Idoport Pty Limited v National Australia Bank Limited and 8 Ors; Idoport Pty Ltd "JMG" and Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [14]
Case
•
[2000] NSWSC 1141
•7 December 2000
No judgment structure available for this case.
CITATION: IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS; IDOPORT PTY LTD "JMG" & MARKET HOLDINGS PTY LTD v DONALD ROBERT ARGUS; IDOPORT PTY LTD "JMG" v NATIONAL AUSTRALIA BANK LTD [14] [2000] NSWSC 1141 FILE NUMBER(S): SC 50113/98; 50026/99; 3991/00 HEARING DATE(S): 16/11/00, 4/12/00 JUDGMENT DATE: 7 December 2000 PARTIES :
Idoport Pty Ltd (Plaintiff)
Market Holdings Pty Ltd (Plaintiff)
National Australia Bank Limited (Defendant)
Donald Robert Argus (Defendant)JUDGMENT OF: Einstein J
COUNSEL : JJ Garnsey QC, RC Titterton, R Alkadamani (Plaintiffs)
JR Sackar QC, JA Halley (Defendants)SOLICITORS: Withnell Hetherington (Plaintiffs)
Freehill Hollingdale & Page (Defendants)CATCHWORDS: Practice and Procedure - Case Management - Commercial List Practice - "Enough is Enough" proposition - Expert advice as to foreign patent law - need to specially plead foreign law - Practice and Procedure - Discretion to permit amendment of pleadings - Principles Applicable thereto - Justice Paramount consideration - Just, Quick and Cheap resolution of disputes LEGISLATION CITED: Limitation Act, 1969 CASES CITED: Ascherberg, Hopwood & Crew Ltd v Casa Musicale Sonzogno Di Pietro Ostali SNC [1971] 1 WLR 1128
Clough v Rogers (1974) 48 ALJR 481 at 482
Cropper v Smith (188 4) 2 6 CH D 700 per Bowen LJ at 710
State of Queensland v J L Holdings Pty Ltd (1996) 189 CLR 146
Teague v Jones [1925] VLR 205 at 207DECISION: Leave to amend allowed on terms
1 This is the third of three judgments dealing with disparate issues raised by an amended notice of motion filed by the plaintiffs on 16 November 2000 and by two notices of motion [Numbers 24 and 25] filed by the defendants on 21 November 2000, notice of motion No. 24 being amended on 5 December 2000. 2 The first of those judgments dealt with issues relating to evidence of foreign law. [2000 NSWSC 1077, delivered on 23 November 2000] 3 The second judgment is being delivered together with this judgment and deals with the plaintiffs objections to so much of the further defendants statements served between September and October 2000 as dealt with regulatory materials and technical requirements and timing. 4 Whilst clearly all three judgments should be read together as they constitute the courts rulings on the notices of motion which were heard together, it seemed to me, convenient to treat separately with the patent infringement questions. 5 Whilst of course also relevant to all three judgments, it is convenient as part of this judgment to return, albeit briefly, to an overview examination of the nature of the proceedings, of the case management of the proceedings through the interlocutory stages leading to the hearing and of the position which has obtained from the commencement of the hearing up to this point in time.
INDEX
page paragraph
Background …………………………………………………………..1 1The Instant Proceedings …………………………………………….2 6
Case managing the proceedings - the ‘enough is enough’
proposition …………………………………………………………..3 10The Patent Case Issue ………………………………………………..5 13
Terms of the proposed amendment …………………………………6 16
The evidence sought to be adduced on the hearing from
Mr McNamara …………………………………………………….…10 18The Patent ……………………………………………………………20 24
The Plaintiffs’ damages claims attributable to the US Market …..24 25
The Defendants’ explanation for the late identification of
the issue ……………………………………………………………….24 26Events subsequent to service of Mr McNamara’s statement ……...25 30
The issue is a matter for specific pleading …………………………33 36
The relevant principles ……………………………………………...35 42
The Defendants’ Submissions ……………………………………….37 46
The Plaintiffs’ Submissions …………………………………………42 55
Dealing with the issue ……………………………………………….51 82
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LISTEINSTEIN J
Thursday 7 December 2000
50113/98 IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS
50026/99 IDOPORT PTY LIMITED & ANOR v DONALD ROBERT ARGUS
3991/00 IDOPORT PTY LIMITED (“JMG”) v NATIONAL AUSTRALIA BANK
JUDGMENT Further Defendant’s Statements served September-October 2000 in so far as dealing with the Patent Case Issue
Background
6 In the three related sets of proceedings the plaintiffs' claim from the defendants damages in the order of $50 billion. The general nature of the proceedings was outlined in an interlocutory judgment delivered on 19 August 1999. Since that date there have been numerous contested motions and contested directions hearings. The pleadings have also moved on in terms of a number of further issues being raised and further particulars being furnished. The MLC proceedings which commenced in September this year are being heard together with the two earlier sets of proceedings. Very extensive discovery has been given and numerous statements filed and served from a large number of witnesses. The general state of the matter as at mid April 2000 was set out in a judgment dealing with a contested application relating to use of the Technology Court. [SC 50113/98]. 7 The final hearing of the proceedings commenced on 24 July 2000. Very extensive openings have occupied most of the court hearing days since the final hearing commenced. The defendants have not completed their opening addresses but the court in the last weeks of term has moved into dealing with the urgent issues of ensuring that as soon as possible at the commencement of term next year, the first witnesses take the witness box. These include the plaintiffs attempts to accommodate certain of the attacks mounted by the defendants upon the Further Amended Statement of Claim by seeking to propound limited amendments and to add some more precise particulars particularly in relation to the cases to be litigated against the individual defendants. The hearing of the plaintiffs’ motion for leave to amend is fixed for 13 December. 8 The court has also in the closing weeks of term, commenced dealing with objections to the expertise of the plaintiffs first witness in chief namely Mr Maconochie. The current proposal is that following the court dealing with these objections and the admission (on the basis of the ‘Directions on Admissibility’) into evidence of Mr Maconochie’s many statements, objections to the expertise of the next witness, Mr Martin, will be determined and his statement read (again on the basis of the ‘Directions on Admissibility’). The defendants will then for approximately two weeks (anticipated to commence in early February next year), complete a section of their remaining opening address. Mr Martin will then be cross-examined. Statements of certain other of the plaintiffs’ witnesses will then be read subject to objections. Those witnesses will then be cross-examined. Interspersed with this exercise at particular points in time, prior to certain groups of the plaintiffs’ witnesses giving evidence, the defendants will shortly complete the balance of their remaining opening addresses going to matters required to be properly understood before those groups of witnesses are called and cross-examined Mr Maconochie is to be cross examined following the giving of evidence of all of the other plaintiffs’ witnesses. The plaintiffs’ case may not close until late next year. 9 I have been responsible for case managing these proceedings from relatively early in 1999. The proceedings have been before the court on enumerable notices of motion and applications and directions. A large number of interlocutory judgments have been delivered. Because of the extreme complexity of the subject matter of the litigation and the number of issues being litigated, it is inappropriate and impracticable to here do more than refer the reader to the pleadings and to the folders of particulars and to the transcript of the months of detailed openings.
The Instant Proceedings
10 One of the most difficult aspects of case managing the proceedings has been the frequency of complaints by each party as to the conduct of the other in so far as the filing and service of statements going to the disparate issues is concerned. The court has sought to achieve a proper balance between: · on the one hand, the usual approach taken to contested litigation before the commercial list which requires the court to carefully monitor compliance with directions so as to ensure that the parties do not take control of the proceedings and so as to ensure that neither party is permitted to ambush the other law · on the other hand, the somewhat more flexible approach which has required to be taken in these proceedings where the scale of the litigation, the stakes in issue and the public interest most particularly require the court within obvious constraints to permit either party to mobilise such evidence as goes to relevant issues, wherever practicable and wherever case management procedures, as a matter of protecting the fair interests of the other party, seem capable of permitting this to occur, 11 The way in which this issue has arisen has involved allegations by the defendants that the plaintiffs in filing statements ostensibly in "reply", have in fact sought to steal a march on the defendants by in truth including further evidence which ought to have been included in the plaintiffs’ statements in chief. The court in granting leave to the defendants to respond to what clearly appeared in a number of cases to be additional evidence in chief, has then been faced with the plaintiffs co-relative claims that the defendants have sought to steal a further march, this time on the plaintiffs, by themselves now going well beyond properly answering the plaintiffs’ ‘new’ evidence. The volume of statements, the number of witnesses and complexity of the issues has meant considerable difficulty in the Court being able to do otherwise than adopt a reasonably broad brush approach in working through these complaints - a pragmatic approach has been taken so as to ensure that, within limits, neither party has room for further complaints. But clearly the line has to be drawn somewhere and the stage has now been reached where, subject to
Case managing the proceedings - the ‘enough is enough’ proposition
12 Speaking very generally, the action consists of claims by the plaintiffs for damages in connection with the alleged failure of the defendants to properly commercialise what has sometimes been described as an Automated Market Quotation System called 'AUSMAQ.' Whether that description is apt is to be litigated. This alleged failure is said by the plaintiffs to sound in damages for, inter alia, breach of contract, breach of fiduciary duty, contravention of s52 of the Trade Practices Act and s42 of the Fair Trading Act, the tort of procuring breach of contract, knowing involvement in breach of fiduciary duty and accessory liability for contravention of the Trade Practices Act under s75B of the Act. In part, those damages are claimed in respect of what are alleged to have been commercial opportunities to exploit the AUSMAQ System in various parts of the world, including the United Kingdom, the United States, Japan and Taiwan, which opportunities are said to have been lost as a result of the alleged malfeasance of the defendants. In the interlocutory judgment [2000 NSWSC 1077 delivered on 24 November 2000] the Court ruled upon foreign law issues which arise because the defendants seek to lead evidence from experts to show that for various foreign law or foreign regulatory reasons, those commercial opportunities for the worldwide exploitation of the AUSMAQ System either did not exist or were not opportunities of the nature or extent posited by the plaintiffs' claim.
(a) the plaintiffs’ entitlement to respond to the most recent evidence filed by the defendants going to regulatory materials and technical requirements and timing - see the separate judgment delivered on 8 December 2000 (this is required to take place in February),
(b) matters which may arise flowing from the plaintiffs foreshadowed application to further amend the current version of the Statement of Claim,
(c) leave sought by both parties to rely on statements filed slightly out of time and
(d) the defendants further statements replying to new liability materials in the plaintiffs’ so called ‘reply’ statements,
a rigorous approach is to be taken to any steps by either party to supplement their cases which have already been supplemented on a number of occasions. The “enough is enough” proposition, even in litigation of this order, must clearly now be applied.
13 The first time any of the legal representatives of the plaintiffs or the plaintiffs became aware of any suggested issue to be litigated in these proceedings relating to an alleged infringement of a United States Patent was on 9 October 2000 when the statement of Mr McNamara of 6 October 2000 was served. 14 As at the time of service of that statement none of the pleadings or particulars in the proceedings raised the issue of patent infringement. The question of any issue in the proceedings involving an alleged infringement of a United States Patent had never been mentioned in court and I accept that the plaintiffs had no notice of any such issue being even arguably raised and no reason to believe that there was any necessity to prepare in any way to litigate such an issue. 15 From time to time following the first mention of this arguable issue at the bar table the court made plain that this was an issue which may very well require to be specially pleaded by the defendants. The defendants initially took the firm approach, as I understood their position, that it was not necessary to specially plead this issue. In the fullness of time and after the plaintiffs notice of motion had been filed and to an extent argued, the defendants elected to approach the patent issue on two levels, the first by seeking in notice of motion No.24 leave to rely upon Mr McNamara's statement notwithstanding that it was filed outside of the time delimited for filing of statements by the court’s orders of 14 July 2000, and the second in notice of motion No. 25 initially seeking leave to amend the Third Further Amended Points of Defence by adding paragraphs 58B - M generally raising the Patent Infringement issue.
