Azuko Pty Ltd & Anor v Old Digger Pty Ltd A35/2001 [2002] HCATrans 115 (15 March 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A35 of 2001

B e t w e e n -

AZUKO PTY LTD and SEISMIC SUPPLY INTERNATIONAL PTY LTD

Applicants

and

OLD DIGGER PTY LTD

Respondent

Application for special leave to appeal

GLEESON CJ

GUMMOW J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 MARCH 2002, AT 11.03 AM

Copyright in the High Court of Australia

MR D.K. CATTERNS, QC: May it please the Court, I appear with my learned friend, MS S.J. GODDARD, for the applicant. (instructed by Clayton Utz)

MR B.N. CAINE: May it please the Court, I appear with my learned friend, MR B.J. HESS, on behalf of the respondent. (instructed by Norman Waterhouse)

GLEESON CJ: Yes, Mr Catterns.

MR CATTERNS: As your Honours know, there is a public register of patents. The scope of the monopoly that a patentee gets is determined by the claims. The claims are published in the register. As his Honour Justice Gummow said in the Rehm v Websters Case, the claims are addressed to potential rivals. Because of that, your Honours, because of the statutory published monopoly, the fundamental rule is that there is no infringement unless the alleged infringer takes all of the essential integers of the claim. That gives potential rivals certainty as to the scope of the monopoly.

GUMMOW J: Now, you have two points here.

MR CATTERNS: Yes, your Honour.

GUMMOW J: One is infringement and one is secret use.

MR CATTERNS: Yes, your Honour.

GUMMOW J: If you were successful on secret use, that would have an impact on one but not the other of the patents, is that right?

MR CATTERNS: That is right, your Honour.

GUMMOW J: It goes to validity of only one.

MR CATTERNS: That is right, your Honour.

GUMMOW J: Now, is there any commercial utility to you, in those circumstances, of a grant on secret use unless you got one on infringement as well?

MR CATTERNS: Only limited I can accept, your Honour. We lose the case because we still infringe a valid patent, but the Giehl patent is a broader patent and commercially, in terms of what I have just been saying, what we would be allowed to do in the marketplace would be broader if Giehl were off the register, but only in that limited degree, your Honour. So of course our principal position today is that it has to be based on the infringement claim because that is how we win the case. Your Honours, because of this public register patentees draft their claim as - - -

GUMMOW J: We all know that, Mr Catterns.

MR CATTERNS: Your Honour, then let me get to it quicker. There are a couple of exceptions to this basis. The first is mechanical equivalent of inessential integers. That is not relevant here. The other is even though you do not literally infringe the words of a particular integer of the claim - - -

GUMMOW J: Let me put to you what I think is on all of our minds really on this. It may be that at the end of the day what it comes down to is taking particular views of particular claims in particular circumstances of this case and there is no real fundamental point of principle involved, though there might be differences of view as to how the principles pan out when enmeshed in the detail of the particular claims.

MR CATTERNS: Your Honour, we would submit not, because - - -

GUMMOW J: And that what you are really trying to do is to elevate something above its real station.

MR CATTERNS: Your Honour, I would submit not.

GUMMOW J: Lure us into this minutiae by that means.

MR CATTERNS: If your Honours would go to page 65. In paragraph 45 his Honour Justice von Doussa accepted some evidence - which we do not challenge - that our variation, which he called:

the extension of the Premier drive sub is a minor variation, one which he described as a "trifling variation of no mechanical significance".

Then, your Honours, about line 22, this is the error:

The Premier tool is the functional equivalent of the SDS invention.

Their Honours Justice Beaumont and Justice Gyles upheld that, and that is heresy. Your Honours, it is not just a heresy that can be dismissed by saying, "Ah, but the principles of infringement are well known" - and of course functional equivalent is not the principle - because, we submit, your Honours, that his Honour Justice von Doussa, and, applying him, the Full Court, were led there by High Court authority. There are some phrases in High Court authority which can get you to functional equivalent, and that is not the law. Your Honours, that can be seen quite simply beginning in his Honour Justice von Doussa's reason at page 64.

