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In the past few years the Australian craft beer market has experienced significant growth, with hundreds of independent breweries springing up around the country. But competition is not always friendly and in 2015 trouble began brewing between two interstate rivals, Stone & Wood and Elixir. The dispute eventually spilled over into the courts, (see Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd  FCA 820) with Stone & Wood commencing proceedings against Elixir alleging passing off, misleading and deceptive conduct and infringement of its registered trade mark for what they saw as misuse of the term “Pacific Ale”.
The initial claim was dismissed with costs, leaving Stone & Wood to pick up the tab. Undeterred they appealed the decision, (see Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd  FCAFC 29) narrowing their claim to establishing the tort of passing off. At issue on appeal was whether Stone & Wood had a substantial reputation in the term “Pacific Ale” and that by using the term, Elixir was misrepresenting an association or connection between the two brands.
Sampling the product
For the uninitiated, craft beer is produced by independent breweries occupying the space between your uncle’s home-brew and the mass produced product available at your local RSL. Stone & Wood and Elixir were two of the incumbent players in this emerging market.
Stone & Wood are based in the Byron Bay and Murwillumbah regions of NSW. They sell a number of different craft beers, but the jewel in their crown is a beer called Stone & Wood Pacific Ale which accounts for roughly 80-85% of their revenue. The judge accepted that Stone & Wood Pacific Ale was “cloudy and golden with a big fruity aroma and refreshing finish”. Having undertaken my own market research, I can confirm that this is indeed an accurate description.
Elixir are based in Brunswick, Melbourne. They sell beer under a number of different brands, including “Thunder Road”. In 2015, Elixir launched a beer called Thunder Road Pacific Ale. This was later rebranded as simply Thunder Road Pacific. Elixir’s managing director described Thunder Road Pacific as “a light bodied beer made from Australian Galaxy hops” and characterised “by a distinct hop aroma, with pineapple, passionfruit and citrus notes.”
The first round
In 2015, Stone & Wood initiated proceedings against Elixir alleging passing off, misleading and deceptive conduct and infringement of its registered trade mark for “Stone & Wood Pacific Ale”. Distilled down, Stone & Wood’s contention was that Elixir’s use of the words “Pacific Ale” / “Pacific” would cause either:
the average consumer to purchase Elixir’s Thunder Road Pacific when they intended to buy Stone & Wood Pacific Ale (mistaken identity); and / or
the average consumer to assume that Thunder Road Pacific had an association or connection with Stone & Wood Pacific Ale by way of sponsorship, approval or affiliation (mistaken connection).
The primary judge rejected all of Stone & Wood’s claims and even found in Elixir’s favour in relation to their cross-claim that groundless threats had been made to bring an action for trade mark infringement. His reasoning is set out below.
The primary judge was unconvinced that the use of the term Pacific or Pacific Ale would cause consumers to mistakenly purchase the wrong beverage.
He began by pointing out the significant differences in packaging. The dominant feature of Stone & Wood Pacific Ale is the Stone & Wood brand name, with the words “Pacific Ale” relegated to the base of the label. In contrast, on Thunder Road Pacific, the word “Pacific” was the most prominent feature. As such, there was not considered to be an express representation on the part of Elixir that Thunder Road Pacific was Stone & Wood Pacific Ale.
The judge proceeded to consider three examples of common environments where an innocent consumer might be misled: a bar/restaurant; a bottle shop/retail outlet; and a specific craft beer bar identified by Stone & Wood (Melbourne’s “Bar Nacional”) where Thunder Road Pacific was identified using a sign that simply read “Pacific Ale”. In considering these environments, the judge drew extensively on the expert evidence of Mr Kirkengaard who has the much-coveted job title of “freelance beer writer, commentator, educator and consultant focused on the craft beer market”.
But even when considered in context, the primary judge did not see mistaken identity as a realistic possibility.
The primary judge proceeded to consider whether in branding their product “Pacific”, Elixir were asserting association or connection between Thunder Road Pacific and either Stone & Wood or Stone & Wood Pacific Ale.
The main focus of the primary judge was what they considered to be the “descriptive” aspect of the word “Pacific”. “Pacific”, of course, commonly refers to the Pacific Ocean. It is also used adjectively to refer to someone or something pertaining to the Pacific Ocean (such as a Pacific Islander or the Pacific Solution) or to simply mean peaceful and calm. As one of Stone & Wood’s directors acknowledged, the name “Pacific Ale” is intended to generate a “calming, cool emotional response” (the irony of Stone & Wood’s aggressive litigious action clearly lost).
The primary judge concluded that, since the launch of Stone & Wood Pacific Ale, the term “Pacific” had come to serve a function of describing craft beers made from hops from Australia and New Zealand. This descriptive quality was said to develop some three to four years before the release of Thunder Road Pacific.
In choosing a name with a descriptive aspect to it, Stone & Wood had run the risk that others in the trade would also use it descriptively. In the primary judge’s opinion, Stone & Wood Pacific Ale was the victim of its own success. Their claim was dismissed.
Back to the bar
Unable to stomach the original decision, Stone & Wood shook off the post-trial hangover and promptly returned to the bar table to appeal.
This time, they narrowed their focus to establishing the tort of passing off, contending that if this was made out, the rest of their claims would fall into place. They also based their appeal exclusively on the second contention of ‘mistaken connection’.
Their main submission was that the primary judge had erred in failing to find that Stone & Wood had a distinctive reputation in the words “Pacific Ale” and “Pacific” and that by using these terms, Elixir had created the impression of an association between Stone & Wood and Thunder Road products.
Previous case law provided a useful checklist, breaking down passing off into three core requirements: reputation, misrepresentation and damage. It also helpfully clarified that a representation that there is an association or connection between a trader’s product and another trader or their product may be sufficient to establish passing off.
Stone & Wood challenged the primary judge’s finding that Stone & Wood no longer had a substantial reputation in the phrase “Pacific Ale”. The court of appeal disagreed, finding that their reputation was in “Stone & Wood Pacific Ale”. “Pacific Ale” was a subheading, inextricably linked to the Stone & Wood Brand and possessing a descriptive, not distinctive, quality.
Stone & Wood submitted that the evidence of Mr Kirkegaard that “Pacific” was “not a generally used consumer term” demonstrated that the word lacked a descriptive quality. But the court of appeal was unconvinced. The fact that consumers do not use the word “Pacific” was said not to detract from how it is used by Stone & Wood and others nor from its capacity to evoke description.
Whilst raising some questions around the “structured or even disingenuous” evidence of the founders of Elixir, the primary judge found that they had made no attempt to represent any association between the two products. Whilst Elixir did intend to gain some advantage from the success of the Pacific Ale market that Stone & Wood had pioneered, they were entitled to do so.
The court of appeal found no error in the “careful and detailed findings of the primary judge” and that no misrepresentation was likely to arise in the environments in which craft beer is commonly purchased.
The morning after?
Litigation, as with alcohol consumption, is often about knowing when to call it quits. Having failed to demonstrate any error in the findings of the primary judge, the appeal was dismissed with costs, leaving Stone & Wood to once again pick up the tab.
