Merial Limited v Bayer New Zealand Limited [2013] NZHC 2197 (28 August 2013)

Last Updated: 5 September 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-006076 [2013] NZHC 2197

BETWEEN MERIAL LIMITED First Plaintiff

MERIAL NEW ZEALAND LIMITED Second Plaintiff

AND BAYER NEW ZEALAND LIMITED First Defendant

THE UNIVERSITY OF OTAGO Second Defendant

Hearing: 9 August 2013

Appearances: C Elliott QC and K T Glover for Plaintiffs

J Miles QC, J Baigent and J C Dickson for First Defendant

S M Hunter for Second Defendant

Judgment: 28 August 2013

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 28 August 2013 at 2.15 pm, pursuant to Rule 11.5 of the High

_{Court Rules.}

Registrar/Deputy Registrar

Date...............

Solicitors: Ellis Terry (Terry IP), Wellington Simpson Grierson, Auckland Gilbert Walker, Auckland

Copy to: C Elliott QC, Auckland

J Miles QC, Auckland

MERIAL LIMITED v BAYER NZ LTD [2013] NZHC 2197 [28 August 2013]

Applications

[1] This case has a substantive fixture scheduled to commence on 11 November

2013. The following interlocutory applications are before the Court:

(a) plaintiffs’ application for further discovery and answers to interrogatories;

(b) plaintiff’s interlocutory application for orders as to confidentiality;

(c) first defendant’s application for orders modifying confidentiality claims;

(d) first defendant’s application to strike out the plaintiffs’ fourth cause of

action in the second amended statement of claim;

[2] For the reasons set out in counsel’s memorandum of 26 July 2013 the plaintiffs no longer pursue their applications in relation to further discovery and for answers to interrogatories. Those applications are withdrawn by leave. Costs reserved.

[3] The plaintiffs’ application for orders as to confidentiality has effectively been overtaken by and will be determined by the first defendant’s application to modify the confidentiality claims by the plaintiffs.

[4] The application that will impact most on preparation for trial is the first

defendant’s application to strike out the fourth cause of action.

Background

[5] The first plaintiff is a UK based manufacturer and supplier of animal health products. The second plaintiff is the New Zealand distributor of animal health products. Both are part of the international Merial Group of Companies (Merial).

[6] The first defendant (Bayer) carries on the business of, among other things, research and development and distribution of animal health products. It is part of the international Bayer Group of Companies.

[7] The second defendant is the University of Otago (Otago University). From time to time it provides contract research services.

[8] At issue in these proceedings is the intellectual property in a teat seal. Between June 1999 and December 2000 Ancare New Zealand Ltd (Ancare) and Otago University conducted a teat seal research project (the 2000 project). Ancare and Otago University completed a research agreement in December 2000 for the teat seal formulation. Merial claims it acquired the intellectual property (the 2000 IP) arising from the 2000 project pursuant to an agreement (the umbrella agreement) with Ancare.

[9] In 2006 companies in the then Bomac Group (now Bayer), along with Otago and Massey Universities, conducted a research project directed in part to developing a new teat seal that would not infringe a teat seal patent owned by Bimeda Research

& Development Ltd and licensed to Pfizer Inc (the 2006 project). Mastitis Research Centre Limited (MRC) was incorporated to promote the project. MRC and Otago University entered a research agreement in June 2006.

[10] On 17 September 2008 Bayer filed the Bayer patent application with the Commissioner of Patents (the MRC patent applications). The application was in respect of a claim to a new and inventive teat seal developed during the course of the

2006 project. The Bayer patent application was published to the world on 30 April

2010.

[11] On 30 August 2010 Merial commenced proceedings before the Commissioner opposing the grant of the Bayer patent application on the grounds of obtaining; prior publication; prior claiming; prior use; obviousness by publication; obviousness by use; not an invention; and insufficiency (the opposition proceeding).

[12] The opposition proceeding before the Commissioner is currently stayed pending the outcome of these proceedings.

[13] On 29 September 2011, Merial commenced these proceedings. Initially

Merial pleaded three causes of action: (a) breach of contract;

(b) breach of duty of confidence; and

(c) proprietary constructive trust.

