Canberra Analytical Laboratories Pty Ltd v Queensland Biochemics Pty Ltd

[1996] FCA 360

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )        No NG 350 of 1996
GENERAL DIVISION                 )

BETWEEN:

CANBERRA ANALYTICAL LABORATORIES PTY LIMITED
  Applicant

AND:

QUEENSLAND BIOCHEMICS PTY LIMITED
                   First Respondent

DEACONS GRAHAM & JAMES
                  Second Respondent

CORAM:Lindgren J

PLACE:Sydney

DATE:9 May 1996

MINUTE OF ORDERS

THE COURT ORDERS:

1. THAT until the final hearing and determination of this proceeding and upon the applicant through its counsel giving the usual undertaking as to damages:

(a)the first respondent shall not, by itself, its servants or agents (including the second respondent), disclose to any person the identity of those tests referred to in schedule 1 of exhibit A5 (now part of exhibit A6) in these proceedings which were at any time identified by the applicant to the first respondent or to its servants or agents (including the second respondent), where such disclosure would identify a particular test as one
appropriate to be carried out in respect of any particular product in that schedule;

(b)the first respondent shall not use the applicant's identification of any of those tests as appropriate to be carried out in respect of any such product; and

(c)the first respondent shall not represent to any person that the first respondent is entitled to use the applicant's identification of those tests as appropriate to be carried out in respect of any such product.

1. THAT the first respondent shall, on or before 16 May 1996, file and serve an affidavit by a director of the first respondent specifying particulars of any disclosure which has been made by the first respondent by itself, its servants or agents to any person of any test referred to in order 1 as appropriate to be carried out in respect of any product referred to in that order.

1. THAT the application be stood over to 17 May 1996 at 9.30 am for further directions.

1. THAT the costs to date of the application for interlocutory relief be reserved.

1. THAT, until further order, the following documents not be disclosed to any person other than the parties and their legal representatives without leave of a judge:

(a)the annexure to annexure "G" to the affidavit of P G Ekstein sworn 29 April 1996;

(b)exhibit A3;

(c)exhibit A4;

(d)exhibit A6;

(e) the annexure to annexure "MT9" to the affidavit of M Taylor sworn 2 May 1996; and

(f)annexure "MT12" the affidavit of M Taylor sworn 2 May 1996.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )        No NG 350 of 1996
GENERAL DIVISION                 )

BETWEEN:

CANBERRA ANALYTICAL LABORATORIES PTY LIMITED
  Applicant

AND:

QUEENSLAND BIOCHEMICS PTY LIMITED
                   First Respondent

DEACONS GRAHAM & JAMES
                  Second Respondent

CORAM:Lindgren J

PLACE:Sydney

DATE:9 May 1996

REASONS FOR JUDGMENT

CONCLUSIONS REACHED
There is limited time available for the delivery of these Reasons for Judgment because of directions hearings fixed for 9.30.  The course I propose to follow is to indicate at the outset the conclusions which I have reached and then I will commence delivering the reasons.  It is possible that I will not have concluded by 9.30 in which case I will continue delivering the reasons later in the day.

The application is one for a continuation of interlocutory relief in respect of three documents.  At least it will be convenient to refer to the contract and its two schedules as three documents.  First there is the substantive body of the form of contract, or, if one prefers, the clauses of the form
of contract as distinct from its schedules.  There is no threat on the part of the first respondent ("QB") or its solicitors, the second respondents ("Deacons"), to infringe copyright in the earlier draft form of contract as prepared by Andrews Solicitors, the solicitors for the applicant ("CAL").  Accordingly, I may put that document to one side.  In relation to the final form taken by the contract, my conclusion is that it is not shown that there is a serious question to be tried that CAL has copyright in that document which QB or Deacons are threatening to infringe.

The second document for the purpose of these Reasons is what I will refer to as CAL's "pricing schedule" which was schedule 1 to the final form of contract.  In respect of the pricing schedule, I conclude that there is a serious question to be tried as to whether CAL has copyright in that document, but that there is no longer, if there ever was, a threat by QB or Deacons to infringe that copyright.  Accordingly, no relief is called for in respect of the pricing schedule.

The third document is the document to which I will refer as the "QR125s" or the "QR125 forms."  In relation to these, one must be careful to identify precisely what it is to which one is referring.  In relation to the QR125 forms regarded as blank forms, and for that matter as blank forms with the names of QB's products inserted, CAL has not shown that there is a serious question to be tried that it has copyright in the documents.  But the QR125 forms which are of concern are those which are annexed as schedule 2 to the form of contract.  These raise more complicated questions.  This really brings me to the gravamen of CAL's complaint.

It seems that there was transposed into the blank QR125s not only the names of QB's products, but also the names of stability tests which CAL had identified in its pricing schedule as being appropriate for the respective products of QB.  Other tests which have been referred to as "physical" tests were also named in the completed QR125 forms.  The first question raised by CAL is whether the listing in the QR125 forms of the names of the tests which CAL identified as being necessary for QB's products was an infringement of copyright.  On this first question I have concluded that there is not a serious question to be tried as to whether CAL owns copyright in the list of the names of the tests. 

