Super Internet Site System Pty Ltd v Sensis Pty Ltd

[2006] APO 27

ABSTRACTS OF DECISIONS

DECISION OF A DEPUTY COMMISSIONER OF PATENTS

Application  :          No. 2001237130 in the name of Super Internet Site System Pty Ltd.

Title :          On-line Geographical Directory

Action:          Opposition by Sensis Pty Ltd and costs in proceedings where an application is withdrawn.

Decision:          Issued         16 August 2006   .

Abstract

Award of costs where the patent application was withdrawn before hearing of the opposition and after filing of a divisional application.

Decided that the decision in Stack v Commissioner of Patents [1999] FCA 148 did not preclude an award of costs where proceedings had been terminated before hearing, such as by withdrawal of the patent application or of the opposition. In considering the relevant principles developed by the Courts (Aussie Red Equipment Pty Ltd v Antsent Pty Ltd [2001] FCA 1641, Kiama Council v Grant [2006] NSWLEC 96) found that it will often be appropriate for the Commissioner to conclude that the party withdrawing has “effectively surrendered” to the other and an award of costs will be made, save any consideration related to the conduct of the parties. However an award of costs in those circumstances is not automatic and reference must be made to the particular circumstances of each case.

An award of costs over the amount applicable under Schedule 8 of the Patents Regulations was considered appropriate in the present matter based on the conduct of the applicant and that the opponent has been unreasonably thwarted in its attempt to challenge the validity of the applicant’s patents rights, now faces a considerable period of uncertainty in the resolution of those rights and has incurred some level of additional and unnecessary costs in the conduct of the proceedings.

PATENTS ACT 1990

DECISION OF A DEPUTY COMMISSIONER OF PATENTS

Re:Patent Application No. No. 2001237130 in the name of Super Internet Site System Pty Ltd, opposition by Sensis Pty Ltd and costs in proceedings where application withdrawn.

BACKGROUND

1.  The application in this matter was advertised accepted on 24 February 2004 and a notice of opposition filed by Sensis Pty Ltd on 24 May 2005. Evidence in support of the opposition was served but, despite an extension of time being granted, evidence in answer was not forthcoming. The Commissioner therefore set the opposition for hearing on 22 February 2006. The applicant Super Internet Site System Pty Ltd however filed divisional application 2005244579 on 16 December 2005 and withdrew its patent application on 23 December 2005 with the effect that the hearing was cancelled.

2.  On 17 January 2006 the opponent wrote to the Commissioner pointing out the circumstances referred to above and requesting that the hearing set down for 22 February be reinstated as a hearing on costs. Instead a hearing was set down for later date and subsequently the opponent indicated it was seeking “full costs” which it says exceeds $50,000. The applicant in turn submitted that it offered to pay costs of $1,495 according to the scale which apparently had been rejected. More recently Mr Knorr, a director of the applicant company, wrote to the Commissioner seeking the issuance of a notice of production in relation to evidence of the opponent’s costs and deferment of the hearing. The Commissioner did not accede to this request.

3.  In the event the matter was heard on 14 June with the opponent represented by Dr C Rolls of Mallesons Stephen Jaques, Melbourne by telephone and the applicant by Mr Knorr, who appeared in person.

DECISION

4.  The Commissioner’s power to award costs arises from section 210 which provides:

“The Commissioner may, for the purposes of this Act:
(a) summon witnesses; and
(b) receive written or oral evidence on oath or affirmation; and
(c) require the production of documents or articles; and
(d) award costs against a party to proceedings before the Commissioner.”

Futhermore Regulation 22.8 states that:

"(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."

5.  The Patent Office Manual of Practice and Procedure sets out the following as to the practice of the Commissioner in the circumstances of the opposition or an opposed application being withdrawn or an opposition not being supported:

“3.13.7.1 Opposition/Application Withdrawn or Opposition Unsupported

On discontinuance, the Taxing Officer should allow the costs of all work reasonable and proper and not done prematurely, having regard to the circumstances of the case.