GLEESON CJ: If you go to 66 paragraph 50 line 30, the issue there referred to is expressed as an issue relating to the construction of the claim.

MR CATTERNS: Yes, your Honour, that is a different issue that we did not run on appeal. That is about it being a sacrificial sleeve. The relevant issue, your Honour, that we seek - the only issue we agitated in the Full Court ends in paragraphs 47 with respect to this patent. Your Honour sees in paragraph 48:

The respondents' other infringement defence -

that is not in issue, your Honour. It is only the issue concluded in 45 to 47, functional equivalent. This relates to the fact that an integer is missing. An integer of the claim is that there be a transmission sleeve. It was common ground that our outer sacrificial sleeve did not transmit air. So the integer is missing. Nevertheless, we achieved the same result. That is why his Honour said it is the "functional equivalent", but that is not the law. The trouble is, your Honours, that the courts were led there by High Court authority, including the great judgment in the Minnesota Mining Case, which is referred to by his Honour in paragraph 44. Your Honours can see we do not literally infringe. In 44 line 2:

On a literal construction of the claims, a gauge sleeve, to meet the description "transmission sleeve" will be a sleeve that transmits air.

In our tool, the gauge sleeve is not performing that function. That should have been it, and we should not have infringed. Nevertheless, his Honour Justice von Doussa quotes from his Honour Justice Aickin in the 3M Case, that you get infringement nevertheless where you take the substance of the invention, a risky phrase:

yet stays outside the express words of the claim, unless the wording of the claim makes it clear that the relevant area has been deliberately left outside the claim.

How is a potential rival to know whether something has been deliberately left outside the scope of the claim? That shifts the onus around, your Honours. The two errors are: is there some sort of subjective - - -

GUMMOW J: The phrase at about line 16 on page 65, paragraph 45, "trifling variation of no mechanical significance". What case does that come from?

MR CATTERNS: I am sorry, your Honour. The Commonwealth Industrial - - -

GUMMOW J: Yes, that is right.

MR CATTERNS: Your Honour picked that up in the Nicaro Case but that is a case, like the famous Catnic Case, where the word of the integer was that it be "flat" or "normal", it is not quite clear.

GUMMOW J: Yes, to be made concave - - -

MR CATTERNS: Slightly concave, yes, your Honour, but here the integer is missing. It is just not there. Catnic, as your Honours remember, the word was "vertical", the lintel was 8 or 9 degrees off. So that was a "trifling variation of no mechanical significance", to apply the CIG words.

GUMMOW J: All I am saying to you is it may be, on one view of it, that the trial judge understood the principles but misapplied them. The opening paragraph 46 suggests that he understood the principles.

MR CATTERNS: But, your Honour, he ended up with "functional equivalent", and that is not infringement. That is heresy. He is led there, with respect - even by the judgment in CIG which, in part, sets out the right principle - - -

GLEESON CJ: I am not sure why you say "he ended up with `functional equivalent'". He made a passing mention of "functional equivalent" in the course of putting the proposition in the following sentence.

MR CATTERNS: Your Honour, then it goes on and says:

avoid the literal meaning of the claims by a contrived modification that has no practical significance -

Your Honours, the undisputed fact is the integer is not present at all. Our sleeve does not transmit the air. So it is not a case of a slight variation from a literal descriptive word. It is the absence of an integer. You can only infringe with the absence of an integer if you use some concept such as, "the substantial idea is there" or "it's the functional equivalent". That is what his Honour did and that is what the Full Court did, your Honour, by majority, whereas his Honour Justice Heerey saw that this was exactly the nub of the case and in a sentence says, "The fact that it is the functional equivalent is the wrong question".

So, your Honours, our submission is that the High Court authorities have led the courts here into this error of thinking that you can make up for the total absence of an integer by saying, "That absence of an integer is of no mechanical significance". In the context of the CIG Case, the "trifling variation of no mechanical significance", the integer was there, which is where the gas in an oxyacetylene torch met a flat surface. It ended up meeting a slightly concave surface. So the integer was there, but it did not quite meet the description; the difference being "a trifling variation of no mechanical significance".