However, in my view CAL does show a serious question to be tried as to whether QB threatens to breach an equitable obligation of confidence incumbent upon it in respect of the identification of particular tests as appropriate in relation to particular products of QB.  In respect of each of QB's 245 products, CAL identified those tests which it considered appropriate to be carried out and communicated that information to QB by means of the pricing schedule.  I think that there is a serious question to be tried as to whether there is an equitable obligation of confidence incumbent upon QB by reason of which it must not use that information for the purpose, for example, of obtaining a quotation from a laboratory in competition with CAL. 

I hope that I will make the position clear by saying that I do not think that it would be a breach of the obligation of confidence for QB to approach a competing laboratory for a quotation using the blank QR125 forms or those forms with the names of QB's products inserted in them or, for that matter, to supply to the competing laboratory a list of all the tests, whether as part of the QR125 forms or separately.  What it must not do is, if I can put it in a blunt way, appropriate the work done by the applicant in identifying which of the tests are appropriate to be carried out in respect of QB's individual products.  Again, in the hope that I will make the position clear in the time available, and, as ever, only on the basis of the "serious question" test for the purpose of the issue of interlocutory relief, a competing laboratory will itself have to identify which of the tests are appropriate for which products.  However, it is clear that some of the so-called tests (I refer to the "physical" ones such as "appearance" and "odour"), were not taken into the QR125 forms from CAL's pricing schedule and the obligation of confidence does not, on any reckoning, extend to them.

The conclusion which I have reached that there is a serious question to be tried as to a threatened breach of an equitable obligation of confidence leads me to the question of balance of convenience.  In that respect there is evidence in a not altogether satisfactory form from Michael Taylor on behalf of QB as to the need for QB to move ahead quickly with the stability testing.  On the other hand, QB has apparently already been responsible for considerable delay in advancing that process.

I have not found the balance of convenience issue simple, but the conclusion which I have reached is that there should be an injunction with leave for QB to apply for a variation or discharge of it as QB's position becomes clearer.  In saying this, I have in mind that one matter which is relevant to the balance of convenience is how soon the case can be heard and determined on a final basis.  It seems that this case could be given a fairly early final hearing.  I have in mind that if that expectation is not fulfilled so that QB had to wait for a long while for a final hearing, it might apply for a variation or discharge of the injunction.

I have stated the conclusions which I have reached and propose to stand down the matter to a time convenient to counsel later in the day for the purpose of the making of orders.  It is desirable that the form of the injunction be considered by both counsel.  It may be that a form can be agreed upon.  It would be limited to the information as to which tests are applicable to which products named in the QR125 forms and would incorporate the leave to apply for a variation or discharge.

INTRODUCTION TO BACKGROUND FACTS
CAL filed in Court on 29 April 1996 an application seeking relief against QB and its solicitors, Deacons.  The relief sought arises out of a lengthy course of negotiation between CAL and QB with a view to CAL's providing stability testing for products of QB.

QB is a manufacturer and distributor of pharmaceutical, cosmetic and skin preparations, including vitamin and herbal products.  Apparently it is one of the two largest direct mail distributors of such products in Australia.  CAL operates an analytical and a testing laboratory.  The relief sought in CAL's application arose out of the fact that protracted, and no doubt costly, negotiations for a contract by which CAL was to provide to QB laboratory testing services in respect of QB's products unfortunately broke down. 

Whatever the cause of this may have been, the situation which has developed is unfortunate.  It seems that CAL performed a considerable amount of work in identifying the particular tests to be carried out in respect of QB's 245 product lines.  QB complains that very late in the day CAL increased its quoted price.  The reason why QB and CAL have parted company is not an issue before me.  The situation which has arisen is that CAL stands to lose the benefit of the work which it did and to see the benefit of that work, in effect, appropriated by QB by being revealed to a competing laboratory for the purpose of tendering.  Of course, it is common enough that tenderers incur considerable costs to no avail when they fail to win work and it may be that ultimately that will prove to be CAL's misfortune to which it must resign itself (CAL has claimed a restitutionary remedy).

The relief which was sought on an interlocutory basis is set out in paragraphs 2(a) and (b) of CAL's Application filed in Court on 29 April 1996 as follows:

1. An order pending the determination of these proceedings that;

(a)The First and Second Respondents, their servants and agents, be restrained from reproducing or adapting or using or offering or publishing to any person the whole of or a substantial part of or otherwise infringing the Applicant's copyright in;

(i)the form(s) of agreement between the Applicant and the First Respondent prepared and tendered to the First Respondent by the Applicant's solicitors, Messrs. Andrews or tendered to them by the Second Respondent.

(ii)any schedule of product testing and prices prepared by the Applicant in respect of the products of the First Respondent.

(iii)any copies of either of those documents, including the copies of the schedule contained in a computer disc supplied to the First Respondent by the Applicant and/or annexed to any form of the agreement between the Applicant and the First Respondent.

without the express written licence of the Applicant.

(b)The First and Second Respondents, their servants and agents, be restrained from representing in trade or commerce to any person or corporation, that any document referred to in paragraph (a) above is other than a product of the Applicant or the Applicant's solicitors, Messrs. Andrews and/or that it was supplied to either of them other than in confidence and/or that either of them is entitled to make use of any of those documents for their own benefit."

On 29 April 1996 I granted ex parte relief to CAL upon its giving the usual undertaking as to damages.  That ex parte relief has been subsequently extended.