See Morrelly v. Hengy (1915) 11 Tas LR 43.

However, in one case of a withdrawal of opposition one party wanted costs and the other party wanted no award of costs; a hearing to determine the question was therefore required.

See Wormald v May Oatway 1966 35 AOJP 3422.

On the other hand where upon consideration of the evidence lodged no substantive ground of opposition is established, costs may be awarded to the applicant. A similar procedure may apply if no evidence is lodged. Thus in Felt and Textiles v. Goodyear Rubber (1960) 30 AOJP 1759 the opponent failed to lodge evidence in support and the applicant was awarded costs.

Special considerations may apply if the applicant withdraws their application, having filed an essentially identical divisional application. In the unreported decision of Deuar v Northern Riverina City (application no 629841) the Deputy Commissioner stated:

"It is my view that while the filing of a divisional application which is substantially coterminous with an opposed application (with the opposed application being withdrawn) is statutorily permissible, it is contrary to both the public and the opponent’s interest in obtaining a timely resolution of the proceedings, and likely to incur further unnecessary expense to all parties. Accordingly, in such situations I consider fairness requires that the opponents be awarded their costs in the withdrawn opposition - unless there are good reasons to the contrary."

Such circumstances might, in appropriate cases, justify a variation in the scale of costs such that the award of costs more closely reflects the true costs incurred by the opponent in their opposition to the withdrawn application.

If an opposition or an opposed application is withdrawn before a hearing, the Commissioner has no power to make an award of costs. The Federal Court decision in Stack v Commissioner of Patents [1999] FCA 148 (issued on 24 February 1999) stated inter alia:

“23 The Patents Act and Regulations make provision for the exercise by the Commissioner, at the request of certain persons, of various powers with respect to patents only after hearing persons with an interest in opposing the exercise of those powers. See also s 216(1). I regard the expression "proceedings before the Commissioner" in s 210(d) as a reference to a matter comprising a determination by the Commissioner with respect to the exercise or non-exercise of a power conferred on him by the Patents Act which he is permitted to make only after hearing the persons with opposing interests in the exercise of the power.

If a matter was withdrawn prior to the hearing without there being a relevant determination by the Commissioner, there are no costs awardable under the Act because there have been no proceedings in the context of s.210(d).”

6.  Thus it appears that since the decision in Stack, the Patent Office has taken the position that an award costs cannot be made where an opposition or, as in this case, the opposed application is withdrawn prior to hearing. While the decision in Deuar (now reported at [1995] APO 63), deals with a very similar factual situation, it was decided prior to Stack and hence, if the Manual is correct on the effect of that decision, could not assist the opponent in its application for costs.

7. However, given its import in this matter, it is appropriate that I review that part of Justice Drummond’s decision dealing with the question of “proceedings” relevant to the Commission’s powers to award costs under s.210(d). His Honour, before deciding that this section was not an impermissible conferral of judicial power on the Commissioner, indicated that:

“22 Further, the filing of a notice of opposition to an application for extension of time to pay a continuation fee brought under s 223, the making of a request under reg 5.5(1)(a) for summary dismissal of that opposition and the making by the Commissioner of a determination on the request is a proceeding before the Commissioner within the meaning of that term in s 210(d). Section 210(d) confines the Commissioner's power with respect to costs to awarding costs "for the purposes of this Act" and to awarding costs "against a party to proceedings before the Commissioner". This suggests that costs can only be awarded under the section where there is a contest between at least two persons about whether the Commissioner should take action which the Patents Act authorises him to take.

23 The Patents Act and Regulations make provision for the exercise by the Commissioner, at the request of certain persons, of various powers with respect to patents only after hearing persons with an interest in opposing the exercise of those powers. See also s 216(1). I regard the expression "proceedings before the Commissioner" in s 210(d) as a reference to a matter comprising a determination by the Commissioner with respect to the exercise or non-exercise of a power conferred on him by the Patents Act which he is permitted to make only after hearing the persons with opposing interests in the exercise of the power.