[14] The initial causes of action are based on allegations that Otago University wrongly conveyed and Bayer wrongfully and knowingly received and used the 2000

IP. Merial further alleges that the Bayer invention derives in whole or in material part from the 2000 IP.

[15] In March this year Merial filed an amended statement of claim introducing the fourth cause of action now challenged by the first defendant. The fourth cause of action is headed “Lack of entitlement”. The cause of action was further amended in May 2013. The cause of action now pleads as follows:

FOURTH CAUSE OF ACTION – LACK OF ENTITLEMENT

77. The plaintiffs repeat the allegations contained in paragraphs 1 – 76 (inclusive).

78. The first defendant’s claim to be entitled to apply for the MRC Patent Applications and to obtain valid patent/s is a claim to be the true owner or to otherwise be entitled to apply by virtue of a lawful assignment.

Particulars

...

79. The first defendant’s claim to ownership and/or entitlement to the

MRC Patent Applications is erroneous, invalid and contrary to law.

80. In applying for and prosecuting the MRC Patent Applications the first defendant is not a person lawfully entitled to make application for a patent for an invention under, inter alia, s.7 of the New Zealand Patents Act 1953.

Particulars

(a) the first defendant was/is not the true and first inventor;

(b) the assignee of the invention was/is not entitled in law or equity to assign the alleged invention to the first defendant.

81. It would be contrary to law and equity for any patent to be granted to the first defendant.

Particulars

(a) any patent would be granted on the application of a person not lawfully entitled to apply; and/or

(b) would be granted in contravention of the rights of the person who was/is entitled to apply and to obtain such grant, namely the first plaintiff.

82. In the alternative to paragraphs 80 and 81 hereof, in the event that the first defendant was entitled to apply for the MRC Patent Applications (which is expressly denied) the alleged invention so far as claimed in at least claim 1 of the MRC Patent Applications is not new and is obvious and clearly does not, or does not, involve any inventive step having regard to what was published, known or used in New Zealand before the priority date of the claim.

83. That as a result of the said conduct the plaintiffs have suffered and will continue to suffer loss and damage.

Particulars

...

[16] The relief sought includes various declarations and consequential orders including:

a declaration that Merial is the true and rightful owner of the MRC patent

_{applications;}

an order directing the Commissioner of Patents to enter Merial on the

_{“register of patents as co-owner ...”; and}

declarations that the “MRC Patent Applications is not new, is obvious and

does not, or clearly does not, involve any inventive step ...”.

Application to strike out

[17] The first defendant submits the fourth cause of action is vexatious and/or an abuse of process because it:

(a) seeks to bring proceedings in this Court when there is a relevant statutory procedure provided under the Patents Act 1953 (the Act) to resolve the issues raised by the fourth cause of action; and/or

(b) effectively amounts to a second proceeding which duplicates the opposition proceeding before the Commissioner.

[18] The first defendant also submits the fourth cause of action is, in substance, effectively three causes of action, in that it mimics the opposition to grant under s 21(a) of the Act and also encapsulates grounds for revocation of the patent on the basis that it is not new,1 that it is obvious and does not involve any inventive step.2

[19] The first defendant further argues that if the fourth cause of action remains it will be likely to cause prejudice and delay by expanding the issues for trial. However, if the first defendant fails to convince the Court of the merit of its other grounds, this last point would not, of itself, be sufficient to strike down the fourth cause of action given that it was pleaded before the close of pleadings date. There are other remedies available in those circumstances.

Decision

[20] Rule 15.1 of the High Court Rules provides for the Court to strike out all or part of the pleading if it:

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b) is likely to cause prejudice or delay; or

(c) is frivolous or vexatious; or

_{(d) is otherwise an abuse of the process of the court.}

1 _{Patents Act 1953, s 41(1)(e).}

2 Patents Act 1953, s 41(1)(f).

[21] In the present case the issue is whether it is an abuse of process for Merial to raise in the fourth cause of action issues which are otherwise provided for in the Act.

