Doug Andrews Heating and Ventilation Limited v Dil

[2012] NZHC 2534

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-4759 [2012] NZHC 2534

UNDER  the Patents Act 1953

BETWEEN  DOUG ANDREWS HEATING AND VENTILATION LIMITED

Plaintiff

ANDWAYNE JAMES DIL First Defendant

ANDGARY ROY MITCHEL Second Defendant

ANDG & W IMPORTS LIMITED Third Defendant

Hearing:         19 September 2012

Counsel:         A Pietras for Plaintiff and First and Second Counterclaim Defendants

K McLeod and M Hayes for Defendants and Counterclaim Plaintiffs

Judgment:      2 October 2012

RESERVED JUDGMENT OF ELLIS J

This judgment was delivered by me on 2 October 2012 at 3.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      A J Pietras & Co, PO Box 30173, Lower Hutt

A J Park, PO Box 565, Auckland

Counsel:       C Elliott, PO Box 4338, Auckland

DOUG ANDREWS HEATING AND VENTILATION LTD V DIL HC AK CIV-2009-404-4759 [2 October 2012]

[1]      The plaintiff, Doug Andrews Heating and Ventilation Limited (DAHV) is the holder of a patent for “a method  and apparatus for cooking”.[1]     The invention described in the claims has manifested itself in a range of portable hangi cookers that are marketed by or on behalf of DAHV under the name “Multi-Kai Cookers”.

[1] Patent number 332466, dated 31 May 1999.

[2]     DAHV alleges that the first, second and third defendants, through the manufacture  and  sale  of  their  “UFO”  cookers,  have  infringed  and  continue  to infringe patent 332466.  DAHV seeks an injunction, an order for delivery up of all infringing goods and an inquiry into damages.

[3]      The defendants deny any infringement and say that the patent is invalid.  The third  defendant  also  brings  a  counter-claim  against  DAHV  and  its  director, Mr Andrews, seeking revocation of the patent on the basis that the invention is not new, is obvious and does not involve any inventive steps.  As originally filed, the counter-claim alleged that there were two cookers that constituted “prior art”.  The pleading was later amended to include further examples.

[4]      On 8 September 2010 Associate Judge Bell stipulated that the setting down date would be 1 November 2011.   The proceedings were allocated a 10 day trial commencing on 30 April 2012.

[5]      But, on 4 April 2012, the third defendant applied for leave to file a further amended counter-claim in which it sought to add another cooker to the list of alleged prior art.  Leave of the Court was required because the setting down date had long since passed.

[6]      The application was determined by Wylie J in the third defendant’s favour.[2]

[2] Minute of Wylie J dated 4 April 2012.

In granting leave, he said:[3]

[3] At [21].

... it seems to me that leave should be granted to the counter-claim plaintiff to file its amended statement of counter-claim.  However, I make it clear to the counter-claim plaintiff that this matter has to be resolved in a definitive set of pleadings.  Any further attempts by the counter-claim plaintiff to add yet an additional cooker are likely to attract the ire of the Court.

I am also anxious to give the counter-claim defendants every opportunity to ensure that they can best advance their defence to these allegations contained in the third amended statement of counter-claim.  To that end, I reserve leave to the counter-claim defendants to make application to the Court to adjourn the substantive hearing once they have had the opportunity to undertake such investigations as are appropriate.  In that regard, I record that Mr McLeod has acknowledged today that the counter-claim plaintiff will not oppose any application to adjourn the proceedings if the counter-claim defendants which to apply to amend their patent.

Both  parties  have  stated  through  their  respective  counsel  that  they  are anxious to avoid any adjournment of this matter.  Hopefully the hearing will be able to proceed on 30 April next.

[7]      As foreshadowed by Wylie J, the plaintiff/counter-claim defendant did indeed apply to adjourn the trial and that application was granted by Rodney Hansen J on

23 April  2012.    On  3  July 2012,  Rodney  Hansen  J  allocated  a  10  day  fixture commencing 24 June 2013.

[8]      In his minute of 3 July 2012, Rodney Hansen J noted that since granting of the adjournment in April, there had been two further interlocutory applications:[4]

[4] Rodney Hansen J said that the fact that these applications had been made militated against DAHV’s

application for a priority fixture.