BACKGROUND FACTS IN MORE DETAIL
The products with which we are concerned may be lawfully marketed only if they are approved by the Therapeutic Goods Administration ("TGA") within the Department of Health and Family Services under the Therapeutic Goods Act 1989. One criterion relevant to approval is that of "stability". Stability refers to the period during which a product will meet certain standards, that is to say, during which there will be no change in a product causing it to cease to be "up to standard". The concept may be referred to as the "shelf life" of the product.

It is necessary now to embark upon an account of the events which have led to the present case.  A starting point is found in the affidavit of Michael Taylor, the Quality Assurance Manager of QB.  Even before I begin that account, I will set out here a short dramatis personae of the various individuals involved in the case as revealed by the evidence (some employees may be directors and vice versa, although this is
not revealed by the evidence):

PERSONS REFERRED TO IN EVIDENCE AS "DIRECTORS"

CAL

David Frish
Ian Romanes
Brian Warren
Paul Ekstein

BP

Doug Ring (Managing Director)

       PERSONS APPARENTLY REFERRED TO IN EVIDENCE AS EMPLOYED

CAL

Ian Romanes
Brian Warren

BP

Michael Taylor (Quality Assurance Manager)
Jacinta Yow (Quality Control Supervisor)
Tony Jazowy (Senior Quality Control Supervisor)
Maria Jones (Quality Assurance Assistant)
Geoff Thomas (Financial Controller)

  SOLICITORS

CAL

Andrews Solicitors
(Paul Ekstein)

BP

Deacons Graham & James

(David Nicholls)

Mr Taylor says as follows in paragraphs 14 to 16 of his affidavit sworn 2 May 1996:

"14.Stability testing is carried out to determine and verify the shelf-life or ‘use-by date’ of product.  The shelf-life or use-by date depends upon a range of factors, including the active ingredients in a product and the way in which each product is manufactured and packaged (including the packaging material used).

15.There is no typical use-by date for products manufactured by the company.  It is necessary to stability test each product to establish its shelf-life.

16.Stability testing involves:

(a)laboratory analysis of multiple samples of each product;

(b)testing laboratories which may be independent of the manufacturer or part of the manufacturer;

(c)analysis of selected active ingredients in the product.  Excipient or inactive ingredients are not analysed because they have no therapeutic purpose.  There must be agreement between the manufacturer and the laboratory regarding the ingredients to be tested; the method used; and the appropriate analysis equipment for testing.  This is because the Act does no more than require stability testing.  It does not regulate stability testing methods to be adopted;

(d)physical testing which includes examination of the appearance of the product over a period of time, its friability and the length of time over which it disintegrates;

(e)tests which are conducted at specified intervals over 2-3 years."

Mr Taylor set up QB's Quality Control system and Quality Assurance system with the assistance of "Pharma Systems".  Pharma Systems provides quality control and quantity assurance consultancy services to the pharmaceutical industry.  As long ago as mid-1993, Pharma Systems was advising QB in relation to the stability testing for its products which it should be undertaking to satisfy the requirements of the TGA.  Apparently at that time another company called Herron Pharmaceutical Pty Ltd had done some initial work in relation to the stability testing of QB's products.  As early as 21 June 1993, when Pharma Systems wrote to Mr Taylor of QB, some
of the tests which were ultimately to feature in the pricing schedule produced by CAL were mentioned, such as "HPLC".

On 9 July 1994 Pharma Systems wrote to Mr Taylor enclosing a fairly lengthy  document headed "Standard Operating Procedure" in relation to "Stability Programs".   One matter of some interest is that it referred to the use of "form QR125 - (Stability Program Test Schedule)".  The document indicated that the "Quality Assurance Manager" (Mr Taylor in the case of QB) was to complete the QR125 form and to nominate the "tests to be performed", "checkpoint intervals" and certain other information.  The expression "checkpoint intervals" was a reference to the intervals of time at which tests for stability were to be carried out.  The same document recorded that the test methodology to be used was to check for "assay for active and degradation products" and in the case of "Tablets and Capsules", for inter alia, "dissolution or disintegration", "appearance", "odour" and "friability"; in the case of "Liquids", for, inter alia, "appearance" and "pH"; and in the case of "Ointments and Creams", for inter alia, "appearance", "odour" and "pH".  Many other tests were mentioned but I have referred to these in particular because they were to be referred to in the communications between CAL and QB much later.  The reference to them by Pharma Systems well before CAL was on the scene suggests a difficulty which CAL has in maintaining a claim of copyright in respect of the mere names of the tests or of confidentiality in the identity of the tests in a general sense.

On 29 July 1994, Pharma systems provided to QB a "Standard Operating Procedure" for "Stability Programs for Therapeutic Products" including a draft of the QR125 form.  It repeated some of the information to which I have just referred.  The QR125 form was at that stage in a seminal state.

At about the same time, Pharma Systems provided to QB a copy of a document issued by the TGA headed, "Guidelines on the Stability Testing of Pharmaceuticals".  Under the heading "General Principles" there appeared the following:

"The objective of a stability study is to determine the period of time during which a pharmaceutical product meets appropriate standards when stored under defined conditions.  As a minimum, the product must be shown to comply with relevant specifications for the whole of its shelf life.