[22] Where there is an established statutory framework it will generally be inappropriate to seek to invoke the jurisdiction of the Court to obtain a declaratory judgment addressing the same issue: IHC New Zealand v Accident Compensation Corporation.3 Where there is a statutory process which provides resolution of the particular issue and from which there are rights of appeal (as there are in this case) then the Court will ensure that process is followed and will reject the use of an

alternative process including declaratory judgments or orders: Telecom New Zealand v Commerce Commission.4

The scheme of the Act

[23] It is necessary to consider the scheme of the Act. The Act has a clear statutory framework. An application for patent is lodged with the Commissioner at the Patent Office along with the specification.5 Once the complete specification has been filed or accepted the Commissioner will refer the application to an examiner.6

If the applicant complies with all the requirements and the application for specification is accepted by the Commissioner, the Commissioner will give notice to the applicant and advertise the fact the specification has been accepted. It is then open for public inspection.7

[24] Importantly, any person interested may give notice to the Commissioner of their opposition to the grant of the patent within three months from the date of publication of the complete specification.8 Section 21 of the Act provides a number of grounds of opposition. As noted, in this case, Merial has commenced opposition proceedings before the Commissioner engaging several of the grounds of opposition

_{including grounds relied on to support the fourth cause of action.}

3 _{IHC New Zealand v Accident Compensation Corporation [2008] NZHC 284; [2008] NZAR 251.}

4 _{Telecom New Zealand v Commerce Commission (2005) 3 NZCCLR 40.}

5 _{Patents Act 1953, ss 8 and 9.}

6 _{Patents Act 1953, s 12.}

7 _{Patents Act 1953, ss 19, 20.}

8 Patents Act 1953, s 21.

[25] The Commissioner then hears from the applicant and the party raising the opposition before determining the application.9 The Commissioner’s decision is appealable to the High Court.10

[26] As counsel conceded, it is recognised, however, that the opposition procedure before the Commissioner is not designed for the disposal of truly contentious cases. In such cases the practice is generally for the application to be allowed to proceed and, if granted, the contentious issues are then considered in the context of an action for revocation brought in this Court.11

[27] Revocation proceedings are provided for by s 41 of the Act. Section 41 enables a party to challenge the validity of a patent on a number of grounds including, importantly in this case:

(b) That the patent was granted on the application of a person not entitled under the provisions of this Act to apply therefor: (see [80] and [81] of the plaintiffs’ fourth cause of action)

...

(e) That the invention, so far as claimed in any claim of the complete specification, is not new having regard to what was known or used before the priority date of the claim in New Zealand: ([82] of the fourth cause of action)

(f) That the invention, so far as claimed in any claim of the complete specification, is obvious and does not involve any inventive step having regard to what was known or used before the priority date of the claim in New Zealand: ... ([82] of the fourth cause of action)

[28] I accept the submissions advanced by Mr Miles QC on behalf of the first defendant that the intention of Parliament in relation to the procedure under the Act is clear. It is for the Commissioner, rather than the High Court, to deal with oppositions to applications in the first instance. In the event a party is dissatisfied with the Commissioner’s decision a right of appeal exists to the High Court. Further, in the event a patent is granted a party can apply to the High Court for

_{revocation of the patent, again in accordance with the statutory procedure. The}

9 _{Patents Act 1953, s 21(3).}

10 _{Patents Act 1953, s 21(5).}

11 Assa Abloy New Zealand Ltd v Aluminium Systems NZ Ltd HC Wellington CIV-2010-485-2,

7 March 2011 per MacKenzie J at [6].

pleading in the fourth cause of action seeks to invoke the original jurisdiction of this Court in relation to issues which are expressly provided for in the objection and/or revocation provisions of the Act.

[29] Mr Elliott QC accepted the existence of the statutory framework but suggested it was a matter of pleading or grammar and that the claim could be reformulated. I do not accept that any claim based on a lack of entitlement to obtain the patent can be reformulated in such a way so as not to engage the Act. Patents are creatures of statute. The grounds of opposition to grant are provided by the statute, which then provides a process for determination of that opposition. As noted, the basis of the lack of entitlement pleaded by Merial arises out of and repeats the specific grounds which are provided for within the Act as grounds for opposition to grant or, if the patent is granted, to support revocation proceedings.