The Patent Case Issue
16 The original terms of the proposed amendment were as follows:
Terms of the proposed amendment
17 Following argument the defendants on 5 December 2000 obtained leave to vary the terms of the proposed amendment. The new wording was as follows:
“58B The United States Patent No 5,517,406 for an invention entitled “Method and Apparatus for Date Verification and Position Reporting In An Automated Trade Transactions Processing System” (“ the Patent ”) was valid and subsisting and enforceable in the United States at all relevant times.
Particulars
(a) The Patent is and has been since 14 May 1996, registered under the laws of the United States of America. The complete specification of the patent was published and became open to public inspection [on] 14 May 1996. The priority date of the Patent is 1 September 1994.
(b) The Patent term is for a period of 20 years.
58C The Patent is deemed to have been registered from 1 September 1994.
58D Under United States law, the Patent is presumed to be valid.
Particulars35 U.S.C. § 282
58E Under the laws of the United States, the Patent confers exclusive rights to the patentee to exploit the invention claimed in the claims of the Patent:
(a) within the territory of the United States;
(b) for a period of 20 years from 1 September 1994.
58F If, which is denied, there existed any opportunity to exploit the AUSMAQ Service in the United States, and if, which is denied, there was an obligation to exploit the AUSMAQ Service in the United States, then the Plaintiffs allege in these proceedings that it was important that any such exploitation take place as soon as possible, and be operationally ready in the period (or soon after) July to October 1998.
Particulars
(a) The Plaintiffs’ Opening, at transcript reference T1133;
(b) The Plaintiffs’ Reply to Request for Further and Better Particulars, dated 12 November 1998, at page 123 paragraph (1);
(c) The fifth statement of Mr Maconochie, dated 9 June 2000; at page 6, schedule C and at paragraph 11.1.4.;
(d) The second statement of Professor Pruden, dated 6 June 2000, at paragraph 21;
(e) The statement of Mr Mack dated 5 June 2000, at paragraph 76.1.
58G Prior to commencing any commercialisation of the AUSMAQ Service in the United States, NMG would have obtained advice from US attorneys on likely regulatory, compliance and intellectual property issues.
58H Prior to undertaking any commercialisation of the AUSMAQ Service in the United States, NMG would have undertaken or caused to have had undertaken a search of the United States Patent Office.
58I Had a search of the United States Patent Office been undertaken, the Patent would have been brought to NMG’s attention.
58J Had the Patent been brought to the attention of NMG, NMG would have instructed and sought advice from an appropriately qualified patent attorney in the United States to determine whether the Patent was valid and subsisting and enforceable in the United States, and whether exploitation of the AUSMAQ Service in the United States would have infringed the patent.
58K An appropriately qualified patent attorney would have advised NMG that:
(a) the patent was at least prima facie valid and subsisting and enforceable in the United States;
(b) it was highly likely that the exploitation of the AUSMAQ Service in the United States would have infringed the Patent ( “the Patent Advice”) ; and
(c) the most likely time period to bring and conclude proceedings in which the invalidity of the Patent was established and/or the AUSMAQ Service was held not to infringe the Patent would have been:
(1) obtaining a judgment at first instance - two to three years;
(2) on appeal - a further five months at least and up to two years or more.
58L Had NMG received the Patent Advice, its directors would have needed carefully to consider NMG’s position before it commenced business in the United States.
58M In the circumstances, by reason of the matters alleged in paragraphs 58B to 58L above, the Defendants say that if, which is denied, there was an opportunity to exploit the AUSMAQ Service in the United States, any opportunity to develop, commercialise or exploit the AUSMAQ Service was entirely speculative and would not have permitted the commercial launch of the Ausmaq Service in the US:
(a) by 10 October 1998; or, alternatively
(b) within a time period which would, or alternatively, may, have permitted Ausmaq to be successfully commercially exploited within the US.”
18 Mr McNamara's evidence is to be found in two bound folders. The primary report covers some 31 pages but the attachments cover the balance of the two folders. 19 Mr McNamara gives evidence that based on his review of the Ausmaq system and a review of United States patent 5,517,406 (which he refers to as the '406 patent'), it is highly likely that under United States law if deployed in the United States, Ausmaq would infringe claim 16 of the 406 patent, either directly or under the Doctrine of Equivalents. [paragraph 17] 20 Mr McNamara in his statement covers in detail the impact of United States patent law as a potential bar to deploying Ausmaq in the United States. His statement covers definitions of sections of the relevant legislation and deals with issues raised by relevant case law. 21 Mr McNamara gives detailed evidence covering the several steps necessary as the process for obtaining patent protection. He also gives evidence as to patent enforcement rights. He deals with the distinction in the legislation between direct infringement, inducement to infringe and contributory infringement. 22 In paragraphs 23 and 24 of his statement Mr McNamara seeks to give the following evidence:
‘58B If, which is denied, there existed any opportunity to exploit the AUSMAQ Service in the United States, and if, which is denied, there was an obligation to exploit the AUSMAQ Service in the United States, then the Plaintiffs allege in these proceedings that it was important that any such exploitation take place as soon as possible, and be operationally ready in the period (or soon after) July to October 1998.
Particulars
(a) The Plaintiffs’ Opening, at transcript reference T1133;
(b) The Plaintiffs’ Reply to Request for Further and Better Particulars, dated 12 November 1998, at page 123 paragraph (1);
(c) The fifth statements of Mr Maconochie, dated 9 June 2000; at page 6, schedule C and at paragraph 11.1.4;
(d) The second statement of Professor Pruden, dated 6 June 2000, at paragraph 21;
(e) The statement of Mr Mack dated 5 June 2000, at paragraph 76.1
58C Prior to commencing any commercialisation of the AUSMAQ Service in the United States, NMG would have obtained advice from US attorneys on likely regulatory, compliance and intellectual property issues.
58D Prior to undertaking any commercialisation of the AUSMAQ Service in the United States, NMG would have undertaken or caused to have had undertaken a search of the United States Patent Office.
58E had a search of the United States Patent Office been undertaken, United States Patent No. 5,517,406 for an invention entitled “Method and Apparatus for Date Verification and Position Reporting In An Automated Trade Transactions Processing System” (“ the Patent ”) would have been brought to NMG’s attention.
58F Had the Patent been brought to the attention of NMG, NMG would have instructed and sought advice from an appropriately qualified patent attorney in the United States to determine whether the Patent was valid and subsisting and enforceable in the United States, and whether exploitation of the AUSMAQ Service in the United States would have been infringed the patent.
58G An appropriately qualified patent attorney would have advised NMG that:
(a) the patent was at least prima facie valid and subsisting and enforceable in the United States for a period of 20 years from 1 September 1994;
(b) it was highly likely that the exploitation of the AUSMAQ Service in the United States would have infringed the Patent ( “the Patent Advice” ); and
(c) the most likely time period to bring and conclude proceedings in which the invalidity of the Patent was established and/or the AUSMAQ Service was held not to infringe the Patent would have been;
(1) obtaining a judgment at first instance - two to three years;
(2) on appeal - a further five months at least and up to two years or more.
58H Had NMG received the Patent Advice, it directors would have needed carefully to consider NMG’s position before it commenced business in the United States.
58I In the circumstances, by reason of the maters alleged in paragraphs 58B to 58H above, the Defendants say that if, which is denied, there was an opportunity to exploit the AUSMAQ Service in the United States, any opportunity to develop, commercialise or exploit the AUSMAQ Service was entirely speculative and would not have permitted the commercial launch of the Ausmaq Service in the US:
(a) by 10 October 1998; or alternatively
(b) within a time period which would, or alternatively, may, have permitted Ausmaq to be successfully commercially exploited within the US.”
The evidence sought to be adduced on the hearing from Mr McNamara
23 In paragraphs 51-81 of his statement Mr McNamara seeks to give the following evidence:
“23. In the State Street Bank case in 1998, the Federal Circuit further held that the “transformation of data, representing discreet dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation because it produces a useful, concrete and tangible result-a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and then subsequent trades.” The court instead focused on the “practical utility” of the result, finding that statutory subject matter lies even if the useful result is expressed in numbers, such as price, profit, percentage, cost or loss. The Federal Circuit also laid to rest the “ill-conceived” business method exception stating that since the 1952 Patent Act, business methods have been and should have been, subject to the same legal requirements for patentability as applied to any other process or method. The court noted that neither the Federal Circuit nor its predecessor court, the CCPA, had ever deemed an invention unpatentable solely based on the business method exception. As a result, the court found that a patent generally directed to a data processing system for implementing an investment structure which was developed for use in Signature’s business as an administrator and accounting agent for mutual funds was proper subject matter for patent protection. In view of the State Street bank case, there is no question that patents such as U.S. Patent 5,517,406 discussed further herein contain subject matter which is properly patentable under the patent statues.
Conditions for Patenability
24. The State Street Bank decision noted that business methods, while they are patentable subject matter, must meet the same patentability criteria as all other inventions including the conditions for patentability in § 102 and 103 of the U.S. patent statute. 35 U.S.C. § 102 is often referred to as the “novelty” requirement. This provision of the statute is written to state that one is entitled to a patent unless certain conditions exist. Some of its provisions distinguish between sale and use of the invention in the United States and publication of the invention anywhere in the world. 35 USC § 102 (a) states that a person is entitled to a patent unless the invention was known or used by others in the United States or patented or described in a printed publication anywhere in the world before the invention thereof by the applicant. Generally, an invention is “described” in a printed publication when that publication provides sufficient detail to demonstrate that the author was in possession of the invention. A mere reference to an invention that does not provide such a description would not satisfy the language of this section of the statue. A printed publication, which includes published patents, is generally one that is available to the public, for example through a library or university. Private papers or papers available to select persons only under non-disclosure provisions generally are not printed publications. Invention generally reflects to conception. Priority of rights in an invention is addressed by 35 USC § 102 (g), as discussed further in paragraph 19 herein. Use of an invention by others outside the United States after conception by an inventor does not bar patent protection in the U.S. under this provision of the statute. Inventors may establish dates of conception through contemporaneous invention records, through witness testimony or other means appropriate to the facts of a particular circumstance.”
24 Patent 5,517,406 [“the patent”] forms one of the annexures to Mr McNamara statement. Relevant sections from the patent are in the following terms:
51 In all cases of infringement, it is necessary to find at least one incidence of direct infringement. For example, where the allegations include inducing another to infringe or contributory infringement, there must still be evidence of direct infringement. Direct infringement can occur either literally or under the doctrine of equivalents.
52 In order to prove direct infringement, every limitation of the claim must be found in the alleged accused device or method. Where an element or limitation of the claim is missing from the accused device, there is no infringement. Where the accused device includes all the elements or limitations of the claim, whether alone or in combination of other elements, infringement will be found. Literal infringement requires a direct correspondence between the limitation of the claims and the accused device. Where there is not an exact correspondence, a patentee may allege infringement under the doctrine of equivalents. As interpreted by the courts, the doctrine of equivalents requires that there be insubstantial differences between the limitations of the claims and the accused device. Using an element by element analysis, each element of the claim must still be found in the accused device under the doctrine of equivalents. There is some precedent for a “function-way-result” test which states that infringement will be found if the accused device performs substantially the claimed function in substantially the same way to achieve substantially the same result. While this may be a helpful analytical approach in some cases, the Court of Appeals for the Federal Circuit which hears all patent cases, has relied on the “insubstantial differences” test to determine infringement under the doctrine of equivalents.
U.S. PATENT LAW BARS DEPLOYING AUSMAQ IN THE UNITED STATES
AUSMAQ OPERATION
53. According to Mr. Maconochie’s own testimony, the Electra Due Diligence 15-19 July 1996 Certain Matters Relating To The Use of Information Technology and Application Controls dated July 25, 1996 (Due Diligence Report) is a fair representation of AUSMAQ, except that contrary to the report, AUSMAQ can connect customers directly as end users, under the Dealer representative category of user. As previously noted, it is assumed that the term "Electra" refers to AUSMAQ. AUSMAQ is used throughout the remainder of this report.
54. The system referenced in the Due Diligence Report was one aimed at “providing portfolio order execution, electronic trading, and client portfolio administration in a single currency to the managed funds industry in Australia.” AUSMAQ- A GUIDE states that AUSMAQ is an acronym for Australian Market Automated Management Quotation System, which functions as “An electronic portfolio administration service.” The initial release of the AUSMAQ service was aimed at providing an efficient infrastructure for the execution of investment orders (issues & redemption of managed funds) by financial planners on behalf of their investors.
