Townsend Controls Pty Ltd v Gilead

[1989] FCA 862

IN THE FEDERAL COURT OF AUSTRALIA )

1

SOUTH AUSTRALIA DISTRICT REGISTRY ) NO. G84 of 1988

)

GENERAL DIVISION	1
B E T W E E N : TOWNSEND CONTROLS PTY LIMITED

Applicant

- and -

GIDEON GILEAD

First Respondent

- and -

DOTAN GILAD

Second Respondent

EX TEMPORE REASONS FOR JUDGMENT

CORAM: VON DOUSSA J.:

9 MARCH 1989

Notice of motion for interlocutory injunction.

@ In these proceedings, the applicant seeks by way of principal relief a declaration that the first respondent has threatened the applicant with an action or proceeding for infringement of patent unjustifiably and seeks a permanent injunction restraining further threats of proceedings for

infringement of patent. The proceedings are brought under s.121

1 of the Patents Act 1952. They relate to alleged threats made on

7 August 1987, 1 October 1987 and 26 January 1988 (see the

statement of claim paras.3, 4 & 5 ) . The proceedings were

commenced on 19 September 1988. There were delays thereafter

whilst orders were obtained to serve the proceedings overseas but it was not until 3 March 1989 that the notice of motion which is now before the court was issued. In the notice of motion the applicant seeks an interlocutory injunction restraining the first respondent from threatening any person including the applicant with an action or proceeding for infringement of patent pending the trial of the principal action. On 3 March 1989 I made an interim order running until 5 p.m. today restraining the respondent in terms of the notice of motion. At those proceedings the respondent's son, Mr Dotan Gilad, also appeared and wished to be heard. As it was disclosed by affidavit material that he was a part owner of the patent and as he announced in court that he had been corresponding with persons in the community in a manner which was likely to be interpreted as a threat, he too was joined as a party on the oral application of the applicant. He became a respondent and an injunction was made against him also. Today he has made lengthy submissions and he has also filed an affidavit in opposition to the continuation of the injunction.

The first question that I have to consider on the notice of motion is whether there is a serious issue or question to be

tried. That of course is a question that relates to the applicant's cause of action based on the alleged threats.

In answer to the assertion by the applicant that the threats are unjustified, the respondents, and in particular Mr Dotan Gilad, have gone to some lengths to establish that the conduct of the applicant in relation to the product called

I

"Vinitape" is a clear infringement of several of the claims in the specification of a patent, Australian Letters Patent number 516 536 owned by the respondents. Their claim of infringement is now backed up, or at least they have given notice of their intention to back it up, by a cross-claim, a draft of which is on the court file and in respect of which there is an outstanding application by them for leave to amend the pleadings to include that cross-claim. That application will be dealt with shortly.

As Mr McNamara for the applicant conceded in his submissions, not every threat of infringement proceedings is necessarily actionable under s.121, sub.s.1. 1t has to be an unjustified threat. And there is a significant amount of information now before me which raises a real question as to whether the threat is unjustified. However, there is in the original affidavit of the applicant an indication that in due course a claim will be mounted against the validity of the patent and on that basis the infringement proceedings will be defended. Whilst there is substantial evidence to suggest that an infringement of the patent might have occurred by the applicant, it is impossible at this stage in the proceedings to decide that

question one way or the other.

It seems to me that there remains a serious question as to whether the threats are unjustifiable or whether they are not, both in the sense just mentioned and also in another sense which I now mention. Mr McNamara points out that the threats upon which he relies (and I should have said they are not simply the

three that were mentioned in the statement of claim; there are more recent threats to which I will make reference in a moment,) go beyond anything that could be justifiable. Again in that respect I think there is a serious question to be tried. It becomes necessary therefore to consider the balance of convenience and other matters going to the exercise of the discretion. There are factors which point one way and there are factors which point the other way on the balance of convenience.

It is convenient first to deal with an argument which goes to the discretion rather than to the balance of convenience, namely that the applicant should be refused relief because of delay. I take this argument first as it will illustrate why the

@

applicant now seeks interlocutory relief.	I have mentioned the
threats upon which the proceedings are founded.	They occurred

in late 1987 and January 1988. In the ordinary course, if an application were now made for interlocutory injunction based simply on those earlier threats delay would be a complete answer in my view. However, the application for interlocutory

62     injunction is not made on the basis of those earlier threats, but on conduct that has occurred in very recent days.

