Fermiscan v James - [2009] NSWSC 546

No judgment structure available for this case.

CITATION: Fermiscan v James [2009] NSWSC 546

HEARING DATE(S): 25/5/09, 26/5/09, 27/5/09, 28/5/09 29/5/09

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: McDougall J at 1

EX TEMPORE JUDGMENT DATE: 29 May 2009

DECISION: See para [170] of the judgment.

CATCHWORDS: PATENTS - assignment of patent and rights in future 'improvements' to the patent - whether later invention improvement or new invention. - CONTRACTS - covenant not to make comments that are disparaging or that may tend to injure or disparage covenantees - whether covenant breached. - DAMAGES - stipulated sum payable on breach - whether a penalty.

LEGISLATION CITED: Patents Act 1990 (Cth)

CATEGORY: Principal judgment

CASES CITED: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA Jedhar P/L v Grosse [2004] QCA 167
Luong Dinh Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40
310
O'Dea v Allstates Leasing System (WA) Pty Limited (1983) 152 CLR 359
Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656

TEXTS CITED: Australian Oxford Dictionary (2nd edition, 2004)
International Journal of Cancer
Oxford Australian Dictionary

PARTIES: Fermiscan Pty Limited (First Plaintiff)
Fermiscan Australia Pty Limited (Second Plaintiff)
Fiberscan Pty Limited (Third Plaintiff)

FILE NUMBER(S): SC 50044/08

COUNSEL: A S Martin SC / S A Wells (Plaintiffs)
C D Wood (Defendant)

SOLICITORS: Piper Alderman (Plaintiffs)
Middletons (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

29 May 2009 (ex tempore – revised 1 June 2009)

50044/08 FERMISCAN LIMITED & ORS v VERONICA JEAN JAMES

JUDGMENT

There are three questions for decision in these proceedings:

(1) the first is whether the defendant (Dr James) is obliged to assign to one of the plaintiffs an invention made by her and a patent application made by her to protect that invention.

(2) The second is whether, in breach of a deed of release and settlement made between the plaintiffs and Dr James, certain statements by Dr James have "disparaged" or tended to injure the plaintiffs, their business or their employees.

2 To give content to that somewhat Delphic statement of the issues, I shall set out the factual background. Before I do so, I note that I have been greatly assisted by the way in which counsel presented their respective cases. Before the hearing commenced, I received clear and helpful outlines of the respective cases of the parties. At the conclusion of the evidence, I received comprehensive and detailed written submissions, to which counsel spoke. In what follows, I will not refer to all the submissions or to their detail; but I have taken into account all that was put both in writing and orally.

Background

Alleged breach of obligation to assign

3 Dr James is a scientist whose areas of research include the x-ray diffraction of human tissue samples. She developed a process using x-ray diffraction of human hair samples to screen for breast cancer, and took out an Australian standard patent to protect her discovery. I shall refer to that as "the Australian patent" and to its subject matter as "the first invention". Dr James assigned that patent to the third plaintiff (Fiberscan), then a company controlled by her. She has since transferred the issued shares in Fiberscan to the second plaintiff.

4 On 11 November 2004, Dr James and Fiberscan made two agreements with the first and second plaintiffs (respectively, Fermiscan and Fermiscan Australia). One agreement was described as a "Patent Assignment and Technical Assistance Agreement" (the assignment agreement). By it, Dr James and Fiberscan assigned the first invention and the Australian patent to Fermiscan Australia, together with all "Registered Rights" and "Improvements" as defined.

5 The other agreement was described as a "Consultancy Agreement". By it, Dr James agreed to act as a consultant to Fermiscan Australia.

6 Thereafter, Dr James continued her research. One of the projects that she conducted comprised the x-ray diffraction of samples of human nail and skin, and studying variations in their diffraction patterns. She discovered that changes in the diffraction patterns corresponded to the presence of other pathological conditions, including colon and prostate cancer and Alzheimer's disease. On 3 January 2008, Dr James filed an international patent application with the Australian patent office. I shall refer to that application as "the PCT application" and to its subject matter as "the second invention". Before that application was filed, Dr James had filed two applications for Australian patents in respect of the second invention: on 12 January and 9 July 2007. Nothing of present relevance turns on those filings.

7 The plaintiffs claim that the second invention is an "Improvement" of the first invention, for the purposes of the assignment agreement. Thus, the plaintiffs claim, Dr James is obliged to assign to Fermiscan Australia all her rights in the second invention and the PCT application.

Alleged disparagement

8 The consultancy agreement was terminated in May 2006. In September 2006, the plaintiffs as applicants commenced a proceeding against Dr James as respondent in the Federal Court of Australia. On 8 December 2006, the plaintiffs and Dr James entered into a "Deed of Release and Settlement" (the deed of release) whereby they agreed, on the terms set out in that deed, to compromise the Federal Court proceeding.

9 By cl 2.3 of the deed of release, Dr James agreed to pay to Fermiscan and Fermiscan Australia jointly the sum of $700,000. Of that sum, $500,000 called "the First Amount" was to be paid by deduction from fees or royalties otherwise payable to Dr James. The balance of $200,000 (called "the Second Amount") was only to become payable if Dr James should breach, relevantly, cl 5 of the deed.

10 By cl 5 of the deed, Dr James agreed with Fermiscan and Fermiscan Australia that she would not disparage, or make statements that might tend to injure or damage, their reputation or standing, their businesses, or their diagnostic tests, or the reputation, standing, ability or capability of any of their directors, officers or employees.

11 The plaintiffs say that Dr James has breached cl 5 of the deed by or in:

(1) writing an article, intended for publication in the International Journal of Cancer , entitled "Fibre diffraction of fingernails provides a highly accurate early diagnosis of disease" (the article) and submitting that article to the editor in chief of the journal, Professor Harald zur Hausen, for publication;

(2) discussing, or providing drafts of, that article to scientific and other colleagues before it was submitted for publication; and

12 The plaintiffs also rely on the terms of the letter under cover of which Dr James submitted the article to Professor zur Hausen.

13 In substance, the plaintiffs claim that statements made in the article, in the letter under cover of which it was submitted for publication and in the PCT application contravene cl 5 of the deed of release because they call into question:

(1) a diagnostic test for breast cancer that Fermiscan Holdings Limited (Fermiscan Holdings; a listed public company and the holding or ultimate holding company of each of the plaintiffs) proposes to market;

(3) the ability and scientific standing of two employees of or consultants to the Fermiscan Group, Mr G L Corino and Dr P W French.

Relevant terms of the assignment agreement and the consultancy agreement

14 As the recitals to the assignment agreement show, the parties to it intended by it to assign the first invention and the Australian patent to Fermiscan Australia, together with all "Registered Rights" and "Improvements" as defined.

15 Clause 2 of the assignment agreement is headed "Assignment of Invention, Registered Rights and related Intellectual Property". Clause 2.1 reads as follows:

(a) assign to the Assignee its entire right, title and interest in and to the Invention and the Registered Rights, including the Patents;

(b) assign to the Assignee all Intellectual Property rights in the Information supplied under this Agreement and belonging to the Assignor and/or the Inventor;

(c) in those countries where any part of the Information is not regarded as a property right, grant to the Assignee an exclusive licence to exploit such Information during the Term; and

(d) grant to the Assignee a non-exclusive licence to exploit the Background Intellectual Property in each country of the world during the Term.

16 Clause 3 of the assignment agreement is headed "The Assignor and the Inventor to supply Information and Improvements". Clause 3.2 reads as follows:

17 The expression "Improvement" is defined as follows:

“Improvement”

18 The expression "Registered Rights" is defined as follows:

“Registered Rights” means national patents and regional patents of any kind, (including petty patents or innovation patents, and patents of importation and design), certificates of invention and utility models, registered designs, copyright in drawings (excluding trade marks), as well as any regulatory approvals required for the exploitation of the Invention or any product embodying the Invention in any country, and applications or proposed applications for any of them, in relation to the Invention and any Improvements, and:

(a) any further filings or applications therefore in Australia or elsewhere based on the Invention or any Improvement; and
(b) all patents of addition, continuations, continuations in part or divisions of the foregoing and any substitute applications,

19 The consultancy agreement was made between Dr James as "Consultant" and Fermiscan Australia as "Company". By that agreement, Fermiscan Australia agreed to employ Dr James as a consultant (cl 2.1). It did not have the exclusive use of her services, although she was required to endeavour to give Fermiscan Australia first priority access to those services (cl 2.2).

