The University of Western Australia v Gray (No 2)

[2005] FCA 1633

FEDERAL COURT OF AUSTRALIA

The University of Western Australia v Gray (No 2) [2005] FCA 1633

PRACTICE AND PROCEDURE – pleading – adequacy of pleading and defences – allegation of patentable invention made or developed by University employee – description of ‘patentable invention’ imprecise – attracting imprecise defences – necessity to amend statement of claim to define patentable invention by reference to actual or notional patent claims

Patents Act 1990 (Cth)

The University of Western Australia v Gray [2005] FCA 277 cited

THE UNIVERSITY OF WESTERN AUSTRALIA v BRUCE NATHANIEL GRAY, SIRTEX MEDICAL LIMITED  and CANCER RESEARCH INSTITUTE INC
WAD 292 of 2004

FRENCH J
11 NOVEMBER 2005
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 292 OF 2004

BETWEEN:

THE UNIVERSITY OF WESTERN AUSTRALIA
APPLICANT

AND:

BRUCE NATHANIEL GRAY
FIRST RESPONDENT

SIRTEX MEDICAL LIMITED
(Formerly known as Paragon Medical Pty Ltd)
(ACN 078 166 122)N
SECOND RESPONDENT

CANCER RESEARCH INSTITUTE INCORPORATED (Registered Number 1001005)
THIRD RESPONDENT

JUDGE:

FRENCH J

DATE OF ORDER:

11 NOVEMBER 2005

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.The applicant has leave to file and serve, on or before 25 November 2005, a further substituted statement of claim including amendments to paragraph 12 of the existing substituted statement of claim and like pleadings in other paragraphs, together with such consequential amendments as may be necessary.

2.The respondents have leave to file and serve, on or before 9 December 2005, further amended defences in response to the amendments to the substituted statement of claim and such further amendments as are necessary to meet conceded applicant’s objections.

3.The applicant is to pay the respondents’ costs thrown away by reason of the amendments flowing from its amendments to the substituted statement of claim.

4.The costs of the case management conferences held on 7 October 2005 and 1 November 2005 are costs in the cause.

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

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 292 OF 2004

BETWEEN:

THE UNIVERSITY OF WESTERN AUSTRALIA
APPLICANT

AND:

BRUCE NATHANIEL GRAY
FIRST RESPONDENT

SIRTEX MEDICAL LIMITED
(Formerly known as Paragon Medical Pty Ltd)
(ACN 078 166 122)
SECOND RESPONDENT

CANCER RESEARCH INSTITUTE INCORPORATED (Registered Number 1001005)
THIRD RESPONDENT

JUDGE:	FRENCH J
DATE:	11 NOVEMBER 2005
PLACE:	PERTH

REASONS FOR JUDGMENT

Introduction

1. Dr Bruce Gray has been involved over the past two decades in the development of new technology for combating cancer.  He is a former Professor of Medicine and Head of the Department of Surgery at the University of Western Australia (the University).  His technologies are being developed in conjunction with two organisations with which he is associated.  One is a public company called Sirtex Medical Limited (Sirtex).  The other is an incorporated association called the Cancer Research Institute Incorporated (CRI).

2. On 21 December 2004 the University commenced proceedings against Dr Gray alleging that he had developed certain of his technologies essentially on University time and while a member of University staff.  The University claims that he has obtained the benefit of intellectual property rights in breach of contractual and fiduciary duties to the University.  Sirtex and CRI have become involved in the dispute because of the acquisition of rights by Sirtex from Dr Gray and the issue of shares by Sirtex to Dr Gray and to CRI.

3. On 17 March 2005 I struck out the University’s statement of claim and granted leave to file a new statement of claim and application – The University of Western Australia v Gray [2005] FCA 277. A substituted statement of claim was filed on 18 May 2005. The respondents have each filed defences. Dr Gray and Sirtex have also raised cross-claims.