Now, your Honours, that is a completely different case from the present. We submit it is plainly wrong to apply any doctrine of functional equivalence, as their Honours plainly did. It is not just good enough though to say, "That's plainly wrong and there's plenty of High Court authority which sets out the test adequately", because the very High Court authorities that his Honour relies on led his Honour into the test. His Honour's reasons are apparently anchored in, or founded on, the authorities. That phrase in paragraph 44 on page 64, the relevant area deliberately left outside the claim, is productive of error, with respect. Perfectly fine, no doubt, in the context of 3M Case, but how is the potential rival to know? The question is one of the proper scope of the claim as it is drafted.

If Your Honours would not mind looking again on page 64, towards the bottom of the page, line 25, there is a quotation from the Radiation Limited Case where his Honour Justice Dixon says:

the issue is not whether the words of the claim can be applied with verbal accuracy . . . It is whether the substantial idea disclosed by the specification and made the subject of a definite claim has been taken and embodied in the infringing thing".

GUMMOW J: The question is: what do we mean by "substantial idea"? You can always have a debate about that, which is what you are having.

MR CATTERNS: Yes, your Honour, but that is not what patent infringement is.

GUMMOW J: I understand that.

MR CATTERNS: You have to construe every integer, integer by integer, determine the scope of that integer and see whether or not that integer was present in the accused device.

GUMMOW J: Yes. The substantial idea made the subject of a definite claim, to be fair.

MR CATTERNS: Yes, exactly, that is where the emphasis should be, your Honour.

GUMMOW J: That is what Sir Owen Dixon said.

MR CATTERNS: Yes, your Honour, of course, but even that has difficulties because the substantial idea disclosed by the specification leads us into questions of the extent to which one can use the specification to construe the claims. The statutory question is: what is the scope of the particular claim? Even Justice Menzies' words in the Commonwealth Industrial Gases Case are productive of error because when we get into the phrase "subterfuge", does that mean that cases of intention are different cases from cases of accidental infringement? This should all be a question of objective construction of a statutory document set against the alleged accused device and what it particularly possesses or does not possess.

GUMMOW J: Now, do you want to say anything about secret use?

MR CATTERNS: Yes, your Honour, just briefly. We submit that there is no authority on that in this Court. It is a stand-alone ground. His Honour Justice von Doussa appeared to be with us as to whether or not the manufacture - - -

GUMMOW J: Is there a problem as to the evidentiary material, its exiguous nature?

MR CATTERNS: No, your Honour, none at all.

GUMMOW J: There just seems to have been some concessions made in cross-examination, was there not?

MR CATTERNS: Yes, your Honour, but the facts are good enough. Fifteen hammers were made before the priority date which he intended to sell. That sets up the issue neatly and crisply. It says they were manufactured and we submit that is use. There was no doubt it was prior or that it was secret, but his Honour Justice von Doussa appeared to treat it as coming within the section, but otherwise said that one of the - if I may use the word - defences of 9(a) or 9(b) applied.

GUMMOW J: There was a concession at some stage, was there not?

MR CATTERNS: Does your Honour mean about the facts?

GUMMOW J: Yes and about the argument too.

MR CATTERNS: I do not believe so, your Honour, or I do not recall - I am not quite certain what your Honour means. But his Honour Justice von Doussa treated it as being - - -

GUMMOW J: At some stage there was a debate about the qualifications to the secret use provision - - -

MR CATTERNS: Section 9(a) and 9(b), your Honour.

GUMMOW J: - - - rather than the primary application of the provision itself. That is what I am getting at.

MR CATTERNS: Exactly, your Honour. Our friends did not concede that it was prior secret use, but his Honour Justice von Doussa apparently treated it as that but said that 9(a) or 9(b) applied. His Honour Justice Gyles doubted that and his Honour Justice Heerey held that 9(a) and 9(b) did not apply. But the reason we lost on the appeal is his Honour Justice Gyles, with whom Justice Beaumont agreed, held that the making of 15 hammers before the priority date did not constitute secret use because it was not commercial.