24 The contest between the second respondent in opposing the grant of an extension of time under the Patents Act sought by the applicant, which is regulated by Ch 5 of the Patents Regulations and is resolved by the decision of the Commissioner's delegate, in my opinion, comprises "proceedings before the Commissioner" within the meaning of that term in s 210(d). Support for this view is also provided by reg 5.10(1)(a), which applies to "proceedings to which this Chapter applies", ie, the matters in reg 5.1, and which include the determination by the Commissioner in respect of a notice of opposition to an application for extension of time: see reg 5.1(a)(iv).”

8.  When one reads the whole of this extract in the context of the decision, it seems to me that the Patent Office manual in focussing only on paragraph [23] of the judgement misses the essential thrust which is that "proceedings before the Commissioner" refers to the contest between two or more parties that leads to and is resolved by a decision of the Commissioner. Clearly the determination involved must relate to the exercise or non-exercise of a power conferred by the Act which the Commissioner is permitted to make “only after hearing the persons with opposing interests in the exercise of the power” (see also para [34] of the decision). However, “proceedings” must logically include the whole scope of the contest between the parties and, as such, do not come into being merely because a hearing is held or the matter determined.

9. This is further exemplified in paragraph [24] of the decision where it is clear that the contest regulated by Ch 5 of the Patent Regulations relating to oppositions constitutes proceedings for the purposes of s.210(d). Proceedings can therefore be said to be initiated between the parties on filing of a notice of opposition and to continue until the matter is determined or otherwise terminated such as by withdrawal of the opposition, withdrawal of the patent application or dismissal of the opposition. I conclude on this basis that it is open to the Commissioner to award costs against a party to such proceedings and that this discretionary power extends to the opposition in the present matter which was terminated at the withdrawal of the patent application.

10.  The question then is whether it is appropriate to award costs in the present circumstances and if so whether that should be according to the scale reflected in Schedule 8 of the Regulations or otherwise as provided in r.22.8. In this I note the decision in Aussie Red Equipment Pty Ltd v Antsent Pty Ltd [2001] FCA 1641 where Justice Moore in considering the situation where trade mark infringement proceedings were resolved by consent, save for the issue of costs, summarised a number of relevant legal principles. One of these is that:

“It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.” Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194

11.  However in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 McHugh J commented that:

“In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. …

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.”

12.  Nevertheless it is also the case that the Courts have distinguished between:

"… cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs." ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270.

13.  The distinction between the two types of cases referred to by Burchett J in ONE.TEL was explored in some detail in a recent decision of Preston CJ in Kiama Council v Grant [2006] NSWLEC 96. His Honour summarising the principles apparent from the relevant authorities stated at [80] that:

“The principles that emerge from these cases are that in a civil enforcement or judicial review case where there has been no hearing on the merits:

(a) where one party effectively surrenders to the other party by:

(i) discontinuing without the consent of the other party; or

(ii) giving undertakings to the Court or submitting to the Court making orders against the party substantially in the terms or to the effect claimed by the other party;

the proper exercise of the costs discretion will ordinarily be to make the usual order as to costs, unless there is disentitling conduct on the part of the other party; and

(b) where some supervening event or settlement so removes or modifies the subject of the dispute that no issue remains except that of costs, the proper exercise of the costs discretion will ordinarily be to make no order as to costs unless:

(i) one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or

(ii) even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action.”

14.  In Oshlack v Richmond River Council (1998) 193 CLR 72 at 97, McHugh J. explained that:

“The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.”

