proper accounts. But, if the applicants succeed and enforce their rights against purchasers of the equipment, there is a serious risk that a number of not very affluent people will find themselves deprived of equipment for which they have outlaid a substantial sum of money. On the other side of the balance there is the loss by two employees of the respondents of their jobs. I would like to have avoided a result which brought, or which may bring, such a situation about, but in determining the outcome of an application of this kind one cannot avoid being to a degree arbitrary and achieving a result that to one side or another or in relation to strangers to one or another of them will be unsatisfactory.

In the result I propose to grant the interlocutory relief

which has been sought by the applicants.

I cert~fy that thls and the 16 preced~ng

pages are a true copy of the reasons for

judgment herein of The Honourable

Mr Justice Sheppard.	k	Associate
Dated