(a)      by DAHV for leave to add its licensee as second plaintiff; and

(b)by  the  defendants  to  further  amend  their  counter-claim  to  allege additional prior art.

[9]      It is to these two applications that this judgment relates.

[10]     Before turning to address the merits of the two applications, I record that on

29 August 2012 the trial date was changed to 7 October 2013, due to the intended absence overseas of the plaintiff’s senior counsel, Mr Elliott in June.[5]   The Registrar subsequently sent out a notice advising that the new setting down date would be

29 March 2013.[6]

Plaintiff ’s application to add licensee as second plaintiff

[5] When making that order Associate Judge Sargisson recorded that counsel were agreed that the

possibility of a “close of pleadings date” should be raised at the hearing of the above two applications.

[6] Although Mr Pietras contended (for the purposes of opposing the third defendant’s application) that the Registrar was wrong to do this because the proceeding had already been set down with a relevant date of 1 November 2011, I do not accept that submission.

[11]     DAHV seeks to add a company named “Multi KC Limited” (MKC) as the second plaintiff.   The company is owned and controlled by Mr Andrews and his wife, who also own and control the first or existing plaintiff.   Mr Andrews has deposed that (MKC) was created at the suggestions of his accountant in 2004 and that the company has always operated as the exclusive licensee of Doug Andrews Heating and Ventilation Ltd in relation to the sale of the Multi-Kai cookers in New Zealand.  No formal license agreement has until very recently been entered into and it is only subsequent to the present application that a written license was executed and MKC’s interest as exclusive licensee was registered under the Patents Act 1953 (the Act).

[12]     Mr Andrews also deposed that the need to join MKC only dawned upon him when DAHV made an election to pursue damages for the alleged infringement, rather than an account of profits.  It was only at that point (which was just before the matter was due to go to trial in April 2012) that he focused on the nature and extent of the losses he had incurred as a result of the defendants’ entry into the portable hangi cooker market.   He said that much or all of the relevant losses had been suffered by MKC, as licensee, rather than by DAHV itself.

[13]     The amendment to the pleading simply involves the addition of a paragraph identifying MKC as the “second plaintiff” and as the exclusive licensee of DAHV’s patent and an averment that the defendants’ alleged infringing acts have caused and will continue to cause damage to DAHV’s and MHV’s business in portable cookers. An inquiry as to damages is sought.

[14]     The grounds pleaded in support of the application for joinder are:

(a)      The plaintiff has brought proceedings against the defendants for infringement of the plaintiff’s patent no 332466 which protects a portable hangi cooker called the multi-kai cooker.

(b)       Multi KC Ltd is the exclusive licensee of the patent and ought to have been joined as a plaintiff.

(c)       The defendants will not be prejudiced on the basis that the addition of Multi KC Ltd as the plaintiff is not raising any new causes of action, does not involve the pleading of any further instances of infringement  and  does  not  involve  the  need  for  any  further discovery.

(d)       Multi KC Ltd will be entitled to bring a separate patent infringement action and claim relief against the defendants for the same alleged infringing act and the same questions of law would arise.

(e)       The joinder of Multi KC Ltd will  result in the resolution of all matters of controversy between the parties and the avoidance of duplication, delay and cost.

(f)       It is in the interests of justice included by reason of the importance of the issues to the plaintiff and its significance to this proceeding.

[15]     The application is stated to be made in reliance on High Court Rule 4.2 and s 72 of the Act.

Discussion

[16]     Although Mr Pietras submitted that the requirement for leave under r 4.56 was not engaged, I do not agree.  It seems to me that r 4.2 (which Mr Pietras said was the applicable rule) merely contains a broad statement of principle about who should or should not be named as a party when proceedings are commenced.  Once proceedings have been commenced and further parties are sought to be added, then an application for leave under r 4.56 is required.