Their hangover compounded, Stone & Wood were left to make the walk of shame back to Byron Bay to reflect on their decisions… while looking out over the Pacific Ocean… possibly with a cool, pacifying ale.
In Milankov Designs & Project Management Pty Ltd v Di Latte  WASC 14, the WA Supreme Court has handed down a cautionary copyright tale to all prospective home builders. The moral of the story? When it comes to working out what you can do with the plans you’ve paid for, and what you need to do to be an innocent infringer, there’s no substitute for reading the contract.
To build a home
Mr Milankov is a creative type whose company provides design and project management services usually for what Martino J calls the construction of “expensive houses”.
Mr and Mrs Di Latte are looking for someone to design and manage the construction of their expensive house. It’s a match! Come July 2010, Milankov and Di Latte enter into a contract for Milankov to design the expensive house.
For the first few months everything moves along swimmingly. It was just your run-of-the-mill design process for a multimillion dollar mansion on the Swan River with a boat ramp. So far so good.
Getting on like a house on fire
As we head into Christmas 2011 things start to get shaky. Di Latte cancels a few of the pair’s regular meetings. Milankov gets frustrated with his client. Di Latte says that his comments aren’t being incorporated into the design.
On 14 November the matter falls off the cliff. Di Latte cancels another meeting, and Milankov has stern words with Di Latte’s secretary. When Di Latte tries to reschedule, Milankov flips the script and refuses to come.
We’ll throw to Martino J to describe the subsequent chat between designer and client:
Mr Di Latte telephoned Mr Milankov and asked him if he refused to meet at Mr Di Latte’s office. The conversation was heated. In the conversation Mr Milankov called Mr Di Latte an idiot and preceded that word with a well-known offensive swear word. Mr Milankov’s evidence was that Mr Di Latte had sworn at him, which Mr Di Latte denies. I am unable to determine whether or not Mr Di Latte swore at Mr Milankov and I do not think it matters whether or not he did so. The telephone call ended abruptly.
All this swearing and alleged swearing is too much for the pair and there’s a cold silence for a few days.
Finally, Di Latte gets in touch to say he doesn’t think it’s going to work out, he’s terminating the contract and it would be great if he could swing by tomorrow to pick up a copy of the plans.
Unsurprisingly, Milankov says that his company owns the IP in the drawings, and that the development application can’t progress to stage 2, or be constructed as designed.
Di Latte’s lawyers write back with a different view.
Di Latte’s in a pickle. He’s paid a fortune to the designer he’s just fired, and now he has no plans and no expensive house. He needs to find another designer to finish the job.
Enter the second defendant, Scanlan.
Di Latte approaches Scanlan and asks him to progress the project, using the plans designed by Milankov.
Scanlan’s happy to get the work, but a little nervous about what’s just gone down in Act 1. He tells Di Latte he needs to make sure the copyright issues are all tickety-boo, and asks Di Latte if there’s anything in his contract with Milankov which required that he use Milankov for the rest of the job. Di Latte says no. Scanlan is thrilled, and says that so long as Milankov has been paid in full for the work then they were probably out of the copyright woods.
To make sure every T is crossed, Scanlan asks Di Latte to get some legal advice, meanwhile, he’ll give the Royal Australian Institute of Architects a bell as well as an old architect mate for good measure.
All the reports come back the same – if the client has paid for the plans, there would be no issues with the client and another architect using the drawings for the development of the site.
With green lights all round, Scanlan and Di Latte charge ahead with the rest of the design and build.
Presumably, Milankov was driving along the Swan River one sunny afternoon when he spotted a strangely familiar house emerging from a construction site. A few firmly worded letters later, everyone’s in the Supreme Court of Western Australia staring up at Justice Peter Martino.
Implied licence to build a home
First off, Martino J found that the plans submitted to the Council for development approval constituted original artistic works, that copyright subsisted in them on their production and that Milankov was the author.
The big question in dispute was: What was the extent of any implied licence given by Milankov to the Di Lattes to use the plans Milankov had prepared?
Martino J referred to a line of cases that states that payment for sketch plans includes a permission or consent to use those sketch plans for the purpose for which they were brought into existence. That is, when you buy a sketch of a house off a designer or architect, there is an implied permission to use the plans to build a building that looks a lot like the sketch.
However, the implication of permission or consent to use the plans in that way would not follow if the architect or designer could be regarded as having reserved a right in the contract to continue with the subsequent stages.
Milankov said that’s exactly what he had done; the contract with the Di Lattes reserved to Milankov the right to continue with subsequent stages of the contract and so a licence to use the plans to build a house was not to be implied.
Martino J agreed. Whilst the contract did not expressly exclude the licence, it would have been inconsistent with the terms of the contract to imply a licence to use the plans (which were prepared only for stage one of the project) to build the house. The implied licence went only as far as allowing the Di Lattes to submit the plans to the Council.
It was clear that Scanlan had reproduced the plans prepared by Milankov and had submitted those drawings to the Council for the Di Latte’s building licence. Accordingly, Martino J found that both Scanlan and the Di Lattes had infringed Milankov’s copyright.
If Scanlan was found to have infringed copyright, he claimed that he had done so innocently, and should have protection under s 115(3) of the Copyright Act. The Di Lattes didn’t try to put on this defence.
To make out innocent infringement, Scanlan needed to show:
an active subjective lack of awareness that the act constituting the infringement was an infringement of the copyright; and
that, objectively considered, he had no reasonable grounds for suspecting that the act constituted infringement.
As you’ll recall, Scanlan had taken the steps of:
asking Di Latte to get legal advice;
calling the Royal Institute; and
sanity checking the situation with his architect mate.
However, Scanlan’s coup de grace was that he hadn’t read the contract between Di Latte and Milankov. He haven’t even asked for it. This writer has lost track of how many times he’s been reminded here at KWM that there’s no substitute for reading every page of a document. Scanlan learnt that the hard way.
Accordingly, Martino J said that Scanlan should have asked to see the contract, or else contacted Milankov and asked him what he thought about the copyright issue.
But without that document, no matter how many other people Scanlan had asked, his inquiries did not provide an objective basis for having no reasonable grounds for suspecting that his actions in using the plans prepared by Milankov constituted an infringement of copyright. Scanlan’s defence failed.
Martino J assessed Milankov’s loss resulting from the infringement at $157,825 and ordered that Milankov was entitled to the damages against both defendants (as both Scanlan and the Di Lattes had infringed his copyright). Martino J made no award of additional damages.
Read the contract – that’s the only way to know how far your rights extend when you’re having plans drawn up for you.
Read the contract – you can’t say you took reasonable steps to check that you weren’t infringing copyright if you didn’t read the document which would tell whether you were infringing copyright.
The Federal Court has found that the Australian Meat Group (AMG) has infringed the trade mark of one of Australia’s largest meat producers. The Court also narrowly applied the substantial identity test, bucking the trend of some recent decisions which indicated that the Court may be widening the scope of the assessment.
