SDS Digger Tools Pty Ltd v Rear

[1999] FCA 835

FEDERAL COURT OF AUSTRALIA

SDS Digger Tools Pty Ltd v Rear [1999] FCA 835

COSTS – whether proceedings unduly prolonged by groundless contention – whether both parties contributed to unnecessary protraction of proceedings – whether costs should be ordered on indemnity basis.

Patents Act 1990 (Cth), s 60(4)

Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 referred to

SDS DIGGER TOOLS PTY LTD v IAN GRAEME REAR

Matter No. SG 3 of 1997

VON DOUSSA J
ADELAIDE
18 JUNE 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 3 OF 1997

BETWEEN:	SDS DIGGER TOOLS PTY LTD Applicant
AND:	IAN GRAEME REAR Respondent
JUDGE:	VON DOUSSA J
DATE OF ORDER:	18 JUNE 1999
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1.The respondent pay the applicant’s costs, including reserved costs, incurred (a) prior to 30 September 1997 on a party-and-party basis, and (b) after 1 October 1997 on the basis that such costs are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the applicant will be completely indemnified by the respondent for its costs.

2.The respondent pay the applicant’s costs of this application.

3.The order for costs made on 19 August 1998 in respect of costs thrown away on the threatened application to apply to the Court to amend the specification be rescinded as the costs involved in that issue will now be covered by paragraph 1 of these orders.

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

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 3 OF 1997

BETWEEN:	SDS DIGGER TOOLS PTY LTD Applicant
AND:	IAN GRAEME REAR Respondent

JUDGE:	VON DOUSSA J
DATE:	18 JUNE 1999
PLACE:	ADELAIDE

EX TEMPORE REASONS FOR JUDGMENT

1. These proceedings were commenced in this Court on 8 January 1997. The application was brought by way of appeal under s 60(4) of the Patents Act 1990 (Cth) against a decision of a delegate of the Commissioner who found against grounds of opposition to the grant of a patent to the respondent. The matter in this Court was a proceeding by way of rehearing.

2. Directions were given for the filing of evidence by way of affidavit.  Substantial affidavit evidence was filed, both on behalf of the applicant and the respondent, and eventually the matter came on for trial before me on 17 August 1998.  On that occasion, counsel for the applicant opened the case on 17 and 18 August 1998 and, in circumstances that will be described in due course, the case was adjourned on 19 August 1998 with a further date for a resumption of the trial being fixed in June 1999.

3. In fact the hearing has not resumed in June 1999, as leave was granted to the applicant to discontinue the proceedings on 6 April 1999.  The proceedings have not yet been discontinued, but the Court has been given an undertaking by the applicant that, upon the question of costs being resolved, a notice of discontinuance will be filed.  The leave to discontinue was given under O 22, r 2(d) of the Federal Court Rules.  Pursuant to O 22, r 3, there is no prima facie rule that the applicant, upon discontinuance, should pay the costs of the respondent.  Indeed, leave to discontinue in this case was given on the specific basis that the question of costs as between the parties would be subsequently argued.

4. The applicant today seeks an order for costs.  The applicant seeks, first, an order for costs of the proceedings in their entirety; and secondly, an order that from a date after the applicant’s evidence-in-chief was filed, an order for indemnity costs, or to put it more precisely, an order that the costs awarded to the applicant are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred, so that, subject to such exceptions, the applicant will be completely indemnified by the respondent for its costs.  The relevant date from which such an order is to operate, which has emerged from the submissions as modified in the course of oral argument, is 1 October 1997.

5. The applicant seeks costs on an indemnity basis from that date on the footing that the proceedings from then on were being prosecuted unnecessarily and that the continuance of the proceedings beyond that date constituted an undue prolongation of the case by groundless contentions – an expression which comes from the decision in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233.

6. The respondent, on the other hand, whilst conceding that it may be liable for some costs because an issue without merit was run for longer than was necessary, says that there should not be an order for costs of the whole proceedings in favour of the applicant, let alone an order that there be indemnity costs for any period.  To understand the arguments of the parties, it is necessary to go further into the detail.

7. The application for the patent in suit was filed initially in 1992, and it was that application that subsequently became the subject matter of the proceedings before the Commissioner’s delegate.  The specification as lodged with the application contained seventeen claims.  In my view claims 2 to 17 were dependent in one way or another upon claim 1.  Claim 1 read:

   “1.      A drill bit for use with a rock drill comprising a body adapted to be received in a support assembly and having an axially directed cutting face with an outer portion which is of substantially convex profile, said cutting face supporting a plurality of sets of cutting elements, said outer portion supporting at least two of said sets of cutting elements where the at least two sets of cutting elements comprises a circular array of cutting elements are concentric with the central axis of the drill bit and wherein each array of cutting elements supported on the outer portion has a rotation path which overlaps with the rotation path of the adjacent array of cutting elements supported on the outer portion.”