15.  As observed by Drummond J in Stack, supra [40], s.210(d) confers on the Commissioner a broad discretionary power to award costs in proceedings before her and accordingly the principles enunciated by the Courts are instructive in this regard. A particular feature of those proceedings pertinent to the current matter is that discontinuance occurs without leave of the Commissioner and, while settlement may be reached in some cases including as to costs, it is more common for proceedings to be terminated unilaterally by the withdrawal of the notice of opposition or patent application (or of a request or application under a variety of other provisions). These cases will in general have the character of the first class referred to by Preston CJ above and more particularly to being “discontinuing without consent”. As such it appears that it will often be appropriate for the Commissioner to conclude that the party withdrawing has “effectively surrendered” to the other and an award of costs will be made, save any consideration related to the conduct of the parties.

16.  However, while withdrawal from proceedings may suggest prima facie that one party has succeeded over the other, an award of costs in that situation is not automatic and reference must be made to the particular circumstances of each case. In this regard a particular exception will be where withdrawal of the opposition occurs following an amendment of the application. In that event it may be that the Commissioner “is in a position to form a view about the merits of the dispute without the close examination of a case” (We Two Pty Ltd v Shorrock [2002] FCA 875) given that the amendment will usually be made to address matters raised in support of the opposition. However where this is not the case it is likely, on the principles above, that no award of costs will be appropriate.

17.  In the circumstances of the present case, and that considered in Deuar, where withdrawal of an application under opposition follows filing of a divisional application, it would seem to me to be difficult to come to any other conclusion than that the patent applicant has “surrendered” to the opponent and should have an award of costs made against them. The filing of the divisional application in the circumstances, while statutorily permissible can essentially serve no legitimate purpose other than delaying resolution of the status of the applicant’s patent rights and the frustration of the opponent’s interests in the determination of the opposition. If there were to be any doubt in the basic proposition that the applicant has surrendered the proceedings, a consideration of the conduct of the applicant, other than in exceptional circumstances, would in any event lead to the same outcome. This is in effect the decision of the Deputy Commissioner in Deuar. Nevertheless the current situation is even more straightforward in that the applicant has effectively admitted that the divisional was filed because the claims of the withdrawn patent application were invalid for want of novelty.

18.  The Commissioner's discretion in awarding costs apparent in s.210 and r.22.8 has been discussed in a number of Office decisions including, for example, Sterling Drug Inc v Boots Company PLC, 35 IPR 630 and Viskase v W.R. Grace (1998) PTO 47. It is clear from these and the principles stated by Sheppard, J in Colgate-Palmolive Co and another v Cussons Pty Ltd, 28 IPR 561, that the Commissioner should not normally depart from Schedule 8 in the award of costs unless the circumstances clearly warrant doing so. According to Cooper and Merkel JJ in Re Wilcox; Ex parte Venture Industries Pty Ltd and Others, 141 ALR 727, such circumstances arise "when the justice of the case so requires or where there may be some special or unusual feature in the case". Indeed it is highly unusual for the Commissioner to award costs other than as specified in Schedule 8 but the discretion has been exercised in exemplary circumstances.

19.  In the present matter the patent applicant withdrew its application after evidence in support of the opposition was served. I conclude that the applicant “effectively surrendered” to the opponent and, as there is no mitigating circumstances, I am prepared to make an award of costs in the opposition proceedings. The opponent however submits that I should award costs above scale essentially on the basis that it provides inadequate recompense to the extent that “scale costs would represent less than 1/30 of the actual costs incurred”. This puts the matter squarely within the decision in Sterling where the delegate concluded that the scale can be varied to allow the recovery of costs reasonably and properly incurred, if the schedule provides inadequate recompense.

20.  However it is known that the scale of costs reflected in Schedule 8 of the Patents Regulations does not and clearly is not intended to reflect actual costs of prosecuting or defending an opposition, and it is clear that there must also be something else special or unusual concerning the case so as to justify a variation of the scale, such as its “complexity or importance" (Willison v Van Ryswyk [1961] WAR 87 at 91). In the circumstances I do not believe that the opposition proceedings were unusual in the sense of their complexity or the costs involved up to the date they were terminated. What however does make the case unusual is the filing of a divisional almost immediately before the application was withdrawn thus leaving the status of the applicant’s patent rights unresolved.