The respondents, who normally reside in Israel, have come to Australia. I think I am entitled to infer from the documents on the court file that they have done so in connection with these proceedings and in an attempt to protect what they see to be a valid patent protection that they have over an invention for a drip-watering system which they say is infringed by the "Vinitape" product. On 1 March 1989 the first respondent wrote

a letter to Vinidex Tubemakers Pty Limited which is the licensee of the applicant. That letter enclosed a copy of the proposed cross-claim in the Federal Court proceedings, an affidavit and opinion of a patent attorney, Mr Catt, to the effect that the applicant's "Vinitape" product infringes the respondentsv patent,

and some other material. They went on to say:

"We want to bring to your attention that you were not able to meet our requirements at the meetings initiated by you in the last ten days. We intend to strengthen our struggle both in and out of court, particularly to bring Vinitapefs infringement of our patent to the notice of distributors and farmers with the purpose of stopping the infringement by them and Vinidex.

In order to protect my position I have instituted a cross-claim for infringement and propose to take action against any distributors and purchasers (including farmers) of the infringing product."

In my view that letter contains a serious threat of a different order altogether to those upon which the proceedings were originally instituted. I think that threat justified the applicant coming back to the court at this stage, notwithstanding the delay after the earlier threats, and justifies the court in now considering whether on the balance of convenience presently existing injunctive relief against threats should be ordered.

At the conclusion of the hearing on 3 March, Mr Dotan Gilad announced that there were at the time documents that might amount to threats in the post, these being documents he had posted that morning. Today a copy of one such notice has been produced to the court. Mr Gilad has indicated that he is unable to say how many of these notices he has sent and to whom they were sent, but that they were posted to various people whose names he selected from the Yellow Pages.

He suggested that perhaps some 50 notices had been sent. The notice has in very bold type across the top the words, "NOTICE TO THE PUBLIC, WARNING" and then it goes on to warn the public, and in particular farmers, dealers, distributors and consultants, not to use, offer or purchase the Australian-made irrigation drip tube of Vinidex Tubemakers Pty Limited, which is known under the brand name, "Vinitape", because the product infringes the respondentst patent.

The warning contains the following words :

"Any person, company, or association using, purchasing, or selling the drip tube "Vinitape" after publication of this notice will be sued by legal action for damages of $100,000, confiscation (even during irrigation in the field) and destruction of the "Vinitape", the infringing product, under the Commonwealth of Australia Patent Act 1952."

That is a threat of drastic action taken in colourful language, clearly designed to deter anybody from having anything to do with "Vinitape". In my view that document constitutes a threat, and again is a threat of quite a different order to those

on which the proceedings were founded. Again, I think that

threat justifies, subject to the balance of convenience, the

intervention of the court notwithstanding the delay.

It is to the point to read a passage from "The Law of

Intellectual Property" by Ricketson, para.2.33, that explains the

policy behind s.121 of the Patents Act. I read :

"Given the high costs of defending an action for infringement of an intellectual property right, the owner of such a right will frequently be able to deter an actual or potential infringer by a simple threat of infringement proceedings. Such a threat, however, may also have the same effect on a person whose activities do not infringe, but who is unprepared to face the costs and time involved in establishing this. As a result, a threat of an infringement action may enable the owner of an intellectual property right to frighten away competitors or to damage such persons less directly by threatening to sue their customers or suppliers as joint tortfeasors. This potential for abuse has long been recognised and the Copyright, Trade Marks and Patents Acts each pvovide specifically that a person so threatened may seek relief against the person making the threats."

And then the text goes on to describe the structure of the section itself. It seems to me that the threats in the present case are clearly designed to frighten off all sorts of people whether they are really infringing the patent or not. What the respondents in my view are attempting to do is, in some way or another, to bring such pressure to bear on the market, and in particular the applicant, that these proceedings will be resolved not by the court but by the force of their threats

The question of delay, which I have just dealt with, in

my view is no obstacle to the exercise of discretion.

It remains to consider some of the other arguments that go to the balance of convenience. The respondents point out that the applicant's evidence on the question of the applicant's damage is scant. It is suggested that the applicant has not proved that it will suffer loss if the interlocutory injunction is not granted. It behoves the applicant in a case such as this, when seeking the favourable exercise of the discretion of a

court, to prevent what is alleged to be ongoing and irreparable damage, to go into some detail about the extent of the damage that is likely to be suffered. However, the respondents, having raised the matter, did not pursue the opportunity to cross-examine Mr Townsend on his affidavit nor did they challenge an assertion in his affidavit that there is an immense market potential for the "Vinitape" product on the Australian market. Indeed it is consistent with the respondents' submissions that this is so. In those circumstances I think I am entitled to infer that there is likely to be substantial loss to the applicant if unjustifiably its business in the market is damaged, as I think it is likely to be damaged, by these threats.