55. The Due Diligence Report references nine Market Styles, which appear to be functional capabilities. The Due Diligence Report also states that only Market Style 4 was then in use. Market Style 4 is of particular interest because it requires periodic aggregation and off system settlement. According to the table in the Due Diligence Report, the Custodian periodically updates prices on the system as provided by the Fund manager. Total orders and settlement details are communicated to the Funds Manager via the Custodian. The Funds manager can refuse to settle. The custodian then confirms settlement of the aggregated orders with the fund. This action effects immediate settlement of all the individual investors orders on AUSMAQ relating to that fund.
56. A more detailed discussion of this processing is found in AUSMAQ- A GUIDE at pages 9-14. This document indicates that the only tradeables available on AUSMAQ were Public Unit Trusts. Units in these trusts are issued and redeemed with the Fund Managers by the AUSMAQ Custodian on behalf of the individual investors in the AUSMAQ marketplace. The Custodian holds the securities on behalf of the individual beneficial owners – the AUSMAQ clients. Periodically, for example, on a daily basis, the Custodian completes the issue/redemption process for all the investors through a “Cycle” process. A “Cycle” is a group of funds which have the same pricing characteristics. The Group may have a single fund or several funds for a single manager grouped into a Cycle so that the timing of the funds for the single manager can be coordinated. Each cycle has a number of phases and a unique number assigned to identify it.
57. Phase 0 occurs only in the case of historic pricing for issues and redemptions, referred to as Last /Last pricing in AUSMAQ – A GUIDE. In this Phase, the fund manager receives a list of funds in the uniquely numbered cycle and transmits back to the Custodian unit prices for the funds listed. This can be done by fax with the Custodian entering the information received from the Funds Manager. Phase 0 is simply the transfer of pricing information to the Custodian. I have been asked to assume that if the system does not employ historic pricing, these actions take place in phase 1.
58. Phase 1 is a step where orders are aggregated. In Phase 1, all the issue/redemption orders for the products in the cycle are associated with the cycle by attaching the unique cycle number to the orders. Since the funds are separated into cycles based on tradeable product pricing characteristics and order timing, the attachment of the cycle number to the particular orders aggregates the orders based on the fund. The fund manager sees the Custodian as the unit holder, since the Custodian aggregates all the individual issue/redemption orders on the service on behalf of individual investors for a particular product. The custodian requests the issue of the aggregated issue orders and the redemption of the aggregated redemption orders on behalf of all the individual investors on the service. After initiating this phase, the orders cannot be cancelled and the units to be redeemed are “Quarantined” so that they cannot be used for any other purpose.
59. In Phase 2, the custodian confirms the unit prices and begins to quarantine the amount of money required to settle the trades from each investor’s cash account. If insufficient funds are available in a particular account, that order expires and the Proper Authority Holder (PAH) receives notification. The AUSMAQ system then prints a Securities Notice at the Custodian’s office documenting the total number of issues and redemptions required for the cycle and the net settlement figure for settlement with the fund manager. The Custodian then submits the Securities Notice to the fund manager, who may decline settlement if the prices are not correct, and arranges for the transfer of funds either by electronic funds transfer or by check. Assuming the fund manager accepts the transfer, the Custodian will effect the physical net settlement with the manager, in effect receiving cash from the manager for a net redemption of units or delivering cash to the manager for units issued.
60. Phase 3 of the cycle occurs next. In Phase 3, after the physical settlement is complete and, in the case where he receives money from the fund manager, the Custodian has cleared funds through the bank, the custodian confirms the settlement on the AUSMAQ service. As noted in the Due Diligence Report, the custodian confirms the settlement of the aggregated orders with the fund. To this extent it appears that the Custodian is also acting as the Transfer Agent. It is only after the confirmation of the settlement of an individual tradeable product in the cycle that AUSMAQ causes the issue and redemption to the individual investors, who then receive notification.
61. The Automatic Settlement option discussed on pages 13-14 of AUSMAQ- A GUIDE appears to be Market Style 7 and was not implemented in 1996. Automatic settlement requires creating individual client accounts for each individual fund associated with a registered Fund Manager Inquiry User. These accounts, which are for a specific fund, may have no other holdings and units are created and destroyed as they are issued and redeemed, so that the product holding in the account is always zero. When the Custodian confirms settlement to the AUSMAQ Service, the system completes the issue/redemption of units and settlement with the account created for the fund. The custodian is responsible for ensuring there is sufficient money in the fund settlement accounts if required
CONSIDERATION OF U.S. PATENTS 5,517,406 and 5,918,218
62. U.S. patents 5,517,406 (the ’406 patent) titled Method and Apparatus for Data Verification and Position Reporting In An Automated Trade Transactions Processing System and 5,918,218 titled Method And Apparatus For Automated Trade Transactions Processing (the ‘218 patent) appear to address similar subject matter. The applications for both patents were filed the same day, September 1, 1994. The ‘218 patent, which issued on June 29, 1999, is subject to a terminal disclaimer such that it will expire on the same date as the ‘406 patent, which issued on May 14, 1996. The ‘406 patent has 3 independent claims (claims 1, 12 and 16). The ‘218 patent also has three independent claims (claims 1, 9 and 13). Each claim is of different scope.
63. In considering issues of patent infringement, one must examine each of the limitations of the claims. What follows is a discussion of the claims of the ‘406 patent in the context of the AUSMAQ Service’s potential for infringing that claim.
64. As described in its Abstract, the ‘406 patent relates to an automated trade processing system including a record keeper and a host processor. The record keeper receives transaction requests. The record keeper aggregates the transaction requests into omnibus plan transaction requests and transmits them in at least one file having a plurality of fields. A host processor interacts with the record keeper. It receives the files, processes the transactions requests, verifies at least one of the plurality of fields and confirms the trade transaction requests to the record keeper. A transfer agent executes the omnibus plan trades and confirms them to the host processor.
65. Independent claims 1 of the ‘406 patent is an apparatus claim drawn to an automated trade processing system comprising a record keeper means, a host processor means and a transaction execution means. The record keeper means includes means for receiving mutual fund transaction requests, aggregating them into omnibus trade files and transmitting them. The host processor means interacts with the record keeper means and has means for receiving the omnibus plan trade files, verifying at least one of a plurality of fields of information, processing the omnibus or aggregated trades and confirming omnibus trades to the record keeper means. The transaction execution means interacts with the host processor and has means for executing the omnibus trades. The trade acknowledgment confirmation occurs prior to execution of the omnibus trade by the transaction execution means. AUSMAQ appears to perform all these functions except for the timing of the trade acknowledgment. AUSMAQ does not appear to perform trade acknowledgment confirmation prior to execution of the omnibus or aggregated trades. Hence AUSMAQ does not appear to literally infringe claim of the '406 patent. Since AUSMAQ does not infringe independent claim 1, it would not infringe dependent claims 2-11.
66. Claim 12 of the '406 patent is drawn to a method of processing participant mutual fund transactions. Claim 12 recites the step of confirming processing of the omnibus plan trade files and price feed data to the record keeping system prior to the execution of the omnibus or aggregated trades by the transfer means. As discussed immediately above, this feature does not appear to be incorporated into AUSMAQ. Thus, while AUSMAQ performs many of the same functions as those recited in claim 12 of the '406 patent, AUSMAQ does not appear to literally infringe independent claim 12 or dependent claims 13-15 of the '406 patent.
67. Claim 16 of the '406 patent recites a network for facilitating automatic processing of multiple participant mutual fund accounts and transactions relating thereto. As discussed above, AUSMAQ would operate with such accounts where transactions would be performed periodically, such as on a daily basis. Thus, the subject matter of this claim is drawn to a process that would be implemented by AUSMAQ. Although the claim uses the term "mutual fund" it is likely that in view of the specification, the term would receive a relatively broad construction. Column 1, lines 25-30 of the '406 patent states that the invention relates to "an automated trade processing system and more particularly to an automated trade processing system which interfaces customer trade transactions from a record keeping system to a transfer agent which executes customer transactions." Col. 1, lines 36-45 discuss the use of such a system in the context of retirement investment plans known as 401(k) plans under the U.S. tax laws. Col. 1, lines 45-48 state that "The monies contributed to the plan are invested in one or more investment alternatives offered by the particular plan. One prominent investment alternative associated with 401(k) plans is mutual funds." While Column 4, lines 43-47 states that a plan is an organization that invests in mutual funds, this portion of the patent also states that plans perform trades on behalf of participants and may include insurance companies, mutual fund companies, banks and trustees. Col. 5, lines 57-62 state that the discussion in the patent is for purposes of illustration and that the invention is not limited to a 401(k) record keeping environment and that other plans may also be utilized. Thus it is unlikely that the claim would be strictly limited to mutual funds as that term is used in various marketplaces, but instead would be construed in light of the specification to include many different types of funds where trades could be effectively aggregated. Thus, AUSMAQ would most likely be considered a system within the scope of claim 16.
68. Claim 16 of the ‘406 patent first recites a record keeping system. Col. 4, lines 48-53 defines a record keeper as "an organization which performs record keeping and accounting services for a plan and assumes many of the legal responsibilities to the participants in the plan. The record keeper is responsible for accepting trades and forwarding those trades to various mutual fund transfer agents". In claim 16, the record keeping systems stores information regarding a plurality of participants having a mutual fund account. This is clearly a function that would be performed by a record keeping system associated with AUSMAQ. AUSMAQ would need to communicate with other systems, for example systems associated with Proper Authority Holders who enter the investment order onto the AUSMAQ Service, to receive and record transaction requests. AUSMAQ would need to maintain files that would allow the system to recognize authorized users, such as Proper Authority Holders, and to record the funds that can be traded on AUSMAQ.
69. The record keeping system in claim 16 of the ‘406 patent also receives mutual funds transactions regarding participants’ mutual fund accounts. This is also a feature of any record keeping function associated with AUSMAQ in this context. Since some transactions do not take place immediately, but instead settle at the end of a business day, it would be necessary for AUSMAQ to record and store information about the transaction requests, either with the Proper Authority Holder or at some other information storage system. AUSMAQ stores a completed order on its Service as an AT MARKET order for a number of units, the price being supplied by the fund manager depending on the pricing mechanism of the fund.
70. The record keeping system in claim 16 of the ‘406 patent further aggregates the mutual fund transactions by fund and type into omnibus plan trade files. This is also a function that is performed by the AUSMAQ system. After receiving trade requests from the Proper Authority Holders, AUSMAQ aggregates the trades into Cycles based upon pricing characteristics and order timing and assigns a unique identification number to the cycle. Indeed, in AUSMAQ, the aggregation is so complete that the fund manager sees the Custodian as the unit holder because the Custodian aggregates all the individual issue/redemption orders on the service from the individual investors for a particular product. Unless individual investors register to allow the fund manager to have access to information concerning them, the fund manager has no information about the individual investors.
71. The record keeping system in claim 16 of the ‘406 patent also transmits the omnibus plan trade file. This feature would also be found in AUSMAQ, since the aggregated trade information must be transmitted by the Custodian to the fund manager from the record keeping system. According to claim 16 of the ’406 patent, the files comprise a plurality of information fields. This is nothing more than a conventional way of identifying information in the files. AUSMAQ would have such fields as necessary to identify the particular funds to be transacted, the number of redemptions, and the number of units (shares) to be bought.
72. Claim 16 of ‘406 patent next recites a host processor interconnected with each of the record keeping systems for receiving, verifying at least one of the fields of information and processing the omnibus plan trades. The AUSMAQ documentation states that “the Custodian requests the issue of the aggregated issue orders and the redemption of the aggregated redemption orders from all the investors on the Service.” For proper operation, an AUSMAQ processor must receive the aggregated information in the form of an aggregation file that the processor creates using information it receives from other record keeper processors. Thus, it would appear that AUSMAQ would meet the limitation in claim 16 of a record keeping system that aggregates the fund transactions by fund and type into omnibus plan trade files. This would be true whether that aggregation is performed at the host processor or at a processor associated with the record keeper organization in the record keeper system.