4. The pleadings are long and complex.  The statement of claim now stands at some 37 pages and comprises 164 paragraphs.  Dr Gray’s defence and cross-claim comprises 157 pages (not including appendices) and 269 paragraphs.  Sirtex’s defence and cross-claim runs to 68 pages and 195 paragraphs.  CRI’s defence runs to 128 pages and 163 paragraphs.

5. At a case management conference on 23 August 2005 the University was directed to file and serve by 7 September 2005 a list of objections to the respondents’ defences confined to objections that it would take upon an application to strike out such defences in whole or in part.  The case management conference was relisted to 21 September 2005.  It was suggested at the time that the objections take the form of a Scott Schedule.  This led to the production of  substantial documents (at least in volume) setting out numerous objections to various parts of the defences and to the first respondent’s cross-claim. 

6. On 20 September 2005 further directions were made by consent that the respondents file and serve responses to the applicant’s lists of objections by 4 October 2005.  This led to the production of Scott Schedules reflecting the terms and format of the applicant’s objections and setting out the respondents’ answers to them.  The object of this exercise was to endeavour to facilitate resolution of those objections and the narrowing of issues in dispute. 

7. On 7 October 2005, at a case management conference, the parties were directed to each file and serve a statement of the principal issues in the case and to identify a selection of objections to the defences upon which the Court would be asked to rule.  The case management conference was resumed for the purpose of considering those objections on 1 November 2005.  In the event the number of objections upon which the parties have asked the Court to rule has been substantially narrowed.  They turn upon the University’s pleading that Dr Gray made and developed patentable inventions and that he failed to notify the University of those inventions which were later the subject of patent applications.  The defences are said to be impermissibly imprecise in asserting that the ‘inventions’ were not patentable by reference to prior art and other matters.  This imprecision however seems to have its source in the statement of claim itself.  It is to that question that I now turn. 

   The Invention Pleas

8. Paragraph 8 of the University’s substituted statement of claim pleaded that, between 13 December 1971 and about 22 July 1996 it was a requirement of the University’s Patent Regulations that:

   ‘(a)each Bound Person must immediately inform the Vice-Chancellor of any patentable invention made or developed wholly or in part during the course of that person’s duty or whilst using the University’s research facilities (hereinafter “the Prompt Notification Condition” being Regulation 6.1); and

   (b)if required by the University, the inventor’s rights in any invention made or developed wholly or in part during the course of that person’s duty or whilst using the University’s research facilities must be assigned to the University (hereinafter “the Assignment Condition” being Regulation 6.3).’

   Dr Gray is said to be a ‘Bound Person’ for these purposes.

9. In par 9 of the substituted statement of claim the University’s Intellectual Property Regulations, which operated from about 22 July 1996, were pleaded.  They required the prompt report by ‘Bound Persons’ of the ‘creation of any intellectual property likely to be commercially significant’.  This was pleaded as the ‘Prompt Reporting Condition’.  There was also a restraint condition under those regulations requiring that Bound Persons not apply for any form of protection or commercially exploit or otherwise deal with any intellectual property or do any act or thing inconsistent with the University’s rights under the Regulations.  The Bound Persons and each of them were also restrained from making any application for the registration of intellectual property otherwise than in the name of the University unless otherwise determined by the Pro Vice-Chancellor (Research and Innovation).  This was pleaded as the ‘Naming Condition’.

10. Paragraph 10 of the substituted statement of claim pleaded Dr Gray’s contract of employment with the University made on 26 October 1984.  Paragraph 11 pleaded that by reason of his employment by the University he owed fiduciary duties to it.

11. In pars 12 and 13 of the substituted statement of claim there is a plea related to what was called the SIR-Spheres Invention which was reflected in the pleading relating to other inventions referred to as the DOX-Spheres Invention (pars 36 and 37) and the Thermo-Spheres-1, Thermo-Spheres-2 and Thermo-Spheres-3 Inventions.  The issue arising out of the objections to the defences and to the respondents’ complaints is adequately considered by reference to the pleading in relation to the SIR-Spheres.