Long ago, the meat lobby figured out a perfect formula to sell consumers the otherwise unmarketable image of eating baby animals: Meat = Australia. Think of the annual Australia day lamb ad brought to you by the Meat and Livestock Association. The 2-minute epic is classically chockers with Aussie slang, blokes clad in thongs and boardies, a modern diversity spin and, of course, the closing shot of a mouth-watering lamb chop on the barbie. The inextricable link between a sizzling sausage and a sweaty Christmas day in the Southern Hemisphere can’t be denied.
In JBS Australia Pty Ltd v Australian Meat Group Pty Ltd  FCA 1421, Judge Greenwood considered two trade marks that have been playing on this advertising trope for years. Greenwood J found in favour of JBS Australia, holding that AMG had infringed the AMH mark.
At this point in time, vegetarian IP Whiteboard readers may wish to avert their eyes.
JBS is the largest meat processing company in Australia for exports. JBS had been manufacturing meat under the name ‘AMH’ (Australian Meat Holdings) for at least 16 years, until it changed its name in 2007 (first to ‘Swift’ then to ‘JBS’). In this time, slabs of rump and fillet were vacuum packed and branded with the all-Aussie AMH mark:
The AMH image mark was registered in 1989, displaying a truly novel “stylised map of Australia”, while the AMH word mark was registered in September 2015. Both of these marks were registered for meat products in class 29. Meanwhile, in April 2014 a competitor company, Australia Meat Group Pty Ltd, attempted to register the AMG trademark in connection with the same class 29 goods. A slightly more “free-flowing” map of Australia was featured, the H was ditched for a G and the capitalised words ‘Australian Meat Group’ were tacked onto the Great Australian Bight.
JBS opposed the registration of the AMG mark. As the registered owner of the AMH mark, it claimed its exclusive right to use the mark (Trade Mark Act 1995 (Cth) s20(1)).
In determining that the AMH mark had been infringed, the Federal Court considered whether AMG’s mark was “substantially identical with or deceptively similar to” the registered AMH mark.
Not substantially identical
In order to assess whether the marks were substantially identical, the Court looked at the marks in a “side-by-side comparison” and engaged in the usual game of spot the difference (and the similarities).
The court found that while the similarity of the “AM” was an essential feature of the registered mark, the dissimilarity of the “G” and the “H” were enough to adequately differentiate the marks. Judge Greenwood’s overall impression when comparing the two marks was that they were not substantially identical.
This is another finding to add into the increasingly mixed bag of Federal Court decisions on substantial identity. Whereas some recent judgments seemed to indicate a broadening of the substantial identity test (a primary culprit being Pham Global Pty Ltd v Insight Clinical Imaging Pty Ltd  FCAFC 83), Greenwood J’s decision seems to be more in line with the narrow, old school take on substantial identity.
Deceptively Similar, a win for JBS Deceptively Similar, a win for JBS
The Court then considered whether the AMG mark was deceptively similar to the AMH mark. That is, having regard to all the relevant circumstances, did the AMG mark so nearly resemble the AMH mark that it was “likely to deceive or cause confusion”. In comparing the similarity of the marks, the Court looked at the effect or impression that the AMG mark created on the mind of potential customers of JBS, taking into account the possibility of imperfect recollection (Crazy Ron’s v Mobileworld (2004) 61 IPR 212 at 228 ). On this ground, JBS succeeded.
Greenwood J stated that the essential features of the both the marks were a stylised map of Australia with the letters AMG and AMH respectively in the centre of that map.
Judge Greenwood also identified that there was the potential of confusion due in part to the industry practice of ordering meat products by reference to the acronyms (i.e. “AMH” and “AMG”). Stepping into the shoes of your friendly meat-seller-cum-phoneticist, Judge Greenwood remarked:
“In the hurly burly of oral trading transactions between retailers and wholesalers the emphasis is likely to be upon the “AM” component of the letter acronyms and that the last syllable is not sufficiently differentiating.”
Moreover, His Honour rejected AMG’s Maltesers case analogy that the reputation of the two trade marks is so pronounced that someone seeing the AMG mark would instantly identify that it wasn’t the AMH mark. Rather, His Honour found that the consumer would have an imperfect recollection of the two marks, making AMG’s conduct susceptible of deception and confusion, and creating a non-trivial likelihood that use of the AMG mark will result in people wondering whether AMG meat products are associated with AMH.
The AMG mark therefore adopted the essential features of the AMH mark. The addition of other words and titles on the packing boxes in conjunction with the AMG mark did not sufficiently distinguish the use of the mark. Accordingly, Greenwood J concluded that AMG mark was deceptively similar to the AMG mark and that use of the AMG mark infringed AMH’s registered trade mark rights.
The Court subsequently made declarations as to infringement; mandatory injunctions restraining AMG from using the AMG marks; an order that the domain name amg.com.au be transferred to AMH and an order that the AMG trade mark applications be withdrawn. The Court also ordered that AMG pay AMH’s costs of and incidental to the proceeding. The issue of damages or an account of profits was separated out for later determination.
Given the finding of deceptive similarity between the AMG and AMH marks, AMG will have to resort to new patriotic symbolism for its product packaging. Perhaps, in choosing a new icon for its trade mark, AMH can embrace the niche Australian position as one of few countries that eat its coat of arms.
IP Whiteboard wishes to acknowledge the kind assistance of Nicole Phillips in preparing this article.
In the battle against copyright infringement in the online world, rights holders are increasingly targeting aggregators and disseminators of infringing content, rather than doing battle with individual infringers themselves. In a recent example of this, Pokémon Company International (Pokémon) won in their Federal Court pursuit of copyright infringement claims and breach of consumer protection laws against Redbubble Ltd (Redbubble), the operator of an online marketplace for “print on demand” products based on artwork submitted by independent artists or designers: Pokémon Company International, Inc. v Redbubble Ltd  FCA 1541
Despite the win, however, Pokémon didn’t get all the points it wanted, with the court awarding only $1 in nominal damages.
Redbubble is an online marketplace for “print on demand” products. It enables artwork to be uploaded to its servers and displayed on the Redbubble website so that consumers can place orders for products, such as a T-shirts, to which the artwork is applied. These products are manufactured and then supplied to consumers by third parties fulfillers, not by Redbubble directly.
Designs displaying the iconic Pokémon characters, such as Pikachu, often in a humorous or satirical context, were readily available on the Redbubble site. Consumers were able to place orders for products bearing these designs. In Pokémon v Redbubble, Pokémon alleged that Redbubble had infringed its copyright in the Pikachu artistic work and contravened the Australian Consumer Law by misleading consumers and making representations that the Pokémon works were authorised by Pokémon.
Catching consumer rights
In a judgment delivered in late December 2017, Justice Pagone of the Federal Court of Australia held that in contravention of sections 18(1), 21(g) and (h) of the Australian Consumer Law, Redbubble’s website and sponsored advertising on Google contained misleading representations that products available on Redbubble site bearing Pokémon related words, characters and images were sponsored or approved by Pokémon.