73. In the AUSMAQ Service, a processor is also used to process plan trades. Specifically, the Custodian enters the unit price information into a computer and the processor begins to quarantine the amount of money needed to settle the trades from each investor’s account, notifying the Proper Authority Holder if the trade expires as a result of insufficient funds.
74. Claim 16 of the ‘406 patent next recites a transfer agent system for sending trade information to the host processor. Column. 4, lines 54-59 of the '406 patent define a mutual fund transfer agent as an organization which is responsible for pricing and executing mutual fund trades, maintaining and reporting on investor account balances and computing and crediting earnings in the fund.
75. AUSMAQ appears to use the Custodian as the Transfer Agent or its equivalent. The Custodian does not set the fund price, but enters the information he receives in AUSMAQ. In the manual process, the host processor causes a Securities Notice to be printed at the Custodian’s printer and the Custodian then delivers or transmits the Securities Notice to the fund manager. If the transaction is accepted, the Custodian effects the physical net dollar settlement with the fund manager. To this extent the system used by the Custodian appears to function as a Transfer Agent System.
76. Claim 16 of the ‘406 patent also recites that the host processor uses the trade information to evaluate the omnibus trade plan trades and create and transmit a trade acknowledgment confirmation file to the record keeping systems representing the evaluation of the omnibus plan trades. In the AUSMAQ system, the Custodian waits until the funds have cleared in the bank and then transmits a confirmation of the settlement on the Service. The transmission of the confirmation from the Custodian to the host processor causes the host processor to effect settlement of the issues and redemptions to all the individual investors and to dispatch a confirmation notice.
77. As previously discussed herein, literal infringement of a U.S. patent occurs when each of the elements or limitation of the claims is found in the accused device. As demonstrated above, there exists a significant risk that the AUSMAQ system as documented would be considered to contain each of the elements of at least claim 16 of the ‘406 patent. As a result, AUSMAQ would infringe at least claim 16 of the ‘406 patent. Liability for patent infringement exists even where only one claim is infringed.
78. Even if AUSMAQ were found not to literally infringe the ‘406 patent, there is a significant risk that it would be found to infringe the ‘406 patent under the Doctrine of Equivalents. Applying an element by element analysis, an equivalent appears to exist in AUSMAQ for each of the elements of claim 16 of the ‘406 patent. For example, even if the record keeping system were found not to literally exist in AUSMAQ because a separate system does not perform the aggregation, the aggregation is performed by a processor before the information is used and sent to the fund manager for pricing. Thus, there is an insubstantial difference in the way the AUSMAQ system performs and the language of claim 16.
79. Claim 17 depends from claim 16 and recites the additional feature of formatting the verified fields into at least one daily transaction file. This is a feature that would be required for AUSMAQ to report transaction completion to the Custodian or to the individual investors. Thus, claim 17 is also likely to be infringed by AUSMAQ either literally or under the doctrine of Equivalents. Claim 17 may be indefinite, however, since it recites a further step relative to claim 16, while claim 16 is an apparatus claim. Definiteness means that the language of the claim must clearly set forth the area over which the applicant seeks exclusive rights. Chisum, D. Chisum On Patents , §8.03[2] (1990).
80. Claim 18 of the '406 patent is most likely indefinite, since it not only recites a further step to apparatus claim 16, but also refers to daily transaction files and a transaction execution means not mentioned ion claim 16.
81. The '218 patent includes many features of the '406 patent with the addition of a trade mismatch file. According to the Abstract, "the host processor compares the trade acknowledgment confirmation and the trade execution confirmation and generates a mismatch file which is then transmitted to the at least one record keeping system." This feature appears in all the independent claims. Such a trade mismatch indication, generated either by the Custodian or the Proper Authority Holder, would appear to be a necessary feature of AUSMAQ to be function effectively. However, I did not locate such a feature in the available AUSMAQ documentation. Assuming such a feature or its equivalent is not present, the claims of the '218 patent would not be infringed.’
The Patent
25 It is common ground that in his statement of 20 July 1999 Mr Skelton assesses damages attributable to the US of between US$874,415,603 and US$5,632,133,321.
‘ABSTRACT
An automated trade processing system including a record keeper for receiving participant mutual fund transaction requests. The record keeper also aggregates the participant mutual fund transaction requests by mutual fund into omnibus plan transaction requests. These requests are then transmitted in at least one file which has a plurality of fields of information about the omnibus plan transaction requests. A host processor, interacting with the record keeper, receives [the][sic] at least one file, processes the omnibus plan transaction requests, verifies at least one of the plurality of fields of information, and trade-acknowledgment confirms the omnibus plan transaction requests to the record keeper. The host processor then transfers the omnibus plan transaction requests to a transaction executor which executes the omnibus plan transaction requests. The trade-acknowledgment confirmation occurs at a time prior to execution of the omnibus plan transaction requests. The transfer agent executes the omnibus plan trades and trade-execution confirms them to the host processor. The host processor compares the trade-acknowledgment confirmation and the trade-execution confirmation and generates a mismatch file which is then transmitted to the at least one record keeping systems. This cycle occurs in less than a day and enables the record keeping system to perform daily valuation of all participant accounts in its various plans.’…….
SPECIFICATION
“..FIELD OF THE INVENTION
The present invention relates to an automated trade processing system and more particularly to an automated trade processing system which interfaces customer trade transactions from a record keeping system to a transfer agent which executes the customer trade transactions. Even more particularly, this present invention relates to a automated trade processing system which verifies and trade-acknowledgment confirms incoming transaction requests.
BACKGROUND OF THE INVENTION
In recent times, both employees and employers have become cognizant of the tax implications of payroll amounts and the significant impact such taxes can have on an employee’s take home pay. One particular vehicle for reducing tax burden provided for under the tax laws is the 401(k) plan. Such plans, which are offered by almost all major employers and by an increasing number of small employers, are designed to encourage retirement savings in return for deferred taxation on the income.
The monies contributed to the plan are invested in one or more investment alternatives offered by the particular plan. One prominent investment alternative associated with 401(k) plans is mutual funds. Often, 401(k) plans offer investment opportunities including a particular mutual fund family with each of the particular mutual funds representing a particular investment directive. Participants are typically provided with the ability to exchange shares of one mutual fund with another. In view of the purpose of 401(k) plans (encouraging retirement savings), withdrawals (fund redemptions) prior to retirement age are severely limited and often carry an associated tax penalty.
In a typical scenario, 401(k) participants purchase and redeem shares in mutual funds through the transfer of payroll assets to a transfer agent (for a purchase) or through the transfer of fund assets to the participant (for a redemption). The transfer agent acts on behalf of the mutual fund or family of mutual funds in order to execute all transactions (including purchases, redemptions and exchanges between funds) relating to one or more funds. All such transactions are subject to various tax reporting requirements and legal and accounting restrictions.
The tax laws applicable to 401(k) are at best, complex. Such constraints are maximum contributions per employee, detailed IRS reporting requirements and significant administrative responsibilities may be problematical for employers both large and small. Due to this complexity, many employers enlist the services of a record keeper. The Department of Labor’s interpretation of the rule 404(c) indicates that a provider can limit their fiduciary liability if a wide variety of investment options are available within the 401(k) plan it provides and if they increase the frequency by which participants in the 401(k) plan can change their elections. This interpretation has encouraged many employers to increase the selection of investment options available within its 401(k) plan. As more and more plan sponsors enhance their plan and offer more investment options, the need for accurate record keepers to assist in the growing task of overseeing these plans increases.
Valuation of investments in retirement plans, such as a 401(k) plan, was traditionally performed using a technique called balance forward, In such a system, changes to investment options in the plan would only become effective at the end of a balancing period, for example, quarterly. The balance of the account throughout the quarter thus was brought forward to the end of the quarter for valuating the participant’s account. Participants in these plans, however, began to demand daily valuation, whereby investment options could be altered on a daily basis and whereby balances for the participant’s account would be updated daily. Performing daily valuation requires that the record keeper of the 401(k) plan report the market value for each participant’s account on a daily basis. Any errors on the part of the record keeper may make the record keeper “financially” liable to the participant.
Unfortunately for plan participants, plan sponsors and record keepers, there has heretofore been no ability to perform the required transactions in a timely, accurate and efficient manner and without a significant amount of human intervention which is required to meet the objective of providing daily valuation. In most cases, it is currently necessary to acquire or develop an accounting system and specialised staff working throughout the day and the night to process plan adjustments and transactions to complete valuation on a daily basis. This is a necessity because plan sponsors as well as plan participants demand timely access to current positions and recent transactions associated with the plan accounts. As a result, significant labour and equipment charges are incurred to provide the required daily accounting cycle. In addition, reconciliation of accounts is often difficult to achieve and inaccuracies are often introduced.
Also, problems exist for transferring information between the record keepers and the host processing center. Particularly, the data sent by the record keeper may be inaccurate, incomplete, or otherwise incompatible with the information needed by the host processor. Not all of the records in a file may be erroneous and it may be desirable to sort through and process the valid records and reject the invalid ones.
SUMMARY OF THE INVENTION
It is therefore an object of the present invention to provide record keepers, plan sponsors, and the plan participants, with reliable and efficient access to record keeping data regarding mutual fund accounts which provides verification of data transferred between a record keeping system and a system for processing the mutual fund accounts.
It is a further object of the present invention to provide this access automatically and with a minimum of human intervention.
It is a yet further object of the present invention to provide position information, trade execution and trade verification accurately and on a daily basis.
Accordingly, the above objects are performed with an automated trade processing system including a record keeper for receiving participant mutual fund transaction requests. The record keeper also aggregates the participant mutual fund transaction requests by mutual fund into omnibus plan trades. These requests are then transmitted in at least one omnibus plan trade file which has a plurality of fields of information about the omnibus plan trades. A host processor, interacting with the record keeper, receives the omnibus trade files, verifies at least one of the plurality of fields of information in the omnibus trade files, sorts, prices and extends the omnibus plan transaction requests, and trade-acknowledgment confirms the omnibus plan trades to the record keeper. The host processor then transfers the omnibus plan trades to a transaction executor which executes the omnibus plan transaction requests. The trade-acknowledgment confirmation occurs at a time prior to execution of the omnibus plan trades.
One particular advantage of the invention herein is the ability to provide trade-acknowledgment confirmation back to the record keeper prior to actually receiving trade-execution confirmation from the transfer agent. Normally, after sending the plan trades to the transfer agent, the record keeper would have to wait for the transfer agent to execute a nightly update before receiving back trade-execution confirmation. This would not allow the record keepers to update their record keeping systems in time to provide daily valued information to plan participants and sponsors the next morning. Additionally, with the trade-acknowledgment confirmation, price and accrual information form the transfer agents is passed to the record keeper. Therefore, the record keeper can begin the process of daily valuation of participant accounts even prior to the actual execution of the requested trades.
Further, plan account balances maintained at the transfer agents are also transmitted to the record keeper. The balance files contain information regarding the position of the plan. The record keeper may then aggregate all of its participant account for the particular fund to determine its aggregate balance for the plan. The record keeper then may reconcile its aggregate “plan” balance maintained by the transfer agent. In the method of this invention, valuation and position information can then be current and accessible to plan participants and/or the record keeper on a daily basis. In the event of an unexecuted trade, a mismatch file reporting the discrepancies is transmitted to the record keeper for reconciliation on a daily basis…….
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
…A mutual fund transfer agent is an organization which is responsible for pricing and executing mutual fund trades, maintaining and reporting on investor account balances, and computing and crediting earnings in the fund. Typically one transfer agent oversees a plurality of various mutual funds…….
CLAIM 16
…16. A network for facilitating automatic processing of multiple participant mutual fund accounts and transactions relating thereto comprising:
at least one record keeper system for storing information regarding a plurality of participants having a mutual fund account, receiving mutual fund transactions regarding said participant mutual fund accounts, aggregating said mutual fund transactions by fund and type into omnibus plan trade files, and transmitting said omnibus plan trade files, said files comprising a plurality of fields of information regarding the omnibus plan trades;
a host processor interconnected with each of said record keeping systems for receiving, verifying at least one of the fields of information, and processing said omnibus plan trades; and
at least one transfer agent system for sending trade information to said host processor, wherein said host processor uses said trade information to evaluate said omnibus plan trades and create and transmit a trade-acknowledgment confirmation file to said at least one record keeper system representing the evaluation of said omnibus plan trades.’