The Australian patent

20 The Australian patent is entitled "Using hair to screen for breast cancer". It is briefly described as follows:

The present invention relates to a method of testing the presence of a gene responsible for a pathological state, or the pathological state itself, in biological material in which the molecules are regularly arrayed. Specifically, the present invention relates to analysing hair for detecting the presence of BRCA 1 gene, the presence of breast cancer per se, the presence of prostate cancer and a confirmatory diagnosis for Alzheimer’s disease.

21 The claims defining the invention are set out, relevantly, as follows:

1. A method for detecting in a patient, the presence of a neoplastic and/or neurological condition; or for detecting a gene responsible for a neoplastic and/or neurological condition when said neoplastic or neurological condition has a genetic basis, comprising exposing at least one hair from the patient to fibre X-ray diffraction and detecting changes I the ultrastructure of the hair.

13. An instrument when used in a method according to any of claims 1 to 12, said instrument comprising: an X-ray source producing a beam of X-ray radiation; a sample stage for positioning said hair sample within said beam; a detector to detect the scattering of said x-ray beam caused by said hair sample; and a display means associated with said detector for displaying the output thereof; whereby patterns of output related to the presence of said gene or said pathological state are displayed for interpretation.

22 Claims 2 to 12 describe variations of the "method", referring to different x-ray sources or techniques (claims 2 to 4); different kinds of preparation of hair (claims 5 and 6); different lengths of exposure to radiation (claims 7 and 8); and different genetic or pathological states (claims 11 to 12).

23 I do not think that it is necessary to set out those further claims. It should be noted however that claims 11 and 12 refer to "the pathological state" as being, respectively, prostate cancer and Alzheimer's disease. That is consistent with examples given earlier in the document where it is suggested that analysis of random samples of hair subjected to x-ray diffraction had been correlated to prostate cancer (example 9) or Alzheimer's disease (example 10).

24 Further, after the examples had been identified and discussed, the Australian patent stated, under the heading "Discussion":

Discussion

Although the number of samples investigated so far is in total over 400, the reproducibility of the results is most encouraging. The flexibility of this technique and the fact that using synchrotron sources each sample takes seconds to measure and only minutes to interpret makes its possible use as a rapid and accurate diagnostic tool for breast cancer, prostate cancer, and Alzheimer’s disease.

25 Dr James also obtained a United States patent in respect of the first invention. I do not think it is necessary to set out the terms of that patent or the claims in it. No-one suggested that they are in any substantive way distinguishable from those of the Australian patent. The parties agreed that, with an exception to which I shall refer, it was sufficient to confine my consideration to the Australian patent.

The PCT Application

26 The "Abstract" in the PCT application stated:

“The invention provides a method of detecting neoplastic or neurological disorders comprising exposing skin or nails to X-ray diffraction and detecting changes in the ultrastructure of the skin or nails, and also provides an instrument when used in the method of detection.”

27 The PCT application stated further that:

“The invention describes a test which provides early, low cost, totally non-invasive yet reliable tests, which could possibly be low-cost mass screening for neurological and neoplastic disorders, using samples of biological material which can be harvested at remote locations, which samples do not deteriorate with correct storage."

28 The "first embodiment" of the invention was said to provide "a method of detecting neoplastic or neurological disorders in a subject, the method comprising exposing biological material of the subject to fibre X-ray diffraction, and detecting changes in the ultrastructure of the biological material, wherein the biological material is a skin or nail sample, and wherein when the biological material is a skin sample, the neoplastic disorder is not BRCA1-related breast cancer.”

29 The relevant claims defining the invention were stated as follows:

1. A method of detecting neoplastic or neurological disorders in a subject, the method comprising exposing biological material of the subject to fibre X-ray diffraction, and detecting changes in the ultrastructure of the biological material, wherein the biological material is a skin or nail sample, and wherein when the biological material is a skin sample, the neoplastic disorder is not BRACI-related breast cancer.

…

30 It is not necessary to set out claims 2 to 6. It may be noted that they relate to different x-ray sources (claims 2 and 3) and different pathologies (claims 4 to 6). Again, the pathologies included prostate cancer, breast cancer and Alzheimer's disease; and they also included colon cancer.

X-Ray diffraction.

31 The process of x-ray diffraction is not new, and was not new when Dr James applied for the Australian patent. It has been used for more than 70 years, although both the equipment employed and the means by which it is used have been improved over the years. Likewise, the ability to document and analyse the results has improved over the years.

32 In general terms, x-ray diffraction involves the exposure of the subject material to a finely focused narrow x-ray beam. The pattern of diffraction of the x-ray beam is captured as an image. Study of the diffraction pattern enables analysis of the subject material.

33 Where the material subjected to x-ray diffraction is human hair, a characteristic diffraction pattern will be demonstrated. The same is true for x-ray diffraction of human skin and human nails, although those characteristic diffraction patterns are different (i.e., the diffraction pattern for hair is different to that of skin, and so on).

34 Dr James observed that, from time to time, disturbances appeared in the diffraction patterns. When she first observed this (in relation to human hair) she made further investigations and inquiries. She ascertained that the samples in question had been taken from women who suffered from breast cancer.

35 Dr James undertook further testing, using samples of hair taken from women known to suffer from breast cancer and samples taken from a control group who did not. She observed that the characteristic pattern of disturbance was present in the former group and absent in the latter. She concluded, in the words of the Australian patent, "that fibre x-ray diffraction studies...can reveal clear and consistent changes in the ultrastructure of hair from breast cancer patients". Thus, she concluded, x-ray diffraction of at least one hair from a patient, and analysis of any changes in the ultrastructure of the hair, could be used as a test to indicate the presence of breast cancer.

36 Dr James' work also showed, according to the Australian patent, that each of prostate cancer and Alzheimer's disease produced its own pattern of "clear and consistent changes in the ultrastructure of hair" taken from persons suffering from one or other of those conditions.

37 The essence of each invention is thus the identification of a disturbance in the x-ray diffraction pattern of a sample of biological material taken from a patient, and the correlation of that disturbance to the disturbance characteristically produced, in the same kind of biological material, by a known genetic condition or pathology. For the inventions to work as diagnostic tools, it is necessary to have access to more than the results of x-ray diffraction undertaken upon biological material from a particular patient. It is necessary to have available also a "reference library" or database: a body of data that can be accepted as indicating reliably characteristic changes in diffraction patterns for the same kind of biological material where identified genetic conditions or pathologies are present.

The expert evidence

38 The plaintiffs and Dr James both called independent experts. For the plaintiffs, Dr W G Crewther gave evidence. For Dr James, Professor (Emeritus) A D Rae gave evidence. I intend no disrespect to either of those gentlemen when I say that I do not regard their evidence as assisting greatly in the resolution of the issue to which it was directed: the first question that I have identified above.

39 Dr Crewther and Professor Rae agreed on a number of matters, and disagreed on two. I set out the terms of their summary of what they agreed and disagreed:

AGREE

1. The process of fibre diffraction is not new.

2. The invention in the Fermiscan Patent is, at least, a correlation between an observation of a result with a pathology.

3. Keratin is not a specific structure but a classification of materials.

4. Hair, skin and nail are not the same thing. Whilst they are classified as keratin, hair and nail are not the same structure. In skin there is only a minor component of keratin.

5. There is not much similarity between diffraction patterns of hair and skin due to skin mainly comprising collagen.

DISAGREE

6. The meaning of the word ‘process’ and its specificity in the context of the inventions in the Fermiscan patent and the James patent application.

40 In their language:

41 The experts referred to "keratin" because, as I understand it, keratins are tissues that are present in skin, hair and nails. I do not think that it is necessary, either for an understanding of the expert evidence or for the resolution of the first question, to deal further with the nature of keratins or their role in the inventions.

Is the second invention an "Improvement" of the first?

42 Clause 2.1 of the assignment agreement purports to operate, relevantly, as a present assignment of choses in action to which it applies existing as at 11 November 2004, and as an agreement to assign choses in action to which it applies coming into existence after that date. The question is whether the second invention is a "Registered Right" for the purposes of cl 2.1(a) because it is an "Improvement" as defined. (It will be recalled that "Registered Rights" includes both "any Improvements" and "any further filings or applications therefore in Australia or elsewhere based on the [first invention] or any Improvement".)