[30] The pleading in the fourth cause of action challenges the validity of the underlying right to the patent. That appears to be clear from the particulars to para

80, namely that the first defendant is not the true and first inventor and that “the assignee was/is not entitled ... to assign the alleged invention to the first defendant”. It appears clear that challenge is based on Merial’s theory of the case that Bayer wrongfully obtained the invention. That is properly a ground of opposition to the grant of patent under s 21(a).

[31] For present purposes, s 7 of the Act provides the basis for Bayer’s application before the Commissioner. Bayer claims to be an assignee of the true and first inventor(s). The issue of whether that is so or whether the invention was obtained from the 2000 IP belonging to Merial is a matter to be dealt with before the Commissioner in the opposition proceedings.

[32] The further grounds pleaded in [82], that the invention is not new, is obvious and does not involve any inventive step are matters to be raised in revocation proceedings.

[33] Mr Elliott then noted that, in part at least, the existing causes of action also sought relief equivalent or similar to that under the Act.

[34] However the other causes of action plead claims which are appropriately before this Court, namely breach of contract (primarily directed at Otago University), breach of a duty of confidence and a proprietary constructive trust in relation to the confidential information. They are quite independent of the provisions in the Act. I accept that the relief sought is varied and extensive. To the extent that the relief sought under those causes of action includes orders that might otherwise be made by the Commissioner on opposition proceedings the Court may well decline to make them also. However the causes of action themselves are unobjectionable.

[35] Mr Elliott next emphasised the convenience of having the matters resolved by this Court in these proceedings. He referred to the following observations of Jacob LJ in University of Southhampton’s Application:12

... if the Comptroller finds that there are (or are going to be) parallel proceedings for breach of confidence or contract in the Court (High or County) then, unless he is satisfied that resolution of the entitlement proceedings before him will resolve all matters between the parties, he should normally, at a very early stage, refer the dispute to the court using his powers under s.8.7 or the corresponding sections. And even if there are no parallel proceeding in court, he should seriously consider making such a reference in complex cases ...

[36] Mr Miles made the obvious point in response that there is no equivalent provision in the Act to s 8.7 in the UK Patents Act 1977. However convenient or practical it might be to achieve the result to have all matters dealt with in one proceeding that is not available within the statutory procedure Parliament has provided for in New Zealand at this time.

[37] As was stated by Gresson J in Wellington Municipal Officers’ Association

(Incorporated) v Wellington City Corporation:13

Having regard to the special and exclusive jurisdiction of the Court of Arbitration in the making of industrial awards, and having regard to the fact that the matters raised in this summons are matters in the industrial sphere, I think such intervention on the part of this Court in the business of the Court of Arbitration as the answering of the questions submitted by this summons would compel, would be contrary to the spirit and purpose of the Industrial

12 _{University of Southhampton’s Application [2006] EWCA Civ 145.}

13. Wellington Municipal Officers’ Association (Incorporated) v Wellington City Corporation [1951] NZLR 786 at 788.

Conciliation and Arbitration Act, 1925. The Legislature having created a special Court to deal with the matters with which this application is concerned, I do not think this Court should determine the questions now submitted to it, ...

In the present case Parliament has created the Office of Commissioner of Patents, an objection procedure, the ability of a party to appeal the Commissioner’s decision and/or to take revocation proceedings. What a party such as Merial cannot do is seek to avoid the clear statutory procedure provided by Parliament in the Act by making direct application to this Court for resolution of the issues as it has purported to do in the fourth cause of action.

[38] I also note specific rules are provided in the High Court Rules for pleading requirements in revocation proceedings.14 The Rules are consistent with the requirement that the issues sought to be raised by the plaintiffs proceed by way of revocation proceedings, for example, rather than in separate proceedings such as the current fourth cause of action.

[39] There are other factors which are relevant. Pfizer has also filed opposition proceedings with the Commissioner. It has a right to be heard on the validity of the Bayer patent application but is not a party to these proceedings. A ruling on the issues in this proceeding would exclude Pfizer.

[40] There is also some force in Mr Miles’ submission that the concepts of novelty and obviousness are specialist concepts. They are not in issue in the breach of contract or breach of confidence claims. They would require extensive further discovery and evidence. On its own, however, that point would not be conclusive.

