John Lewis Swanson and Caterina Vladimira Hardy v K J Mellet Nominees

[1997] APO 35

official notice

decision of a delegate of the commissioner of patents

Application  :          No.637709 in the name of John Lewis Swanson and Caterina Vladimira Hardy.

Title:          Timing Device.

Action:          Application withdrawn after being opposed by K J Mellet Nominees; award of costs.

Decision:          Issued            .

Abstract

The application was withdrawn after the opponent had served part of its evidence-in-support; in

this situation costs are not automatically awarded against the applicants.  The withdrawal of the application was in some way related to the likely success of the opposition therefore costs awarded against the applicants.  Costs awarded on a party and party basis unless the circumstances warrant doing otherwise.  Some of the factors in Order 62, rule 22 in the Federal Court rules relied on to decide not to allow a claim for matters not specified in part 1 of schedule 8.  Item 41 in the scale of costs used by the Federal Court relied on to decide not to allow a claim for amounts greater than those specified in part 1 of schedule 8.

patents act 1990

decision of a delegate of the commissioner of patents

Re:Patent Application No.637709 by John Lewis Swanson and Caterina Vladimira Hardy, an opposition by K J Mellet Nominees Pty Ltd and an award of costs.

background

Patent Application No.637709 by John Lewis Swanson and Caterina Vladimira Hardy (the Swansons) was advertised accepted on 3 June 1993.  K J Mellet Nominees Pty Ltd (Mellet) filed a notice of opposition within the time allowed.  Mellet was granted a short extension of time to serve its statement of grounds and particulars.  Mellet was granted extensions of time to 6 September 1994 within which to serve evidence-in-support and served some evidence in this period.  The Swansons withdrew the application on 8 August 1994.

Mellet asked for an award of costs in a letter dated 22 December 1994.  An Official letter in response pointed out that Mellet would have to apply under the provisions of regulation 22.22 and pay the appropriate fee as no decision had been issued making an award of costs.  Mellet filed a request under the provisions of regulation 22.22 on 12 April 1996.

The Commissioner gave both parties an opportunity to file written submissions or request to be heard on the issue of costs.  Both parties filed written submissions in the time allowed.  Mellet’s response also pointed out it was negotiating with the Swansons about the magnitude of the costs.  Mellet reserved its right to make an application for a taxation of costs in excess of those in schedule 8 if the parties could not agree.  The Commissioner gave the parties an opportunity to file written submissions on the issue of costs in excess of those in schedule 8.  Both parties filed written submissions in the time allowed but Mellet also asked to be heard on the matter.

The Commissioner experienced some difficulty setting the matter for hearing because the Swansons changed their address for service from their former attorneys (Pizzey & Company).  The hearing was also delayed because Mr Swanson was seriously ill overseas for a long period.  I finally heard the matter on 3 April 1997.  The Swansons did not appear at the hearing but filed written submissions before the date of the hearing instead.  Mellet also filed written submissions before the date of the hearing.  Mr S Krouzecky, patent attorney of Wray & Associates, appeared by telephone for Mellet.

SUBMISSIONS

The Swansons filed written submissions dated 14 and 30 May 1996 and 2 April 1997.  The submissions dated 14 May 1996 and 2 April 1997 includes copies of letters to the Swansons from their former attorneys and copies of letters to their former attorneys from Wray & Associates.

Mellet filed written submissions dated 14 May and 4 June 1996 and 2 April 1997.  The submissions dated 4 June 1996 include copies of correspondence between Wray & Associates and the Swansons’ former attorneys.  The submissions dated 2 April 1997 include a draft bill of costs, a schedule of work undertaken to 11 March 1997 and copies of several patent specifications.  Mr S Krouzecky also made oral submissions at the hearing.

Mr Krouzecky said the Swansons’ written submissions included two letters from Wray & Associates to the Swansons’ former patent attorneys dated 14 January 1994 and 8 December 1995.  He pointed out both these letters included the phrase “Without Prejudice” and he argued these letters could not be relied on as evidence unless Mellet waived its privilege.