8. A critical integer in claim one was that:

   “…each array of cutting elements supported on the outer portion has a rotation path which overlaps with the rotation path of the adjacent array of cutting elements supported on the outer portion.”

   One of the dependent claims, claim 11, was in the following terms:

   “11. A drill bit as claimed in any one of the preceding claims, wherein each cutting element is surrounded by an annular region, wherein the annular region of each cutting element overlaps the annular region of adjacent cutting elements.”

9. The notice of opposition before the Commissioner’s delegate raised a number of grounds for challenging the grant of a patent on the specification as lodged.  Most of the grounds raised were the subject of the hearing before the delegate.  The reasons for decision indicate that foremost among the grounds of challenge was a challenge to the claim in respect of the integer in claim 1 relating to overlapping rotation paths of the cutting elements.

10. The reasons for decision indicate that the delegate was not satisfied that the prior art that was relied upon – namely, diagrams of other drill bits – contained overlapping rotation paths, and accordingly on that critical issue decided against the opponent. 

11. The applicant in the proceedings in this Court again raised a number of grounds for opposing the grant of a patent based on the specification.  Included among those grounds was a challenge to every one of the claims, but in particular, to claim 1 and the claim in respect of the overlapping rotation paths.

12. As I have said, evidence-in-chief was filed by the applicant pursuant to direction, the last of the affidavits being filed on about 11 August 1997.  After some delays, in 1998 the respondent filed affidavits by way of evidence in reply, and then the matter proceeded to trial.  When the trial commenced, counsel for the respondent indicated before the opening that the respondent was proposing to seek to amend the specification.  Particulars of proposed amendments were made known to the Court and to counsel for the applicant, but a notice of motion actually seeking leave from the Court to amend the specification which the Court was being asked to consider was not filed.  Indeed, at the end of the opening, the proposed amendments were withdrawn.

13. The proposed amendments at that stage would have affected both claim 1 and claim 11.  Critically, claim 1 was to be amended by adding two further integers.  One of those integers had previously been the subject matter of the claim number 11.  The amendments proposed to delete claim 11 as a separate claim.  The effect of incorporating the former claim 11 into claim 1 was to require, as an additional integer to those already in claim 1, that “the annular region around each cutting element overlaps the annular region adjacent cutting elements at the outer portion”.  There was also a further integer proposed to be added, namely that “each cutting element is positioned so it is surrounded by an annular region of substantially equal dimensions”.

14. When that proposed amendment was made known to the Court, counsel for the applicant protested that the amendment would substantially change the subject matter of the claim and, as the applicant’s opening indicated, the primary attack which the applicant was proposing to mount in this Court, as it had done before the Commissioner’s delegate, concerned the overlapping rotational paths.  At the end of the opening, after which a number of criticisms had been made of the specification, and in particular that it made avaricious claims that exceeded the alleged invention, the respondent declined to file a notice of motion to amend.  The matter, however, was stood over, the respondent’s counsel having indicated that the respondent would no longer press the integer relation to the overlapping rotational paths.

15. Counsel for the applicant protested at that stage that it was necessary to know the precise terms of that concession to enable the applicant to determine how the future conduct of the action should proceed.  Notwithstanding that an apparent undertaking was given by counsel for the respondent that no application would be filed to amend the specification outside the Court – that is by going back to the Commissioner of Patents – it was my understanding at the time of the adjournment, and it remains my understanding, that the respondent was not in any strict sense giving an undertaking, but was intending to consider his position and take what action was necessary to define what stand the respondent would take when the hearing resumed.

16. As it turned out, in November 1998 the respondent elected to file an application with the Commissioner of Patents to amend the specification.  That amendment altered the proposed claim 1 yet again by adding further integers.  Claim 1, as redrawn in the application to amend reads:

    “1.      A drill bit for use with a rock drill comprising a body adapted to be received in a support assembly and having an axially directed cutting face with an outer portion which is of substantially convex profile, said cutting face supporting a plurality of sets of cutting elements, said outer portion supporting at least two of said sets of cutting elements where the at least two sets of cutting elements comprises a circular array of cutting elements which are concentric with the central axis of the drill bit and wherein each array of cutting elements supported on the outer portion has a rotation path which overlaps with the rotation path of the adjacent array of cutting elements supported on the outer portion, wherein each cutting element has an annular region of substantially equal dimensions and the cutting elements in the outer portion are positioned such that the annular region around each cutting element on the outer portion overlaps with the annular regions of the most adjacent cutting elements most adjacent thereto on the said outer portion and wherein the combined areas of the annular regions on the said outer portion comprise most of the area of the outer portion not occupied by the cutting elements on the said outer portion such that on sharpening of the drill bit which comprises the reshaping of the cutting elements, the matrix material, which defined the previous surface of the outer portion of the cutting face 13 and which would otherwise impede the effective cutting action by the drill bit on reuse of the drill bit, is substantially removed." (amendments highlighted)