12. In pars 12 and 13 of the substituted statement of claim it is alleged:

    ‘12.In the course of his work at the University, and within the scope of his employment by the University, Dr Gray invented a microsphere preparation incorporating radioactive material, which was designed to be used in the treatment of cancer (“the SIR-Spheres Invention”), which invention was patentable and commercially significant.

    13.In breach of the Prompt Notification Condition and the Prompt Reporting Condition, Dr Gray failed to inform the Vice-Chancellor of the University of the SIR-Spheres Invention, either immediately or at all.’

13. At par 14 of the substituted statement of claim it is said that on or about 21 January 1994 Dr Gray filed Australian patent application number 54724/94 entitled ‘Radioactive particles for treatment of cancer’.  It is then said, at par 15, that the application disclosed and/or incorporated the SIR-Spheres Invention, was filed without the knowledge, approval or authority of the University and while Dr Gray was an employee of the University.  It is also said that the application did not disclose the University’s interest and constituted a dealing with personal property to which the University was entitled, namely the right to proceed to registration under the Patents Act 1990 (Cth) (the Act). It is alleged that by reason of these matters Dr Gray breached and continues to breach fiduciary duties owed to the University and holds any right or entitlement which he has as a result of making and maintaining the application on trust for the University. Alternatively, he is said to be liable to account to the University for any benefit received by him as a result of making and maintaining the application.

14. The first respondent’s defence to par 12 of the substituted statement of claim appears in pars 16, 17 and 18 of its defence.  These are relevantly:

    ‘16.The First Respondent denies paragraph 12 of the Substituted Statement of Claim.

    17.In further answer to paragraph 12 of the Substituted Statement of Claim, if which is claimed the matters referred to in paragraph 12 constituted a patentable invention then such invention was not commercially significant in that:

    17.1the microparticle used by the First Respondent and Second Respondent for the delivery of radioactive material namely ytrium 90 to tumours is a polymer microparticle;

    17.2the microparticle created from particulate ceramic material is not and has not been used by the First or Second Respondents due to its comparative cost of manufacture.

    18.In further answer to paragraph 12 of the Substituted Statement of Claim, the First Respondent says that:

    18.1at all material times prior to 1980 microparticle preparation incorporating radioactive material to be used in the treatment of cancer was a concept in the public domain and the subject of prior art base;

    Particulars

    Prior to 1981, at least the following articles were published in scientific journals of and detailing this concept, namely:

    (There follows a list of journal articles)

    Further particulars will be supplied prior to trial.

    18.2prior to the commencement of the First Respondent’s employment by the Applicant, the First Respondent carried out research into the use of microsphere and microparticle preparations incorporating radioactive material to be used in the treatment of cancer and primarily liver cancer and published his research thereby forming part of the prior art base;

    Particulars

    The First Respondent’s research is summarised in articles submitted for publication articles which set out the research carried out by him or at his direction and the following articles were published:

    (There follows a list of articles)

    Further particulars will be given prior to trial.

    18.3by reason of the matters referred to in paragraphs 18.1 and 18.2 hereof, any research in respect of microsphere preparation incorporating radioactive material for use in the treatment of cancer carried out by the First Respondent in the course of his employment by the Applicant, as a matter of law, was not research in respect of a patentable invention.’

15. Paragraph 13 of the substituted statement of claim is denied.  In further answer, set out in par 20, it is said that the Intellectual Property Regulations did not apply to the matters pleaded in par 12 as the Regulations were not in force or effect at the relevant time.

16. The University objects to this aspect of Dr Gray’s defence on the basis that it cannot properly respond to such a plea without knowing:

    1.The nature of the alleged ‘concept’ and its alleged relationship to the invention relied upon by the applicant.

    2.Bearing in mind the requirements of s 7 of the Act, how the research relied upon by Dr Gray is alleged to have created a prior art base (eg which publications are said to be related and what they are said to disclose).