The Plaintiffs’ damages claims attributable to the US Market
26 The explanation given by Mr Johnson a partner in the Litigation Group of Freehill's who has since March 2000 had primary responsibility at partner level for the defendants’ damages evidence as to how it had come about that the patent infringement issue came to the defendants attention was that during August 2000 he became aware through a discussion with Kylie Day, whom I understand to be a solicitor also with Freehill's working as part of a group of solicitors with knowledge of aspects of the damages part of the case, that relatively recent developments in United States law permitted for the patenting of business methods. Mr Johnson then caused patent searches to be undertaken on United States data bases for patents that might deal with automated securities trading systems. 27 In late August 2000 the searches which Mr Johnson initiated led to the identification of Patent No 5,517,416, with which Mr McNamara deals in his statement. 28 Shortly after receiving a copy of that patent Mr Johnson read it and observed the description in the abstract of the patent and noticed that the patent appeared to be directed at 401 (k) activity. 29 Mr Johnson formed the opinion that it would be important for the court to have before it evidence of the patent and a related patent No 5,918,218. In early September 2000 Mr Johnson retained Mr McNamara as an expert witness and forwarded materials to him leading to his report having been served on 9 October 2000.
The Defendants’ explanation for the late identification of the issue
30 Upon the defendants being served with Mr McNamara's statement it became necessary for the plaintiffs to indicate their position. Mr Hetherington who is the plaintiffs’ solicitor on the record and a partner of Withnell Hetherington, gave evidence in his affidavit of 15 November 2000 that it would be necessary for the plaintiffs to retain a Patent Attorney in Australia and in the United States to give instructions and to conduct patent searches, and for the plaintiffs legal representatives to consider whether to challenge the validity of the patent as well as to contest infringement, and if so, then to obtain appropriate evidence from appropriate experts. In that affidavit Mr Hetherington deposed that he did not know how long would be required to complete all those matters but would expect that a minimum period of five to six months would be required. 31 Following the filing of Mr Hetherington's affidavit Mr Johnson made a further affidavit on 21 November 2000 in which affidavit he set out the result of inquiries which he had made of Mr Glitzenstein who is a principal with the law attorney firm of Fish and Richardson PC this being apparently one of the largest law firms in the United States practising exclusively in the areas of intellectual property, complex litigation and technology law. The matters communicated to Mr Johnson by Mr Glitzenstein relating to procedures concerning applications for patent, examinations by the Patent Office, re-examination of patents by the Patent and Trademark Office, Court proceedings, grounds for attacking the validity of a patent, evidence generally used, remedies and the like were then detailed in Mr Johnson’s affidavit and subject to one or two particular matters have been accepted by the patent attorney now retained by the plaintiffs to give general advice on the same area. That patent attorney is Mr Goodhew a principal of the firm of Pizzeys Cock Patent and Trademark Attorneys of Queensland. Mr Goodhew has been registered to practise in Australia as a patent attorney since 1995, from 1981 to 1985 was an Examiner of Patents Act the Patents and Trademarks Office (as it then was) and from 1986 to 1994 was employed as a technical assistant having the duty of prosecuting patent applications on behalf of clients, under the supervision of a registered patent attorney, and that as an integral part of his practice since 1986 has taken instructions to file and prosecute applications for the grant of patents in many countries, including the United States, where he instructs a United States associate, who is licensed to practise before the United States Patent and Trademark Office (USPTO) to act as an advocate before that office on behalf of his clients. Those associates keep Mr Goodhew fully informed of progress of the applications and in doing so provide detailed advice as to the practice and procedure before the USPTO. 32 The convenient course is to set out below the relevant paragraphs from the affidavit of Mr Johnson and to insert in square brackets the comments which Mr Goodhew has made on the few occasions when his information slightly varies from, or should be read together with, the information given by Mr Glitzenstein. Broadly Mr Goodhew gives evidence that some of the generalities expressed in paragraph 5 of Mr Johnson's affidavit need to be modified in the case of patents for business methods. 33 Paragraph 5 of Mr Johnson's affidavit was in the following terms:
Events subsequent to service of Mr McNamara’s statement
“Mr Glitzenstein informed me and I believe each of the matters set out in paragraphs 8 (a) to 8 (kk) below:
Application for a Patent
(a) 35 U.S.C. §§ 111-122 define the requirements for applying for a patent in the United States or deal with other matters such as confidentiality.
(b) 35 U.S.C. § 111 provides for two types of applications. Under 35 U.S.C. § 111(a) a non-provisional application must include:
(1) a specification as prescribed by 35 U.S.C. § 112
(2) a drawing as prescribed by U.S.C. § 113; and
(3) an oath or declaration as prescribed by 35 U.S.C. § 115.
The application must also include one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention: 35 U.S.C. § 112 para 2.
(c) The Specification must provide a complete written description of the invention and of the manner and process of making and using it in such clear concise and exact terms as to enable any person skilled in the art to which it pertains to make and use the invention. It must set forth the best mode contemplated by the inventor for carrying out the invention as of the application’s filing date.
(d) The application must include an oath that the inventor believes himself to be the original and first inventor of the process, machine, manufacture or composition of matter or improvement thereof for which he solicits a patent.
Examination by the Patent Office
(e) 35 U.S.C. §§ 131 - 135 define the examination process in the United States.
(f) Applications received at the U.S. Patent and Trademark Office are routed to the assignment branch which reviews the application and forwards it to a technology art group. The group director assigns the application to an individual examiner who conducts the substantive examination of the application.
(g) The primary focus of the examiners is to determine whether:
(1) the application complies with the requirements of 35 U.S.C. § 112; and
(2) the claimed invention is novel under 35 U.S.C. § 102 and non-obvious under 35 U.S.C. § 103.
(h) An examiner examines an application by reviewing the claims, determining if the specification and drawings support the claims and conducting a search of the prior art relative to the claimed subject matter. Examiners at the U.S. Patent and Trademark Office have access to a large body of prior art including U.S. and foreign patents (although dominated by US patents) and numerous publications in different technology areas The front page of each patent indicates the art classes the examiner searched and identifies the prior art references which the examiner considered. [Mr Goodhew has stated that in relation to the second sentence of this subparagraph, it needs to be understood that there is not a large body of organised and readily indexed patent literature for an examiner to search in relation to business methods and like schemes, because they have been regarded in both Australia and the United States as not forming suitable subject matter for the grant of a patent until recent years. Such material as there is is not highly organised and searchable, as in other areas. As a result in the case of business methods the prior art base is less useful and less readily accessed by examiners and applicant in the pre-registration process than in other fields or arts, and therefore business method patents have a higher probability of being subsequently held invalid as there is a high probability of matter which may invalidate a patent which has not been ascertained or considered at the pre-registration and grant stage]
(i) There is a duty of candour on the inventor to disclose to the examiner known prior art which is material to the issue of patentability. Compliance with the duty of candour is important because intentional concealment of noncumulative material prior art could render even a valid patent unenforceable. [Mr Goodhew has stated in relation to this subparagraph that although inventors have a continuing duty of disclosure the extent to which an inventor goes in discharging that duty will vary from one individual to another. In Mr Goodhew's experience the failure to disclose is not in issue in the great majority of cases]
(j) Upon consideration of the prior art and the application, the examiner will issue an office action identifying which, if any claims have been allowed and which, if any claims are rejected and stating the reasons therefor. The applicant is entitled to respond to any rejection by either amending the claims or making persuasive argument. Assuming that some claims are ultimately found allowable, a patent will issue on those claims
(k) There is a presumption of validity under US patent law: 35 U.S.C. § 282. This is in deference to the close scrutiny given to applications during the administrative process. [Mr Goodhew believes that whilst 35 UCS 282 provides for a statutory presumption of validity, it does not in any way preclude a challenge to the validity of a patent, it merely establishes that the onus is on a person disputing the validity of a patent]
The Patent in Issue
(l) The 5,517,406 patent (“the Patent”) indicates that the patent application was filed on 1 September 1994 and the patent was issued on 14 May 1996.
(m) The Patent grants a right of exclusive use of the invention for a period of 20 years from the date the patent application was filed, 1 September 1994.
Reexamination of a patent by the Patent and Trademark Office
(n) There is a reexamination procedure for a person to challenge a patent by filing an application before the U.S. Patent and Trademark Office. Reexamination is limited to consideration of printed prior art (either patents or printed publications). The person requesting reexamination needs to identify an item of printed prior art not cited to the Patent Office previously during regular examination. If the reference was published or the patent granted before 1 September 1993 in the case of this Patent it would be prior art. However if it was between 1 September 1993 and 1 September 1994 the patentee would have the opportunity to show the Patent and Trademark Office that the subject matter was invented by them prior to the date of the reference.
(o) The Patent and Trademark Office has three months in which to determine whether a substantial new issue of patentability has been raised by the request. This is the threshold determination. If the threshold question is answered in the affirmative the Office re-examines the patent in light of the prior art and may determine that one or more of the claims of the Patent are not patentable.
(p) Only the patent owner has the right to appeal by way of judicial review from an adverse finding on a reexamination. Third-party reexamination requesters have no right of appeal and therefore, in many instances, elect to commence court proceedings instead of requesting reexamination by the Patent and Trademark Office
Court Proceedings
(q) Patent cases are brought in the U.S. District Courts, which are Federal Courts.
(r) Either party to patent proceedings can request a trial by jury.
(s) Typically an action is brought by a patentee asserting infringement and the alleged infringer raises as a defence the validity, non-infringement and/or unenforceability of the patent. The alleged infringer may also counterclaim for a declaratory judgment (know as a Declaratory Judgment Action) of the invalidity, non-infringement and/or unenforceability of the patent.
(t) Under the U.S. Constitution there needs to be an actual case or controversy before any lawsuit can be brought. If there is a threat by the patentee of infringement action, this is usually sufficient to meet this requirement, and the alleged infringer is permitted to bring a Declaratory Judgment Action as plaintiff, seeking a declaration that the patent in question is invalid, not infringed, or unenforceable.
Grounds of attacking the validity of a patent
(u) The main substantive grounds for attacking the validity of a patent are as follows:
(1) lack of novelty or anticipation
(2) lack of inventive step/obviousness;
(3) failure to claim patentable subject matter;
(4) lack of utility or operability;
(5) improper addition of new matter; and
(6) failure to state the true inventors.
(v) There are textual bases for challenging the validity, the main ones being:
(1) failure to disclose best mode for carrying out the invention;
(2) failure to include an enabling disclosure;
(3) failure to include a written description of the invention;
(4) failure to include sufficiently definite claims.
Evidence generally used
(w) In infringement proceedings by way of defence, or in proceedings seeking declaratory relief for patent invalidity, the evidence (on the invalidity aspects) generally used is from four main sources:
(1) items of prior art;
(2) experts in the relevant field/person skilled in the art;
(3) the inventor or inventors; and/or
(4) objective evidence of non obviousness (see paragraph (cc) below).
Lack of Novelty
(x) Lack of novelty (typically referred to as ‘anticipation’) means that the claimed invention is not valid because it was not new. An invention lacks novelty if every aspect of it was disclosed in the ‘prior art’.
(y) To render a claim invalid for anticipation, a piece of prior art must describe the invention so as to enable a person of skill in the art to make and use it.
(z) To identify prior art one would generally start with a patent and literature search. One may also hire experts to find out generally what various people or organisations may have been working on at the relevant point of time. Once relevant people or organisations had been identified, one could depose and/or obtain documents from third parties by subpoena.
(aa) Under United States law, lack of novelty is a matter of law to be determined by the Judge which can be resolved before trial. It is often not necessary to have expert evidence as to lack of novelty.
Obviousness
(bb) A patent is not valid if the invention described can be shown to have been obvious in light of the prior art. In order to show obviousness one would need to consider:
(1) the scope and content of the prior art;
(2) the differences between the prior art and the invention; and
(3) whether these differences are such that the claimed invention would have been obvious to a person having ordinary skill in the art at the time the invention was made.
