Zenon Environmental Inc v Memcor Australia Ltd - [2006] APO 31

ABSTRACTS OF DECISIONS
DECISION OF A DELEGATE OF THE COMMISSIONER OF PATENTS
Application : No. 2003271311 in the name of ZENON ENVIRONMENTAL INC.

Title: Cyclic Aeration System For Submerged Membrane Modules.

Action: Opposition under Section 59 of the Patents Act by MEMCOR AUSTRALIA PTY LTD and an application for an extension of time under Regulation 5.10 to serve evidence in support.

Decision: Issued 13 September 2006 .
Abstract

The opponent’s reliance on settlement discussions between the parties in US proceedings as a reason for the delay in serving evidence in support in the Australian proceedings was accepted.
The balancing of the parties’ interests, and the public interest also supported the allowance of an extension of time.
The requested extension of time to 20 October 2006 was granted.
Both parties have not been as forthcoming or accommodating as they could easily have been in progressing this opposition or in reducing the complexities in this case. Consequently there was no award of costs.
PATENTS ACT 1990
DECISION OF A DELEGATE OF THE COMMISSIONER OF PATENTS
Re:Patent application 2003271311 by ZENON ENVIRONMENTAL INC, and opposition thereto, under Section 59, by MEMCOR AUSTRALIA PTY LTD, and an application for an extension of time under Regulation 5.10 to serve evidence in support.