[17]     If the matter is simply governed by r 4.56, there is in my view no obvious impediment to the grant of leave in the present case.  There is no question that the second  plaintiff  consents  to  joinder  and,  on  the  basis  of  the  matters  to  which Mr Andrews  has  deposed,  the  second  plaintiff  plainly  has  an  interest  in  the proceedings. There is no potential jeopardy to the trial.

[18]     Nor, in my view, is there any prejudice to the defendants in ordering the joinder of MKC.  While the defendants formally opposed leave it seems to me that this was:

(a)       largely  a  matter  of  reciprocating  the  plaintiff ’s  opposition  to  the defendants’ application for leave to amend the counterclaim; and

(b)      because it afforded them the opportunity to make a point about the

lack of clarity around the nature of the second plaintiff’s claim.

[19]     The lack of clarity complained of by the defendants largely arises because of the terms of s 72 of the Act which, as I have said, was relied on by the plaintiff in support of its application.  Section 72 provides:

72       Proceedings for infringement by exclusive licensee

(1)       Subject to the provisions of this section and of section 85 of this Act, the holder of an exclusive licence under a patent shall have the like right as the patentee to take proceedings in respect of any infringement of the patent committed after the date of the licence, and in awarding damages or granting any other relief in any such proceedings, the Court shall take into consideration any loss suffered or likely to be suffered by the exclusive licensee as such or, as the case may be, the profits earned by means of the infringement so far as  it  constitutes  an  infringement  of  the  rights  of  the  exclusive licensee as such.

(2)       In any proceedings taken by the holder of an exclusive licence by virtue  of  this  section,  the  patentee  shall,  unless  he  is  joined  as plaintiff in the proceedings, be added as defendant:

Provided that a patentee so added as defendant shall not be liable for any costs unless he defends the proceedings.

[20]     On  the  assumption  that  MKC  has,  at  the  material  times,  been  DAHV’s exclusive licensee in relation to the cookers, then s 72 empowers MKC to “take proceedings” in relation to any infringement of DAHV’s patent, subject only to s 85. Section 85 in turn relevantly provides:

85 Limitation of proceedings

(1)     Except where the Court (on application in that behalf) in any case otherwise authorises, no person shall bring any proceedings (other than criminal proceedings) in respect of any interest to which he may be entitled as owner, mortgagee, licensee, or otherwise in a patent unless -

(a)   In the case of an interest which is not registered under this Act at the time of the commencement of the proceedings and which is capable of being so registered, -

(i)   He has by notice in writing given to the proposed defendant at least one month before the date of the commencement of the   proceedings   advised   his   intention   to   bring   the proceedings and furnished an address for service in New Zealand; and

(ii)  No notice under subsection (2) of this section requiring him to register the interest under this Act has been given to him within one month after he gave notice under subparagraph (i) of this paragraph; or

(b)   In the case of an interest which is registered under this Act, the interest was so registered, -

(i)   Before the right to commence proceedings was barred under this section; and

(ii)  At least one month before the date of the commencement of the proceedings; or

(c)   In the case of any other interest, he has, by notice in writing given to the proposed defendant at least one month before the date of the commencement of the proceedings, advised his intention to bring the proceedings.

(2)     Where any person makes any claim, or threatens to bring or gives notice of his intention to bring any proceedings (other than criminal proceedings), against any other person in respect of any interest as owner, mortgagee, licensee, or otherwise in a patent, being an interest which is not registered under this Act and which is capable of being so registered, that other person may, at any time within one month thereafter by notice in writing given to the maker of the claim or threat or the giver of the notice of intention to bring the proceedings, require him to register under this Act the interest in respect of which the claim or threat is made or the notice of intention to bring the proceedings is given, and if he fails to do so within 6 months after the giving of the notice under this subsection he shall not thereafter be entitled to bring any proceedings in respect of the claim or interest against the person who has given the notice to register.