17. It will be noted that two further integers are added in the concluding portions of the claim, namely:

    “…and wherein the combined areas of the annular regions on the said outer portion comprise most of the area of the outer portion not occupied by the cutting elements on the said outer portion.”

    and secondly:

    “such that on sharpening of the drill bit which comprises the reshaping of the cutting elements, the matrix material, which defined the previous surface of the outer portion of the cutting face 13 and which would otherwise impede the effective cutting action of the drill bit on the reuse of the drill bit, is substantially removed.”

18. Upon that application to amend being filed, the applicant in these proceedings sought leave to discontinue on the basis that there was no longer any commercial utility whatsoever in the applicant proceeding with the action.  The applicant contended then, and contends now, that the reason for opposing the acceptance of the specification in the first instance, and appealing to this Court, was because of the integer in the principal claim 1 of overlapping rotational paths.  The applicant says that it was not and is not concerned with the additional integers of the combination claim relating to the annular regions about each cutting element.

19. The effect of the invention as now described in the amended specification is that cutting elements, or “buttons” are so positioned on the drill head that in the course of the ordinary sharpening process excess matrix material is removed so that the buttons continue to stand proud of the drill bit head.  That was not the principal thrust of the original specification.  The applicant says that it is not concerned to oppose a patent in terms of the amended specification.

20. It is against that background that the applicant says that the proceedings have become of no commercial value to it.  The applicant says that had the specification been amended at an early stage in the way in which it is now to be amended, these proceedings either would not have been commenced at all or, upon the amendment being notified, they would not have proceeded further.

21. The applicant contends that the matter proceeded as far as it did because the respondent failed to address the requirement to amend its patent specification at an earlier date.  It is argued that had the respondent addressed the material that had been filed by the applicant in its evidence-in-chief, it would have been apparent that the specification, as drawn, had no hope of proceeding to the grant of a valid patent.

22. The respondents have filed two affidavits in opposition to the application for costs: one from the patent attorney that has been concerned with the matter and the other from     Mr CJ Hewitt, a solicitor who is familiar with the proceedings.  It is apparent from those affidavits, as indeed it was from oral submissions made by Mr McCormack for the respondent at the trial, that it was not until the days immediately preceding the trial that the evidence-in-chief of the applicant was analysed and advice taken upon it from the expert witness instructed by the respondent.  When that occurred, I infer from the affidavits, that the respondent’s advisers and experts realised that the specification as drawn had no prospect of ultimate success, and it required amendment.

23. In my opinion that evidence in the respondent’s affidavits bears out the primary argument of the applicant that the decision to amend should have been made in about October 1997 and not at a time when the applicant had incurred the costs which it did to bring the matter to the doorstep of the Court, and indeed to open the case.

24. There are two aspects of the present application: one is whether the applicant should obtain an order for costs, and the other is a separate and second issue namely, whether some part of those costs should be on an indemnity basis.

25. The respondent opposes an order for any costs at all.  It is not disputed by the respondent that claim 1, the primary claim in the application, has been amended and that the applicant would have unnecessarily incurred some costs in preparing a case in relation to overlapping rotational paths which could have been avoided had the amendments been made at an earlier date.  However, a costs order is opposed because it is said that the applicant was stubbornly persistent in challenging claim 11 in the initial specification as drafted.  It is submitted that in substance that is the claim presently made in relation to the virtues of annular spaces around each cutting element which facilitate the removal of matrix material in the sharpening process.

26. It is said by the respondent that whilst it may be that the applicant has ground for criticising the respondent in being slow to recognise that its specification required amendment, equally the applicant is responsible for the prolongation of the proceedings because it failed to concede to the respondent that it had no opposition to a patent issued in respect of a claim in the terms which have now been identified in claim 1 of the amended specification.

27. In support of the respondent’s argument, the Court has been taken to a declaration that was made by the respondent himself in the opposition proceedings before the delegate.  It said that this declaration should have drawn to the attention of the applicant that the respondent’s real point of concern was the features of the annular region around each button.  I am unable to accept the submission that has been put on the respondent’s behalf in that respect.  When the declaration is read, paragraph 10 identifies with some precision the problem that the invention was intended to overcome.  Paragraph 11 informs that the respondent developed a drill bit, the subject of the present invention, which had an array of carbide inserts which reduced erosion of the carbine inserts and improved the cutting action.  That, in itself, does not direct attention specifically to the virtues now said to exist in the claim in respect of annular regions.  Paragraph 12 then proceeds:

    “This improvement was achieved by overlapping rotation paths of the two outer arrays of carbide inserts on the drill bit.  The second array of inserts adjacent the outer “gauge” row were positioned to overlap with the gauge row in order to reduce the wear on the carbide inserts of the outer gauge row."