(cc) In determining whether a person of ordinary skill in the art would have found the invention obvious, objective indicia of non-obviousness are considered. These objective indicia include long felt need and commercial success.
(dd) Other grounds of invalidity, such as failure to disclose the best mode, failure to include an enabling disclosure, failure to include a written description, failure to state proper inventorship, generally do not require searches of the prior art. Evidence from the inventor or from the discovery given by the patentee may be relevant to whether the best mode of using the invention was disclosed, or whether the description was detailed enough to enable a person of skill in the art to make and use the invention without undue experimentation. Expert evidence may also be relevant to this latter issue.
34 Mr Johnson in his affidavit has sought to refer to paragraphs 23 and 24 of the statement of Mr McNamara which have already been set out, solely for the purpose of indicating what Mr Johnson believes to be the United States law with regard to patenting of business methods. 35 Mr Johnson has also deposed that free Internet search can be made from Australia for United States patents by number, boulen search etc. He has annexed to his affidavit a copy of the home page for a particular site which indicates that one may access and print front pages, text of plans and full text of United States patents and search by patent number and words or phrases. He has also annexed to his affidavit copies of extracts from searches of the web site of the United States Patent and Trademark Office which indicate that one can perform online full text searches of patents issued since 1790.
Timing
(ee) Most typically infringement and validity issues are determined together by the District Court. If a Declaratory Judgment Action is brought by the alleged infringer, the patentee as defendant will generally bring an infringement counter-claim. It is more usual to have patent infringement proceedings initiated by the patentee, with the alleged infringer asserting invalidity non-infringement and/or unenforceability as part of its defence.
(ff) If Ausmaq wished to commence business in the US in mid-late 1998 and infringement proceedings were threatened based on Patent 5,517,406 those proceedings would typically take two to three years to be disposed of at trial (depending to some extent on the court in which the proceedings were filed).
(gg) Any party losing on an issue would have an appeal as of right to the U.S. Court of Appeals for the Federal Circuit. The timing for an appeal to be disposed of after final judgment is entered by the District Court would typically be:
(1) a briefing period taking typically in the order of four to eight months;
(2) typically one to four months after the briefing is complete for the setting of a hearing date; and
(3) determination of the Court of Appeals which may take between a week and a year or even more after hearing depending on the complexity of the issues involved.
(hh) From the Court of Appeals of the Federal Circuit there is an appeal only by way of leave (writ of certiorari) to the U.S. Supreme Court. The U.S. Supreme Court would typically issue or decline to issue a writ within about six months of the disposal of the Court of Appeal’s judgment.
Remedies
(ii) The possible remedies in a patent infringement action available to the patentee are damages and/or an injunction. Generally damages will be awarded on the basis of lost profits or reasonable royalty, however, if wilful infringement can be shown, damages may be increased up to three times. Infringement would be wilful if the infringing party had no reasonable basis for believing that its activities would not give rise to liability under the patent, because it believed the patent to be either or both not infringed or invalid.
Obtaining an expert report on infringement
(jj) It would take Mr Glitzenstein about two to four weeks to prepare a report dealing with the issue of infringement for the purpose of legal proceedings in Australia, commenting on whether the Ausmaq Service, infringed US Patent number 5,517,406 if the Ausmaq Service was described to him in detail by way of assumptions. The Patent and Trademark Office file could be obtained within a day in the United States.
Obtaining an expert report on patent validity
(kk) It would take Mr Glitzenstein in the order of two to four months to provide a report for the purpose of legal proceedings in Australia, commenting on whether US Patent number 5,517,406 was valid. A report dealing with the issue of validity could take longer than a report dealing with infringement because: it would typically involve making searches to locate pertinent prior art and may require consultations with experts in the relevant field; and additionally, if the basis of the invalidity analysis was obviousness, it would also be necessary to consider the several factors identified in paragraphs 5 (cc) and (dd).”
36 Part 15 rule 13 of the Supreme Court Rules provide in sub rule 2 :
The issue is a matter for specific pleading
37 Part 15 Rule 13 (2), by listing examples of some matters a defendant must specifically plead, does not represent a complete statement of the circumstances when a defendant must plead something specifically if that matter properly falls into one of the three sub-rules (a) - (c) of Part 15 Rule 13(2). This is clearly the effect of the use of the words ‘for example’ and, furthermore, there is Victorian authority to this effect, albeit on a slightly differently worded rule: Teague v Jones [1925] VLR 205 at 207 per McArthur J. Moreover, there is direct authority for the proposition that a defendant who wishes to rely on a matter of foreign law must specifically plead that foreign law matter: Ascherberg, Hopwood & Crew Ltd v Casa Musicale Sonzogno Di Pietro Ostali SNC [1971] 1 WLR 1128 where the defendants wished to lead evidence that in Italian law certain words in a copyright agreement were terms of art which possessed a certain meaning. Russell LJ (with whom Karminski LJ and Sir Gordon Willmer agree) said:
" In a defence the party pleading shall plead specifically any matter, for example, performance, release, any statute of limitations, extension under Division 1 of part 4 of the Limitation Act, 1969, of a right or title, voluntarily assumption of risk, causation of accident by mechanical defect not known to, or discoverable by, the defendant, fraud or any fact showing the legality-
(a) which he alleges makes any claim, defence or other case of the opposite party not maintainable;
(b) which, if not pleaded specifically, may take the opposite party by surprise; or
(c) which raises matters of fact not arising out of the preceding pleading"
38 Clearly the patent infringement issue if not pleaded specifically may have taken (and in fact did take) the plaintiffs by surprise. 39 In my view the patent infringement issue requires to be specially pleaded under sub-rule (b). 40 In any event the defendants require the courts leave to rely upon the statement of Mr McNamara as it falls outside the current regime set down by directions for the filing statements. 41 The convenient course is to simply treat the matter as an application for leave to amend the defence and to turn to the issues required to be taken into account in the exercise of the court's discretion in dealing with such an application. It seems however that very similar issues would require to be taken into account if the matter was not to be dealt with as requiring the amendment, but was simply to be dealt with in terms of the appropriate exercise of the court's discretion where the defendants seek, out of time, to treat with a matter which all parties apparently accept, was never previously notified and certainly as raising a novel matter for litigation in an entirely new way. The essential difference is because outside of allowing the amendment, the patent infringement matter is simply not an issue permissible to be litigated in the proceedings.
“I consider that an amendment of their defence is necessary to enable the composer’s heirs to lead evidence under the two heads I have mentioned. We have been referred to a number of authorities but I think it is sufficient in this connection to refer to the requirements as to pleadings in RSC, Ord 18, r8(1)(b) which requires that the defence should plead specifically any matter which if not specifically pleaded might take the opposite party by surprise. Supposing that nothing had been said, and suppose that the expert witness had been available at the trial: the plaintiffs would have opened and closed their case on the basis simply of the agreed translations of Italian agreements. The composer’s heirs would then have put their Italian legal expert into the box to state (for example) that in Italian law certain words used in the Italian agreements were terms of art and by no means meant what the English mind would take the English translation to mean.”
42 In State of Queensland v J L Holdings Pty Ltd (1996) 189 CLR 146 the High Court carefully analysed the development up to January 14 1997, of approaches taken to the exercise of the discretion to permit amendments to pleadings. Generally that judgment of the High Court, without purporting to be exhaustive, serves to set out the types of consideration which ought to direct the mind of the decision maker on such applications. However, the court accepted that the trial judge is afforded a large discretion in relation to the exercise and that it would be unwise and contrary to principle to seek to fetter that discretion with rigid rules. The special significance of the decision is to direct the mind of the decision maker to many of the considerations which may be taken into account in exercising the discretion and to emphasise, if it needed to be emphasised, that justice is the paramount consideration in determining such an application. 43 J L Holdings dealt, of course, with the particular circumstances before the court and whilst the general statements to be found in the joint judgment of Dawson, Gaudron and McHugh JJ and in the judgment of Kirby J. assist a decision maker considerably, the obvious fact is that each and every case in which an application for leave to amend is pursued requires the court to deal with the special and peculiar matrix of circumstances which obtain at the material point in time in the litigation in respect of which such application is pursued. 44 To my mind the following statements of principle affirmed in JL Holdings are fundamental and clearly and succinctly express the general approach to be taken:
The relevant principles
45 A recent development in this State, which the Court is also entitled and indeed required to take closely into account, relates to Part 1 of the Supreme Court Rules as modified by Amendment No 337, which elucidates the overall objectives of practices and procedures as specified in the Rules. The overriding purpose of the Rules is to facilitate the “just, quick and cheap resolution of the real issues” in civil proceedings. The overriding purpose clause imposes an obligation on the Court to give effect to the overriding purpose when it exercises any of its powers.
[ Clough v Rogers (1974) 48 ALJR 481 at 482]
(a) "Now, I think it is a well established principle that the object of Courts is to decide the right of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the under division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Court's do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment has a matter of favour or of grace"
(b) "As the defence, if established, would be a complete answer in the either action, the amendments sought should have been an amount unless it appeared that injustice would thereby have been an occasion to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants. With the exception of the suggestion of prejudice arising in respect of the loss of the possible claim against the nominal defendant, the matters relied upon by the respondent in opposition to the amendments sought go at the most to delay and irregularity only, matters which are relevant to costs by do not constitute injustice to the respondent in the sense in which that expression is used"
[ Cropper v Smith (188 4) 2 6 CH D 700 per Bowen LJ at 710]
46 The defendants point out that they raise the patent issue in the context of the plaintiffs loss of opportunity case in relation to the exploitation of the Ausmaq Service in the United States financial services markets. The defendants now submit that under cover of the varied wording of their proposed amendment, they do not need to assert that a United States Court would ultimately have upheld the validity of Patent No 5,517,406 and declared that the Ausmaq Service infringed that Patent. 47 Rather the defendants identify their case as sought to be litigated under cover of the draft amendment as follows:
The Defendants’ Submissions
48 The defendants submit that the principal issues for the Court consideration as sought to be litigated by the amendment are:
(a) the plaintiffs allege that exploitation of Ausmaq in the United States ought to have taken place as soon as possible and would have been operationally ready in the period (or soon after) July to October 1998
(b) prior to commencing commercialisation NMG would have obtained advice from United States attorneys on intellectual property issues
(c) a search of the United States Patent Office would have brought the patent to NMG's attention
(d) NMG would then have sought advice from a United States Patent attorney to determine whether the patent was valid and as to potential infringement
(e) the United States Patent attorney would have advised that the patent was prime facie valid and that it was highly likely that exploitation of Ausmaq in United States would infringe the patent
(f) the United States Patent attorney would have advised that the time period in which United States Court proceedings could conclusively determine the validity/infringement issues would have been 2 to 3 years (at first instance) and a further period of between five months and 2 years or more (to dispose of any appeals)
(g) in light of this advice the NMG directors would have needed carefully to consider the company's position before it sought to exploit the Ausmaq Service in the United States
(h) in the circumstances, if there was an opportunity, it was entirely speculative and would not have committed the commercial launch of Ausmaq within a time period allowing for its successful commercial exploitation
49 The defendants submit that it would not be appropriate for the Court to second-guess the outcome of United States patent litigation in light of the amendment and the defendants state that they do not ask the Court to do so. The submission is that moreover, the hypothetical nature of any exploitation of the Ausmaq Service in the United States and the lack of clarity of the Ausmaq proposition in the United States would preclude any final determination of potential infringement. The submission is that specifically, the Court need not determine:
(a) whether NMG would have sought advice
(b) the likely content of that advice and
(c) in light of that advice, in assessing the probabilities and possibilities, what might NMG have done and what were the potential consequences.50 The defendants seek to explain the late filing of Mr McNamara's Statement relying upon the evidence of Mr Johnson already set out and relying also upon the evidence on information and belief from Mr Goodhew, that until recent years business methods have not been considered as a suitable subject matter for grant of a patent. 51 The defendants submit that the question of any subsisting United States patents was not an issue confronted by the parties at any relevant time as no plans were ever developed for any exploitation of the Ausmaq Service in the United States. The defendants submit that there was nothing in any of the discovery given by either party that would give rise to a suspicion that there was a potential issue in relation to patents. The submission is that it is quite understandable in the circumstances that the existence of the United States patent did not immediately come to the defendants’ attention. 52 The defendants submit that there is no evidence that the plaintiffs will suffer any irremediable prejudice in the light of the existing Court timetable and in the light of the plaintiffs alleged internal "unlimited financial resources". The submission is that to the extent that any prejudice is established, it can be addressed by an appropriate cost order at the conclusion of the proceedings if one is required at all. 53 The defendants submit that for the following reasons, the treatment by the Court of the patent issue will not cause an adjournment of the hearing and will not add unduly to the evidence before the court:
(a) whether, as a matter of fact, the patent is valid, enforceable and subsisting
(b) whether, as a matter of fact an exploitation of the Ausmaq service in the United States would infringe the patent
(c) what, as a matter of fact, a United States Court would, or even might, have determined on these issues.54 In the result the defendants submit that the appropriate directions should require the plaintiffs to file and serve by 25 January 2001 a statement replying to the statement of Mr McNamara and dealing with the issue of infringement; the plaintiffs to file and serve by 30 March 2001 a statement replying to the statement of Mr McNamara and dealing with the issue of invalidity of the patent if they wish to raise that issue, and for the defendants to be given leave to file and serve by 27 April 2001 a statement responding to the issue of validity if it is raised in the plaintiffs statements to be filed by 30 March 2001.