His Honour made the following key findings in coming to this conclusion:
Pokémon has a significant reputation in Australia due to the popularity of its video games, animated television series and trading cards. Further, an important aspect of Pokémon’s commercial activities include its significant licensed sales of Pokémon products.
Redbubble has control over the content of its sponsored links on Google. While the process of creating advertising campaigns may be automated without the involvement of any manual action by Redbubble, Redbubble controls the data feed that ultimately results in the sponsored links.
There was nothing on the Redbubble website to inform or even suggest that there was no connection, authorised or otherwise, between Redbubble and Pokémon (or any authorised licensee).
The prices were within range of prices for like products sold by authorised licensees. Therefore a consumer would not be suspicious that the product was being made available by an unauthorised dealer.
A reasonable and ordinary retail consumer looking at the Google sponsored links or Redbubble website would find repeated representations that the services offered by Redbubble were licensed, authorised or sponsored by Pokémon. Redbubble’s argument that consumers may have enough knowledge of the Pokémon world and merchandising that they would not be misled or deceived was rejected as the relevant person does not include the habitually cautious or very knowledgeable.
Pokémon’s copyright case relied on the Pikachu artistic work depicted below:
Pokémon submitted that Redbubble had infringed its copyright by:
making the infringing works available on the Redbubble website and communicating them to the public;
offering or exposing, or exhibiting the infringing works in public by way of trade through the Redbubble website; and
authorising the reproduction of the infringing works.
The court found that copyright subsisted in the relevant artistic work and that Pokémon’s was the owner of that copyright. Pokémon successfully relied on statutory presumptions relating to both subsistence and ownership, based on a United States copyright registration certificate which stated the year and place of first publication of the Pikachu work and the person claiming ownership of copyright in that work.
Justice Pagone rejected Redbubble’s arguments that the presumption relating to ownership could not apply to United States certificates because the certificates do not state in express words that the person claiming to be the owner was the owner of copyright in the work. His Honour noted that given the purpose of the presumption in establishing rebuttable evidence of ownership, it could not have been the intention to exclude its application to United States copyright registration certificates.
Justice Pagone further held that each of the above infringement claims was made out and made the following observations:
Unlike internet providers, Redbubble was responsible for determining the content of its website, through its processes, and arrangements with the artists. Redbubble hosted the website containing the infringing material and therefore made the work available online, and communicated it to the public. While those responsible for uploading the artworks were also involved in the making of a communication, this did not preclude a finding that Redbubble, through its actions, was also liable for communicating the relevant works to the public.
In relation to the third infringement claim, Redbubble authorised the infringement of copyright, as it had the ability to prevent the infringement. It was immaterial that the system including the website operated automatically as Redbubble had developed that system in the first place. Further, Redbubble had measures in place to monitor the steps taken by users of the website, and could therefore have removed any infringing content or blocked artists from using keywords for tags or descriptions of their work (which it did in fact implement after proceedings were commenced). Redbubble had actually considered having an automatic approach to remove possibly infringing conduct, however decided not to adopt this approach, as it was considered commercially undesirable.
Justice Pagone dismissed Redbubble’s argument that its conduct attracted the defence of fair dealing for the purpose of parody and satire. Relying on Productions Avanti Cine-video v Favreau, his Honour held that the infringement in this case was purely for commercial exploitation, and not for the purpose of parody or satire.
The remedies scoreboard
Pokémon claimed damages of over $44,000 in respect of its Australian Consumer Law claim, calculated on a “lost sales” basis and based on its average royalty rate. Justice Pagone rejected this claim for damages, finding that as many of the items were a “mash up” (i.e. also including other artistic work such as Homer Simpson), Pokémon would not have received a royalty in respect of this work and had not therefore suffered loss or damage by reason of the misleading conduct or false representations.
In respect of the copyright claim, Justice Pagone awarded $1 in nominal damages under the compensatory damages provision of the Copyright Act. However, he declined to award additional damages for flagrancy, finding that Redbubble’s conduct to proactively block the infringing content, in circumstances where it did however respond promptly to takedown notices when issued, did not amount to a flagrant disregard of copyright.
Further, Justice Pagone did not award an injunction as his Honour did not consider that there was a risk of repeated infringement. Instead, Redbubble illustrated that it was seeking to comply with its obligations, and that it had amended its program accordingly.
Justice Pagone commented on the inherent commercial risk that Redbubble took in conducting its business, including in his findings that it had authorised copyright infringement. While incurring this risk resulted in a finding of copyright infringement by authorisation, it did not ultimately lead to any significant monetary relief being awarded in respect of Redbubble’s conduct. In this sense, Justice Pagone’s decision may be a pyrrhic victory for Pokémon.
While damages are no doubt intended to compensate the plaintiff, they also act as a deterrent to similar cases of infringement, in which parties wish to enter into commercial activities with an inherent risk of infringing intellectual property rights. This decision therefore appears to depart from a deterrent approach – instead making a commercial decision to infringe copyright somewhat viable, as long as there are reasonable controls in place.
It is likely that both Pokémon and Redbubble parties will appeal the decision, as neither got the scores they were after. In the meantime, Redbubble (and similar website operators) and rights holders alike will, no doubt, continue their rivalry in the attack and defence game of copyright infringement and consumer protection.
Social media queens Sophie Guidolin and Rachael Finch both run fitness businesses through Instagram, promoting the #healthy lifestyle. The contested use of the word ‘BOD’ by Rachael Finch led Sophie Guidolin to apply for an interlocutory injunction for trade mark infringement, as well as passing off and/or breach of the Australian Consumer Law. In deciding whether to grant the interlocutory injunction Perram J has to answer the tough questions, like ‘Is a booty band a garment?’. The #fitspo queens Sophie Guidolin and Rachael Finch have certainly given us a #litspo case.
Rachael Finch shot to Instagram fame after appearing in every television show worth watching – she was crowned Miss Universe in Australia 2009, competed on Dancing with the Stars Australia, appeared in MasterChef Australia, and worked as a television presenter and model on the side.
Sophie Guidolin became famous as a fitness guru, and in the true fashion of bodybuilders-turned-celebrities (think ‘The Rock’), Sophie Guidolin is ‘The BOD’. Her company holds a trade mark registration for the words ‘The Bod’ for physical health education services, and a look at her website shows that this mark is used mostly in relation to her exercise video series (…a tempting purchase following the Christmas break).
The alleged infringement arose from the recent launch of Finch’s new clothing range Body of Dance, abbreviated to ‘B.O.D’. The collection boasts leggings, shorts, tanks, and sweats which can take you elegantly from your yoga class to your chai latte brunch date – and nearly every item is emblazoned with B.O.D. The items have been sold since October 2017, and Finch has organised a distribution deal with Myer to launch this line in stores in February 2018.
Being #instafamous comes with a cost though, because The BOD soon discovered Finch’s new range though her Instagram posts. Changing her usual motto from ‘Stop Wishing Start Doing’ to ‘Stop Wishing Start Suing’, The BOD brought an application for an interlocutory injunction to prevent Finch from using B.O.D. in her clothing range.