According to “Cross on Evidence” (second Australian Edition, 1979) a statement made “without prejudice” in an attempt to settle a dispute is a case of joint privilege (page 284).  Therefore the contents of a statement cannot be put in evidence without the consent of both parties.

Mr Krouzecky conceded Mellet had waived any privilege attached to the 14 January 1994 letter by filing it in its written submissions.  Consequently I may consider this letter in arriving at my decision.  Mr Krouzecky said Mellet did not waive the privilege attached to the 8 December 1995 letter.  I note this letter contains an offer to settle the issue of costs consequently I will not rely on this letter in my decision.

I have considered all the submissions, apart form the 8 December 1995 letter, and I will refer to them at relevant points in my decision.

DECISION

Mellet's submissions point out the present application was withdrawn after it had served the majority of its evidence-in-support.  It argues this means Mellet has succeeded in its opposition and costs should be awarded against the Swansons.

Mr Krouzecky said there had been no agreement between Mellet and the Swansons about costs before they withdrew the application.  He said there was no evidence of other unusual circumstances which meant costs should not follow the event.  In Mr Krouzecky's opinion the event in this case is the withdrawal of the patent application.

An award of costs usually follows the event such that they are awarded against an unsuccessful party in opposition proceedings.  The withdrawal of the Swansons' application suggests they are the unsuccessful party.  But this may not be the case if the decision to withdraw the application was in no way related to the likely success of Mellet's opposition.  For example the Swansons may have withdrawn the application because the potential cost of successfully defending the application vastly out weighed the potential value of any patent granted on the application.  Therefore I will consider the circumstances surrounding the withdrawal of the application and not automatically award costs against the Swansons.

The Swansons written submissions state as follows:

"......Our sales research has indicated a very limited market need exists....

Because of the anticipated costs involved had we proceeded with a challenge to a hearing, it was decided the only realistic action available to us was to withdraw the application......

...their technical data contained no new material over and above that which was successfully resisted in the office actions in acquiring our U.S. patent............

...From our perspective it was simply a matter of insufficient funding which compelled us not to proceed.....

.....the Mellet submission ..asserts the reason for us not defending this action was because we believed their case was justified....From our perspective it was simply a matter of insufficient funding which compelled us not to proceed."

Mellet filed its notice of opposition in September 1993 and served its statement of grounds and particulars in December 1993.  Then in its "Without Prejudice" letter dated 14 January 1994 Mellet offered to withdraw its opposition on certain conditions.  One of the conditions involved amendment of claim 1 to make features of later claims essential features of the invention.  I note the Swansons would have avoided the expense of opposition proceedings if they had accepted this offer.

By 28 January 1994 the Swansons had instructed their former attorneys to do nothing and to incur no expense at that stage.  I think the Swansons' consideration of this offer should have included the potential cost of successfully defending the application versus the potential value of any patent granted on the application.  The offer was subsequently rejected by the former patent attorneys in a letter dated 8 February 1994 on the basis of the lack of relevance of the prior art described in the statement of grounds and particulars.  This suggests the Swansons did not consider the potential cost of successfully defending the application greatly outweighed the potential value of any patent granted.

Mellet served part of its evidence-in-support in March and June 1994 and the Swansons subsequently withdrew the application.  The Swansons did not explain why service of this evidence changed the situation.

I conclude from the above that the withdrawal of the application was in some way related to the likely success of Mellet's opposition.  Therefore I consider Mellet was successful in its opposition to application no.637709 and I award costs against the Swansons.

Mellet argues section 210(d) and regulation 22.8 give the Commissioner the discretionary power to award costs other than those provided within the express terms of schedule 8.  Mr Krouzecky said all that regulation 22.8(1) required was that each party be given a reasonable opportunity to make a submission on the award of costs.

Regulation 22.8 states as follows:

(1) "The Commissioner must not award costs in proceedings to which this Division applies, other than costs specified in Schedule 8 unless each party to the proceedings has had the reasonable opportunity to make a submission on the matter of the award of those costs.

(2) The Commissioner may award an amount:

(a) for costs in respect of a matter specified in column 2 of an item of Part 1 in Schedule 8; or
(b) in respect of the expenses or allowances of a person in relation to proceedings to which this Division applies.".