[41] Of more importance is the fact that the declaration as to novelty and obviousness would not prevent Bayer from amending the claims before the Commissioner. Again, the Court will not make vain declarations.

[42] I consider the statutory provision to be a complete answer to the fourth particular cause of action. It is not a matter where the Court has a residual discretion

_{or where the claim could be redrawn to meet the objection to it.}

14 High Court Rules 22.19 and following.

[43] In the circumstances it is unnecessary to consider the other grounds relied on by the first defendant to strike the cause of action out. However, it can be an abuse of process to commence a second proceeding when the matters in issue are properly before another judicial or arbitral body for determination. The remedy is a stay or strike out. In the present case a stay would be pointless because, for the foregoing reasons, there is no jurisdiction for the orders that are ultimately sought in any event. The appropriate remedy in such a case is strike out.

[44] For those reasons the fourth cause of action is struck out.

Confidentiality

[45] Bayer seeks orders modifying the claims to confidentiality made in the plaintiffs’ lists of documents to allow Mr Wayne Leech to inspect those documents (with the exclusion of document MER.MER.01.175, the umbrella agreement) and also an order allowing Mr Leech to inspect all documents categorised as confidential in the Otago University’s list of documents.

[46] Mr Leech is the head of the Centre for Innovation and Development of Bayer New Zealand. As an executive of Bayer he is part of the core team responsible for this proceeding and was involved in the research which led to Bayer’s patent application.

[47] Merial opposes the application on the grounds that Bayer is a direct competitor with it. Bayer could use the confidential information to compete against Merial both in New Zealand and overseas.

[48] However, Merial proposes to provide Mr Leech with copies of the confidential documents on which it proposes to cross-examine him. It says it will provide those with its witness briefs. Mr Elliott noted that the plaintiffs have already permitted access to the confidential documents to the first defendant’s in-house and external legal advisors and experts on provision of suitable undertakings.

[49] Mr Elliott relied on the following comments from the decision of Mobil Oil

Australia Ltd & Another v Guina Developments Pty Ltd and Another:15

Once the documents are inspected by the principals of the trade rival the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all (at least so far as the particular trade rival is concerned). To say that the trade rival is bound not to use the documents except for the purposes of the action concerned is, in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party whose secrets have been revealed. How is the trade rival to forget what internal rate of return the competitor seeks to achieve on a new investment of the kind in question? How is the party whose hurdle rate has been revealed to know whether the rival has used the information in framing a tender? Thus, if the trade rival may inspect the documents concerned, the confidentiality of the information in them is at once destroyed. ...

[50] Similar comments were made by the English Court of Appeal in Warner- Lambert Co v Glaxo Laboratories Ltd.16

[51] As a general concept, I understand the concerns raised by Merial as articulated in the above cases. However, each case must be determined on its own particular facts. It is particularly material in the present case that a number, if not all, of the confidential documents in issue contain or record information which Merial says Mr Leech has already received or had imparted to him. The basis of Merial’s claim against Bayer is that the confidential information was imparted to Mr Leech, amongst others, and was used by Bayer in developing its own teat seal.

[52] Paragraph 30 of the second amended statement of claim sets out the details of Claim 1 of the MRC Patent Application. Then, at para 33, Merial pleads that at least Claim 1 of Bayer’s patent application:

covers the same general subject matter as the 2000 Project (and the detailed work undertaken as part of the 2000 Project) and on information and belief contains and/or derives, in whole or in material part, from [Merials’] Intellectual Property.

_...

15. Mobil Oil Australia Ltd & Another v Guina Developments Pty Ltd and Another [1996] 2 VR 34 at 38.

16 Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354, 360.

Importantly for present purposes, it is then pleaded:

38. ... confidential information was used and/or disclosed from one project to the other, whether directly or indirectly.
    

Particulars

Details of the manner in which the confidential information was created and wrongly used and/or disclosed occurred from the

2000 Project to the 2006 Project is set out in Schedule 3.

39. ... The second defendant, principally through Dr Tucker and/or Dr

Wu, used and/or disclosed confidential information to [Bayer]. ...