The use of the ‘BOD’ trade mark in clothing
The BOD claimed that her company has a clothing range on which the mark is used, providing evidence that it sells leggings, bikini and booty bands. Since she was opposing the use of ‘BOD’ in Finch’s clothing range, this was a key argument. On closer inspection of the evidence it turned out that the company had sold a grand total of 127 leggings since April 2016, and a few hundred bikinis. The company had however sold 8,474 booty bands.
For those who don’t spend their weekends scrolling through #fitstagram, Perram J provided a helpful description of booty bands at :
‘When one looks at what the booty bands are, they are elastic straps which are worn with a view to tightening one’s buttocks. Other than in very limited circumstances, not presently germane, I do not accept that the booty bands are in fact garments.’
Perram J therefore focussed on the sale of leggings and bikinis in assessing the scope of The BOD’s clothing business, concluding that the clothing branch was both small (sales totalled no more than 478 items) and did not seem to be getting any larger.
An interlocutory injunction is an urgent injunction granted pending trial and can be an important weapon in protecting registered trade marks and preventing irremediable brand damage. The grant or refusal of an interlocutory injunction often results in the prompt resolution of the dispute between the parties, with cases often settled after an application for interlocutory relief is decided.
To obtain an interlocutory injunction, the applicant must show there is a ‘serious question to be tried’ or ‘prima facie case’ by putting on evidence of ownership of the relevant IP rights and of the alleged infringement. The applicant must also show that the balance of convenience favours the granting of an interlocutory injunction, and that damages will be an inadequate remedy. Factors the court will take into consideration in considering the balance of convenience are the impact on the business of parties if the injunction is granted (or refused), the life-cycle of the products and the potential for damage to the brand.
In this case, Perram J accepted that there was a serious question to be tried, although he did note that the case was not strong. The case for interlocutory relief then rested on the question as to whether the balance of convenience favoured the granting of an interlocutory injunction.
Perram J looked at four factors in considering balance of convenience:
The BOD has an arguable case, but it is weak.
The BOD (and her company) delayed bringing proceedings. Considering how closely The BOD presumably monitored Finch’s Instagram, she would have known about the clothing products when they were first promoted in October, rather than in December as claimed.
The BOD’s company had only a small clothing business, which did not appear to be getting any larger. Finch has a comparatively large and well organised product range.
Since most of the clothing was already branded, an injunction would render the products worthless.
Weighing up these four considerations, Perram J decided to refuse the injunction, and dismissed the application. The proceedings remain on foot, and unless the dispute is resolved in the meantime, the question of trade mark infringement remains open and will be decided at trial.
So there you go, Finch’s B.O.D. range is still available for purchase, at least for now. Time to go order a pair of leggings and a sweat shirt for a difficult weekend of lying on the couch, scrolling through #fitstagram, and eating the rest of the leftover holiday chocolate. A summer BOD isn’t all it’s cracked up to be.
If you have more than the most passing of interests in the video game industry, you will know that the hot topic in the field for the past few weeks has been the use of “lootboxes” by Electronic Arts as a reward system in their new title Star Wars: Battlefront 2. The consumer backlash to EA has been dramatic. Market analysts have downgraded their recommendations for EA’s stock due to disappointing sales of the new title, and there have been calls to regulators around the world to investigate whether such measures constitute gambling (which is prohibited without a licence in many jurisdictions). The results of such investigations will vary and will depend on different attitudes of parliaments and regulators and the details of their legislative regimes. So, could lootboxes be considered gambling in Australia?
A brief history of the video game business
For those less inclined than the author to blow all their spare time on video games, a brief history of the business models of the video game industry is in order.
When computer games and video games first became mass-market entertainment products, the business model was relatively simple – the consumer bought a single unit (a disc or set of discs, or a cartridge, and later digital downloads of just the game software) which had the entire content of the game software on it for them to enjoy. As technology developed, and video games became larger, some game publishers began to release add-ons known as “expansion packs” – optional extra content for a game that built off the core software of the original game, like small sequels or extra levels for the player to use. Expansion packs would generally be a separate, cheaper unit purchase, but would require the player to already have the base game.
As digital downloads became more accessible, it became possible to distribute very small add-ons for small fees. Now, instead of releasing expansion packs that were almost an entirely separate game to justify a price that would cover manufacturing and distribution costs, you could sell small pieces of downloadable content (DLC) for only a couple of dollars – things like extra items for a player’s character to help them with challenging opponents, additional lives or attempts at a level, or even just aesthetic changes such as a fancy hat for players to customise their in-game appearance but that have no other effect on the gameplay itself. Given there are essentially no incremental distribution or development costs for these types of DLC compared to the development of the base game, even a small price tag on this DLC can be very profitable. The opportunity to buy them can also be embedded into the core game itself, removing some of the logistical hurdles to the purchase.
Mobile games are particularly well-known for these purchases, commonly known as “microtransactions”. Indeed, many mobile games are free to play upfront (“f2p”) but have plenty of opportunities for the player to purchase optional extras: more crop supplies in Farmville, extra attempts at a tricky level in Candy Crush, etc. The latest iteration of Candy Crush (Candy Crush Soda) alone made US$118 million in revenue in FY2017, largely on the back of these microtransactions, and that’s just one of many such mobile games in the market). One of the defining features of microtransaction business models is that most of the revenue comes from a very small amount of the userbase, nicknamed “whales”. Most users will never purchase anything in Candy Crush, but the tiny minority of whales may spend thousands of dollars each on it.
The latest iteration of microtransactions is lootboxes or lootcrates. Players can purchase an in-game container which holds a randomly chosen selection of in-game items (functional or cosmetic), and the player only finds out what specific items are in their box when they open it. In some games, this is the only way to obtain in-game items. In others, players can purchase the particular in-game item they want, but typically at a much higher price than the lootbox that gives them multiple items, but only a chance to get the one they particularly want.
The thrill of opening a mystery box (an inconsistent positive reward) triggers the pleasure centres in the brain more effectively than a consistent positive reward. This has been used by other industries for a long time – trading card “booster packs” and Kinder Surprises are examples of real-world implementation. A genre of YouTube videos very popular among children are “unboxing” videos, where the filmmaker records themselves opening such items to reveal the contents, allowing viewers to vicariously experience the thrill. It has been alleged that slot machines use the same process to encourage continued play by making spinning the wheels an enjoyable experience for the player, even if they don’t profit from each spin.
Using this type of pleasure-triggering process to encourage repetitive behaviour has been well-studied in psychology. Such mechanisms are known as “operant conditioning”, or more colloquially “skinner boxes”. Tying this model to microtransactions has been very successful for a number of video game publishers, and some argue that the core game design is increasingly being used as a vehicle to funnel players into the skinner box mechanism. Prominent game designer Dr Richard Garfield (best known as the creator of the trading card game Magic: the Gathering) posted a game-maker’s manifesto on Facebook identifying what he saw as particularly exploitative trends in game development. Game publisher Activision Blizzard (which acquired Candy Crush’s publisher King Digital for US$6 billion in 2015) was recently granted a patent for a system and method to use competitiveness between players in a multiplayer game to drive microtransaction purchases by ensuring that experienced/high skill players with the best in game items are paired with or against weaker/newer players so that the weaker/newer player is encouraged to purchase those in-game items to emulate the stronger player (or, more to the point, to stop getting beaten by the stronger player).