(3)     Nothing  in  this  section  enables  a  person  to  obtain  any  relief  the granting  of  which  is  prevented  by  the  Limitation  Act  2010,  and nothing in section 40 of that Act excludes the operation of that Act in any case where proceedings may be barred under this section.

[21]     Thus, notwithstanding s 72 it appears that an exclusive licensee will require

the “authority” of the court to “bring” proceedings unless the requirements of either s

85(1)(a) – (c) are fulfilled.   In the present case none of those paragraphs are met because MKC’s license was not registered until well after the commencement of these proceedings. The following questions therefore potentially arise:

(a)       Can it be said that the joinder of MKC as plaintiff means that MKC

would be “taking” or “bringing” a proceeding?

(b)If  so,  what  considerations  (bearing  in  mind  the  relevant  policy underlying the section) are relevant to the Court’s discretion to grant authority under s 85?

(c)      After taking those considerations into account, should the requisite authority be granted to MKC?

[22]     In the present case, however, I consider that the inquiry can stop at the first question.  The joinder of MKC does not in my view constitute the bringing or taking of proceedings by MKC.  The proceedings have already been brought, and taken, by DAHV.   No new or separate cause of action by MKC is pleaded in the proposed amended claim and Mr Pietras confirmed that that position would not change following joinder.  Although (as s 72(2) makes clear) the interests of a patentee and his exclusive licensee may often not be the same, in these proceedings DAHV’s and MKC’s interests are materially identical.

[23]     Accordingly, it seems to me that some confusion has arisen as a result of the plaintiff’s purported reliance on s 72 in its application for joinder.   The confusion was possibly compounded by the fact that the draft amended claim proposed to refer to  MKC  as  the  “second  plaintiff”  (thereby  implying  that  there  would  be  some separate cause of action) rather than simply adding the company as another (first) plaintiff in the ordinary way.  Those matters appear to have caused the defendants, quite understandably, to question whether there was some agenda behind the joinder application that had not yet been disclosed.  After hearing from Mr Pietras, however, I am satisfied that there is no such agenda. As I have said the interests of DAHV and MKC are the same. There will be no separate cause of action.

[24]     In  short,  ss  72  and  85  are  not,  in  my  view  engaged,  and  the  joinder application falls to be determined simply by reference to r 4.56. As earlier indicated, in my view leave in terms of that section should be granted.

Third defendant’s application for leave to amend its counterclaim

[25]     As I have said, the defendants’ counterclaim is based on allegations that the plaintiff’s patent is invalid on the grounds of prior knowledge/use, and/or obviousness.     Under  Part  22  of  the  High  Court  Rules  particulars  in  patent proceedings are to be contained in a separate document to which specific rules contained in that Part apply.

[26]     Rule 22.19 provides that particulars of an objection to validity must:

(a)     be delivered with—

(i)      an application for revocation under section 41 of the Act; or

(ii)     a defence in a proceeding for infringement of a patent; or

(iii)     a counterclaim for revocation under section 70 of the Act;

and

(b)      include the grounds on which the validity of the patent is disputed;

and

(c)      include particulars clearly stating issues intended to be raised

[27]     And r 22.20 provides:

22.20   Particulars if want of novelty alleged

(1)       The particulars of an objection on the basis of want of novelty must state the time and place of the alleged previous knowledge, publication, or use.

(2)       The particulars of an objection on the basis that the invention has been used prior to the date of the patent must—

(a)       state the name and address of the alleged prior user and the place of prior use; and

(b)       state whether the prior use is alleged to have continued to the date of the patent, and, if not, the earliest and latest dates on which the prior use is alleged to have taken place; and

(c)       contain   a   description   (accompanied   by   drawings,   if necessary) sufficient to identify the alleged prior use; and

(d)        if the use relates to machinery or apparatus, specify whether it is in existence and where it may be inspected.

(3)       Evidence that exists at the date of delivery of the particulars about machinery or apparatus in relation to which prior use is alleged is not able to be received, unless it is proved that the party relying on the prior use has,—

(a)      if  the  machinery  or  apparatus  is  in  that  party’s  own

possession, offered an inspection of it; or

(b)       if  the  machinery or  apparatus is  not  in  that  party’s own possession, used best endeavours to obtain an inspection of it for the other parties to the proceeding.