BACKGROUND

Zenon Environmental Inc. (“Zenon”) filed patent application 2003271311 on 19 December 2003. The application was advertised accepted on 28 April 2005.
Memcor Australia Pty Ltd (“Memcor”) filed a notice of opposition on 20 July 2005 to the grant of a patent on application 2003271311. A statement of grounds and particulars in support of the opposition followed on 21 October 2005.
On 19 January 2006 Memcor filed an application for an extension of time to 20 April 2006 to serve evidence in support of the opposition. That extension of time was subsequently allowed. On 20 April 2006 Memcor filed a second application for an extension of time to 20 July 2006 to serve evidence in support. Zenon objected to this extension. In a decision dated 30 June 2006, [2006] APO 24 (“the previous decision”), that extension was allowed.
On 19 July 2006, Memcor filed a third application for an extension of time to 20 October 2006. Zenon again objected.
The objection to the extension of time to 20 October 2006 to serve evidence in support was set for a hearing. The hearing was held in Canberra on 5 September 2006. Mr Barry Hess of counsel, instructed by Mr John McCormack, patent attorney of Griffith Hack, represented Zenon. Mr Peter Heathcote, patent attorney of Shelston IP, represented Memcor. Both parties appeared by phone.
RELEVANT LAW
The requirements for granting an extension of time to serve evidence are set out in regulation 5.10(2) which states:
(2)The Commissioner may extend the time within which the party may take a step prescribed in this Chapter (not being a step that is taken under regulation 5.3 or 5.3AA, paragraph 5.4(a) or subparagraph 5.8(1)(a)(i)):
(a) on the application of a party in the approved form; and
(b) on such reasonable terms (if any) as the Commissioner specifies; and
(c) after the party has served a copy of the application on the other party.
This provision must be read in conjunction with regulation 5.10(5):
(5)The Commissioner must not give a direction under subregulation (1) or grant an application under subregulation (2) or (4) unless the Commissioner:
(a) …
(b) …
(c) in either case:
(i) gives the parties a reasonable opportunity to make representations concerning the application or proposed action; and
(ii) is reasonably satisfied that a direction, an extension of time or the serving of further evidence is appropriate in all the circumstances.
The law on extension of time provisions, and more specifically the law on regulation 5.10 has been considered by the Federal Court in Ferocem Pty Limited v. Commissioner of Patents (1994) 28 IPR 243, A Goninan and Co Ltd v Commissioner of Patents and Another (1997) 38 IPR 213, and National Starch & Chemical Company v Commissioner of Patents (2001) 50 IPR 398. It is clear from these judgments that regulation 5.10 confers a broad discretion, which cannot be reduced to an imperative compliance with particular requirements. On the contrary, it is necessary to give proper, genuine and realistic consideration to all relevant aspects of the case.
Relevant aspects include the reasons for the delay, the interests of the parties in the opposition, and the public interest. I will address each of these factors in my decision. Firstly though I will address an offer Zenon made to withdraw its objection.
Offer of withdrawal of objection to the extension of time
At the hearing Mr Heathcote sought to produce and rely on a letter dated 18 August 2006 from Mr McCormack to Mr Heathcote. Mr Hess had no objection to the letter being tendered. I allowed the letter to be admitted.
In the letter Zenon offered to withdraw its objection to an extension of time to 29 September 2006 subject to Memcor agreeing to 4 conditions.
I understood from the hearing that Memcor did not reply to the letter. At the hearing Mr Heathcote indicated Memcor would be agreeable to a deadline of 29 September and conditions 2-4 but not condition 1. Condition 1 required Memcor to file its expert evidence on or before 29 September 2006 confined to evidence on the prior art already in evidence. Mr Hess responded that this was the first indication from Memcor that there might be some common ground over the offer. Mr Hess was critical that Memcor made no attempt to negotiate before the hearing with Zenon if Memcor was agreeable to much of the offer. Mr Heathcote suggested that as Memcor had a problem with condition 1 then it did not pursue the offer as a whole any further. The latter point suggests a degree of unwillingness from Memcor to be forthcoming. Since much of Zenon’s offer was acceptable to Memcor, I think Memcor could have been more forthcoming before the hearing to negotiate with Zenon to the possible benefit of both parties.
When condition 1 was further explored at the hearing it became apparent though that there were some difficulties with the condition. There was some debate about the interpretation of condition 1 that was not resolved. Mr Heathcote indicated that in any case Memcor was now working diligently towards finalising evidence in support from its expert by 29 September, barring unforeseen circumstances. Nonetheless Zenon was unprepared to move at the hearing on condition 1. Consequently the hearing progressed on the basis of the original application for extension of time until 20 October 2006.
On my reading of condition 1, that condition would effectively confine Memcor to expert evidence only on the prior art already filed in evidence. This seems to be quite a restrictive provision. While Mr Hess appeared mostly concerned with Memcor serving further prior art in the opposition and that the evidence may thus not concur with the statement of grounds and particulars, the condition would also seem to exclude evidence for example on common general knowledge. I expect most oppositions would be unsustainable in the absence of expert evidence on common general knowledge. The exclusion of such evidence would appear to render Memcor’s position as very difficult with little disadvantage to Zenon. I expect Zenon should have known condition 1 was an onerous provision. Further, with Memcor agreeing to the 29 September deadline, one may suggest the scope of Memcor’s evidence is unlikely to expand significantly with such a short time frame remaining in which Memcor could complete the service of evidence. It is somewhat surprising that Zenon did not appear to accept the restrictive nature of condition 1 or accept Memcor’s assurance of the 29 September deadline, and withdraw condition 1 and its objection.