Simpsons Mystery Box - YouTube
The upfront price tag (adjusted for inflation) for video games has not changed significantly in recent years, but the development and marketing costs are increasing with some “triple-A” video game titles costing as much or more to make as Hollywood blockbusters (see Ars Technica and The Economist), so publishers are becoming ever more creative in seeking ways to boost their profit margins.
A perfect storm of factors, including the nature of the content available in the lootboxes, the relative price of those items in in-game currency if a player doesn’t play lootboxes, and the sacredness of the Star Wars IP to fans, appear to have pushed consumers too far and triggered this backlash, including calls for regulators to see lootbox microtransactions as a form of gambling (and in particular, one marketed to children).
Belgium was the first to respond to calls, with the Belgian Gaming Commission announcing that it will investigate and may seek to have lootboxes banned in Europe – see PCGamer’s article on the Commission’s announcement. The UK Gambling Commission has taken the position that lootboxes will not be considered gambling if the contents are in-game items that cannot be considered money or money’s worth, but noted that parents’ concerns are not about whether their children’s activities constitute gambling in a technical legal sense but whether the game products pose a risk of exploitation to their children, and the Commission flagged the possibility for parliament to respond to the increasingly blurred line between video gaming and gambling.
In Australia, gambling is regulated in each State and Territory separately. Each jurisdiction has its own set of gambling legislation which is broadly similar. For example, in all jurisdictions lotteries and casinos require an authorisation or licence from the government, and in many jurisdictions those licences are exclusive (in WA, lotteries may only be conducted by the State, not private operators like the recently combined Tatts and Tabcorp). However despite their broad similarities, they differ from each other in the fine details, and that is where the proverbial devil lies when it comes to lootboxes – the specific definition of “gambling” is subtly different between each jurisdiction. In Victoria, for example, section 1.3AA of the Gambling Regulation Act 2003 (Vic) defines gambling as an activity in which “(a) a prize of money or something else of value is offered or can be won; and (b) a person pays or stakes money or some other valuable consideration to participate; and (c) the outcome involves (or is presented as involving) an element of chance…”. In NSW’s Unlawful Gambling Act 1998, “unlawful games” is defined much more specifically: https://www.legislation.nsw.gov.au/#/view/act/1998/113/part1/sec5.
In addition to the State and Territory regimes, the federal Interactive Gambling Act 2001 (Cth) (“IGA”) prohibits offering certain gambling services over the telephone or internet, including a prohibition on broadcasters from advertising such services. The IGA defines a “gambling service” to include “service for the conduct of a game where: (i) the game is played for money or anything else of value; and (ii) the game is a game of chance or of mixed chance and skill; and (iii) the customer of the service gives or agrees to give consideration to play or enter the game”. Enforcement of the IGA was until recently the responsibility of the Australian Federal Police, but it was generally not a high priority for their limited resources, and the Australian Communications and Media Authority (ACMA) had a limited role enforcing the advertising prohibitions against broadcasters. Recent amendments have given ACMA the power to enforce the IGA against the persons offering the prohibited gambling service directly, not simply the broadcasters that advertise the service, but we have not yet seen ACMA take action in respect of these powers.
The Victorian Commission for Gambling and Liquor Regulation (VCGLR) have begun to look at the issue of lootbox microtransactions, after being contacted by Australian reddit user “/u/-Caesar” (The reddit discussion about the correspondence is available here). The VCGLR stated that they agree that lootboxes constitute gambling by the definition of the Victorian legislation, but that they have limited ability to enforce the law against publishers like EA who are located overseas.
The VCGLR’s view may not be correct. While in many cases the in-game rewards received in lootboxes can be purchased outright using in-game or real-world currency, it is not clear that those rewards would be considered something of “value” within the meaning of the Victorian or other jurisdiction’s legislation if the rewards cannot be converted back into real-world property or currency. As we have previously discussed, virtual economies do not have clear legal recognition. It is difficult to say that the Sword of Azeroth has any material value if the game publisher can cease business and turn off its servers tomorrow and all user accounts are deleted. This interpretation appears to be consistent with the approach taken by the UK regulator. This becomes less clear where, as is the case for some games, in-game items may be sold on a secondary market to other players for real-world currency, whether endorsed or prohibited under the game license.
Furthermore, in some cases the servers on which the games are played may in fact be located in Australia and give a basis for Australian enforcement.
Possible regulatory outcomes
Say that a government or regulator in Australia took the view that lootbox microtransactions are gambling and sought to take regulatory action. What would that action look like?
If a regulator took the view that the operation of lootbox microtransactions were prohibited gambling, then they could potentially seek a court order to prohibit the sale of the games containing those microtransactions (or to prevent the lootbox microtransaction components being operational within Australia).
If the regulator’s argument could not be made out, there are still a number of other regulatory avenues that could be applied to protect vulnerable persons – for example, the national Classification Board assigns ratings (G, PG, M, etc.) to media distributed in Australia, including games, on the basis of six classifiable elements (themes, violence, sex, language, drug use and nudity). The Classification Board could take the view that including lootbox microtransactions in a game means the game requires a higher rating (although the Guidelines for classification suggest that “themes” require a higher rating if they have a sense of threat or menace, and it is not clear that this would capture gambling content without further revision of the Guidelines.
There may also be other sui generis mechanisms for limiting any exploitative impact of lootbox microtransactions on vulnerable people such as children or problem gamblers. For example, in China recent legislation requires lootboxes to be accompanied by information about the probability of opening particular digital items so that purchasers are able to make an informed decision. Australian legislators might take a similar approach, or the ACCC may consider failing to publish the probability information to be misleading or deceptive conduct.
If new legislation is brought in to regulate lootboxes in video games (when paired with microtransactions or otherwise), the specific drafting of that legislation will be critical, as there may also be unforeseen regulatory impacts for other gaming products. For example, a prohibition on the sale of random or unknown content may also prohibit trading card or miniature figurine games that traditionally sell booster packs (packages of assorted game pieces where the specific content of any given package is unknown but the rarity classes in each booster pack are known, such as one rare item, two uncommon items and three common items in each) – many such games have digital equivalents that would be affected even if a new lootbox law was in respect of digital games only.
Prohibition on in-game rewards determined by random chance would affect many video games, even if they didn’t use lootboxes – it is a very common practice for defeated monsters in fantasy games to drop a particular in-game reward at a fixed percentage rate. More broadly, most games (and even many sports) have a randomised component – Snakes and Ladders, for instance, is entirely random with no skill from the players involved, but this is not ordinarily of concern for parents or vulnerable people.