43 There was a question as to whether cl 2.1 of the assignment agreement was effective to make Dr James' promise to assign future, or after acquired, property enforceable. There was also a subsidiary question as to whether a patent application, as opposed to a patent (or, for that matter, underlying intellectual property), was capable of assignment. I shall deal briefly with the former question, but not the latter (which seems to me to bear at most on the precise form of relief). On the view to which I have come, the latter question raises an irrelevant consideration.

44 It was common ground that the second invention was an "invention" for the purposes of the definition of "Improvement". The question is whether it was an invention of a kind that fell within that definition.

The parties' submissions

45 Mr A S Martin of Senior Counsel, who appeared with Mr S A Wells of Counsel for the plaintiffs, submitted that the second invention was an "Improvement" as defined of the first because it was a "modification, adaptation or improvement" that could be used:

(1) to "improve the performance of" the first invention;

(2) to "broaden the applicability of any process employed in or toward" the first invention;

(3) to "create a wholly new product...or process which replaces" the first invention; or

46 The key to the first and second, and I think also the fourth, aspects of Mr Martin's submissions was the proposition that the subject matter of the Australian patent involved two steps. The first step was the exposure of any biological material to x-ray diffraction. The second step was the detection of changes in the diffraction pattern of that biological material. Mr Martin relied on the evidence of Professor Rae to support his submissions.

47 Thus, Mr Martin submitted, the use of different biological materials did not give rise to a new invention of a kind that was outside the definition of "Improvement".

48 In support of these submissions, Mr Martin submitted that the word "process" in the definition of "Improvement" should have its ordinary English meaning: a systematic series of actions directed to some end. He submitted that, in this case, the "process" embodied in the first invention comprised the two steps to which I have referred. Mr Martin submitted that the same two steps were employed for the purposes of the second invention; all that changed was the identity of the biological material being tested.

49 Mr C D Wood of Counsel, who appeared for Dr James, submitted that it was necessary to look at the "process" described by the Australian patent to understand the application of the definition of "Improvement". He submitted that it was plain from the claims in that patent that the process embodied in the first invention was the exposure of human hair to x-ray diffraction, and the detection and analysis of any changes in the ultrastructure of that hair.

50 Mr Wood submitted further that the adoption of the construction advanced by Mr Martin would have unreasonable, unintended and irrational consequences. It would, he submitted, extend the monopoly claimed by the Australian patent to the use of x-ray diffraction on all biological materials, for the purpose of detecting any neoplastic or neurological condition whatsoever. He submitted that this would mean, among other things, that Dr James in effect had contracted out of the right to pursue her life's work, and would give Fermiscan Australia monopoly rights in respect of all such applications. Mr Wood submitted that, construing the assignment agreement in conjunction with the consultancy agreement made the same day, the parties could not have intended this. The latter document recognised that Dr James was free to carry on her scientific work, and to provide her services to others.

51 Mr Wood put a further submission, based on s 13 of the Patents Act 1990 (Cth) and the definition of "exploit" in that Act. On the view to which I have come, it is not necessary to consider that submission or Mr Martin's response to it. I do however note, since this matter may go further, that Mr Martin's response called attention to the fact that the property assigned by the assignment agreement included not only the Australian patent and "Registered Rights" et cetera in respect of it but also the United States patent (once again, with its associated "Registered Rights" et cetera). Mr Martin therefore submitted that the definition of "exploit" in the Patents Act was of no relevance.

52 Mr Martin and Mr Wood put detailed submissions as to the availability, and form, of relief.

Decision

53 In my view, construing the Australian patent as a whole, it is clear that the invention relates (more accurately, the claims in which it is described relate) only to the testing of human hair. It is only in the introductory paragraph that reference is made to biological material at large: "testing the presence of a gene responsible for a pathological state, or the pathological state itself, in biological material...". However, that reference is followed immediately by a specific limitation of the invention "to analysing hair for detecting the presence of" a particular genetic or pathological state.

54 The "Disclosure of the Invention" refers to fibre x-ray diffraction studies of hair and the potential of the outcome of those studies to detect certain genetic or pathological conditions. The description of the method used relates to diffraction of "a single hair" after it has been prepared in a described fashion; and all the material that follows relates (and relates only) to the study of human hair.

55 The examples of studies that are given, which apparently caused Dr James to perceive a link between changes in diffraction patterns and genetic or pathological conditions, all relate to human hair, although in one case there is reference to a separate study of "transgenic" mice.

56 I have set out or summarised the first thirteen claims which are said to describe the invention. It will be noted that the first claim in terms describes the method as "comprising exposing at least one hair from the patient to fibre x-ray diffraction...". None of the following claims vary that method, or extend it, by reference to other biological material obtained from a patient.

57 Accordingly, I do not accept Mr Martin's submission that the first invention extends from human hair to all biological material. In my view, as a matter of construction of the Australian patent, the invention described in it is limited, as the claims make clear, to a process based on x-ray diffraction analysis of human hair.

58 Nor do I think that the submission is supported by the evidence of Professor Rae. Professor Rae was asked to identify the steps involved in the process of x-ray diffraction. In substance, he agreed that there were six steps (T134.1-.23) (and I summarise):

59 Professor Rae was then asked whether changes in the nature of the sample exposed to x-ray beams might change the steps, and gave the answer on which Mr Martin relied. I have to say that this answer was at best equivocal (T134.24-.26):

“Q. The fact that the sample may differ in that method I have described to you does not change the steps carried out, does it?

A. Those steps are done in any diffraction experiment.”

60 Having said that, Professor Rae agreed that "the fact that the observable effects...are not the same doesn't change the steps". He was then asked whether "the fact that the pathological conditions are different [changes] any of those steps" and responded "[n]ot if collecting data is what we are talking about" (T134.28-.35).

61 Professor Rae was then asked a series of questions based on the assumption that the diffraction method described in the six steps that I have summarised is "the whole of the invention". He said that he disagreed with that assumption (T134.49). He then gave the following evidence on the basis of that assumption (T135.4-.29):

HIS HONOUR

MARTIN

Q. And on that assumption, if you have a wholly new invention you get a wholly new diffraction method, don’t you?

A. No, the diffraction method is the same. The results are different.”

62 So far from supporting the proposition for which Mr Martin contended, Professor Rae's evidence, properly understood and considered in whole (rather than by looking at individual questions and answers devoid of context) makes it clear that in his view the fact that the same method of analysis - x-ray diffraction - is used does not mean that the "process" is the same regardless of the identity of the material subjected to that process.

63 It is clear from the description of the second invention given in the PCT application that it is differentiated from a test based on the x-ray diffraction of human hair. Further, although from time to time the PCT application uses the phrase "biological material", it is intended to be limited specifically to x-ray diffraction of skin or nails. The abstract, which I have set out above, makes this clear. Equally, the descriptions of the process and its "preferred embodiments" are limited to the analysis of skin and nail material.

64 Again, although the claims that are said to define the second invention for the purposes of the PCT application relate to the exposure of biological material to x-ray diffraction, the following passages make it clear that what is being discussed is examination of changes in the ultrastructure of biological material comprising skin or nails.

65 It follows from what I have said as to the proper construction of the Australian patent and the PCT application that there is a fundamental difference in the processes that they disclose. The Australian patent relates to the exposure of one class of biological material - hair - to x-ray diffraction. The PCT application relates to the exposure of two different classes of biological material - skin and nails - to x-ray diffraction. They can only be the same process, or the latter can only be something designed to improve the performance, or broaden the applicability of, the former, if the former is construed as extending to all biological material.

66 There is another reason why the second invention cannot be considered to be something that improves the performance, or broadens the applicability, of the first invention. As Professor Rae's evidence to which I have referred made clear, there is more involved with each invention than subjecting the relevant biological material to x-ray diffraction. The results of that process must be compared with what I have called a "database" to see if a correlation can be observed between any disturbance that is noted in the diffraction pattern and a disturbance that is associated with a known genetic or pathological condition.