The following statement, which appears in the 1988 edition of the British Pharmacopoeia, reflects a principle which should be familiar to any pharmaceutical manufacturer:

‘The Pharmacopoeia provides a publicly available statement concerning the quality of a product that is expected to be demonstrable at any time during its accepted shelf life; it does not provide a collection of minimum standards with which a manufacturer must comply before release of a product.  Change may occur during storage and distribution and the pharmacopoeial requirements are set to acknowledge acceptable levels of change and to reject materials showing unacceptable levels.  It follows that the prudent manufacturer will, where considerations of product stability demand, apply specifications that are more exacting than those laid down in the Pharmacopoeia.’ (BP 1988, p xxi) [1]

Thus the difference between release and expiry specifications must take into account the results of stability testing.

The maximum permitted shelf life is normally five years."

I will not set out further extracts from the TGA Guidelines.  It suffices to say that in general terms they indicated the kinds of tests, if not the precise tests, which were expected to be carried out in order to satisfy the TGA.  The Guidelines mentioned and elaborated upon, for example, "Assay", "Degradation products", "Physical properties", "dissolution rate profiles or disintegration" and "friability".  The point of my mentioning these various matters is to lay the groundwork for the conclusion which I reach later that the general character of the tests against which stability was to be assessed, if not the precise tests, was indicated by the TGA and was not devised de novo by CAL.

On 3 October 1994 a blank or pro forma QR125 form was entered by QB in its "control system".  A copy of that document is annexure MT6 to Mr Michael Taylor's affidavit sworn 2 May 1996.  Although it was apparently later revised, as a form it is basically in the same format as the QR125s which ultimately came to be used, copies of which were annexed as schedule 2 to the ultimate form of contract (see later).  A copy of the blank QR125 form is annexed to these Reasons for Judgment.

On 18 October 1994 QB (Jacinta Yow, Quality Control Supervisor) wrote to CAL (Dr Warren, "Scientific Director"), in effect inviting CAL to tender for the laboratory testing of QB's 245 therapeutic products, that is, for the stability testing of them.  The letter included the following:

"Our testing schedule still needs to be finalised.  However, it works on an individual case basis where each product is looked at individually and minimal active testing determined for each product."

The letter also said:

"A Standard Operating Procedure has been drafted, however, this is only an outline of how to set up the program and therefore will need to be rewritten and updated when specifics to Queensland Biochemics are established."

On 4 November 1994, CAL (Dr Brian Warren) responded providing a "preliminary document as a basis for discussion between CAL and Queensland Biochemics prior to issuing a formal quotation upon which a contract will be drawn."  The letter went on to record that CAL would undertake stability testing for the full range of QB's products covering approximately 245 items.  It referred to these as being basically the complete range in QB's then current catalogue, excluding foods, discontinued items and other products deemed exempt from required stability testing.

On 1 June 1995, CAL gave a more detailed response to QB's invitation to tender.  That more detailed response is annexure MT9 to Mr Taylor's affidavit.  It included the following:

"Methods chosen will be based on either pharmacopoeial methods, methods developed by Canberra Analytical Laboratories, or new methods developed for products where existing methods are unsuitable.

All methods used will be documented and made available in confidence to Queensland Biochemics." (emphasis in original document)

The letter also contained the following passage:

"In view of the wide range of products and costs of method development/challenge tested/assays, Canberra Analytical Laboratories believes that the most appropriate method of payment for the work would be to average all costs over the number of samples and to invoice Queensland Biochemics monthly for the number of samples analysed during that month." (emphasis supplied)

The final page of the letter, which was signed by two directors of CAL, Dr Brian Warren and Mr Ian Romanes, included the following:

1. Queensland Biochemics will supply formulation details for products if requested.  Such information will be held as 'Commercial in Confidence'" (emphasis in original document);

and

1. All methods developed by Canberra Analytical Laboratories are copyright and must not be released to third parties without the prior written consent of Canberra Analytical Laboratories."

With the letter was enclosed an early version of the pricing schedule.  It was in the form of a table.  It listed down the left hand margin products of QB.  As column headings across the top of the form, it listed items of work, including tests, to be carried out on products.  In the body of the table, where the horizontal and vertical columns intersected, it quoted prices in dollar amounts for the items of work.  Not all the items of work applied to all products.  By observing which tests were linked to the respective products, it was possible to know which tests CAL was suggesting as appropriate for those products.  As will be seen, this version of CAL's pricing schedule was later superseded by other versions of it.

On 10 October 1995 a Mr David R Buckley of the TGA visited the premises of QB and conducted an "audit".  This led to the writing of a letter by the TGA to QB on 24 October, enclosing Mr Buckley's report.  The letter observed that there were certain deficiencies which needed to be attended to by QB.  It called for a response within eight weeks from the date of the audit.  The letter indicated that the stability testing of QB's products must be expedited.   The final page of the accompanying report included paragraph 4 as follows:

1. he stability program was not up to date.  Unless there are stability profiles available for every product, expect action to assign an arbitrary expiry date of a few months or action to remove the product from the Australian Register of Therapeutic Goods."