A delegate of the Commissioner has already decided the amount for a matter specified in part 1 of schedule 8 may be varied to allow the recovery of costs reasonably and properly incurred (Sterling Drug Inc v Boots Company PLC (35 IPR 630 at page 633). But I consider this regulation also allows the Commissioner to consider awarding costs for matters other than those provided within the express terms of schedule 8. But in all cases the Commissioner must give each party to the proceedings a reasonable opportunity to make a submission on the award of costs.

The Swansons expressed concern at the amount of Mellet's claim but did not specifically argue the claim should be restricted to the costs specified in schedule 8.  The Act and regulations do not impose on me the task of ensuring the Swansons take the best advantage of the opportunity to comment on whether costs should be restricted to those specified in schedule 8 (Sullivan v Department of Transport 20 ALR 323 at page 343).

Therefore I consider the Swansons have had a reasonable opportunity to make submissions on the award of costs including whether I should award costs other than those in schedule 8.

Consequently I can consider whether or not to award costs for matters other than those provided within the express terms of schedule 8.

Mellet’s submissions suggest it considers the Commissioner may make an award of costs on any basis including on the basis of solicitor and client costs as well awarding costs for items not covered by schedule 8.

Sheppard, J of the Federal Court (Colgate-Palmolive Co and another v Cussons Pty Ltd 28 IPR 561 at page 569) states the ordinary rule is where the court orders the costs of one party to be paid by another party, the order is for payment of those costs on the party and party basis. This results in the amount recovered by the successful party falling short of a complete indemnity. The judgement continues:

"This has been the settled practice for centuries in England.  It is a practice which is entrenched in Australia.  Either legislation (perhaps in the form of an amendment to the rules of court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it.....

...In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some other basis than the party and party basis.  The circumstances of the case must be such as to warrant the court in departing from the usual course.".

I consider the Commissioner should also only award costs on a party and party basis unless the circumstances warrant doing otherwise.

The circumstances in which a court has awarded costs on other than a party and party basis include continuing proceedings for some ulterior motive, wilfully disregarding known facts or established law or an imprudently refusing an offer to compromise (Colgate-Palmolive Co and another v Cussons Pty Ltd, supra at page 570).

I think this means I may consider awarding costs on other than a party and party basis if it is prima facie clear the Swansons refused to settle the opposition when they knew they did not have an arguable case.

According to Mellet the Swansons were clearly in a position to have and apply the relevant common general knowledge as they were its competitors in the marketplace.  Mellet argues the Swansons should have reached the inescapable conclusion the patent application was untenable before it was required to adduce evidence-in-support.  Therefore it submits the purpose of the rejection of the offer of settlement was to have Mellet incur significant and unnecessary expense proving what was the common general knowledge.

The "without prejudice" letter to the Swansons' former patent attorney which is dated 14 January 1994 states as follows:

"..our client's prime objective is not to deny your client the grant of a patent, but rather to avoid any likelihood of infringement of any patent granted to your client.

...it is perhaps arguable that our client is not infringing upon the scope of these claims, this is far from clear, and since the claims of the above application are much broader than those of the parent, to an extent where we doubt their validity, our client has no alternative than to oppose the grant of a patent....having claims couched with such breadth.

In the present case,  our client would be prepared to withdraw its opposition .....if your client was to amend its application to include any of the features introduced at claims 2, 5, 9 or 10 as an essential feature of the invention.......".

A letter to the Swansons from their former patent attorney dated 28 January 1994 does not explicitly or implicitly state the Swansons should accept the offer of settlement as they have no case to argue.  The letter to Mellet's patent attorneys which refused the offer states as follows:

"...the majority of the prior art raised in the Statement of Grounds and Particulars was considered during the prosecution of the present application, or its parent application.  Furthermore, the new prior art raised by the statement does not appear to be any more relevant than the prior art that has already been considered and overcome.  In the absence of your identification of any particularly important disclosure within the prior art, we do not believe it would be appropriate for our client to make the concessions requested by your client."

I cannot conclude from this it is prima facie clear the Swansons refused to settle the opposition when they knew they did not have an arguable case.  Therefore I am satisfied I should not award costs on other than a party and party basis.