Now, there are three problems with that. First of all, why is the manufacture of 15 hammers not for the purpose of sale after the priority date commercial? The second problem is the statute does not say commercial use, it says prior "secret use". Thirdly, the question of commercial or not is dealt with in 9(c) which accepts use:

for any purpose other than the purpose of trade or commerce -

So, your Honours, we submit that that is a discrete important legal issue. It does not arise in every patent case, far from it, whereas of course infringement does, but we nevertheless submit that it is an important issue. There is a conflict within the judgments here and that is one that ought to be resolved.

Your Honours, of course, our primary submission is that the infringement question is a crucial one. There is no doubt we lost on the ground that our device was functionally equivalent to the device described in our friend's claims, but that is not the law and his Honour was led to that position and the Full Court was also led to that position by reliance on High Court authorities, sentences here and there; and we respectfully submit that - I think it has been 20 years since the Court had original jurisdiction in patent cases, so it has not had occasion to look at infringement for that period of time.

We respectfully submit that those matters need to be resolved and, secondly, to the extent that the Court here flirts with, if I may say that with respect, the Catnic approach, that has also been done in the Federal Court, as his Honour Justice Gummow has pointed out, on a number of occasions, unevenly. We respectfully submit that the extent to which there is some exception based on construction to the notion that you must literally infringe, that too is ripe for consideration and authoritative exposition. In England, they have had 20 years explaining what this Catnic purpose of construction business is all about and it has come to a position where everybody understands what the law is. We respectfully submit with the judgments in this case, we now have a conflicting approach which we respectfully submit is wrong. May it please the Court.

GLEESON CJ: Thank you. Yes, Mr Caine.

MR CAINE: If the Court pleases. The proposed appeal cannot succeed in relation to the SDS patent unless the applicant succeeds in persuading this Court that there has been no infringement of the relevant claims. That question, that is of infringement, was decided against the applicants by three of the four judges below and the judgments, in our submission, reveal no error of principle. The question of infringement was resolved on the evidence by those judges - - -

GUMMOW J: What do you say about paragraph 45.

MR CAINE: Paragraph 45 of the learned trial judge's reasons reveals no error, with respect. The phrase that my learned friend has attached upon, that the Premier tool was "the functional equivalent", is one that is buried amongst a number of observations which show that his Honour quite clearly had regard to each of the leading decisions in the context of infringement. The phrase "trifling variation" comes from CIG. The phrase "losing any of the advantages of the invention" comes from CIG. "Taking the substantial idea" comes from Radiation v Galliers, 3M and, I think, Olin. Then, deliberately left outside the scope of the claim is the test his Honour employs in paragraph 46, and that comes from 3M and Olin, both decisions of the Full High Court.

What my learned friend essentially seeks to do is to have this Court on appeal retry the matter, form a different view as to the proper construction of the claims and a different view when comparing the features of his clients' device with those claims and adding to that that it should take, as he would have it, a literal approach. The one thing that is clear is the law has never been that patent infringement is restricted to literal infringement, as it were. What my learned friend seeks to do is to say that there is an integer missing in his clients' device. That is a question of construction and it is a conclusion that one can only arrive at if the applicants' urging that the literal construction be adopted is in essence embraced.

We say that what the courts below did was to construe the claims as the authorities say they should. They looked at the language used by the patentee in the claims; they considered it against the description of the invention in the body; they determined whether the essential features of the invention, that is the substance of the invention, had been taken by the Premier device; and they did all of that in the context of the six weeks trial involving complex technology and concluded at times by reaching different conclusions as to the precise scope of the claims, but, nonetheless, in each case, save for Justice Heerey, concluding that there had been infringement. It does no violence to established principles for the courts to have followed 3M and Olin to say that the substance of the invention had been taken, not that there had been literal infringement, but the substance had been taken and the difference between the infringing device and the invention claimed was "so close", to use the language of Justice Menzies in CIG, or "not deliberately left outside the scope of the claims", to use the language of the Full Court in both Olin and 3M, that it constituted an infringement.

GUMMOW J: On that footing then, what do you say is the difference between Justice Heerey and the other judges in the Full Court on this point?