The recent backlash against EA for the use of lootbox microtransactions has raised many complex regulatory questions about how to treat gaming entertainment versus unlawful gambling, and even more broadly what that regulation is truly intended to protect consumers from. Gaming consumers themselves are not even aligned on this point, with some saying that any lootbox microtransaction is exploitative, while others say that purely cosmetic lootbox purchases are acceptable as if they do not contain rewards that give players a competitive advantage over their opponents, there is no incentive for players to enter into the arms race of constantly buying more lootboxes for a chance to get the edge. Still others say that microtransactions are objectionable in general, as they allow publishers to lock away game content in a game that the player has already paid for, thus double-dipping on fees.
EA has for the present moment announced that it will be disabling the lootbox features of Star Wars Battlefront 2, but as game developers continue to seek ways to make their games more profitable and regulators increasingly get involved in preventing exploitative behaviours in the gaming industry, this issue will continue to arise in the foreseeable future.
The decision concerned lack of utility and lack of sufficiency as those grounds existed prior to the introduction of the ‘Raising the Bar’ amendments to the Patents Act that were introduced in March 2013. These amendments ‘raised the bar’ by:
replacing the requirement that an invention must be “useful” with a requirement that a specification disclose a “specific, substantial and credible” use for the claimed invention; and
requiring that the invention be disclosed in a manner that is clear and complete enough for the invention to be performed, rather than simply requiring that the invention be described.
Idenix’s HCV patent and the decision at first instance
The case concerned Idenix’s (a MSD subsidiary) patent relating to compounds used in the treatment of infections, including Hepatitis C. Gilead admitted that its product containing sofosbuvir would infringe Idenix’s patent, if the patent was valid.
At first instance, Justice Jagot found that the patent was invalid on the grounds that the specification did not properly describe the invention and provide the best method known to the applicant of performing the invention (sufficiency) and lacked utility on the basis that the claims encompassed compounds that the evidence indicated could not be made (lack of utility).
Lack of Sufficiency
On appeal, the Full Court found that Justice Jagot had properly applied the test for sufficiency set out by the High Court in Kimberley Clark v Arico Trading – that is, whether the disclosure in the patent would enable the skilled addressee to produce something within each claim without new inventions or additions or prolonged study. More specifically, the Full Court agreed with Justice Jagot’s finding that that there was no disclosure in the specification that would enable the skilled addressee to produce the claimed target compound without new invention or prolonged study.
Idenix argued that while the specification did not specifically describe a synthesis of the target compound, a method for doing so (involving the ‘DAST’ route of reacting a precursor compound with diethylaminosulfur trifluoride) was within the common general knowledge of the skilled addressee at the priority date. The Full Court agreed with Justice Jagot that in order to form part of the common general knowledge, information must be generally accepted and assimilated by the bulk of those who are engaged in the particular art – it is not enough that information can be found in a journal or other publication, even if that publication is widely read.
In rejecting Idenix’s arguments, the Court was persuaded by the fact that it had been found at first instance that Idenix’s highly skilled scientists and expert consultants had not been able to synthesise a compound that fell within the relevant claim in a period of nearly three years, and only appeared to have been able to do so following the DAST synthesis described in a later Gilead patent. The Court was also reluctant to overturn Justice Jagot’s findings that had been made in circumstances where it was necessary for the Court to put itself in the position of a hypothetical skilled person at the priority date and in doing so, weigh expert evidence that was before the Court. The Full Court emphasised that an appellate Court should not interfere with findings made in such a setting unless they are erroneous in principle or plainly and obviously wrong, or where there is a clear difference of opinion. It is not for parties to “put the dice into the box for another throw” on appeal.
Lack of utility
At first instance, Justice Jagot also found that the ‘promise’ of the patent was that certain compounds could be made in circumstances where the evidence suggested that they could not in fact be made. On appeal, Idenix sought to persuade the Court that Gilead had not proved by experiment that the compounds could not be made, instead relying on theoretical evidence. The Court rejected this, finding that a requirement that inutility be established by experiment would raise the evidentiary bar too high for parties attempting to revoke an inutile patent.
Implications of the decision
The decision is a useful illustration of the power of the s40 grounds of invalidity, particularly in circumstances where proceedings relating to invalidity on these grounds are usually much less costly and can be run much more quickly than proceedings where extensive expert evidence is required to support a claim that a patent is invalid for lack of novelty or lack of inventive step.
Biological medicines (biologics) are agents derived from a biological source. As a consequence, they are complex and there is a high degree of variability between molecules of the same active substance. Biosimilars are medicines that are closely related, pharmaceutically and therapeutically, to their reference biologic. However, biosimilars are not identical to, and cannot be characterised as bioequivalent to, the reference biologic in the way that generic small molecules drugs are bioequivalent to the innovator drug. Regulatory approval of a biosimilar involves comparability, but not bioequivalence or necessarily substitutability, with the reference product.
In Australia, like most other jurisdictions, following registration of a biosimilar on the Australian Register of Therapeutic Goods (ARTG) it is necessary to overcome an additional regulatory hurdle in order for a biosimilar to be substituted for the reference product by a pharmacist. However, the regulatory drive in Australia towards substitution of biosimilars at pharmacy level is unique.
The United States Food and Drug Authority (FDA) has just given the green light to America’s first ever gene therapy treatment. It’s called Kymriah and it’s a genetically-modified autologous T-cell immunotherapy (CAR-T cell therapy). For the layman: individually customised, cancer-killing white blood cells. This is why it’s a big deal, and what the future could hold for us here in Australia.
Let’s start with the basics. The FDA does a good job of summing up what “gene therapy” actually is:
“Human gene therapy refers to products that introduce genetic material into a person’s DNA to replace faulty or missing genetic material, thus treating a disease or abnormal medical condition.”
Scientists only started attempting to edit DNA in 1980, and the first therapeutic trials were performed in the early 1990’s.
Since then, researchers have tested several applications of gene therapy including:
replacing mutated genes with healthy copies of the gene;
inactivating a mutated gene that is functioning improperly; and
introducing a new gene into the body to help fight a disease.
“New frontier” for cancer treatment
Kymriah is a form of gene therapy developed by Swiss pharmaceuticals giant Novartis to treat acute leukaemia in young people. The therapy uses the patient’s own blood cells to fight the disease.
The FDA has described the procedure as historic: “We’re entering a new frontier in medical innovation with the ability to reprogram a patient’s own cells to attack a deadly cancer.”
The idea is that the patient’s white blood cells are collected and sent to a manufacturing centre where they are genetically modified to include a new gene that contains a specific protein (a “chimeric antigen receptor” or CAR) that directs the T cells to target and kill leukaemia cells. Once the cells are modified, they are infused back into the patient to get to work and fight the cancer.
In one multi-centre clinical trial of 63 patients the overall remission rate within three months of treatment was 83%.
Kymriah is intended for patients who have few options left, often because they have not responded to initial treatments or because they have relapsed.