67 Thus, in relation to the first invention, there must be a database of accepted reliability that shows the characteristic disturbances to the diffraction patterns of human hair caused by the presence of a gene associated with, or the pathological condition of, breast cancer. That database could not be used to analyse the diffraction patterns, and disturbance therein, of human hair or nail. First, the diffraction patterns for hair, skin and nails differ each from the other. Secondly, the disturbances caused by the various genetic or pathological conditions differ each from the other. For the second invention to work, there must be not only a diffraction pattern for the specimen taken from the human subject, but also a reliable database enabling any disturbances in that pattern to be correlated to disturbances associated with the genetic or pathological conditions enumerated in the second application.

68 Of course, as the Australian patent makes clear, disturbances to the diffraction pattern of hair may indicate the presence of conditions other than breast cancer: namely, prostate cancer and Alzheimer's disease. There is thus a substantial overlap of the conditions that may be demonstrated by use of the two inventions. But that does not mean that both are the same invention, or that the second is, in general terms, an improvement of the first either as to performance or as to applicability.

69 The point can be illustrated relatively simply. If, after 11 November 2004, Dr James had carried out further research on the diffraction patterns of human hair, and had observed disturbances that correlated to other pathological conditions (by way of example, various kinds of heart or arterial disease), and established the degree of correlation to a point where it was accepted as providing a reliable indicator of the presence of such diseases, then there could well be a broadened applicability of the process described by the Australian patent. Again, if Dr James had carried out such further research, and had improved the analytic or predictive power of the correlations for breast cancer, prostate cancer or Alzheimer's disease, there might be an improvement to the performance of that process. But neither the second invention nor the process embodied in it is analogous to such an improvement or broadening; and it cannot be, unless, as Mr Martin submitted, the first invention is to be understood as encompassing the x-ray diffraction of all biological material and not just human hair.

70 That then leads to the second way in which Mr Martin put his case: that the second invention is a wholly new process that could be used to enhance or replace the first invention.

71 Essentially for the reasons that I have given, the second invention cannot be regarded as an enhancement of the first invention. That is because the first invention should be understood as restricted to the x-ray diffraction of hair. The whole point of the second invention, as is made clear in the PCT application, is that there are problems in the first invention when the hair is damaged (for example, to quote from the PCT application, damage "resulting from cosmetic hair treatment such as dyes, back combing and even brushing"). That is why Dr James advocated (again, quoting from the PCT application) "an alternative test...which may overcome at least some of the...disadvantages" of the first invention.

72 As the Australian Oxford Dictionary (2nd edition, 2004) makes clear, to "enhance" means to "heighten or intensify (qualities, power, value)" or to "improve (something already of good quality)". "Enhancement" should be understood to have a corresponding meaning: a heightening or intensification or improvement of something already in existence.

73 It is difficult to understand how a wholly new process could be an enhancement of the subject matter of the first invention, unless that subject matter is defined in extremely wide terms. In effect, the subject matter of the first invention would have to be defined as the detection of breast cancer (or prostate cancer or Alzheimer's disease) not just by the x-ray diffraction of hair, or indeed of biological material generally, but by any means whatsoever.

74 Mr Martin relied on the evidence of Professor Rae and Dr Crewther. I have referred to the relevant evidence of Professor Rae above. For the reasons that I have given, it provides no support for this aspect of Mr Martin's submissions.

75 The evidence of Dr Crewther on which Mr Martin relied was paragraph 17 of his affidavit in reply. That paragraph, which was admitted over objection "subject to relevance" on the basis that relevance would be dealt with in final submissions, reads as follows:

17. Further, if any one or more of the following statements made by Professor Rae in his affidavit are accepted as being correct:

That is, one cannot broaden the applicability of a process by using an independent process”

“If that is the case, then the process cannot be improved by the substitution of a different biological material, as the process remains the same”

“If the process is the whole invention, then there is no connection between the 2 inventions…”

“the process which is the invention is different”

then it follows, in my opinion, that the new invention must employ a process which is “wholly new”.

76 In my view, that paragraph has no evidentiary value. It is not expert evidence: it does not involve any application of Dr Crewther's undoubted expertise to a question in issue. It is, at the most, argumentative or in the nature of a submission. It assumes the acceptance of propositions with which Dr Crewther did not agree (as is made plain by earlier paragraphs in the affidavit) and provides an argumentative response, the basis of which, founded either in logic or in Dr Crewther's expertise, is not disclosed.

77 On reflection, the appropriate course would have been to reject the paragraph when objection was taken to it. However, that not having been done, it does not follow that I am bound to give it any weight; and I do not.

78 I do not accept that the "subject matter" of the first invention, or for that matter of the Australian patent, should be defined so widely. There are a number of reasons. The first is that it finds no support whatsoever in the language of the Australian patent. The second is that a definition of such width would have the effect that Dr James was required, after 11 November 2004, either to abandon any further work on the study of means for diagnosis of the pathological conditions in question (by using x-ray diffraction) or to hand the results of all that work to Fermiscan Australia. Of course, she would be entitled to be paid the consulting fees and additional consulting fees (the latter effectively a two per cent royalty on gross sales resulting from the exploitation of her intellectual property). But it would render meaningless the acknowledgment that her engagement was non-exclusive and that (subject to attempting to give first priority to Fermiscan Australia) she could provide her services where and to whom she chose.

79 As to "replacement": there was no evidentiary material that would enable the conclusion to be drawn that the second invention would or might replace the first. There was no evidence to show why the two could not sit together, with one or the other being used as circumstances might require. In this context, Dr James gave evidence in cross-examination that there were practical (mechanical or procedural) difficulties of undertaking analysis using the second invention compared to the first (T59.20-.25, T60.30-.33). That evidence was not challenged, and was not controverted by other evidence. In my view, Dr James sought to give accurate and truthful evidence and I have no hesitation in accepting what she said, either generally or in those particular answers. Those answers provide good reasons why a test based on the second invention would not always, or in all circumstances, replace a test based on the first invention. On the contrary, that evidence suggests that one or other of the tests might be used depending on a number of site-specific and patient-specific factors.

80 As I have noted, Mr Wood submitted that if an agreement to assign after -acquired property were to be enforceable in equity, it was necessary that the assignor should receive consideration for the promise to assign. In this case, he submitted, it was Fiberscan that had been the owner of the Australian patent and (under the assignment agreement, the assignor of the first invention and the associated rights). The consideration, or "purchase price" of $105,000 was payable by the assignee, Fermiscan Australia, to Fiberscan. Thus, he submitted, Dr James received no consideration for her promise (she, together with Fiberscan, was a promisor, assignor and grantor under cl 2.1) to assign, relevantly, any Improvements owned by her that came into existence after 11 November 2004.

81 The general position is that for a contract not under seal to be enforceable against the promisor, consideration must move from the promisee but not necessarily to the promisor. Mr Wood submitted, basing himself on a footnoted statement made obiter dictum by Davies JA in Jedhar P/L v Grosse [2004] QCA 167 at [2n1], that where what was sought was enforcement of a promise to assign after - acquired property, it was necessary for consideration to pass to the assignor.

82 It is not necessary to consider whether there is any such principle, or whether the observation by Davies JA in Jedhar, and the cases that his Honour cited, support the principle. It is sufficient to say that in this case the consideration comprised not only Fermiscan Australia's promise to pay $105,000 to Fiberscan (on the language of cl 2.1, itself a promise made to both Dr James and Fiberscan) but, more generally, all the promises made by Fermiscan Australia and Fermiscan to Dr James and Fiberscan in the assignment agreement.

83 Nor, having regard to the conclusions to which I have come on this question, is it necessary to consider the submissions as to the availability and form of relief.

84 In my view, Dr James is not contractually bound to assign the second invention or the PCT application to the plaintiffs.

Did Dr James disparage the plaintiffs or their employees?

Relevant terms of the deed of release

85 As the recitals to the deed of release make clear, its intention was to record the agreement of the parties to settle the proceeding commenced by the plaintiffs against Dr James in the Federal Court of Australia. That proceeding apparently related to certain information in the possession of Dr James. In cl 2.1 of the deed, she acknowledged that Fermiscan Australia was entitled to that information. By cl 2.2, Dr James agreed to meet officers of Fermiscan Australia, to discuss the information with them and to enable them to "apply" it. I set out cl 2.2:

Inspection to Documents and Computer Material

Forthwith after the execution of this Deed James will:

(a) make herself available and will meet with two executives of Fermiscan Australia Dr Peter French (“French”) or Leon Phillip Carr (“Carr”) or both of them as Fermiscan Australia directs in any particular case and faithfully and fully discuss the Information to facilitate all documentation to be revealed; and

(b) thereafter assist Fermiscan and Fermiscan Australia apply the Information as Fermiscan Australia may reasonably require from time to time.