    Paragraph 13 then says that:

    “An additional feature of the drill bit which was developed by me was to group the carbide inserts on the face of the bit in a manner which would minimise the amount of contact which the face matrix of the drill bit would make with the rock face such that there would be minimal further grinding away of the matrix after the carbide inserts had been resharpened…”

    The paragraph goes on, as do paragraphs that follow it, to explain some of the features which are now said to arise from the claims made in respect of the annular region.

28. I do not interpret that declaration in a way that should have caused the applicant to go to the respondent and seek to concede some claim in respect of what is now the amended claim 1.  On the contrary, the declaration appears to be pursuing, as the primary claim, that based on the overlapping rotational paths of the buttons.  From the information I have gained about this matter both from the opening and from the affidavits I accept that the claims based on overlapping rotational paths, if they became the subject of a patent granted to the respondent, would be likely to cause considerable commercial difficulty for the applicant.  It is not surprising that the applicant would want to challenge a patent with that integer in it.

1. The critical issue, however, is not so much the declaration of the respondent, but the claims themselves.  When the original specification is addressed, claim 1 plainly was a combination claim which included the integer about overlapping rotational paths.  Claim 11 in its original form was particularly broad in its scope, and combined with the integer relating to overlapping rotational paths, was likely to have presented a considerable difficulty to the applicant.

2. The applicant and the respondent are both substantial players in the relevant market and I think it safe to assume that each understood the significance of the issues raised by them and in particular the claims made.  In my opinion nothing emerges from the evidence which should have required the applicant, acting reasonably, to have gone to the respondent prior to the opening of the case and to have said that it would concede that the respondent was entitled to a patent, making claim in terms of the amended claim 1.  It is significant that substantial limitations have been imposed in the amended claim 1 by the extra integers which have been introduced initially when the topic of amendment was first raised at the commencement of the opening, and more particularly when the amendment was filed in November 1998.

3. In my opinion the applicant is entitled to costs in respect of the proceedings.  The proceedings were made necessary by the terms of the specification initially filed, and in particular the terms of claim 1 which, it now seems quite plain, went far beyond the invention concerned and could not have resulted in the grant of a valid patent.  So much is conceded by the amendments which have since been made by the respondent.  Had the claim not been made in the extravagant terms that it was initially, there would have been no need for the proceedings in the first instance.

4. The respondent, having ultimately conceded the substantial issues that the applicant sought to establish by the proceedings, in my view the applicant is entitled, on ordinary principles, to the costs of the action.

5. The next question is whether there should be an order in respect of indemnity costs for any part of the proceedings.  In my opinion the respondents should have realised, by about 1 October 1997, that the evidence-in-chief of the applicant was directed to the overlapping rotational paths and was not directed significantly to the subject matter of claim 11 even though formally all claims 1 to 17 were under challenge.  So much was recognised by the respondent and those that were representing him when they came to address the affidavits shortly before the trial.

6. In my opinion the respondent should suffer an order for indemnity costs in respect of the period after 1 October 1997 because, fairly assessed, the proceedings were “unnecessarily prolonged”.  Proceedings of this kind between large commercial parties should only proceed where it is really necessary to resort to the Court.

7. The respondent by reason of his experience and position in the market, should have realised the significance of the evidence-in-chief much sooner than he did, and as a large player, well advised, he should not have persisted with the specification as drawn.  Had the respondent notified the proposed amendment at a much earlier date, the proceedings would have been discontinued much earlier.  On the evidence that has been filed for the purposes of this application, I accept the applicant’s argument that it has no commercial interest in pursuing any opposition to the amended claim 1, and never would have had any interest in so doing.

8. For these reasons I consider there should be an order made in the terms sought by the applicant, namely an order for costs as follows:

   1.The respondent pay the applicant’s costs, including reserved costs, incurred (a) prior to 30 September 1997 on a party-and-party basis, and (b) after 1 October 1997 on the basis that such costs are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the applicant will be completely indemnified by the respondent for its costs.

   2.The respondent pay the applicant’s costs of this application.

   3.The order for costs made on 19 August 1998 in respect of costs thrown away on the threatened application to apply to the Court to amend the specification be rescinded (as the costs involved in that issue will now be covered by paragraph 1 of these orders).

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa.

Associate:

Dated:            18 June 1999

Counsel for the Applicant:	Mr B Caine
Solicitor for the Applicant:	Norman Waterhouse
Counsel for the Respondent:	Mr M Hoile
Solicitor for the Respondent:	Deacons Graham & James
Date of Hearing:	18 June 1999
Date of Judgment:	18 June 1999