On 1 November 1995 CAL (Dr Warren) wrote to QB (Mr Taylor) advising that CAL was forwarding separately CAL's "final costing on the stability project".  CAL recorded in its letter that in any resultant contract there ought to be included a "Secrecy agreement" and a provision addressing "Supply of copyright methods and restriction on their release to a 3rd party without permission from CAL."  The letter indicated that upon receipt of QB's draft contract, CAL would endeavour to have it examined as soon as possible by Mr Paul Ekstein, who was referred to in the letter as CAL's "legal Director".

CAL's "final costing on the stability project" which was sent separately was in the form of a spreadsheet or table.  Again, the left-hand margin is a column listing QB's products and across the top of the sheet are listed various services representing cost headings, including tests.  Again, prices in dollars appear at the intersection of the columns.

On 11 December 1995 a conversation took place between Mr Michael Taylor on behalf of QB and Mr Ekstein of Andrews Solicitors in relation to preparation of a form of contract by Mr Ekstein.  In consequence, Mr Ekstein set about preparing a form of contract between CAL and QB.  In fact, he worked on that from 11 December to 20 December and spent considerable time consulting volumes of precedents and taking instructions.  In his affidavit he has estimated that he spent of the order of 20 hours on this work.

On 21 December 1995 Andrews forwarded to Michael Taylor of QB a draft contract.  In fact this was to be the first of numerous drafts.  It included in cl (7) (a) a provision to the effect that CAL undertook not, without the prior consent of QB, to disclose or permit the disclosure of information obtained as a result of the agreement.  It included in a later clause (also numbered (7)) a provision that the parties acknowledged and agreed that the copyright in the methods developed for the Stability Program Test was to remain the absolute property of CAL.

Provisions in various drafts were relied upon by the respective parties for various purposes.  But a draft must be distinguished from an executed contract.  Of course, it may reflect a stance being taken towards the proposed transaction at the point of time when the draft is prepared and forwarded and can have relevance for that limited purpose, but there is an inconclusiveness about drafts.  A draft may merely indicate what a party is striving for or is prepared to concede.  Another point to note about the various drafts is that there is frequently an ambiguity in references to testing "methods", there being a difference between (a) the detailed procedure constituting a test method, (b) the work in choosing which test methods are appropriate for which products, and (c) the mere nominal identification of a test method.

On 5 January 1996, QB (Michael Taylor) faxed CAL (Dr Brian Warren) advising that QB had received final costings from certain companies which it had reviewed with its financial controller, Geoff Thomas, and its managing director, Doug Ring.  On 8 January 1996 QB consulted its solicitors, Deacons.  For a time after that date QB was being advised by Deacons, although negotiations continued directly between QB on the one hand and either CAL or CAL's solicitors, Andrews, on the other hand.

On 9 January 1996, Mr David Nicholls of Deacons, wrote a letter of advice to Mr Geoff Thomas of QB, commenting on the draft contract which had been supplied to QB by Andrews.  The letter was a moderately lengthy one and indicates that Deacons were giving fairly careful and detailed consideration to the form of contract.  On 11 January, 1996, QB wrote to Mr Ekstein of Andrews making comments on the form of contract which had been sent by Andrews.  This included a suggestion that the confidentiality agreement within clause 7 might better be expressed along the lines of a form of provision which was enclosed with the letter.

Importantly, on 16 January 1996, Mr Ian Romanes, a director of CAL, forwarded to QB a computer disc of CAL's pricing schedule.  Contemporaneously, he wrote to CAL's solicitor, Mr Ekstein, advising that he had sent the pricing schedule to QB on disc so that QB could "play with the various options" and expressing the hope to Mr Ekstein that "all goes well with the contractual side of this exercise." 

It is convenient at this point if I interpose to note what Mr Romanes' evidence is in relation to the derivation of the pricing schedule.  Paragraphs 2 to 11 of his affidavit sworn 1 May 1996 are as follows:

"2.In or about November, 1994 I was informed by Dr Brian Warren of Canberra Analytical Laboratories (‘CAL’) that Jacinta Yow of Queensland Biochemics Pty Ltd had approached him and requested that we provide a quotation for undertaking a Stability Test Program for a range of their products.  The range of products was referred to as a "Priority List" and covered approximately 90 of their 250 products.  Shortly there after [sic] Brian Warren told me that Michael Taylor, the Quality Control Manager of Queensland Biochemics requested that CAL prepare a program for all of Queensland Biochemics products.

1. To prepare the Stability Test Program, Brian Warren and I referred to the documents issued by the Therapeutic Goods Administration (‘TGA’).  This Federal Government body has issued guidelines to assist manufacturers of products with therapeutic claims to gather scientific data in support of the expiry dates applied to labels on the product containers.  These guidelines, in isolation, do not specify the scientific  methodology to be used in acquiring that data.  All they specify is that the information be representative of the product under study. 

1. In order to develop a Stability Test Program for each product, CAL had to ascertain the active ingredients contained in the products and while Queensland Biochemics does possess specifications for all products, these specifications contained information that was commercially sensitive, both for Queensland Biochemics and their formulating manufacturers.  Consequently Brian Warren told me Michael Taylor had decided only to provide us with information as contained in the catalogue of products issued by Queensland Biochemics to the general public to develop the Stability Test Program.