Regulation 22.8 does not give the Commissioner any guidance on what matters other than those provided within the express terms of schedule 8 may be included in a claim for costs.  Mr Krouzecky said I should be guided by the scale of costs used by the Federal Court as the Commissioner’s decision in opposition proceedings may be appealed to this court.

Item 50 in the scale of costs presently used by the Federal Court states matters not included in the scale may be allowed to the extent they are covered by Order 62, rule 21.  This rule gives the taxing officer the discretion to allow claims not provided for by the scale.  The taxing officer considers whether the sum claimed is just and reasonable for work and labour properly performed having regard to all the circumstances of the case.

Order 62, rule 22 sets out eight factors the taxing officer must take into consideration in exercising the discretion.  I consider five of these factors are relevant to my decision about what matters other than those provided within the express terms of schedule 8 may be included in a claim for costs.  These factors are:

1.    the nature and importance of the proceedings,

2.    the principle involved,

3.    the interest of the parties,

4.    the general conduct of the proceedings, and

5.    all other relevant circumstances.

Mellet’s draft bill of costs includes the following matters:

“Part 1- Costs

1. Notice of Opposition
2. Statement of Grounds and Particulars
3. Evidence in Support
4. Counsel fees
5. Award of Costs
6. General Care and Conduct.”

Items 1 to 3 in part 1 of the draft bill of costs directly correspond with matters 1, 2 and 4 in part 1 of schedule 8 although the amount claimed in each case is much greater than that listed in the schedule.  I will consider the increased amount claimed in these items later in this decision.

Item 4 in part 1 of the draft bill of costs seems to correspond to matter 14 in part 1 of schedule 8.  Mellet’s schedule of work undertaken gives details of how the amounts in the draft bill of costs have been calculated.  The amount for this item has been calculated on the basis of counsel’s involvement in the evidence-in-support, advice on costs, advice and settling letters to the Swansons former attorneys and settling written submissions.

I conclude from the structure and amounts at items 12 to 14 in part 1 of schedule 8 that “Counsel’s fees” at item 14 refers to counsel fees for attendance at a hearing.  Therefore item 4 in part 1 of the draft bill of costs is not included in part 1 of schedule 8.

Mr Krouzecky said Mellet had to involve counsel in the preparation of its opposition because the Commissioner’s decision may be appealed to the Federal Court.  He argued this meant the evidence in its opposition had to meet the same requirements as if it is an action before the Federal Court.  Mr Krouzecky conceded that the Commissioner did not necessarily have to apply the strict rules of evidence applicable to a court (Minister for Immigration and Ethnic Affairs v Pochi 31 ALR 666).

Mellet did not produce any evidence that the present opposition was so legally complex that it was necessary to involve counsel.  It seems to me Mellet's decision to involve counsel in these proceedings was not because it thought this was necessary for the proceedings before the Commissioner.  Rather the decision included the possibility of an appeal to the Federal Court. I consider this means factors 1 and 2 are not relevant to item 4 in part 1 of the draft bill of costs.

Factor 3 involves the interest of the parties and in this regard Mr Krouzecky pointed out Mellet would not recover the costs of prosecuting its opposition if its claim is restricted to the matters in schedule 8.  The High Court considers party and party costs have never been regarded as a total indemnity to a successful party for costs incurred, let alone total recompense for work done and time lost (Cachia v Hanes and another 120 ALR 385 at page 391). Therefore a circumstance I will not consider is the adequacy of party and party costs in the present proceedings (see also Colgate-Palmolive Co and another v Cussons Pty Ltd, supra at page 568).  Mellet did not raise any other issues relevant to this factor and therefore I consider it is not relevant to item 4 in part 1 of the draft bill of costs.

The only issue which Mellet raised in regard to factor 4 is whether the Swansons deliberately caused it unnecessary expense.  I found above that it is prima facie clear the Swansons did not refuse to settle the opposition when they knew they did not have an arguable case.  I consider this means factor 4 is not relevant to item 4 in part 1 of the draft bill of costs.

I consider there are no other relevant circumstances which mean Mellet should be able to claim item 4 in part 1 of its draft bill of costs.