    The University complains that the plea that the invention was not patentable appears to be inconsistent with later pleas in the defence that Dr Gray subsequently ‘dealt with’ the pleaded invention as intellectual property or rights of some form.  In light of the allegation that the inventions pleaded by the University were not patentable and were not incorporated into the applications in order to understand the nature of Dr Gray’s case, it is said to be important to know in respect of each patent or patent application the subject of the proceedings:

    1.        When the invention was discovered.

    2.        By whom the invention was discovered.

    3.        The nature of the invention.

    These matters, it is said, are not dealt with sufficiently in the defences for the University to understand the defence cases. 

17. On behalf of the respondents, on the other hand, it is said that the objection assumes that they can identify what is said to be the invention.  Because of the imprecision of the primary plea in this respect it is said that they are obliged to put up, in effect, the prior art base for the entire field. 

    The Invention Pleas and the Patentability Defences – Applicant’s Issue 1

18. There is a real difficulty with the pleading in par 12 of the substituted statement of claim that Dr Gray ‘invented a microsphere preparation incorporating radio active material, which was designed to be used in the treatment of cancer .. which invention was patentable and commercially significant’.

19. The concept of patentability derives its meaning from the Act.  It relates in that Act to inventions as claimed in any claim in a patent specification. 

20. Paragraph 12 of the substituted statement of claim does not plead the invention relied upon with sufficient precision to enable a precise plea to be made to it by way of defence.  It is not enough to describe the invention in the broad terms adopted in the present case.  The question of patentability at the time that the alleged invention was ‘invented’ could only be judged by formulating a notional specification and an invention or inventions in notional claims which could have been made at the time.  Patentability can then be determined by, eg, testing the invention, as notionally claimed and properly construed by reference to the specification, against prior art to determine whether it would have been invalid for want of inventive step or novelty or on any other ground relating to patentability. 

21. The pleading of a notional patent specification including claims is obviously fraught with practical difficulty.  In this case it is alleged that Dr Gray did apply for a patent.  If the University is content to rely upon the inventions as claimed in the claims set out in that patent as reflecting what Dr Gray had ‘invented’ then any defence on the ground that the invention was not patentable can be raised on conventional criteria narrower than those presently pleaded.

22. The difficulty in this case has its origin in the language of the University’s Patent Regulations.  The respondents are, however, entitled to considerably more precise allegations than that presently made in par 12 and its analogues.  I have described two ways in which the University might deal with the problem.  It is for the University to formulate an amendment which removes the imprecision which has generated imprecision in the relevant defences.  If par 12 is amended along one or other of the lines suggested, then a plea along the lines of par 18 of Dr Gray’s defence that the invention as presently described in par 12 was ‘a concept in the public domain and the subject of prior art base’ would be insufficient.  The defence would necessarily have to address the invention as claimed in any claim, real or notional, relied upon by the University. 

    Disclosure – Applicant’s Issue 2

23. In par 13 of the substituted statement of claim it is said that Dr Gray breached the Notification Condition under the Patent Regulations of the University and the Prompt Reporting Condition under the Intellectual Property Regulations when he failed to inform the Vice-Chancellor ‘… of the SIR-Spheres Invention’. 

24. In answer to these contentions Dr Gray says, inter alia, that the University was aware of his research and development of microsphere targeted treatment of liver cancer.  Reference is made to his application for the position of Professor of Surgery in December 1983 in which he disclosed that, since about 1980, he had been actively involved in the research and development of such technology.  He pleads that he disclosed his publications and discussed openly and fully the extent of the progress of his research with the University’s interview committee.  Reliance is also placed upon a report written by him to the University in February 1988 and other communications.  Further acts said to constitute relevant disclosures are pleaded in par 22 of Dr Gray’s defence.  Paragraph 24 of the defence relies upon a meeting between Dr Gray and the University’s Deputy Vice-Chancellor of Research on 24 July 1996 when it is said he disclosed his research ‘involving microparticle technology’. 

25. The University complains that it cannot properly respond to these pleas without knowing the relevance of a plea that ‘research’ and ‘development’ rather than an invention or commercially significant intellectual property has been disclosed.