[53] Mr Leech worked with Dr Tucker and Dr Wu. To the extent it is alleged confidential information was disclosed by them to Bayer it was disclosed to Mr Leech.

[54] Further background to the confidential information is then provided in Schedule 3 to the claim. Schedule 3 details illustrative particulars of the alleged breach of confidential information, for example, an exchange of information during the 2000 project, including the inclusion of disinfectant compounds in a teat- blocking formulation and chlorhexidine as a candidate disinfectant compound within the wider broader concept. Reference is then made to emails on 7 April 2000, a meeting in October 1999, a report from the Otago University’s Pharmacy School to Ancare and it is said that those reports then found their way into progress reports by Dr Wu on 17 March 2006 and 8 April 2006, which effectively led to the rapid adoption by the 2006 project team of a concept that was the same or substantially the same as the broad concept identified and verified by the 2000 project team.

[55] I record that Otago University denies disclosing confidential information. Mr Elliott confirmed that it was not suggested the University had provided physical documents incorporating confidential information at any stage, rather it is the knowledge gained from the 2000 project which is said to have been imparted.

[56] It is the alleged disclosure of that 2000 confidential information which lies at the heart of Merial’s claims for breach of contract, the misuse of confidential information, and for the proprietary constructive trust. If Merial is right then that confidential information has already been imparted to Mr Leech, albeit he may not

have seen the documents underlying it or recording it. To the extent Merial is concerned that Mr Leech would, even unwittingly, misuse the confidential information, because receipt of it will be a matter he cannot forget about, that has effectively already occurred. Indeed, on Merial’s case, it has led to the MRC application.

[57] During the hearing Merial is going to have to identify and refer to that confidential information. That is acknowledged by the proposal that copies of documents that Mr Leech will be cross-examined on will be provided to him when briefs are exchanged.

[58] While Merial’s proposal to make the documents it intends to cross-examine on available to Mr Leech may seem reasonable, it is not for Merial to define how Mr Leech and Bayer might wish to respond to Merial’s claim against it. There may be other documents relevant to the defence which Mr Leech and Bayer may properly wish to refer to in responding to the claim and the cross-examination.

[59] I consider that Mr Leech must be entitled to see copies of the documents which record or discuss the confidential information which it is said has already been imparted to Bayer. Mr Miles confirmed that Bayer and Mr Leech do not suggest that Mr Leech would be entitled to see any other confidential information.

[60] To advance this issue I make the following direction. Merial is to file and serve a further list of documents to identify all documents which it says are confidential (including those in Otago University’s list of documents) and contain information which it says has been wrongly imparted to the first defendant, and which it relies on to support its claim against Bayer. That will inevitably include the documents which Merial intends to cross-examine Mr Leech on, but it may also include other documents which it does not propose to cross-examine him on but which nevertheless are documents which contain or refer to the confidential information which it says has already been passed on to Bayer.

[61] At the same time as filing and serving that list, copies of the documents contained in the list are to be provided to Mr Leech on condition that Mr Leech provide the undertakings which have been circulated to date.

[62] For the avoidance of doubt, if there are documents containing or referring to confidential information that Merial does not allege has been passed to Mr Leech or Bayer, or is not otherwise directly referred to in the pleadings, then they need not be disclosed. Confidentiality in them may be maintained.

Costs

[63] The first defendant has had substantive success on their applications. They are to have costs on a category 3B basis with an allowance for second counsel on both applications.

Consequential directions

[64] I have received and considered counsels’ memoranda regarding the need for an amended timetable. As a consequence of this decision I make the following directions and amendments to the existing timetable:

(a) the plaintiffs are to file and serve a further amended statement of claim deleting the fourth cause of action by 13 September 2013;

(b) the plaintiffs are to file and serve the list of documents and provide the documents referred to in paras [60] and [61] by the same date, 13

September;

(c) the date for the plaintiffs to exchange briefs is extended to 13

September;

(d) the date for the defendants to exchange briefs is extended to 18

October;

(e) the date for the plaintiffs to exchange briefs in reply is extended to 1

November;

_{(f) the pre-trial conference will be at 9.00 am on 4 November 2013.}

Venning J