1. In conjunction with Dr Brian Warren I developed an initial computer spreadsheet which contained all Queensland Biochemics products with therapeutic claims and the ingredients thereof arranged in a table so that the presence of a particular ingredient in any of the products could be readily identified.  It also allowed the ingredients in any product to be readily recalled.

2. The next step in developing the program was to identify the active ingredients that would be subject to degradation under normal storage conditions.  For the purpose of the program, I and Brian Warren agreed with Michael Taylor that 30 C would be indicative of normal storage conditions and could therefore be used as a benchmark for stability testing.  My and Dr Warren's knowledge and experience of the behaviour of the active ingredients were critical in this exercise.  There were three to four hundred active ingredients to be considered and particularly in relation to herbal material substantial literature searches were required to be undertaken.  On this exercise alone approximately 50 hours were spent by Dr Warren and myself.

1. When the active ingredients were identified Dr Warren and myself identified the appropriate analytical techniques and assigned a test or tests to the relevant active ingredients.  Again our knowledge and experience of the behaviour of the ingredients and the available analytical techniques and tests were critical, supplemented by further literature searches particularly in relation to the herbal material.  Approximately 90 hours were spent by Dr Warren and myself on this exercise alone.

1. Another computer spreadsheet was then developed by Dr Warren and myself.  This contained all products and tests arranged in a table so that each product could be assigned one or more of the tests depending on the active ingredients present.  Where a product required a particular test a cost was assigned to that test.  The costs assigned to a test for a particular product depended on the number of different active ingredients in that product requiring that particular test.  The process of identifying tests and assigning them to products and their active ingredients was done entirely by Dr Warren and myself.  In late December, 1995 or early January, 1996 I sent to Tony Jazowy of Queensland Biochemics a computer disk containing the spreadsheet with this information developed by CAL.

1. The final form of the spreadsheet was developed by me on or about the 2nd April, 1996, attached to the Contract executed by me and initialled by me prior to returning the same to Queensland Biochemics on or about the 3rd, April 1996.

1. Late 1995 I and Brian Warren discussed with Tony Jazowy and Michael Taylor the shelf life for each product, which they wished to achieve and the number of tests they were prepared to have conducted over the life of each product to monitor their degradation.  Consequently Tony Jazowy prepared and sent me a copy of the proforma document for each product showing the points in time at which the Stability Tests shown in my spreadsheet were to be conducted.  I received from Tony Jazowy the completed documents described by him as QR125 only as an annexure to the final form of Contract between CAL and Queensland Biochemics in April 1996.

1. CAL is a licensed laboratory under the Therapeutic Goods Act and pursuant to that licence has developed a Laboratory Quality Manual. In March 1996 Michael Taylor and Tony Jazowy visited the laboratory and I gave him a copy of the manual to read. That manual states, that all tests and all methodology developed by CAL is revealed in strict commercial confidence. In addition it is uniform practise [sic] in the industry of analytical chemistry, that the methodology developed by a laboratory is confidential to it."

Those paragraphs from Mr Romanes' affidavit indicate the work done by Dr Brian Warren and Mr Romanes himself and their expertise brought to bear in identifying the particular tests which they considered to be appropriate for the respective products of QB.  Mr Burchett, counsel for CAL, relies on this evidence to indicate that the process of identifying the applicable tests involved considerable work and skill on the part of CAL.

On 10 January 1996 there was a telephone conversation between Geoff Thomas of QB and Paul Ekstein of Andrews.  On 11 January QB wrote to Andrews commenting on the draft contract.

On 19 January 1996, Andrews wrote to Michael Taylor and Geoff Thomas of QB a letter enclosing a further draft contract.  This letter referred to a telephone conversation which had occurred on 10 January and to QB's letter of 11 January.  The letter dated 19 January from Andrews included the following:

"The ownership of the copyright in the methods developed for the Stability Test Program is not drafted as per your suggested clause but we believe it is drafted in accordance with our previous discussions and is a compromise between the parties commercial security in the use and distribution of the methods. 

Schedule 1 is in accordance with the computer disc forwarded to you and may well have to be supplemented by the timetables indicated in your document Number SOPQA17.01 (12 pages)."

I need not go to the detail of the form of contract enclosed by Andrews with their letter of 19 January.

On 22 January 1996 Andrews wrote again to Messrs Taylor and Thomas of QB correcting some typographical and other minor errors in the form of contract which had been forwarded on 19 January.  On 5 February 1996 CAL wrote to Michael Taylor of QB making a "revised offer for [the] stability program."  This offered discounts: the larger the amount paid by QB to CAL for stability testing, the greater the discount. 

On 16 February 1996 Andrews wrote again to Messrs Taylor and Thomas of QB referring to a telephone conversation on 15 February and enclosing a further draft contract dealing with various points which had been raised.  One of these was that the contract was now to provide for joint ownership of "test methods".  Clause 8(a) of this further draft provided that the parties would acknowledge and agree that copyright in the "methods" developed for the stability test program was and remained the absolute joint property of CAL and QB. 

There was further correspondence, including a letter dated 23 February from Andrews to Messrs Thomas and Taylor of QB enclosing yet a further draft of the proposed contract.  Schedule 1 to this draft was a document which had been faxed to Andrews on 20 February from Tony Jazowy of QB.  Mr Ekstein of Andrews drew attention, in his letter of 23 February, to part of the difficulty to which I referred earlier in getting an adequate definition of "tests" and "stability test program".  He said in the letter:

"What I am trying to achieve here is the use of the word ‘tests’ to mean the original QR125 sheet for each product as agreed and the copyright ownership of the methodology developed to perform the tests that are the basis of the stability program."