Such meeting will unless Fermiscan Australia otherwise agrees take place in Sydney or other venue as agreed and Fermiscan Australia will pay James’ reasonable travelling, accommodation and per diem costs (food and drinks) in connection therewith.

Once the documentation has been revealed to the mutual satisfaction of Fermiscan, Fermiscan Australia and James, the advance referred to in 6.1 shall be paid forthwith by Fermiscan Australia to James at her direction.

Pending the revealing of the information to the mutual satisfaction of Fermiscan, Fermiscan Australia and James, the advance shall be paid to the trust account of Gilshenan & Luton, Westpac Banking Corporation, Cnr Queen & George Streets, Brisbane, BSB: 034-000 Account No. 000516, within 3 days of the execution of this Deed which sum shall be held in trust.

Should any dispute arise as to whether the obligations of any party under Clause 2.2 have been or failed to have been discharged, the parties shall submit to a determination of an independent referee.

86 By cl 2.3, Dr James undertook to pay the First Amount and the Second Amount to which I have referred above. That clause reads as follows:

Payment by James

James agrees to pay Fermiscan Australia and Fermiscan jointly the sum of Seven hundred thousand dollars ($700,000) on the following terms:

“First Amount”

(“Second Amount”)

c) Fermiscan Australia is hereby irrevocably directed by James without any further consent, direction or authorisation being required to apply all Fees or Royalties payable to James towards satisfaction of the First Amount as and when Fees or Royalties are payable to James as referred to in clause 4 of this Deed until the First Amount has been fully paid and satisfied.

87 By cl 2.4, Fermiscan and Fermiscan Australia agreed (with limitations) not to sue Dr James in respect of those amounts:

2.4 Covenant Not to Sue

Fermiscan and Fermiscan Australian covenant with James they will not take or maintain any action against James in respect of the First Amount of the Second Amount unless James breaches clauses 2.2 and/or 5 of this Deed in which case the First Amount and the Second Amount will become payable forthwith.

88 Clauses 4 and 6 dealt with fees or royalties payable to Dr James, and an advance against them. So far as relevant, they read as follows:

4. Fees or Royalties

Fermiscan covenants with James that her entitlement to fees in the nature of royalties pursuant to clause 7.2 of the Consultancy Agreement is of full force and effect.

6. Advance Against Fees or Royalties

6.1 Advance

Subject to James complying with Clause 2.2(a) Fermiscan Australia will pay James the sum of One hundred thousand dollars ($100,000) (“Advance”) as a non-refundable advance on account of Fees or Royalties and which advance is to be recouped by Fermiscan Australia deducting all Fees or Royalties payable to James and applying the same in repayment to Fermiscan Australia of the Advance until the whole of the Advance has been fully repaid.

6.2 Authority

Fermiscan Australia is hereby irrevocably directed by James without any further consent, direction or authorisation being required to apply all Fees or Royalties payable to James towards satisfaction of the Advance as and when Fees or Royalties are payable to James as referred to in clause 4 of this Deed until the Advance has been fully repaid and satisfied.

6.3 Cashflow

The repayment of the Advance is to be deducted from Fees and Royalties payable to James in priority to payment by James of the First Amount.

89 Clause 5 of the deed of release reads as follows:

5. Conduct

James covenants with Fermiscan and Fermiscan Australia and each of them that as and from the date of this Deed she will not disparage or make any statements or take any action which would:

(a) tend to injure or damage the reputation or standing of Fermiscan or Fermiscan Australia or their respective trades or businesses or any diagnostic tests offered or to be offered or made available by or through either of them; or

(b) tend to injure or damage the reputation or standing or call into question the abilities or capabilities of any of the respective Directors, officers or employees of Fermiscan or Fermiscan Australia.

The alleged disparaging material

90 The plaintiffs relied on a number of statements made by Dr James in the article submitted for publication in the International Journal of Cancer and in other documents. So far as the article is concerned, Mr Martin referred to a number of extracts. I do not propose to set them out in full.

91 The passages in the article to which Mr Martin referred noted that there were problems with the use of the first invention to diagnose breast cancer. Those problems related to "the appearance disorder rings which mask the BCDR". "BCDR" means "breast cancer diffraction ring": the characteristic disturbance caused by the breast cancer gene or pathology in the patient, and thus the key to the use of the first invention as a diagnostic tool. The article stated that "disorder is still a major problem with the marketing of this diagnostic test" and that "[t]he problems of disorder in the hair patterns caused by cosmetic treatments cannot be easily overcome".

92 Having made those points, the article stated, on a number of occasions and in quite emphatic terms, that "subject to further successful research outcomes", a diagnostic tool based on x-ray diffraction of material from nails offered considerable advantages, including that:

93 It is I think clear, and in any event I proceed on the basis, that a reasonably careful reading of the article as a whole would indicate that the use of human hair for testing was a process associated with the Fermiscan Group.

94 As I have said, the plaintiffs relied also on the letter under cover of which the article was submitted to Professor zur Hausen as editor in chief of the International Journal of Cancer. That letter stated that the process discussed in the article was a "highly accurate early diagnosis" technique and that it eliminated "the problems of reproducibility found by other researchers using hair samples". The letter did not mention any of the Fermiscan Group companies by name.

95 The letter also stated that Dr James would prefer that Mr Corino and Dr French (who as I have said were employees of or consultants to the Fermiscan Group, and who had published a recent paper in the journal advocating the use of the first invention as a diagnostic tool for certain pathologies) "be excluded from the review process". Dr James said that this was "because of the number of completely incorrect statements published in [their] paper, which I have addressed in a subtle way in this paper". In addition, Dr James said, those gentlemen had "a known conflict of interest".

96 Dr James accepted in evidence that when she referred in the letter to "other researchers using hair samples", she was referring to Mr Corino and Dr French.

97 Finally, in this context, Mr Martin relied on statements in the PCT application. That application said, among other things, that "[t]here is at present no completely reliable, non-invasive test for neurological and neoplastic disorders" and that the use of x-ray diffraction for hair "has complications resulting from cosmetic hair treatments..." and other causes. The application said further that "many neoplastic and neurological disorders do not cause a change in the ultrastructure of hair, and therefore this test is very limited...".

98 The application said further that there would be advantage in providing an alternative test which might "overcome at least some of the above-mentioned disadvantages or provide a useful or commercial choice".

99 Mr Martin submitted that the materials to which I have referred breached cl 5 of the deed. His analysis resembled the analysis of a publication for the purposes of ascertaining whether or not it was defamatory. As to the journal article, he submitted that:

100 As to the letter to Professor zur Hausen, Mr Martin submitted that:

101 As to the PCT application, Mr Martin submitted that the statements in it tended to disparage the Fermiscan Group's diagnostic test, and thus:

102 Mr Wood submitted that the statements in question did not disparage the plaintiffs, their businesses, their diagnostic test or their employees. He said that the statements were no more than a demonstration of the distinction between the first invention and the second invention.

103 Mr Wood submitted further that the article and the PCT application would only be read by a small and select group: scientists interested in the use of x-ray diffraction technology to detect disease. He submitted that those readers would understand that Dr James was seeking to advance the science and that the comments that were said to be disparaging should be understood as her opinions directed to that end.

104 Finally, Mr Wood submitted, there was no evidence of any harm to the plaintiffs, their tests or their employees.

Decision

105 The Oxford Australian Dictionary defines the verb "disparage" as meaning "to speak slightingly of; depreciate" or to "bring discredit on". In my view that is the way it should be understood in cl 5 of the deed of release.

106 However, the restriction in that clause is not limited to disparagement. It extends to the making of statements and the taking of actions that might "tend to injure or damage" the reputation of the Fermiscan companies, their tests, their employees et cetera. As a matter of language, a statement could "tend to injure or damage" someone, or that person's trade or business, even though the statement is not disparaging in the sense that the dictionary gives.

107 Mr Martin was somewhat ambivalent as to whether there was a distinction between "disparage" on the one hand and "tend to injure or damage" on the other. In the end, I think, he accepted that "disparagement" connoted some mental element (an intention to slight, or to cause people to think the lesser of, that which was disparaged); whereas "tendency to injure or damage" involved no such mental element because it raised an objective test.