I conclude from the analysis of the relevant factors that Mellet cannot claim item 4 in part 1 of its draft bill of costs.

Item 5 in part 1 of the draft bill of costs is not specified in part 1 of schedule 8.  Mellet calculates this item on the basis of work performed by Mellet’s patent attorneys since August 1994.  The majority of the work detailed in the schedule of work undertaken involves the preparation, typing, copying and perusal of documents.

I think most of the work listed for this item in Mellet’s schedule of work performed involve its unsuccessful attempts to settle the issue of costs between the parties.  In my view this work involved private negotiations between the parties and is not part of the proceedings before the Commissioner.  Section 210(d) only allows me to award costs for proceedings before the Commissioner.  Therefore I can only consider awarding costs for work performed in seeking an award of costs from the Commissioner.

I conclude from an analysis of the relevant factors similar to that described above that Mellet cannot claim item 5 in part 1 of its draft bill of costs.

Item 6 in part of the draft bill of costs is not specified in part 1 of schedule 8.  Mr Krouzecky pointed out the Federal Court may award cost for “General Care and Conduct” under item 41 in its scale of costs.  Mellet submits awards for “General Care and Conduct” are regularly used as a separate category to the matters specified in the scale as well as being used as a supplement to the scale.  This is done where some good reason exists to show the scale would not properly compensate the successful party in relation to costs expended.

The amount for item 6 is specified as “note 1” and this note reads as follows:

"Any such amount that may be taxed off the claim under any of the above items is hereby claimed under the head of "General Care and Conduct"; and a request is made for the Commissioner to exercise his discretion under section 210(d) of the Patents Act in respect thereof."

Thus Mellet is claiming item 6 either as a separate item which is not provided within the express terms of part 1 of schedule 8 or as a means of increasing the amounts for these matters.

The schedule of work undertaken lists amounts for "General Care and Conduct" under items 2, 3 and 5 in part 1 of the draft bill of costs.  I think the work related to these amounts seems to be the usual sort of work performed by a firm of patent attorneys involved in opposition proceedings.  Mellet did not explain why this work should be considered a separate item under schedule 8. 

I conclude from an analysis of the relevant factors similar to that described above that Mellet cannot claim item 6 in part 1 of its draft bill of costs.

In summary I have found Mellet can claim items 1 to 3 in part 1 of its draft bill of costs which correspond with matters 1, 2 and 4 in part 1 of schedule 8.  I will now consider if Mellet can claim amounts greater than those specified in this schedule.

The delegate of the Commissioner in Sterling Drug Inc v Boots Company PLC (supra) did not have to consider whether to allow a claim for costs greater than those specified in part 1 of schedule 8.  Mellet’s submissions suggest I should use a similar approach to item 41 in the Federal Court’s scale of costs in these considerations.  The text of the item "General Care and Conduct" (item 41) in the scale of costs used by the Federal Court reads as follows:

"If the case or circumstances warrant it, an allowance may be claimed under this item, in addition to any item which appears in this scale, for general care and conduct (where appropriate) including:

(a) the complexity of the matter and the difficulty and novelty of the questions raised or any of them;
(b) the importance of the matter to the party and the amount involved;
(c) the skill, labour specialised knowledge and responsibility involved in the matter on the part of the solicitor;
(d) the number and importance of the documents prepared or perused without regard to length;
(e) the time expended by the solicitor;
(f) research and considerations of questions of law and fact."

I consider I should rely on similar considerations to decide whether to allow a claim for a matter specified in part 1 of schedule 8 which varies from the amount specified in this schedule.

According to Mellet it served the majority of its evidence-in-support before the Swansons withdrew the application.  I found above that the withdrawal of the application was related to the likely success of Mellet's opposition.  Therefore I consider Mellet can at least claim the amount specified at item 4 in part 1 of schedule 8.

I will consider whether paragraphs (a) to (f) above apply to the circumstances of the present opposition to determine if it is reasonable for Mellet to claim amounts which exceed those specified in part 1 of schedule 8.

Mellet did not complete serving its evidence-in-support before withdrawal of the application. Therefore I consider paragraphs (d) and (e) do not apply to the circumstances of the present opposition.