On 28 February 1996 Mr Nicholls of Deacons wrote a further lengthy (nine-page) letter to Mr Michael Taylor of QB.  This letter commented in detail on the latest draft contract which he (Mr Nicholls) had been asked by QB to consider.  One of the points which Mr Nicholls made was that in his view the contract would benefit from being re-written in "plain English".

On 6 March 1996 QB wrote to Mr Ekstein of Andrews enclosing a form of contract which had been prepared by Deacons.  The letter included this sentence:

"As you will see our legal people have taken the liberty of changing the format to make it more ‘user friendly’, but you will find that the content is essentially the same."

The form of contract which was enclosed was, as one would expect, in some respects similar to, and in other respects different from, the drafts which had been provided by Andrews. I will say more of this later.  There was annexed to "the Deacons draft" a copy of the table of QB's products with tests and, at the intersecting columns, the dollar prices to be charged for the conduct of the tests in question on the respective products.  Of course the prices were taken from CAL's pricing schedule.  The presence of prices in some cases and the absence of prices in other cases would again inform a reader of the particular tests considered apt for the individual products.

On 8 March 1996 Andrews wrote to Mr Taylor of QB commenting in response to the facsimile from QB of 6 March.  One point made was that Andrews insisted that the copyright in the agreement itself was to be in the joint names of both parties' solicitors. 

QB sought advice on Andrews' letter from Deacons.  Deacons wrote a letter of advice to QB on 11 March.  They advised that they were willing to share the copyright in the form of contract with Andrews "in the interests of progressing the transaction", while maintaining that the form of contract now in question contained little, if any, work of Andrews.  Deacons wrote a more detailed letter to QB on 12 March commenting on Andrews' letter of 8 March.

On 12 March 1996 QB wrote to Andrews forwarding a copy of an amended agreement and a copy of Deacons' letter dated 12 March 1996.  In that letter from Deacons to QB, para 1 said:

"We agree to Andrews Solicitors having joint copyright with us in the Agreement."

On 29 March 1996 QB provided copies of the QR125 forms to David Nicholls of Deacons to be bound up with the final form of the agreement for execution.  Each QR125 form related to a particular product of QB.  The QR125 forms now mentioned the particular tests which were to be administered in respect of the respective products, the tests to be carried out having been transposed from CAL's pricing schedule into the QR125 forms.

Unfortunately, at about this time the parties began to part company.  What was said to have occurred is that CAL insisted upon a price which was higher than the price which QB had understood CAL to have mentioned previously. I need not be concerned with how that came about.  On 3 April 1996 Michael Taylor of QB informed Ian Romanes of CAL that QB was not agreeable to the higher price.   Notwithstanding this, on 4 April 1996 Mr Romanes of CAL executed the form of contract including as schedule 1 the pricing schedule and as schedule 2 the numerous QR125 forms, incorporating the "increased prices".  On 9 April 1996 QB received two bound copies of the form of contract executed by or on behalf of CAL including the two schedules.  The form of contract is a substantial spiral bound document, most of which consists of the numerous QR125 forms.

On 15 April 1996 QB faxed Ian Romanes of CAL advising him that QB was considering its position.  On 22 April 1996 Michael Taylor of QB telephoned Paul Ekstein of Andrews and said that QB would not be proceeding.  On 23 April, Andrews wrote to Doug Ring, the managing director of QB, requesting that the form of contract including schedules executed on behalf of CAL be returned and making a claim to copyright.  On the same date, Deacons wrote on behalf of QB asserting that there was no need for the documents to be returned, asserting that copyright in the "Sale Agreement" was vested in Deacons and asserting that copyright in both schedules was vested in their client, QB.  Deacons advised that their client had instructed them to prepare a form of contract between it and another laboratory and that they (Deacons) proposed to use the form of agreement which they had drafted.

On 24 April Andrews faxed Deacons asserting that the body of the contract was their work, that schedule 1 (the pricing schedule) was entirely the work of CAL, and that schedule 2 (the completed QR125 forms) was merely a variation of the first schedule. 

On 29 April 1996 Mr Nicholls of Deacons wrote to Mr Ekstein of Andrews a letter in which issue was joined in a number of respects, particularly as to the copyright in the form of contract and the QR125 forms.  Deacons now acknowledged that the pricing schedule had been prepared by CAL and advised that it was being detached from the form of contract and returned to CAL.

QB did in fact return the pricing schedule and the disc.  The precise events surrounding that return and the timing of that return may prove to be relevant to costs.  I need not discuss these matters now.  CAL filed its application and obtained ex parte relief on 29 April.

ISSUES AND CONCLUSIONS:
The current application is for a continuation of interlocutory relief pending a final hearing.  The first question which arises is whether CAL has shown a serious question to be tried.  If that question is answered in its favour, the question arises whether the balance of convenience favours the granting of interlocutory relief.  The issues of "serious question to be tried" and "balance of convenience" are interrelated.  If the serious question to be tried test is barely satisfied, the balance of convenience may nonetheless strongly favour the granting of relief and thus overcome the weakness of the case.  Similarly, there can be a case where the applicant's case is apparently strong although the balance of convenience may be unclear.