MR CAINE: Justice Heerey approached the matter in an entirely proper way. He too had recourse to the requisite authorities, he referred to Olin, did not refer to 3M, but nonetheless referred to Olin which for present purposes suffices, but came to a much narrower view of the scope of the claim and, in essence, embraced the view that my learned friend would contend for, that is, he said it was an essential feature that the gauge sleeve itself direct air. Seized of that narrow construction, almost a literal construction, we would say, he said there was no infringement.

Now, that is an entirely proper approach. It is a result that we would cavil with, but it is not one that shows any departure from established principles. The principles that have been laid down in the cases that I have referred to have been routinely applied by this Court and by the Full Federal Court and my learned friend does not in essence suggest that there has been any inconsistency in the way the Full Federal Court has applied these principles, nor does he really suggest in his submissions that the law should be rewritten in any particular way, save that he says that the conclusion on the facts should be different in favour of his client.

In essence, what my learned friend seeks is to come before this Court on appeal and have the Court differently construe one integer of claim 1. He asked the Court to construe the term "transmission sleeve" in claim 1 so as to, when construed literally, exclude the modification made to his clients' device. Justice Gyles most graphically described the difference between the substance of the invention and the variation or modification made to the Premier device. At paragraph 161, I am reminded, of the appeal book, page 232, it is there that his Honour says that in construing claim 1 in alternate fashion in support of the trial judge:

However, if, contrary to my opinion, the description "transmission" does amount to an integer of Claim 1, then I agree with the manner in which the trial judge dealt with the issue. The stratagem of so disposing other parts of the hammer as to avoid air striking the inner surface of the sleeve, whilst preserving the functional characteristics of the sleeve as to the transmission of air, may be ignored in accordance with the authorities discussed by the trial judge and Beaumont J. It is little different in principle from applying a thin veneer of plastic over the inner surface of the sleeve, and contending that the downward air strikes the plastic not the sleeve.

In essence, what the Premier device has done is that it put an extension to the drive sub in so as to mask the operation of a feature which would otherwise have led to a finding of literal infringement. It is on all fours, as it were, with the CIG Case where it was an essential feature of the claim that the reflector be normal and it was changed in the accused device to be slightly concave.

Justice Menzies said that that was so close, it has to amount to an infringement, in essence, by taking the substance but not deliberately leaving outside the scope of the claims that variation. All of the evidence, which is not controverted - it was not challenged on appeal - of a technical nature says that the variation made by the Premier device was one which was "trifling" and "of no mechanical significance". We say that it is of no relevant distinction, as my learned friend tries to characterise it, to say that an integer is missing, is absent, rather than masked. If, for example, in the CIG Case the reflector were made concave to take it away from the normal by superadding a component, we would say it would amount to the same thing if on the evidence it were established that that were a trifling variation or a modest or slight variation of no significance.

Now, my learned friend prays in aid of his submission that the approach laid down by this Court in Olin and 3M and cases that went before it would inject some uncertainty into the law of patent infringement. As I earlier said, the principles that have been settled by this Court have been followed routinely and without objection, as it were, by the Full Federal Court, and indeed this Court, and the uncertainty that my learned friend suggests exists is resolved and can only be resolved by examining the particular claim in light of the particular invention described in a given patent against the backdrop of the particular technology. A more prescriptive test would be unproductive and, indeed, likely to lead to a substantial narrowing of the test for infringement by reverting back to, as it were, literal infringement, and my learned friend, as I understand him, does not contend for that, and it - - -

GUMMOW J: What do you say about secret use?

MR CAINE: Secret use, your Honour, we have dealt with in our submissions in a limited way. The principal point is the one your Honour observed at the outset and that is it does not touch to any extent the outcome of the SDS case. That is the one that is commercially the most significant. All of the evidence, both at trial and on appeal, and indeed all of the submissions, were addressed to the SDS case for that reason. I must confess, your Honours, I cannot gainsay the proposition that the secret use case does involve this Court examining a provision in the statute of the new Act that has not been the subject of attention by this Court, but we say that the limited facts of this case are unlikely to give rise to a proper occasion for this Court to examine secret use in a way that would warrant the grant of special leave.