On the other hand, it is said that if the injunction is made there will be substantial injury to the respondents. Again, and here the boot is on the other foot, the respondents1 affidavits give little information to bear out that allegation. It seems by inference from the papers that up to date, although the patent protection has been with the respondents for a long time, they have not used the patent in Australia and indeed, have not used it to a great extent, until recent times, overseas.

The injunction that is sought of course does not prevent them from continuing to market their product as hard as they possibly can. What the injunction would do is to prevent them threatening infringement proceedings. I am conscious, from what I have been told, that the respondents are about to return to Israel and I imagine the threatening conduct in recent times would probably be likely to subside in any event once they return

to ~srael.

There is to be an early trial in the matter. The

respondents say that an injunction is likely to be of little utility because everybody in the market, by reason of threats they have already made, knows of the respondentsr patent and of the allegation that the appellant is infringing it. That argument, it seems to me, works against, not for, the interests of the respondent. It seems to me that in those circumstances, they will suffer little or no injury if an injunctive order is made against them to prevent further threats. On the balance of convenience, having regard to the status quo, and subject to one other matter that I have yet to mention, I consider that the discretion ought to be exercised in favour of the continuation of the interlocutory injunction to the date of trial on the usual undertaking as to damages, which the applicant has proffered, and subject to the applicant being required to keep records of its transactions in regard to the "Vinitape" product in the meantime.

The other, and final, matter to which I make reference
in regard to the exercise of the discretion concerns a number of

submissions eloquently made by Mr Dotan Gilad based on an Israeli

Australian law, to the effect that the applicant has not come to	text book, but nevertheless one that appears pertinent to
court with clean hands and therefore should not receive a favourable exercise of the court's discretion.
He said first that the applicant did not disclose a number of things that should have been disclosed, for example he
did not mention a meeting in Jerusalem in July, 1987 when, so it is alleged by the respondents, the applicant said he knew he was infringing their patent and offered to buy a licence.
That meeting and that allegation were disclosed by the applicant to the court as it is set out in a letter from the first respondent's attorney, Mr Shiftan, dated 1 October, 1987 which is an exhibit to one of the applicant's early affidavits.
Then it is said that there was a non-disclosure of certain meetings between the parties in February of this year. Well, those meetings are also disclosed in the affidavits of the applicant as is the fact that they were without prejudice - they concern without prejudice negotiations.
It was also said that there was a failure to disclose the fact that the respondents had issued proceedings in Tel Aviv alleging a breach of the Israeli patent upon which the Australian one is founded. Well, that also is factually wrong. The
existence of those proceedings was disclosed to the court by the
applicant early in the piece.
A number of other submissions were made by Mr Dotan Gilad under the heading of clean hands, to the effect that it would be unjust for this court now to extend a discretionary remedy to the applicant who is in flagrant breach of the patent of the respondent. Those submissions, of course, pre-judge the outcome of the proceedings and are misplaced for that reason.

In all the circumstances I think the applicant has made out its entitlement to an interlocutory injunction against threats pending the trial of the proceedings. I should say, to make it quite clear to anyone else that might be required to look at the file, that the respondents, although they announced some weeks ago that they proposed to make an application for an interlocutory injunction restraining the applicant from infringing their patent pending the trial of the cross-claim, have chosen not to go ahead with that application.

On the notice of motion I therefore order :

That the orders in paras. 1 and 2 of the order made on 3 March 1989 be extended until further order against both respondents.

Costs on the notice of motion, including costs of 3 March 1989, to be applicant's costs in the cause.

I certify that this and

the /@preceding pages are

a true copy of the Reasons

for Judgment of Mr Justice

von Doussa.

ssociate:  ,k - ~ i s s h d

Dated: q &W&  1489

Counsel for the applicant	Mr P. McNamara
Solicitors for the applicant	Fisher Jeffries
Counsel for the 1st respondent	Mr A. Moyle
Solicitors for the 1st respondent :	Knox & Hargrave

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counsel for the 2nd respondent	Mr D. Gilad appeared for
himself
Date of hearing	9 March 1989