The applicant put its case primarily on the footing of copyright.  The most relevant provisions of the Copyright Act 1968 are ss 10 ("literary work"); 31; 32 (1),(4); 35 (2),(6); 78; 116; and 126. They are reasonably familiar and I will not set them out.

I will deal with the three documents or parts of documents separately but it should be noted at the outset that a second ground for the granting of relief on which CAL relied was that there was an equitable obligation of confidence incumbent upon QB and Deacons.

In relation to the substantive terms of the form of contract, I have compared the form of contract that was ultimately prepared by Deacons and the several forms prepared by Andrews.  Of course there are, as one would expect, similarities.  It is not appropriate simply to look at individual instances of similarity.  One would expect to find the same headings or some of the same headings in both documents in view of the process of drafting which occupied Andrews and Deacons. Certainly their respective forms of contract were to deal with the same subject matter and contain provisions to a similar effect in order to effectuate their clients' bargain.  But taking a fair view of both documents I think that the draft prepared by Deacons which was executed by CAL cannot be described as a substantial copy of any draft prepared by Andrews. 

It is quite clear that substantial effort was put into the preparation of the Deacons draft.  In fact para 9 of the affidavit of David Leslie Nichols sworn 3 May 1996 is as follows:

"I was instructed to redraft the document and because of the criticisms I had in relation to the first drafts of it, I dictated a new Contract ‘from scratch’.  I assert that I am the author of this document and that it is an original work created by me."

There is no substitute for comparing carefully the two forms of contract.  The question is one largely of degree.  I have formed the view that the Deacons document is not substantially copied from the Andrews document.  In that respect I do not think that there is a serious question to be tried.

In relation to the pricing schedule, as I noted earlier there is no longer an issue since that document has been returned, as has the disc in respect of it. 

In considering the QR125 forms one must remember that information was transposed into them from the pricing schedule.  It is necessary to say something first about the actual words used to describe the tests.  Some of the words themselves were in currency through the Guidelines published by the TGA and otherwise, well before CAL used them in its pricing schedule.  It is not suggested that there was any creativeness in the actual selection of the terms themselves.  In that respect it could hardly be suggested that they are original literary work.  The words were ordinary or technical words of a descriptive character.

CAL claimed copyright in respect of the pricing schedule as a whole.  Clearly CAL does not have copyright in QB's product names.  It does not have copyright in the vertical and horizontal lines any more than in the vertical and horizontal lines of a "noughts and crosses" puzzle.  The device of listing the products down one side of a page and tests across the top and having intersecting columns is, to say the least, not original.

The substantial point made by CAL is that it invested valuable time, not just in naming tests or in devising the tabular form in question, but in identifying which tests were apt for the respective products.  Without going to all the indications that support a finding of an obligation of confidence, reference may be made to the fact there is a serious question that CAL's work was to be paid for (I refer to annexure MT9 to Michael Taylor's affidavit dated 2 May 1996, page 5 and the first column of the schedule showing prices for method development), CAL's original proposal enclosing the first draft of the pricing schedule (annexure MT9 to Michael Taylor's affidavit pages 2 and 6), CAL's letter to QB dated 1 December 1995 (annexure MT11 to Michael Taylor's affidavit), and the references in the various draft contracts to secrecy and copyright). 

Some of these references can certainly be taken as referring to things other than the actual selection, in the process of tendering, of the test methods to be adopted and tendered for, but looking at the position over all, I think that there is a serious question to be tried that the parties' intention was that information as to the methods to be used for the respective products of QB was not to be available to QB to be used freely as it might wish, but was provided in confidence until a contract resulted.

If QB were to be allowed to go ahead and make use of that information, QB would be, in my view, arguably in breach of an equitable obligation of confidence.  In various places QB has indicated that it intended to proceed in the manner mentioned.  QB is entitled to use the QR125 forms as blanks or with the names of its products inserted.  What QB must be restrained from doing is using the information identifying which tests are to be carried out on each of QB's 245 products.

In the result, CAL succeeds to the modest extent stated but not in respect of any of the copyright claims.  CAL has offered the usual undertaking as to damages and there will be an injunction. 

One matter which is of some concern is that it should be open to QB to approach other laboratories to carry out the stability testing required by the TGA.  Nothing in this judgment prevents QB from doing that.  What it must not do is, in effect, to hand over to another laboratory CAL's identification of the tests appropriate for the respective products. 

So far as I am aware, particularly in view of the long delay that QB seems to have brought upon itself, there is no great inconvenience caused to QB in this respect.  If there is, QB can make an application for a variation or discharge of the injunction which I propose to order.  On the question of the balance of convenience in other words, my conclusion is that there ought to be an injunction against QB subject to its

right to apply for a variation or discharge. 

I certify that this and the preceding 33 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:15 May 1996

Heard:         3 May 1996

Place:         Sydney

Decision:      9 May 1996

Appearances:    Mr S Burchett of counsel instructed by Andrews solicitors appeared for the applicant.

Mr M J Cranitch SC with Mr R M Lilley of counsel instructed by Deacons Graham & James appeared for the respondents.