26. It is sufficient for present purposes to say that when the ‘patentable invention’ referred to in par 12 of the substituted statement of claim is defined with precision the University is entitled to expect a defence which will limit itself to dealing with the question whether the invention as claimed was invented by Dr Gray and, if so, whether that invention as pleaded was disclosed.  Broad brush pleas of the discussion of ‘research and development’ will not be adequate.  However this awaits a reformulation of par 12 which will flow through to the allegation in par 13.  Similar issues arise in relation to analogue pleadings concerning other inventions.

    Disclaimer or Abandonment of Rights – Applicant’s Issue 5

1. The issue which the University raises under this heading concerns the respondents’ allegations that by various acts of the University in 1987/1988 and then 1996/1997 it abandoned certain rights and interests.  The University says that what is not clear and needs to be in order for it to plead in reply is the nature and content of the rights alleged to have been abandoned and their relevant relationship to the inventions claimed by the University.

2. Again, this is a matter which can best be addressed in the light of a reformulated par 12. 

   Agreement with Centre for Applied Cancer Studies - Applicant’s Issue 3

3. Dr Gray says in his defence that as and from 30 October 1985 the University, the Lions Cancer Institute and the CRI entered into a written agreement defining a collaborative research agreement between them.  It was a material express term of the agreement that the University would be entitled to negotiate for a share of the proceeds from intellectual property developed by staff and students of the University for, inter alia, CRI.  Property with a commercial application which CRI or the Lions Cancer Institute took on would be subject to separate agreement which would identify their separate interests in intellectual property.  On a proper construction of the agreement, the Patent Regulations and subsequently the Intellectual Property Regulations are said not to apply to the intellectual property pleaded in par 12 of the substituted statement of claim and referred to in par 17 of the defence. 

4. It is said that as and from 1 March 1996, by a written agreement, the University established the Centre for Applied Cancer Studies as a partnership between itself, the Lions Cancer Institute and CRI.  The effect of that agreement was that the University’s Intellectual Property Regulations did not apply to research conducted by the Centre for Applied Cancer Studies.  Moreover, under that agreement the proceeds from intellectual property developed by staff and students at the CRI funded by grants processed by the University would be divided between them.  For this reason it is said that reg 6.1 of the Intellectual Property Regulations had no application to Dr Gray’s research involving microsphere technology.

5. The University complains that it is unclear whether it is alleged that the 1995/1996 agreement applied to intellectual property already in existence at the time it was made or only to subsequently created intellectual property.  On behalf of Dr Gray it is submitted that this is not a pleading point.  It is said that if the University intends to plead that the effect of the agreement was in some way limited then it should plead it by way of reply.

6. Although par 23 of the defence is not pleaded with great clarity, I am inclined to agree with the response that any answer can be put up by way of reply.

   Conclusion

7. For the preceding reasons, I will give leave to the University to amend par 12 and analogue paragraphs in the substituted statement of claim and to make such consequential amendments to the substituted statement of claim as may flow from those changes.  The respondents will have leave to amend their defences accordingly.  There have been a number of concessions made in relation to the various points taken in the course of the case management conference.  I propose therefore to order that the costs of the last two case management conferences be costs in the cause.  However, the University must pay any costs thrown away by the respondents by reason of having to make amendments in answer to those made to the substituted statement of claim.

I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:
Dated:            11 November 2005

Counsel for the Applicant:

Mr D Pratt, Ms S Faulkner and Mr K Heitman

Solicitor for the Applicant:

Jackson McDonald

Counsel for the First Respondent:

Mr M Bennett

Solicitor for the First Respondent:

Counsel  for the Second Respondent:

Solicitor for the Second Respondent:

Counsel for the Third Respondent:

Solicitor for the Third Respondent:

Bennett & Co

Mr PD Evans

Freehills

Mr P Tottle

Tottle Partners

Date of Hearing:

1 November 2005

Date of Judgment:

11 November 2005