It seems both parties have squandered opportunities to be more accommodating and forthcoming to progress the opposition. Potential benefits to both parties in hastening the process and lessening the complexities in this case and, perhaps, even avoiding the need for much of the present hearing, were lost.
Explanation of the delay
In the third application for an extension of time Memcor provides the following reasons for the need for the extension.
“Zenon Environmental Inc. (“Zenon”), the applicant for AU 2003271311, was acquired in May 2006 (see Exhibit PRH-1) by GE Water and Process Technologies – a unit of the General Electric Company (“GE”).
Zenon/GE and Memcor (“the Parties”) have, in parallel with the referenced matter, a related dispute before the U.S. Court of Appeals for the Federal Circuit captioned Zenon Environmental; (sic) Inc. v US Filter [Appeal Nos. 06-1266, 06-1277].
The U.S. Court of Appeals recently granted a request by the Parties for an extension until October 16, 2006 on the filing of opening briefs so that the Parties could have sufficient time to pursue settlement discussions. A copy of the Joint Motion for Extension of Time for Briefing (Exhibit PRH-2) filed by the Parties in the U.S. is attached. A copy of the Document Granting the Motion issued by U.S. Court of Appeals will be served on the applicant and filed at the Patent Office as soon as it is received.
We request an extension of three months in which to serve evidence in this matter in order to permit the aforementioned settlement discussions an opportunity to develop with respect to all outstanding issues between the Parties existing in the U.S. and other jurisdictions, including Australia.”
Memcor subsequently served the document granting the motion as exhibit PRH-3. That document notes the parties jointly move for an extension of time and the motion is granted.
Memcor’s partial evidence served so far in the substantive opposition merely amounts to copies of prior art to be argued in the opposition, one set being served on 24 April and another set on 4 September 2006. Memcor has not yet served any supporting evidence from any expert in the field. Furthermore the evidence of 4 September would only be part of the opposition if I allow the third application for an extension of time.
Memcor’s previous reasons for requiring extensions have related to Memcor’s inability to secure experts to provide evidence and experts’ lack of time to present evidence once secured. The unavailability for a period of time of the principal attorney handling the opposition has also been cited as a reason for needing the extensions.
The present application for an extension of time is for entirely different reasons. The principal reason is to permit settlement discussions between the parties.
At the hearing both parties broadly described their relationship with the parties in the USA. From this, I understood there is an ownership link between Memcor and US Filter Corporation. Discussion then turned to the relevance of the US proceedings to the Australian case. Mr Heathcote said the subject matter was similar in the US and Australian proceedings and that the settlement discussions in the USA would apply in other jurisdictions including Australia. Mr Hess acknowledged the similarity of subject matter but stated there was no interrelationship between the two matters. The settlement discussions in the USA related to the US case only and not to the Australian case. Both parties were keen to refrain from expressing anything substantially further than the above on the US matter as they were constrained by confidentiality agreements. Consequently I am limited in making anything conclusive on the relevance of the US proceedings.
It is possible that the settlement discussions in the USA would have little or no relevance in the Australian case. On the other hand I have nothing before me to indicate that is the case. I expect in the main that settlement discussions amongst global companies usually occur in a major commercial market, such as the USA, with the outcomes of those discussions then being applied in other markets, together with any necessary minor adjustments according to local operating environments. In this context I find it reasonable for Memcor to have the view that the settlement discussions in the USA would be relevant in Australia. Furthermore settlement discussions usually take place in a commercial setting quite separate from opposition or litigation settings that might exist between the parties. I am prepared to accept the litigants in this case may not have been fully aware of the status of settlement discussions occurring elsewhere. Consequently I find it reasonable for Memcor to have the view that settlement discussions were proceeding at the time of its request for the extension of time.
Mr Hess announced at the hearing that there were no further settlement discussions at present between the parties in the USA and that those parties were back in court in the USA. Mr Heathcote concurred. Mr Heathcote also accepted this now meant that Memcor must conclude its evidence in support with a high degree of diligence.
At the hearing Mr Heathcote stated that Memcor had stayed the serving of evidence until now on the basis that settlement discussions were underway. Mr Heathcote expressed the view that there was little point in the expense of continuing to gather evidence from its expert if settlement might occur. He also said that if Memcor had served evidence it would have prejudiced the settlement negotiations.
Mr Hess pointed out that the present application for the extension of time, with the reasons proffered for the delay being settlement negotiations, was filed just one day (19 July) before evidence in support was due. Mr Hess was particularly critical that Memcor was largely silent on the progress of evidence from its expert. Mr Hess said Memcor should have served evidence around that day consistent with Memcor’s assurances given at the previous hearing. Further the new unrelated reasons for not doing so this time compared with previous reasons were merely concealing Memcor’s lack of diligence in serving evidence. Alternatively Mr Hess said if Memcor was genuinely concerned about prejudicing settlement discussions then Memcor should have served notice to the Patent Office and to Zenon well before 19 July of its intention to rely on settlement discussions to stay the serving of evidence.