(a) one of the factors relevant to causation and/or assessment is, the plaintiffs say, the existence of a United States patent(b) in the opinion of Mr McNamara, an experienced United States patent attorney with appropriate qualifications and experience, the Ausmaq Service as described to him in the form of assumptions, would be likely to infringe the patent
(c) the plaintiffs in a period of 2-4 weeks, should be able to obtain a report from a United States patent attorney, or other persons skilled in the relevant art, to state whether in his or her opinion, the Ausmaq Service might infringed the patent
(d) the plaintiffs in a period of 2-4 months, should be able to undertake sufficient prior art searches and consult with experts (if necessary) and obtain a report from a United States patent attorney concerning the validity of the patent
(e) there is no evidence from the plaintiffs to contradict this information. Mr Hetherington refers to a minimum period of five to six months but accepts that he does not know how long in fact will be required and in his second affidavit issue was not taken with the time estimates provided for in Mr Johnson’s second affidavit.
(f) Mr Hetherington has said that the plaintiffs need three to four months to file statements dealing with non-patent regulatory issues
(g) the plaintiffs through their senior counsel, have expressly eschewed any financial limitation on their resources; therefore for the purpose of considering the motions the Court should assume that there is no relevant limitation on the plaintiffs access to funding to litigate the issues raised in the amendment. Mr Hetherington's affidavit of 15 November 2000 give some details of the legal resources currently retained by the plaintiffs, but the defendants submit that the Court should assume that further resources (if they are in fact required) could be allocated to dealing with the patent issue
(h) the issue for the Court, if it has before it reports on the infringement and validity issues, will not be to determine what a United States Court (at any level) would have decided in the hypothetical circumstance that the Ausmaq Service had been launched in 1998 and patent proceedings ensued
(i) the true issue for the Court will be whether there was a real prospect that advice may have been received by the Board of NMG in 1997/1998 that there was a potential patent infringement question and what impact that would have had on Ausmaq launching in the United States within what the plaintiffs assert in these proceedings was its "window of opportunity"
(j) the evidence of the plaintiffs’ expert (if one is called), can be heard subject to that experts availability and is said to be a discrete exercise. His or her report on infringement ought, on the defendants submissions, to be able to be filed by this year and the report on validity issues by the end of March 2001 at the outside (and this on the assumption that the plaintiffs have had Mr McNamara's report since 9 October 2000 but have chosen to do nothing)
(k) there is no evidence that there will be any need for any of the plaintiffs’ representatives to travel to the United States for the purpose of gathering that evidence
(l) there is no evidence that any of the plaintiffs existing witnesses need to be involved in this issue at all
(m) the cross-examination of Mr McNamara is not likely to occur prior to 2002
(n) the likely length of time to dispose of patent infringement/validity litigation commencing in 1997/1998 would appear to be a matter of common ground between the parties, and therefore the submission is that no further evidence should be required on this issue
(n) the defendants submit that they may need to supplement their evidence if the plaintiffs file a report to the effect that the patent is, or possibly is, invalid, to meet such evidence.55 I propose at the same as setting out the plaintiff’s submissions to indicate where I accept there submissions as of substance. 56 The plaintiffs oppose the granting of leave to permit the defendants to amend their defence so as to litigate the patent infringement issue. 57 The plaintiffs submit and I accept that no proper or adequate explanation of the delay in raising the issue has been given by the defendants. The submission of substance is that the issue is clearly something which could and should have been considered and investigated when the defendants put on their initial tranche of statements in answer-the submission being, as I accept, that the defendants obtained substantial extensions of time in which to put on that tranche of statements. It is common ground that the plaintiffs replied reasonably shortly to the defendants initial tranche of statements in order to keep the trial date. 58 The plaintiffs further submit that if the patent issue is permitted to be litigated albeit at this very late stage, the plaintiffs must conduct months of investigation and preparation with all that the proper consideration of the new issue may be anticipated to include. I accept this submission as of substance and as supported by the evidence and by inferences reasonably open from the evidence and from the nature of the amendments sought. I interpolate to note that the defendants approached the hearing of the motion in a rigid fashion contending on a number of occasions that there was no evidence to support many of the plaintiffs’ submissions. In my view the defendants went well beyond their legitimate entitlement to so approach the motion. Clearly the Court has had and relies upon evidence on the motion from both parties. The court is however entitled to exercise a degree of common sense in dealing with the motions, in dealing with the evidence adduced on the hearing and in drawing inferences from the evidence, from the nature of the application for leave to amend and from factors which are so obvious that they do not require evidence. 59 Plainly extensive experts statements are likely to be involved as plainly the patent issue is a large and discrete issue. 60 The plaintiffs further submit that if the amendments are permitted and the patent issue litigated, on the evidence of Mr Johnson's second affidavit and Mr Hetherington's affidavit in answer, the plaintiffs:
The Plaintiffs’ Submissions
61 Each of these submissions is of substance and is again supported by the evidence and by inferences appropriate to be drawn from the evidence and from the nature of the amendments sought. 62 The plaintiffs further submit that the prospects of establishing an infringement of claim 16 of US Patent No 5,517,406 are patently slight to non-existent. In support of the submission the plaintiffs submit as follows:
(a) must consider and are entitled to raise the validity of the United States patent
(b) must conduct searches in the United States which because of the nature of the invention and the lack of detailed indices for a search of this type of invention, are time-consuming and expensive and will require about two months for search and consideration of the results; and
(c) will require expert instruction and evidence as to United States law on infringement and validity, before which the plaintiffs could not file a reply to the amendments with particulars of objections to validity, and will have to obtain expert evidence in answer on infringement and probably validity, which would require a further three to perhaps five months.
63 I have found it particularly difficult to treat with this submission. To my mind an examination of the issue in effect requires a summary adjudication of the issue sought to be litigated and is simply not feasible at this stage. Hence I have not taken the submission into account in these reasons. 64 The plaintiffs submit that and I accept that the defendants approach in all likelihood vastly underestimates the additional factual and legal issues to be litigated. The submission which I accept as of substance, again supported by the evidence and by inferences appropriate to be drawn from the evidence and from the nature of the amendments sought, is that once the patent infringement issue is injected into the proceedings, it will become necessary for both parties to treat with a number of areas which save for the new issue, would not have been required to be examined or examined in this way at all. 65 The plaintiffs refer to the defendants strenuous endeavours to assert that the patent infringement issue may be injected into the proceedings without the Court being required to determine whether, as a matter of fact, the Patent is valid, enforceable and subsisting; whether exploitation of the Ausmaq Service in the United States would infringe the patent, or what a United States Court would or might have determined on these issues. The plaintiffs submit that the defendants are not doing justice to the extent to which new evidence would be required to be addressed. This is of substance again supported by the evidence and by inferences appropriate to be drawn from the evidence and from the nature of the amendments sought. 66 The plaintiffs submit that there is a basic fallacy in the defendants’ proposition that all that the Court would need to determine would be whether to accept on the one hand, the evidence to be adduced by the defendants from their experts that the Ausmaq Service would have been likely to infringe the Patent (and as necessary that a challenge to validity of the Patent would have failed), or on the other hand, evidence to be adduced by the plaintiffs from experts still to be retained that the Ausmaq Service would not have been likely to infringe the Patent and that a challenge to validity of the Patent would have succeeded. 67 The suggested fallacy in the defendants said proposition is to underestimate the factual enquiry which the parties would be bound to have to make in order to support the opinions expressed by their respective experts. This submission is of substance. The plaintiffs suggest as I accept, that this factual enquiry would for example include a very careful examination of prior art, it being on the evidence the case that there is not a large body of organised and readily indexed patent literature for an examiner to search in relation to business methods and like schemes, because they have been regarded in the United States as not forming suitable subject matter for the grant of a patent until recent years. As the plaintiffs correctly point out, on the evidence before the Court, such material as exists is not highly organised and searchable, as in other areas. 68 In the case of business methods the plaintiffs rely upon the evidence before the Court which is clearly that the prior art base is less useful and less readily accessed by examiner's and applicants in the pre-registration process than in other fields or arts, and therefore business method patents (see the evidence of Mr Goodhew), have a higher probability of being subsequently held invalid as there is a higher probability of matter which may invalidate a patent which has not been ascertained or considered at the pre-registration and grant stage. 69 The plaintiffs’ proposition which I accept as of substance, is that there simply is not a dimensional difference between the one hand, the Court having tendered for decision the factual questions of whether the patent is valid; of whether an exploitation of the Ausmaq Service in the United States would infringe the patent and what a United States court would or might have determined on these issues, and on the other hand, the court simply having to determine on the basis of evidence of experts to be called by both parties, whether NMG would have sought legal advice on these issues; what is the likely content of that advice; and in the light of that advice, the court having to determine on the probabilities and possibilities, what NMG might have done and with what potential consequences. 70 There is a degree of complexity in working through the plaintiffs’ further concerns as to the potential for the patent issue to raise new issues even in the more limited way in which the defendants now wish to put the issue as arising. 71 In an endeavour to do justice to the plaintiffs announced concerns, the propositions are generally as follows:
(i) a cursory inspection of the Complete Specification (and claim 16 columns 1 - 3, and eg column 4 lines 54 to 59) reveals that the invention described and claimed is for a record keeping system with a "transfer agent system" which so far as it is described and claimed only has the feature of transmitting information to the host (record keeping) processor for the recording and evaluating of information by the host processor.
(ii) Nothing in the invention as described or claimed relates to a method of or apparatus for effecting trades or constitutes a market system service such as the Ausmaq Service. Investors and product suppliers do not both deal with the transfer agent. The transfer agent described and claimed (as a non-inventive feature of the invention) is simply not an e-commerce market system service, but a person or organisation, as eg column 4 lines 54 to 59 is said to make clear.
(iii) Mr McNamara's arguments in paragraphs 64 to 79 of his affidavit are said to be contrived and specious. The prospects of such arguments succeeding are said by the plaintiffs to be so slight that the United States patent issues should not be permitted to be raised.