108 In any event, in my view, there is a non-dichotomous distinction between the concepts of disparagement on the one hand and tendency to injure or damage on the other, reflecting respectively the presence or absence of some such mental element. One could do or say something which tended to injure or damage the reputation, business or products of another without intending to achieve that result. On the other hand, as a matter of language, one would not ordinarily be said to disparage the business, reputation or products of another unless one used language intended or calculated to achieve that result.

109 I do not think that the documents in question can be regarded as disparaging of the plaintiffs, their diagnostic tests, or their employees et cetera. That is because none of the statements is phrased in a slighting or depreciating way, or in a way that was calculated to bring discredit on the plaintiffs et cetera. Nor is there any evidence that Dr James intended to achieve that result; and it was not put to her that she did.

110 The statements cannot be considered out of context. They appear in an article submitted for publication in a scientific journal of international repute. Indeed, Professor zur Hausen, the editor in chief of that journal, was awarded the Nobel Prize for Physiology or Medicine in 2008: a testimony not only to his scientific standing but also to the standing of the journal.

111 Mr Martin submitted that it was irrelevant to take into account either the nature of the audience for whose attention the article was written or the fact that (as the evidence demonstrates) the contents of the article were made known to a small number of people, all but one of whom were scientists in the relevant field. In short, Mr Martin submitted, it was the very fact of the making of the statements that led to the breach of cl 5.

112 That submission cannot be correct. Suppose (as was put to Mr Martin in the course of argument) that Dr James, before she had disclosed the article to, or discussed it or its contents with anyone else, had provided a copy to a lawyer for advice as to whether it could breach cl 5. On Mr Martin's argument, that would constitute the making of statements in the terms of those complained of taken from the article. How could that constitute disparagement? Or, for that matter, how could it tend to injure or damage the Fermiscan companies or their business, products, employees et cetera? Mr Martin did not submit that such a limited disclosure would have those consequences. To my mind, that indicates that one cannot consider the question of "publication" at large or untrammelled by context. In assessing whether the fact of publication (or, more accurately, the fact of making statements by that process of publication) does or might have the consequences prohibited by cl 5, it must be necessary to take into account all relevant matters of context: including the way in which, the medium by which and the persons to whom the publication and the statements effected by it were made.

113 Thus, I think, it is necessary to look at the context of each of the publications by which, it is said, the relevant statements were made.

114 Science is necessarily an iterative process. Experiments and tests are performed; observations are made; inferences or hypotheses are drawn; the hypotheses are tested. The process is both inductive and deductive. The hypothesis, or proposed "law" or principle is inferred from the experimental evidence. To the extent that the hypothesis withstands testing, it may then be used as a general proposition from which particular instances can be deduced.

115 In this case, the proposition that a particular pattern of disturbance to known diffraction patterns suggests the presence of a particular disease is a matter of inference from the "databank" to which I have referred more than once above. If that inference is accepted as valid, then the presence of that characteristic disturbance in a test carried out on a particular individual enables a deduction to be made: that the individual suffers from the particular disease.

116 However, the essence of science is that the process is ongoing. Researchers publish their findings and conclusions. Others try to replicate the findings. If the findings cannot be replicated, the conclusions are not accepted as valid. Equally, if further findings are obtained that are inconsistent with the conclusion, the conclusion must be discarded if the inconsistency cannot be explained.

117 Particularly in the case of medical science, it is in the public interest that those who undertake research should be able to reveal and discuss their findings, and the hypotheses (or conclusions) to be drawn from them. Where that discussion takes place in a rational and scientific form then, even though it may be conducted in clear and forthright terms, I do not think that it would be regarded by the reasonable reader (of necessity, someone having an understanding both of the matters to which I have referred and of the particular field of scientific endeavour) to be disparaging.

118 I do not accept that it is necessarily disparaging for one scientist to say, of the work of another, that the work contains flaws or mistakes, or is inaccurate: at least when that is done in good faith and on the basis of experimental findings that support what is said.

119 There is no suggestion in this case that any of the statements made by Dr James were made in bad faith, or with the intention of harming the plaintiffs, their tests, their employees et cetera. Nor was it put that they were made without a proper basis in the science. On the contrary, so far as I understand the science, it seems to be clear that her comments were soundly based on the material then known to her (and others).

120 Some support for my approach is found in the evidence of Professor (Emeritus) N C Stephenson and Professor zur Hausen. Professor Stephenson has had great experience in the process of x-ray diffraction of crystalline materials. However, he said, he had not examined biological materials using x-rays generated by a synchrotron. Nonetheless, over his professional career, Professor Stephenson has published about eighty-five papers and is named as an inventor in about a dozen patents. It is clear that he is and has been actively engaged in scientific research, publication and debate.

121 Professor Stephenson said that in the course of his career, his publications had been subject to scrutiny and improvements by others and that he had never taken this personally. He said that the ultimate aim of any scientist "is to add to the veracity of the body of science in any field". As part of that, he said, "it is acceptable to assert that statements made by one scientist are incorrect or inaccurate".

122 Again, Professor Stephenson said, it would be expected in scientific publications like the International Journal of Cancer "that contributors will question, comment on and at times contradict the finding of other contributors". One of the reasons for doing that was to show why the material presented by one contributor "represents an advance in the science". From a scientific perspective, Professor Stephenson commented that the statements made by Dr James in the article, on the paper by Mr Corino and Dr French, accurately represented what Mr Corino and Dr French had said, and commented in an appropriate way on the data that they had presented.

123 Likewise, Professor Stephenson said that the comments in the PCT application as to shortcomings in the use of x-ray diffraction of hair accurately represented the findings presented by Mr Corino and Dr French.

124 Objection was taken to the whole of Professor Stephenson's affidavit, on the basis that he was not "the reasonable reader of the publications" in question and "has only read them for the purposes of the present litigation". I admitted some of the affidavit, but rejected his evidence seeking to characterise the documents in question as non-disparaging, or to comment as to whether they caused him to think the lesser of the Fermiscan companies and their business, products, employees et cetera. That having been done, Professor Stephenson was not cross-examined on what remained.

125 In my view it is legitimate to use the opinions expressed by Professor Stephenson to support what I have said as to the existence and importance of robust debate in the scientific community.

126 Further, Professor zur Hausen swore an affidavit in which he said, among other things, that "it is standard procedure for all authors to suggest preferred reviewers or to request that one or another be excluded". Professor zur Hausen was required for cross-examination, but was unable to attend. I gave leave for his affidavit to be read under UCPR r 35.2, reserving the question of weight. I accept that his evidence was not subject to challenge. Nonetheless, it seems to me to be evidence on which I can place some weight: particularly since, as I have said, the evidence of Professor Stephenson in a somewhat similar field was not challenged.

127 There can be no doubt that Dr James was forthright in her reasons for suggesting that Mr Corino and Dr French should not review her paper prior to publication. However, her reasons for doing so seem to me to be valid. First (in her view), there were inaccuracies in the paper published by Mr Corino and Dr French, which she had addressed (although "in a subtle way") in her article. I must say that, to a non-scientist, that seems of itself to be a sufficient reason for suggesting that the authors of the criticised work should not review the criticising work. Further, it is quite clear that, insofar as Mr Corino and Dr French are employees of or consultants to the Fermiscan Group, they do have a conflict of interest (as Dr James said) because that group is seeking to bring its diagnostic test, based on the x-ray diffraction of hair, to market.

128 In short, as I have said, I do not regard the documents in question, considered individually or together, as disparaging of the Fermiscan companies, or their businesses, tests, employees et cetera.

129 That, however, is not the end of the matter. As I have said, it is possible - at least, as a matter of language - that a statement or action could tend to injure or damage the reputation or standing of something even if it did not disparage that thing. A perfectly honest and accurate statement, made in neutral terms and without any element of slighting or depreciating or discrediting, might nonetheless tend to cause injury or damage.

130 I do not think that there is any basis for reading down the width of the words "tend to injure or damage". Clause 5 in terms makes a distinction between disparaging statements or actions on the one hand, and statements or actions which would tend to injure or damage on the other. Any attempt to equate the two - to read "tend to injure or damage" as no more than surplus verbiage adding nothing to "disparage" - is not justified when, as I have said, they may have separate and distinct operations. Nor do I think that there is any warrant for reading down "tend to injure or damage" by reference to considerations of the freedom of scientific debate and the like.