On the face of it, the above points may be technically desirable. On the other hand it is not mandatory nor is it my experience that notices of intention, applications for extensions or explanations of progress are filed much before the expiry dates. Such correspondence usually occurs close to or on the final date. I am also aware of instances where applications for extensions are filed after the expiry dates. Further it is also relatively common that, while a party may have previously given expectations that evidence would be completed by a certain date, nonetheless the date passes without the serving of evidence. While Memcor may desirably have done more to appease Zenon, I think Memcor has acted reasonably in giving notice of its intentions when it did.
I think the likely scenario is that Memcor genuinely believed the US settlement discussions were relevant to the Australian case. Further that Memcor was of the view that settlement discussions were still proceeding. Zenon may have thought otherwise but that is by the way. The present situation appears to be similar to the Race Lotto Pty Ltd v AWA Limited situation, [1998] APO 72. It is not so much what the actual situation was in respect to settlement negotiations that is important. Rather it is the relevant party’s understanding of the state of the negotiations. Following the line taken in the Race Lotto decision, I accept that Memcor believed negotiations were proceeding, or at least could still be salvaged, and I accept Memcor’s concern that serving evidence may have jeopardised the settlement negotiations. On this basis I find it reasonable that Memcor halted the evidentiary stage pending the settlement discussions.
I accept Memcor’s new explanation of the delay in serving evidence and that an extension of time to 20 October 2006 would be appropriate on this ground.
Interests of the parties
The statement of grounds and particulars cites lack of novelty and lack of inventive step as particulars in this opposition. The evidence presented so far by Memcor merely amounts to copies of prior art to be argued in the opposition. Mr Heathcote submitted that prior art documents by themselves are of little value without opinion on them and on the common general knowledge from an expert in the field. I accept this would appear to be crucial to Memcor’s case. I think Memcor would be significantly disadvantaged if expert evidence was not adduced in this opposition.
Mr Hess stated that Zenon’s interest is clearly in achieving the grant of a patent for the invention. There is clearly a disadvantage to Zenon caused by the delay in having this opposition dealt with.
In the previous decision I concluded the disadvantage to Zenon caused by the delay in Memcor serving evidence in support is not as great as the disadvantage to Memcor if Memcor were disallowed from serving any expert evidence at all by refusal of the extension of time. Memcor is now seeking a further extension of up to three months with assurances being given that it would complete evidence by 29 September 2006. A time of up to three months is relatively short in the overall opposition process. I am unaware of any other factors since the previous decision to significantly sway the parties’ interests at this stage. I think the balance remains in Memcor’s favour.
Public interest
The public interest calls for a balance between the requirements that oppositions be dealt with expeditiously and economically, and that a serious opposition be dealt with on its merits (Ferocem (supra) and Goninan (supra)).
Mr Heathcote pointed out that serious oppositions should be dealt with on their merits. He also mentioned the public interest is clearly not served by having clearly invalid patents granted on the basis of refusal to allow a small extension of time.
Mr Hess submitted that Memcor has put forward no substantive evidence to demonstrate potential invalidity of the patent claims. Further the prior art already served by Memcor can be assessed on its own with respect to novelty. Mr Hess also said there is no public interest in further delay.
I accept the concerns raised by both parties. I also note Memcor’s assurance that the evidence is close at hand. Memcor has assured that it will complete its evidence in support by 29 September 2006 barring unforeseen circumstances. I think a short further delay is acceptable in the public interest to ensure the evidence in support is part of the opposition so as to enable the opposition to be determined on its merits.
I find it is in the public interest to allow the extension of time.
DECISION
I have found that Memcor’s present explanation of the delay in serving evidence in support makes the requested extension of time appropriate. Further the balance of the interests of the parties, and the public interest, indicate the extension of time is appropriate.
In respect to Zenon’s offer to withdraw its objection, Memcor gave assurances at the hearing that it would complete the service of evidence in support by 29 September 2006, barring unforeseen circumstances. I expect to see evidence in support completed and served on Zenon by 29 September 2006.
Since I have found the full requested extension of time is appropriate though, and to allow for any unforeseen circumstances, I grant the requested extension of time until 20 October 2006 for Memcor to complete the service of evidence in support.
COSTS
Mr Heathcote submitted that costs should follow the event. Mr Hess submitted that, irrespective of the outcome, Memcor should have costs awarded against it for the indulgence it seeks.

It was evident that there was acceptance from Memcor of most of the conditions of Zenon’s offer to withdraw its objection to Memcor’s request for the extension of time. However such acceptance by Memcor did not come to light until the hearing. Zenon on the other hand was not as flexible as it could have been on a major condition of its offer. While there was some common ground, I think both parties could easily have been more forthcoming or accommodating to progress the opposition and reduce the complexities in this case. If that had occurred, much of the present hearing and its attendant costs and time could have been avoided.
I make no award of costs.
M. G. Kraefft
Delegate of the Commissioner of Patents
Patent attorneys for the applicant : Griffith Hack, Melbourne
Patent attorneys for the opponent : Shelston IP, Sydney