Mellet submits it was caused special difficulty and complexity due to the need to prove the state of the common general knowledge in relation to the ground of lack of inventive step.  Mellet did not provide any evidence which shows proving the common general knowledge in this opposition was more difficult and complex than other oppositions.  For example the technology of the application does not prima facie seem to me to be such that Mellet would have difficulty finding relevant experts in the art.

Mellet’s concedes it competes with the Swansons in the marketplace and according to Mellet this means the  Swansons were in a position to have and apply the relevant common general knowledge.  This suggests to me Mellet is in a similar position and should not have had unusual difficulty proving what was common general knowledge in the art.

Mellet did not provide any evidence of why this opposition was more complex, difficult or novel than in other oppositions.  Earlier in this decision I found the present opposition was not legally complex.  Therefore I consider paragraphs (a), (c) and (f) do not apply to the circumstances of the present opposition.

Mr Krouzecky said Mellet’s devices had more success in the marketplace than those of the Swanson.  Though he did concede this was not necessarily the case for the Queensland market.  But Mellet did not provide any other evidence of the effect of the present application on its business activities.  I cannot conclude this effect was much greater than other oppositions.  Therefore I consider paragraph (b) does not apply to the circumstances of the present opposition.

I have found paragraphs (a) and (f) do not apply to the circumstances of the present opposition. Therefore I consider I Mellet can only claim costs for matters 1, 2 and 4 in part 1 of schedule 8 for the amounts specified in the schedule 8.

I note Mellet’s draft bill of costs does not claim item 11 in part 1 of schedule 8.

Mellet’s draft bill of costs also includes the following matters:

“Part 2- Expenses and Allowances

1. Notice of Opposition
2. Statement of Grounds and Particulars
3. Evidence in Support
4. Counsel fees
5. Award of Costs
6. General Care and Conduct”.

I note the amounts claimed under items 4 and 6 are signified as “-” and “note 1” respectively.  The reference to “note 1” means Mellet is claiming any amounts in excess of those allowable under division 2 in part 2 of schedule 8 under the separate item of "General Care and Conduct" (item 6) in part 1 of its draft bill of costs.  I decided above that Mellet cannot claim "General Care and Conduct" as a separate matter in part 1 of its draft bill of costs.

Mellet’s schedule of work undertaken gives details of how the amounts in part 2 of the draft bill of costs have been calculated. This schedule indicates item 1 includes fees paid for a request under the Freedom of Information Act on application no.637703. I presume this should be the present application number as application no.637703 is not related to the present application. I note at the date given in its schedule of work undertaken Mellet could have obtained most of the documents relevant to its opposition under subsection 55(2) of the Patents Act.

The schedule of work undertaken indicates item 2 in part 2 of the draft bill of costs includes three fees paid to AIPO the first of which is described as “5 OPI dates”.  I presume this refers to the fees for obtaining the information in exhibit SGK-4 to Mr Krouzecky’s declaration in support dated 8 March 1994.  There is no description of the other fees under this item

Paragraph 1 of division 2 in part 2 of schedule 8 allows a party to claim costs for “a fee prescribed in these regulations”.  I consider the only fees in items 1 and 2 in part 2 of the draft bill of costs prescribed in the regulations is the fee for filing the notice of opposition.

The schedule of work undertaken indicates the amount for item 3 in part 2 of the draft bill of costs includes two fees which are described as “Extension of Time”.  In an earlier decision I decided a party could not claim such fees in a claim for costs (Prudhoe v ICI Operations Australia Pty Ltd 27 IPR 100 at page 104). For similar reasons I consider Mellet cannot claim item 3 in Part 2 of its draft bill of costs.

The schedule of work undertaken describes the amount for item 5 as ”Discretionary power”.   This is the fee Mellet paid with its request under regulation 22.22 for the Commissioner to issue a decision on the award of costs.  I consider Mellet may claim this fee.

I note Mellet’s draft bill of costs does not claim item 38 from part 2 of schedule 7.

SUMMARY

I award costs against the Swansons in accordance with the above decision.

M Kendall
Delegate of the Commissioner of Patents

Patent attorneys for the applicant  :  Wray & Associates