72 To my mind each of these propositions is of substance. 73 The essential burden of the plaintiffs submission was that the case had not been prepared and evidence had not been sought with an eye to meeting the necessary analysis of the features of the Ausmaq Service in the United States for the purposes of the features of claim 16 of the subject patent. I accept the submission as of obvious substance. And I further accept as of obvious substance, the plaintiffs submission that whilst there may be material in the present statements which both parties may be able to mobilise in relation to some of the issues which the patent issue would cover, an analysis of financial markets and the players in financial markets is not immediately transferable to the technical specification of information processes and the function of transfer agents in an information processing system. 74 The plaintiffs further rely upon the proposition that the defendants approach to the issue raises the respective weight which this Court should give at the end of the day to opinions given by the respective experts called by the parties as to what opinion would be likely to have been given by such patent attorney or other expert as NMG [whether assisted by Mr Maconochie or not] would have been likely to retain at a relevant point in time say in mid-1998 or earlier. Hence special importance would require to be given by the plaintiffs to retaining a number of experts in order to determine which expert might most appropriately be best qualified to give an opinion. Here again to my mind the submission is of substance. 75 There is then the question of the possibility that if the rollout of the Ausmaq Service in the United States at the material point in time was faced with what appeared to be a difficult hurdle in the form of the subject patent (and uncertainty as to whether the Ausmaq Service might or might not infringe that patent if valid and similar uncertainty as to whether the patent might be validly challenged), a question of fact clearly capable of being litigated would relate to whether or not there might have been a commercial solution by way of sidestepping the hurdle. Arguably as I accept, one or both parties may wish to test the possibility that NMG may have approached the holder of the patent with a view to reaching an agreement for example by way of a licence to use the Ausmaq service being granted. That area of possible evidence clearly springs to mind and would presumably involve one or both parties calling some evidence as to this as a possibility. Questions such as whether licences had ever been granted by the holder of the patent since registration of the patent would be raised. Questions such as the likely attitude of the holder of the patent to a commercial approach would be capable of being raised. 76 Another area which the plaintiffs suggest, and I accept as a legitimate candidate for evidence would be precisely what form of business activity arguably in breach of the patent had in fact continued in United States since the registration of the patent without any claims by the holder of the patent in an endeavour to restrain that form of use. This type of evidence would, as I understand the plaintiffs, be sought to be mobilised in an effort to show that even had NMG notwithstanding the patent, determined to continue with a rollout of the Ausmaq Service, the probabilities of the holder of the patent suing would have been slender or non-existent. To my mind this submission is of substance. 77 The plaintiffs further submit, as I accept, that to allow the patent issue to be injected into the proceedings must lead to an examination of the doctrine of equivalents and of the 'function way result' test which apparently asserts that infringement will be found if the accused device performs substantially the claimed function in substantially the same way to achieve substantially the same result. The plaintiffs submit that apparently in certain proceedings the Court of Appeals for the Federal Circuit which hears all patent cases has relied on the 'insubstantial differences' test to determine infringement under the doctrine of equivalents. The plaintiffs then submit that in relation to that approach the issues include whether the functions of the Ausmaq Service reflect each and every of the features in claim 1 6 or one or more features with insubstantial differences or one or more features performing the same functions in substantially the same way with substantially the same result. This submission is of substance. 78 The proposition is that if claim 16 of the patent properly interpreted, is said to claim three or four components for example, then if the Ausmaq service performs all or some of them in a different way there may be no infringement. Hence there would be litigated, as I understand the plaintiffs, an entirely different focus when one endeavours to match the proposed operation of the Ausmaq Service against each of the features described in claim 16. Take for example the question of what a transfer agent is and what role that plays in claim 16 as a feature and whether it is a substantial or insubstantial feature and whether the Ausmaq service does what a transfer agent does, and does what a transfer agent does in the way the transfer agent is required to do it in the claimed invention-claim 16. These are all matters open to be litigated even in the more limited way the defendants now seek to raise the issue. 79 Similarly the two other major elements of the record keeping system, the host processor and the processor, apparently require to be closely examined. In short whilst there is apparently evidence proposed to be led to the effect that one of the benefits of the Ausmaq Service is that it provides information to clients and does it in a particular way, that is, so the plaintiffs suggest, not presently analysed in the evidence in terms of the features in claim 16-which claim the plaintiffs assert, requires one to have a host processor and a reprocessor and a record keeping system for the purpose of supplying information and making sure that transactions carried out by others are affected in accordance with the original orders of the group pool . 80 In relation to the possibility of new areas of cross-examination, the plaintiffs give as an example a question being put to a witness as to what the record keeping system of the Ausmaq Service is and whether it is for storing information regarding a plurality of participants having a mutual fund account. This area of questioning would seem to be opened up if the amendment be allowed. 81 Ultimately the plaintiffs’ accepted that it was not so much the perceived problem with the effect on witnesses who are already in line to give evidence that concerned the plaintiffs, as the plaintiffs’ concern with matters set out above and with the general extent to which new and unchartered areas would be being raised if the patent issue was permitted to be litigated.
(a) Mr McNamara is said to have approached his consideration of what the Ausmaq Service was and of the intended use to which it would have been put in the United States in an abstract fashion. The plaintiffs proposition is that it is important for the court to follow that whilst there is clearly a body of evidence to be relied upon to show what the Ausmaq service is and does and why, that evidence has not been adduced with an eye to formulating the issues raised by the patent infringement case . The proposition is that the first step which the plaintiffs would require to take would be to approach experts able to give evidence as to the proper construction of the patent-that is to say as to what, properly construed, is the invention claimed in claim 16. Once that expert identified the proper construction of the specification and application the plaintiffs would have to obtain an analysis of the Ausmaq System in the light of those features of claim 16 which the expert had identified. This type of evidence could well, so the plaintiffs say, come from existing witnesses to be called or the plaintiffs may also have to go elsewhere. This would depend upon whether there are construction ambiguities of relevance which the expert had identified. Depending upon the experts opinion as to ambiguities in the ‘transfer agent’ concept, an area of further evidence might well (notwithstanding that there is some evidence presently on the record relating to transfer agents), go to transfer agents.
(b) that bearing in mind that patents searches in the United States do not have the same type of indexing systems and categories dealing with patents covering business methods as are held with respect to other forms of patent, it would probably be or may be necessary to go outside the assistance of those indexes to learn what was publicly available in the United States.
(c) that having obtained that material, if the plaintiffs were to be in a position to furnish their expert with appropriate state of the art at priority date materials, they would have to approach persons familiar with that state of the art set of materials so that they could be put to the experts.
82 I am far from satisfied that the defendants have given a satisfactory explanation for their failure to identify or raise the patent infringement issue considerably earlier than October 2000. The patent was published and became open to public inspection on 14 May 1996. The simple fact remains that notwithstanding the obviously very extensive resources mobilised for the preparation of the defendants case in these proceedings, the defendants solicitors simply failed prior to August 2000 to identify the fact that development in United States law over the past few years had permitted for the patenting of business methods. Had appropriate inquiries been made in the United States presumably of patent attorneys or attorneys dealing with intellectual property in the United States, one imagines, as I infer, that this information would have come forward and would have been able to have been used by the defendants regularly in the course of preparation of their case in defence. As one of the issues sought to be litigated if the amendment be allowed goes to the very question of what appropriately qualified patent attorneys or attorneys would have been likely to have advised or searched in mid 1998 on the occasion of the posited proposed rollout of the Ausmaq Service, a question of fact very similar to this question may well be the subject of detailed contested evidence if the amendment is allowed. Hence what I have said is to be regarded as only an impression gained on the interlocutory hearing and plainly does not represent a concluded finding of fact in any way. 83 I have given very close attention to the question of whether or not leave to amend should be granted to the defendants. That attention is given at a point in time when it is necessary for the court to be clear to both parties that in general terms the time for adducing further evidence has expired. 84 Justice is the paramount consideration in determining the application for leave to amend. Justice requires the court to take into consideration many factors in this very unusual case. And the steps which the court has taken up to this point in time in this litigation to afford to both parties the most extensive of opportunities to deal with one anothers evidence provides ample testimony, if it were necessary that it be provided, in support of the proposition that if ever there was a case where the court had bent over backwards to accommodate the parties in permitting them to present their cases fully, this is that case. But there is clearly a limit to the extent to which a party may seek to raise entirely new issues in the proceedings. Every application will be determined upon its merits in that regard. As a general matter that limit must now take into account the stage which the proceedings have reached-subject to the matters already referred to, the calling of witnesses is shortly to take place. That limit must now take into account the amount of time which the hearing is to occupy-this is difficult to assess but appears to be at least a further 18 months. That limit must now take into account the nature, extent and complexity of any new issues sought to be litigated [whilst not in terms constituting a patent infringement proceeding with clearly possible and arguably probable co-relative issues going to validity of the patent, yet still raising issues as close may be to the issues which would be thrown up by such a proceeding]. That limit must now take into account the effect on the regular ongoing conduct of the proceedings of permitting new issues and in this case, the new patent issues, to be litigated. 85 The simple fact is that in my view the plaintiffs should not at this stage in the proceedings when finally at the doorstep of the presentation of their evidence, be expected to have their attention diverted in this way to this new issues. Whilst it is easy to suggest that a party may take on board a new issue, obtain advice in relation to the new issue and mobilise appropriate evidence in relation to the new issue, the court is entitled to take into account the obvious difficulties which a party faces in dealing with particular new issues in context. Many of these issues which arise for consideration on the patent issue have already been referred to. 86 Then there is the amount of further court time which litigation of the patent issues could or may take. This is where the state of the court list is a relevant consideration. The estimates of time for the hearing have certainly vacillated from time to time and it is now common ground that the number of witnesses and number of witness statements and issues being litigated will occupy very considerable court time indeed. This is not to say that the court list and the effect of one judge of the commercial list (even without injection of the patent issues into the already very complex matters being litigated) being taken out of the ability to deal with commercial list matters for arguably up to two years, is not a relevant consideration. Plainly it is such a consideration. 87 Whereas in relation to the defendants desire to rely upon very extensive further statements dealing with regulatory matters, technical requirements and timing and ancillary foreign law issues, those matters appear always to have been necessary to be addressed at some time and in some manner considering the way in which the plaintiffs put their claims to loss of opportunity damages, the new proposed patent issues to my mind represent altogether a different dimension. 88 In my view the question has been a very close one. At this stage in these proceedings the court is entitled to and obliged to pay due regard to the overriding purpose of the Supreme Court Rules which is to facilitate the just quick and cheap resolution of the real issues in civil proceedings. Whilst the dimensions and scale of these proceedings makes clear that as a matter of fact they represent the antithesis of being quick or being cheap, the central notion which underpins the overriding purpose provision remains available to the Court to permit a rejection of the application. Even in proceedings of the scale of these proceedings and even in a suit claiming $50 billion by way of damages, the injection of patent issues such as those here sought to the added into the proceedings may be regarded as out of order. 89 Ultimately I have been swayed by the plaintiffs apparent acceptance:
Dealing with the issue
90 At the end of the day and having made the point that the ‘enough is enough’ proposition should be carefully borne in mind at this stage in the proceedings, I have determined that the exercise of the court's discretion should be in favour of permitting the defendants to amend on the basis
(a) that injection of the new issues ought not require them to revisit the evidence given by witnesses who have put on their extensive witness statements, with a view to examining whether those witness statements should in any, and if so what manner, be now adjusted or tailored to accommodate the possible effect of the new issues on parts of the statements.
(b) that they do not see themselves as obliged to spend time examining whether to alert their existing witnesses to cross-examination aimed at supporting the defendants patent case.
(c) that aside from the obvious and real difficulties to be expected flowing from the awkward time at which the new patent issues are proposed to be injected into the proceedings , the new issues can be accommodated into the litigation one way or another by giving sufficient time to the plaintiffs to obtain evidence necessary to deal with those issues.91 The drafting of the precise order to be made should require that the defendants pay the plaintiffs’ costs of and occasioned by the grant of leave to amend including but not being limited to the plaintiffs’ costs thrown away by the need to revisit existing witnesses who have already made statements to obtain further evidence relating to the new issues which evidence, had the patent issue been originally pleaded, could have been obtained at the same time as these witnesses were approached to make their earlier statements. The drafting of the precise order to be made as to the provision of particulars is left to the occasion when short minutes are brought in. The directions as to timing of the reply and responsive evidence will be identified when short minutes are brought in.
(a) of an appropriate costs order and directions giving the plaintiffs ample time within which to reply to the amended defence and to file evidence in relation to the new issues.
(b) of an appropriate order of the type sought in paragraph 9 of the plaintiffs’ amended notice of motion requiring the defendants to provide proper particulars, now tethered to the allegations made in paragraph 58G(b) of the proposed patent issue amendment.
I certify that paragraphs 1 - 91
are a true copy of the reasons
for judgment herein of the
Hon. Justice Einstein
given on 7 December 2000___________________
7 December 2000
Susan Piggott
Associate
Last Modified: 06/13/2002
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