131 It is necessary to step back for a moment and look at the plaintiffs' case as articulated in their amended commercial list statement. Paragraph 44 of the contentions alleges:

44. In breach of cl 5(a) of the Deed of Release and Settlement the defendant has disparaged, made statements and taken action which has the tendency to injure and damage:-

44.2 the reputation or standing of the trade or businesses of Fermiscan or FAPL;

44.3 the diagnostic tests offered or to be offered or made available by or through either Fermiscan or FAPL.

(a) The Plaintiffs repeat the particulars as set out under paragraph 37 above.

(b) The Plaintiffs rely on the letter dated 12 June 2008 from the Defendant to Professor Harald zur Hausen, Editor in Chief, International Journal of Cancer and in particular the following statements contained therein:

(1) “I believe that using the techniques discussed here, I have been able to eliminate the problems of reproducibility found by other researchers using hair samples.”

(2) “I would prefer the authors of a recent paper published in your journal, (Corino G L, French P W, Int J Cancer 2007; 22 (4) 847-856) be excluded from the review process because of the number of completely incorrect statements published in that paper, which I have addressed in a subtle way in this paper, and a known conflict of interest.”

“BACKGROUND ART”

“very limited”

“advantage”

“alternative test”

132 The particulars that are given are (in summary) as follows:

International Journal of Cancer

133 Against that background, the issue formulated by the plaintiffs in their statement of the real issues for determination was:

“Whether the defendant has, by engaging in the conduct complained of in paragraph C44...disparaged the first and second plaintiffs and thereby breached cl 5 of the Deed of Release and Settlement...".

134 It is plain, and the submissions before me proceeded on the basis that, the gravamen of the plaintiffs' complaint in relation to cl 5 is that it was the statements in question made by Dr James, and her actions in making those statements, that had the requisite tendency for the purposes of cl 5.

135 It was no part of the plaintiffs' case, either as articulated in their contentions or as argued at the hearing, that Dr James' actions in undertaking research to develop (or attempting to develop) x-ray diffraction tests for human biological materials other than hair, which might be more useful, or reliable, or of greater applicability than the first invention, constituted a breach of cl 5.

136 The statements on which the plaintiffs rely can be divided into three categories:

137 I do not think that statements in the first category could have the requisite tendency. There are two reasons for this. The first reason is that the problems of disorder and reproducibility were identified by Mr Corino and Dr French (I repeat, employees of or consultants to the Fermiscan Group) in their paper to which Dr James referred in her article and in the letter to Professor zur Hausen. As Professor Stephenson said in his affidavit:

138 In short, Dr James was doing no more than repeating, although in different and no doubt forthright language, problems of reproducibility and disorder already adverted to by Mr Corino and Dr French in their paper. It is difficult to see how her repetition of statements made by them in a published paper could have the requisite tendency: particularly in circumstances where the paper by Mr Corino and Dr French was published in the journal, and the paper by Dr James was not. It is clear that Dr James' paper was shown to or read by very few people.

139 To the extent that Dr James' comments on the utility of the first invention go beyond the problems reported by Mr Corino and Dr French (and it is by no means clear that they do), the very limited audience to which any publication has taken place tells against there being any real likelihood of the requisite tendency. I have not overlooked that one of the publications complained of was in the form of a posting on the website of the World Intellectual Property Organisation (WIPO: the PCT application has been available on that website for some time after it was lodged in January 2008). It is hardly likely, and the plaintiffs did not suggest, that consumers of diagnostic tests will resort to that website to see if a particular test has utility or, conversely, problems. In the absence of evidence to the contrary, I would infer that the real users of that website are likely to be scientists and others who are contemplating the making of a patent application.

140 The second reason is that in truth any propensity for injury or damage flows from the facts reported (themselves of course in the public arena at least through the paper of Mr Corino and Dr French). It does not flow from Dr James' report of them. In this context, it is instructive to note that, according to the evidence of Mr D C Young, the managing director of Holdings, the Fermiscan Group is pressing ahead with its plans to bring to market the diagnostic test embodying the first invention, and (by inference) has been doing so although aware of the problems with that test as reported by Mr Corino and Dr French in their article. Presumably, the plaintiffs did not regard the matters reported by Mr Corino and Dr French as having sufficient impact on the utility or marketability of the test to deter them from proceeding. In those circumstances, it is legitimate to inquire what additional impact the further publication, or more accurately republication, of those problems by Dr James might have had: again, bearing in mind the limited ambit or extent (in the real world) of that further publication.

141 In my view, statements in the first category do not have the requisite tendency to cause injury or damage required by cl 5.

142 The same is true of statements in the second category. Again, it is the underlying fact - that there are, potentially, better tests available - and not the publication thereof that might (I put it no higher) have the requisite tendency. In this context, I repeat that the plaintiffs have not sought to make out a case that it was Dr James' actions in pursuing the research and developing the potential alternative tests that constituted a breach of cl 5.

143 It is, I suppose, possible that another company interested in marketing diagnostic tests for the various "neoplastic and/or neurological disorders" that might be detected by the first or second tests would check the WIPO website to ascertain whether there is anything published thereon that might be capable of commercial exploitation. No evidence was led of this. I must say that I would have thought the more likely scenario is that an inventor who had made an application to patent what he or she believed to be (or potentially to be) a valuable diagnostic test would seek out commercial opportunities to exploit that invention, rather than wait for those who might be interested in exploiting it to come forward. Again, however, there was no evidence to elucidate this question, and thus no evidence that might enable an assessment to be made of the possible impact (if any) of publication of the PCT application on the WIPO website for the purposes of cl 5 of the deed of release.

144 I have not overlooked the fact that the test is not whether actual damage has been caused but, rather, whether there is a tendency to injure or damage. However, in the absence of the evidence to which I have referred, the matter must be judged on a purely a priori basis.

145 What I have said, as to statements in the first and second categories, is relevant also to statements in the third category. If, as Mr Corino and Dr French reported, the diagnostic test based on the first invention did suffer from problems of reproducibility and disorder, it seems to me to follow almost inevitably that there would be utility in developing a more reliable test. That is a matter of everyday commonplace inference. The publication of statements to the same effect by Dr James did no more than give voice to this inference from what Mr Corino and Dr French themselves had reported. Again, bearing in mind the very limited nature of the publication by Dr James, I do not think that the requisite tendency, for the purposes of cl 5, has been demonstrated.

146 Equally, if there were any tendency of the relevant kind, it would flow from the fact - the problems with the test embodying the first invention - and the commonplace inference from that fact that it would be good if a better test could be developed. It would not flow from a statement pointing out this commonplace inference.

147 Accordingly, I conclude that Dr James' statements complained of, and her actions in publishing those statements (to the extent that she did) do not, individually or taken together, constitute a breach of cl 5 of the deed of release.

Is cl 2.3 of the deed of release a penalty?

148 The conclusion to which I have come on the second question makes it unnecessary to decide this question. However, since it has been argued, I will set out the conclusion to which I would have come had it been necessary to do so. It is convenient to start with cl 2.3(b).

149 On its proper construction, the relevant effect of clause 2.3, in relation to the "Second Amount" of $200,000, is that it is only payable in the event of a breach of, relevantly, cl 5. There is nothing either in cl 2.3 or elsewhere in the deed to suggest that the Second Amount is payable by reason of any antecedent breach of the assignment agreement, but that the obligation to pay is suspended, conditional upon Dr James performing her obligations under the deed of release. In terms, cl 2.3(b) makes the Second Amount a stipulated sum payable only in the event of breach of the nominated clauses. That is confirmed by cl 2.4.

150 The classic (although not exhaustive statement) of the basic principles in relation to penalties is to be found in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87. His Lordship said, among other things, that:

151 The phrase "in terrorem" is to be understood as meaning that the stipulation is intended to coerce compliance, not to address breach. See Bryson JA (with whom Handley and McColl JJA agreed) in Luong Dinh Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40 at [30].

152 His Lordship's analysis has been approved by the High Court of Australia in a number of cases: see, by way of example only, the judgment of the Court in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662-663 [11]-[12].