It’s an incredible treatment, and holds a lot of promise, but it’s not all good news. There are some significant drawbacks to the new treatment. The FDA has advised that the treatment can carry some serious side effects, such as life-threatening fever and flu-like symptoms, as well as neurological issues.
It’s also expensive. Really expensive. Novartis has said that it will charge US$475,000 for the treatment. That is a lot of cash, but given the complexity of the procedure, it was reportedly cheaper than many analysts had expected.
Ready to go
The approval by the FDA means that the therapy will be available to patients under 25 years old in a small number of specially certified hospitals around the US. Novartis has been in a race to approval with its rivals Kite Pharma and Juno Therapeutics, who are developing similar treatments.
What about Australia?
This particular kind of gene therapy is not available in Australia at the moment. Given the current costs and risks associated with the therapy, it may be some time before we see a similar domestic approval.
Before they become available, gene therapies have to be tested in clinical trials and approved as “biologicals” by the Therapeutic Goods Administration. This process involves being assessed in accordance with the various controls that apply specifically to biological medical products. To receive government subsidies, gene therapies would also have to be listed on the Pharmaceutical Benefits Scheme.
The first clinical trials of similar immunotherapy treatments have just begun. In August 2017, the Westmead Institute for Medical Research (WIMR) and Westmead Hospital launched a two year clinical trial to test a new form of CAR-T therapy in leukaemia patients.
The TGA oversees clinical trials undertaken in Australia. The Therapeutic Goods Act 1989 (Cth) sets out different schemes for conducting trials, and ethics committees have close involvement at each stage of the trial process.
Australia also has legislation dealing specifically with gene technologies, the Gene Technology Act 2000 (Cth). The GT Act sets up a Gene Technology Regulator, as well as a Technical Advisory Committee. Depending on the kind of genetically modified product that will be used in a clinical trial a licence approvals may required from the Regulator.
Under Section 40(2)(aa) of the Patents Act 1990 (Cth) a ‘complete specification must … disclose the best method known to the applicant of performing the invention’. This requirement has been increasingly pleaded as a ground of revocation in patent disputes in recent years – making cases like Sandvik and the earlier Full Court decision of Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 the proverbial canaries in the coal mine.
The patent in suit was for an ‘extension drilling system’ for use on semi-automatic drilling rigs in underground mining structures (specifically, coal mines) to drill holes into which ‘rock bolts’ could be inserted to secure the ceiling structure of the mine. Specifically, the invention related to the configuration of drill rods used to drill into the ceiling of the mine that was said to overcome issues associated with uncoupling the drill rods after the completion of the drilling.
Sandvik alleged that Quarry Mining infringed the patent. At first instance, the Court upheld Quarry Mining’s claim that the patent was invalid, including on the ground that the patent did not describe the best method known to Sandvik of performing the invention.
The primary judge’s decision largely turned on evidence provided by one of the inventors that, by the time of filing the complete specification, Sandvik had developed a sealing member for use in the extension drilling system that was better than that described in the specification. The sealing member that was not disclosed was said to prevent leakage of flushing fluid (water) that was continuously pumped through the drill rods to clear away cuttings and prevent jamming. The inventor described the sealing member as ‘the ultimate evolution of the seal’ and a ‘superior design’ to that disclosed in the specification and the design of an effective water sealing mechanism as a ‘real issue which needed to be overcome’ when developing the drilling system. A detailed technical drawing of the superior sealing member had been prepared prior to filing, but was not included in the complete specification. The specification made no other mention of the sealing arrangement. Placing particular emphasis on evidence that the sealing member was not ‘some minor or incidental dimension of what was perceived by the inventors as the best method of performing the invention’, the primary judge concluded that Sandvik had not disclosed the best method known to it of performing the invention.
On appeal, Sandvik argued that the detailed characteristics of the sealing member did not relate to a method of performing the invention and, as such, did not need to be disclosed in the specification.
The appeal decision
The Full Court dismissed Sandvik’s appeal in relation to the best method issue.
In the course of its reasoning, the Full Court dug deep into the (scant) case law on best method and set out of the following key principles:
the purpose of the requirement is to allow the public the full benefit of the invention when the monopoly expires;
although a patentee might not be explicitly required to act in good faith, principles of good faith underlie the best method requirement;
the nature and extent of the disclosure required to satisfy the best method requirement will depend on the nature of the invention itself;
the key to understanding the obligation of the patentee is to understand that Section 40(2)(aa) is directed to the method of performance of the invention. The monopoly is circumscribed by the claims, but the nature of the invention is as described in the whole of the specification; and
the requirement to describe the best method of performing the invention is ordinarily satisfied by including in the specification a detailed description of one or more preferred embodiments of the invention.
Relying on the inventor’s evidence, the Full Court found that the design of an effective water seal was ‘a critical (rather than a minor or incidental) aspect of the best method of performing the invention’. As such, the Full Court rejected Sandvik’s argument that it was unnecessary to describe the sealing member because it was not part of the claimed invention – the use of an effective water seal was ‘nevertheless necessary and important to perform the invention (or carry it into effect)’.
The Full Court also placed emphasis on the express words and figures of the specification. The Full Court found that the specification purported to set out the best method of performing the invention, including a section headed “Best Modes for Carrying out the Invention” that incorporated a detailed description of two preferred embodiments of the invention. One of these embodiments described a specific sealing member to be used on the preferred version of an adapter in the system, but not the superior sealing member described above. In these circumstances, the Court considered it incumbent on Sandvik to describe the best embodiment known to it.
The Full Court distinguished the present case from Firebelt Pty Ltd v Brambles Australia Ltd (2000) 51 IPR 531 (Firebelt). In that case, the Full Court held that the specification did not need to disclose the detail of the preferred ‘lid opening mechanism’ known to the inventors because the invention was “not of a particular type of lid opening device operating at any particular time”. The Full Court came to this conclusion even though a ‘lid opening device’ was an express feature of claim 1 of the patent in suit but not described in detail in the specification (and as such was disclosed only in the most general terms). The Full Court distinguished the facts in Sandvik because the use of an effective sealing member was necessary and important to carry the extension drilling system disclosed in the patent into effect (which may not have been true of the lid opening mechanism in light of the way it had been described by the Full Court). Further, unlike the patent in Firebelt which did not purport to describe a particular type of lid opening mechanism, the specification put forward (in the drawing of two preferred embodiments) a particular type of sealing member which Sandvik knew not to be the best. It is worthwhile to note that the Full Court went to some length to emphasise that ‘there is a limit to what can usefully be drawn from the factual outcome of another case on an issue such as this. That outcome will necessarily depend on a range of facts and circumstances pertaining to the particular case’.
The Full Court’s decision in Sandvik clarifies that when applying the ‘best method’ requirement, a court will:
start by identifying the invention described by the specification as a whole, as distinct from the invention as claimed in the claims;
consider whether the allegedly omitted ‘method’ is necessary and important to perform the invention (or carry it into effect); and
examine the specification closely to determine whether the specification purports to set out the best method of performing the invention.
It is important to remember though that the outcome of any best method pleading will turn on the facts and circumstances of the case.