[28]     Rule 22.25 says that particulars filed in accordance with the rules may be amended “by leave of the Court on terms the Court considers just”.   Rule 22.25 expressly is stated to have effect “despite rule 7.77” which is the rule governing amendments to pleadings generally.

[29]     In the present case the third defendant wishes to amend, not the body of its counterclaim, but the particulars that have been provided in the separate document filed in accordance with these rules.  Because of the terms of r 22.25, leave of the Court is required notwithstanding that the setting down date or, rather, the new setting down date has not passed.

[30]     The particulars sought to be added relate to that aspect of the objection to validity that is based on want of novelty.   The amended particulars contain seven further alleged instances of prior use.  An example of the proposed particularisation is that a cooker having all of the features of the claims of the Patent was manufactured,  used  or  sold  by  Wayne  Richardson  of  Palmerston  North.    The relevant draft pleading is that:

Mr Richardsons’s cooker, depicted in the photographs attached and marked (A5), was first made by him in or about 1984.   Mr Richardson made approximately four cookers in this style.  The said cooker was used prior to, and up to, the date of the Patent.

[31]      The draft pleading goes on to state that:

Arrangements can be made for inspection of the relevant prior art by the

Plaintiff and its counsel/solicitors.

[32]     The new want of novelty particulars are a result of information that came to light though discussions with two of the defendants’ proposed witnesses during the

briefing process, prior to the adjournment of the trial.  The evidence is that it was only as a consequence of that adjournment that the third defendant has had the opportunity to investigate the potential instances of prior art identified.

[33]     The relevant application states:

...

9.It is in the interests of justice to include these instances of prior knowledge/use by reason of the importance of the issue to the Counterclaim Plaintiff’s case, and its significance to these proceedings.

10.There will not be any prejudice to the Counterclaim Defendants if leave is granted.   There is no court allocated trial date, and it is unlikely that sufficient trial time will be allocated during the remainder of 2012.  Any trial is now unlikely to take place before the second half of 2013.

11.      The parties are also attending a judicial settlement conference on 24

September 2012.  It is in the interests of justice that the parties and the Court have before them all relevant information not only as to

any  infringement  of  the  relevant  patent,  but  also  relating  to  its

validity.

12.The Court should have before it all information relevant to matters at issue, including all evidence in relation to the further instances of known prior art cookers.  If the evidence is excluded, it will mean that judgment at trial might proceed on a false understanding, and that would be contrary to the interest of justice.

[34]     As  will  be  evident  from  these  paragraphs,  counsel’s  submissions  were advanced primarily based on the principles applicable to the grant of leave to amend pleadings after setting down.  The present application is, however, not made under r

7.18 but under r 22.25 which applies only in patent cases.

[35]     While  I accept  that  the  “interests  of justice” will  be a factor  of general application, the principal policy consideration that militates against the grant of leave after setting down, namely the potential prejudice to the parties and to the trial, does not necessarily arise in an application under r 22.25 and does not in fact arise in the present case.

[36]     The principal basis on which the plaintiff opposed the amendment related to the alleged lack of merit in the contention that the cookers now sought to be added to

the particulars constituted relevant prior art.  Essentially Mr Pietras submitted that the cookers concerned were so materially different from the Multi-Kai cooker that the Court should be slow to countenance permitting them now to be pleaded.

[37]     Associated with that, as I understood it, was the submission that the addition of seven further cookers at this stage in the proceedings would (particularly in light of the absence of merit) put the plaintiff to considerable unnecessary costs and expense in terms of examining the cookers with a view to determining whether or not they did indeed have the features of the claims comprising the plaintiff’s patent. There appears, however, to be something of a contradiction between that and the “merits” submission; if it is so clear that the cookers are not the same then the amount of  investigation required to establish that would not be great.