153 It is also necessary to bear in mind, as the High Court emphasised in Ringrow at 669 [31], [32] that the characterisation of a stipulated sum as a penalty interferes with the freedom of parties, under no disability, to agree upon the terms of their bargain. There must be "good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language". Their Honours then continued by pointing out that it was not sufficient that there should be some disproportion between the stipulated sum and the likely damage, but that the stipulated sum must be "out of all proportion" to that damage.

154 There is no evidence to show how the sum of $200,000 was quantified. Mr Martin relied on the evidence of Mr Young, to the effect that, as at the date of the hearing, the Fermiscan Group had spent substantial sums on developing the test based on the first invention. However, as he also submitted, the characterisation of a contractual stipulation as a penalty (or not) is to be undertaken as at the time the contract was made, not as at the time of breach (see Allsop P, with whom Giles and Ipp JJA agreed, in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310 at [100]). Mr Martin did not explain how, on that basis, Mr Young's evidence of post-assignment expenditure might be relevant.

155 Nor is the second amount expressed to be in terms an amount of liquidated damages, or to be an agreed and genuine pre-estimate of the loss likely to be caused by breach of cll 2.2 or 5.

156 Were it necessary to do so, I would conclude that cl 2.3(b) does impose a penalty. It is I think clear that the conditional obligation that it, read in conjunction with cl 2.4, imposes was stipulated "in terrorem" of Dr James, as an incentive to produce compliance with cll 2.2 or 5 or, more bluntly, as a threatened punishment for non-compliance. It will be observed that cl 2.2 contains its own spur to compliance: the advance referred to in cl 6.1 is not to be paid until Dr James has complied with her obligations under cl 2.2.

157 Further, it is apparent that breaches of each of the clauses in question - 2.2 and 5 - may be serious, may be trivial or may occupy some intermediate ground between those extremes. But the stipulated sum of $200,000 is payable regardless of the nature, characterisation (as serious or trivial) or consequences of any such breach. Thus, in my view, the presumption to which Lord Dunedin referred arises and should be applied.

158 I turn to cl 2.3(a) and the First Amount. That amount is to be "paid" by deduction from fees or royalties otherwise payable to Dr James. If cl 2.3(a) is considered standing alone, there is no other obligation on Dr James to pay the first amount.

159 However, cl 2.4 makes the First Amount (and, for that matter, the Second Amount) immediately payable in the event of breach of cl 2.2 or cl 5, and gives a right of action in the event of such breach.

160 The obvious contrast between cl 2.3(a) and cl 2.3(b) is that there is a definite, not merely conditional, obligation to pay the First Amount under the former paragraph, but only a conditional future obligation to pay the Second Amount under the latter paragraph. That is so even though the obligation imposed by cl 2.3(a) is to be performed in the future, by deduction from fees and royalties otherwise payable. Thus, cl 2.3(a) read standing alone does not possess the quality that, to my mind, stamps cl 2.3(b) as penal: namely, that it is imposed in terrorem as a spur to it performance or a punishment for breach. But, equally, cl 2.3(a) bears no trace of genuine pre-estimate of loss.

161 The question of penalty, in relation to cl 2.3(a) and the First Amount, therefore turns upon the operation of cl 2.4.

162 Clause 2.4 operates upon cl 2.3(a) in three relevant ways. First, it makes the First Amount (or the balance thereof unpaid at any particular time) immediately due and payable; as cl 2.3(a) stands, unqualified by cl 2.4, that sum is payable in the future only as fees or royalties accrued to Dr James. Secondly, cl 2.4, if invoked, makes the First Amount (or the unpaid balance thereof) immediately due and payable out of such resources as Dr James might have when cl 2.4 operates, and deprives her of the right to pay the First Amount only out of, and to the extent of, fees and royalties. Thirdly, although cl 2.4 contains a covenant not to sue, it deprives Dr James of the benefit of that covenant in the event that she breaches clause s 2.2 or 5.

163 In O'Dea v Allstates Leasing System (WA) Pty Limited (1983) 152 CLR 359, Gibbs CJ pointed out at 373 that "[t]he question whether a contractual provision amounts to a penalty depends on all the surrounding circumstances existing at the time of the making of the contract, as well as on the terms of the contract itself". Thus, his Honour said, "it is therefore not always possible to apply a decision given upon one contract to another case, even though that case concerns a contract in identical terms".

164 One of the questions that fell to be considered in O'Dea was whether the contract in question had the effect of making the appellant's monetary obligations immediately due and payable, with a right or privilege of paying them over time (or, in the Latin phrase employed, "debitum in praesenti solvendum in futuro"). Gibbs CJ said at 374 that if that principle had any relevance, it could only apply "where there is a present debt, a debt actually due before the breach which accelerated the payment". His Honour did not so characterise the agreement under consideration, and nor did Wilson J (see, for example, his Honour at 379).

165 Deane J, who formed part of the majority in that case, appeared to share that view, although his reasoning was somewhat different. His Honour said at 403 that what should be considered was whether "the nature of the relevant payment upon breach with consequential loss of any right to possession or use was different in character to the payment which would have been made if the hirer had retained the right to possession or use of the equipment or machine". In other words, as I understand it, his Honour focused attention on any change in the characterisation of rights precipitated by the operation of the acceleration clause and associated provisions of the contract.

166 Brennan J, who dissented in the result, pointed out at 387 that an obligation to pay money over time could not be equated with an obligation to pay the same amount immediately. His Honour's observation was prefaced by a reference to "a time of high interest rates". I do not think that either that fact, or the fact that his Honour was in dissent, detracts from the force of what he said.

167 For the reasons that I have indicated, the nature of Dr James' rights and obligations in respect of the First Amount (under cl 2.3(a) considered alone) was changed in significant respects by the operation of cl 2.4. The effect of the operation of cl 2.4 was to impose significant additional liabilities on Dr James, and to take away from her significant benefits. And it did so not by reference to matters existing at the time the deed of release was made, but by reference to future breach of certain clauses of that agreement. Further, it did so in a context where (adapting the words of Gibbs CJ in O'Dea), the terms of the deed of release did not make the first amount immediately due and payable, with merely a right or privilege of paying over time. Although the obligation was definite, it could not be enforced except on the terms set out in cl 2.3(a), unless cl 2.4 operated.

168 There was no attempt made in the evidence to relate the financial impact of the operation of cl 2.4 (insofar as it concerned the First Amount) to any quantification of the likely damages flowing from breaches of cll 2.2 or 5. Again, the operation of cl 2.4 takes no account of the fact that breaches of those clauses may be serious, trivial or somewhere in between.

169 Were it necessary to do so, I would conclude that cl 2.3(a), read in conjunction with cl 2.4, does impose a penalty in the circumstances in which cl 2.4 takes effect.

Conclusion

170 It follows that the proceedings must be dismissed, and I so order. I will hear the parties on costs.

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Citations

Fermiscan v James [2009] NSWSC 546

Most Recent Citation

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Cases Cited

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Statutory Material Cited

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Jedhar P/L v Grosse [2004] QCA 167

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CITATION:	Fermiscan v James [2009] NSWSC 546
HEARING DATE(S):	25/5/09, 26/5/09, 27/5/09, 28/5/09 29/5/09
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	29 May 2009
DECISION:	See para [170] of the judgment.
CATCHWORDS:	PATENTS - assignment of patent and rights in future 'improvements' to the patent - whether later invention improvement or new invention. - CONTRACTS - covenant not to make comments that are disparaging or that may tend to injure or disparage covenantees - whether covenant breached. - DAMAGES - stipulated sum payable on breach - whether a penalty.
LEGISLATION CITED:	Patents Act 1990 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA Jedhar P/L v Grosse [2004] QCA 167 Luong Dinh Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40 310 O'Dea v Allstates Leasing System (WA) Pty Limited (1983) 152 CLR 359 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656
TEXTS CITED:	Australian Oxford Dictionary (2nd edition, 2004) International Journal of Cancer Oxford Australian Dictionary
PARTIES:	Fermiscan Pty Limited (First Plaintiff) Fermiscan Australia Pty Limited (Second Plaintiff) Fiberscan Pty Limited (Third Plaintiff)
FILE NUMBER(S):	SC 50044/08
COUNSEL:	A S Martin SC / S A Wells (Plaintiffs) C D Wood (Defendant)
SOLICITORS:	Piper Alderman (Plaintiffs) Middletons (Defendant)