21.  In this regard, I have considerable sympathy for the position of the opponent. While apparently not including claims in exactly the same terms as the opposed application, it is possible, as in a number of other similar cases, that the opponent will find it necessary to reinitiate and prosecute opposition proceedings if the divisional application is ultimately accepted by the Commissioner. At the very least the opponent will need to monitor the progress of the application to ensure that its interests are protected and conceivably could incur significant costs in the continued market uncertainty as to the patent rights, if any, that may ultimately be granted to the applicant.

22.  On the other hand, it could be that the differences in the subject matter of the divisional application or amendments subsequently made, including during examination, may achieve much of what would ultimately have been achieved in the current opposition. It is also suggested that the divisional includes new matter and it may not therefore be entitled to divisional status in any event. Hence the extent to which costs in the present proceedings may have been thrown away cannot be readily determined at this stage, nor do I think it appropriate for this purpose to consider the merit of the divisional application or to undertake a detailed comparison of the two applications in light of the substantive grounds of opposition.

23.  To the extent that the opponent has specifically pointed to costs incurred after serving of the statement of Grounds and Particulars it is again difficult to conclude, without a substantive consideration of the merits of the case, whether the opponent has unnecessarily incurred costs. Since expert evidence was provided on the question of novelty it may turn out to be quite reasonable for the applicant to have waited until that evidence was in before determining how to proceed. It may also be case that if the result was simply that the application had been withdrawn, the opponent would not be as concerned as to the costs incurred in this part of the proceedings. Rather the matter of the applicant’s conduct turns essentially on the filing of the divisional application and the consequences that has produced.

24.  Considering all the circumstances and the principles enunciated by the Courts in Colgate-Palmolive Co and another v Cussons Pty Ltd, supra and Rouse v Shepherd (No 2) (1994) 35 NSWLR 277, I believe the justice of the case does warrant an award of costs over scale but believe this should be limited to an amount of $4,495, being scale costs of $1,495 plus an additional amount of $3,000 reflecting in my view and reasonable proportion of indemnity costs given the effect of the applicant’s conduct as discussed above. In this regard I have taken into account the statements made by the applicant concerning the differences reflected in the divisional application, that the filing of that application is statutorily permissible and that the amount of unnecessary or duplicative costs cannot be readily quantified at this point. I would also add however that, to the extent that costs may be duplicated in any future opposition proceedings, it would appear open to the Commissioner at that time to consider all the relevant circumstances leading up to those proceedings and to make an appropriate award of costs (Evans and Another v Maclean Shire Council and Another [2004] NSWLEC 89, Oshlack v Richmond River Council (1998) 193 CLR 72 at 97-98).

25.  In relation to the costs of the hearing in this matter, a significant consideration is that the applicant has offered to pay costs in the opposition proceedings according to scale to an amount of $1,495 but that offer was rejected by the opponent on the basis that it did not reflect the “actual costs of an opposition”. Ultimately I have decided that an above scale award of costs against the applicant is appropriate but not to the extent apparently sought by the opponent. I also appreciate that there has been some uncertainty as to the position of the Commissioner as to the award of costs in these circumstances. Accordingly I do not believe it is appropriate to make any award of costs in relation to the costs hearing.

CONCLUSION

26.  I have concluded that the Commissioner has the power to award costs where proceedings under the Act are discontinued prior to a substantive hearing and that an award of costs against the applicant above scale is appropriate in the present circumstances based on the conduct of the applicant in filing a divisional application. Consequently in relation to the opposition proceedings I award costs of $4,495 against Super Internet Site System Pty Ltd. In relation to the costs hearing, I make no award of costs.

Philip Spann
Deputy Commissioner of Patents