GUMMOW J: Why is that?

MR CAINE: Your Honour, the facts are quite narrow and somewhat unique. First of all, my learned friend concedes in his summary of argument that secret use is an issue that rarely arises in any event and there are perhaps a number of reasons for that, your Honour; but not only would they be limited in number, the particular facts of this case were whether or not bare manufacture prior to application for a patent could constitute secret use.

GUMMOW J: It was not just bare manufacture, was it?

MR CAINE: Your Honour, the way I am characterising it was the way it was characterised on appeal and that is that Mr Giehl had manufactured some devices, if I can put it that way, and, it might be said, stockpiled them before the priority date. He acted with the words of his patent attorney ringing in his ears that he ought not to sell them before the priority date, before he lodged the application, as it were.

GUMMOW J: But the argument against you is he built himself a springboard, so that he could go.

MR CAINE: I understand that, your Honour. We say that the vice that secret use is directed toward was clearly identified by Justice Gyles and that is an undue prolongation of the monopoly. We say that the test that Justice Gyles has laid down is a workable and a sensible one and one that can guide other courts in the application of the principles in relation to secret use.

GUMMOW J: Fifteen to 20 does not sound very much, but what is the sort of market we are talking about here for these items?

MR CAINE: In terms of volume, your Honour?

GUMMOW J: Yes.

MR CAINE: I can only say to your Honour that is a modest number in comparison with the overall market.

GUMMOW J: Is there evidence of that though?

MR CAINE: I cannot answer that on my feet, your Honour. I think not, not of the kind that would help your Honour. I could not give your Honour a percentage of total sales.

GUMMOW J: Thank you.

MR CAINE: Unless there is some further matter that the Court wishes me to put.

GLEESON CJ: Thank you, Mr Caine. Yes, Mr Catterns.

MR CATTERNS: Three propositions, your Honours. We did lose clearly on the question of "functional equivalent". His Honour Justice Beaumont at page 187 in paragraph 31(4) quotes or paraphrases, at the bottom of page 187, his Honour Justice von Doussa. Then at 193, with respect to the other patent, in paragraph 51 his Honour Justice Beaumont says:

It follows, as Gyles J has explained, that in essential respects the function of the sleeve in the transmission of air is different -

that was dealing with the cases in which we won. Their Honours focused on function, whereas Justice Heerey at page 208, paragraph 83, referred to the phrase that your Honour the Chief Justice took me to, "trifling variation of no mechanical significance", and held:

But that aphorism by its very vividness tends to divert attention from the true question, which is not whether the Premier tool is the functional equivalent of the SDS invention.

His Honour Justice Gyles at 232 of the book, paragraph 161, said:

The stratagem . . . whilst preserving the functional characteristics . . . may be ignored -

Your Honours, of course, it is not a question of stratagems; that is what you are allowed to do when there is a claim.

Second point, your Honours, we do not want to re-construe the words "transmission sleeve". It has always been common ground that a transmission sleeve must transmit air. The legal question is as we have submitted.

Your Honours, finally, this is a case where the advance over the prior art was to have the sleeve transmit the air rather than what we do, which is have the drive sub transmit the air. That is clear from what Justice Beaumont says at page 202, paragraph 71, with respect to one piece of prior art with which we will not trouble the Court:

I agree with Heerey J that its gauge sleeve does not extend below the drive sub and has no function in directing exhaust air; and that this was a valid point of distinction here.

Your Honours, we have precisely that point of distinction. Our gauge sleeve does not extend below the drive sub, it has no function in directing exhaust air; therefore, the integer was absent. May it please the Court.

GLEESON CJ: We will adjourn for a moment or two to consider the course we will take in this matter.

AT 11.38 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.42 AM

GLEESON CJ: In relation to both of the issues that the applicant seeks to agitate, the Court is of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave, and the application is refused with costs.

We will adjourn for a short time to reconstitute.

AT 11.42 AM THE MATTER WAS CONCLUDED