[38]     In any event, and in terms of the “merits” point, Mr Pietras submitted that the Court was able and required to engage with the merits at this interlocutory stage and cited in support the decision of this Court in Body Corporate 177519 v Auckland City Council.[7]   In that decision I indicated that notwithstanding the existence of other countervailing factors I would have been prepared to grant leave to amend after setting down had I been “persuaded that the proposed claim had substantial merit”.[8]

[7] Body Corporate 177519 v Auckland City Council HC Auckland CIV-2005-404-005563, 24 May

2011.

[8] At [19].

[39]     Whether or not to permit the pleading of a late, but demonstrably meritorious, claim after setting down under r 7.18 (as in Body Corporate 177519) is a question that is materially different from the present question, which is whether to deny leave to plead a claim of arguable merit a year before trial.  But even if that were not the case, the judgment in Body Corporate 177519 makes it clear that the inquiry in which the Court was prepared to engage was legal, rather than factual, in nature.  By contrast, in the present case, Mr Pietras asks the Court to determine the merits of the proposed  new  pleading  by  engaging  in  an  assessment  of  the  similarity  or dissimilarity of the invention described in his client’s patent and seven other cookers. While there may be legal aspects to that inquiry, it seems to me that the question of

any relevant dissimilarities will be strongly contested, will require evidence and is

predominantly a factual matter for trial.   In my view the factual merit of the new pleading cannot be a matter that weighs heavily on the r 22.25 balance.

[40]     While I accept that in his minute dated 4 April 2012 Wylie J sent a shot across the defendants’ bows in relation to the possibility of adding further instances of  alleged  prior  art,  that  minute  was  issued  in  circumstances  that  have  now materially changed.  Wylie J was dealing with a proceeding that had been set down, in the face of a very imminent trial.  It is no longer set down, and the trial is a year away.  And while the Court may find it irritating on occasion to have to deal with applications of certain kinds, irritation is, without more, no basis for declining them.

[41]     Accordingly, in the present case the relevant considerations appear to me to be as follows.

[42]     First, as Mr McLeod submitted, any prejudice to the plaintiff arising from the proposed  amendment  must  be  weighed  against  the  monopolistic  nature  of  a patentee’s rights.

[43]     Conversely, permitting the validity of the patent to be fully tested is not just a matter   of   facilitating   the   defendants’   personal   interest   in   defending   these proceedings.    Because  of the public interest  in  maintaining the  integrity of  the register and of ensuring that invalid patents do not remain on it, there is also a wider interest in facilitating the defence.

[44]     In terms of any criticism that might ordinarily be levelled at the defendants for the number of iterations of its prior art claim and for delay more generally, I also accept Mr McLeod’s submission that the present circumstances are somewhat unusual.  While in many patent infringement cases the basis on which the validity of the patent can be (con)tested can readily be found in the relevant technical literature and other publications, that is not so here where the invention concerned is of a peculiarly indigenous and “back yard” variety.   It seems to me that the inquiries made by the defendants about the existence of similar cookers (initially by way of public notices and newspaper advertisements) were necessarily iterative in nature.

[45]     A number of the considerations that are relevant in the present case would not of course be relevant if it were the plaintiff who was seeking leave to amend under r 22.25 and it may well be that (because of the public interest considerations to which  I have  referred)  the  r  22.25  leave  threshold  will  generally  be  lower  for defendants than for plaintiffs.  But I do not need to express any definitive view on that issue.  In my view the factors I have set out above favour the granting of leave.

Conclusions

[46]     In formal terms, therefore, I makes orders:

(a)       that Multi KC Limited be joined as a plaintiff in these proceedings;[9]

(b)granting leave under r 22.25 for the third defendant to amend the particulars of its objection on the basis of want of novelty in the manner set out in the draft annexed to its application dated 11 June

2012.

[9] MKC should not be named as the second plaintiff but as a joint plaintiff with DAHV.

[47]     As both the parties have each been successful (and unsuccessful) in equal measure the costs associated with the two applications shall lie where they fall.

Rebecca Ellis J